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Will the COMEX Keep Pace?

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This week Rick is traveling in Mexico. This commentary was written by Douglas McLagan.

The December 2009 COMEX Gold futures contract recently completed a rally that lifted its price by more than 75% in less than fourteen months’ time. This is easily forgotten by gold bulls who spend too much time watching bullion bank sell-bots run rampant on trading screens, but it is a fact. The rally took gold through an important resistance level and out of a large consolidation phase, confirming to many observers that the bull market is alive and well and perhaps ready to accelerate. Intrepid longer-term traders can hope to capitalize on a leveraged basis through the futures, but will the exchanges, specifically COMEX, continue to provide the opportunity?

Physical-gold

Put another way, the question is whether COMEX gold prices will continue to track prevailing prices for physical gold in a strong bull market, or will COMEX prices lag behind those for bars and coins? A wide enough gap between the two could easily precipitate a crisis of confidence in the COMEX which would endanger its legitimacy and proper functioning.

Health, or Failure?

Opinions as to whether this will happen cover the full spectrum. One view is that the recent 75% rally and the subsequent 15% correction couldn’t be healthier bull-market action. The opposite view, argued forcefully in certain quarters, is that the entire “paper gold” complex, COMEX included, is certain to fail completely, and probably soon.

$20 billion of gold futures can trade on an ordinary COMEX day, while maybe $50 million worth of gold is “delivered” that same day, much of it making the rounds among a small number of financial institutions and very little of it entering or leaving COMEX warehouses. What exactly keeps the COMEX price “anchored” to physical gold?

London’s Role

An answer might be that the COMEX price evidently inspires the level chosen by the London Bullion Market Association, or LBMA, for its two daily gold fixings, prices which are used as benchmarks for physical gold transactions in that city. Information on the London market is difficult to come by, but it seems that much of the gold traded in London remains within the “London Good Delivery” circuit. How much physical gold can be purchased in London to be transported to another part of the world? I don’t know, but something tells me that London cannot, or will not, provide enough gold to the Chinese government to make the Chinese feel very much better about their national reserve portfolio.

In this view, the COMEX-LBMA nexus sets the gold price but does not offer nearly as much gold as various governments and central banks would be happy to purchase at that price. This is because there really are no large holders of gold willing to sell at that price, meaning that it is in reality a suppressed, bogus price. For the moment, the largest would-be buyers of gold don’t seem to want to disrupt the charade, because there is at least a small amount of gold for sale at the official price, and they’ll take what they can get.

A Dilemma

This state of affairs is why everyone is well advised to buy whatever amount of physical gold they can reasonably afford. But it also explains the dilemma facing the anxious, leveraged bulls in the futures markets. They believe that the value of gold is much higher than the price, but they need the COMEX to continue to function properly in order to achieve their goals.

The mechanics of a “paper gold” failure could be well examined in a thick book, but not in the remainder of this short essay. I would like to point out, though, that the corporate history of COMEX does not inspire confidence in at least one key respect. In 1994 it merged with NYMEX, and in 2008 the combined companies were acquired by the CME Group. This might cut both ways: the COMEX is now part of a gigantic company that is presumably better able to support the gold futures market in a pinch, to absorb the shock waves of any turbulence or disruption that might occur.

But maybe the CME Group is now a too-big-to-fail entity that can more easily afford the failure of one or two of its markets, especially if the government bails it out afterward. A crisis in the paper gold market might well be “resolved” by government action. Recent financial history suggests the plausibility of a scenario in which the government pulls the plug on the paper gold market and compensates the exchange for the lost business. Some of the market participants might also be assisted, but the full cohort of gold longs? Not likely.

  • Rich February 23, 2010, 12:29 am

    Gold PnF just flipped to $1300 encouraging the bulls.
    We have seen this before at turning points.
    Now is the time to test the courage of our convictions
    and keep those trailing stops in.
    Otherwise we are talking about religion…

  • Rich February 22, 2010, 5:11 pm

    Mitch et al:
    Footnote on Grandich bet for $50,500 gold would go below $1000 before above $1200.
    My taking the below side email offer was there less than a day over the weekend and he took it down. Seems talk is cheap for some.
    BTW, as Rick correctly stated today (Monday 22 Feb 2010), gold went down to $1044.80 and has not taken out previous resistance support going back to March 2008 of $1033.90. My mistake.
    PnF and Big4 still short.
    Guess that’s what makes a market.
    Cheers*Rich

  • Rich February 19, 2010, 10:23 pm
  • Rich February 19, 2010, 9:59 pm

    PS. Mitch:
    Not a permabear. Bot gold around $105 and sold it over $1200. Various friends supported themselves trading gold.

