New Delhi, Dec 10: Buoyed by the strong seasonal demand, gold prices Wednesday jumped by Rs 650 to Rs 27,470 per 10 grams in the national capital. The ongoing wedding season in the country acted as a catalyst to raise the price of the yellow metal.
Silver also gained Rs 1,600 to reach Rs 38,400 per kg on better off-take by industrial units and coin makers. Finance Minister Arun Jaitley Tuesday mentioned that huge quantity of gold import is adding to the current account deficit of the country.
Meanwhile, the benchmark reports say BSE Sensex fell by nearly 87 points in early trade today on sustained selling by funds and investors amid weak global cues. The 30-share barometer, which lost 765.81 points in the previous three sessions, fell by 86.98 points, or 0.31 per cent, to 27,710.03 in early trade.
<b>Gold price</b> declines on sluggish demand, global cues | Latest News <b>...</b>
New Delhi, Dec 11: Snapping a two-day rising streak, gold prices today fell by Rs 170 to Rs 27,300 per ten grams at the bullion market in the national capital owing to slackened demand from jewellers and retailers at prevailing higher levels amid a weak global trend. Silver also eased by Rs 200 to Rs 38,200 per kg on reduced offtake by industrial units and coin makers.
Traders said besides easing demand from jewellers and retailers at existing levels, a weak global trend mainly led to the fall in gold and silver prices. Globally, gold in Singapore, which normally sets price trend on the domestic front, shed 0.05 per cent to USD 1,225.50 an ounce.
In Delhi, gold of 99.9 and 99.5 per cent purity fell by Rs 170 each to Rs 27,300 and Rs 27,100 per ten gram respectively. It had gained Rs 820 in the past two days. Sovereign, however, held steady at Rs 23,800 per piece of eight gram in limited deals.
Following gold, silver ready moved down by Rs 200 to Rs 38,200 per kg and weekly-based delivery by Rs 85 at Rs 38,530 per kg. On the other hand, silver coins traded at last level of Rs 63,000 for buying and Rs 64,000 for selling of 100 pieces.
Modified Date: December 11, 2014 3:30 PM
"Paper Gold" And Its Effect On The <b>Gold Price</b> | Zero Hedge
Posted: 13 Nov 2014 05:48 PM PST
Submitted by Bud Conrad via Casey Research,
Gold dropped to new lows of $1,130 per ounce last week. This is surprising because it doesn't square with the fundamentals. China and India continue to exert strong demand on gold, and interest in bullion coins remains high.
I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the "paper gold" market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That's a 1,000-to-1 ratio:
Market Statistics for the 100-oz Gold Futures Contract on Comex
Value ($M)
Monthly volume (Paper Trade)
$360,000
Open Interest All Contracts
$45,600
Warehouse-Registered Gold (oz)
$1,140
Physical Delivery per Month
$279
House Account Net Delivery, monthly
$41
We know that huge orders for paper gold can move the price by $20 in a second. These orders often exceed the CME stated limit of 6,000 contracts. Here's a close view from October 31, when the sale of 2,365 contracts caused the gold price to plummet and forced the exchange to close for 20 seconds:
Many argue that the net long-term effect of such orders is neutral, because every position taken must be removed before expiration. But that's actually not true. The big players can hold hundreds of contracts into expiration and deliver the gold instead of unwinding the trade. Net, big banks can drive down the price by delivering relatively small amounts of gold.
A few large banks dominate the delivery process. I grouped the seven biggest players below to show that all the other sources are very small. Those seven banks have the opportunity to manage the gold price:
After gold's big drop in October, I analyzed the October delivery numbers. The concentration was even more severe than I expected:
This chart shows that an amazing 98.5% of the gold delivered to the Comex in October came from just three banks: Barclays; Bank of Nova Scotia; and HSBC. They delivered this gold from their in-house trading accounts.
The concentration was even worse on the other side of the trade—the side taking delivery. Barclays took 98% of all deliveries for customers. It could be all one customer, but it's more likely that several customers used Barclays to clear their trades. Either way, notice that Barclays delivered 455 of those contracts from its house account to its own customers.
