GOLD Mystery Buyers? | Systemic Price Rigging to Go Common Knowledge

With gold finishing this week's trading again near the $2,400 oz spot. 

It seems the still relatively tiny onlooking world and specifically the gold commentary sphere is collectively scratching their heads trying to better understand the bully longs in the gold market, and why their bids on gold have been so consistent to the upside for the last few months specifically.

Meanwhile, even former alleged precious metal price rigging commercial bank desks are having to update their gold price forecasts higher for longer.

Let's hear from one of them this week with commentary on $3,000 oz gold with a one year timeframe.

The same rerating is beginning to also happen for silver. Having just finished its highest weekly spot price close in more than the last 11 years, Yea, all the way back to March 2013. 

But more on that specific supply deficit precious metal to close this week. Back to gold.

I would like for us to dig a bit deeper into the opaque gold market to try and better understand the big bidder(s) seemingly behind the gold consistent price climbs.

Just watching price action since late last year 2023 into the first months of this year 2024, it certainly appears someone or some entities have been painting the tape to the upside often in irregular hours. Setting new higher price floors for gold, all while western unsecured ETFs continue being raided for physical bars offloading into central banks and longer term store of value hands.

To do that we are going to hone in on one of the City of London gold commentators who has been in the gold market for his entire career, Ross Norman.

His recent commentaries on gold's price rise are worth our examination as they drag in one of the more consistent claims by many gold market onlookers, that the price of gold is increasingly being set in the east.

Well, let me remind you then that ever since the Bank of England's LBMA started in 1987, the decoupling of the aggregated eastern gold price has diverged massively higher than the ongoing spot gold price ever since.

To the tune, of having added up to over $36,000 oz throughout this full fiat currency era during eastern gold trading hours.

The converse mirror of that bullish eastern gold price aggregation is that within the seemingly lawless City of London trading hours which start in this chart in 1970 at just over $35 oz, have whittled down to an aggregated gold price of $2.32 oz gold over the last more than 54 years of gold price data into-London AM to PM price fixes.

Look, $2,400 oz gold sounds high but that's because the western derivative complex has rigged the price for decades compounding. In time that price will be seen as cheap.

Onwards to recent comments on the gold market from London's Ross Norman.

It seems Ross, like many gold market onlookers, has been looking for signals as to who and what is behind the recent persistent long bid for gold. 

In this first of three commentaries, he first recently claims a large long whale in the London OTC options market.

He recently wrote, "Someone has evidently made a monumental bet on the gold market via the OTC options market. The broad rationale for using the OTC options market is clear ... it is sufficiently liquid yet not entirely opaque. This really has been a stealth rally and the economic equivalent to muddy footprints across the floor have been hard to discern.

It appears a counter-party has taken a particularly large bet on gold and is squeezing the market ... arguably sufficiently large that it could even generate a self-fulfilling outcome. As the bullion banks grant calls at strikes above the market, they will purchase gold to delta hedge themselves as they are short gamma. As the price rises, they buy more ... creating a feedback loop. Nice.

But the devil is in the detail which, because it is the OTC market, is scant. We don't know the precise volumes, strike prices and expiry dates ... All we know is it appears to be extremely significant in size.

And they would be very much swimming with the tide in terms of the geopolitical and economic backdrop. A well known hedge fund did precisely this back in the early 2000's with enormous success.

Once the options expire the gold market will likely discover gravity. That is to say supply / demand fundamentals will prevail.

Meanwhile time is against the Fed ... They need to keep rates higher for longer to defeat inflation, but there is a mounting crisis in the US with many regional banks suffering and the commercial real estate sector in crisis. So the Fed also needs to cut... and fast. And a rate cut traditionally signals double digit gains for gold.

The main takeaway is this move is a technical play or bet and when it expires as a squeeze like this does, the market will likely edge back to reality.

Currently the market is massively overbought technically and it is a long way from its traditional buyers. Is the new information bullish or bearish ... well that to a large extent depends upon the arcane world of options trading and where the main strikes are - but my reading is this is short term bullish but longer term bearish in the sense this does not pass as a 'high quality’ trade. That said, this has certainly put gold into a new orbit and will be giving it an entirely new gravitational pull."

Before we go further, it is important to note that the day to day gold spot price is mostly found by leveraged derivative trading. Underlying physical bullion trading of course does occur tethered to the ongoing spot price underneath, but bullion trading is dwarfed by representative contracts typically highly leveraged that can move the gold spot price around up or down. The derivative tail wags the spot price dog, but it cuts both ways with leverage down and most recently upwards.

I often roll my eyes when onlookers tout that China sets the gold price. Just look back at last year, 2023. 

China's overall contribution to the ongoing spot price in 2023 was what, a collective 10.6% combining both SGE and SHFE gold trading volumes

Ross perhaps this week honed in on the likely bigger culprit in the rising gold spot price over the last two months specifically. Leveraged long Chinese gold traders on the Shanghai Futures Exchange or the SHFE.

You see they have exploded in terms of relative trading volumes the last two months. The data ongoing speaks for itself.

In this post Ross wrote, "things changed in March 2024, just when the gold price went through an inflection point. Business on SHFE essentially doubled in a month and then doubled again to nearly $40 b/day. That's headed for roughly half the size of the London market in 2 months."

