COMEX Default Risk As Gold Inventories Plummet 36%

EmptyVaultCOMEX gold inventories are down from 11.059 million ounces at the start of the year to 7.034 million ounces today.  This is worth $9.66 billion at today’s prices meaning that a handful of billionaires or just one powerful creditor nation state with large foreign exchange reserves, such as Russia, could corner the COMEX gold market and cause a default. 
Russia’s foreign exchange reserves are at $508 billion . Mainland China still holds the largest foreign exchange reserves in the world, with US$3.4967 trillion at the end of June. It is followed by Japan, which had foreign exchange reserves of US$1.1876 trillion at the end of July.
The possibility of an attempted cornering of the bullion markets through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which would see gold and silver surge to well over their inflation adjusted high of $2,500/oz and $140/oz.

2013 Silver Maples As Low As $2.14 Over Spot at SDBullion!

Silver Maple

From Goldcore:

Today’s AM fix was USD 1,373.00, EUR 1,037.32 and GBP 874.30 per ounce.
Yesterday’s AM fix was USD 1,386.00, EUR 1,050.56 and GBP 884.27 per ounce.

Gold fell $2.00 or 0.14% yesterday, closing at $1,386.50/oz. Silver fell $0.14 or 0.59%, closing at $23.67. At 2.48 EDT, Platinum fell $9.90 or .7% to $1,479.00/oz, while palladium dropped $15.28 or 2.2% to $682.22/oz.


COMEX Gold Inventories, GOFO Rates and Leverage – (Bloomberg)

Gold tracked oil lower today after Russia offered to work with Syria’s Assad to put their chemical weapons under international control. Firmer equities and equities at record highs showed risk appetite remains very high and “irrational exuberance” is back despite significant risks, including geopolitical risk.

Other risks worth keeping in mind are the likelihood of the Eurozone debt crisis flaring up once the German elections on September 22 are over. It is worth bearing in mind too, the coming political and possible financial fracas over the U.S. debt ceiling – U.S. Federal debt recently surged over $16.9 trillion.

The immediate risk of a unilateral bombing of Syria has abated but there remains a real risk of confrontation in the region and the possibility of a wider war in the Middle East involving Iran and Israel and their respective allies. This will support gold and could contribute to materially higher prices.

However, of far more importance to gold is the very tight physical market place which is manifest in the negative gold forward interest rates, gold futures still in backwardation and perhaps most importantly plummeting inventories on the COMEX.

Comex gold inventories have plunged more than 36% year to date, creating a market more leveraged than it has been for the last nine years. Inventories are down from 11.059 million ounces to 7.034 million ounces today.

As gold fell in recent months or was manipulated lower, depending on your viewpoint, store of wealth interest in physical gold rose, elevating physical premiums. This has also given traders incentives to take delivery and sell paper gold.

This shortage of readily available physical gold in large volumes will likely lead to even higher premiums by lowering gold’s forward rates, straining borrowers and raising the likelihood of something we have warned of for some time – a COMEX delivery default.

A COMEX default on delivery of precious metals and specifically of gold bullion bars remains a risk. It is of significant importance and that is why we have covered its possibility since 2011. A COMEX default would have serious ramifications not just for precious metals markets but for the wider commodity markets, for the U.S. dollar and all fiat currencies and our modern  monetary system.


COMEX Gold Inventories, 5 Years (Bloomberg)

As long as gold remains in backwardation and COMEX inventories continue to fall the possibility of a COMEX default cannot be ruled out – especially as gold and silver bullion inventories are very small vis-a-vis possible capital allocations or foreign exchange diversification to gold in the coming weeks and months.

We believe that the sharp fall seen in emerging market currencies in recent weeks will lead to an increase in central bank demand for gold in order to buttress and support devaluing paper currencies.

COMEX gold inventories are down from 11.059 million ounces at the start of the year to 7.034 million ounces today. This is worth $9.66 billion at today’s prices meaning that a handful of billionaires or just one powerful creditor nation state with large foreign exchange reserves, such as Russia, could corner the COMEX gold market and cause a default.

Russia’s foreign exchange reserves are at $508 billion . Mainland China still holds the largest foreign exchange reserves in the world, with US$3.4967 trillion at the end of June. It is followed by Japan, which had foreign exchange reserves of US$1.1876 trillion at the end of July.


Gold In US Dollars, 5 Years – (Bloomberg)

AG 47 ad(2)The possibility of an attempted cornering of the bullion markets through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which would see gold and silver surge to well over their inflation adjusted high of $2,500/oz and $140/oz.

