Historic Low in Gold Open Interest Something Very Weird is Happening | Rafi Farber
Summary
Transcript
On today’s show, we are going to teach you that whatever the group decides is always right. And if you disagree, then you’re just a troublemaker. Hey, guys. Raf here from the end game investor. And today we’re going to talk about open interest. Open interest is the amount of gold derivative contracts, gold futures, specifically on the Comex, that are open at any given time. They have almost never gone below 400,000 contracts since the 2008 financial crisis, but they are on the verge of breaking below 400,000 contracts any day.
We are right now at 407,111 contracts. As to the last data point on the Comex website, and low open interest numbers could mean a number of things. It could just mean that there’s very low interest in gold at all. Nobody wants to speculate it long or short. That’s possible, but I don’t think that’s the case, especially with the monetary developments that are happening right now. That could be it, but that’s usually when we’re in the depths of a bear market or that’s when it was last time.
And gold is right on the cusp of new all time highs. So I don’t think that’s it. The other reason could be that we’re on the cusp of a financial crisis, which is what we saw in 2008. And why would that make sense? Because when you are long or short gold contracts, you give up dollars, right? You put either dollars on margin or you give up dollars to go long.
Either way, you’re short dollars. And if banks are trimming their shorts and longs do not want to speculate, that might mean we are in the midst of a dollar crunch, where dollars are needed more than speculators and speculations. And so we could be on the cusp of a financial cris as signaled by the low open interest in gold futures. Anyway, we’re going to get into some charts here to show you what these numbers corresponded or correlated with in the past, and you’ll see why.
I think something really interesting and really strange is going on in the gold market. First of all, this video is brought to you by the dirty man safe. If you want to support what I do and support this channel, the best way of doing that is to acquire a dirty man safe for yourself. This is the new landing page. You can see a floating dirty man safe here.
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This is the gold price. This is not open interest. So don’t get confused. I’m just showing you what the gold price did in dollars when last time we hit around 400,000 contracts in open interest. And that is that red circle over here. In late 2018, we hit about 400,000 contracts in open interest over here. And from then, we had a massive rally from about 1160, 1170, something like that, all the way to 2080 in August 2020.
But the reason why you can have such strong and persistent rallies after a low in open interest is that there’s a lot of fuel. If there’s not a lot of people long, not a lot of traders long, that means there’s a lot of fuel for them to get long and push price a lot higher, which is exactly what happened the last time we had 400,000 contracts in open interest.
We’re going to go to a wider chart here to show you what happened in the longer term since 2008. This on top here is the gold price, and this on the bottom is open interest. So you can see three times since 2008, open interest hit numbers below 400,000. There were three times. Those three times were this point in 2018, late 2018. I think it was December 2018, when I think open interest hit exactly 400,000 or 400,000 plus change.
And here from 2013 to 2015, this was just a lack of interest, I think, is what it was. The gold market was really being battered. At that point, we were headed towards the low here in late 2015. I just think there was no interest there because gold had already fallen from 1923 over. It was in 2011, and nobody really cared because the stock market was going crazy. Everything was fine, and all the money printing had to filter in.
So people were speculating and going along, stocks and stuff like that. So here in 2008, it was a different situation. They weren’t liquidating open interest because there was no interest in gold. It was more of a financial cris situation where people needed dollars, banks needed dollars. So they were liquidating their shorts and people were recovering and traders were liquidating their longs, selling back to the banks who were covering.
So you had a very strong low in open interest of about 240,000 contracts. And we’ll get into another chart that shows you exactly where it was. So if you were to ask me, what do I think is going on there? Is it lack of interest in gold, or is it more of a financial crisis brewing? And you can see here, by the way, where we had a high in open interest of 800,000 contracts.
That was on the eve of the March 2020 panic. And this here where the open interest dropped from 800,000 to about 450,000. That was the steepest drop in open interest ever. Quickest. That was a panic. Why? Because banks and speculators, both of them, needed dollars, so they both had to liquidate their positions and contracts closed really quickly. So that was this financial crisis over here. So basically, what happened here and what happened here, I think, were similar reasons.
And I think this is why we’re down in gold. Open interest from about 500,000 to 400,000. That’s 100,000 contracts just this year, I think in a month or two. So, yeah, I think that we’re seeing the beginnings of a dollar squeeze, and I think it’s going to get worse now, if we’re going to go into disaggregated reports here, this is producers, gold producers, merchants, processors, those who sell gold short as a hedge to hedge their inventories or whatever, or their mining inventories or their production or whatever it might be.
This is not speculative shorts, this is hedging shorts. And we can see that producers are near record lows in their net short positions. They’re almost always, never, almost never net long. The only time they were net long was in 2014. And that told you that we were very near the end of a bear market. We’re very near the end of it in terms of price, and we’re about a year and a half away to the end of it.
In terms of time, I don’t think it’s going to take a year and a half here, but the point is that producers are very low net short, almost near records. I’m going to zoom in on what happened in the 2018 open interest situation in gold. And that was this blue line is open interest here. You can see that we hit almost exactly 400,000 contracts. This is in December 2018.
And from there, we had a huge rally. Gold had bottomed over here before. Open interest had bottomed back in August 2018 or so, something like that. And then open interest bottomed in December 2018. And from there, we headed all the way up to the August 2020 high of about 2080. And here’s the picture. In 2008, we had a high and open interest of 600,000. In early 2008, financial crisis came to fruition and contracts closed like a waterfall to about 260.
