Aug 072015
 

Last month I covered Comex warehouse stocks in response to “a lot of chatter about the potential or certainty of failed settlement and Comex default”, making a number of points:

  • inventory can be converted from eligible to registered relatively quickly
  • including eligible inventory give a very different picture of warehouse stocks and owners per ounce
  • the actual percentage that stand for delivery is only 2-4%
  • current registered stocks vs open interest is well within current delivery rates

For those who focused on the registered stocks only, recent Comex deliveries have caused some disbelief. The best example of this is this piece by Zero Hedge. They way they word some statements could be misconstrued by investors new to precious metal, so as an education service below are some quotes from the article and some clarifications.

“the most recent drop in Comex registered gold”

When you see articles referring to “Comex” this or that, the writer is just using that as a shorthand for “client owned metal stored in independently run vaults licensed/recognised by CME Group”. Comex/CME Group does not own or operate any vaults or own any metal itself.

This sort of shorthand you will also see used in respect of “LBMA” or the London Bullion Market Association. The LBMA is just a trade association and does not operate vaults or own metal.

“the Comex once again succeeded in sweeping default fears under the rug by boosting its eligible gold by a whopping 78% overnight”

As per the above point about shorthand use of “Comex”, please do not read this as Zero Hedge saying that the CME Group owned eligible gold and transferred it to registered. What they are referring to is the fact that clients who were holding short contracts would have instructed the warehouse where their metal was stored to move it to registered (or warrant it). This is an electronic process and as the metal is eligible (ie meets delivery requirements), no further verification etc of the physical bars is required, it is just a computer entry.

The reference to whopping I do think is overstated. That 281,000 ounces is not a lot when you look back historically. The chart below goes back 5 years and I’ve circled Zero Hedge’s “whopping” in red.

cmeregstocks

As you can see with my purple circles, there have been many times that registered stock has increased dramatically and by much more than 281,000 ounces, and in a number of cases, these have occurred not from transfers from eligible stocks but from shipments directly into the warehouses. Hence why I made the point last month that one is bound to get disappointed if one just focuses on registered stocks.

“thanks to JPM reclassifying 276K ounces of gold from the Eligible into the Registered category”

Again, please note that Zero Hedge is not saying that JP Morgan themselves just decided to reclassify gold, as it is the client who owns the metal that has control over that decision. Note that some warehouse operators also trade on Comex for their own account. In this case it could be that JP Morgan may have done the reclassification (or more correctly, the trading desk of JP Morgan instructing the warehouse division of JP Morgan) but we cannot deduce this solely from that Comex report.

“even as actual eligible gold continues quietly hemmorhaging out of the Comex”

I’m a bit puzzled by this “hemmorhaging” as you can see from this chart of total eligible gold held with Comex licensed warehouses below.

cmeeligstocks

While the 1 million or so that has moved out of eligible over the past few weeks is about 10% of the total, it is not a big drop when you look at the big picture: apart from a bump post financial crisis and drop off after gold fell from its peak, it looks to me that Comex warehouse operators have been growing their storage business quite successfully.

“will JPM be as eager to continue “adjusting” eligible gold into registered if the recent trend in gold redemptions not just in its vault, but across all Comex gold warehouses continues”

Again, Zero Hedge here are in shorthand referring to JP Morgan’s customers doing the “adjusting”. What is meant by “all warehouses” is that a client of a futures broker who is short is not limited to tendering metal in a specific warehouse, or a warehouse associated with that broker if the broker also operates a vault. Customers may have metal in any or multiple warehouses and can choose any such warranted metal to make delivery with.

If you are new to precious metal markets, hopefully the above has been of use, otherwise you may have come to the conclusion from reading that article that the CME and/or warehouse operators somehow had some responsibility to make delivery of metal to rescue Comex from default, which to anyone with a basic understanding of how futures markets operates, would be a very silly thing to think.

