CMEWhile many precious metals blogs and investors have proclaimed an imminent COMEX default since 2008, we have long maintained that the COMEX is more likely to fade into irrelevance than to outright default on gold or silver bullion as physical Asian demand would facilitate the development of physical exchanges in the east.  
It appears that the CME decision makers have seen the light and agree with us, as Reuters reports this morning that the CME plans to launch a physically settled gold futures exchange…in Asia. 

 


As Reuters reports:

CME Group Inc plans to launch a physically deliverable gold futures contract in Asia, three sources familiar with the matter said, as the world’s No.1 futures exchange targets rising hedging and investor demand in the top gold-consuming region.

An Asian contract from CME could help set a pricing reference for gold futures in Asia, much like its U.S. COMEX gold contract sets the benchmark for bullion futures globally.


The exchange will reportedly launch in either Singapore or Hong Kong, and will trade gold futures which can be physically settled in 1-kilo gold bars (note that a kilo is 32.15 troy oz, and not 35.3 oz as reported incorrectly by Reuters):

CME is most likely to launch the gold contract in Hong Kong, with Singapore also an option, two sources briefed on the matter said, adding the contract is likely to be launched this year.

A third source, a market maker, said CME was looking to launch a 1 kilogram (35.3 ounces) contract.


The CME appears to be targeting the market currently dominated by the Shanghai Futures Exchange, along with Jim Sinclair’s new exchange, the Singapore Mercantile Exchange:

CME’s U.S. futures are 100-ounce contracts which are too big for Asian clients, the trader said. They are still the most liquid gold futures in the world.

The most-traded Asian gold futures contract currently is the one on the Shanghai Futures Exchange, which is a 1 kilogram contract. But it is closed to foreign investors.

CME’s Asian gold contract could be the first among its biggest rivals, who have already been boosting their regional commodities operations.

IntercontinentalExchange Group last year announced the acquisition of Singapore Mercantile Exchange, while Hong Kong Exchanges and Clearing Ltd, owner of the London Metals Exchange, said this week it was entering the Chinese commodities derivatives market.


The writing is on the wall. The days of the Western dominated paper gold and silver markets are numbered.


  1. I agree with the author. This is an attempt to stay relevant and possibly facilitate the manipulation of the gold price in Asia for their bullion bank clients.
    That said, it will be tough to get around the fact that its a contract for physical delivery.

  2. we have long maintained that the COMEX is more likely to fade into irrelevance than to outright default on gold or silver bullion “
     
    Ah …. no you haven’t. For me at least is the first time I have heard of such a thing.

    Just yesterday the headlines were “The Empty Vaults of London- Fractional Bullion System to Fail Before End of 2014?”
    and before that the upcoming COMEX default was mentioned nearly daily. Must be nice to have a limited memory especially when you are dealing with track records and such. I guess it all depends on your definition of “long”. (Great legal trick BTW). As a friend of mine once told me: “If in doubt, deny everything and don’t stop talking”.

    Meanwhile in the shops across the nation you hear: Cha-ching “Ring up another sale, Bosco!”

    • I think you are one of the smart Newbies that is catching on to the rhetoric. I remember a year ago on The Doc Jim Willie saying the collapse of The Comex was imminent.

    • Perhaps you are new to SD.  I didn’t say/imply what contributors we post believe or state.  
      The Doc has long stated that COMEX would simply fade into irrelevance. 
      As for Jim Willie Ranger, his overall track record is among the best. 

      -Doc

    • @TheDoc
      Noted. Please accept my apologies for miss-associating the former articles with your avowed statements. While I strongly believe that a respectful dissemination of all ideas it laudable, it is your website, and as such there is an implied acceptance of those ideas. Perhaps when posting such articles that run counter to your beliefs you should also post a personal disclaimer?

    • @Cyber
      Part of discovery, real discovery is disseminating whats real from whats not. They doc could give you the answer, would you learn anything? There are no absolutes of the future just events that create it. Welcome to the ride.
       
      @Doc
      The comex is already irrelevant to me. ;)
       
      Keep up the good work!

    • @That1Guy,
       
      Thanks for the welcome, but I have been a member of SD for nearly a year.
      As for someone else providing me “the answer” I will pass …. that is a shortcut to dependency that ultimately leads to __________ (insert your choice personal catastrophe here). I do agree with the idea that COMEX will become less relevant over time if speaking about gold, however I feel it will remain pertinent in most other commodities (including silver) as long as the global economy doesn’t self-destruct.