    Defacto asset deflation and default much more powerful than the 1913 Fed and IRS, as the 1930s and 1940s showed when we were on a gold standard, the 69% devaluation by FDR and 86% devaluation by W included.

    The Fed and Treasury folks fear deflation exposing them. Tax revenues fell -34% last April. If the Fed persists in monetizing Treasury debt to cover the shortfalls, bond and mortgage vigilantes including China, Gross PIMCO, Japan and Russians may call their bluff and sell more paper, raising interest rates. In fact, just before all defaults like Argentina, Russia etc, rising interest rates are the tipoff.

    Then the rates usually fall as people rush for safety into what they think are AAA “government guaranteed” securities. Despite Geithner telling laughing Chinese students and the mass media the USA will never lose its AAA status, it may, like BRK. Wait until pensions are confiscated like Argentina and Russia and convereted into worthless government paper. Then maybe the long-suffering middle class may wake up.

    Franz Pick described government bonds as certificates of guaranteed confiscation. Even his students Mark Faber and Jim Rogers are describing deflation, not inflation. Only those who do not understand what FDR and Nixon, did taking government off the Constitutional gold, silver (and Mint copper) standard so they could plunder America, think that gold is a deflation hedge.

    Money goes where it is best treated, and gold is an overvalued asset inflation hedge, despite numerous popular statements to the contrary everywhere.

    Why else does gold go up and down with the markets?

    People still confuse disguised consumer inflation with asset inflation, which has been in a Jubilee Generation K Wave Winter Plateau decline since 2000.

    Big4 and subscribers still selling short with a few vital exceptions (not gold) in preparation for eventual repo foreclosures and asset grabs at much, much , lower asset prices.

    Very few Baby Boomer Americans get it, but those who lived through inflation causing deflation and war in Argentina, China, France, India, Japan, Russia, Vietnam and Zimbabwe do…

    Regards All*Rich

    http://www.chartsrus.com/

  • Rich February 19, 2010, 9:21 pm

    Mitch: Thanks very much.
    Just agreed to $50,500 with Grandich and another poster, SRC…
    Regards*Rich

    http://grandich.agoracom.com/2010/02/an-open-challenge/comment-page-1/#comment-19914

  • A New Era Begins February 19, 2010, 6:04 am

    Obviously the drain is being pulled on liquidity around the world. In addition to Bernanke’s Thursday Surprise (rate hike), don’t forget that China is trying to cool things off as well. I would start preparing for some major volatility as all that money starts sloshing around.

    Cool trailer:

    http://www.youtube.com/watch?v=eD8F0sXEzuQ

  • Mitch February 19, 2010, 1:14 am

    Okay Rich and other perma gold bears around here. Here’s your chance to put your money where your mouth is. $50K bet with Peter Grandich on gold going to $1000 or $1200 first. Any takers?

    http://grandich.agoracom.com/2010/02/an-open-challenge/

  • Rich February 18, 2010, 11:12 pm

    Hey NGUAY
    No more freebies for fools or trolls…

  • Max Power February 18, 2010, 9:29 pm

    “Am I paranoid? Am I crazy? Talk to me people. 🙂 Feel free to disagree if you think this picture I’ve painted is not “correct”, please explain your point of view. ”

    To me, trying to understand or predict where gold will go day to day is not practical. I focus more on the longer term, such as the bond market. Where the price of gold goes will most likely be determined by the world bond market – an $83 trillion (or so) market. For about 30 or more years, it has grown at an 11% to 12% annual rate (new cash entering the system plus rolling over prior debts plus increased valuations through interest rate declines). Obviously, it cannot keep growing at that rate much longer if at all. Already, it is too big for the world’s economy to support it. The only way to sustain it at this stage, is to keep rolling over much of the debt. Now add to the picture the large amounts that governments keep adding to it. If the world bond market slows significantly in growth, it likely means maturing bonds are being redeemed and not rolled over. This cash has to go somewhere. But where???? Gold??? As in Physical gold?

