What is this:
Upon seeing Comex OI make new lows as Gold made new highs with China activity surging ( domestically as well as in Shanghai) serve as an important signpost on the path to Comex pricing’s diminishing importance, and with it, Global dedollarization accelerating.
The Bottom Line:
Gold’s new highs now and going forward will come at direct injury to Bullion Banks, the Comex franchise, and USD hegemony. Too many events are converging on this to ignore anymore.
Find Attached Below:
i. a re-recorded voice note with conceptual slides; ii a readable transcript broken into sections; iii. and data sources
VBL
**Comex Deathwatch: China Sets The Gold Price
[SECTION 1 – OPENING THESIS + VENN FRAMEWORK]
[SECTION 2 – MARKET STRUCTURE: WHAT’S NORMAL VS. WHAT’S CHANGING]
[SECTION 3 – TWO INTERPRETATIONS: REGIME CHANGE OR CONTRACT DEATH]
[SECTION 4 – EVIDENCE OF DECLINE: VOLUME MIGRATION AND MARKET DISLOCATION][SECTION 5 – BANK BEHAVIOR, COLLATERAL CRISIS, AND EARLY WARNINGS]
[SECTION 6 – REGIME SHIFT OR TERMINAL DECLINE?]
[SECTION 7 – GLD, DOMESTIC CONTROL, AND THE QUIET SHUTDOWN OF COMEX
[SECTION 8 – POSITIONING, DISCIPLINE, AND THE TWO PATHS FOR COMEX]
[SECTION 9 – GLOBAL LEVERAGE, REGIONAL PRICING, AND GOLD’S REPRICING SETUP]
[ADDENDUM: VARIOUS CHARTS ON CHINA][SECTION 1 – OPENING THESIS + VENN FRAMEWORK]
Hi. I believe the recent decline in open interest—especially over the last few weeks—has shifted meaning. What began as a sign of a healthy market has become something else. Not necessarily unhealthy in the long run, but now a signal: risk is rising. Specifically, risk to the viability of the COMEX gold contract, and a slow-moving—but now quickening—effort to unwind short positions in the U.S.
What does it mean. It means over the next year or so 20% could be lower. But the next 50% to 100% will be higher usual disclaimers added. the metrics used to mange risk are just expanding insanely now. because of these factors coming together
Picture a Venn diagram with four circles.
One circle: Basel III implementation, dated July 1.
Another: Trump’s tariff negotiations and the economic standoff with China.
A third: the upward bias we’re seeing from swap dealers in COMEX trading—covering shorts faster than usual, while longs are exiting positions, often for profit, and also faster than usual.
And the fourth circle? Let’s call that a placeholder.
Actually, no—it’s not a placeholder. That fourth circle is gold repatriation: the U.S. is actively pulling back a significant chunk of gold.
Now, these circles intersect. Not just symbolically, but operationally. And we’re going to have to narrow down and eventually define what sits at the center of that intersection. For now, here’s what it contains:
July 1: Basel III implementation.
July 6–8: the BRICS summit.
And whatever internal deadline the Trump administration has set for escalation in the ongoing U.S.-China trade war.
So what else belongs in the middle?
The death of financialization.
The repatriation of payment chains.
The deconstruction of the rehypothecation-based carry trade that’s underpinned global markets for decades.
So what would this graphic actually mean? Well, we’ll get to that. But first, let’s go back to the open interest, because that’s what sparked this whole connection of dots—and this Venn diagram exercise.
[SECTION 2 – MARKET STRUCTURE: WHAT’S NORMAL VS. WHAT’S CHANGING]
Let’s talk about the plumbing—how markets function underneath. That’s where we need to begin. Not necessarily because it’s the foundation of everything, but because it’s critical to understanding what we’re seeing right now.
There are two areas to cover:
What healthy and unhealthy market structures look like, particularly in futures.
What Basel III actually implies, broadly speaking, and how it’s likely to manifest in the U.S.—presumably starting July 1, rolled out over three years.
From there, we’ll talk about how these two concepts—market structure and Basel—interact to change what we consider normal market behavior.
There’s a causative relationship in play. So let’s begin—at least for now—with how I look at things.
Let’s start with what a normal, functioning market looks like.
Now, I’ll get a little granular here. If you already understand how futures markets function, you can skip ahead. But some people need to hear it.
In a normal futures market, price direction is accompanied by PATTERN BASED changes in open interest.
But what we’re seeing now is very different:
COMEX open interest has been declining consistently, with almost no bounce, to levels we haven’t seen in years—while the price of gold continues to rally. That trend has accelerated over the last month. And it’s accelerated again over the last week.
So, what does that mean?
