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Ross Norman: Gold is defying gravity
7:13p ET Tuesday, July 2, 2024
Dear Friend of GATA and Gold:
Ross Norman, former proprietor of London bullion dealer Sharps Pixley, now CEO of Metals Daily, writes today that the price of gold has been rising not because of genuine physical demand but because of options buying on the Shanghai Futures Exchange.
Norman writes: "The initial effect on spot gold -- intended or not -- was to bring about a 'gamma squeeze.' The Chinese buying gold calls (on the expectation prices would rise) leaves the other side to the trade (bullion banks) temporarily short (gamma) or gold and vulnerable to a rise in prices.
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"Typically on granting those calls the bullion banks would purchase the equivalent to about half their exposure. Problem is, if these positions are sufficiently large, then their buying/hedging itself drives gold prices higher and so they have to purchase more gold to more fully hedge themselves as gold moves towards the strike price -- which pushes prices higher again, and so on.
"You become trapped in a self-fueling cycle that pushes gold onto an entirely new orbit divorced from its fundamentals ... or even reality. This might also explain why gold is yo-yo-ing in a range well above what most investors would consider 'fair value' ... while physical demand is through the floor.
"In short, gold is defying gravity."
Norman's analysis is headlined "Gold Price -- Out of This World?" and it's posted at Metals Daily here:
https://www.metalsdaily.com/archive/ross-norman-gold-price-out-of-this-world-/356660
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
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