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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Proud Deplorable who wrote (88212)	10/10/2008 10:29:57 PM
From: The Vet	6 Recommendations Read Replies (2) \| Respond to of 116555

The London PM fix for gold today was $900.50 but a few hours later on COMEX gold was $825. There have been a few theories thrown about to explain that fall; margin calls for longs; gold as the only thing liquid enough to be cashed quickly; along with rumours of an imminent COMEX default. There seem to be plenty of reports of shortage in the retail physical market, regularly denied by a few but obviously real enough for some potential buyers and evidenced by the messages displayed on the many web site of retailers of gold and silver bullion products. Some are unobtainable, many have delayed delivery (a real sales killer in these days unknown counterparty risks) and all attract higher than usual premiums. If you look at the rumour of a COMEX default then an interesting possibility and explanation arises. COMEX is where the price for gold and silver are set. Holders of short positions on COMEX would be more than happy to see a rumour like that take hold. They have nothing to lose and everything to gain by the uncertainty it would create even if it had little basis in fact. If long holders of COMEX positions had a genuine doubt as to the ability for COMEX to deliver metal or settle in an orderly fashion, isn't is most likely that they would make the decision to cash out their long positions rather than risk having them frozen while the authorities sort out the inevitable tangle that a default in the futures gold market would cause? If a default does occur it is almost certain that none of the longs will be able to get delivery of metal and they would have to accept some partial cash settlement in some indeterminate period. In such a situation the price discovery process of COMEX is then distorted by the counterparty risk of the exchange and the major short sellers on it, added to the very real risk of COMEX "changing the rules" if and when it becomes clear that delivery to longs cannot be achieved, than it is by the real trading price of gold and silver.