Posted on 01/06/2009 6:47:07 AM PST by TigerLikesRooster
Is the Comex Doing Fractional Reserve Delivery of Gold?
An acquaintance who works for a small precious metals fund sent this to us today, asking if we had ever heard of anything like it.
The short answer is no, but this is not a strong area of specific expertise, and we never attribute to a bad intent what we can attribute to sheer incompetency, especially when dealing with large organizations.
When one is promised specific bars with specific serial numbers of a specific size and weight one week, and they are not available the next week when you confirm that you wish to receive them, that brings up the same kind of red flags that have been so notoriously ignored by regulatory agencies in other recent cases. Of course the Comex is no Bernie Madoff.
But nevertheless it does bring into question the integrity of the Comex records and their contracts, and the condition of their audits and inventories. We would have a fit if someone did this to us after an online auction or a personal purchase transaction. Why should the Comex be allowed to sell what it does not have, and then dictate new terms after the fact?
And it does put a fresh emphasis on the old adage, "When in doubt, take it out."
We accumulated 3 emini gold contracts on Comex for December delivery and we had been given serial numbers and weights last week for the 3 bars we were to receive.
Today we are informed that Comex is invoking a rule in which they can deny delivery of individual mini bars (roughly 33 ounces) and issue you only a Warehouse Delivery Receipt (WDR) against your mini-contract unless you have 3 WDR's, and then they'll issue you a 100 oz. bar.
Otherwise, if you have only 1 or 2 mini-contracts, you only own a WDR, which you sell by shorting a mini against it. If you own a WDR for a 100 oz., they encourage you to safekeep the gold at the Comex and hold a vault receipt.
CLEARLY, the Comex has run out of the bars that were being delivered to holders of emini contracts. Our back-office guy told us that he's been doing Comex deliveries for 30 years and he's never seen anything like this, and he's never heard of this NYSE Liffe rule on the mini contract.
Fortunately we have 3 WDR's and we will be getting delivery of a 100 oz. Comex gold bar.
But this whole episode brings into the question the validity of the Comex gold inventory. More importantly, the Comex is now going to issue WDR's, which are paper.
Are they becoming a "fractional" reserve depository, where they can issue several WDR's against the same bar of gold, knowing that some of those people will opt to keep storage on Comex and never require actual physical delivery?"
Ping!
But I wouldn't trust the judgment of gold-foil-hatters, either. Glad my dog's not in this fight.
I read somewhere that there is 40% more paper promising gold than there is gold. I wouldn’t own ‘paper’ gold in this environment.
No, it doesn't. But, it does point out that whoever the idiot is who made these ridiculous comments doesn't have a clue.
Alot of folks (including myself) were talking about comex defaulting in December.
But there simply was never enough open interest for it to happen.
March is another story.
March is the big kahuna.
how can he not have a clue when he certainly (with 3 e-mini gold contracts) has a dog in the hunt.
and how con you comment that he is an idiot - when you aren’t playing in the same ballgame?
maybe you are the one who needs to buy a clue - currently you clue will cost you $28,050 for 1 e-mini.
Let’s see if you can get delivery,heh!
Lurking’
Everything old is new again. In the Medieval Ages people took their gold to the local goldsmith to keep for he had the safe storage facilities. They got a warehouse receipt in exchange (like our old gold-backed currency). People began trading the receipts as they were more convenient. It didn't take long for the goldsmith to figure out that he could issue more receipts than he had gold. Ergo, let the good times roll! Eventually the imposition of the death penalty put an end to such practices - perhaps it should be re-imposed. (tongue only slightly in cheek)
“I wouldn’t own ‘paper’ gold in this environment.”
Don’t. There IS no physical gold backing up that paper...just like there’s no silver backing up our paper Benjamins.
Nervous, yet? ;)
If it can be found, it’s at $80 over spot right now, making it about $940/oz.
Sadly for the rest of you, most of it is in my underground bunker guarded by Dick Cheney. Y’all haven’t seen much of old Dick these days, now, have ya?
HE’S workin’ for ME! ;)
I see that you'll believe anything. I said whoever wrote this tripe doesn't have a clue because he doesn't.
This is yet another of the endless made-up stories that circulate on the internet. The words "but this is not a strong area of specific expertise" is the first clue. He should have said he has zero expertise. The fact that it's a third-hand, "somebody said" story would be the next indicator that it's bogus.
For those of us with some actual knowledge of and experience in these markets, the fact that Comex DOESN'T EVEN TRADE A KILO (33.2 ounces) GOLD CONTRACT is the real knee-slapper.
Comex has a 50 ounce (miNY) contract in addition to their full-size 100 ounce contract.
Further, and funnier yet, is that the Comex miNY contract is CASH settled, there is no such thing as physical delivery. The CBOT trades a kilo contract, but it's also cash settled, with no physical delivery possible. You want delivery, you have to buy a 100 ounce contract. The Comex allows delivery of a 100 ounce bar or 3 kilo bars against their 100 ounce contract, you don't get a choice.