  • Shavi Tupyraz

    Zerohedge has become The Muppet Show and although it is fairly quick on the draw with news stories, it cannot be trusted to tell The Truth, The Whole Truth and Nothing But The Truth

    A case in point was an article they ran last week claiming that an even-Kilo amount of Gold transferred from one or other COMEX warehouse was evidence of Chinese demand, because these appear to have been Kilo bars. However, my understanding is that whilst COMEX, LBMA and Dubai accept 995-proof Kilo Bars, the SGE insists on 999.9, such that there was no possibility whatsoever that this represented a direct transfer from COMEX to China. Of course, that doesn’t suit Zerohedge’s dyed-in-the-wool penchant for goldbuggery, and so such niceties are conveniently overlooked

    As are these:

    – COMEX leverage is currently not some nonsensical triple-digit number, but 29.17: anyone telling you otherwise does not know what “leverage” is, because with Gold currently at $1094/oz, for each 100oz contract you need to post $3,750 maintenance margin http://www.cmegroup.com/trading/metals/precious/gold_performance_bonds.html#sortField=sector&sortAsc=false&exchange=CMX&sector=METALS&clearingCode=GC

    – The overwhelming bulk of deliveries (or “Settlements”) of COMEX metals is by way of “Delivery For Physical”, which is an entirely legitimate, normal and efficient mode of transferring ownership of physical metal from Eligible to Eligible without a Warrant ever being attached. As long as the aggregate COMEX warehouse inventory exceeds the Open Interest in the front month contract, there is no immediate prospect of a delivery failure. At the present time inventory stands at oz and OI in the August future is 3,838 contracts, or 383,800 oz http://www.cmegroup.com/trading/metals/precious/gold_quotes_volume_voi.html?optid=192 whilst Inventory amounts to 7,569,585 oz http://www.cmegroup.com/delivery_reports/Gold_Stocks.xlsA RATIO OF 19.8:1. Even this figure vastly overstates the risk of a settlement problem, because in a typical month only about 3,000 contracts actually go into physical deliver http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf indicating that the actual coverage ratio is more like 25:1

    Of course, these figures are all “painted” and the COMEX warehouses are totally empty except for “paper promises”, and many rednecks still appear to believe that COMEX operates some kind of shop, where naughty Shorts have to queue up to buy Gold to settle their Futures positions. I think we should encourage them to continue in this belief, and perhaps introduce the notion that not only are supplies strictly limited, but that they are thinking of shortening the opening hours, introducing a quota system and are no longer accepting fiat currency as payment. Personally, I am increasingly losing my erstwhile Salmon-like instinct to swim against the raging torrent of vacuous bullshit, and upon reflection I am quite content to let the Muppets get on with the show

  • Doolie

    If one believes ? that physical gold gold is flowing west to east at a rate far GREATER than mined output, then surely this tempo cannot carry on forever ? Your explanation explains there is no risk today for comex.

    You have painted a picture that nothing is going to run out, certainly not for comex.

    What never ?

    • Zhanglan

      who knows?

      (but not any time soon, despite what the delusionals would have you believe)

    • http://goldchat.blogspot.com/ Bron Suchecki

      I am not painting any picture, just stating facts. People have been repeatedly calling for Comex “default” for years on the basis of low warehouse numbers, but it never happens. At the same time they note the domination of futures markets by speculators – here’s the thing, speculators by definition are leveraged players, hence they don’t have the full cash to stump up to stand for delivery. Comex may only face delivery pressures if a whole lot of speculators suddenly “see the light” but as they are using all their cash to cover margin then they would have to reduce their positions so that they had the full cash (assuming they didn’t have outside cash resources). So for example, if margin is 10% then specs would have to reduce their positions by 10, such a contraction in OI would then change the owners per ounce radically and thus reduce the implied “default” risk.

      • Fraser

        If the OI relative to holdings is even close to 100X (as reported), then only 1% of the longs need to stand to take all holdings. You however have assumed that this can’t occur because ALL participants are speculators that are fully margined with no spare cash to take delivery and I’m not sure that’s right. May I suggest there could be other reasons that COMEX has not yet defaulted, like delivery is not being allowed and that the market is being kept alive so that a price can be set, allowing the continued purchase of gold (by China and others) until the West is completely drained of physical metal.

