Three months ago I outlined how a fractionalized commodity exchange is operated. At the time everybody and their grandmother took note, that Comex warehouse stocks had reached an unprecedented low. Since then they have declined further – but there has been no delivery default. This gold bug explains, how longs can be coaxed out of getting physical. Key word is premium in cash.

Here is Bill Holter on SGT Report, starting at 6:40. Small part of what he says is not audible (understandable) – at least not for me:

An abridged transcription (with some blue commentary by me):

Comex had an increase in open interest, which left it at …I think it was 370.000 ounces standing for delivery versus a 130,000 ounces of gold available for delivery (7:01).”

(Situation at the beginning of the delivery month December).

The next day on wednesday miraculously a 120.000…somewhat ounces, that were standing for delivery, vanished.  Now let me explain how ridiculous this is, because as of first day notice any account, that has open contracts for that spot month (…) got to be 100 per cent funded. They have to be 100 per cent funded in order to pay for delivery. So who in their right mind is going to fully fund their account for delivery and then all the sudden go away ?”

Longs who want to take delivery must have all the money at hand to pay for the physical, beginning from the day after the first notice day, or so Holter says. But somebody must have had an abrupt change of mind, without regard to the cost of his/her credit. Thus was the behaviour of 120.000 ounces on 7 Dec. (and further 186,000 ounces on 14 Dec., AvdK).

For what possible reason ? I’m going to give you the answer for that – the possible reason is, they are being paid a premium. You can argue, what the premium is, but they are being paid a premium to go away and that’s how these contracts are being cash settled. It has happened delivery month after delivery month”

This is a strange behaviour indeed, esp. because honest traders, who do not want to take delivery tend to be cautious and close their positions early. I am sure, that Comex acts within the boundaries of legality, but this behaviour of the traders is in need of an explanation.

134.000 ounces are only 143 Mio. US-Dollars, which is no serious credit at all, not in this neck of the woods. Maybe some day there will be a financially independent inquiring mind, who wants to know what’s going to happen, if s/he takes it all.

Screenshot: Youtube, here.