Sentry Investments: Buyers Of Paper Gold Short Positions May Demand Delivery

70% of the recent COMEX selling pressure is from short sellers of paper gold.
Should the buyers of these paper gold short positions wish to take possession of the gold, they can demand it.“  -Sentry Investments

While western markets believe the fires of inflation have been extinguished by a slowing global economy, central bankers globally are piling higher monetary kindling. Eastern investors are scrambling at the opportunity to purchase gold at these levels, and western investors will no doubt jump on board after a few-hundred dollar move (or more) higher in price.

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From Tekoa Da Silva, Bull Market Thinking:

As an update to investors this week, Sentry Investments’ Jon Case & Keith MacLean issued a new piece entitled, Gold and Goldilocks.”
For reference, Sentry manages over $10 billion in assets, with over $1 billion dedicated to precious metals and natural resource funds.
In this new market update, Case and MacLean noted that despite the vicious drop in the price of gold, the monetary conditions that have historically ‘pulled gold upwards’ are still in place and growing. The duo noted that,
“Total expected global-money-creation QE is roughly $2 trillion. This 14% pro forma full taper increase is shown in [the chart below], together with the historical correlation to the gold price. (note: this one-year sum of money printing equals 30% of the $6.8 trillion value of all the gold in the world — about 176,000 tonnes priced at $1,200 per ounce.)

Chart: Upward pull of global money creation on gold to continue

(click to enlarge)

Case and MacLean further spoke to the dominant role and precarious state to which the paper gold shorts have played and put themselves, in that,

“Exhibit 5 highlights inventory changes since ETF gold holdings peaked late last year. Of the 34.3-million-ounce liquidation, 58% came from the ETF products, 13% from selling long COMEX gold positions and 29% from COMEX short sales. Another way to look at it is that 70% of the recent COMEX selling pressure is from short sellers of paper gold.”

(click to enlarge)

“Should the buyers of these paper gold short positions wish to take possession of the gold, they can demand it.”

Case and MacLean also affirmed the growing ‘West to East’ gold migration, in that,

“Such a trend has clearly developed…indicating an unusually high demand for physical gold delivery despite price weakness. That being said, it is possible that some of the decline in registered stocks may be the result of dealers buying paper gold at a discount to spot in North America, taking delivery and then selling the gold at a premium in Shanghai.”

As a final big-picture comment on the gold market, Case and MacLean concluded by saying,

“[W]e believe the recent precipitous fall in the price of gold is the result of an overreaction to the Fed’s musings on the beginning of QE tapering…Moreover, gold has dipped meaningfully into the global all-in cost curve and has already triggered mine-production shutdowns, suggesting the market should be approaching a floor-price for gold…[and] ultimately, we believe that global money creation continues to exert a strong upward pull on gold’s intrinsic value.”

Bottom Line: While western markets believe the fires of inflation have been extinguished by a slowing global economy, central bankers globally are piling higher monetary kindling. Eastern investors are scrambling at the opportunity to purchase gold at these levels, and western investors will no doubt jump on board after a few-hundred dollar move (or more) higher in price.

To read Jon Case & Keith MacLean’s excellent Gold and Goldilocks piece in it’s entirety, visit: Sentry Investments

 

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Comments

  1. Their estimation of QE FIAT creation is low by at least 50%.  The US and Japan alone are going to print $2 trillion.  China will be printing $1 trillion for their stimulus programs and PBOC bank bail outs   The Eurozone, India and other countries will probably share in another $1 trillion.  That $4 trillion will have to go someplace.  It’s about 60% of the present value of world gold stores  which are worth $7 trillion-ish.
    But of these total stores, only a tiny fraction of the gold may be available for sale at any time. 
    How much? 
    2% ?
     3,500 tons?
      That’s 50% more than the worldwide annual production of gold. 
    That’s would be worth about $150 billion. 
    Whether it’s $2 trillion or $4 trillion chasing a tiny bit of gold, something will have to give. 

  2. Goldcorp and Newmont are losing billions in earnings and writedowns. How long can this go on before we see major blue chip gold miners shutting down or going bankrupt? The Banksters are literally killing the mining sector.
     
    I am astounded nobody talks about where this is going. Supply chains are going to be destroyed and fairly soon.

  3. Err… how can the shorts take delivery of gold again? (They’ve sold it!)
    I skimmed through the article but that quote didn’t become any clearer to me.

    • You need to read carefully. It says the BUYERS of silver short positions can demand delivery. NOT THE SELLERS of SHORT POSITIONS. The BUYER is LONG. The SELLER is SHORT.

    • That grabbed my attention too.  One does not short something when they want to take possession of it.  The longs, on the other hand, can buy a futures contract AND either take possession of the underlying commodity or sell the contract for a profit if the commodity rises in price.

  4. try to demand delivery on a big amount. Get told we will supply it in 6 months to a year probably

    • Futures contracts that are purchased with the idea of taking delivery of a commodity should specify the delivery terms as part of the contract.  The contract seller is then obligated to make good on those terms OR face a significant breech of contract lawsuit. 

  5. A contract is initiated by the short seller. Before someone sells short a contract it doesn’t exist. When he initiates the short sale the open interest increases by one contract. When that seller buys back to offset that position the open interest falls by one contract. That article is talking about whoever buys that contract and stands for delivery. It really isn’t confusing. You are either the seller of the contract or a buyer. If the person who is short doesn’t offset his position before the delivery date he is obligated to deliver the metal. If not he is in default. If he doesn’t have metal to deliver he has to go into the spot market and buy metal to deliver. HE HAS TO. When this action ceases COMEX CLOSES.

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