        • Shavi Tupyraz

          …. or until all the Gold has been snaffled by the Tooth Fairy

          • Zhanglan

            Open Interest in COMEX Gold is currently around 437,000 contracts http://www.cmegroup.com/daily_bulletin/monthly_volume/Web_OI_Report_NYMEX_COMEX.pdf , or 43,700,000 oz. Total warehouse Inventory is around 7,500,000 oz, and so the gross ratio is clearly not 100:1, but less than 6, even if all stood for delivery and no new metal came onto the exchange.

            Fraser, you are deluded

          • Fraser

            Assuming that you beileve the numbers, registered gold on COMEX (being that which is available for delivery against contracts) stands at around 488,000oz – putting the ratio at around 100 to 1 (as I stated). Note also that these registered holdings are down from around 3,000,000 oz which was the normal between 2009 and 2013 This is only an 80% drop, but who is worried – right?. Well a few players are, because JPMorgan just made an emergency reclassification from their eligible holdings – which was definitely needed because it looks like August deliveries are on pace to remove all available registered holdings. Be careful what you say and who you call names Zhanglan.

          • Zhanglan

            Fraser, you are simply wrong. You need to stop mouthing lame threats and wise up a little before spouting nonsense

          • Fraser

            So you think that eligible holdings (which comprise the bulk of gold held at COMEX) and are DEFINED as “not availabe for delivery” are actually (“at a pinch”) avaiable for delivery? Sorry, but who and with what authority can you tell the eligible holders what to do? Looks to me like it is YOU who are “twisting and selecetively ignoring the facts” and “are quite literally in a fantasy world of your own”. You tell me to read the rules – try doing it yourself moron!

          • Zhanglan

            NYMEX Rulebook 7A01 “DEFINITIONS”

            (p) “Eligible” shall mean, with respect to any Commodity, that such Commodity is acceptable for delivery against the applicable Commodity Contract

            http://www.cmegroup.com/rulebook/NYMEX/1/7A.pdf

            You really need to wise up, grow up and shut up

          • Fraser

            Acceptable does not mean available!

          • Zhanglan

            OK, WiseGuy – your turn: show us this supposed definition that Eligible is “not available for delivery”

          • Fraser

            First things first – stop name calling. Secondly, this spells it out well:

            https://www.bullionvault.com/gold-news/comex-gold-stocks-072420136

            In particular these two paragraphs –

            “Eligible gold stocks may or may not ever become registered stocks. Why? Because the warehouse is still a warehouse and the owner may simply want to vault their metal securely, before using it to meet demand elsewhere – for manufacturing, or from investors in another marketplace,such as Asia. This eligible gold may belong to an investor, a refiner,a hedge fund, a bank or producer. Many times these people are holding the metal for their end customers. And it may move at any time, and is much more flexible than the warehouse receipts that are registered stocks”.

            “The CME, the exchange, does not have any direct control over nor
            interest in the size of eligible stocks. Registered stocks however are
            officially recognized by the CME for good delivery on the exchange. That means that this inventory exists and is set aside to make delivery
            against gold futures contracts. Traders who stand for delivery, rather
            than cash payment, when their contract settles take delivery of the
            warehouse receipt. This does not change the quantity of registered
            stocks inside the warehouse. It remains registered, but the receipt
            changes ownership.”

          • Zhanglan

            that, my friend, is not “a definition”

            it appears that all you are capable of doing is reciting the same old nonsense, and getting uppity about namecalling when telling me I am a moron

            you have not a clue what you are talking about, you have no factual underpinnings for your ludicrous fantasies, and you appear unable to engage in a rational debate because you are blinded by your crass preconceptions

            grow up already

          • Fraser

            Let’s get this debate back on track. Looking only at the registered holdings (which are those which are both acceptable AND available for delivery) – COMEX leverage is around 100 to 1. However, you claim that COMEX leverage is only 6 to 1, using the (false) argument that eligible holdings can “at a pinch” become registered. I concede that some of the eligible holdings (quantity unknown) are owned (or can be called upon) by the bullion banks to become registered BUT even with that concession, you cannot deny that the registered holdings have fallen from over 3,000,000 oz to 488,000 oz in under 2 years and that as a consequence, COMEX has become more vulnerable to default and the trend is (currently) still in that direction.