    • @the-doc
      I always try and see where the Posting Commentary (yours) ends and where the contributing commentary starts. Usually pretty clear. But sometimes you highlight text from the contribution and the lines blur, unless I go back and see it both places. Just a note for all… ;)

    • @MFL But don’t think for one minute they won’t try. They can create their own derivatives based on those contracts to attempt to move the price. As I said above though, it will still be difficult.

    • @mfl, yes, that’s why I mentioned asian miners. Someone has to take the selling side of the transaction. I don’t know that if I were a producer looking to sell forward production I would be very interested in selling through a company that has helped to reduce my income in the past, and with China reportedly buying directly from many miners, as well as a number of other physical exchanges that are or will be operating, it seems like it quickly becomes a crowded space to work in. 
      I give them 6 months, but who knows.

  3. BRICS countries to set up their own IMF
    April 14, 2014 Olga Samofalova, Vzglyad
    Very soon, the IMF will cease to be the world’s only organization capable of rendering international financial assistance. The BRICS countries are setting up alternative institutions, including a currency reserve pool and a development bank
    Source: Russia Beyond the Headlines – http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html)

    http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html

  4. Russian banks ready to inform U.S. about American depositors
    April 16, 2014 Alexei Lossan, RBTH
    The second largest state bank in Russia, VTB, has applied to link into the FATCA system, which records information about American depositors. This is currently illegal under Russian law, but new U.S. laws will penalize foreign banks that fail to do this.
    Source: Russia Beyond the Headlines – http://rbth.com/business/2014/04/16/russian_banks_ready_to_inform_us_about_american_depositors_35947.html)

    Why would the comply? They have America by the balls or a lack thereof?
     
     

  5. Putin coy on reserves plans, says some countries diversify investment
    Source: Russia Beyond the Headlines – http://rbth.com/news/2014/04/24/putin_coy_on_reserves_plans_says_some_countries_diversify_investment_36182.html)

    This is what caught my eye! ”
    The reserves stood at $477.7 billion on April 11.
    They consist of highly liquid financial assets at the disposal of the CB and Russian government, including foreign currency, monetary gold, special drawing rights, the reserve position at the IMF and other reserve assets” Monetary Gold!

  6. All relevant posts regarding Russia and the BRICs but I would not trust the CME as far as I can throw them…isn’t the exchange’s whole purpose to back all of their clearing members???  Did the CME keep the MFG and PFB account holders whole????
     
    NO, they posted how they had all kinds of performance bonds but it took the MFG court appointed trustee to get the acct holders taken card of years later.  Here they are taking credit for not keeping them whole and fighting with the trustee to  get their money back, instead they let the account holders hold the bag for years and have been in cya mode for quite a while.
     

    http://www.chicagobusiness.com/article/20130522/NEWS01/130529899/cme-chairman-takes-credit-for-mf-global-response#

     
    Why do you  think most of the middle players and hedgers left the Crimex after that, at least the ones with REAL risk management???

    • @coinbuysell
       
      Why should cme have to keep anyone whole in a peregrine or mfg type situation?  I sell through MFG and you buy through whovere else.  The exchange is going to make sure that you are kept whole in case mfg defaults. They are not going to make sure that the individual is kept whole if his bank decides to steal his money on deposit to cover some other trades that are going badly… and really, again, why should they?
       
      As far as hedgers leaving, I personally know 4 entities who cleared with mfg, they got new brokers on monday after and started trading back in the exchange that day to hedge.  They also got all their money back right (eventually). Who left the exchange?
       
      CME guarantees that the performance of the contract will work, and that if you either buy or sell, you will be protected if your counterpart defaults, if they steal your money (mfg) or just swindle you and dont even place trades (peregrine) then that is not an exchange problem…

      A real world, you agree to buy my not so mint condition 2005 sebring for $500. We agree that is a good price, you give money to your buddy to being to me to pay for the car. Instead, he decides to go to the liquour store and host a party at his house. We both are hosed, you lost your money and i lost a buyer.

