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.
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):
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.
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.