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James McShirley: Data suggests governments, not margin-call pressure, smashed gold last week

Section: Daily Dispatches

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Data Suggests Governments, Not Margin-Call Pressure, Smashed Gold Last Week

By James McShirley, Dallas
Saturday, February 29, 2020

Whenever there is an equity market rout and gold is plundered along with stocks, the mainstream media drivel is always about margin call selling of unrelated "investments." They say gold was sold to meet margin calls. But even if that was the case, it is derivatives being sold.

Physical gold has nothing to do with it, and in fact the evidence says the exact opposite.

... Dispatch continues below ...


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Gold was obviously being fiercely bought last Monday. It then got shellacked to the tune of $132 from that high to the low on Friday. Looking at each individual Crimex trading day Tuesday through Friday, we see a curious thing going on.

Tuesday: Open interest up 4,558, 11,119 exchange for physicals.

Wednesday: Open interest down 6,293, 10,342 exchange for physicals.

Thursday: Open interest down 4,504, 7,911 exchange for physicals.

Friday: Open interest down 21,119, 23,308 exchange for physicals.

Totals during the four-day gold smash: The open interest declined by 27,358 contracts and there were 43,352 exchanges for physicals.

The four-day decline in open interest was actually rather insignificant, nothing to indicate a $132 smash in gold's price. We've seen twice that cumulative open interest decline in a single day and the price of gold barely budged. The total open interest declined by just a minuscule 3 1/2%.

At the exact same time a humongous 135.475 tonnes of fictitious paper gold was getting converted to physical at a notional value of approximately $47.15 billion.

Does this sound like a trading market that favored the shorts in any way? Where did the global gold market come up with 135 tonnes of gold in such short order? Hell, Germany needed a multi-year repatriation agreement just to get some of its gold back.

If indeed it was margin call pressure that forced traders to liquidate gold futures, why weren't short sellers doing the same thing in spades?

It's obvious that many of the bullion banks with huge equity exposure are also the relentless short sellers in the metals. If margin call pressure was the root problem, they were the ones who should be covering, producing the same effect each and every day as Monday when gold soared.

This week for gold was strictly a coordinated affair of the Working Group on Financial Markets, the Bank for International Settlements, and central banks. They monkey-hammered the gold market with unlimited offers. The message is always that government treasury bonds and things like the dollar are the only acceptable alternatives. Blaming margin call selling for gold's decline is silly.

Pay attention to the exchanges for physicals and not the mainstream media excuses. Physical gold is reacting correctly and will continue to do so. Gold isn't merely a competitor to Treasuries. It is the safe haven in times like these.

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