Unpegging the physical gold from the paper gold price

Only Money is physical gold, and nothing else.

Posted by John Werther on May 1, 2017

Physical gold price is nowadays merged with the paper gold price. The merger grants a green light to the fraudulent rip-off of the physical gold owners by the means of the price manipulation.

The gold price defined on the various exchanges and on the internet is the gold price of speculators, offering a right to deliver the physical gold, not the physical gold itself. This right of delivery is shortly named as paper gold. From having a right for gold delivery to the physical delivery is a long way to go; the exchanges went extra mile to make the process difficult and expensive. Above all, the paper gold price is the only price published, marketed to be relevant and provided at the exchanges.

On COMEX, the gold futures market of the western world, usually less than 3% of all buyers are requesting the physical gold delivery. Above all, buyers can demand this exclusively at delivery months, which is only six times per year.

Thus, the 97% of the contracts traded on COMEX are bought without physical gold delivery, creating a huge impact on the price of the delivered 3% physical gold.

In the result, the price of the physically delivered gold depends solely on the price of the undelivered gold, defined as paper gold. Since there is no difference in the price or trading of the undelivered futures contracts and the delivered ones, the price of gold shown on the exchange represents almost entirely the paper gold.

This paper gold price over-representation in the “market price” of gold leads to price manipulation by the market makers, for they are allowed to create futures gold contracts out of the thin air. How do they manage this infamous game?

When a buyer sets a buy order on the screen, every market maker on COMEX (or other gold futures exchanges) can create a new paper gold contract out-of-the-thin-air and sell it to the buyer. In the result, the market gold price is not affected, since the bought gold was not sold from the existing limited physical gold supply, but was newly created just with the purpose to absorb the new appeared buyer’s demand. In reality, it is giving nothing to the buyer for his real money.

If the buyer’s demand would have been covered with an offer from the existing limited physical gold supply, the gold price would change, since there is one gold offer less, absorbed by our buyer, on the market. Yet, on COMEX (DGCX, or other existing gold futures exchange), the scenario is completely different, the successful trade had almost no impact on the gold price and most people are not even aware of this fact.

What happened in the moment when the buyer’s demand for gold was set-off with a newly created paper gold contract not existent before? Only the volume of paper gold contracts traded on the exchange changed. This figure is called “open interest”. The buyer has not purchased the physical gold, just a promise, which may or may not be fulfilled if requesting delivery on the end of a delivery month.

Due to the existing limitations, which are un-favoring the physical delivery ending of the open interest future contracts, only less than 3% of those end up in a physical delivery. The market making creator of the paper gold contract has therefore larger than 97% chance of not having the obligation to deliver the contracted gold to the buyer.

The contract creator has subsequently his aim pointed in only one direction: to create many more such contracts and sell them to more new coming buyers. Result of this behavior is the falling of the gold price. The falling gold price affects the buyers to sell the out-of-the-thin-air created contracts back to the market maker to avoid the margin call. The buyers are forced to accept losses as the result of the price fall. The market makers can create the sold contracts out of the thin air, but the buyers had to pay real money for their purchase. The inequality of the positions is obvious.

The game is simple. To prevent further costs of the market makers, the sell-off of the newly created contracts occurs during the sleepiest trading hours, usually shortly before the opening of the exchange or after it is closed, on a market on the other side of the globe.

To fight the game and turn the odds in favor of the worthy market participants is possible and quite simple. The solution is trading on COMGEX, the revolutionary physical gold market.

On COMGEX, the spot price of physical gold is unpegged from the paper gold price. In such way you can make a qualified choice to purchase physical gold when its discount or premium in relation to the paper gold price reaches the pre-set limit defined solely by yourself.

There is no possibility to create paper gold contracts on COMGEX to be sold to physical gold buyers. Since such possibility is omitted, the price manipulation of the physical gold price is almost impossible by the leveraged speculators.