Gold Shortsellers Ran Into a Wall of Buyers

They then tried a second time to push gold under $1240 when New York opened. But the selling in the paper market by the price manipulators was hit by a wave of buying. The buying continued throughout Friday, and gold actually closed near the highs for the day, up $2.30 from the day before. It was another sign of real strength. To back this up, here is the third point I want to make about gold, which provides some solid evidence that I find quite amazing.

There is a little-known feature offered by the Comex called EFPs, which is short-hand for Exchange of Futures for Physicals. These are transactions in which a Comex futures contract is exchanged for an offsetting position in the physical market. These transactions are done off the Comex in privately negotiated deals.

Here’s an example of how it normally works. Let’s assume you want to take delivery of an April futures contract, and the firm that sold you the contract doesn’t have the metal in the Comex vaults. So the short calls you up and agrees to deliver the metal to you in another vault, at a price and on the terms the two of you negotiate.

Given that the short does not want a failure to deliver, the short will often make a concession in the price or offer other favorable terms to get the long to accept. Now let’s look at what happened last week. The following table shows the EFP transactions on the Comex.

First, this EFP activity explains why open interest dropped by 45,471 contracts last week. With that kind of selling pressure, why didn’t the price manipulators drive gold below $1,240? It’s because the open interest did not disappear from selling by weak longs. Rather it disappeared because the longs are strong hands who took delivery – or promises to deliver in the future – through EFPs. The 35,843 EFPs last week were a staggering 79% of the open interest decline.

- Source, James Turk via King World News, Read More Here