      If instead we cleared the trade through an exchange that guarantees performance… the exchange would pay me $500 to make good on the guarantee, you are still hosed and send Guido after your buddy to teach him a lesson, or show up at the party and at least try to drink some of your money back

  7. From the CME’s own doc’s on Financial Safeguards:

    Page 1:

    CME Clearing serves as the counterparty to
    every cleared transaction, becoming the buyer
    to each seller and the seller to each buyer, and
    limiting credit risk by guaranteeing financial
    performance of both parties. Each clearing
    member assumes performance and financial
    responsibility for all transactions it clears,
    including transactions cleared on behalf of
    its customers and on behalf of the clearing
    member and its affiliates.
    CME Clearing utilizes a variety of risk
    management metrics to evaluate clearing
    members’ ability to withstand changing
    market dynamics. Each clearing member
    is accountable to CME Clearing as the
    guarantor for payment and performance bond
    obligations arising from the accounts it clears.
    CME Clearing relies on the prudent oversight
    and evaluation of individual customers by
    each clearing member, and evaluates clearing
    members for the adequacy of their customer
    credit- and risk-monitoring.
    CME Clearing is committed to providing
    clearing firms with fundamental risk
    management tools to promote and protect the
    financial integrity of the market including the
    interest of clearing members, their customers,
    and CME Clearing.

    Page 16:

    Liquidity Facility
    CME Clearing maintains a fully secured,
    committed line of credit with a consortium
    of domestic and international banks that may
    be used in certain situations. Under the terms
    of the credit agreement, CME Clearing may
    use the proceeds of the advances to provide
    temporary liquidity in the unlikely event of
    a clearing member default, in the event of a
    liquidity constraint or default by a depository
    institution (custodian of the collateral), or
    if there is a temporary problem with the
    domestic payments system that would delay
    payments of settlement variation between
    CME Clearing and clearing members. The line
    of credit thus provides CME Clearing with
    additional capacity to pay settlement variation
    to all clearing members even if a clearing
    member may have failed to meet its financial
    obligations to CME Clearing. As of December
    30, 2011, the size of the facility was $3 billion,
    expandable to $5 billion.
     

    http://www.cmegroup.com/clearing/files/financialsafeguards.pdf

     
    So I guess they really only have to keep the counter party member whole??? and not the account holder? You will notice the first and last sentences from page 1 includes “they are the counterparty to each cleared transaction the buyer to every seller and seller to every buyer” the very first sentence and “their customers” are included in the last…they scream that on PAGE 1!

    That entire doc is an interesting read that contradicts itself in a few places but it may end up saying they will keep their own whole and to hell with the little guy, just like all of the rest of the financial world…maybe my bad, as I claim to be a lot of things but I am not a lawyer.

    If your guys went back after getting ripped off that is there own perogative, not mine or most of the companies that I used to deal with, but to each his own.  Traders are inherently gamblers :)
     
    And why would they be covering their own ass if they didn’t think they should have covered their clearing memberS, with an s, and accounts that failed? I have heard many times about their “liquidity” and “coverage” but I failed to see it in action twice.
     

    • They guarantee the trade, not that your broker is honest.  I think it is as simple as that.

      And to clarify, the ones I mention are not my “guys” They are just counterparts in industry that hedge flat price risk on cbot futures.
       
      If i remember, i do think they agreed to front 500mln to get $ back to customers quicker.  They didn’t have to do that.

    • You night want to read the first sentence of page 1 that I was posting while you were busy commenting :)
       
      Again, I am not a lawyer but it sure READS as if they are the counterparty to each transaction, limit the credit risk by guaranteeing both sides, and they have $5B to cover their members….and I guess $500M for you and me ;)

      Then next sentence then says each member guarantees their own so which is it???? More legalese to cover their own ass is what it says to me! and they will cover whomever they decide to cover

    • i read that page, and spent a lot of time reading all of that stuff a few years ago.
       
      I still come to the same conclusion.  They facilitate trades, they will make sure that your representative is made whole on the trade,  If your representative steals your money then you have chosen poorly (should have picked the one made of clay).  

      Again in the car example. If your buddy runs off with the money then you defaulted. CME makes me whole.

