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Strategies & Market Trends : The coming US dollar crisis
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To: Secret_Agent_Man who wrote (14648)11/18/2008 8:08:19 PM
From: orkrious2 Recommendations  Read Replies (1) of 71456
 
I sent these last two posts to Heinz for his comment. He responds:

a delivery failure (such as just occurred on the Mumbai exchange for the gold coin contract) at COMEX remains highly unlikely for now. the last expiring contract i looked at (i don't recall exactly which month that was, but it was fairly recently) saw 77 contracts stand for delivery - that's 7,700 ounces.
registered gold at the COMEX is about 2,4 million ounces. even if delivery demands were to rise 10 fold or even a 100-fold, there would still be enough deliverable gold.
i don't believe it makes sense to compare total open interest to the amount of registered ounces in inventory. the bulk of speculative traders - who hold most of the long positions - do not want delivery, since this would mean ponying up the full contract value, as opposed to just posting margin. most of the commercial short positions otoh are not 'naked' positions at all - they either hedge physical inventory, or net out otc long positions which have been incurred in miner forward sales.
it is true that if every speculative long in the front month were to demand delivery, there would be a delivery default. only, this is highly unlikely to happen. what i believe can happen though is that delivery demands will rise markedly, as there are indications of continued tightness in the physical gold market. the fall in GOFO is essentially saying that the tightness in markets for small bars and coins has migrated to the market for good delivery bars. since it's not exactly a transparent market, one has to infer things from such indicators.
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