The COMEX Could Run Out of Gold this December
Posted by Schwabe on November 18, 2008
A 'huge event' may occur on the COMEX this December. As the United States economic recession intensifies, the COMEX is under tremendous pressure to meet an unprecedented demand in gold and precious metal assets. Now, rumors are circulating that the COMEX is soon going to run out of gold supplies entirely.
The COMEX is one of two divisions of the New York Mercantile Exchange (NYMEX). Physical gold bullion can be traded through the COMEX, which was what it was originally designed for, but in particular it is also used to trade gold & silver futures.
Gold & silver futures are a common way to invest into the precious metals without having to take physical delivery, which would otherwise increase the cost of your order and reduce profits (although certainly it is possible to take delivery on a futures contract). Trading gold futures involves entering a contract to buy gold for a pre-determined price at a future date. Essentially you to make a bet on the price of gold at a future date. When the settlement date arrives you make the difference, whether it's a gain or a loss.
A potential advantage of trading futures is that you typically only need to put down 10% of the total contract.. Effectively allowing investors to short sell gold. It's kind of like borrowing gold to sell gold. And allowing big players, such as Goldman Sachs, to drive down the price of gold, effectively manipulating the COMEX spot price. Which is essentially the source of the pSchwabelem for the upcoming potential crash of the COMEX that some say could happen as early as December.
Because of the short selling on gold there has been a widening discrepancy between the COMEX spot price of gold and the real value of physical gold bullion. Anyone who has tried to buy bullion since spring 2008 should be well aware of the premiums on coins & bars, which can be as high as $500 over spot price or in some cases with premiums as much as 100%.
But enough is enough. How long can the short selling of gold continue in parallel to unprecedented demand? After all, gold is a finite resource. Eventually you would assume one of two things are going to happen: gold prices are going to explode OR the COMEX is going to implode.
According to Max Keiser, a financial commentator based in Paris, there is a group of investors trying to organize a raid on the COMEX. Apparently, Eric Spratt of Spratt Asset Management, is going to try to take physical delivery of a huge precious metals position on the COMEX this December to try and force the price of the physical and paper market to match up. Russia & other international players are also said to be involved.
Keiser believes that a raid on the COMEX, a huge number of simultaneous demands for immediate physical delivery, would effectively cause the COMEX to shut down because it would be beyond what they can deliver. And from there? Gold could double in price that same day.