Precious Metals Dealers: If the CME Artificially Creates Dips in Paper Gold and Silver Futures Prices by Raising Margins, Stand Your Ground

stand your ground in the currency wars

Ever since I started drawing attention to the act of the Chicago Mercantile Exchange (CME) quietly but significantly raising margins on all COMEX gold and silver futures contracts at the end of February, while pointing out back then that “this event was nowhere to be reported in the mass media”, this banker tool to suppress gold and silver prices has been receiving more attention. Since just a few months ago, as of 13 April 2020, initial maintenance margins for the 100-ounce COMEX gold futures contract and the 5000-ounce COMEX silver futures contract have respectively soared by an astounding 86% ($4,950 to $9,185) and 73% ($5,720 to $9,900). Furthermore, the banker effort to keep silver prices suppressed, though many people falsely believe that bankers care not about silver prices but only gold prices, is readily apparent in the leverage of these two flagship futures contracts. At a current paper gold and silver prices of $1,685 and $15.25 respectively, the initial margin gives the gold futures contract a leverage aspect of 18.3:1, while the 5,000-ounce silver futures contract is levered at just 7.7:1. Upon first analysis, one may think that the higher leverage of the gold futures contract automatically identifies the gold price as the one more important for bankers to manipulate, as the leverage aspect is much greater, and therefore bankers can control a greater dollar value of paper gold with a lesser initial up-front purchase than in silver. However, the much smaller leverage ratio established with the silver futures contract is established to control the amount of ounces that may be impacted in the physical world, not the paper world. Because the most liquid COMEX silver futures contract deals with 5,000 ounces, a size fifty times greater than the most liquid COMEX gold futures contract, if leverage ratios were the equivalent of the gold futures contract at 18.3:1, and long positions in COMEX silver futures contracts stood their ground at highly leveraged ratios, hundreds of millions of physical silver ounces could easily be called into delivery which would provide a massive problem. Consequently, this undesirable outcome, at such low paper physical prices, explains the much lower leverage of silver futures contracts versus gold futures contracts.

But let me return to an exposition of just how absurdly rapidly CME officials have raised initial/maintenance margins on COMEX gold and silver futures contracts. CME officials, in an attempt to shake the longs of gold/silver futures positions out of the market and prevent the longs from asking for physical delivery, raised initial margins in such an extreme fashion that the current initial and maintenance margin levels ($4,592/ $4,175) for the e-mini COMEX gold futures contract that represent half the size of its much more heavily traded sister contract, are now nearly equivalent with the margin levels of its much larger sister contracts from just a few months ago  ($4,950/ $4,500)! And in regard to the e-mini COMEX silver futures contract, its current initial margin of $4,950 is also rapidly catching up to the initial margins of its much larger sister contract from just a few months ago. CME officials took such desperate measures in order to discourage physical delivery of gold and silver in the midst of already very tight global supplies. However, as I explained here, many longs in the gold and silver futures market stood their ground in the face of exploding margins and asked for physical delivery instead of being chased out by the CME rising margins, thus creating massive anomalies between paper and physical gold and silver prices.

However, what I found to be very curious was that the Google search engine algorithms returned no mention of the Chicago Mercantile Exchange (CME) raising margins on gold and silver futures when this behavior was transpiring. Thus, unless you regularly check the margins on these contracts, you would have never been informed of this development by any major news media outlets. As well, though nearly all the media focus has been on the increasing margins of COMEX gold/silver futures since I pointed out this event a couple of months ago, the same development has also taken place with COMEX platinum and palladium futures contracts, with initial margins on palladium raised an astonishing 260% in just the past few months from $13,475 to $48,400. Of course, such a desperate act also exposes a physical palladium shortage problem and is the reason why, after bankers slammed paper prices of palladium from $2,725 to $1,420 per troy ounce in just three weeks’ time, the paper palladium price promptly skyrocketed off its bottom by 62% over  the next two weeks before settling slightly lower in recent days.

A Call to Action to Counter the Trend of Raised Gold and Silver Future Margins

In light of these above facts, this is my call to action specifically directed at physical bullion dealers.  Physical bullion dealers, should the CME raise margins on gold and silver futures in coming days/weeks by the extreme insanity that matches the hundreds of percent by which they raised margins on palladium futures over a condensed time frame, expect any significant dip in paper prices to be met with immediately skyrocketing rebounds, as such actions on behalf of the CME would only reveal their level of desperation to stem the growing divergences between paper and physical gold and silver prices. In fact, continued raising of margins in light of how great the divergences already are between paper and physical gold and silver prices would only serve to reveal that the emperor, indeed, has no clothes.

