Market Commentary 19th February 2017  

Below is an example of the weekly Market Commentary available to MaguireLive subscribers.

To find out more about all of our services click here

On Feb 6th I warned of a heightened risk of a gold price reset based upon evidence that the all-important physical markets are increasingly influencing the price setting synthetic markets at time we are experiencing extremely strong physical demand into tight immediately deliverable supplies.

I have been drawing attention the increasing outflows of liquidity from the paper markets into the physical markets for over a year now. The last selloff from 1380 in July to 1130 in December provided clear footprints of a disconnect between the 2 markets and bears all the hallmarks that the rigged decline broke the back of the paper market. By December 2016, an ‘abyss’ had appeared between these 2 distinctly different markets, very visible to wholesale market liquidity providers and takers, but also verifiable by the corresponding reported data.

The cobasis, backwardations, GOFO, Opex pricing and structure, SGE premiums as high as $46 per oz., backed up what I was reporting from a wholesale market perspective, which is why we knew with certainty that gold would not settle below 1130, almost $100 above the target of 1045 that almost all analysts were touting. In fact, during the entire selloff from 1380, at no time had ‘fair value’ drop below 1300. (more on fair value later). 

Synthetic players are disconnected from the delivery markets and, as a result, are blinkered to all-important real supply demand inputs, however, officials and agent COT’s, (driving the directional HFT’s), exposed to the physical markets clearly are. Consequently, despite bearish sentiment & momentum having ignited and fuelled a major selloff, (capitulations & sucked in spec short selling), gold bounced exactly at the PHYSICAL support level, NOT the synthetic market target. 1130 PHYSICAL support was well above of the COT/central planners sweetspot and despite evidence they were taking the long side of spec selling, (after expending large short fuel anticipating a much deeper discount), the residual short COT/Official OI lines did not cross equitably at 1130. Even worse, this support rose from there. 

This left sizeable naked short Comex OI & related derivative positions locked out of Futures short cover but worse, leaving COT’s significantly off side on billions of dollars’ worth of bearish derivative bets. Furthermore, recognising CB and sovereign support at 1130, COT’s were forced to front run these physical orders to ensure they wouldn’t fill. Given these front run CB sovereign limit orders were largely unfilled, we have since witnessed an uncharacteristic chasing of price by these buyers. Historically, Sovereign entities and well informed CB buyers were afforded the luxury being able to read synthetic data and relying on fractional deliveries vs. OI, were able to wait for the synthetic non-delivery market to bring price to them. With the physical dog now heavily influencing the paper market tail, this is no longer the case. Each subsequent stair step, 1176, 1204 & 1222 has further locked out commercial short cover. On Friday, although not yet of sufficient size to call solid support yet, the threat of 1232.30 becoming support started to materialise. So close to the Fibo inflection point at 1250.60, such a stair step rise in PHYSICAL support, poses a serious threat that threatens a commercial signal failure.

As noted on Friday in my opening post, “There is always a danger that COT’s can short with impunity when the synthetic price gaps too far above these stair step support levels, however, with support so close under the market and steady physical accumulations noted yesterday at 1240 off Loco London, COT’s have to be careful in shorting into such tight conditions with tightening spreads and a rising cobasis implies that only limited short cover is available. Footprints provide more evidence of an increasingly driven physically market forcing some discipline upon COT’s who although offside on Opex positions are forced to deliver physical.”

To those who are concerned that historical patterns will repeat themselves, there is an unprecedented difference between the December 2016 $1130 bottom and the December 2015 $1045 bottom, this time the physical market had gained sufficient traction to limit the scope of directional HFT behaviour. Why? Because the paper price set in London is ultimately deliverable both on & off Loco London. Dips inspire under the radar OTC spot index buying which members know, lock in the price and when presented for delivery force COT’s to go to market and buy gold to meet delivery. The BOE flywheels daily shortfalls but then lays the liability onto the BB’s who have gold bank account facilities with the BOE.  Note the German repatriation had to wait almost 3 years for the Fed to be able buy gold at market to repay loaned out physical bars.   

The commercial short squeeze is leaving central planners little ability to pay back loaned/leased /swapped gold at anywhere close to equitable prices. Based upon the footprints into February, I stated that there was a potential for price reset in as little as 90 Days. Although this window may possibly be extended to the end of the 2nd Q, the action since my assessment on Feb 6th has reaffirmed my view. 

This naturally sparked off some questions. Namely, what will happen to Futures and option positions in the case of a reset.

