As of Wednesday’s open interest report for Comex gold futures, there were a total of 403,947 open gold futures representing 40,394,700 ounces of gold.   As of yesterday, there were 587,234 ounces of “registered,” available for delivery ounces of gold.  That’s a mind-boggling 69x times more open interest of paper gold than available physical gold to deliver to the holders of those contracts.  Think about that for a minute.  If more than 1.4% of those longs stands for delivery, the Comex defaults.
Now we know why Germany wants its gold back, why the Chinese and other BRIC countries are loading up on gold and demanding delivery and why the owners of Comex gold are taking delivery off the Comex.  The Comex is a giant Ponzi scheme.   “In paper we trust” is the motto of anyone who has a long position in Comex futures OR who safe-keeps their gold at Comex vaults.

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From Truth in Gold:

The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.

The above liability disclaimer was added to the Comex gold and silver warehouse stock reports about 5 months ago.  I have a post on this blog about the time it showed up if you need an exact date.  You can see the Comex stock report and disclaimer at the bottom here:  Comex Gold Stock Report

The question I had at the time was, “why now?”   The CME completed its acquisition of the Comex in August 2008.  It took nearly 5 years before the CME’s lawyers decided to add that disclaimer to its Comex gold/silver warehouse stock reports.  Having worked on corporate finance deals in my past and knowing how anal and attention-to-details good lawyers are, I can assure you that it is not some capricious oversight that the CME decided to correct five years ex post facto, as one prominent silver newsletter seller would have us believe.

Here’s a graph of the stunning plunge in the “registered” gold sitting in Comex bank vaults – “registered” means gold that has been designated by its legal owners as being available for delivery to holders of futures contracts and has been certified as a bona fide gold bar per Comex standards (source of chart is 24hourgold.com, edits are mine):

(click on chart to enlarge)

There are 6 entities that operate designated Comex gold vaults:  JP Morgan, Scotia Mocatta, HSBC, Brinks and a small private vault company, Manfra, Tordella & Brookes.   The three banks account for 96.4% of the total amount of gold being “safekept” in Comex-designated vaults.  They account for 78% of the “registered” gold on the Comex.  As you can guess, most of the deliverable gold that has been removed from Comex since April has come from the vaults of JP Morgan, HSBC and Scotia.

The “eligible” gold account is the gold that is being kept for safekeeping at the Comex vaults by investors who theoretically have title to that gold.  For the record,  knowing what I know about big bank fraud, I unequivocally do not believe that the entire amount of gold being reported by the big banks who operate the depositories is actually either physically in the vaults or that it has not been hypothecated via lease obligations by the banks who control the vaults.  If it has been hypothecated, it might actually be there but the owners have lost their physical claim on the metal.  See the court decision in the MF Global bankruptcy if you do not believe me.  The owners of silver held by MF Global were deprived of their bars and are being settled in cash.

As of Wednesday’s open interest report for Comex gold futures, there were a total of 403,947 open gold futures representing 40,394,700 ounces of gold.   As of yesterday, there were 587,234 ounces of “registered,” available for delivery ounces of gold.  That’s a mind-boggling 69x times more open interest of paper gold than available physical gold to deliver to the holders of those contracts.  Think about that for a minute.  If more than 1.4% of those longs stands for delivery, the Comex defaults.

Now, the majority of those contracts  extend all the way out to December 2015.  But there’s 166,540 open gold contracts for delivery this December (first notice of delivery is 9 trading days away including today, on November 27).  Those contracts represent 28x the amount of available gold to deliver on the Comex.  If more than 3.5% of those contracts stand for delivery, the Comex defaults.  Historically, maybe 1% of the open interest in a delivery month takes delivery.  The odds are that will be the case this December.  But at the rate that the gold is being drained from the Comex, this is going to be a real problem in the future.

Now we know why Germany wants its gold back, why the Chinese and other BRIC countries are loading up on gold and demanding delivery and why the owners of Comex gold are taking delivery off the Comex.  The Comex is a giant Ponzi scheme.   “In paper we trust” is the motto of anyone who has a long position in  Comex futures OR who safekeeps their gold at Comex vaults.

sic semper tyrannis

As for the truth in reporting issue, does anyone out there besides Ted Butler actually trust those banks to  send computer-generated reports that are accurate and honest to the CME.  Have these big, Too Big To Fail bailed out banks given us any reason whatsoever to trust them?   Ya, neither does the CME apparently, which is why they stuck that disclaimer on the inventory reports in June.  In fact, we know that both HSBC and JPM have several criminal investigations for fraud and market manipulation going on against them by the “regulatory” authorities in both the UK and the U.S.  They have both settled numerous others with big cash payments to make the charges go away.