          • Zhanglan

            complete. utter. rubbish.

            [end of]

          • Fraser

            Sick of this – watch Mike Maloney on the same subject (starting around 3min mark). But of course
            he is a fool too right? You just keep your head in the sand where it
            belongs

            http://sgtreport.com/2015/08/silver-gold-are-an-accident-waiting-to-happen-mike-maloney/

          • Shavi Tupyraz

            I’ll bet you’re sick of it! Quite why you stuck around so long whilst being so comprehensively exposed and humiliated is frankly baffling

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  • Fraser

    With regard to physical holdings, whether they be within the COMEX, LBMA, GLD, SLV or even Fort Knox – it is a very big assumption that the offically reported numbers are accurate, Last week, Bron himself argued that China’s offical holding was questionable and most likely a product of political expediency. Furthermore, while China has a vested interest in reporting low inventory, the West has a vested interest in reporting high inventory. So why Bron chooses to disbelieve China’s accounting and believe the West’s is anyone’s guess.

    My view is that (because gold remains the epicentre of finance) no offical reporting of physical holdings can be believed and so any analysis of that official data is questionable (garabage in – garbage out). Instead, one should look at that the indesputable fact that gold has now been in backwardation for many years and that this backwardation is geeting deeper by the month. And if that is not proof of a current and growing tightness of supply then I do not know what is!

    Indeed, unless that backwardation can be broken, COMEX will default, as is explained here:

    http://www.mineweb.com/uncategorized/permanent-gold-backwardation-global-meltdown-ahead/

    .

    • Shavi Tupyraz

      “if this is not proof ….. then I do not know what is!”

      I agree with you : you clearly do not know

      • Fraser

        Complete rubbish! A bank does not have to hedge its price risk by buying PHYSICAL gold at all, it can do it in the futures markets by taking advantage of the spreads across duration. You clearly did not read the article – or are incapable of understanding it.

        • Zhanglan

          Fraser, there is a simple explanation to this conundrum: you are wrong

    • http://goldchat.blogspot.com/ Bron Suchecki

      I think to compare a more centralised government with extensive ownership of banks etc with the US is simplistic in the extreme. I think there is a material difference in the believability of figures coming out of “the West”. In addition, the relative insignificance of Comex warehouse stock compared to privately held stocks means there is no benefit for “the West” governments to have to get into the messy (as in leaving an evidence trail and involvement of many staff in banks/vault operators) process of getting these figures manipulated.

      • Fraser

        May I suggest that the Perth Mint has higher ethical standards than most and that you are providing a courtesy to others that is unwarranted?

      • Fraser

        Bron – I enjoy most of your posts and do not object for the sake of it – but I must protest at you taking random pot-shots at other’s posts and trying to establish that “isolated flaws disprove the general thesis”. Neither you nor I have any real idea if (or when) COMEX will default but I totally reject your assertion that the idea is a “silly thing to think”, when it is just as likely as not.

        Indeed, my strong personal view is that the current economic system is on life support and (sooner or later) gold will restablish itself and take a moon shot – with the resulting demand (and lack of supply) almost certainly causing a COMEX default, just like the London Gold Pool collapsed – or do you deny that ever happened as well? Furthermore, I think that commentators (on either side) might effect the timing by a month or two, but they can’t stop the process – so be careful what you write or history may judge you poorly.

