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COMEX Option Expiration Price Control

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Some of you will question why it's valuable to document the obvious price-rigging by The Banks. The answer? Because remarkably there are still "analysts", many of whom the precious metals community hold in high regard, who claim the pricing mechanism is fair, honest, and free of price manipulation.

For this week's post, let's just use two recent examples to make the point.

First, there's this latest revelation from the U.S. Department of Justice in their ongoing prosecution of price manipulation schemes in precious metals trading. Here's the full link from Bloomberg:

A few screenshot "highlights" are posted below:

 Bloomberg story

The lifelong apologists for the Bullion Banks and their pricing scheme will argue that this is all ancient history and spoofing isn't really manipulation, anyway. However, it's clearly NOT ancient history, as this recent update on the ongoing DoJ investigation into the JP Morgan precious metals desk shows:

Statement screenshot 

And finally, for proof that Bullion Bank price manipulation continues to this day—despite the arrests, warnings, and fines—I submit the past week of price action in COMEX gold, prior to the expiration of the Aug21 COMEX gold options at the COMEX close on Tuesday, July 27.

On July 22, in our usual morning post for subscribers at TF Metals Report, I wrote that no one should expect any sort of price rally until COMEX option expiration on Tuesday, the 27th. Why? Because of the easily identifiable "sweet spot" of minimum financial pain for the option-writing Banks. See below:

Craig Hemke

A simple review of the remaining open interest at various strike levels allowed this sort of determination. And it's not just this month! The Banks attempt to rig price to their financial gain into every option expiration, and if you don't understand and follow this information you will often find yourself confounded and flat-footed into these monthly events.

How do the Bank trading desks consistently accomplish this feat? Here's a simple explanation that I found last week at ZeroHedge:

Zerohedge statement

As you can see below, $1800 is the "sweet spot" of minimal loss for The Banks:

screenshot

Further, there was incentive to avoid a drop below $1775 and/or a rally above $1825:

screenshot

screenshot

And so—as you'd expect, and as we've seen play out over the past five days—the price of COMEX gold has been repeatedly drawn to $1800 as if by magnet.

Gold chart analysis

And now, with the COMEX close as of 1:30 EDT on Tuesday, July 27, price has settled within pennies of $1800—just as predicted FIVE DAYS AGO. Magic? Nope. Just simple manipulation analysis.

screenshot

So, in the end, what's the point of this week's post?

  1. If you believe that the price of gold is somehow determined in a free and fair market, devoid of Bank price manipulation efforts, you are sorely mistaken.
  2. Gold and silver price manipulation did not end in 2016. It continues to this day.
  3. However, as with all distortions and manipulations, when the end comes, the reversion to the mean and the "natural" price will be shocking. In this case, after being restrained lower for decades through unallocated and synthetic supply, price will inevitably reset multiples higher.
  4. In the meantime, recognition of this ongoing manipulation is vital to understanding these "markets". If you understand the how and why of the Bank price manipulation, then you can use this knowledge to your advantage in timing your regular acquisitions of physical metal.

 

And let's close this week by stressing again point #3 above. Many fear that this price manipulation scheme, which has been in place since 1975, will continue indefinitely. I can assure you that it WILL NOT. Instead, a moment will come when the overstretched fraud of the derivative markets will snap. When this happens, it will be recalled in the same manner that Hemingway once described bankruptcy—the current pricing scheme will fail "gradually and then suddenly".

Those who continue to plan for this inevitable event will find themselves rewarded and, most importantly, protected when it finally occurs.

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Head shot of Craig Hemke

About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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