I can walk anyone carefully through JP Morgan’s SEC-filed financials to show them where JP Morgan is committing fraud in reporting its financials to the SEC.  I guess Butler trusts those financial filings just like he trusts the reports on open interest and warehouse stock filed with the CME by JPM, HSBC and Scotia.

I do not trust those reports and neither should you.  The Comex is living on the life-support of those who still trust them enough to conduct business on the Comex.  Sooner or later that trust will be shattered.  Judging by the current drain of gold from the Comex and from GLD, “later” is probably not too far away…When that happens, the world price of gold will go “bid without” (meaning all buyers, no sellers) and the dollar will drop off a cliff.

    • If you trust the article, it probably does not matter about now or later, as long as you buy before “the dollar will drop off a cliff.”  The difference between the amount of PMs you can buy, waiting for a lower price than the current will probably not make that much difference in the long run.
       
      What say you all?

    • Don’t take the lump and just dump it, do it quietly and effectively, there is no rush, anything below 950 Euros is good for gold.
      I personally wouldn’t bother with silver, most of us silver bugs are looking to dump silver for gold when the price is right, well I think in my opinion that Gold is a good buy at this price, so why go through silver first, especially in Europe when we pay taxes on Silver and not Gold. If your buying Gold, look at smaller coins, 1/4 oz to 1/10 oz coins. If the price goes mental, you need to off load, buying 1 Oz coins looks good, but might be hard to shift if the prices go up.
       
      Saying that mind, I have been looking at American Buffalos of late, very pretty coin, lovely artistry, but I hold my self back, and buy gold old Kugs and Sovs.

  1. They’ll settle in cash and there will be no “default”. Of course COMEX as a market will and should become just a speculator paper arena and not a real market leading to abandonment. That’s probably what we’ll see.
     
    But do not expect a hard default. 
     
     

  2. Comfortingly,
    - Most little traders don’t have the cash power to actually take delivery, they just oray the margin doesn’tt increase before they sell their longs off.
    - Most large traders on COMEX aren’t there for the metals, but for the rides.
    - Most large metal consumers don’t use COMEX for physical procurement. At best, for price risk management (hedging)

  3. jlee27
    Right on.no hard default.They will settle in paper.ONce the physical runs out then its game over for the status quo.I wouldnt put too much into the comex drainage as being the tipping point for the decoupling..When they get near the default threshold they will no doubt crash the paper price and steal whatever is left form Gld and the like to keep the scheme going for a little longer.Once that source dries up..Ball game over .Moonshot.
    It all comes down to being able to supply physical to those standing for delivery(china/russia/proactive north american elites.
    It is in China’s best interest to perpetuate the ponzi scheme.They wont purposely cause a comex default until the physical runs out.Once again it is in there best interest to keep the price suppressed.
    Give it another 6 months/year before the fireworks begin.

  4. Once the Chinese Exchange gets any traction, Comex will be a ship in distress. 
    To the doom and gloomers, just stand easy. When thing start to fall apart, events will move very quickly.
     
    And personally, I agree with those who see the bullion markets as the catalyst event for the grand denouement.
    At the moment the fault line between market reality and communistic forces (market manipulation) is creating a huge wave that Bitcoin is riding. This is a precursor to the end. 
    Bitcoin is sitting in the vacuum, sucking it all up right now.

  5. Speaking out of turn I know, and not staying with the party line, the beauty of Paper silver/gold is that you don’t have to go through the conversion of Physical to Paper.
     
    I get it, I don’t agree with it, but this Comex toy will never blow up, its a tool to make money, that is a dishonest lie, but it does deliver in Dollars, the price of the Gold on the day.
     
    If your dealing with paper gold, why would you be interested in taking delivery? This physical stuff is a pain to store, and to insure, I have now found myself without a Safety deposit box, because UK banks have stopped issuing them.
     
    My insurance has gone up on my property, and it don’t matter jack how big and solid your safe is , if the person who wants it open is threatening your life for it. Only saving grace with Silver, is that its very heavy and very awkward to carry :)

    • To sell 1oz of gold, you need someone with €1000. There’s a lot fewer of those than people with €275.
      The 10% premium is a risk, which blows up in your face when it comes to melting, when all they want your gold for is to melt it into monetary bars, or jewelry. When coins have lost their appeal, or you end up with the least attractive coins for some reason.

      I buy silver semi-numi in all sizes. Similar premium to the 1/4oz golds, but they gain collection premium like a plate full of lemonade gains wasps. I do not wait for the day to offer my silver for melt, I cash in the collector premium and buy more silver. It’s a pyramid scheme of sorts and it’s working great for me. The trick: low entry premium means high intrinsic value. And, the premium collection is really quick. It takes half a brain to cash in though.

