Precious Metals Jump As China Unwind Fears Spread

Tyler Durden's picture

While we have become conditioned to accepting the morning meltdown in gold and silver prices that occurs with all too frequent visible-handedness around 8amET, this morning's mini melt-up is odd for 2 reasons: 1) It's Tuesday, which means sell everything that's not stocks; and 2) as we explained here and here, the unwind of the China CFDs could well lead to a notably higher gold (and silver) price as the forward hedges are lifted.



As we noted here, if we are right that somehow China managed to push gold lower via gold CFDs, then the unwind pushes gold higher:

Here's how that might work:

In the gold markets, the paper or synthetic 'demand/supply' dominates pricing as opposed to the non-precious metals which have at least a grain of fundamental sense to them still


Throughout 2012/2013 - as the gold CFDs were booming, Chinese demand for physical gold was soaring as the price plunged (due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing)


As CFD unwinds hit en masse, these flows must unwind (cover hedges and ensure the underlying physical is there... and if not buy it)


This will pressure gold futures prices higher and because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also (as we know the demand for the physical has been high).


Charts: Bloomberg

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SoilMyselfRotten's picture

Gold bumped up $10 only to retrace back into its $2-3 trading range? 

smlbizman's picture

just the other day we learned that no supply equals lower prices.....i guess we will have to wait for the third article to be used as a tie breaker....

Quinvarius's picture

Also printing trillions in currency and then lending out 10's of trillions to the banking system on top of that is considered deflationary.

Pool Shark's picture



Funny that platinum jumped $25 well before gold made its move this morning.

Any theories as to why platinum would be the first to move?

ParkAveFlasher's picture

Don't take offense to this, but, BULLSHaT.  The price is up for one reason: because it isn't down.  If the opposite happened, I would make a very similar assertion as to why.  Either you believe one thing or believe another, and you will hear one thing or another, but don't waste your mental energy making, affirming, or chasing explanations that you have no way of proving or verifying with your own eyes.

Doubleguns's picture

Platnum mines are flooding becuase of the strikes and a lack of maintaining equipment. Also South Africa's government has pulled out of mediation efforts between major platinum producers and striking workers, saying the talks are deadlocked.

BrosephStiglitz's picture

We are probably living in a Matrix-esque computer simulation.  The robots took over the world in '98, "Wake Up Neo", "There is no spoon" blah blah blah..

Or maybe the big fish are diving headlong into PMs and Platinum pound for pound is the easiest store of massive wealth.  Who knows.

PS: Anyway this is the third big pump in a week, silver has not broken below its 2013 low.  Under normal circumstances I would like to say that this particular tea leaf is a bullish indicator, but in our contrarian back-to-front, Alice in Wonderland like make believe economy it probably means gold will be worth -1000 dollars per troy ounce by this date next month.  The Fed will be talking about the barbarous relic which has negative value (economic "bad"), the banks will continue to bend their customers over, Bernanke will be tap-dancing on Milton Friedman's grave and Joe sixpack will be oblivious of the spark igniting the hydrogen in the current Hindenburg Economy.

Sudden Debt's picture

wake me up at silver 21$ before we can talk about a leg up

Quinvarius's picture

Goldman assured us missing supply was bearish.  All of their models said the Ukrainian conflict ended 2 months ago and missing supply means price drops.

MFL8240's picture

More games to divert peoples attention away from DC and the follies they call the US economy!

jubber's picture

perversely though Hong Kong futures are screaming higher where most of these Banks are listed

kaa1016's picture

I don't know how gold and silver trade from here, and I've been very bullish of stocks (shit, I just sounded like Dennis Gartman) most of this move higher, but I just have a feeling that this whole Chinese shadow banking sector could be the trigger that hits all leveraged parts of the financial system, just like subprime did in 2007. That was a period in which the trouble was there for people to see and the markets moved higher, yet few knew the impact that it would have over the next 18 months. Could the taper in 2014 have the same effect as the Fed raising rates in 1999/2000 and 2007 on a leveraged financial system? We'll see.

oddjob's picture

Or this path, I wonder how many times DB sold that gold froward.

