Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
Story Views
Now:
Last hour:
Last 24 hours:
Total:

Extreme Leverage in a Gold Futures Market Nearing the Breaking Point

% of readers think this story is Fact. Add your two cents.


 

The precious metals markets rallied strongly in recent days – action which came as a surprise to many.

The gains last week snapped a 6-week losing streak for gold, silver, and platinum. Prices rose despite a stronger-than-expected November jobs report raising the odds the Fed will hike interest rates later this month.

Perhaps silver and gold futures finally caught a safe-haven bid on news of the terrorism-linked shooting in Southern California.

Or perhaps it was a relief rally based on metals being heavily oversold and investors realizing that a quarter percent Fed rate hike may already be “priced-in.” Especially given that Janet Yellen stood out front last week and downplayed the significance of raising rates. She wants investors to expect lower average rates than we’ve seen historically and to know a decision to hike in December does NOT necessarily mean more rate hikes will follow.

Or maybe, at last, the gold shorts are getting nervous about the extraordinary leverage in the futures markets with actual gold backing of these contracts continuing to decline.

Bullion Banks Positioned for Higher Prices

The coverage ratio was 293 paper ounces in open interest for each single ounce of registered physical metal in COMEX vaults. Over the past couple of weeks, that leverage has grown further to around 325 to 1 – more than triple the already extreme levels of just a few months ago. This is certainly cause for alarm as we head into the December delivery window for the COMEX.

However, skyrocketing leverage in the COMEX isn’t the only extreme for metals investors to pay attention to. The positioning – long versus short – of swap dealers (who are largely represented by the bullion banks) relative to managed money (largely comprised of hedge funds and other speculators) is also in uncharted territory. And it may be good news for the bulls.

Managed money has been building toward a net short position in recent weeks, providing much of the push for lower spot prices. In the most recent CFTC Commitment of Traders report, dated Dec. 1st, this crowd was positioned a record 55.1% short. Six weeks ago, this number was only 17.3%. Meanwhile the bullion banks (swap dealers) have been going long – a record 64.2% long to be exact.

What does this mean? Well, if history is a guide, it means the bullion banks are about to take the speculative shorts out to the woodshed.

Data shows that when managed money and the swap dealers build extreme positions in opposing directions, a change in price trend is likely coming. And the swap dealers – banks – rarely, if ever, lose.

The bullion banks have an exceptional track record when it comes to trading metals. Many consider their success to be the result of outright manipulation and control of the markets, rather than clever trading. This notion is supported by a slew of recent settlements and guilty pleas for rigging markets. The bullion banks are no ally to bullion investors, but precious metals bulls can take heart in the fact that banks are lined up on their side, for the moment.

There is no certainty prices are set to move higher from here, of course. The metals markets have been even more unpredictable than usual in recent months and the data in the Commitment of Traders report is a few days old before it is even published. But there is plenty for metals investors to keep an eye on in December and some good reasons to believe prices will rise.

 

 

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.



Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.