In the final commentary Ross points out that leveraged long traders in China don't do half measures.

He points out the pathetic interest in western gold commentary on his website and the 20k or so regular readers on Zerohedge. He states, "in China the WeChat gold groups extend to well above a million participants (not just readers) and there are many groups. Further, they have a herd-like desire to hunt out what is hot. 

The Shanghai Futures Exchange has a history of having huge numbers of CTAs, day traders and other investors that swamp commodity markets and make massive bets. And that's why the trading is on the SHFE and not the SGE … in a word – leverage.

He goes in his most recent commentary to state, "gold coming onto the radar at the SHFE was inevitable and they don't do half measures – it was previously copper and even soda ash futures (for glass – for buildings) and they have now thrown themselves at gold.

We have seen this before. 

There was massive gold buying on the SHFE back in 2019 but then it was buy-and-hold and hence prices, volumes and open interest rose together. 

Cutting to the chase, gold is in fashion in China but only for so long as it is interesting and has momentum in my view. Currently gold futures volumes on SHFE are running at about six-fold the run-rate of the last 5 years."

In short it looks like Ross late this week did stumble upon what has been happening in the gold market over the last two months, most specifically, the Chinese like to gamble. And doing so leveraged long on the SHFE seems to be what has been the persistent bid that doesn't seem to care about western news headlines or excuses to paint the tape downwards. 

And while derivative leverage can and certainly has helped suppress the most important underlying monetary metal's price and value for decades compounding (I argue since 1987 by the damning data illustrated here).

At some point that leverage blows backwards, into a persistent leveraged long winner's rally, ultimately ramping into a vertical exponential price mania climb higher as gold price rigging becomes common knowledge globally with prices for gold that sound like bitcoin condition us all to come to nominal terms with.

Stick around, on the other side of this break. We're headed down the silver rabbit hole of the equation. 

It seems some middle easterners are again waking to the fact that silver is an absolute steal at the price levels. And that prices have been rigged for far longer than they might dare to guess.

The spot gold and silver markets traded up on the week, with spot gold closing near $2,400 oz and the spot silver price finishing above $28.50 oz bid its highest weekly close in over 11 years.

The spot gold silver ratio is still hanging at 83.

The Silver Institute reported another forecasted demand outstripping supply deficit for this year 2024 predicting an over 265 million oz deficit for the year. That's six years in a row of demand outstripping silver supplies so my hunch is mostly that unsecured ETFs will continue to be raided to make up the physical market deficit.

Price premiums being paid in China for industrial size silver bars is still relatively large at over $3 oz over ongoing spot... and you can see the persistent bid premium in China for physical silver bars has been consistent for the last year and growing.

In a world with about 1 billion oz of new line silver coming to market, countries like India come in and take over 76 million ounces in a month cause they too likely see the writing on the wall.

Silver near $30 oz is going to become cheap. Get it while you can.

The COMEX's CME Group put this chart crime on their blog this week looking to entice silver longs, and while it does convey the fact that silver is still dirt cheap relative to gold. I'd like to take a full fiat currency era view of which precious metal has done what in percentage terms since 1970.

In overall performance throughout this full fiat currency era, pathetic palladium has paved the way to illustrate that we have seen nothing yet both in the perspective of gold longer term, and most certainly price suppressed silver markets.

As it did in 1980, it will not surprise me one day to see silver's eventual price percentage performance spike higher than however high gold will climb. That era will be at a substantially tinier spot gold silver ratio than we see now near 83.

Kuwait silver experts are even chiming in by stating this week in the Kuwait Times. Silver prices are set for a dramatic rise, projected to double by 2025, as forecasted by Salah Al-Jemaz, a consumer behavior consultant specializing in the gold and precious metals sector.

Salah advises being patient when investing in silver, as the market is still adjusting to its dynamics. Just as it took gold years to change from being monopolized by associations to gradually becoming accessible to individuals, silver too needs time to find its place in the investment landscape. The manipulation of silver prices over the past 12 years is identified by Jemaz as the primary catalyst for its impending price surge.

Well, if we're going to play this common knowledge game about gold we may as well do it about silver too. 

I got news for you Salah, the silver price in US history has only been allowed to gallop out of its barn three times or under three different silver bull market eras if you will. 

There was the post US Civil War fiat Greenback silver price ramp, then the 1970s Hunt Brother scapegoating, and then the 2011 price re-climb to $50 oz only to have RICO desk JP Morgan come in and set off one of the worst cyclical bear markets silver has ever endured spanning from May 2011 through the twenty teens. Humiliating.

For the majority of US financial history, the value of silver has been rigged one way or another.

I got data that proves it too over the last more than 54 years. The red spot price line has converged with the eastern spot price line four times. Their 5th meeting is ahead at much higher fiat US dollar prices for silver likely in a mania blow-off phase.

Today's silver price rigging via outsized derivatives climbed a wall in 2020 and the eastern aggregated full fiat currency era price is now hovering over $361 oz.

My contention is that the silver spot meets that eastern aggregated price line somewhere again, likely many multiples higher than the near pathetic $30 oz quote we get told to believe day to day. Until one day the world realizes we've been collectively lied to for far too long and specifically gold and silver prices are finally released to find their relative respective equilibriums.

Get it cheap while you can.

That is going to be all for this week's SD Bullion Market Update.

As always to you out there.

Take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...