COMEX to London EFPs have delivered a year’s worth of gold mining in just five months. Here’s an update on the recent trends in delivery…
Since the outsized dumps of paper gold and silver dating all the way back to 2013, we goldbugs have claimed COMEX was ripe for a delivery default. We were of course viciously trolled and called crazies in comment sections after going through the logic of how much was being sold and how much open interest there was going into “first notice” days versus inventory.
We were called chicken littles because each delivery month would see open interest collapse going into and during the delivery process and default from excess demand always evaporated at the last moments. I wrote several times and questioned the logic of accounts that were fully funded to take delivery…they just “went away”. It defied logic to say the least. We also speculated but could never prove these fully funded longs were “bribed” to not take delivery. It turns out we were correct and wrong at the same time. As it turns out, it looks like some fiat did change hands AND deliveries were made after all but it turns out they have been hidden and did not come from COMEX per se!
Koos Jansen originally found that “EFP’s” (exchange for physical)were being used to divert long’s being delivered to, away from the COMEX and toward London. James Turk then took the baton and actually found the reporting of EFP deliveries on the CME website! As a background, EFP’s have actually been around since 1974 but rarely if ever used. They were originally created as a stop gap measure for a way a short could deliver in an emergency situation. Now, we have discovered this “emergency measure” is being used on a daily basis and in HUGE amounts! For years, Harvey Organ followed all movements in COMEX gold and silver but the final analysis never equated with logic because we did not have this missing “EFP” piece.
To explain as an example, this past Friday saw a decrease of roughly 10,000 Dec. gold contracts. In the past we would wonder why 1,000,000 ounces of gold did not stand for delivery since the accounts were fully funded and ready to take delivery? We also see that 15,000 EFP contracts were written…which means rather than losing 1,000,000 ounces standing, there were actually 500,000 more totaling 1.5 million ounces in the delivery process for just the one day. To put this in perspective for you, Friday’s 1.5 million ounces works out to about 47 tons…in just one day. COMEX claims to have a whopping 28 tons of deliverable gold currently…(less than 900,000 ounces)! Is this “legal”? Yes, I guess you could say it is. Is it “transparent” and has COMEX, CME or even the CFTC alerted the public that this is how deliveries are being made? If nothing else, settling the majority of demand in this fashion is “sneaky”, certainly not transparent.
These EFP transactions have now become “normal” business practice. By looking back to October, roughly 8,500 contracts each and every day were being EFP’d…call this a pace of about 17 million ounces of gold for the month! This equates to eating up total global annual gold production in less than five months assuming no other demand at all. Obviously this cannot continue as London, nor anywhere else has an infinite horde to divest. (As a complete side note but parallel in my opinion, do you remember when QE was used originally for “emergency” purposes and is now considered “normal business practice”)?
The question now becomes “how long can they continue to deliver” at this pace before supply is exhausted? As London’s books are closed and secret, we cannot do the math but we do know they face an impossible task.
Remembering a little history, during the 1800’s, Britain absolutely beat up on China financially, diplomatically and even in war. China was forced to turn ports over to Britain, enter into unfair trade deals and even divest Hong Kong. China was humiliated, lost much of their gold and saw their silver devalued by the West.
We know massive amounts of gold have been going East from the West, this is fact. We also have speculated for years that Western central banks have been supplying gold in order to support currencies and credit markets. Has the clandestine movement of “public” gold away from Western vaults occurred? In my opinion yes, and I do believe this will become a very hot topic and be considered a truth bomb by the public…they will see it as the Treasury being pilfered.
How long and how much gold has been bought by and delivered to China? I believe 20,000 tons at least, which means some of it was “official” Western gold. The Chinese by the way have VERY long memories. They have not forgotten their past treatment. Are they gutting “Britain and the West” by purchasing much of our gold? Are they now returning the favor 150 years later? I have to say, they certainly have good reason to if this is the case.
So there you have it folks, is this COMEX living up to their nickname as they are now caught red handed? The longs have not been abandoning their requests for delivery as we were led to believe. Instead, the deliveries are being diverted to London and not reported by COMEX in their open interest nor delivery figures.
At this point, nearly any short sale to “open” based on COMEX inventories are virtually naked…not to mention each time several million paper ounces are dumped in minutes to crush price. Does this mean COMEX blows up tomorrow? No, but it does mean we now understand “how” the paltry inventories have been protected and how real delivery has been diverted away from annihilating the COMEX inventories. “Fair and transparent price discovery”? I don’t think so but I do believe the Russians and Chinese have seen this day coming. Why else have they have set up markets and clearing facilities of their own? I believe the obvious answer is in the question above…”fair and transparent price discovery”!
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