A Potential Crisis in Comex Gold

by Alasdair MacLeod
Gold Money

We are all used to the bullion banks covering their shorts on Comex by waiting until the speculators are over-bullish and vulnerable to mark-downs that trigger their stops. Algorithmic traders go from long to short in a heartbeat as well, and they dump contracts into a falling market, speeding up the decline. We should say at this juncture that the Managed Money speculators are short-term, attracted by futures leverage, and their gold position is often part of a wider risk strategy deployed by hedge funds. They do not intend to stand for delivery. The wider investment world taking strategic portfolio decisions does not often get involved with gold, so the Comex gold contract has been a secular play.

The table below shows a typical set-up, in this case July 2016. The Managed Money category (296,106 — net 259,129 contracts) is close to record long. Open interest was 633,000 contracts and the gold price was at $1360, having run up from $1040 the previous December.

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