At this point it's clear that you also don't have a clue. But, you do qualify for membership in the club of idiots who hawk ridiculous Comex delivery conspiracy theories.
I've seen about four different versions of this particular bogus story. It's the same sort of junk that was circulating when I was trading metals back in '79 and '80, the only difference is that the conspirazoids didn't have the internet to facilitate the spread of their latest hogwash.
Must be nice to have that kind of 'hired help.'
Oh, so you can vouch for the Comex gold audit? Really? How interesting. And you would know this because....?
Looks like the Comex is running a bucket shop.
If gold is not in your possession, it’s just a paper promise.
Audit? Who said anything about any audit?
The point of my post was very simple, that is, to point out that the entire story is nothing but BS.
There is no deliverable mini-gold contract traded at the Comex. There is no 33.2 ounce mini-gold contract traded at the Comex. The story is made up out of whole cloth by some nut-case who can't even get the most basic facts right.
What's your excuse?
So, is slandering legitimate businesses one of your hobbies or do you just enjoy making baseless allegations?
So, you work there?
Let’s review.
I point out that the original post is a total hoax.
You then babble about an audit which has nothing to do with anything and certainly not the facts which prove this “story” to be a hoax. Facts which are known to me offhand because I’ve actually traded this stuff for over 30 years, but which are readily available on-line to anyone who bothers to take 2 minutes to look for them.
You then slander the Comex based on zero evidence and no apparent reason other than perhaps you’re unknowledgable or enjoy making a fool of yourself or both. Since you can’t cite a single instance of anyone not getting delivery under any deliverable Comex contract that they desired to take delivery on, you then attempt a lame ad hominem attack on me.
Nice try at obfuscation. And, no, I don’t work for the Comex division of the NY Merc, or any other exchange, or any broker. Never have. I trade for my own account.
Are you done embarrassing yourself yet?
What is more clear is that you, and not the author of the original post, don’t know what you are talking about. The original post writer is simply confused about which exchange he bought his contracts on. He bought them on NYSE-Liffe (formerly CBOT), not COMEX.
Contrary to the incorrect information you are spouting, deliverable 1 Kilo gold contracts were offered for years on the CBOT, and, now that the NYSE-Liffe has taken over the CBOT gold and silver trade, 1 Kilo contracts are offered through it.
Settlement of delivery occurs through the same banks, mostly HSBC in NY. They also settle COMEX warehouse claims, so the original poster got confused between the two exchanges. He obviously bought his mini-contracts on NYSE-Liffe, where they are deliverable, not on COMEX.
The 1 kilo bars are the most popular format for consumer buyers, who want to take delivery. It makes sense that NYSE-Liffe would start running out of the smaller bars of gold because the other exchange (COMEX) doesn’t even offer them. COMEX miNY contracts are cash settled only.
All the futures exchanges are operating on the basis of fractional banking. Last year, for example, between options on futures contracts, and the futures contracts themselves, the COMEX was offering many times the known amount of silver mined each year, in the entire world. This is close to impossible for one New York City based exchange to do, especially when its official warehouses don’t have even a tiny fraction of that silver in storage.
Had everyone demanded delivery, back then, COMEX would have been sunk, once and for all. But, even now, in the tiny January delivery month, repeated delivery demands by small buyers, like the poster, is forcing up the price of silver, because the COMEX clearing members have even less silver than they have gold. I suspect, further, that their warehouse stock figures are heavily inflated and they have even much less than they list as warehouse “stocks”.
Since last year, COMEX clearing members managed to crash the price of silver, through a host of corrupt tactics, including temporarily raising the margin minimums at a time when hedge funds were being clobbered by crashing stock prices. That allowed clearing members of COMEX to buy back a lot of their contract obligations, at a profit obtained through techniques of fraud.
Take delivery folks, of NYSE-Liffe mini-contracts, and, for those who can afford them, the full 100 ounce gold/5,000 ounce silver COMEX and NYSE-Liffe standard contracts. Doing so will force a vast rise in the price of gold and silver to their real valuation. Right now, we are allowing a deb of vipers and thieves in NYC to profit from periodically crashing prices using fake contracts for non-existent metal, with questionable warehouse reserves, and fractional banking.
Actually, it is irrelevant, the Comex doesn't have any "orders," they're merely the exchange, the "orders" come from longs who actually want to take delivery and pay in full.
Why is it so hard for people to understand that 99.99+% of all trades are entered into by people who have no intention of ever making or taking delivery and are liquidated long before delivery is an issue?
As usual, December came and went with no clamor for delivery beyond the routine few. 85 million deliverable ounces in Comex warehouses speaks for itself.
Like I said, this same sort of Comex garbage circulates every time gold prices are relatively high. The rest of the time, the nut-cakes circulate conspiracy theories about how evil forces are holding prices down.
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