In a healthy market, when open interest drops as price rises, that’s typically just short-covering. Shorts are nervous, and you get what’s technically known as a “short-covering rally.” Happens all the time. Just like longs take profits and the market drops, shorts cover and the market rises
So yes—it’s normal behavior. But when it persists—and becomes extreme—it starts to raise new questions.
Before we go there, we need to take a step back and look at COMEX structure—specifically: who the players are.
Historically, Bank swap desk shorts have dominated this market.
They have:
The biggest pockets,
The most information flow,
And asymmetric control of market structure.
They also have physical gold, which gives them the ability to short anywhere from 5x to 20x what they physically hold—because no one ever actually takes delivery.
And that’s worked—for decades.
But occasionally, even they get nervous. They’ll proactively cover—not out of panic, but out of prudence.
You often see that before major events.
October 7th, for example—right before the Israeli conflict escalated. They got tapped on the shoulder. Same thing happened before both Iraq wars. The banks—the market-making shorts—covered not because they were sure they’d lose money, but because they weren’t sure they wouldn’t.
I had traders tell me, literally: “If nothing happens, I’ll kick them out Monday.”
That’s how it worked.
To sum up:
In a normal market, when shorts cover into a rally, open interest drops.
If it lasts tahts very rare, and it often reflects banks de-risking, positioning ahead of uncertainty.
But now—it’s different.
This time, open interest isn’t just falling. It’s falling to relatively extreme levels. And while open interest changes alone aren’t conclusive, in the broader context—in combination with:
Basel III implementation,
China stepping up as a gold futures and physical market hub,
The structural death of the rehypothecation trade,
And U.S.-China economic realignment—
…this open interest collapse is not just healthy short-covering.
It’s potentially something much bigger.
[SECTION 3 – TWO INTERPRETATIONS: REGIME CHANGE OR CONTRACT DEATH]
So let’s lay out what I think are the two possible interpretations. And it’s possible both are true—at the same time.
Scenario One: This is still a healthy market—but it’s entering a new regime.
The banks may have realized:
“This is now a buyer’s market. You have to be long.”
You can’t play the old game anymore. You can’t lean on leverage, can’t assume delivery won’t be demanded. The whole architecture has changed.
So they’re resetting their books—every chance they get.
They’re not panicking—they’re repositioning.
They see what’s coming.
They know Basel III is the real deal.
They know the gold trade is transitioning to a physical-first system.
They know China’s now center stage in futures, and physical.
So they adapt.
That’s what smart money does.
This scenario still qualifies as “healthy”—but it feels extreme because it’s a break from everything we’ve known.
It’s what you’d call a regime change in the structure of the market.
And to be clear: regime changes do happen. They’ve happened in other asset classes over the years.
But not in gold.
Not in my entire career.
Scenario Two: The contract is dying.
Open interest collapse while prices continue to rise can also signal a much darker outcome.
Not just repositioning. Not just short-covering. But disengagement.
It could be that the COMEX gold contract itself is dying.
We’ve seen this before.
Palladium is a prime example.
That market was squeezed by the banks. Funds got blown out repeatedly. Eventually, it became unusable.
Still exists, yes—but as a shell of its former self.
No one touches it now. Too thin. Too dangerous.
The same thing happened with the potato contract on NYMEX.
It got taken out—effectively destroyed—by interlopers.
In this case, the interloper may not be a fund or a rogue trader.
The interloper might be China.
They’re not trying to destroy COMEX.
They’re just buying physical.
And that’s collapsing the entire rehypothecation-based leverage system underpinning the COMEX structure.
So before we go further, let me ask it again:
Is the COMEX contract dying?
Empirically—on observable fronts—it’s already fading in relevance. not necessarily dying.. but giving up dominance for sure to china etc
[SECTION 4 – EVIDENCE OF DECLINE: VOLUME MIGRATION AND MARKET DISLOCATION]
Let’s look at the evidence.
First, market share.
COMEX’s share of global gold futures volume is declining.
Look at Dubai. Look at Shanghai.
Volumes are growing there—and shrinking here. note to include some pics to givea feel on this
Open interest in those foreign exchanges is rising.
Here in the U.S., it’s falling.
That’s not a blip. That’s a relocation.
demand.. business… vaults.. pricing all follow- supply chain exodus for the last 15 years is culmination in price now following….
Market interest is moving—geographically, structurally, permanently.
The neighborhood is changing for gold. And COMEX isn’t the center anymore.
This is something I discussed years ago with Tom Luongo.
We looked at the premise:
If China takes the lead in physical gold, and Basel III eliminates Western leverage—
then China benefits, and the U.S. does not.
That means COMEX—the old home of dollar-based pricing—starts to die.
Meanwhile, Shanghai Exchange thrives.
At the time, we framed it as a proxy for dollar death.
If you dominate global pricing, the dollar remains strong.
If you lose pricing power to another region, the dollar loses one of its key structural supports.
