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In-depth commentary is included on the pricing differentials in the gold market …
Hmmminar6/Grant Williams/4-11-2020
“The recent blow out of the spot / nearby spread smacks of extreme [panic buying] short covering. The open interest on COMEX has dropped considerably during this time. While the spike in volatility would account for a portion of the drop. It doesn’t appear to explain the totality of the fall off. Therefore I think it would be helpful to explore [to whatever degree possible] what the roll of the bullion banks has been in this market aberration. Have the banks and/or their counterparties been ‘caught’ without the physical positions necessary to offset their shorts??? Could it be a short term supply chain issue?? And, has the short exposure been covered, or is there more short covering necessary to flatten out their positions??” – Brian Willis, former COMEX trader and past member of the COMEX Board
USAGOLD note: Something very odd is going on in the pricing of gold as we are sure most of you are aware. Thus far the explanations provided, as panel participants point out, fall short of being persuasive. Brian Willis’ comments are attached to the video conference sponsored by Grant Williams linked above and offers something of a plausible explanation as to what might be occurring behind the scenes. The idea that bullion banks and/or their counterparties might be “caught without the physical positions to offset their shorts” implies substantial positions standing for physical delivery. Of course, under such a scenario, mine closures, refinery shutdowns and other coronavirus-related developments would only exacerbate the problem. One panel participant, David Ferguson, alludes to the most puzzling aspect of them all and admits to being baffled by it: Normally, a shortage of bullion would put the market in backwardation* – the opposite of what is happening. Willis, in our view, asks the essential questions. The source of this market aberration remains hidden, but unmistakably we see the footprints in the sand.
* Backwardation is when the spot price of a commodity traded on the futures exchanges is higher than future prices.