From time to time I share specific members’ questions in commentary. This was the specific question I received related to the Feb 6th commentary regarding the inevitable gold price reset. Q. “if the day before the reset I am long both in-the-money and out of -the-money Silver calls on the COMEX, and after the reset I have profitable positions, will I be able to sell my Silver calls for a profit? It sounds to me that if I am long silver calls on the COMEX, I may be frozen out from doing anything.”

To answer this, we have to look at the bigger picture. We looked in detail at how billions of fractionally anchored offside Gold and Silver derivative positions had accrued, (OCC report), while a competing physical market has increasingly preyed on the visible price disconnect below supply demand ‘fair value’. It should be noted that the Cobasis currently pointing to a fair value close to $1350, is anchored upon a 92/1 dilutive fractional reserve price. However, real physically derived ‘fair value’ is unknown and after 4 decades of synthetic dilution since the gold peg was removed, a true price can only be estimated, but clearly and conservatively, several hundred dollars above the current diluted price. This is not just my view, this is also consensus of my largest instuitional clients who are close enough to Sovereign/ CB buyers competing for physical below fair value.

Liquidity outflows into the physical market has created a fracture between the paper & physical markets, now developing into an ‘abyss’ caused by strong physical market demand disrupting fractional reserve pricing mechanisms. Other than the slow train wreck of an unthinkable daisy chain TBTF default, there is only one solution, a paper price reset. 

I use the word ‘abyss’ deliberately and draw your attention to the most prominent recorded paper price ‘default’ evidenced in 1999. This was when GS spun out of control after being hung with the auditable recorded 100/1 naked short gold position that LTCM had accrued before they failed. To avert a TBTF daisy chain BB default, in an emergency move, GS was bailed out by the BOE 400 tonne PHYSICAL gold sale known as ‘Browns Bottom’.

Shortly after the Bank of England bailed out Goldman Sachs in 1999, Eddie George, governor of the Bank of England, facing a Goldman Sachs bankruptcy admitted the following, these are his exact words. ” We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore, at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.”

Eddie George’s career had seen him seconded by the BIS & the IMF and, after he retired, sat on the board of NM Rothschild. No one was closer to the inner workings of the Loco London Gold market.

This was a price reset enforced by central planners/Officials and, as quoted by ‘Steady Eddie’, “at any price, at any cost, the Central banks had to quell the gold price”.  Yet, here we are again, 100/1 short & with physical demand at unprecedented levels, only this time, there is zero PHYSICAL gold to flywheel to dilute supply and “get the gold price down”

We are witnessing an unprecedented condition, because never before has the physical gold price been set outside of officials control. With liquidity flowing out of the paper markets into the physical exchanges off Loco London, Synthetic attempts to swamp supply simply cannot be of sufficient duration or scale for central planners to bail out the banks embedded positions. Much of these BB positions have been accrued at the behest of the BOE, the FED and the all-controlling BIS trading desk.

 As a result, these agent BB’s are once more teetering on the edge of the abyss, exposed to billions of dollars of naked short derivatives exposure, accrued since 1999. With the spot price ultimately deliverable outside the LBMA casino, without physical to meet discounted demand, selling paper gold below official demand is going to tip these TBTF banks into the abyss.

So here in 2017, and aside from an unthinkable default, this is how a cash settlement will play out. The conduit was already set up in July 2011 where Dodd Frank blocked US citizens from trading FX gold in the OTC LBMA market. Not long after, the CME brought in fresh halt trade rules that can freeze Comex OI for 5 mins, (options 3 mins), while the OTC spot market can trade unaffected. This ensures that any black-swan event that spike gold higher during a live session provides a back door to LBMA BB’s operating on the Comex to offset or indeed profit enormously by going long in the OTC markets, while the hot money and US traders are hung out to dry.

Given that insiders, the market making COT’s and Officials, are able to offset short positions off the Comex, as soon as the Comex reopens, another freeze would be imposed as the price would be halted again. This action would continue into the market close so that a more structured reset can be imposed.

Given the hundreds of tonnes of underwater short positions, offsets on the OTC markets will be massive and will essentially break the market as the price rise on the Comex and the multiple market halts will exponentially ramp up the OTC bid. Bear in mind, there is a 92/1 fractional reserve imbalance and with the rise in Physical prices AND THE FRESH DEMAND, there is no way Officials or BB’s, short thousands of tonnes, (many years’ annual production), could survive without there also being a cash market reset in London. This is why it is important to have physical gold and silver vaulted outside of the western banking system. The FX gold market cannot cease to operate, so the reset will benefit insiders who will have placed massive long bets to offset shorts ahead of the reset. Silver will rise with gold in a similar way.