The opportunity for distorting the price of gold in an environment with so few players is obvious. Barclays knows 98% of the buyers and is supplying 35% of the gold. That's highly concentrated, to say the least. And the amounts of gold we're talking about are small—a bank could tip the supply by 10% by adding just 100 contracts. That amounts to only 10,000 ounces, which is worth a little over $11 million—a rounding error to any of these banks. These numbers are trivial.
Note that the big banks were delivering gold from their house accounts, meaning they were selling their own gold outright. In other words, they were not acting neutrally. These banks accounted for all but 19 of the contracts sold. That's a position of complete dominance. Actually, it's beyond dominance. These banks are the market.
My point is that this market is much too easily rigged , and that the warnings about manipulation are valid. At some point, too many customers will demand physical delivery and there will be a big crash. Long contracts will be liquidated with cash payouts because there won't be enough gold to deliver. I saw a few squeezes in my 20 years trading futures, including gold. In my opinion, the futures market is not safe.
The tougher question is: for how long will big banks' dominance continue to pressure gold down? Unfortunately, I don't know the answer. Vigilant regulators would help, but "futures market regulators" is almost an oxymoron. The actions of the CFTC and the Comex, not to mention how MF Global was handled, suggest that there has been little pressure on regulators to fix this obvious problem.
This quote from a recent Financial Times article does give some reason for optimism, however:
UBS is expected to strike a settlement over alleged trader misbehaviour at its precious metals desks with at least one authority as part of a group deal over forex with multiple regulators this week, two people close to the situation said. … The head of UBS's gold desk in Zurich, André Flotron, has been on leave since January for reasons unspecified by the lender….
The FCA fined Barclays £26m in May after an options trader was found to have manipulated the London gold fix.
Germany's financial regulator BaFin has launched a formal investigation into the gold market and is probing Deutsche Bank, one of the former members of a tarnished gold fix panel that will soon be replaced by an electronic fixing.
The latter two banks are involved with the Comex.
Eventually, the physical gold market could overwhelm the smaller but more closely watched US futures delivery market. Traders are already moving to other markets like Shanghai, which could accelerate that process. You might recall that I wrote about JP Morgan (JPM) exiting the commodities business, which I thought might help bring some normalcy back to the gold futures markets. Unfortunately, other banks moved right in to pick up JPM's slack.
Banks can't suppress gold forever. They need physical gold bullion to continue the scheme, and there's just not as much gold around as there used to be. Some big sources, like the Fed's stash and the London Bullion Market, are not available. The GLD inventory is declining.
If a big player like a central bank started to use the Comex to expand its gold holdings, it could overwhelm the Comex's relatively small inventories. Warehouse stocks registered for delivery on the Comex exchange have declined to only 870,000 ounces (8,700 contracts). Almost that much can be demanded in one month: 6,281 contracts were delivered in August.
The big banks aren't stupid. They will see these problems coming and can probably induce some holders to add to the supplies, so I'm not predicting a crisis from too many speculators taking delivery. But a short squeeze could definitely lead to huge price spikes. It could even lead to a collapse in the confidence in the futures system, which would drive gold much higher.
Signs of high physical demand from China, India, and small investors buying coins from the mint indicate that gold prices should be rising. The GOFO rate (London Gold Forward Offered rate) went negative, indicating tightness in the gold market. Concerns about China's central bank wanting to de-dollarize its holdings should be adding to the interest in gold.
In other words, it doesn't add up. I fully expect currency debasement to drive gold higher, and I continue to own gold. I'm very confident that the fundamentals will drive gold much higher in the long term. But for now, I don't know when big banks will lose their ability to manage the futures market.
Oddities in the gold market have been alleged by many for quite some time, but few know where to start looking, and even fewer have the patience to dig out the meaningful bits from the mountain of market data available.
* * *
Casey Research Chief Economist Bud Conrad is one of those few—and he turns his keen eye to every sector in order to find the smart way to play it. This is the kind of analysis that's especially important in this period of uncertainty and volatility… and you can put Bud's expertise—along with the other skilled analysts' talents—to work for you by taking a risk-free test-drive of The Casey Report right now.
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