I have an issue when it comes to raising questions. I love to find the answer or reach a thesis that needs more evidence and time to work thru. One question that came to mind these past few days is the Margin Calls in Silver and Gold and the subsequent drop in the paper contracts which should have happened. This is something we all would have expected but that is not necessarily what is occurring here.
Last Friday’s Overall Open Interest in Gold was 576,793 when the settled price was calculated at $1,962.10 and today the OI is at 576,231. Only 562 contracts have settled out yet the price has dropped over $95.
Last Friday’s Overall Open Interest in Silver, during the early morning quote, was calculated at 163,526 Overnighters going against the physicals when the last trade was set at $27.12, with today’s OI is at 158,323. This proves a reduction of 5,203 Overnighters these past 4 days as the price collapsed over $4. The Silver OI reduction (3%) is more than Gold’s and so is the drop, price wise. So why are there so few papered “Longs” not getting out like they’ve done in the past?
All of us are painfully aware of the Algo systems within our price discovery mechanism, but exactly how do they control the prices when hardly any Open Interest is being moved out or in? Here is the thesis, and like all others, cannot be proven because the entire system is opaque, with very large (and already convicted yet, are still allowed to play) criminal elements in it, that may be using their algo’s, that communicate with each other and await signals in order to react without all that bar room talk, the text messages that came later, then the chatrooms, which are now convictable evidence in court, until recently have been morphed into what we see today, a system that is Algo controlled.
Let’s use a couple of fake company names to explain the hypothetical thesis; “Silver Long Hedge” and “Silver Short Hedge”.
Silver Long (SL) has 10,000 Long Contracts in December and is Short 10,000 March.
Silver Short (SS) has 10,000 Short Contracts in December and 10,000 Long in March.
Both of these companies are looking to profit, and both company Algo’s, look for signals to respond to in order to make those profits. Here’s what may be happening; If both Algos see the same signal that says the price should drop, both SL and SS would sell all (or a portion) of their Long Contracts at the same time, then buy back into the spread at sharply lower prices once the Re -“Buy” signal is seen. They can also buy out some of their short contracts (after the dip) to leave the impression that Longs got out, but did they? The prices would change, but by the end of the day, the Open Interest doesn’t.
In earnest, I do not know if this is the case, but then again, it might be exactly. At the same time the Algos are communicating with each other, the Resolutes keep coming in and are buying up the cheapened merchandise, bypassing the Comex paper game, and draining their supplies. How much longer will the Comex and the governing bodies (that has allowed all this to occur) be able to justify their own existence, will depend on the Comex’s ability, to stay physically liquid. If this thesis has bearing, we might find out how quickly things will change once the new smelter supplies runs dry. That will be the ultimate answer as we await the truth in the numbers.
An additional thesis if this thesis is convictable; how many stock market hedge funds are looking at the same signals or other signals in commodities, in order to attack the shares of say, the miners? Are these being looked at already or are they totally ignored by our governing bodies? Truth comes out in math and logic, and we await both in the future …