Gold Futures Manipulation

Who pushes the Gold Futures market around...?

A CERTAIN NUMBER of market observers have long believed that the Gold Futures market is actively manipulated downwards by a cabal of US banks, writes Brad Zigler at Hard Assets Investor.

Their contentions have been based upon data published by the Commodity Futures Trading Commission (CFTC) showing a small number of domestic financial institutions holding lopsided short exposure. This has been taken as prima facie evidence of the banks' attempt to cap the metal's price.

We've looked into this issue more than once at Hard Assets Investor, but despite gold's climb to record nominal price highs, the notion of bank manipulation hasn't yet died. One reader retorts:

"The record short positions held by the relatively few players of the bullion banks is key, in their effort to cap the price of gold and keep the price from breaking out. They are having a difficult time of it because of the Chinese position of buying any dips."

"Keep the price from breaking out"? But, it did break out! Was it because the Chinese were buyers? Not unless they were trading in US Gold Futures.

Here's the scoop, people. The single largest trading block in the US Gold Futures market, measured by net open interest, isn't made up of banks. It is, instead, an amalgam of commodity trading advisers and other large fund-runners.

Here's a bigger news flash: These money managers are long. Very long. Fully 99% of their exposure is long. They're buyers. Big buyers.

Who's big on the short side? Commercial producers and users of gold. Net exposure for these traders, however, isn't as lopsided as the money managers' stake. About 70% of the exposure maintained by commercial traders is short.

Swap-dealing banks are also net short. And though their concentration is heavier – 83% of their exposure is short – their position size is only half that of commercial accounts. It seems to me that any notion of overconcentration most appropriately applies to fund-runners, not banks.

Can anybody argue otherwise?

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