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Open interest in gold and ETF demand – What drives price?

May 12, 2016

Craig Hemke from TF Metals Report (click here to visit his site) shares his insights on the growing open interest in the precious metals as well as the increases in demand for gold ETFs. We get into the question of what really drives price for the metals. Is it the demand and increases in gold in the ETFs or is it the increases in open contracts?

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Discussion
22 Comments
    May 12, 2016 12:32 AM

    The COMEX has nothing to do with setting a price for gold. It’s a hedge mechanism for bullion buyers.
    Example: If bank A goes under contract for a ton of gold for spot price at 1250, and they pay on delivery. But it takes 30 days for the physical delivery to happen. They hedge using the COMEX by doing a put and a call. That way the buyer and seller does not loose during the time of the transaction. The reason why there are so many contracts right now is because of countries, banks and trading platforms backing them selves with gold.

    May 12, 2016 12:55 AM

    Let’s all welcome Mr. Chartster to Planet Earth and rather than take the time to try to explain gold pricing to him, lets just hope that in time he will learn the language and the strange social customs that we practice on this planet.

    May 12, 2016 12:58 AM

    Ya, thanks John. I’ll hop out of the turnip truck one of these days.

      May 13, 2016 13:07 AM

      Only a fool would argue the reality of how this has played out thus far despite their best efforts to paint every price movement as proof of manipulation.

      Markets have always been steered or clipped by those who have a reason or the ability to do so. How this continues to surprise, amaze or frustrate some is almost laughable.

      It’s basic econ 101 for beginners.
      Those who have stuck around long enough must surely realize this by now.

      After awhile people just stay away and tune out the noise or possible reasons/excuses that the promoters, shills and apologists just make it up as they go along on a daily basis.

      It’s ok to admit you were wrong OR misguided by the passionate rantings that SEEMED to make sense.
      Some people are NEVER wrong and they bristle at the suggestion that they might’ve been despite ample evidence to the contrary.

      In the end it’s always about them or their image (and subscription opportunities) no matter what the metals prices or market sentiment indicates.

      People stay away because their seeing it for what it is. The promoters, shills and apologists don’t realize they’ve undermined themselves shovel-ful after shovel-full.

      Ask yourself, does the following make sense or does the continued tired and wrong alternative explanations (Manipulation 365/24/7!) make sense?

      Some people won’t allow themselves to consider Armstrong and others nailed it BEFORE metals prices, oil etc. tanked.

      Denial of reality and self-absorption go hand in hand.

      “Failure of the Quantity of Money Theory”

      May 8, 2016 by Martin Armstrong

      QUESTION: Marty; Are you saying that Bill Gross is wrong and they will not try “helicopter money” again or that “helicopter money” will not stimulate the economy?

      ANSWER: Whether or not the Fed tries to apply “helicopter money” is highly debatable. Bill Gross DID NOT make a forecast that any QE (Quantitative Easing) would be successful or create inflation. All he said was that the Feds will print money trying to “stimulate” again as they did in the past buying bonds which he will eagerly sell to them. So I do not see where this is a right or wrong confrontation. He did not say “helicopter money” would succeed. He just said they would try it again.
      So where is the disagreement with respect to inflation? As far as the Fed even attempting another QE program is debatable. They realize that it did not work and it foolishly created the Excess Reserve Facility which allowed banks to park (hoard) money at the Fed which defeated the “stimulus” purpose because the money never made it into the economy to increase consumer spending. So the only quasi-disagreement at best is simply I am saying that the Fed realizes now that QE failed. They can see Japan and Europe. If those central banks raise rates, they will create panics because the idiot pundits convinced themselves that lower rates (even negative) are good for stock markets and economy while higher rates are evil.
      The central banks are trapped and this cannot end nicely.
      Fed Velocity of Money May 1 2016Additionally, a number of questions seem to be amazed that a raw theory of the Quantity of Money does not work. They are stunned that I have shown velocity which has been in crash-mode since 1998. They were shocked that the Fed’s Excess Reserve Facility is proof of banks hoarding cash.
      People hoard money in times of uncertainty, and the data now shows that Americans are saving more and spending less. Their savings (hoarding) reached a 3-year record high in December 2015. This continued to cause the declining Velocity.
      Then we have banks parking (hoarding) cash at the Fed, corporates cash rich (hoarding) are buying back their own shares, and we have European banks shipping money to the States also parking (hoarding) cash at the Fed collecting 0.25% against negative rates at the ECB.

