The Comex Is Facing A Gold Crisis – Dave Kranzler

TND Guest Contributor:  Dave Kranzler |

Sure, you can’t eat a bar of gold and it just sits in storage like a Pet Rock that’s been cast aside by its bored owner.  But try selling the Indians or Chinese a paper gold bar and see how far you get.  You might end up with a knife in your forehead.

The stench has been growing stronger by the day.  Many of us have been writing for years about the extreme imbalance between the paper futures open interest vs. the underlying amount of gold being reported as available for delivery.   The latest disclosure from the CME is that the ratio of paper gold vs. the amount of deliverable ounces has spiked to over 200:1.

As of last Friday, JP Morgan had 89.4k ounces withdrawn from the  “customer”/ eligible account in its vault and it moved 122k ounces of gold from its “deliverable”/ registered account into its customer account.  What the true nature of those transactions were – i.e. who the counterparties were and did in fact any real gold actually leave JP Morgan’s gold vault – is anyone’s guess due the intentional opacity of disclosure on the Comex.

But the bottom line is that, as of last Friday, the Comex vaults collectively now show 202k ounces of gold in the “registered” / deliverable accounts of the Comex vault custodians.  As of today’s trading, the “preliminary” gold futures open interest rose to 419k contracts representing 41.9 million ounces of paper gold.  This would, preliminarily, put the ratio of paper gold to deliverable physical gold at an astonishing 207:1 ratio.

The amount of “deliverable” gold on the Comex is the lowest that I’ve seen it in the time I’ve been following the Comex data avidly since 2002.  Please note that the preliminary open interest is almost always revised, most typically a bit lower, by the time the Final report is issued the next day.  But based on many years of tracking this data, it is likely that any revision will not move the “needle” on that 207:1 ratio by much in either direction.

Nothwithstanding all the other information contained in this disclosure, this number represents the confirmation that the Comex is nothing more than a pure paper gold market.  It’s nearly 100% derivatives.  It’s the imposition of derivatives by the Fed and the U.S. Treasury – via their agent bullion banks – on the gold market in order to control the pricing discovery mechanism.

In other words, the Comex gold market is now a 100% artificial gold market.

I find it it quite interesting that the elitists overseeing this operation on the Comex are willing to advertise the 200:1 paper:gold ratio when they have the means at their disposal to hide that number or to make it look a lot smaller.

There’s some kind of message they’re sending to anyone who cares about this sort of thing. It’s either “f*ck you” we’re in control” or “help, we’re in trouble on our paper gold short position.”  Or a combination of both.

The implications embedded in all three of those possibilities are quite horrifying to contemplate.

It’s quite obvious that there’s a problem with the supply of physical gold that is readily available for delivery.  The same is true of the retail silver market, in which available supply at the retail level shrinks by the day.  Premiums on a simple roll of 20 silver eagles are now over $5 at big coin dealers claiming to have inventory.  Most dealers have been wiped out of most if not all of their entire inventory of silver SKU’s.

In my opinion, that head-splitting 200:1 ratio of paper to deliverable gold on the Comex is the surest sign that the market for gold and silver is in crisis mode. The term “crisis” also describes the state of condition of the U.S. stock market and, ultimately, the entire current U.S. financial and economic system.

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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