The BB’s have been delivering gold out of unallocated bullion accounts with a paper guarantee from the BIS that it will settle these BB ledger entries. Given the BIS has direct exposure to the physical market, they will coordinate this event. I see a cash price reset as an already planned event that will avert any embarrassment that a TBTF tax payer supported bank will default. The only orderly way to affect such a reset will be to instigate it over a weekend.  

We are approaching the point where, once more, the FED/BIS is looking into the ‘abyss’ and this ‘non-default’ bailout reset will be triggered. They will simply square these entire paper entries one market close for cash at the closing price with the stroke of a key. Spot gold holders will be insulated as it would be virtually impossible to default on a FX cross. I.E., a short dollar long gold position that trades a part of a 5 trillion a day FX market.  However, all unallocated LBMA gold account holders will be settled with cash on the prior day’s pre-gap price rise.

To eliminate billions of dollars of derivative exposure, all derivative positions will be marked to market at the reset point. The Comex cannot afford to ‘default’ but has the option of cash settling positions without it being considered a default. However, with insider BB’s being able to offset Comex positions in the OTC markets ahead of the reset, it is possible Comex options and futures may survive the reset, it is the naked short portion of hot money short positions that would be at risk. I would be looking for COT’s footprints to be going uncharacteristically long in the OTC market to provide this clue. It is the wholesale market footprints that will give us advance notice of a price reset. I am already seeing the early warning signs.

We will shortly be able to offer our clients Electronic Vault Warrants (EVW’s) on our ABX platform. This will allow physical holdings to be margined up to 80%.  Once these warrants are launched, I see the Comex as finished and if the reset has not been triggered before this launch, I see this as the final trigger, as there will be little incentive for traders to trade in the casino. If you wish to open a live ABX MetalDesk platform here is the link.   There is no immediate requirement to fund it, but this will provide you the conduit to electronically trade wholesale physical when you are ready.

For margined traders looking to actively trade zero counterparty risk physical gold and silver outside the US Comex rigged casino, then preparing the Comex alternative is a step that could be taken now. It costs nothing to set up the trading platform and there is no obligation to use it but it can be ready to utilise.

The beneficiaries of this Comex ‘default’ will of course be the Physical exchanges to which large size institutional liquidity is already flowing. The Allocated Bullion Exchange, (ABX), is a 100% physical exchange and has no skin in the game, so our clients, who have segregated vaulted bullion holdings, will have accounts that 100% reflect the re-setting PHYSICAL price. Exchanges such as the SGE will also benefit from a price reset. I will update this timeline within 2 weeks.

The COT Report

For a change, this week price settled very close to last week’s cut off, so although grossly stale dated it provides us a little more information than usual. The 2-way rinse of the GC 10 DMA and 100DMA and the 10DMA in SI rinsed out some hot money froth. Bottom line, this purposefully delayed report still reveals an increasingly bullish setup in GC where OI fell by 415 lots into COT short covering and some evidence confirming the footprints we observed relating to the crystallising of opex related losses, concurrent with forced long delta hedged futures buying to offset large offside derivative exposure into an increasingly physically driven market.

Same actors in SI however, are being squeezed hard around strong front month opex resistance at 18.000 where offside options expire in just 4 trading days. Further out, the opex curve improves with footprints suggesting a move to resist at 19.000. The close above the rising 200DMA on Friday, (which will be at 19.967 on Monday), was very bullish and is creating a real concern for COT’s currently locked out of short cover. We should expect a fight this week but given the fundamentals and a strong physical market, this will serve to compress the rebound spring & once opex is in the rear-view mirror, watch out above as a test of 19.000 will have breached the 18.575 618 Fibo which will draw in large COT short cover and concurrent side-line long interest. I see this as the trigger to test the July 21.225 highs. Hence, the anticipated mandate to avert margin calls by banging the SIH7 close sub the 18 level on Friday.

In GC, the predatory swap dealers, (GS Citi etc.), cut their net short positon by a very large 5,565 lots, reducing their total net short position to 35,358 lots.

The COT snapshot conversely captures hot money cutting their net long position by 6,524 lots reducing their net long position to 63,625 lots. 