  8. touche, as I said it probably really does say they will keep their members whole if you get the legal take on  the entire doc but it surely does not read that way to the common man :)
     
    and company hedgers going back makes more sense, in a way, since (i) they are playing with company $$$$ and not their own, so who cares if it takes 2 years to get it back and (ii) they have to hedge it somewhere, and there is no other exchange big enough to take that kind of volume…kind of a catch-22???
     
    they key here is this new exchange reads as if all contracts will be settled in phyzz, and they will until they decide not to and then the customer takes it in the shorts again…not the clearing member who over sold their account?
     
    I used AG Edwards, who morphed into Wells Fargo so I was not really that worried about  them going down, even though Wells is a shakier bank, but they have the full backing of the Fed…but did that mean their counter party had no risk or I had no risk?  It was MY $$$$ so I hit the road, just in case, so it was a personal decision but I don’t want all here to  think this is  the be all end all to PM “manipulation” because there is a physical exch in Asia…wasn’t there already one that went under due to low volumes? upon further review, it may still be going but I do remember reading about their low volumes.

    The boyz will just steer clear of this unless they just have to make a small stand here and there to keep the little guys “honest”…just my thoughts

    • “they key here is this new exchange reads as if all contracts will be settled in phyzz”

      Maybe i missed proposed rules, but i would be surprised if their rules were different then they are currently. Deliveries settled physically, but liquid trading in and out of contracts,

      You are right about the one that went under. HKMx i think but am headed to bed now, surely someone will correct. Low volumes, no money, closed their doors.

    • @CBS 
      We all keep telling mikey, “better have an exit strategy” like GTFO ASAP 
      but he keeps playing with paper, (and matches) :D 
      Don’t get burned, lil mikey! ;)
      (JK Bud, U know I’m pulling for you!) 

  9. Why should one believe that just because the CME moves to Asia that they will not continue their alleged crooked and illegal practices?
    And that this is just a move to continue their ability to so?
    And by moving to Asia they will will magically now become honest?

    • I’m with you TiMAllen, 
      but a more exact statement would likely be: 
       
      “PROVIDING AN ENVIRONMENT for Alleged price fixing, suppression, changing the rules in the middle of the game, etc.”
      The High Frequency Traders are doing the first two, and real EXPERTS have stated that it is done ILLEGALLY, whereas the CRIMEX has done the latter, changing margin requirements during Silver’s Bull Run in early 2011. This was in concert with the HFT gang’s price slamming, because the nominal peak for Silver was in mortal danger! (It was actually eclipsed in overnight trading in the Asian Markets) 

    • tmalien, cme does not trade, they do change rules but with advanced notice.  don’t like it, close your position and leave.  As long as settlement of futures is physical i will likely feel ok about the mechanisms they procide

    • I believe that was increased… 5 times in one week, something that apparently had never happened before.  Many saw that as a sign of extreme desperation, ostensibly due to the loss of price fixing ability.  Silver was on a tear back then and threatening to go rapidly higher… until it got slammed down hard.
       

    • Thx @Ed_B!
      Yes, they raised the margins. I do not recall how many times it was raised (i was thinking 3 times?) 
      But it was done just before the price of Silver “moderated” to a lower level. Gold, meanwhile, was 
      still advancing until September, or another 5 months! PRICE CAPPING of SILVER. 

    • @undeRGRound
       
      No problem.  That’s my recollection on it.  If someone has something different, please share.
       
      Gold price fixing has been known for decades now.  It is not a conspiracy theory or any other kind of theory.  It is a documented fact.  While I do not keep all of the documentation on this, GATA does.  Anyone wanting to read the info can do so on their web site.  As long as gold prices are being fixed / controlled, it is not a big stretch of the imagination to include silver in this as well and for many of the very same reasons.
       
      Like many things today, we don’t always have a clear picture of what is going on.  This is why it is called “connecting the dots”.  The lines are not solid but just bits and we have to fill in the lines in between the dots.  Sometimes we get it wrong but most times we get it right.  We can be pretty sure that as soon as we say anything and someone starts screaming “Conspiracy Theory!” in our faces, as if truth were susceptible to rabid attacks not based on anything, we know that we are close to the target… because that’s where the flak is.
       

    • I believe SD had an article about the increased margins normally BOOSTING Prices, but this time the reverse happened. One could say that small time speculators were driving the prices UP and the larger margins slowed them down, but the COT told a different story. Massive short positions were placed, and the market responded to the downside. All from memory, but I also read about it on some SD articles and other stuff from various Silver bulls 

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