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All of
us follow COMEX in New York
and assess the ‘net speculative long position’ there, so as to
see the actual weight of opinion on the gold price. It gives us a
clear market opinion after all. But many of you out there may
believe that COMEX is a very large factor in the gold price. Is
it?
It would be easy
of us or any other commentator to give their opinion on the matter, but would
that be enough to be absolutely right? So as to not give an
opinion, we felt it important to go direct to COMEX to get the proper story.
We spoke to the Director of Metals Products in the COMEX Marketing
Dept. This is what COMEX says;
What
you may have thought about COMEX
It may seem
reasonable to you to assume that the ‘net’ position on COMEX
would be covered by COMEX actually ensuring that this amount of gold or
silver is held in one of their four COMEX approved depositories that are all
located in New York city. After all, delivery of the gold and
silver is effected via electronic warrant. This would reassure us
that COMEX dealings did affect the gold or silver price, would it
not?. After all, supposing someone went short and could not
deliver, who would supply the metals? The implications are that
COMEX is constantly adjusting their gold & silver holdings to make sure that
no-one would be left without the metal they bought there. Not so!
What
really happens?
1.
Does
COMEX hold gold or silver to cover the net position to ensure market players
will get their metal?
- COMEX
does not ensure the net long positions are covered by gold or silver.
But, COMEX does perform oversight and regulatory due diligence, to ensure
that no adverse events disrupt the marketplace to ensure that all market
participants meet their contractual obligations. Yes, holders of
COMEX approved depository electronic warrants can withdraw gold and silver
from the depositories.
2.
So
where does the sellers gold or silver come from?
- The Exchange
takes all short notices tendered and matches them to the appropriate long positions
per an Exchange system algorithm. COMEX DOES NOT supply the
gold. The Seller supplies the gold as part of the contract
rules. The deliverable gold resides in four (4) COMEX
approved depositories that are all located in New
York City and the delivery of the gold is effected via
electronic warrant. Find our warehouse stocks on a daily basis on
our website:
http://www.cmegroup.com/trading/energy/nymex-daily-reports.html
3.
So
if a seller doesn’t have the gold to supply to the buyer, what happens?
- COMEX positions
in spot (current) month Gold are settled by trading out (rolling) of the
position or engaging in the Exchange delivery process. When
someone wants to take delivery, they will establish a Long (buy) futures
position and wait until a Short (seller) tenders a notice to delivery.
4.
Where
does the gold come from, that’s held in approved depositories?
- Should
you hold to delivery, you will get your gold. We match buyer and
seller....one cannot exist without the other. The
majority of positions are settled via trading as opposed to
delivery. I cannot comment on where participants buy physical
gold.
5.
So
how is physical delivery made?
- The gold
contract is physically settled meaning if you stay to delivery you must
deliver gold or you receive gold. If you trade out of your position or
roll into other month you are paid or must pay the difference. You must
know that less than 1% of the trades actually go to delivery.
6.
What
if a seller [Short] does not have the gold to deliver [naked short]?
- If a
short does not have Gold to deliver he must liquidate his position by
the last trading day. A short who goes to delivery must have the Gold
in an approved depository. This is represented by the holding of electronic
depository warrants.
7.
What
percentage of sellers are ‘naked shorts’
- Don’t
know what percentage of shorts do not have physical gold and am not aware
that any such statistics are kept. I imagine you could get some
idea by looking at open interest and comparing that to registered stocks
[gold] in the depositories. [Go to the above website and check
the totals against the Commitment of Traders report on Fridaysand look at
“Open Interst” to get that number.]
8.
Does
the COMEX gold market directly affect the gold price?
- Our markets are
used primarily for price risk management or financial
reasons…..although we can be a source of physical metal we are not used
for that reason. The Exchange does
not set the price – the market does. The gold price
is created by the buyers and sellers.
The exchange in no way determines the price....we only report it.
Conclusion
The long and
short of it is that COMEX is simply a ‘cash’ market that does not
deal in gold or silver or other items at all. They simply provide
a cash market where risks are laid off. Yes, physical dealers in
gold and silver may well use the market to ‘hedge’ opposing real
physical positions so that they don’t face a price risk and yes,
traders o[or gamblers] use the market to take leverages speculative positions
that are in now way backed by the ophysical possession of the metals.
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your
wealth effectively structured to avoid the pernicious effects of the
regulatory climate that we have moved into? It should be and we can help you
to do so professionally and within the law. Please contact us for any help
regarding this at: gold-authenticmoney@iafrica.com.
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