With less than 10 million oz of physical gold bullion, the COMEX is still able to mostly dictate the world’s +6 billion physical gold bullion ounce prices…
The COMEX continues be called out publicly for allowing gold price manipulation and ramping.
Regardless of the disturbing COMEX gold bullion vs derivative leverage and its public allowance of direct government central bank trading within its gold price discovery determination process, the COMEX’s influence on the prices of real world goods and commodities remains certain and real (e.g. for both ongoing gold and silver bullion prices).
There are of course other large derivative exchanges where huge notional values of gold derivatives are traded (e.g. LBMA London OTC gold trade being the largest example). Yet it is the US based CME Group’s COMEX which has been empirically proven itself as the most influential entity in today’s gold bullion price discovery process.
Late last week, Greg Hunter of USA Watchdog pointed out to his youtube audience and to the likely informed loyal visitors to Silver Doctors, the often highly leveraged condition of COMEX registered inventory levels. He specifically cited the all time year 2016 high of COMEX 542 oz open interest to 1 oz COMEX Registered gold bullion inventory levels at around 21 minutes into his weekly vlog.
Left out of Greg’s diatribe is the COMEX Eligible gold inventory level which still lends a shred of credence, to the outsized influence that this specific gold futures exchange maintains on the fluctuating price of physical gold around the world.
Yet even when combining both physical COMEX Registered & Eligible gold inventory levels in the present day, the math is rather ridiculous. Especially when one considers the COMEX still maintains the leading role in the discovery of what the price of physical gold is and will be today, tomorrow, etc.
The Simple Math is This:
There are just over 6 billion ounces of physical gold in the world.
There is just under 10 million ounces of physical gold bullion held in the COMEX fractional reserve gold price discovery mechanism (i.e. currently now 99.87% of COMEX gold futures contracts are settled in US dollars alone, only 13 in 1,000 contracts are settled physically).
For every 600 oz of physical gold there is in the world, only 1 oz of gold bullion resides in the COMEX’s inventory.
Yet the COMEX still mostly dictates physical gold’s ongoing value across the globe.
In this 21st Century Gold Rush, we have witnessed three varying timeframes where the COMEX gold futures Open Interest to Registered gold bullion inventory figure has blown higher and into outsized figures.
Starting in late 2013, then the early 2016 record level, and again expanding higher today (see below). It again looks like very few COMEX commercial gold traders are allowing their physical gold bullion to be stopped out and physically delivered.
The two largest COMEX commercial bank traders and COMEX gold bullion inventory holders are simultaneously the Bank for International Settlements Financial Stability Board (FSB) most risky banks (see page 3) to the global financial system.
HSBC holds about 60.8% of current COMEX gold bullion inventory while JP Morgan has 22.4% of the share. Combined they hold just over 8 million of the 9.73 million oz of risk-less tier one physical gold backing the entire COMEX price discovery mechanism.
The trend of both less physical gold bullion deliveries coming through the COMEX and in its Registered vs Eligible inventory level divergence both clearly illustrate that this most influential gold price discovery mechanism is becoming more derivative and less physical over time.
Gold Price Discovery? East vs West
Of course for most long term bullion buyers, the $64,000 question is when will China make their move on gold and other commodity price discovery mechanisms.
How about sooner than most might think?
Now that the Chinese yuan has stuck its camel nose into the world crude oil market share…
… the question of how much longer gold remains pathetically valued vs other overpriced asset classes, remains in the interest not merely of the US and western government price rigging futures exchanges, but ultimately the interest of China too.
China, with her near 10 years of world leading gold mine production, and her record-sized Shanghai Gold Exchange (SGE) gold bullion withdrawals remains the golden gorilla in the physical fine gold bullion world as her demand dwarfs simultaneous physical gold bullion deliveries on the COMEX for the last decade.
Given all these aforementioned trends.
Looking ahead 10 to 20 years from now.
Ask ourselves, who indeed will likely mostly be influencing the ‘price discovery’ of gold, crude oil, and other critical commodities.
With arguably one of the greatest hairdos in the gold game… Nick Barisheff, has some concluding thoughts on the matter below.
If that video is too long for you, bullion bulls most hated Jeffrey Christian is now a raging 2020s gold and silver bullion price record prognosticator. Dude now drops hot 60 second takes like this one here.
About the Author
James Anderson has a BA in finance from Loyola University New Orleans. He has both worked and invested in the physical investment grade bullion markets prior to the 2008 global financial crisis.