10 July 2013

Registered Gold On the COMEX Breaks the Million Ounce Level

Relative to the amount of contracts open the amount of gold held for delivery at these prices is somewhat 'thin' to say the least.  And relative to the global physical markets the amounts held at COMEX are almost too small to really matter.  And yet this is where prices are set.  At times it appears like a game of 'liars poker.'  How apropos.

If there is any good news for the gold bears it is that the first delivery notice for the next active August contract is three weeks away. The open interest for August is now a little more than 197,000 contracts, representing a potential 19,700,000 ounces of gold that could be called.

That a large number of contract longs would stand for delivery is highly unlikely to say the least, since COMEX is large a paper or virtual market place. But at a 20:1 leverage based on current deliverables, the possibility of a demand for delivery in excess of available supply is certainly a possibility.

That would represent an interesting situation. I don't know what would happen, and won't hazard any guesses.   I would imagine that a declaration of force majeure  and a forced cash settlement is most probable, along with hikes to 100% margins, except for privileged insiders.

Specs who get caught short may find the Big Banks, who are now largely covered,  to be rather unforgiving in their demands for any settlement.  I wonder which side the Exchange would favor. 

I am still chuckling to myself about the smirking pundit this morning who suggested that naked shorting of gold contracts on the COMEX would be a nice approach for the speculator to try and ride gold lower.  This was before gold rocketed higher later in the day.  
He who sells what isn't his'n
Must buy it back, or go to prison.

Daniel Drew
Although if you are particularly well connected politically, charges are entirely out of the question. It's nice to know the king.

The way eligible gold is fleeing the COMEX vaults, it also seems that some private holders of bullion may also be concerned about a 'bail in.'