Timing issues addressed ?
The CME Opens Pandora's Box
It's clear that the virus-related shutdown of mines, refiners, and mints is having a dramatic impact on the supply of immediately-deliverable gold. And this comes at a time when physical gold demand is surging. This places wholesalers and dealers in a very tough position. They need physical gold NOW but have very few options for acquiring it.
And so they're turning to the COMEX. And why not? The CME Group has maintained for years that their pricing scheme is fair, sacrosanct, and backed by physical delivery. They post vault stock reports every day of the week that purport to show a physical vault inventory of over 8,000,000 ounces. So if you're a dealer and you need immediate metal, why not just pony up to the bar at COMEX and stand for delivery? After all, the CME itself claims that the gold is all there and just waiting for someone to ask for it.
This "delivery" illusion worked out just fine...until last week. And now the CME Group, in their rush to maintain "the integrity of their exchange", may have just sealed the exchange's fate.
Why? Because they've opened Pandora's Box. By stop-gapping COMEX delivery with London bars— and by forcing The Bullion Banks that operate on COMEX to actually deliver physical metal versus their paper short positions —the exchange itself may now be put in an untenable position.
Watch closely what happens next. After Monday's initial deliveries, there will still be about 8,000 Apr20 contracts standing and open. Most of these will likely be demanded for true physical settlement, too. Well, now that COMEX is open for business as a physical distribution vehicle, what's to stop funds, wholesalers, and dealers from paying full margin and buying even more Apr20s as the month progresses? Nothing! So watch to see if that Apr20 open interest number continues to climb through the month.
Next, watch to see what happens in May. Though the May20 is not a front/delivery month on the COMEX calendar, there’s nothing to stop an entity from buying a contract and demanding immediate delivery in May. As of Monday, total open interest for this contract was at 2,338. In the days ahead, watch very closely to see if that total begins to grow.
And finally, even though the CME/LBMA/COMEX may survive April, who's to say they'll survive the next major delivery month of June? Now that the proverbial cat is out of the bag and the entire world knows that COMEX will deliver actual physical metal if pushed—and with no other readily-available stores of metal around due to the virus—what if 50,000 contracts stand in June? What if 100,000 stand?? Do you see where this might be headed??? |