        • Victor Fantastico

          The London Gold Pool was a semi-secret arrangement amongst Central Banks, brought down by the decision of the French Government to convert its US$ holdings and repatriate the Gold countervalue to France https://en.wikipedia.org/wiki/London_Gold_Pool

          COMEX-approved warehouse inventory is the consequence of myriad private commercial transactions governed by published rules, and nobody but the Seller is in a position to initiate a transfer of physical metal – much less force it

          The two arrangements are fundamentally different and would require Alice Through the Looking Glass logic to be referred to in the same sentence, let alone compared

          • Fraser

            I always get a giggle when people claim (1) “it’s different this time” and (2) “the same set of circumstances could not possibly cause the same result”. The logic you use to support these claims is way beyond Alice in Wonderland stuff – more like fear driven propaganda.

          • Victor Fantastico

            you needn’t be embarrassed Fraser – fools often giggle when they have run out of meaningful things to say. Is it your contention that the French Government is currently pressing COMEX to deliver large amounts of Gold at a fixed price of $35/oz, or is that not what you meant when you referred to “the same set of circumstances”?

            what is there to be afraid of? This is a market in which a particular asset class is traded: I find nothing especially scary (or requiring adverse propaganda) in that – just stick to the facts. You really do have one or two personal issues to overcome, Old Boy.

          • Fraser

            Watch Mike Maloney on the same subject (around 3min mark). But of course he and everybody else (except you) is a fool. You just keep your head in the sand where it belongs

            http://sgtreport.com/2015/08/silver-gold-are-an-accident-waiting-to-happen-mike-maloney/

    • http://goldchat.blogspot.com/ Bron Suchecki

      “indesputable fact that gold has now been in backwardation for many years”
      Where do you get this from? GOFO, when they were reporting it, did not show this “for many years” and Keith Weiner’s calculations do not show it either.

      • Fraser

        Inside my Mineweb article is a chart which proves the point. Also note that for backwardation, GOFO does not have to be negative, only less than LIBOR (or the cost of carry).

        • http://goldchat.blogspot.com/ Bron Suchecki

          “Now if GOFO is positive (negative) respectively, the market is said to be in contango (backwardation) … Backwardation (GOFO LIBOR)”

          As per the author above, backwardation = Negative GOFO or when lease rate greater than LIBOR. Backwardation does not equal when GOFO is less than LIBOR, did you actually read the article?

          The chart the author gives for GOFO does not show many years of negative GOFO https://www.quandl.com/OFDP/GOLD_3-LBMA-Gold-Forward-Offered-Rates-GOFO

          See http://goldchat.blogspot.com.au/2008/10/misinterpretation-of-gold-lease-rates.html and http://goldchat.blogspot.com.au/2014/12/how-historic-is-this-negative-gofo.html

          • Fraser

            From the article, bullion bank arbitrage exists whenever either GOFO LIBOR (buy spot & sell long dated). The problem is that we have had (for many years now) GOFO < LIBOR and so the banks have been selling physical and buying futures. BUT this has created a paper ponzi scheme and COMEX must (eventually) default or explode higher. Actually another scenario is also possible – a zombie market – like the platinum market on Nymex, where there are no physical holdings, no delivery and there are no natural buyers or sellers – only a (permanently) rigged price.

          • http://goldchat.blogspot.com/ Bron Suchecki

            You have it all wrong, need to read my linked article, GOFO IS the arbitrage profit, GOFO-LIBOR is NOT the arbitrage. Nothing more I can say here.

          • Fraser

            Sorry, you are wrong! Perth Mint might borrow physical gold (paying LIBOR) and lease (receiving GLR) to receive GOFO = (LIBOR – GLR) BUT what the bullion banks do is create paper gold (which costs nothing) and lease for GLR = LIBOR – GOFO. Nothing more I need say.

          • http://goldchat.blogspot.com/ Bron Suchecki

            Above you mentioned cost of carry. To carry is to buy gold and sell forward. You said LIBOR is the cost of carry – this is wrong, GOFO is the cost of carry.

            Then you said “selling physical and buying futures” which is to de-carry. Then you said “the bullion banks do is create paper gold”. You are all over the place, what are the BBs doing, carrying, de-carrying physical or de-carrying paper?

