July 26, 2004 – I hope that you subscribe to and read the gold market commentaries of Bill Murphy and his associates that are posted almost daily at www.lemetropolecafe.com. They are first-rate.
Not only are they informative, they provide in my view real and valuable insight about what is happening within the gold market from day-to-day. This last week is a case in point.
The ‘cafÃ©’ was abuzz about the ongoing manipulation of the gold market. Bill Murphy started this discussion in his ‘Midas commentary’ at the beginning of the week, when gold was still trading around $405. He noted how much the open interest on the Comex had increased over the previous few days as gold tried to climb above $405.
To him this huge surge in open interest was a good sign that the gold cartel was about to trash gold. To explain, the ‘gold cartel’ is the cafÃ©’s moniker for the unholy alliance between a few of the big bullion trading banks and the US government. This reprehensible group seeks to manage and completely control the gold price to their advantage, regardless of the disruption that they cause to the free-market. It is a theme about which I have written many times in these letters, and have more to say in the article below. But returning to the cafÃ©, here is some of what John Brimelow had to say on July 20th:
“Dealer commentators indicated (wisely) concern about what sort of price action might be seen on a Greenspan testimony day like today, but beyond that it is clear that many were taken aback by the magnitude of the selling which has blocked gold from exceeding the high seen ten days ago. UBS remarks: “Comex-trading speculators bought more than 5 million ounces of gold in the week to 13 July and subsequent changes in Comex open interest indicate that another 2-3 million ounces of additional buying has taken place since then, taking the net long position to around 16-17Moz by our estimates. While this is less than the April 2004 all-time high position of 22.5Moz, this position may be getting a little extended.” Standard London says the unsayable: “the latest CFTC Commitment of Traders report showed that the net fund long gold exposure on the COMEX factor rose to 70,434 lots, up from 31,409 lots, the largest weekly gain for almost four months, explaining gold’s recent strength, although some might argue that the move in the gold price, given the return of large scale Fund interest, is disappointing and suggests significant producer and/or official selling into the rally.” (JB emphasis.)
Of course, unless a mine is increasing a hedge book, it has little flexibility to opportunistically accelerate selling – and who could do so in this kind of size? Unless the CFTC data is misreporting some hero hedge fund, most of the selling has to have been official.
Establishment of a barrier of this type invariably draws in speculative shorts, besides wearying the longs. Consequently, it was little surprise today in NY to find gold falling by more than double what the concomitant dollar rally implied on markedly heavier volume.”
Four days later gold was nearly $15 lower, the longs had their pockets picked, and the gold cartel went off to their counting house to gloat over their ill-gotten gains. These bad guys had won another battle in their ongoing war against gold. But please keep in mind, though they won this last battle, they are losing the war, and have been on the losing side since July 1999 when gold touched $252. Gold is now 55% higher, irrefutable evidence that the bad guys are losing the war.