HUGE Standoff in Gold Futures – Critical Days in the Battle

battleLet’s put the situation in the gold futures market into perspective, as there is a HUGE stand-off between speculators and the “Commercials” (mainly banks)…

 

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We will resist discussing the growing illiquidity in physical gold and focus on certain mechanics in the gold futures market, which are dominating price discovery right now.
The key is the degree to which the spread between the near month future and the next month future – currently August 2016 versus October 2016 – has been widening.
We’ve been tracking it since 2012 and it’s at the highest level that we’ve seen.
Let’s put the situation in the gold futures market into perspective, as there is a huge stand-off between speculators and the “Commercials” (mainly banks)…

chart

The banks must be hoping that speculators liquidate long positions, as we’ve seen so many times in recent years, and the gold price sees a sharp (but probably brief) correction. However, speculators have been proving far more resolute in rolling gold futures exposure in recent months.

We saw on three occasions during 2001-11 that if the speculators didn’t cave, the bullion banks did. We should get a sense of what’s going to happen on this occasion in the coming days. Meanwhile…

Behind the scenes, the larger war continues with growing pressure on London’s gold vaults and the ability to deliver 400oz. LGD bars by LBMA banks (more on this soon).

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