Veris must pay $89.44-million (U.S.) to Deutsche Bank

2014-06-03 20:18 ET - News Release


Mr. Francois Marland reports


Veris Gold Corp. has received notices of early termination date dated June 3, 2014, from Deutsche Bank AG, London branch, with respect to payment defaults under the two forward gold purchase agreements between DB and the company.

Under the forward gold purchase agreement dated Aug. 12, 2011, the effect of the receipt of the notice of early termination date is that the company must make a payment of $77,239,320.56 (U.S.) on June 9, 2014, by 5 p.m. PDT, failing which payment DB shall take such steps as necessary to enforce its rights against the company.

Under the second-lien forward gold purchase agreement dated Feb. 7, 2012, the effect of the receipt of the notice of early termination date is that the company must make a payment of $12,204,978.98 (U.S.) on June 9, 2014, by 5 p.m. PDT, failing which payment DB shall take such steps as necessary to enforce its rights against the company.

The two agreements are described in more detail in the company's news releases dated Aug. 15, 2011, and Feb. 8, 2012.

The company's restructuring special committee is considering the company's alternatives with respect to these notices and will be making recommendations to the board on an urgent basis.

We seek Safe Harbor.

© 2014 Canjex Publishing Ltd. All rights reserved.


youngman's picture

Platinum is up because of the failure of the strike talks in Africa...they were not successful...

Dr. Engali's picture

It will be knocked down in good order. I don't think that paper market responses in PMs to a paper market collapse in copper are long lived.

Took Red Pill's picture

But it's Tuesday. Gold & Silver are supposed to be going down!

Cognitive Dissonance's picture


Your Tuesday has been rehypothecated and is now Thursday....unless it is the second Tuesday after the sixth Thursday of the month. Then it is Monday.

Squid-puppets a-go-go's picture


we now announce the NWO amendments to the working week

monday, tuesday, tuesday, tuesday, tuesday, tuesday, wed thurs fri

disabledvet's picture

This will push the DOLLAR higher as the fiction that anyone has any of those is realized.

The USA is still producing he greatest amounts of liquidity and free cash flow in her history...and should all the too big to jail banks decide "they're too important to have even comptetion" they can think again.

There are banks I this country that are swimming in deposits and are now fully deploying that bank capital (Buffet as Mr Energy now.)

I think the monopolist rent folks are dead meat. The uS private sector might not be hiring but it is booming.

Herdee's picture

The timing of this is very interesting considering the London problems around "the fix" or bank manipulation to be exact.As well,China has invited major world banks to take part in physical gold markets opening up in different parts of China.Others are coming onstream throughout the world.This will start to normalize the gold price as world governments are now desperate to create inflation or create more bubbles for the Keynesian ponzi in order to make government debts look smaller.You can only continue to "suck" so much of the wests' gold through London so you'd better create another market to get the rest of it by reducing risk.

Wild Theories's picture

But... what if they don't release the physical even if prices do go up?

Save_America1st's picture

please, Evil Empire...don't let PM's jump up above 19 and 1260.  We like them down here.  The longer you supress fake paper PM prices, the more we get to stack phyzz for as little debt-based fiat shit paper as possible.  And we like that very much. 

So release the monkeys now please!!!  Hammer those paper PM's back into submission.  I've still gotta lotta stackin' to do, bitchez! ;-)

Pareto's picture

+1 for "debt-based fiat shit paper".

maskone909's picture

"make no mistake"(over-used expression coined by politicos), once they come up with completely rediculous rational for this china situation, pms will get slammed like a motherfucker.  "great rotation" "cash on the sidelines" "where are you putting money to work in these markets?"

billsbest's picture

We are not convinced of a power breakout until we see the mind-blowing spikes of past breakouts in silver bull markets. I'm talking .65-$1+ power moves. Control is still in the hands of the manipulips.