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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Pogeu Mahone who wrote (54524)	2/1/2014 11:42:11 AM
From: Real Man	Respond to of 71479

Yes, it is perfectly legal to settle them in dollars, and the majority of expiring contracts are just settled in cash or rolled over. It is also perfectly legal for longs to demand delivery, in which case either the counterparty or the exchange must deliver. If there is a shortage, price correction will be required to make supply available. Basically, longs can demand delivery when they want, shorts can deliver when they want. The Exchange normally carries enough gold to ensure smooth operation (eg, more longs demanded delivery than shorts delivered, then the exchange bullion banks must deliver the shortfall). However, if there is not enough gold on the exchange to deliver to those longs who demanded delivery, there could be a problem.

To: Pogeu Mahone who wrote (54524)	2/1/2014 12:09:59 PM
From: Real Man	Respond to of 71479

Contracts have various forms, and only a small fraction is traded on the exchange. When physical gold goes into customer vaults instead of staying in the system, the effect on the gold market is similar to a bank run. While within the system, customer gold can be re-loaned and re-sold, with just a paper entry, similar to how $100 deposit in a bank is Re-loaned 10 times to become $1000 debt. When the original $100 is taken out of the bank in cash, all $1000 in leverage is called. Gold based loans are not different: when 400Oz bar is delivered and stored in a private vault, all 4000Oz of leveraged gold on this bar comes due. In extreme case a situation similar to a "bank run" can result, when the leveraged Pyramid collapses due to folks demanding their physical gold. Gld serves to be such rehypothecated gold supply, because it stays within the system. Every gold bar in gld can be re-loaned 10 times and have 10 owners.