Consequently, one would be best served not to genuflect to their games and to drop physical PM prices should the above event happen. Instead, raise physical PM prices in response to any artificially engineered significant dip in gold and silver paper prices in the coming weeks. This is the courage and resolve necessary to break these manipulative, patently unfair price games once and for all. Imagine if paper gold and silver prices respectively collapsed by $100 and $2 per troy ounce, but because you now fully understand the game that is being played, you raised physical gold and silver prices respectively by the same margins of $100 and $2 per ounce, thereby increasing the already very significant divergences in paper and physical gold and silver prices by an additional $200 and $4 per troy ounce. In other words, imagine if gold were artificially manipulated back to $1,485 and silver to $13.25 per ounce, but instead of pricing current year 1-oz gold and silver American Eagles downward, you responded to the ever increasing tight physical supply of PMs worldwide by respectively raising prices of gold American eagles to $1,850 per ounce (for lots of twenty ounces or less) and gold American Eagles to $27 per ounce (for lots of a hundred ounces or less)? The widening gap between physical and paper gold prices from extreme to absurd levels of 32% premiums of physical over paper gold, and 103% premiums of physical over paper silver would reveal that paper prices hold no meaning in physical markets, once and for all.

I believe that such a stand would be the straw that finally broke the camel’s back of gold and silver price manipulation, so stand your ground, precious metals bullion dealers.

Now is the time to repay your thousands of loyal customers for the last decade by pricing physical gold and silver coins by the supply and demand determinants of the physical markets and to stop following the machinations and whims of prices executed by bankers in global paper derivatives markets.

Take a look at the data below, I produced last month for the CME stops and issues report in an article I published titled, “The COMEX Issues and Stops Reports Expose COMEX Physical Gold Supply Problems” in regard to the 100-oz gold COMEX futures contracts (bookmark my site to see the updated data for the 5,000-oz silver COMEX futures contracts which I will publish later this week). I have updated this data for just the first nine days in April and some astonishing developments are readily apparent.

COMEX issues and stops report for gold futures
COMEX issues and stops report for 100-oz gold futures, Dec 2019 to Mar 2019 and for the first nine days of April
COMEX issues and stops report, Dec 2019 to April 2020
the combined data

From the above chart, you can see the data from Dec 2019 to March 2020. I have separated out the data for the first 9 days of this month and then in the final chart, update the first charts to include data for the first 9 days of April. Recall that bankers desire stops to outnumber issues in their House accounts (meaning a net physical gain) and issues to outnumber stops in their Client accounts (producing a net physical gain). As you can see, not only did the exact opposite pattern continue for the first nine days of this month, in which bankers lost almost an additional million ounces of physical gold from the delivery action during the first nine days of this month, but they also experienced a loss of physical gold during just nine days that nearly equaled their losses over the prior four months! If you don’t understand the implications of this development, this is proof that long positions are taking an astonishing stand and refusing to allow bankers to chase them out of their longs through the financial difficulties imposed by rapidly increasing margins.

Two other things stand out from my above charts. After taking no delivery of any physical gold for the prior four months, the CME took delivery of 9,200 ounces of gold in their house account, or nearly $15M worth of gold thus far just this month. Is there not a massive conflict of interest in raising margins to collapse paper gold price and then using the engineered dump in prices to buy physical gold? How are such actions even legal? Secondly, from the above, it is obvious that the big loser so far this month was JP Morgan, who hemorrhaged physical gold losses in both their house AND client accounts.

These developments explain why I urge physical bullion dealers to stand with us right now. We have the devious machinations of bankers in crashing paper gold and paper silver prices teetering on the brink of disaster, and now is not the time to let our boots off of their throats to end this fraud once and for all.

So PM Bullion Dealers, I urge you, “Stand with us and we will stand with you!”  Over the past decade or so, many investors in physical gold and silver have been discouraged when physical prices followed paper prices down when conditions in the physical markets (increasing demand, shrinking supply) did not merit physical prices following paper prices downward. So here is an opportunity to reward customer loyalty over the years by standing your ground, given the enormous divergence between paper and physical gold and silver prices that exists at the current time. Should paper prices fall on the back of increased margins in the coming weeks or months, the stand you take will be the difference in whether we ensure that physical prices continue to follow physical supply and demand determinants once and for all in all subsequent years from here on out, or if we regress in our honor and courage and allow artificially set paper prices to steal wealth from all physical precious metals holders.

And to physical gold/silver stackers, should you stand by us as I have requested, and physical prices continue to rise on the back of future artificially engineered paper price smashes, I will call upon all physical gold and silver buyers to continue to support you with continued buying, even in the face of rising prices. Let’s face it, in the years ahead, we will likely look back at even $27 1-ounce American Eagle silver coins as a huge bargain. In conclusion, physical PM dealers, I hope you consider the enormous role you can play in pointing physical gold/silver prices in the proper direction in the months that lie ahead. The time has come for us to work together in unity, instead of against one another, to shatter the illusion that is the COMEX gold/silver futures markets and the Loco London markets.

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