Global pricing becoming regional pricing for gold?
That’s not just a gold issue.
That’s a monetary regime issue.
And it’s dangerous for the dollar.
So again—where are we?
COMEX opening volumes are falling.
Foreign opening volumes are rising.
Open interest here is shrinking.
Overseas? Growing.
And here’s the kicker:
Rising volume doesn’t necessarily mean new players entering.
It often means existing players exiting—squeezed out, losing relevance, liquidating.
So when you see volumes spike and open interest fall, you’re seeing a market in liquidation.
That’s what COMEX gold looks like today.
[SECTION 5 – BANK BEHAVIOR, COLLATERAL CRISIS, AND EARLY WARNINGS]
Let’s keep building
Banks are losing money.
We don’t have all the data yet, but it’s clear: they’re losing money trading against China.
They’re likely making it up elsewhere—but in gold, they’re under pressure.
And open interest keeps falling.
This ties back to something we’ve talked about before:
A coming crisis in collateral.
Back in 2022, Zoltan pozsar issued a warning—subtle, dense, but critical.
He said a commodity crisis was coming.
Not because of price, but because of physical collateral.
His argument: the physical assets that back the financialization of Western markets were beginning to dry up.
And as they disappear, the leverage structure collapses with them.
That was the big picture.
In a follow-up report—equally difficult to parse—he described the potential unwinding of the gold rehypothecation trade.
That is, gold that’s lent, re-lent, and pledged as collateral multiple times across institutions.
It wasn’t the headline of his work.
He focused mostly on energy and oil.
But the gold piece stuck out to us—and to others.
Zoltan never discussed that topic it in his analysis again.
Still —the warning was there.
It came. It was public.
And now it’s playing out.
[SECTION 6 – REGIME SHIFT OR TERMINAL DECLINE?]
Let’s bring this back to the original fork in the road:
Two things may be happening simultaneously:
The open interest decline, contextualized by global macro events and the structural Venn diagram we laid out earlier, suggests at least a regime change on the exchange.
But more likely, we’re seeing the slow death of the COMEX gold contract in its current form.
Why?
Because of:
Mandated leverage reduction under Basel III,
Changes in bank behavior,
The divergence between volatility and open interest,
And the price trajectory decoupled from contract participation.
Could this eventually turn into a rebirth?
Yes.
But futures exchanges live and breathe leverage.
Without it, they don’t function as we know them.
And COMEX is not preparing for reinvention—it’s preparing for diminishment or worse…exit.
Now here’s where it gets time-sensitive:
There may be a deadline baked into all of this.
That deadline could be July 1—Basel III implementation.
Look at the aggressiveness of short covering happening now.
The big players may already be preparing for that cutoff.
Return to the Venn diagram.
The four circles—Basel III, Trump tariffs, swap dealer behavior, and U.S. gold repatriation—are converging.
We could be in the early to mid stages of a full-on gold repricing event.
An explosion.
Driven by a single, repeating signal:
The world doesn’t trust contracts promising gold.
It wants gold.
Basel III mandates: if you want to trade it, you have to own it.
China mandates: we’ll take gold—not Treasuries.
And now, the U.S. is repatriating gold—demanding physical.
So when you stack all of this together, yes—it’s dangerous to predict price.
But if we’re looking for analogues?
The last two real bull markets in gold saw prices go up roughly 8x from the base.
And as Michael Oliver notes, there is no historical analogue for what we’re seeing now.
So stop watching price.
Watch behavior.
Behavior says: unless peace breaks out, we’re heading into a crisis of collateral.
Actually—strike that.
We’re already in it.
This is the very crisis Zoltan Pozsar pointed to in 2022, in both his original note and the follow-up.
And now, it’s showing up in open interest, exchange flows, and pricing behavior.
[SECTION 7 – GLD, DOMESTIC CONTROL, AND THE QUIET SHUTDOWN OF COMEX]
Let’s pivot to something that may have been hiding in plain sight: GLD.
A while back, in another conversation with Tom Luongo, we talked through something that’s only become more relevant:
GLD—the ETF—is the ideal tool if you want to domesticate the gold trade.
Why?
Because it’s regulated by the SEC.
It’s U.S.-based.
It’s not a futures contract.
And it doesn’t face global physical delivery requests the way COMEX does.
In GLD, investors don’t hold gold.
They hold a claim on gold—a derivative with embedded optionality.
If you want to contain capital—if you want to keep U.S. investors in-system—GLD is the perfect outlet.
Meanwhile, COMEX futures? That’s global. That’s exposed.
That’s something you might need to quietly kill off.
Because once the world realizes they can’t get physical out of COMEX—what happens?
You kill the brand.
And I believe that brand is already being shut down.
Not with a press release.
Not with a headline.
But with quiet, procedural throttling.
