Comex Potential Claims Per Deliverable Ounce 112 to 1 As Their Warehouses Show Thin Inventories

As you know January is a non-active month for gold on the Comex, but February tends to be quite lively.   The structure of the gold market flashed a 'buy signal' here on 15 January.  We have yet to see a confirmation by price on the gold daily chart.

Here is the warehouse inventory picture for registered (deliverable) gold ounces. As you can see without exception the levels of bullion ready to be sold is quite low.

As a reminder, that is only one side of the picture. There is an additional category of gold held in these warehouses in 'eligible' bullion form that can be transferred to deliverable with the issuance of some fairly simple paperwork.

So I think that those who talk about a default on the Comex are probably missing the bigger picture.  Supply and demand suggests that higher prices might be required to persuade profit maximizing bullion holders to make the switch from storage to sale.

But then again it is not bad to recall that not everyone who is trading bullion is making their profits on the Comex, especially by actual bullion sales. The great bulk of trading traffic is what the FT calls 'pixelated' or paper gold, claims upon rehypothecated claims. 

Therefore I have suggested that if there is a break in the gold market, it will not be likely to originate on the Comex, but rather in some physical delivery market in Asia, and even perhaps at the LBMA in London.   Any failure at the Comex would most likely be collateral damage to a panic run on bullion, either in a fail to deliver from a bullion bank or exchange, resulting in a massive up limits short squeeze deleveraging.

The current structure of the market looks a bit dodgy.  JPM has the clear whip hand on the paper markets.  But Asia and the Mideast are dominating the physical delivery markets. 

India demand is being throttled by the government sahibs that seem quite eager to accommodate the Anglo-American Banks, which is too bad for their people.   I doubt that posture will be sustainable for long.

So let's see what happens.  But it looks as though February could be interesting.  And if not, then the next active month is not far away.  

At the end of the day the market structure must be allowed to reach its clearing prices, and that does not seem to be the current case judging by the relationship of paper to physical.

As always, a special thanks to chartsmaster and data wrangler Nick Laird of sharelynx.com.

Gold Daily and Silver Weekly Charts - Flight to Safety, Papier-mâché Gold Story Fraying

"The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments...

But one day the ties that bind this pixelated gold may break, with potentially catastrophic results.   So if you fancy gold at today’s depressed price, learn from Buba and demand delivery."

Neil Collins, Financial Times

And if and when this reconvergence of appearance and reality does happen, I would look for the news to break over a weekend, or otherwise suddenly, like a thief in the night. 

There was intraday commentary on this remarkable piece of mainstream paper-physical gold divergence thinking here.

Silver was under pressure, but gold had some follow through from yesterday as stocks sold off hard on expectations for the emerging markets. So what we saw was a continuation of a flight to safety, that saw some currencies falling hard against gold and the US dollar.

This can said to be the start of a trend. Again, I would like to see more follow through in both stocks and precious metals, with the usual reversals, before I get too excited about this. Although gold seems to be putting some interesting ink on the chart formations.

The good news on Bloomberg TV today was that Jamie Dimon, banker extraordinaire, is receiving a 74% pay increase this year, from $11 million to $20 million.   I am sure most Americans will be enjoying The Recovery™ just as well.

There were some rather large movements in the Comex warehouses yesterday.  A little over 349,000 ounces of gold bullion came out of the eligible category for parts as yet unknown, with most of that coming from JPM, and somewhat less from Scotia.  The details are in the report below.

A little over 5,000 ounces at Brinks were recategorized from eligible to deliverable.  This does not help much as the registered, or deliverable, category remains shockingly low at a bit over 375,000 ounces with the heavy delivery month of February only weeks away. 

But there is plenty of gold in the eligible categary, even with today's withdrawals, and higher prices can certainly tempt profit-motivated holders to sell some of that.

I just noticed the Deutsche Bundesbank put out a self-congratulatory press release on having wrapped up phase one of their repatriation of some portion of their nation's gold. Well done Buba.

I do not want to make too much of this, but I do think it is a matter of time before some of the ongoing charades in the economy and financial system fall apart.  And once they do, it may happen at a much faster pace than we might imagine, or that those masters in the universe at Davos would otherwise allow.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Another Big Slide on Global Growth Jitters

"There was a strange temper in the air. Unsatisfied by material prosperity, the nations turned fiercely toward strife, internal or external. National passions unduly exalted in the decline of religion, burned beneath the surface of every land with fierce if shrouded fires. Almost one might think the world wished to suffer. Certainly men everywhere were eager to dare."

Winston Churchill

Despite the confidence exuding from Davos, stocks were selling off fairly hard as the paint that was applied to the tape at the end of 2013 came peeling off in chunks of profit taking.

VIX spiked up hard, as punters sought safety in puts and bid them up.

Ok Daniel-san, this was 'wax off' to the end of year 'wax on.'

What do we do next?

Next week is a big earnings week, and after some global follow through I suspect we will see stocks taking their cues from the corporate results. And so we might expect a volatile week.

I have included the US economic calendar for next week below. 

Have a pleasant weekend.

Inside London: 'Demand Delivery For the True Price of Gold'

Buba is the nickname for Deutsche Bundesbank, the central bank of Germany.

I nearly fell out of my chair when I read a description of the divergence between the paper and physical gold markets from the Inside London column of the Financial Times.

"But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery."

And this in the prince of mainstream financial publications.   Quick, alert the spinmeisters for Davos man that the natives are growing restless.  

As the fellow says, one day the ties that bind the actual and the traded commodity will snap. So if you fancy gold at today's depressed price,  take delivery.

"In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they?

There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

 

...But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery."

Read the entire article in the Financial Times here.