    Personally, I suspect that much of the cash that has gone into the LBMA for gold (typically unallocated gold) has been secretly redirected into the bond market. The buyer of gold thinks they have gold, but the funds actually went into a bond. This scheme works great when the price of gold is dropping or when no one asks for allocated gold or for delivery of their gold. But when you have such turmoil as we are now experiencing, the idea obviously is a very poor one – especially when increasing numbers of folks want the real thing. This could easily lead to a default on physical gold.

    Regardless how you cut it, the world’s financial system will likely croak. So, why worry about the day to day when the end run has more or less one outcome….

  • dturner February 18, 2010, 8:49 pm

    speaking of gold, this is an interesting piece on how poorly the GDX gold etf has done over the past few years because it’s weighted so heavily to stocks like Barrick Gold and Newmont Mining, which have gone nowhere, as well as info on some individual gold stocks that have performed much better:

    http://www.goldalert.com/stories/Gold-Stocks-GDX-vs-San-Gold

  • NGAUY February 18, 2010, 4:16 pm

    Hey Rich,
    Did your friend happen to compute any price targets for Bear Stearns or Lehman Bros. for 2008 or later? I would be interested in knowing what other forecasts are coupled with a $525 POG.

  • Snobtrader February 18, 2010, 10:17 am

    Very nice post here, I mentioned it in our Thursday Morning Readings

    Best Regards

    Snobtrader

  • Rich February 18, 2010, 8:48 am

    Right on MC,
    contrary opinion at its finest…

  • mario cavolo February 18, 2010, 7:56 am

    Rick, I have to write in about this. It is so glaringly obvious that the media has been feeding us a “set” of headlines to create bounce scenario, rather than “report” it. Following this article example from today’s headlines:

    “Chinese oil demand is once more growing fast, rebel militants are threatening to attack pipelines in Nigeria, and tensions are again rising in the Gulf. Recent headlines are increasingly making it seem like 2003 all over again. In recent times, oil has taken a back seat while the world has focused on the recession. As economies slowed, oil demand fell for two consecutive years, the first time that has happened since the early 1980s. Now, as much of the world emerges from recession and as geopolitics and threats to energy supplies return to the fore, oil consumption is expected to rebound again, driven mostly by Asia and the Middle East.”

    This is elegant media spin nonsense to prop up oil at who ever’s behest. All week long, somebody doesn’t want oil going down where it fundamentally belongs in the near to midterm picture. The media headlines have been a damn PR campaign to prop up oil prices. They KNOW its all heading back down, so they knock it up to the weak money hands for some last minute scalps off the top. Same for stocks & gold. During the past week before this ridiculous, pointless bounce rally, I have seen in the media an orchestrated “set” of political and economic headlines specifically designed to spin positive; to boost the oil, gold and stock markets, to calm nerves. I’ve noticed the pattern before, but this time it seems so blatant, I absolutely believe we need to give this manipulative bastards working in cahoots together much more credit than they probably get. The media orchestrate and manipulate and coordinate the spin of stories, events and reports. It must be at the behest of the big industry and gov’t letting them know how they would wish it to be spun for the next couple of weeks, blah, blah, for the good of the country, help us maintain stability, etc. Of course the collective spin strategy must be done in concert with their agenda of the moment to prop up the markets or let them fall.

    You know what the bounce was this week?…an orchestrated bounce by the media and big money traders/industry interests/gov’t to get the weak hands to buy into it so they could run it up and sell out of it. They sit there like megalomaniac puppet masters with billions of dollars at their fingertips. How shall we spin and pull the trigger this week, this month? Suddenly not ONE story on the problems, just media’s decision what to focus on. Now look at gold again today…up $20, smart money out, weak hands holding it back down $20! The media isn’t just “reporting” it. They helped create the sentiment for the moves. They are NOT acting independently. No freakin’ way. I could easily spend a dozen hours putting together a full research report compiling the headlines, showing the coordinated pattern of dates, headlines, spin, etc., but not committing that time right now in my schedule. This subject matter has been visited again and again.

