My Thoughts on the Gold Manipulation Spectrum

They're stuck in the game and can't get out. We're already out, waiting for the game to finally end. Nobody is in charge though, and we're all on our own.

• Gold open interest remains high, signaling more downward movement ahead. Delivery in 4 days will naturally lower open interest, with 144K contracts open for August delivery.

• Philosophical views on metals and commodities derivatives markets, highlighting the inherent flaws in the system and the manipulation within it.

• It may look like the big powers are in charge directing the price of gold, but they can't really be.

• Proof is in the gold to commodities chart, which proves that they are less effective at controlling the price of gold than other commodities.

Gold Open Interest Stubbornly High

I've been warning about a pullback with open interest this high, I think in the last 3-4 posts I've been as "bearish" as I ever get at least on the trading side, and that is exactly what we're getting. We probably have more down to go here, because open interest is not budging much. Down just 68 contracts, at about 572K contracts yesterday. We need to get back down to the 400Ks to build up fuel for a move up. There are probably a few more smashes ahead of us. We are still above 3 year highs, which was 550K in 2021. See mid panel below.

That said, we have delivery in 4 business days, which means OI will naturally fall as those deliveries are made. There are still 144K contracts open for August delivery.

And still, though the decline, the gold to commodities ratio keeps edging higher. We are now at 3-year weekly closing highs.

That means this down move is an illusion, because dollars are an illusion, and they give false price signals.

Another Monetary Philosophical Rant

Here I want to make a broader philosophical point on how I view metals derivatives and commodities derivatives markets generally. I'm writing on the fly here so not so polished.

For some reason, this is a contentious issue and the various talking heads have formed "camps" around their views of what's going on. Mainly, whether futures contracts are actively manipulated by a cabal that knows what it's doing in order to control price and through that, the world. Some are absolutely convinced that this is happening. However, this in our camp on that side of the aisle have an internal contradiction to deal with, as I see it:

1. On the one hand, the monetary metals are money, everything is based on them and the futures market will fail.

2. On the other hand, the big banks are always in control and they'll keep skinning the sound money crowd forever.

Maintaining the dialectic is uncomfortable, but at the same time it presents a crutch that any time there is a smash, you can always defer to the Big Banks controlling the market.

On the other side are those that say this is nonsense, that price controls do not work so how could they work with futures, that if price was wrong there would be a shortage of X commodity which there never is for any sustained period, same for gold and silver, and therefore stop complaining if you're going to be involved in this market.

I'm not fully in either camp. Unfortunately for me, this tends to upset both sides of the debate. In the past I have gotten insults sent my way because I either believe, or do not believe, that the Big Banks are in total control of the gold and silver price. As with most conspiratorial-type issues, I'm somewhere on the spectrum.

Generally, my approach to these things is that the truth is some combination of oligarchs directing things from behind the scenes as much as they can, and the emergent properties of inherently immoral systems that begin with a perversion of justice. For example, fractional reserve is based on a 19^th century British ruling (I believe, from what I remember of Rothbard) that a deposit is not a bailment of one's property in a bank, but rather a loan to a bank. A bailment is defined as an act of delivering goods for a particular purpose, without transfer of ownership.

Defining a demand deposit as a loan to a bank rather than a bailment is both logically absurd and immoral (these things tend to go together) because if you have the right to withdraw the deposit at any time, it cannot by definition be someone else's property to loan out.

Incidentally, I teach Mishna on Thursdays and I was assigned this one today, Kiddushin (betrothal) 3:2:

One who says to a woman: You are hereby betrothed to me on condition I will give you two hundred dinar, she is betrothed and he shall give. On the condition that I will give you from now and until thirty days, he gave to her within thirty she is betrothed, but if not, she is not betrothed. On the condition that I have two hundred dinar, she is betrothed if he has. On the condition that I will show you two hundred dinar, she is betrothed, and he shall show her. And if he shows on the table, she is not betrothed.

