China Tightens its Squeeze on New York and London Gold Futures Markets

china tightens its squeeze on new york and london gold futures markets

Observing the significant actions of Chinese regulatory agencies that oversee gold and silver futures trading the past two months, it is clear to me that China is tightening its squeeze on New York and London gold futures markets.

Last month, on my news site, I informed you of how Chinese regulators, unlike American and British regulators, had closely been watching trading action in the Shanghai Futures Exchange (SHFE) and had sent notification to a number of traders they suspected of spoofing the gold futures markets of suspended trading privileges and trading behavior being put under close surveillance for spoofing. Earlier this month, the SHFE continued to choke out manipulative behavior in their gold futures markets by making significant alterations in the delivery rules for their gold futures contracts. Among the revisions they made, effective immediately, were significantly shortening the delivery period on gold futures from “five consecutive working days after the last trading day” to “the first working day after the last trading day”, with the delivery period on other futures products like aluminum, copper, etc. being shortened from five to three days after the last trading day. Since the change was much tighter in the trading of gold futures than with any other commodity, I believe the purpose of this change was to ensure that all traders that enter trades in the SHFE possess the required upfront physical gold amounts to meet delivery without traders worrying that their desire to take physical gold delivery will be unmet due to physical gold supply shortages that are currently being experienced by the CME and the LBMA.

Comparatively speaking, CME delivery procedures for gold and silver futures contracts in the United States allow for an extended window of physical settlement that allows traders ample time to source physical gold and silver to meet requested physical settlement. CME delivery procedures are as follows:  “Delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month”

About a year ago in New Delhi,  market regulator Sebi finally amended delivery procedures in India in which zero uniformity had existed in delivery procedures across different exchanges and set the minimum duration of a staggered delivery period at five working days for all commodity futures.  The staggered delivery period references the window during which sellers or buyers having open positions may signal their intent to give or take physical delivery of the underlying commodity represented by the futures contract.

In any event, China’s changes to its delivery procedures for gold and silver futures contracts make them the strictest in the world, but this significant change went unreported by every single financial mass media outlet in the world.  Of interest were the reasons the SHFE provided regarding their significant changes to delivery procedures on their commodity futures contracts, which were stated as necessary to help companies better avoid risks through futures in the production and operation process, and further promote the function of the futures market – to serve the development of the real economy.” This stated SHFE mission is the exact opposite of the mission of the New York and London gold and silver futures markets, as has been exposed this year by the growing divergences between gold and silver futures prices and real gold and silver physical prices.

Most likely, the much stricter delivery regulations passed into law in Shanghai gold futures markets were a consequence of their reported discovery of 77 separate instances of gold spoofing on the SHFE this past June. If indeed the futures prices for gold continue to be consistently higher in China than in London or New York, by allowing gold spoofing to continue in Western futures markets, Western regulators will only hasten the demise of their illegitimate markets as China continues to take action to stop banker manipulation of gold and silver futures prices in their markets.

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J. Kim

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