    In psychological/behavior terms the communication techniques are called “priming” “pacing and leading” “time distortion” and a few others used in media/PR, scripting, speech-writing, influence, persuasion, etc….fascinating and dangerous stuff.

    Am I paranoid? Am I crazy? Talk to me people. 🙂 Feel free to disagree if you think this picture I’ve painted is not “correct”, please explain your point of view.

    Cheers, Mario

  • FranSix February 17, 2010, 11:56 pm

    You know, the purchasing power of gold during the height of the depression rose to ~30X its original price fix of ~$20/oz. before the 60% adjustment, simply because the price of everything else declined.

    Perhaps the price fix and its later overwhelmingly conservative adjustment was a major contributor to deflation and was one of the greatest mistakes of history.

    Now, the price fix in 2000 was ~$252/oz. Its no use arguing that there was no price fix, because the central banks, gold producers and bullion banks all colluded to depress the price of gold to that point. So it IS a price fix reference point.

    So would that mean that we will see gold peak out at over $7000/oz. at the height of the sovereign debt collapse? It only remains to be seen. A rise in the price of gold to such a level would be a mitigating factor in deflation.

    A VERY good report available here:

    http://files.me.com/fransix/rz2686

    source:

    http://www.resourceinvestor.com/News/2010/1/Pages/Edison-says-goldvaluation-benchmarks-are-obsolete.aspx?channel=2

    Another reference:

    http://www.moneyandmarkets.com/more-on-the-new-monetary-system-6-28166

    There are many such references on GATA

    More long term considerations:

    http://www.golddrivers.com/blog/category/Chart-of-the-Day.aspx

  • Rich February 17, 2010, 11:31 pm

    Hey NGAUY
    Anyone can do an internet search and look at the charts to confirm ABX announced on 9 September 2009 they were going to remove their gold hedges within 12 months. That took the price of gold from below $1000 to above $1033 March 2008 highs, a bullish breakout to new nominal highs. Now gold is below the $1033 breakout, confirming a bearish trend.
    In Sept ABX issued $3.9 B in diluted equity and in Oct they issued $1.25 B new debt to buy back their underwater gold forward short sales, something Warren Buffett might have to do with his naked put shorts if the market goes to new lows. (Funny how he said cash is king, then sold puts short with little or no collateral. Moody’s, Fitch and S&P noticed, lowering BRK credit rating, which meant that BRK’s recent debt issuance cost more.)
    On 1 Dec 2009 ABX announced they had completed their hedge buyback program early.
    On 3 Dec 2009 gold peaked at 1226.40. The rest may be history, with people who missed the move from $255 in 2000 to 1226.40 jumping in after the fact.
    The big guys make mistakes, even with Mulroney and Bush Sr on the ABX Advisory Board at one point advising their governments to leverage up. (Recall HW a Phi Beta Kappa in Economics in 3 years at Yale, W a Harvard MBA and both Skull & Bones with John Kerry.) Seems most of the good old boyz bet on more borrowing, spending and inflation, forgetting in the 30s and 40s debt and derivative defaults trumped inflationary fiscal and monetary policies pushing on a string.
    Why would anyone who had assets or money to service debt want to borrow more with real deflation adjusted rates at 6% to 11% so far and assets declining? Nominal and real iRates may be headed higher, but not from inflation, but increasing credit risk.)
    It may take a lot more people a while to figure that out or admit it. No wonder headlines call every counter-trend a bull market. Hope springs eternal and Generals, including Dynamics, Electric and Motors, seem to fight the war they know.