Table means he's a banker who has other people's money for business, and he can't betroth a woman with that money, since it's not his.

So there you have it, Jewish law rules that a demand deposit is a bailment, as it should be.

From that kernel of evil, which seems very small and insignificant, grows the entire fractional reserve system. When that crashes as it inevitably must, central banking – an even worse evil – grows out of that. When that crashes, End Game. It all flows from the same source.

As the evil grows and grows, evil people who are attracted to evil, manipulate the system to their advantage. This is inevitable and it's human nature. They look like geniuses as they do it, but they always fall. The bigger the evil gets, the bolder and the more desperate, simultaneously, the evil people at the trough of the system become.

I do not think there is an organized grand master plan by any section of the oligarchy to control the price of X. I think they're all part of it, looking to skim profits where they can. There are definitely instances of spoofing and quick slams in order to cover a certain position at times, that's true. But I do not believe there is anyone at the top saying "We've got to control the price of gold and silver in order to enslave humanity." They're just rent-seekers with their own narrow interests.

Some government leaders have grander plans to centralize more, true, but that makes the system even more unstable as they do so.

The real manipulation is the fractional reserve derivative system itself. Trading derivatives that are not backed by existing stocks is the manipulation. It's just another layer of fractional reserve, the reserve being the physical stocks of commodities, and the derivative contracts being the "deposits," those physical stocks being notionally loaned out through the derivatives 100 different ways when they physically do not exist. This grew out of the insistence that deposits are the property of the bank rather than the depositor, enabling deposits (money derivatives) to be loaned out 100 different ways as well. It's all successive layers of exactly the same thing. They just get bigger and wider the father you go out from the center.

The whole derivative complex tends to move together though, as the fakeness spreads. As the system becomes more unstable, successive deflationary waves get stronger, bring down all commodities, but gold the least. That's why gold's purchasing power tends to rise fastest during deflationary storms (2008 and 2020 are the most obvious.) Reinflationary measures bring commodities back up, and gold less than others. That's when it feels like we're losing. This keeps happening again and again and gold stair-steps higher, and we can see it so clearly in the gold to commodities ratio since 2008. (2020 and post 2020 being exaggerated because of the lockdowns, but we're clearly stair-stepping higher again).

If gold were manipulated more than any other commodity through derivatives, this ratio would be going down, not up. Like it or not, we are higher on this ratio now than we were at the gold peak in 1980. These are just facts. The fact that this ratio keeps drifting higher is proof, if anything, that whatever is at the top of this evil, is actually less successful at manipulating gold than at manipulating other commodities through derivatives.

We appear to be (I hope) at the beginning of another deflationary wave hitting now. Stocks show it, commodities show it. Bitcoin should follow. Copper has collapsed much more than gold or silver these last few weeks. This should be reflected in falling reserves in the banking system, numbers coming in tomorrow. Whether this deflationary wave will be enough to fire up the final printing round, which should be the crack up boom, we can only hope. We need to get to about $3 trillion in reserves or around 87% of reserves locked up in repos, whichever comes first.

And one last thing about the gold to commodities ratio. It is this very thing that calms me most whenever I see that bitcoin, Nvidia and all that stuff is up 100x or whatever it is. Within the megabubble there will be the winners in each inflationary cycle within it. But very few will capitalize on those before they lose all their gains. In the end they will all deflate. It requires perfect timing to really take advantage of those, or retiring at just the right time. Gold does not require timing. It just requires understanding, confidence, and patience. Once it goes vertical, that itself is the deflation of everything else. And it will not go back down much after the end game. Silver might, but gold won't by much.

We are all waiting for the final deflation of the largest bubble ever blown in human economic history, and there is nobody in full control of it. We're on our own, and so are the evil people on the other side. Our advantage is that they are stuck in the Game and cannot get out - neither conceptually nor practically - while we are already out, and just waiting for the Game to End.