Jesse’s American Café

Gold and Silver Option Expiration in a Holiday Shortened Week in the US

It's that time again, another option expiration next week on November 23 for the Comex gold and silver options. And it will be a short week because of the Thanksgiving Day holiday in the states.

Generally the game is for the wiseguys on the exchange to stuff the call options buyers by driving the price below the largest groupings of calls. And if a large number of calls are converted to futures positions they like to take the price down again in the two days following expiration.

But keep in mind that the breakout in the metals was done in an expiration gambit that failed, in which the smart money was caught offsides of a failed attempt to push the price down, and fueled a sharp rally on short covering of their own.

James Turk provides a not dissimilar observation in his own way here, but much more confidently seasoned perhaps than your humble proprietaire.

So let's see what happens.

More form MIDAS:

There are a lot of investors who are feeling like the cartel has scored another victory. I would say the jury is still out and there is a lot of evidence to say they are losing heavily in this battle.

Take a look at the gold chart http://stockcharts.com/h-sc/ui?s=%24gold

Then take a look at the silver chart http://stockcharts.com/h-sc/ui?s=%24silver

What is stunning is that gold was sold down to its 50 DMA today which stands at $1330. However, silver has (as yet) got nowhere near its 50 DMA which stands at $23.24. In this entire bull market gold has never sold off to its 50 DMA without silver having first been sold down to its own 50DMA.

This is unprecedented resilience. There is no justification to feel despondent; in fact there is every reason to be jubilant. The cartel has thrown everything including the kitchen sink at silver and it refuses to raise the white flag. The cartel has cooked up two margin hikes in the space of a week by colluding with its partners in crime at the Comex. I don’t think this has ever been done before. Incredibly despite these all out double bombing raids silver stands 10% above its 50DMA. Despite two consecutive days last week where traded silver contract volume was in excess of the total Open Interest for the first time in history silver open interest has hardly contracted. So far silver is proving as indestructible as "the Terminator". Will it succeed in "terminating" the manipulation of the bullion banks? It may not be this week or next but it is surely very close. Silver has put up one heck of a fight and is still standing. In the words of Blythe Masters, Head of Commodity Trading at JPMorgan they may well have made a "rookie mistake"! She was referring to the coal market but they could be setting themselves up for an even bigger disaster in the silver market.

END

If the Open Interest won’t go down the cartel has a problem. Who would want to take the short side with a barrage of lawsuits against JPM and HSBC and a CFTC Commissioner giving his opinion that silver has been fraudulently manipulated and controlled? If no one will be stupid enough to take the short side the cartel is trapped. Here is my theory as to how this will get resolved. The cartel will cover by continually increasing margin until there is no leverage (margin=100% of contract price). This might take some time but eventually you would have nobody wanting to be long because there is no leverage so you might as well buy bullion instead. If there are no takers for long futures then you don't need anyone willing to go short. Problem solved! Open Interest would gradually decline to zero as speculators moved into other markets where they can find leverage. As the longs are squeezed with increased margin the shorts get to cover. This will probably mean prices would not dip very much, if at all, but it would be a way for the cartel to get out of dodge ONLY having to provide fiat money and no physical. Perhaps silver margins being raised twice in a week is the trial balloon to see if anyone screams foul. Will we see weekly margin raises? After the lack of OI contraction in the last 7-10 days I can see this is the only way out without an outright default.

Now the massive problem at the LBMA is a completely different ball of wax. When investors try to take delivery of their "unallocated gold" or silver they will find there is none. Unlike the Comex speculators who don’t really want bullion in the first place and just want leveraged bets on bullion, the LBMA customers are under the impression they already own bullion and it has been fully paid for. There are going to be some very angry customers at the LBMA!
Cheers
Adrian

In gold there were 94Kozs deposited in the customer inventory. In silver 0.42 Mozs were withdrawn from the dealer inventory and 0.013Moz deposited in the customer inventory. The total Comex silver inventory looks likely to have a “106” handle soon. Open Interest refuses to go down but the inventory does….that would seem like a major risk. Instead of raising cash margins Comex should be demanding the shorts deposit more silver; this is where the biggest threat to the integrity of the futures market lies. The Open Interest for DEC is currently 51,905 contracts which is 259 Mozs. This will decline in the next few days but it is still massive compared to the piddling 49 Mozs that is in the dealer inventory! In gold the Open Interest in DEC is 255,883 contracts or 25.5 million ozs…that is ten times what the dealers hold as registered inventory. Next week could see some fireworks.

…The only negative is huge gaps left by gold and silver on the downside. Time and time again the traders go after them. That said, today’s surges, following a debacle the prior week, are more than impressive.