    CC: Didn’t even notice embedded sarcasm. Big4 the largest positions on regulated exchanges. Often thought to be Big Banks, but since Banks did so much business using off-balance sheet, offshore unregulated OTC counterparty derivatives, who knows? The Rockefellers and Rothschilds have a lot of money.
    Big4, whoever they are, seem to understand markets pretty well.
    The 28+ Rick’s Subscribers who got free samples of Big4 and TopTen last year, plus those following Big4 here for some time know that for sure in real time.
    Put another way, if we had a trillion dollars to manage, we could make darn sure we understood supply and demand better than most. Re first $930 point and figure gold target, if we knew when, we would not be hanging out here for Harry and Rick’s excellent short-term timing.
    A very bright friend in the DC Area who uses 32 computers to continually process data currently sees $525 gold next year. He does Real Estate too and it is not a pretty picture unless you ski. Can check him out at Econocasts.com
    Aloha Regards*Rich

  • James Rickards February 17, 2010, 11:29 pm

    Great essay Doug; you make some excellent points about the basis trade between physical and COMEX gold. One point that does not get enough attention is the impact of size in the physical market. It’s one thing to say that COMEX is $1,100 per ounce and physical might be $1,200 per ounce for one metric tonne if you can find it. But what about 100 tonnes? 500 tonnes? Physical orders of that size are impossible to execute outside of official channels. Size of order is relevant in any market but I have never seen a market (short of a full blown manipulation or short squeeze) with as much price inelasticity as physical gold which is why the buy side overhang keep their intentions to themselves.

  • CC February 17, 2010, 6:38 pm

    Rich –

    “The Big Four…”

    “Central Banks of China, India, Russia or the House of Saud…”

    Are the above ‘them’, or a different set of 4?

    “The next point and figure target for gold is $930…”

    Next week?

    Next month?

    May & go away?

    July?

    Harry Dent recently said that he expects a complete market meltdown by the end of this month. But then that would mean a target price of $650 – or perhaps even less. Who knows – could happen I guess.

    Sorry for the embedded sarcasm. I just wish people would stop speaking in round-abouts/crypto and just come out with it already – along with a projected time frame for their prognostications. Is that too much to ask?

    Somebody please pass the popcorn…

  • Chris T. February 17, 2010, 6:31 pm

    they should just call a spade a spade, and end the bogus tie to physical that “exists” at the COMEX. Precisely because so relatively little of the volume at the COMEX is for delivery, so that apparently most actors there are happy with pushing paper back and forth, they should just keep trading their futures as today, without any storage and delivery possible.

    It is no different now really, just that no one wants to call the emperor naked yet.
    The set-up there is no more or less fraudulent than fractional reserve banking, stock shorting, and no one seems to have a problem with accepting the farce there without being able to take delivery…

  • NGAUY February 17, 2010, 5:10 pm

    Hey Rich,
    ABX covered their hedges “right at the top of the gold market”? Could I get some research points on that? I thought this occurred when the price was around $1000, which is rather far from the high of 1220+ we have seen (so far).

  • goodsport February 17, 2010, 2:13 pm

    Considering that very few of the COMEX contracts ever result in physical delivery, it is obvious to me that the COMEX can be easily replaced by an ETF as well as forward options in that ETF. (Can there be a futures market without physical delivery?)

    So I guess Rick is right. When the COMEX runs out of cheap bullion for actual delivery, they will no longer serve a useful purpose for the accumulators and the hammer will finally come down hard on them.

    And perhaps there just might be a small celebration at the Hunt household.

  • Chris T. February 17, 2010, 10:15 am

    Other Paul:

    “I’m inclined to think that the futures are establishing the physical price.”

    well and that is what is wrong, for as Ted Butler has pointed out, this tail-wags-dog structure actually violates our commodity law.

    ” why wouldn’t more longs demand physical delivery, get “paid off,” and go home very happy on expiration day?”
    a) what about the contract-to-exercise limit, at least in silver?
    b) threats fo force-majeure, with forced cash-settlements if the point is pushed, thus the hush-bribes>
    Remember the nickel scandal fo a few years ago? That was a delivery default, and see what happened.
    Or what about the way the Hunts were manipulated out of their positions?
    Or the idea of requiring >100% margin?

    All been done before, so before rocking the boat, most take the cash bribe.
    Unless they are hard to muzzle, like the Chinese “nvestors” that forced delivery in London last year…

    The best story is of the offer of 22k bars for a substantial premium. Given how relatvely litte it costs to refine that to 999er (less than $11/oz in bulk) I hope some smarties took that bribe.

  • flore February 17, 2010, 9:36 am

    How on earth can the gubment resolve this, if there is simply not enough fysical gold to deliver ? Will Bernanke start digging ?