It looks like 260,000 contracts. We’ve never gotten anywhere close to this since then. Do I think we’re going to get to 260,000 contracts at this point? I don’t think we’re going to get that low, but it depends how extreme the next financial cris is going to be and how quick it will be and if it will force banks and speculators to close their gold positions. And I wanted to bring silver into this for a second.
So gold and silver open interest are now headed in opposite directions. Again, silver open interest is a lot lower than gold open interest. Gold is. We’re talking about a minimum of 400,000 in gold. It’s 152,000 now, which is pretty high for silver, at least since 2020. So we see here these boxes. I stretched it out a little bit so you can see a little more of the contrast here.
So these boxes just show you that gold and silver open interest generally head in the same direction. Silver is on a little bit of a lag compared to gold, but they still generally go in the same directions. If gold open interest is higher, silver open interest also tends to be higher. And they move in parallel, more or less. Not exactly, but pretty close. Same here, same here. A bump here, a bump here, a bump here, a bump here.
A collapse. A collapse here. For the first time, I think, ever, we’re seeing a fall in gold open interest to lows. These numbers are a little bit behind. This is 420,000. We’re now at 407,000. This still is pretty accurate. 151,000, I think we’re at. But you see here that silver open interest has been moving up from about 120,000 to 152,000 since the beginning of the year. Since the beginning of 2024.
And gold open interest has fallen from about 500,000 to 400,000. What is going on here? Why is open interest rising in gold and falling in silver? When did this diversion start? Meaning when did gold open interest start to fall and silver open interest start to climb? Here, the silver open interest is in the orange or the peach or whatever that is, and the gold open interest is in the blue.
So this started around January 16. January 15, the second week of January. Excuse me. And gold open interest has fallen. And silver open interest has risen. Why is that? Something weird is going on in the gold market. I can’t tell you exactly what it is. What I’m trying to get across is these numbers in gold open interest do not show up very often. And when they do bid, things tend to happen.
Big things tend to happen. It could take a little bit of time, but we’re getting very, very close. I want to show you one more thing with the inflation news, or what they call inflation news, coming out with consumer prices. We’ve always had double inflationary waves when we’re dealing with societal crises, and I think we’re having the same thing now. Show you three charts, one with the 1940s, one from the 1970s, and one from now.
And you’ll see what I’m getting at. So we have here the 1940s, the World War II era. This is CPI inflation year over year. Yes, we do have this data going all the way back to, I think, 1918 or even earlier than that. So this was an inflationary dual wave in the 1940s. It started in 1940. With the outbreak of World War II, 1940, 1941, we reached a peak of about 12% in the CPI annual, and then we fell to zero inflation or consumer price inflation.
By 1944, this was a 24 month decline until we had another wave over here. And this was generally price controls over here. There was a lot of price controls during the World War II era, which is why this is pretty flat over here. And then we had an explosion in price inflation, a second wave from 1946, when everyone came back from the war, and it took a little bit of time for production to start ramping up again.
So prices rose into a high of 20% annualized inflation, I think, in 1947. So there’s a double inflationary wave, a dual wave. In the 1940s, we saw the same thing. In the 1970s, this was mixed and closed in the gold window over here. Then we had an inflationary wave from 1972 to 1974. December 1974, I believe this month is then we had a 24 month lull in price inflationary pressures going into 1976 on the eve of 1977 is also a 24 month, a two year lull in consumer price inflation statistics.
And yes, the numbers calculated back then are different from how they’re calculated now. But we’re talking about trends here, not exact figures, and it’s the trends that matter. And then we had a second inflationary wave, which is even stronger than the first wave. And you can see that in the 1940s, the second wave was stronger than the first wave. Same thing there. Same thing here. Now, what happens in the 2020s? Well, we had one round of inflation, of consumer price inflation from early 2020, after the lockdowns and after the world lost its mind, until about 9.
6%. I think the high is in June 2022. And we’ve been going down for about 20 months. So we had a 24 a month lag last time. We had a 24 month lag in the 1940s. Are we going to have a 24 month lag this time? Well, we’re 20 months out, and nothing has to be exactly the same. This is not an exact science like that. There are no constants.
But we should not be surprised that there was a lull in consumer price inflation that is now ending. Which means that once the next financial crisis does hit, the Fed is going to have to cut to zero into an environment of a rising CPI. And in my opinion, that is going to be the trigger for the final crack up boom, the end game and the end of the US dollar as we have known it, as a gold derivative, and the return to gold for the banks and silver for the public, so we can recirculate real money into the economy, get real prices back into global trade, which is going to cause a lot of disruption for billions of people.
And the best way to be ready for it is to have real money. Now, don’t forget, use the code endgame. Ten for 10% off of your dirty man safe, and join me at Endgame. Investor at substack. Link in the description below and you can always become my patron for as little as $3 a month, where I give weekly biblical lessons on money, government and economics. Last week’s lesson was on King David’s communistic tendencies and God’s response to him, to tell him that it was not a good idea and that people are not supposed to have the same incomes.
This is Ralph, the endgame investor, and I’ll see you guys soon. Will you promise not to drop a 16 ton safe on me, please? I promise. I want to go on the roller coaster. So you see, kids, never have an opinion of your own, or someone will drop a 16 ton safe on. .
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