      The question is merely whether the Fed would do another QE because people “think” that is necessary despite the fact there is no empirical evidence this has ever worked. The Euro peaked in 2008 and crashed. The capital flows turned into the USA despite the introduction of increasing the money supply by QE.

      So while the central bankers expected inflation and the Gold Promoters misrepresent this issue claiming that increasing the supply of money is automatically inflationary so gold must rise and the dollar fall, exactly the opposite has unfolded. So the Gold Promoters are preaching the same story as the central bankers. As the economic crisis became worse around the world, the dollar was (and remains) the only currency standing. The Fed has become the de facto central bank of the world yet the money supply increased. You cannot dismiss this and keep touting that the Quantity of Money still is relevant or that it works. Something is seriously missing. If such a theory is valid, then it MUST hold up 100% of the time. It is not the pure Quantity of Money that matters, there is another factor here being ignored – DEMAND; as in supply demand.
      Naturally, the Gold Promoters will say I am wrong because this is their #1 sales pitch. What they do not understand is you can fool people sometimes, but only a fool believes a fallacy eternally.

      The rest get burnt…and they never come back… because they lost confidence in the sales pitch.

      Gold is a HEDGE AGAINST GOVERNMENT, and to create a bull market requires the decline in DEMAND for dollars because they lost CONFIDENCE in government. Only when government is unable to then sell its debt or raise taxes, then it prints money like Germany to cover its expenses and it debases the currency stretching what resources it has to increase the supply of money to pay its bills when coins were a precious metal.

      There is simply more to this simplistic view that increasing the supply of money automatically produces inflation.

      The central banks have followed the very same theory as the Gold Promoters and also failed miserably.

        Sep 04, 2017 04:56 PM

        Haze, that was an interesting comment. Thank you!

    May 12, 2016 12:08 AM

    Hey John,
    Besides being a glob on the planet, what’s your explanation for pricing?

    May 12, 2016 12:16 PM

    College econ…….waste of time at this point………We should have studied criminology

    May 12, 2016 12:33 PM

    Pricing of physical precious metals——when I go to my metals dealer to buy or sell, they look at the comex paper futures spot price on their computer, then tell me how much I will pay or how much they will pay me and a commission (premium) is added to or subtracted from the price. Comex pricing is considered paper pricing because only a small percentage of the futures contracts are actually settled in metal.

    If you know of a physical precious metals dealer that prices their product differently, please advise me on that.

    Thanks

      May 12, 2016 12:08 PM

      John:
      The paper price has always been the physical price but you will never convince anyone here. They want to believe in conspiracies, suppression from $252 to $1923 and naked shorts. If you own gold you paid for physical with paper unless you mined it yourself. But facts never get in the way of noise and being fed nonsense to get you to subscribe.

        May 12, 2016 12:30 PM

        Robert Moriarty

        How’s the book selling? How many have you sold from all your visits to this site recently?

        May 13, 2016 13:11 AM

        I respect your opinion Bob.The fact that the CFTC increased position limits and Grandfathered JPM in with their short positions back when gold and silver were on a tear is not a conspiracy,that is a fact.

          May 13, 2016 13:14 AM

          That should have been enforced position limits. I will never forget the day they did that.

    May 12, 2016 12:14 PM

    Thanks Bob,

    I was responding to Charster’s comment above that the Comex has nothing to do with setting the price of gold.

    John

    May 12, 2016 12:04 PM

    Paper sets the price of gold ( for now ) but not the COMEX. The COMEX is a hedge. And yes, they do quote futures price. But they don’t “set” the price.

    May 12, 2016 12:54 PM

    There’s a ‘very dangerous situation’ taking place in the Comex’s gold vault
    Byron King, The Daily Reckoning

    http://www.businessinsider.com/comex-vault-doesnt-have-enough-gold-2016-5

      May 13, 2016 13:09 AM

      Can you say ..Shanghia and Phyz… Unlike Rock Paper Scissors, rock will ultimately (sooner than later) cover paper…

    May 13, 2016 13:03 AM

    Agree w/Craig on the US$ on the daily chart … but the weekly chart’s MACD looks like it may bottom soon.