  • Rich February 17, 2010, 7:50 am

    Aloha Douglas, Rick et al
    The late Jim Blanchard, GATA, Jim Sinclair or others tried for decades to overcome what they considered price fixing on COMEX.
    Of course the LBMA freely admits it fixes prices to maintain an orderly market.
    When gold and silver did not surpass their 1980 nominal highs for almost two decades, some frustrated precious metals bulls filed a series of lawsuits with various courts. They alleged Barrick Gold, BIS, Central Banks, Goldman Sachs, JP Morgan or others colluded to keep gold or silver prices down.
    Most courts decided they did not have jurisdiction and dismissed the suits, which seemed publicity stunts to drive precious metals prices higher.
    While it is clear gold and silver industrial consumers would want a lower price, and a monetary bank might want a steady price, why a gold producer would want lower prices is unclear to most, unless it was to unwind hedges, which ABX recently did at a cost exceeding $5 Billion, right at the top of the gold market.
    Some even asserted the large Buffett or Gates purchases of silver bullion or PAAS were designed to flush out a higher price for scarce silver production relative to clothing, medical, industrial and investment demand. Gold and silver producers eased the imbalance with their new supplies, despite myths of peak gold, oil, silver and tungsten gold production.
    Although it is not currently chic to observe, there is enough gold in seawater to increase gold supply exponentially. There is more platinum on the moon than on earth. What these have to do with the current prices of either may be as relevant as the typically repeated rationales that are usually out of date or obscure to the retail or institutional investor that may take the occasional side-trip to a real gold mine.
    Charlie Munger once alluded to the silver scarcity strategy at the Berkshire Annual Meeting, after they announced their purchases and silver and PAAS began to rise. Whether this was a form of price fixing became a moot point when the BM physical silver, shipped to London, was reportedly optioned by Mr Buffett and called away by Barclay’s Bank for their SLV Exchange Traded Fund.
    Mr Buffett’s subsequent comment about gold was that it was basically an unproductive asset that someone dug out of the ground, melted, assayed, shipped and stored in another hole in the ground. He wryly observed he left a lot of silver on the table.
    To better understand why Mr Buffett may have shipped the physical silver to London, with not insignificant shipping and storage costs, is perhaps to have seen Mr Buffett introducing Mr Schwarzenegger to Mr Rothschild at Waddeson Manor before Mr S became Governor of what was the 8th largest economy in the world before debt usury crushed it.
    It is interesting to note certain Rothschilds, in addition to selling a number of their banking interests before the debt derivative default debacles, also reportedly sold their interests in LBMA. It was alleged by some they forsaw widespread defaults in the gold or silver bullion business.
    Defaults are rarely good for business or prices, as we have seen in the housing and securitized mortgage markets, and may see again in the debt and derivative markets as we discover Black Swans can swim in pairs.
    More recently, David de Rothschild stepped up from his investment bank, if that is a clue. And the Rockefeller Brothers now hold only one of the Seven Daughters/Sisters after the breakup of Standard Oil, when each part subsequently became worth more than the whole.
    Back to the COMEX delivery strategy, three decades later, gold and silver are still well below their inflation-adjusted highs of 1980, not necessarily a bullish design.
    What the COMEX forced delivery folks forget is that under force majeure, the COMEX board can or has settled in coin melt, dollars or even gold-plated tungsten toothpicks. Those that have the gold make the rules, and the central banks still have the gold, although they have been selling some to their poorer cousins in developing nations.
    This is perhaps the time to remind ourselves that Japan appeared invincible and bound for world domination in 1989 also, so we might not get our knickers in a twist over Brazil, Russia, India or China for that matter. What goes up still comes down.
    Perhaps this is why an ounce of gold closed at 1094.10 on the GLD Spyder Trust that can hypothecate, loan or even sell its purported $40 Billion of gold.
    Gold on the COMEX that can legally default on physical delivery, closed at 1117.40.
    A one ounce Gold Bullion Eagle coin sold for $1158 on EBay, including free shipping, but not assay to make sure it wasn’t gold plated tungsten.
    Gold bulls may see these various prices as yet another manifestation of Gresham’s Law, that bad money drives out good.
    Most people increase their worth by keeping the more valuable asset and selling the less valuable asset.
    Would that it were so with electronic, paper and physical gold selling at premiums to gold shares trading at heavy discounts to gold reserves. Either the stocks are underpriced, or the reserves are overpriced. Time will always tell which.
    One of the things rabid bulls or bears forget is for every buy there is a sell.
    When the Central Banks of China, India, Russia or the House of Saud bought gold, someone sold it to them, for example, Chinese or Russian Gold mines, GLD, GS, IMF or JPM.
    We will know in the fullness of time which was the smart side of the trade.
    For now, we found Big4 uncannily prescient on precious metals, if not as timely as Rick and perhaps yourself.
    The Big4 are short metals, including copper.
    Bulls are currently enjoying a ferocious reflex rally in gold, having regained in a week 76 of the 181 dollars gold lost over the last ten weeks. Our expensive experience is that the primary trend takes its time to unfold, while giving only quick fleeting opportunities to get right with the main trend.
    Over fifty years of collecting gold and silver coins taught that when they sell at a premium, it is time to let them go to eager buyers, and when they sell at a steep discount, it is time to acquire them from eager sellers.
    Call it value investing, whether for bullion coins, gold shares, paper gold or electronic virtual gold.
    The next point and figure target for gold is $930.
    Aloha regards All*Rich
    [email protected]

