3.2 million oz of COMEX paper gold crashed the price on Tuesday 10-4-16

(October 7, 2016 - by Lawrie on Gold)

The evidence is out. 3.2 million ounces of gold futures, not gold, were traded in the first few minutes after New York opened the day before yesterday. This is what caused the fall triggering stop losses.

What all physical gold investors find hard to swallow is the gold prices were affected by no physical dealing. Virtually none of these contracts ever reach maturity but are closed before they do so, so no physical gold changes hands.

Nevertheless, the physical gold markets accepts these evaporating trades as really affecting the gold price, and they do!

Let’s be clear here, if you demanded physical delivery from such a contract, you would be refused and told to accept a cash settlement. Only if you give notice at the start of your contract that delivery must take place and this is matched to a similarly constructed contract, can delivery take place. Between 95% and 99% of contracts on COMEX never reach maturity or involve such physical contracts.

But with China closed and the ICBC/Standard bank a Chinese market maker in London standing on the sidelines and not jumping in on such price falls to buy, COMEX will continue to dominate. The Chinese market maker does have the financial power to take the reins of pricing power, but as yet has not done so. Will the Yuan’s new status be the signal for it to take action? We will have to wait for the ‘Golden Week’ to be over before we have an answer.

With prices looking for the bottom right now, we do expect to see demand from all gold quarters to move in to take advantage of the lower prices. But we do believe we are close to that bottom now.