            How about we just focus on the simplest one, which is to carry. I suggest you do the double entry bookkeeping entries for how you think a bullion bank sells metal forward to a client for two scenarios:

            1. client pays $x and receives y ounces unallocated on future date and is happy to hold that
            2. client pays $x and wants y physical ounces on future date

            and does that so that the BB just makes an arbitrage profit and have no exposure to metal prices. BTW, creating paper gold and leasing at GLR is not a forward or arbitraging backwardation, it is just lending. I think you have lost yourself in formulas and missed the reality of the underlying commercial transaction.

          • Fraser

            By creating and leasing paper gold (which costs nothing) instead of purchasing and leasing physical gold (which costs real money), banks can create additional arbitrage profits which do not exist for other players. The theoretical profits are GLR (paper gold) which is LIBOR more than (negative) GOFO (physical gold), How difficult is that to understand Bron?

            For example Bron, in 2013, ABN Amro (closely followed by Rabobank) suddenly refused physical delivery on their clients gold holdings, despite the fact that these same banks had (for many years) been collecting interest and fees from their clients for physical storage, insurance and handling.

          • Zhanglan

            This is simply untrue: ask Koos, who I know has been in direct contact with ABN about this. They did not refuse delivery, they changed Custodian following the EU-enforced acquisition of another financial institution, which they subsequently sold

            You seriously need to stop parroting this nonsense and acquaint yourself with some hard – if unpalatable – facts

          • Victor Fantastico

            How – even approximately – do you Lease paper Gold? I would be fascinated to find out just how this works: please can you explain

            (Perhaps you could also help resolve a nagging difficulty I have turning Base Metals into Gold and getting those damned Magic Beans to sprout)

        • http://goldchat.blogspot.com/ Bron Suchecki

          Just missed the “my Mineweb article”, thought this was just some “Fraser”. I think I emailed you about this article at the time. If GOFO is less than LIBOR then that is just a positive lease rate, and a positive lease rate is not backwardation, it is just an interest rate on gold.

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  • Fraser

    This post is misleading – because the possibility of a COMEX default is NOT “a very silly thing to think” at all. For an effective counter argument, watch Mike Maloney on the same subject:

    http://goldsilver.com/video/silver-and-gold-are-an-accident-waiting-to-happen-mike-maloney/

    • http://goldchat.blogspot.com/ Bron Suchecki

      This post is not about the possibility of a Comex default, read the last paragraph.

      • Zhanglan

        this would be the same Mike Maloney who in July 2014 (with the market price at $20.95) told his disciples that “The time for Silver is NOW” http://hiddensecretsofmoney.com/blog/silver-the-opportunity-is-now

        (but it wasn’t and if people had waited until the trend had stabilised, they could have bought 1 1/2 times as much silver for their money in July 2015 (at $14.50), compared to swallowing Maloney’s baloney. He is retail bullion salesman, and not only does that introduce a conflict of interest into his analysis, his analysis is clearly wrong, because “Now” really wasn’t the best opportunity to buy Silver

        Now, Fraser, do I have to post this same Comment 3 times in this thread in a desperate attempt to scrape through the bottom of the credibility barrel (as you have), or have you now got the message that, like Mike Maloney, you are just plain wrong?

      • Fraser

        Apologies, reading the title, first paragraph and then discussion of Zero Hedge’s article (all of which down play the potential of default), I drew a connection. That I should read more carefully is obvious – but in my defence, post titles usually connect with the main theme of the subject matter, not just the last sentence.

        • Shavi Tupyraz

          Try this, Fraser, and see if it helps you understand:

          The holder of a Short Futures position either does or does not already have Physical Gold stored in a COMEX-approved warehouse.

