Open interest collapses

Goldmoneu ^ | 29 May 26 | Alasdair Macleod

[delta7]

hina buys up the bullion, the relevance of paper markets on Comex (and London) is shrinking. Liquidity and relevance of paper gold and silver relative to bullion are diminishing.

This market report analyses why open interest on Comex has declined to multi-year lows and the consequences. Clearly, liquidity has been drained from western paper markets by the continual drift of bullion into firm Asian hands. We present evidence of the strains on market makers on Comex who have limited capital resources and we debate the consequences.

Open interest is now at multi-year lows

This week saw open interest in the Comex gold contract drop to under 350,000 contracts. This is the lowest it has been in at least thirteen years.

is the clearest indication of a near total absence of speculative interest on Comex, and because Comex arbitrages with London, it will be true of that market as well. This is even more remarkable given the price rise since 2023 would normally lead to greater speculative interest, but it has collapsed instead, particularly after December 2024.

We see the same trend in Comex’s silver contract, which is next:

Open interest is also the lowest for thirteen years by far, and its collapse is firmly tied to a silver price which rose sharply from mid-October last. This links the collapse in speculative interest to the extreme liquidity problem in London when silver’s lease rate rose to a stunning 40% on 9th October.

So, liquidity in futures and forwards is the problem. Higher prices must be stretching the position limits of market makers and bullion bank traders, collectively the swaps category on Comex, which traditionally takes the short side. This is evidenced in our next chart of the dollar-value of the swap category’s shorts:

For many years, this category contained its collective shorts to less than $30 billion shown by the lower pecked line. That then doubled to about $60 billion and today having peaked at double that again, the current price consolidation coupled with a drop in open interest still has it at an uncomfortable $90 billion. Average individual swap short exposure is $3.75 billion having been close to $5bn when gold peaked.

Besides the obvious strain on capital resources and the increase in systemic risk, we arrive at an important conclusion: London and New York lack the capacity to deal with higher bullion prices. In other words, as a means of diverting gold and silver demand into paper contracts and thereby containing prices, after decades of success it is now failing.

The reason is that demand for physical liquidity is now driving prices. This is the consequence of Asian selling of dollars for gold. It is reflected in Comex warehouse statistics for gold and silver which continue to be drained despite the fall in prices over the last four months. These are illustrated next:

As well as continuing demand for gold from central banks, China’s commercial banks are big buyers. They offer their customers gold accumulation accounts, which they have been forced to suspend or restrict due to lack of available bullion. They have used a falling price in the London and New York as an opportunity to replenish their stocks.

But only yesterday, it was announced that the facility was becoming available again. This was from a Chinese newspaper:

Meanwhile spot prices in London have failed to properly reflect demand for bullion, being essentially a “local” price — local that is to western capital markets. A similar situation is seen in oil, where Asian prices on the ground are significantly higher than US and European prices. Gold and silver are not the only markets bifurcating both regionally and between paper contracts and physical reality.

In London and Comex, gold and silver prices reflect a short-termism which denies actual consequences. Oil prices rise, and gold and silver get marked down. Bond yields rise, and gold and silver get marked down. In Asia the view is diametrically opposed. Oil prices rise and the dollar’s value is threatened. Bond yields rise because the dollar’s purchasing power is falling.

All reasons in Asia to sell the dollar for gold. A consequence is that when speculative interest returns to western capital markets, the lack of liquidity can be expected to see gold and silver prices squeezed significantly higher than their end-January peaks. That in itself will raise awkward questions over the future of the fiat dollar.

---

TOPICS:
KEYWORDS: gold

[delta7]

What this means?

China keeps draining the Western supplies. As open interest falls, so does the manipulation by the western banking cartel. PM price discovery is now determined by the East, which is detrimental to the USD. The West's corrupted LBMA and Comex are becoming irrelevant.

[mjp]

Hayek would likely view this development as a predictable consequence of government-controlled fiat money systems and the limits of central bank and bullion bank efforts to manage currency values through paper markets.
He famously argued that, with rare exceptions like the classical gold standard period, governments have used their monopoly over money “to defraud and plunder the people” via inflation and debasement. Here, the draining of physical bullion into “firm Asian hands” (China’s central and commercial banks, customers via accumulation accounts) while Western paper markets (Comex, London) see collapsing open interest, strained shorts by swaps/dealers, and diminishing liquidity illustrates exactly that dynamic.