This week, the PM’s, (the 2 primary BB’s acting for officials), exposed to the physical market, cut their net short position by 793 lots, the total PM net short position is still a large 92,430 lots and as noted last week, continues to be locked out of short cover sub 1222.60 with the risk of this PHYSICAL support stair step rising to equivalent 1232.20. With officials scrambling to meet delivery demands into a very strong physical market and relying on a rate hike to see capitulations in gold, which would be capitalized upon by a global physical market, I see a cash market reset as the only viable non-default solution.

As a reminder, not all remaining COT short positions are naked, so the headline OI structure is not fully reflective of the true naked long short balance.

In SI, and in defense of a deeply offside opex structure, Swap dealers increased their net short position by 4,367 lots, increasing their total net short positions to 37,313 lots. As noted above, SI evidenced some improvement in the opex structure after the breach and hold of the 200 DMA into the end of the week. I see worst case, an opex rinse down to very strong support at 17.500 which would provide physical buyers a large accumulation opportunity.

MM’s once again increased their net long position, this time by 6,505 lots, raising their net long position to 72,166 lots.

The PM’s, 2 of whom who have cornered the silver physical market, increased their net short position by 1,948 lots, leaving a total net short position of 61,714 lots. As noted during the week, JPM, who hold 5 years of mine production in physical form, would actually benefit from a squeeze of specs and 2nd tier COT BB’s

The GSG Team Summary


GC remained largely sideways until selling commenced at the NY open. This continued until after the PM fix whereby GC rose into the Pit close and then continued sideways into the market close.  

High:    SI-18.015, GC-1234.40                                                            AM Fix: 1229.40

Low:    SI-17.755, GC-1220.30                                                             PM Fix: 1222.25


GC rose during the Asian session and despite a dip at the London Open, rose again into the NY open. Selling came on in both metals with Yellen speaking and this continued through the PM fix. After the Pit close, buying came on.

High:    SI-18.090, GC-1236.00                                                            AM Fix: 1229.65

Low:    SI-17.730, GC-1222.70                                                             PM Fix: 1230.75           


Selling was seen during the Asian session. GC then remained largely sideways until the NY open, where strong selling was seen taking GC below the 100DMA. Strong buying then came on with a recovery of the 100 DMA and this continued into the market close.

High:    SI-17.990, GC-1234.90                                                            AM Fix: 1225.15

Low:    SI-17.555, GC-1217.50                                                             PM Fix: 1224.40


GC rose initially during the Asian session and despite some selling prior to the London Open GC, (and SI), continued to rise until after the PM fix. SI rose through the 150DMA. There was a pullback into the Pit close.

High:    SI-18.140, GC-1243.70                                                            AM Fix: 1236.75

Low:    SI-17.935, GC-1233.30                                                             PM Fix: 1240.55


GC and SI were largely horizontal into the London Open. Crosses related to gold significantly improved and despite the fully anticipated end of week profit taking & COT’s banging the close, concurrent with SI sub 18.000, closing GC sub the 1236.90 competing algo bull pivot, related to 1256.10, GC finished well ahead of a building aggregation of support at 1232.20.                                       

High:    SI-18.095, GC-1245.10                                                             AM Fix: 1241.40

Low:    SI-17.970, GC-1235.30                                                              PM Fix: 1228.30




No US based news.


3rd Tier Redbook at 1355; previous was 0.4%. 2nd PPI Flash Estimate Markit at 1445; est. at 54.8.


1st Tier Existing Home Sales (Total Sales) at 1500; est. at 5.55M.


1st Tier Jobless Claims at 1330; previous was 239K. 3rd Chicago FED at 1330; previous was 0.14.


1st Tier UOM Consumer Sentiment at 1500; est. to have fallen from 98.5 to 99. 1st Tier New Home Sales (Overall Sales) at 1500; est. to have risen from 536K to 568K. 3rd Tier ECRI at 1530; previous was 11.1% (Weekly Annualized) and 144.5 (Weekly Index).


After some risk on roiling this week, I see risk off to be the primary driver. Offside Opex positions will create some drama, especially as the Daily charts are overbought, however, from a wholelse perspective, the focus is on accumulations with the Weekly and Monthly charts evidencing an oversold condition which, when viewed concurrently with a ‘fair value’ closer to 1350, is going to see strong physical buying into anticipated opex defence. If this fails to provide a pullback, the very large physical buyers I have identified are going to have to raise bids. I see any pullbacks as shallow but should once again provide some good opportunities to gain a little alpha on our medium and long term embedded long positions.


I will update all levels in London Calling shortly.

Warm regards


Copyright© 2017 Andrew Maguire. All rights reserved      

To find out more about all of our services click here