The COMEX Meme That Won’t Die

I wrote 2 months ago about the Worst Precious Metals Meme of 2015, a meme which attempted to erroneously equate the COMEX registered gold stocks with the gold that is “available for delivery” at the COMEX, and then draw hysterical conclusions by making ratio comparisons that bear positively zero relationship to the operational realities of the futures market.   I don’t really have much to add to my original post – I’d suggest that new readers go back and read December’s post carefully – although I will make one more simple point, which is something I explained to a commenter on my original post.

The simplest way to understand why an owner of gold detaching their warrant (transferring from REGISTERED to ELIGIBLE) doesn’t matter for the delivery process is this (C&P from my own comment on my prior post):  if I am short and I need to make delivery, and let’s say that YOU are holding gold in the warehouse: it doesn’t matter if you have a warrant attached to your gold (registered) or not (eligible) – either way it’s not MY gold to deliver…there are no public “Comex reserves.”

The Usual Suspects demonstrated their ignorance again this week by ranting about the reclassification of 201,000 oz of gold in the COMEX warehouse inventory report from the registered category to the eligible category.   As I mentioned in the preceeding paragraph, it’s easy to understand why this has no effect on the delivery process for the COMEX, and thus why those citing “542-1 paper leverage ratio” are clearly demonstrating their own lack of understanding of how the futures exchange operates.   If you need to make delivery on a short contract expiring in February, the fact that the owners of gold detached the electronic warrants from their metal (registered –> eligible) has no effect on your ability to make delivery.   You need gold to make delivery.   The gold which was reclassified isn’t yours.   Carry on.

Currently, there are  6,427,083 ounces of gold in the COMEX warehouses.

Currently, there are  4203 contracts remaining open for February, every one of which will either be covered, or delivered at a time of the short’s choosing.  These contracts represent 420,300 ounces of gold.

Thus, the current COMEX gold stocks to deliverable futures ratio is: 15 to 1.   There are 15 ounces of gold in the warehouses for every contracted ounce for the month of February.   This is, of course, a relatively meaningless ratio, but it tells you much more than the completely irrelevant “542-1 total open interest to registered inventory” ratio cited by con men and fools who attempt to deceive you.   The FEBRUARY LEVERAGE RATIO  – the number of contracts open for February divided by gold in the vaults is .065.   Doesn’t sound quite as sexy as 542, does it?   And yes, as I just noted, the .065 number is meaningless in the grand scheme of things, but much more illustrative of the actual current state of the COMEX than the 542 number.

The reason I wrote this post is because I expect that February delivery notices and warehouse stock movements will give you a clear view of how shorts attach warrants to eligible gold in order to make deliveries.  December offered a very clear view of this on a daily basis, and February should offer a similarly clear view, since we’re starting from “clean” (read: “low”) levels of registered gold.

Finally, if anyone wants to bet that the COMEX will default, I’m here to take your bets.    Speak up.

Intelligent readers should continue to use this meme as a great indicator to identify those who have absolutely no idea how the COMEX gold market operates.

Mandatory reading:  The Worst Precious Metals Meme of 2015


ps: I have deliberately avoided offering explanations for WHY less gold is being held in registered form.   There are two issues at hand: 1) OMGOMGOMG – THERE’S ALMOST NO REGISTERED GOLD LEFT!  and 2) why is there so little registered gold left?   I have addressed issue 1, by explaining exactly why it doesn’t matter, and deliberately avoided distracting from the point by offering hypothesis for issue 2.   I will, however, offer my opinions on question 2 for platinum subscribers in private.


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