  • Other Paul February 17, 2010, 7:29 am

    “$20 billion of gold futures can trade on an ordinary COMEX day, while maybe $50 million worth of gold is “delivered” that same day….”

    “…the COMEX price evidently inspires the level chosen by the London Bullion Market Association, or LBMA, for its two daily gold fixings…”

    Forgive me, experienced traders: I’m guessing that experienced, futures traders have thought a 1000 times–Why do the physical marketeers think that futures prices should be determined by the spot market or the fixings? Price points are being determined between willing* buyers and sellers in the futures pits 400 times more (by dollar volume) than physical traders. Physical trades are chump (ex)change.

    Other Paul’s thoughts: Until I see physical prices well correlated with either an index the cost of a fine, man’s suit (made where?), or the mining majors’ cost per ounce, I’m inclined to think that the futures are establishing the physical price.

    *OK, I know (not really), the futures markets are a rigged, through a conspiracy by the Treasury working through JPM. But I also read that “the fix” can’t last forever. If JPM is the perennial, naked short seller, who is the willing or phantom buyer? How is JPM recovering from their losses on their short sales (Dec09 contract +75%)? Who is their Sugar Daddy? I really don’t know. Please, help me out here.

    Bonus questions: If there were/are “secret” cash settlements at large premiums to the market in lieu of physical delivery at the COMEX, why wouldn’t more longs demand physical delivery, get “paid off,” and go home very happy on expiration day?” Is there a “bluffing” limit?

  • Dusty February 17, 2010, 7:25 am

    How much physical gold can be purchased in London to be transported to another part of the world? I don’t know, but something tells me that London cannot, or will not, provide enough gold to the Chinese government to make the Chinese feel very much better about their national reserve portfolio.

    So what exactly is everyone buying on the LBMA or COMEX if they can’t deliver the gold for the price they are selling it for? Paper promises?

    If so, I’d like to start my own gold exchange. Here is how it will work.

    I’ll keep the gold in my basement and I will audit it myself once a week, because I don’t trust anyone else to do it for me. Foreign governments can purchase as much gold as they like, and I will store it for them free of charge. I will even allow individuals to purchase up to 1 million oz of gold as long as I can store it for them. In order to make this deal irresistible to everyone, I will offer the gold at a 20% discount from what they can get from anyone else, plus I will throw in free storage. You can’t beat this offer. So order before midnight tonight and sleep soundly knowing you have gold bars in storage in our vaults, ahh … basement.

    There is nothing wrong with this business model. If COMEX can do it, so can I!

    Dusty

  • TahoeBilly February 17, 2010, 6:31 am

    Rick,

    I haven’t heard much from you about the massive short on silver from only four large Us trading banks. One stat says nearly 60% of annual production is short by only these four banks, first and foremost JPM. Talk about a nasty blowup in the making. Of course they would both blowup it would seem, but those silver shorts are just simple blatant crime of the highest level! Real money suppressed by Guvernment “jive” money.


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