06 September 2013

COMEX Deliverable Gold Bullion Drops To Levels Not Seen Since 2003 - Claims Per Ounce Around 55

"Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable."

London Banker, Lies, Damn Lies, and Libor

"Delivery takes on a note of finality, of a reckoning, when supply has become rehypothecated into little more than a state of mind.  The unanswered call for delivery is the final lifting of the veil."


"And who then will be able to stand?"

Rev 6:17

Gold bullion available for delivery on the COMEX dropped a little more than 15,000 ounces on Thursday, with one large withdrawal from Scotia Mocatta and one small adjustment that added back a few hundred ounces at HSBC.  

There were no other ounces received. Total registered (deliverable) gold at the COMEX now stands at 686,434 ounces of actual bullion.

This number is, according to the COMEX' own language on the report, based on sources believed to be reliable.  But COMEX assumes no liability for errors or related counterparty risks.

We have not seen deliverable levels this low since 2003, which was in the earliest stage of the current gold bull market.

There are still over 7 million total ounces of gold bullion in COMEX warehouses.  It will probably take higher prices to motivate owners to move their stored bullion into the market.

The claims per deliverable ounce on the COMEX remains unusually elevated at 54.6.   If there is a rush to exercise those contracts, the gold on the exchange that is available for delivery will not go very far.   That means price would have to go much higher, in the manner of a short squeeze.  I tend to watch 'claims per ounce' in the same way you might watch 'days to cover' for the short interest on a stock.

The gold cartel is trying hard to keep the price from breaking out above 1420, which could precipitate some short covering with the leveraged traders, and prompt the ETFs to try and recover some of the bullion which they so graciously surrendered into the price decline earlier this year.

At some point there is always a reckoning, and claims that have been made on paper must be fulfilled or surrendered, one way or the other.  And in this case the supply and demand flows worldwide do not seem favorable for those who attempted to knock the price of gold down below a sustainable market value earlier this year. 

I marked when enough ounces had been made available from the ETFs to return Germany's gold to their people.  But the gold was not returned, and they did not stop their pricing operation there.   It is always the greed, and then the coverup.

The strong physical buying, especially out of Asia, seems to have turned a pricing operation into a stubborn trap.  Keeping the price lower only seems to prompt more buying, and more scarcity of legitimate supply.

But let's assume the price goes high enough so that all 7 million ounces of gold held in all the COMEX warehouses becomes available to the market.  That is a little less than 218 tonnes.  That would satisfy the current demand from China through Hong Kong alone for about two months at current rates. 

The last chart below shows how import levels into China exploded when the clever boys knocked the prices down well below the natural market rates given demand and costs of production.

If global supply should show signs of faltering at any point, with undue delays from another bullion bank or, worst case, the LBMA, the relatively thin inventories at the COMEX that are used as largely symbolic bollards for the world's precious metals price would evanesce,  almost overnight, with bids up limit and none offered.  Défaut, en fait accompli.  Quel dommage!

You may wish to fold your cards here, gentlemen, and let the price rise to a more defensible level, before the supply levels become untenable at any price.  Once confidence has become broken, it is often difficult to get it back.   And there are a lot of delivery days between now and the end of the year. 

Weighed, and found wanting.

Stand and deliver.