    • Exactly.  To sell 1 oz Gold you will need to find a buyer with a lot of money, but to sell say – 1/10 oz Gold your pool of buyers is a lot larger.  Particularly if Gold does indeed do its ‘moonshot’ and everyone wants to jump on the bus and buy some.
       
      Go ahead and stack those 1-oz Cold coins and include a mix of them in your stack, but it may also be prudent to accumulate some smaller coins as well.

    • I love 1 Oz Coins, they feel heavy and are very pretty. However, when your selling, the idea is to sell in small chunks, gradually over time. Not all gold bought is equal unless your buying one product and homogenizing the price. Its all of a personal thing.
       
      I stick to Coins of around 7-8 Grams of gold mainly. I think they hit a sweet spot on low margins, easy selling. Being British, obviously I buy mainly Sovereigns, if I was American I would buy Eagles, Canadian, Maples. To me its all about recognized products that are easy to move when the time comes to cash in your chips.
       
      1 Oz coins in the UK are expensive when compared to Sovereigns, and are harder to shift, because everyone recognizes a Sovereign.

  6. waitingforsilver  The UK banks dont offer safe deposit boxes?  That is beyond weird to something bordering psycho.  They are great traps for the unwary but not offering them makes me wonder what the WHY of that policy.
    As for buying gold or silver, it seems that these prices offer reasonable value  If you love gold and have lots of silver, the gold to silver ratio is going against you at 62.5 to 1.  I would trade gold for more silver with these ratios and did when the ratio was 65 to 1. 
    If a person thinks that the ratio will drop to 45 to 1 or even 30 to 1, then trading the heavy and hard to store silver for gold would be a decent  trade even with the trading commission friction.  Having a good balance of both, much like Charlie strives to do, may be the best policy
    As for safe deposit boxes, I dont use them   If you dont hold it you dont own it and you can be assured if TPTB want to go on a treasure hunt they can do so and will.  SDB are a good start   My banker cautions me about this as well and he should know.  
    Roman paymasters buried the soldier’s wages, paid in gold, deep in the Bank of Mother Earth.  2,000 years later treasure hunters are finding near pristine gold and silver coin caches in the English countryside.   That Bank works just as well today as it did in Roman times.  Cheers and shovel on

    • Got way too much silver. Had to stop. I prefer it to gold, but it takes up too much space. £790 is a great price for gold, bought some sovs. Yeah it is madness, excuse I was given was the insurance was too high, only bank left who offer safe deposit boxes is a new jump called metro bank in London. Stupid, since I live 80 miles from london.

  7. I’ve seen myself do it. Bought semi-numi coins near the best bullion price on the EU market (Philharmonikers/Maples), really I mean 2-5% more premium. Sit on it for less than a year and gain 50%. Not in fiat, but in silver bought back. Silver in my hand.
    The gains have been so significant, and add on that a few short term flips due to having found better prices and having bought in bulk reducing shipping, etc, etc, I am confident I have already won back all the premium I invested in my stack, even the premium that is still invested in it. I have <10% junk, 20% plain bullion and the rest affordable to semi-chicue semi-numi. Worst are Lunar II Horses and sme SBSS prooflikes, all of which which I can easily sell at a profit despite silver being lower than when I bought.
    It’s one thing to have a vision and stick to it. Some just buy bags and bags of Libertads. Possessive about them. They pay a €1+ premium right now. For the product, yeah it’s worth it, but not for the smelter that takes it off your hands at peak silver.
    I have decided to not only work my stack, but also to help others to learn how. It’s a great pyramid scheme. It works. And it will remain to work until silver gets too crazy high. I will want to exit all my semi-numi silver before returns diminish : the amount of bullion I can flip it for. Let’s say right now my semi-numi stack cost me 10% premium and can get me 20% when carefully selling. I need to get my 6% out for sure, else it was a loss. My stack is young, I expect the 20 figure to climb a bit, but it’s worth nothing if I don’t get to actually cash it in. Sell it for more of the similar silver, and eventually settle the score in plain bullion. 
    In the mean time, I am in the position to also sell bullion at 6-8% markup. Weird, but this is Europe. It might get better when Germany gets his by a 11.2% silver price increase from VAT alone. And, it might help me get more gold for my silver when sellling to Germans or affected Europeans.
    Silver is doing awful, my stack is doing great. It’s very complicated mind you, more like a random collection, but it lives. Likes a gallery. It sells 10 respected pieces and buys back 11 slightly nicer ones of new promising artists.

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