[bert]

The future is east of Suez

It is therefore rational that PM prices be set there

What was, isn’t

[yldstrk]

The future will never be east of the Suez as long as they don’t have a strict sense of right and wrong. Judeo-Christian values are life giving and nothing else is.

[bankwalker]

Again? LoL!!

[butlerweave]

What’s China using to buy the Gold , Credit ? LOL

[bert]

You are wrong.

Europe has lost it’s historical bearing and no longer has the global control it previously had. Russia is no longer a serious world power. What was simply isn’t.

[poinq]

India has outlawed importing Gold in bulk. Gold has gone down in value because Asian countries (especially India) had to sell it to get higher priced oil. China is trying to avoid the “free market” and make deals that their influence can manage tot heir benefit. War helps with that. But it helps Russia more.

[Carry_Okie]

What this looks like to me is that BRICS failed so they’re going to bullion. It’s still a war on the fiat dollar, well deserved.

It’s strange though, because they depress the yuan to sell stuff, while we try to repatriate manufacturing or ship it to India and Southeast Asia. I have my doubts about the former, simply because of the deficiencies of American education. Our young men aren’t as trainable as they should be.

[C210N]

If China is buying gold with any form of dollars (US T’s), they are “buying” gold with debt.

A dollar is one unit of debt (to the FED). A UST or bond or any paper form of dollars is only a derivative of the dollar, and not real money. THe gold OTOH is real money.

“buying” gold is a divestment - an unloading of a derivative of money to hold the real thing, real money.

(buying gold is NOT an investment)

[yldstrk]

Right, Europe lost its sense of right and wrong. Russia is evil. The US and Israel lead the way. Maybe Hungary and Poland. East of the Suez? Don’t make me laugh.

[ckilmer]

Gold bugs have long said that the value of gold has been artifically held down for decades. That the true value of gold is anywhere from 20k-50k.

There are years when it looks like the various crypto markets are soaking up all the hot money for gold.

The value of crypto is goes up and down but the trend is up.

Right now the financial press says there is a shortage of dollars.

Why is it bad that gold rises to its natural levels.

Or is your point that the chinese and the indians now control the price of gold and the city of london has lost out after decades of manipulating the price of gold downward.

All true. But again, why is that bad?

[pingman]

Rolls of silver quarters are selling like hotcakes on eBay for $500+/-
Too bad the fees amount to 13%!

[C210N]

$2 below spot price on JM Bullion, with a $10 fair-value purchase:

90% Silver Washington Quarters ($10 FV, Circulated)

[Worldtraveler once upon a time]

Here's your cited source's address:

Goldmoney Inc.
Attn: Goldmoney Inc. Corporate Secretary
Kingston Chambers
PO Box 173
Road Town, Tortola
British Virgin Islands

It's a Canadian-incorporated bit of money malarkey, created in Canada in 1997 ( per website ) and messages, looking for investors to dump money -- not gold, by the way -- into its British Virgin Islands located entity. Traders, basically, not providers of actual metal(s).

[Dr. Sivana]

The future will never be east of the Suez as long as they don’t have a strict sense of right and wrong.

It depends on your definition "the future". You could have a non-Christian or anti-Christian future. Sparta was a nasty place to live, but it was stable for 900 years.

[yldstrk]

Arabia has been stable for thousands of years, but not very nice to live in. And certainly not leading the world in anything.

[pingman]

I was referring to selling. I’ve been stacking silver coinage for years and need to unload for retirement. Hate to pay eBay 13% for the privilege!

[MeneMeneTekelUpharsin]

He famously argued that, with rare exceptions like the classical gold standard period, governments have used their monopoly over money “to defraud and plunder the people” via inflation and debasement.

THIS is true.

[spokeshave]

Today at JM Bullion 1-800-276-6508

Gold = $4,553.26n + $50

Silver = $76.01 +0.02