Along with little price activity… there wasn’t big volume on Wednesday, either… certainly far less than on Tuesday. Gold volume, net of all spreads, was only around 76,000 contracts… and silver’s volume was 30,000 net.
The big increases in open interest that I feared would materialize from Tuesday’s trading came to pass just as I thought they would. Open interest in gold soared by 11,337 contracts… while silver’s o.i. was up a real chunky 4,291 contracts. Maybe JPMorgan and the boys weren’t covering like I assumed they were? Ted and I discussed that possibility.
But, after an e-mail exchange with Carl Loeb yesterday, Ted sent me the following… “The mystery of the big increase in open interest in silver [and gold] on Tuesday may be explained by the option exercises yesterday. I forgot about them until Carl suggested that [that] might be the answer and I think he’s right. Certainly, the number of call options exercised yesterday [shown in Wednesday’s daily bulletin on options] shows about the same number of calls exercised in each, to the increase in futures open interest.”
In a nutshell, it was options expiry in both gold and silver on Tuesday… and a lot of in-the-money call options got converted into futures contracts. This drives up the open interest… but has no effect on the price because the futures contracts were at strike prices below the spot price.
What’s really interesting about this, is… who are all these long option holders that switched over to futures contracts? Since it’s the buyer of the call option that has the right to convert his option to a futures contract, it will also be interesting to see who the unlucky short holder are that got dragged along [probably kicking and screaming] on the short side of this futures contract. Was it a tech fund… a bullion bank? We won’t know that until Monday’s Commitment of Traders report… along with the release of the January Bank Participation Report.
It’s also impossible to tell whether this is a positive or a negative. But, if I had to bet ten bucks, I’d say it’s very bullish… however, the truth of the matter is that we won’t have any indication of which it is, until Monday.
In Far East trading earlier today, there was nothing much happening price wise that was worth noting. But now that London is open, things are looking somewhat more interesting… as silver is sitting at $30.90 spot [up 30 cents] as I write this paragraph at 4:54 a.m. Eastern time. Gold is up a couple of bucks. There’s no volume in gold worthy of the name… and silver’s volume is pretty chunky by comparison.
Whether or not this is my last column of the year is irrelevant at this point… as I must stop and express my gratitude to you as a reader for spending the time every day to read what I have to say. I must also extend gratitude to those readers whose continuous contributions have added to the richness of this column. I am not understating the fact that, without them, this column would be only a shadow of what it currently is.
So I doff my cap to my regular contributors… U.D., G.G., Washington state reader S.A., Swiss reader G.B., Russian reader Alex Lvov, Australian reader Wesley Legrand… plus Australia’s Nick Laird for all his great charts over the year. I also thank Ken Metcalfe, Scott Pluschau, ‘David from California’, Florida reader Donna Badach… and where would I be [as one reader kindly pointed out] if Roy Stephens wasn’t around? A special thanks to you, Roy.
This column would also be greatly diminished if I couldn’t fall back on the writings and preambles of my friend Chris Powell, GATA’s secretary treasurer, whose extensive work has graced this column virtually every day without fail.
And last, but certainly not least, is my friend Ted Butler. As you know from what you’ve read earlier in this column… and in other columns over the years… Ted was pounding at the gates of the silver price manipulation scheme long before any of us even knew what the Internet was… or knew a thing about silver… other than what we’d heard about on the Lone Ranger. It is his fight in silver [joined in 1999 by GATA in gold] that has taken us to this point in history.
And don’t kid yourself, dear reader… this is history in the making. They will be writing about the big rigs in the silver and gold markets for centuries to come. We should all be grateful to be part of what will be one of the greatest financial events in history.
And, behind every column that I write, stands a small group of people in Stowe, Vermont that keep me [and this column] on the straight and narrow. This would include Dody Day, Veronica Charette… and Clara Rosenthal. But my biggest thanks of all goes to a young lady named Juli Placek, who drags herself out of a nice warm cozy bed every weekday morning at 4:45 a.m. Eastern time, to ensure that this column is posted before most North American readers are up and about.
2010 was a hell of year… but it’s going to be 2011 that goes down in the history books.
I’m still ‘all in’.
Happy New Year!