NEWS
Gold futures dip as Syria fears ease – Market Watch

Gold Holds Drop as Prospect of Tapering, Syria Plan Hurt Demand – Bloomberg

Gold edges down on oil, firm equities – Reuters

RBI query on temples’ gold stocks sparks protest – Economic Times

Pakistan lifts gold import ban – Mineweb

COMMENTARY
Video: Money Vs Currency – You Tube

Silver Eagles Soar – 2013 Sales of Silver Coins Smash All Records, 50 Million Within Reach – Commodity Trade Mantra

Gold prices driven by external markets, technical strategy Bullish: Barclays – Bullion Street

Comments

  1. Panda Bear and Yogi Bear (like me) have not finished stacking on the cheap yet, once they have, they will then corner the market and the price will take off, not a second before they are ready.

  2. Right on Q

  3. Well, my assertion that $23 was the new bottom was just proven WRONG. Ho hum………
     
     

    • I read in a newsletter somewhere two days ago that the new ‘bottom’ will soon be $17 and short lived (I hope) before we get a true upward trend.
      That would be some buying opportunity, as I am itching to blow my load right now. (Figuratively speaking of course)

  4. I thought the LBMA is where physical delivery takes place,  is COMEX running low on inventory have any real meaning.
    If someone needs physical gold or silver, they go to London, that is the physical market.
    Now if the LBMA can’t meet delivery at a certain price, then we have something.  A COMEX default?   I don’t know about that one.

    • COMEX is a ‘Futures’ market.  LBMA is an ‘OTC’ market.  Taking physical delivery is possible at both markets.  U.S. based businesses i.e. jewelry manufacturers would naturally use the COMEX to hedge.

    • Your right zman,
       
      But people don’t understand indexes when compared to delivery pricing mechanisms for delivery. The COMEX has never been about delivery, they hold as much gold as required by the amount held on the index. Usually back to back contracts. All this tells me is that the COMEX hasn’t got that many back to back contracts for delivery. If say someone did want delivery, and the current stock level doesn’t cover the margins, all the COMEX would do is either offer the contract up in dollars, or go out and get some gold. You seen how cheap gold is these days?
       
      Its like any good business, you keep your stock levels as low as possible, can you imagine the insurance bill on stock if the COMEX kept it on the books?
       
      Sorry, I took my tin foil hat off there for a bit, to all the true believers, here we go….arhhh its back on now….damn you Illuminati, whats that David Ike, the Queen is a lizard? I am the lizard king!!!

    • @WaitingForSilver
       
      The COMEX holds zero gold, the owners of the gold are those who trade in futures contracts and want to have the physical supply to satisfy obligations. COMEX simply brings buyers and sellers together, if a buyer wants physical he doesnt sell and someone gives him the physical. If a seller wants to make good on his futures contract he delivers the physical.

      Insurance is paid by the owner of the gold, they pay a monthly storage fee to the warehouse holding the gold for him, the warehouses use this $ to cover the insurance bill.

      Again it is a small but critical distinction, COMEX has a business, but they make money by taking a commission every time they hook up a buyer and seller, they have no dealings in the physical, other than making sure the transactions happen.

  5. Let me see if I have this correct…China has almost3.5 Trillion ( that a capitol T folks ) worth of US debt meaning US Treasuries… the COMEX has about 7 Billion left in inventory…and the Chinese haven’t figured this out yet ?!?!?!?!?!? Didn’t both China and Japan dump 42 Billion worth of treasuries last month alone ?! Maybe someone should send the head guy in China an email and give him a heads up that for the paltry sum of 7 Billion, he could triple his country’s gold worth overnight… just saying 

  6. This article purports to debunk the whole idea that there can be a default – or even that the market can be “cornered”….
    FT Alfaville

  7. “As gold fell in recent months or was manipulated lower, depending on your viewpoint, store of wealth interest in physical gold rose, elevating physical premiums. This has also given traders incentives to take delivery and sell paper gold.”

    So physical is higher priced than paper and therefore I will buy physical and sell paper? Buy high sell low doesn’t pencil.

    People have been doing the opposite, buy the paper low, sell the physical high.

    • paper is a suckers bet

    • What they’re doing is all in the physical, buy phys from market A and sell to market B.  Many here do that all the time.
       
      I don’t really care if you want to believe it or not, but if I buy a paper contract for delivery in October I don’t see how that is any different than someone placing an order here on Docs or some other website.  If I buy from Doc or other supplier today all I have is ‘paper’ proof of my purchase until it is actually packed up and shipped out.
       
      Now buying comex paper for October 2015 delivery is a different game.  My only point is that the people doing this are in the spot market (i.e. like buying from an internet or other retailer who does not have the product immediately in stock), and they are buying low and selling high (not buying high and selling low as the author suggests). I am not advocating anything, nor do I have an agenda I am here for the same reason as other, to better understand how the general population feels and behaves with PMs, not make up false stories about how we think things work.

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