This is going to unleash gold and silver prices significantly higher.
May 14 (King World News) – Alasdair Macleod: Tonight’s Commitment of Traders Report saw a big jump in open interest, of 28,352 contracts. It was the Managed Money category doing the buying to the extent of 27,990 net contracts. Remember, that the neutral position is net long about 110,000 contracts, so at 81,615 there is still plenty of buying to be done before it gets overdone.
The Swaps (bullion bank trading desks) are deeper in the mire, having gone short an extra 21,613 contracts. The situation for them is our next chart.
The value of their gross shorts is $41bn and net $29bn. This is a serious setback for them, and ahead of new Basel 3 rules being introduced there is limited time to level their books.
At the end of June, European and Swiss bullion bank trading desks will find that there is a penalty rate of 15% on unallocated gold positions on the asset side of their balance sheet, and on liabilities, excepting properly hedged positions, they cannot use unallocated gold to fund any assets. The penalties of this new regime will effectively remove them from trading both on the LBMA and on Comex. That applies to ten LBMA member banks.
Worse still, the same regime is to be introduced for UK banks at the year-end, which means that all LBMA banks will find it not worthwhile to deal in unallocated gold. All LBMA member banks will be faced with the same decision to quit derivative trading in both gold and silver. So, the number of Swaps operating on Comex will fall dramatically, and liquidity will dry up, the principal non-spec providers becoming the Producers and Merchants category. And in our headline table, we can see that they currently provide less than 30% of the liquidity available for all speculator categories.
The price implications are very bullish, because between London and Comex, some $340bn of synthetic gold supply will be withdrawn. That leaves buyers, who thought they had gold, albeit unallocated, scrambling to get hold of physical bullion at a time of accelerating inflation.
So far, the market has generally ignored this Basel 3 problem, but in the coming months it will begin to force the bullion banks into winding down their short position on Comex. For the Swaps it is a race to close against increasingly limited time, which they are losing.
Also of importance…
Eric King: “Joe, can you talk about these results and why they have shareholders so excited?”
Unparalleled Silver Grade
Joe Hebert: “Eric, I think one of the things is no one sees 8+ kilo silver samples very often — almost never. It is also expanding one our shoots to the north where we will now be preparing to do deeper drilling in all of the shoots. But displaying that type of mineralization at higher grades has the stock surging on the upside.
We are also in a position where the tighter we drill it, generally we should be seeing an increase in thickness as well as grade. That is something we want to demonstrate with this round of drilling. This has such high grade that people are now simply counting the number of high grade shoots we are putting together, and the next wave of drilling should take the project to the next stage. Meaning, if we hit 10 or 12 shoots, these things are of such size that we would start hitting the magic number that everyone wants to see. And the grade, Eric, is just unparalleled in South America.” Outcrop Gold, symbol OCG in Canada and OCGSF in the US.
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