Wednesday, September 28th, 2016 MST

“Super Magnet” placed in gold call market

One of my long time clients, who makes his living trading gold and silver, sees a “Super Magnet” being placed in the gold call market. Below is how he describes the recent action.

A ”Super Magnet” was placed yesterday with roughly 37,351 new Comex gold call options in the February 2014 option cycle.

10,546 calls were added at the $2,100 strike price, costing something like $24.20 per ounce, so one option contract would cost $2,420, or roughly $25,521,320 for this position.

8,250 calls were added at a newly created $2,300 strike price, costing something like $12.60 per ounce, so one option contract would cost $1,260 for a rough total of $10,395,000 for this position.

10,000 calls were added at a newly created $2,400 strike price, costing something like $9.60 per ounce, so one option contract would cost $960, for a rough total cost of $9,600,000 for this position.

5,000 calls were added at a newly created $2,700 strike price, costing something like $5.00 per ounce, with one option contract costing $500, for a rough total cost of $2,500,000 for this position.

2,625 calls were added at a newly created $2,780 strike price, costing something like $3.50 per ounce, so one option contract would cost $350, for a rough total cost of $918,750 dollars for this position.

So, the approximate grand total cost for this CALL OPTION loading into the February 2014 option cycle comes to $48,935,070.00. Let’s say $50 MILLION in round numbers.

With a total of 42,230 new call options added yesterday, of which 37,351 were added in the February 2014 option cycle, the total Comex call option open interest increased yesterday (January 15, 2013) by 6.14%! This was a huge increase by historical norms.

This call action could be a result of several pending new issues, one being the new dispute between the South African government with the mining industry. Another pending development is a fight over raising the debt ceiling. Additionally, in Europe there are ECB suggestions of currency devaluations, and the situation in Japan could very well be spooking the currency markets. Any and all of these developments might be yet another excuse to “buy option insurance” on gold.

The last time a “Super Magnet” was placed was back in July of 2012 when gold was bottoming out. That “Super Magnet” was done over several days. Yesterday’s action was far more dramatic.

The July 2012 “Super Magnet” was at strike prices far lower than those shown below and had the effect of pulling gold prices higher from the low $1,500’s to just short of $1,800, where a roadblock was built with a huge net call position in the December 2012 option cycle. If it wasn’t for that road block, I think gold would have gone a lot higher, perhaps over $1,900 back in the fall.

Anyway, this “Super Magnet” possibly could put enough upside pressure on prices to finally get gold past the $1,800 mark and perhaps to new highs. If the time frame holds true, the spike in prices should kick in sometime in early February and run perhaps through April or May 2013.

What will be interesting is to see if there are additional calls placed over the next several days.

3 Responses to ““Super Magnet” placed in gold call market”

  1. Wind

    How much do you think the German repatriation of its gold reserves will affect the market going forward? Seems like it should be the thing on everybody’s lips for quite some time.

    Reply
  2. bill

    Germany’s repatriation of its gold is evidence that the world is moving back toward a gold standard, or, perhaps more accurately, that gold is being “remonitized.” If gold has no value, as proponents of fiat money assert, why would the Germans want absolute control over the gold they own?

    Reply
  3. David E.

    I am somewhat surprised this hasn’t already happened. The gold market is being manipulated. There isn’t enough will or enough gold to give Germany what they want on short notice. Hedge funds are sitting on billions of investor money that needs a high rate of return. A $50 million dollar bet against the paper gold market not being able to deliver 4.2 million ounces of gold sounds like a very good bet to me.

    I have read several people that said manipulated markets can’t last forever. This sounds like a test to find out how much physical gold is available at $2780 or less. The gold market is so small compared to stocks and bonds. What is the date for making notice for physical delivery on these call options? How many other countries will request delivery of their gold between now and Feb 2014? (Imagine gold having the same demand as recent events created for “assault weapons” when the government started talking about restricting access.)

    Reply

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