The point of this 'claims per ounce' measure is not 'how high is too high.'
The real significance is how out of bounds is the market, so that when the market turns, how high must prices go to clear supply against demand, to revert to the mean.
There is 'plenty' of gold at the Comex and in the world. Unfortunately not much of it is for sale at these prices. And what is sold tends to be rehypothecated. The only question seems to be 'how many times?'
If prices were falling in an environment of ample supply and slack demand, then it would be a different story. But they are not. Demand worldwide for physical bullion is high historically, and supply is thin. And yet prices have decreased. And there is plenty of evidence of market manipulation. How hard is this to understand?
As I have said any number of times, the Comex is not where the market is going to break. The physical market is not centered on the Comex, which is the locus of paper price fixing.
If and when the Comex breaks it will be because there is a general default in the physical market, most likely in Asia and the LBMA that triggers a run on the bullion banks, and then on the Comex.
Like the dollar, the Comex will not default in the technical sense because like US bonds they can force a settlement in their paper at a price they dictate. The problem with that, of course, is that while it is technically not a default, it is a very real blow to confidence that is not easily undone. It is a de facto default.
I am concerned that these jokers will go too far. And the further they go, the less force is required for a 'trigger event' to create a break in confidence. Those who place their hopes in the players to avoid that regrettable outcome are probably engaging in wishful thinking. Tell it to the London Whale.
I do have some hope that the Exchange and/or the regulators will act, but typically they are lulled into the complacency of continuity and political pressure until things begin to get very unstable. For now the bigger players will just reassure them that there is plenty of gold at the warehouse that can be moved quickly to meet deliveries if required.
So to summarize, as leverage becomes outsized, any reversion to the mean, also known as unwinding, becomes more difficult.
Every time the registered gold inventory has reached these extreme lows there was an intermediate price trend change within six months. This time it could be six months, or nine, or twelve. The longer a divergence from natural market dynamics continues, the harder it will be for players to unwind their short positions and obtain real bullion to cover. And in a market break, inventory will evaporate almost overnight. Those who are slow to act will be bailed-in.
It is all about the pricing and managing of risk. And I think deep down that it is about financially breaking the miners and taking advantageous positions in them ahead of the next leg up for gold in this currency war.
It's an old story. I hope that the compliance guys are considering the counterparty risk in metals derivatives when they do their worst case scenarios.
I hope that the regulators and policy makers understand what a 'break in confidence' in the gold market could trigger beyond itself. My own outlook remains for stagflation, with hyperinflation being unlikely except in the event of a major policy error and unfortunate series of follow-on decisions. But this current crop of crony capitalists are just the gang of blindly arrogant knuckleheads to do the improbable.
This is what I think based on what I can see, and I could be wrong. But the facts seem fairly clear and sound, as it seems to happen in every Ponzi scheme or market instability before things break and start moving on their own momentum. People suspend their disbelief because things seem to keep moving against reason, until they don't. And then the experts say, 'who could have seen this coming?'