a delivery failure at the COMEX means what?
Hi Bill!
I think it is accurate to state that the gold market has split
into one market for those who trade the futures, which are basically promises to
deliver gold, and one market for physical bullion. The quoted price for gold is
still the spot market price based on paper gold. But I think there is a
philosophical divergence at work too. The people who are playing futures and
ETFs for bullion are looking for a quick flip for a trading opportunity. Very
few of them expect to take physical delivery of the metal. Instead they hope to
capture leverage on their little pieces of paper, and exchange their promises of
real gold for dollars. Those who are anxiously trying to buy the dwindling
supply of real bullion are less concerned about the trading profits they may
realize, and are seeking security of ownership and preservation of wealth in
uncertain times.
Those gamblers and traders that are playing the spec futures can be easily be
spooked out of their positions and they are routinely played for chumps by
bullion banks running the short scam. But stop to think for a minute in the
event of a delivery failure. Lets just consider a big, reputable state lottery
that has attracted the interest of gamblers looking to win big. What if that
lottery decided they were not going to pay? How many people would choose to play
that lottery the amowing week?
About 2 years ago, the LME defaulted on nickel futures. What was disgusting
about the whole issue is the way that the longs were treated. If my memory is
correct, instead of long position holders being allowed to cash in on their
fairly earned profits in a short squeeze, the regulating agency declared that
all contracts would be frozen within 10% of spot and the settlement would be
paid in cash only. And to add insult to injury, the longs were forced to make
available their metal surplus to be shorted against them. This enforcement
basically marked the top for the nickel market and the price has been in a
downtrend ever since. Keep in mind that there is no retail demand for nickel, no
line ups in front of nickel bullion stores, and no central bank holdings of
nickel. The shorts were allowed to keep their profits when nickel prices were
slammed, but when the longs were in the drivers seat, the rules were changed and
the winnings were not properly paid out.
So this is where the significance of the diverging markets for gold and
silver become a factor. If we do get a delivery failure in the COMEX, gone
forever will be the illusion of infinite supply of the metals, and the concept
that the bullion banks are in complete control. And with that exposed for once
and for all, then the demand to own the real metals will skyrocket beyond what
we have seen so far. Those who buy real metal are less likely to puke it out in
forced selling from margin calls, or through stop losses. Those who buy bullion
are more aggressive to buy when the prices fall and less likely to be induced to
sell. So the two biggest weapons for the crooks at the paper market are less of
a factor to control the physical market. This is being proven in real time at
local bullion retail outlets worldwide. And with every small retail bar that is
sold and gone from the inventory, the demand for larger 'wholesale' bullion to
drawdown the COMEX increases. The day of the delivery failure is coming.
I would not play the paper markets. I have all the volatility I can stand
just putting up with the PM junior mining stocks. But if I did, I would be
concerned that even if I was on the right side of the trade, the crooks that run
the COMEX would just screw me out of my profits anyway, just as we saw at the
LME for nickel. Perhaps that is part of the reason why the open interest in the
COT report has been in decline. People are finally starting to realize that the
casino is rigged and are going somewhere else to speculate. We have also seen
the abuses in derivative trading for other asset classes fail recently. Do
people think that irresponsible leverage was confined only to swaps and
securities? Think again. If GATA is correct, then a whole lot of the physical
bullion that has supposedly been locked in vaults is now gone forever and
replaced by promises to repay loans. So the specter of a delivery failure in the
metals pits should not be that far from reality. The FED seems very eager these
days to hand out money that has almost no chance of ever being repaid, so why
should what the bullion banks have been doing be seen as anything out of the
ordinary?
There can be many promises to deliver generated on physical gold and silver,
but once its gone, its gone... Specs will do well to remember that fact. For
example, if gold pledged to the IMF is actually also double-counted by CBs as if
it is owned by them, and then CBs sell swaps on that gold, and then the IMF
itself 'loans' out the gold so that it is sold in the market, then you have at
least three parties that think they own the same gold. Only one party actually
does own it... the guy that bought the physical bullion. Musical chairs is a fun
game to play until you find yourself without a chair when the music stops.
When push comes to shove and the diverging markets are exposed, I believe the
real physical bullion will trump the paper. I doubt I will regret my decision to
buy a small chunk of gold and silver and own the real metal. The fake spot price
may be down today, but I am guessing the derivative scam in the metals trading
will implode like all the others. I do not play the lottery either by the way.
cheers!
MexicoMike
