Alasdair Macleod: Gold price suppression scheme is starting to fail

Section:

10:11p ET Thursday, January 2, 2020

Dear Friend of GATA and Gold:

In "Gold's Outlook for 2020," GoldMoney research director Alasdair Macleod describes in detail the imminent failure of central bank policy for gold price suppression.

"From the U.S. government's point of view," Macleod writes, "gold as a rival to the dollar must be quashed, and the primary purpose of futures options and forwards is to expand artificial supply to keep the price from rising. In a wider context, the ability to print synthetic commodities out of thin air is a means of suppressing prices generally and we must not be distracted by claims that derivatives improve liquidity. They improve liquidity only at lower prices.

... Dispatch continues below ...



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"When the dollar price of gold found a major turning point on December 17, 2015, open interest on Comex stood at 393,000 contacts. The year-end figure today is nearly double that at 786,422 contracts, representing an increase of paper supply equivalent to 1,224 tonnes. But that is not all.

"Not only are there other regulated derivative exchanges with gold contracts, but also there are unregulated over-the-counter markets. According to the Bank for International Settlements from end-2015 unregulated OTC contracts (principally London forward contracts) expanded by the equivalent of 2,450 tonnes by last June, taken at contemporary prices. And we must not forget the unknown quantity of bank liabilities to customers' unallocated accounts, which probably involve an additional few thousand tonnes.

"In recent months, the paper suppression regime has stepped up a gear, evidenced by Comex's open interest rising. ...

"The rising gold price has seen increasing paper supply, which we would expect from a market designed to keep a lid on prices. Secondly, instead of declining with the gold price, open interest continued to rise following the price peak in early September while the gold price declined by about $100. This tells us that the price suppression scheme has run into trouble, with large buyers taking the opportunity to increase their positions at lower prices.

"In the past bullion banks have been able to put a lid on prices by creating Comex contracts out of thin air. The recent expansion of open interest has failed to achieve this objective, and it is worth noting that the quantity of gold in Comex vaults eligible for delivery and pledged is only 2% of the 2,446-tonne short position.

"In London there are only 3,052 tonnes in LBMA vaults (excluding the Bank of England), which includes an unknown quantity of exchange-traded-fund and custodial gold. Physical liquidity for the forward market in London is therefore likely to be very small relative to forward deliveries. And of course,the bullion banks in London and elsewhare do not have the metal to cover their obligations to unallocated account holders, which is an additional consideration.

"Clearly, there is not the gold available in the system to legitimize derivative paper. It now appears that paper gold markets could be drifting into systemic difficulties with bullion banks squeezed by a rising gold price, short positions, and unallocated accounts. ..."

Macleod's analysis is headlined "Gold's Outlook for 2020" and it's posted at GoldMoney here:

https://www.goldmoney.com/research/goldmoney-insights/gold-s-outlook-for...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

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