Certified Gold Prices Posted by James Randolph on February 25, 2010
February 25, 2010 – A growing number of analysts see the events of the past week as an attempt to manipulate certified gold prices lower in advance of the expiration of options contracts at the COMEX. Concern is growing over dwindling inventories at the Commodities Exchange and what could lie ahead for the country as the economic situation refuses to respond to recovery efforts.
Two significant events have shaped gold news so far this week. First, the International Monetary Fund announced that efforts were unsuccessful to find a central bank to buy the 191.3 tons of gold that it has, and that it is considering public sales to move this supply. The markets were jolted, although commentator Steven Saville pointed out, “The relative insignificance of the gold sale proposed last week immediately becomes apparent once it is realized that… an average of 675 tons of physical gold changes hands via the London Bullion Market Association every day.”
The second event was a Federal Reserve announcement that it had raised rates on overnight funds that banks are loaned to maintain reserves. This is a little-used fund that little impact, but it was seen to signal upcoming rate hikes in other key rates, and had the effect of pushing gold prices down again.
These items are seen by analysts Franklin Sanders and Patrick Heller as an attempt to influence the gold options market, where 5,000 call contracts were set to expire on Tuesday, potentially impacting 30% of the COMEX inventory. Pushing gold prices below $1,100 per ounce would have left these contracts unfulfilled and worthless. Heller comments, “Such extreme measures worry me that there are some horrendous financial developments about to break. There are so many potential crises waiting to collapse that I cannot discern just which ones they might be.”
The news should be important to investors in certified gold. The COMEX went into a condition known as “backwardation” yesterday, where current spot prices are higher than futures prices. This is extremely rare and suggests that a significant price increase is coming. As Heller states, “The safest way to participate in the continuing long-term bull markets for gold and silver is to buy physical metals, not paper contracts, and avoid trading on margin.” Investors should pay close attention to how recent events are pushing gold prices and consider additional purchases of physical gold.
Senior Staff Writer – Certified Gold Exchange