Former COMEX board member: Bullion banks covering short gold derivative positions ……

…… Time to buy gold

Seeking Alpha/Brian Willis

“Now that the bullion banks are covering their decades-old short gold derivatives positions, it’s time to buy gold. If the banks don’t want to be short, it’s time to go long. The recent blowout of the COMEX April 2020 futures contract price above the London spot price is evidence of this action and a glaring indication of significant adjustments being made by the major gold market participants.

Banks are closing out their short gold positions after all these years because of the present world health/financial crisis and the steps being taken to salvage the world’s economies. Frank Holmes’ recent article, ‘Excess Money Supply Has Been Like Miracle-Gro for Gold,’ provides context.

The present circumstances have also resulted in short-term supply chain issues affecting the banks’ ability to maintain their long London positions. And, more significantly, concerns about counter-party risk are leading banks to start reducing some of their $600 Trillion derivatives exposure.

All during my 20+ years trading gold futures on the floor of the COMEX the bullion banks were major sellers of the nearby spread at rollover. This was done to ‘roll’ their huge short positions out to the next active futures month. The banks held these COMEX shorts against their long positions (physical, forwards, etc.) that they held in London, thereby hedging their price risk. So the banks typically maintain a significant short COMEX/long London position.”

[More at the link above]

cartoon showing the massive influence of derivatives on financial markets

Repost from 4-28-2020

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