          1. If he does, then clearly there is no immediate risk of a default, and it really doesn’t matter one iota whether that Gold is Eligible or Registered, because he can deliver it either EFP, or by Registering it and transferring the electronic Warrant. (The overwhelming majority of positions which go into physical delivery are settled via EFP). I am baffled as to why you should imagine – or what evidence you might have – that Eligible Inventory might already have multiple claims on it: please explain this with some authoritative reference

          2. If he does not have physical Gold already stored in an Exchange-approved Warehouse, then he has multiple alternatives:

          – he can buy back his Futures position in the open market at any time prior to expiry, thereby closing it and rendering any consideration of whether he owns physical Gold totally irrelevant

          – he can roll the contract over into the next month, by trading a Calendar Spread, which defers the immediacy of delivery and preserves his settlement options until a later date. There are times when this can offer attractive arbitrage opportunities due to the changing price basis between different contract months

          – he could Lease Physical Gold held in a COMEX-approved warehouse and owned by another owner, and thereby complete delivery, allowing him further time until the expiry of the Lease to provide physical delivery (or cash- or off-Exchange settlement if the terms of the Lease allow such)

          – he could arrange for physical Gold not currently in a COMEX-approved warehouse to be brought onto the Exchange: this is not easy or cost free, but certainly happens all the time

          3. It is a certain fact that the maximum amount of physical Gold which needs to be delivered in the near future is 100 oz x the Open Interest in the front month contract – and typically significantly less. Right now there is approximately 25 times as much physical Gold in COMEX-approved Warehouses as there is Open Interest in the August futures contract. There is no way of knowing from the outside who holds legal title to that physical Gold (whether Eligible or Registered), or of comparing that to who holds the Short Futures positions, but the 25:1 balance of probabilities suggests that Case 1) above typically applies, and even if it does not, then the alternative options under Case 2) are still available

          4. The most heavily traded contract is at present the December 15 Future, but we need not worry about that, because it is not due for Delivery for another 90 days or so. During this period Open Interest in that contract will decline very significantly, primarily due to EFP settlement (currently running at over 4,000 contracts a day), but also due to speculators rolling over their positions into longer-dated contracts as these become more liquid

          None of the above requires any consideration of “forcing” the owners of Eligible inventory to sell their physical metal, or convert it into Registered. Either format is equally acceptable in settlement of Futures positions, if that is what the owner of the Short Futures position elects to do. The Short decides both if and when to deliver. Warrants can be created instantaneously, but there is a cost involved, particularly when these are “broken” and the physical Gold reclassified as Eligible, making EFP a more cost-effective solution. Being Registered does not imply that the Gold is in any way more “available” for sale – quite the contrary, it means that the previous owner has already sold it, and the legal title is held by someone other than the person who originally deposited it in the Warehouse

          In conclusion, you appear to be obsessed with the distinction between Registered and Eligible inventory, but in terms of both the acceptability and the availability of physical bullion, this distinction is irrelevant. The Gold is either there, or it isn’t, and whether it is transferred via a Warrant or via EFP is wholly immaterial to its “availability”: the only question is – does the Short own it? (in which case 1 above applies) and, if not, then 2 applies. It really is that simple, and right now there are 6 ounces available for every one potentially required for Delivery. There will be no COMEX default any time soon, and you urgently need to refocus your attention and your emotional energy onto something more productive and grounded in fact rather than fantasy

        • Victor Fantastico

          Fraser, I believe you may be misguided in your 4th assertion above:

          Bron has posted a chart above showing aggregate Gold Inventory rising from under 2 million oz in 2005 to around 7.5 million currently. Here is a chart of Open Interest during the same period

          http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/08/Gold%20open%20intterest.jpg

          showing a rise from around 35 million oz in 2005 to around 44 million now

          as a consequence, whereas Inventory once amounted to 5.7% of Open Interest, it now amounts to around 17%. As a proportion of Open Increase, Exchange-approved Warehouse stocks of physical Gold appear to have increased very significantly over this period

          Once again you have been caught out playing fast & loose with the facts, suggesting that you either don’t know what you are talking about, or really don’t care what unsubstantiated assertions you need to make in order to support your fantasies. Please stop.

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