The kind the U.S. government specializes in.
How does it work?
They don’t say “no” to delivery.
They say, “Sure—but give us 90 days.”
They delay.
They deter.
Just like what’s happening at the LBMA.
And so the big players—the people who matter—are clinging to physical gold like there’s no tomorrow.
And honestly?
I’m one of them.
[SECTION 8 – POSITIONING, DISCIPLINE, AND THE TWO PATHS FOR COMEX]
Just to be clear—this isn’t a trade for me.
It’s not a tactical play.
This is intergenerational wealth.
I’m not selling any of my physical gold. Probably ever.
That said, I may still get long with futures.
I may still get long with GLD.
Because both will track price, and yes—there’s risk.
But that’s risk I’m willing to take with a small portion of my net worth.
To sum up the current signal:
Gold open interest is on a steep, unrelenting decline.
Price is on a steep, unrelenting rise.
That divergence is not normal. Not even within the bounds of a healthy short-covering rally.
This is a manifestation of Basel III implementation risk playing out—in real time.
Specifically, it’s hitting over-leveraged short players, who now must either cover or prepare for physical delivery.
And here’s something no one’s talking about—at least not yet:
Last month, someone tried to take delivery—and they were told they couldn’t.
They tried to squeeze the market.
That effort failed.
But the fact that they even tried tells you everything.
So the decline in open interest—paired with the rise in price—is, at the most basic level, a sign of stress.
Stress in the gold market? Sure.
But more specifically: stress on COMEX.
Stress on the players.
Stress on the contract.
And so now we arrive at the fork:
Path one: COMEX survives. A new regime emerges. The banks finish covering their shorts and flip long.
Path two: COMEX takes a permanent hit—because Basel III doesn’t just prohibit leverage today, it prohibits it going forward.
So what’s more likely?
They’re not coming back with leverage.
They’re just not coming back.
We may be witnessing the beginning of the end of the COMEX metals contracts as viable global benchmarks.
And if it dies, it won’t die in a press release.
It’ll die the same way all Western institutions die:
Quietly.
No announcement.
No admission.
Just... fade into irrelevance.
[SECTION 9 – GLOBAL LEVERAGE, REGIONAL PRICING, AND GOLD’S REPRICING SETUP]
Let’s zoom out—macro lens.
While we’re deleveraging in the West, the East is financializing.
We’re repatriating supply chains.
They’ve already got them.
Now they’re building the financial layer—on top of gold, not debt.
Leverage trading in China and across Asia is growing.
But here’s the twist:
That leverage is structurally long gold, not short.
Now combine that with Basel III’s implications in the West.
What do you get?
A recipe for much higher gold prices.
Not a forecast.
Just the setup.
And that setup is accelerating into a hard calendar deadline: July 1.
Three unresolved threads are tightening at once:
The trade war with China—with Trump’s deadline potentially overlapping.
The Basel III rollout—locking in capital ratio changes and leverage restrictions.
An enormous rally in gold, driven by short covering from the core tenants of COMEX—possibly their exit ramp.
Let’s be blunt:
If you’re J.P. Morgan, wouldn’t you rather hold your gold in GLD?
GLD is protected by U.S. regulatory infrastructure.
The COMEX contract?
They’ll just let it die slowly.
This isn’t new. I said this in conversation with Tom over a year ago.
Now it’s playing out.
So where does that leave us?
Back to my physical position—I stand by it.
I’ve made it.
I’m not moving it.
What happens next?
I’ll be watching the CFTC Commitment of Traders report….
See pics at bottom.
Here’s a final tactical trading thought:
$8,000 gold? It’s not crazy.
If the system breaks, that’s just what a repricing looks like.
Flip side?
If the shorts cover quietly…
If Trump cuts a deal…
Then this could turn into a “buy the rumor, sell the news” event on a massive scale.
But that’s not the base case.
We’re not looking at a short-term trade.
We’re looking at a phase transition.
And if you’re playing this market without understanding that,
you’re either going to be too early,
too greedy,
or just… wrong.
So: don’t be naked long going into July.
Use options.
Stay risk-defined.
And above all: respect the possibility that both things are happening—
A regime change.
And a funeral.
Maybe its not a venn diagram.. more like arrows converging on the middle. But what is in the middle?
[ADDENDUM: VARIOUS CHARTS ON CHINA]
This weeks CFTC report shows Comex may be under attack, or at least burdened by the yoke of its own structure. “Other Reportables” which includes Global macro funds and China trading exploded and seemingly took all comers on.
One Cohort of Buying drive Last Week’s Rally…
This type behavior breaks pricing power and forces the incumbent to track the upstart when used in this fashion… China is breaking US stranglehold on Global pricing power now.
The CFTC analysis can be found in: CFTC Analysis: China in Charge
