Possible default in December gold??

Mecro, please present your line of investigation leading to that conclusion. We'd love to hear it.

Here's my own line of thinking (yes it took 5-10 minutes to do):

- COMEX open interest on Dec 08 contract is approx 17 million ounces:
http://www.nymex.com/gol_fut_condet.aspx?product=GC&month=Dec&cmonth=Z&year=8&currPrev=C

- The largest place for wholesale gold is AFAIK LBMA, with monthly trading volume of approx 27 million ounces:
http://www.lbma.org.uk/stats/clearing

So if all COMEX contracts must be paid for in cash, bought at LBMA, and delivered physically, it would take 2-3 weeks of LBMA volume. This will cause a significant run up in gold spot price for sure, but not enough to cause panic or require default.
 
Quote from kubilai:

Mecro, please present your line of investigation leading to that conclusion. We'd love to hear it.

Here's my own line of thinking (yes it took 5-10 minutes to do):

- COMEX open interest on Dec 08 contract is approx 17 million ounces:
http://www.nymex.com/gol_fut_condet.aspx?product=GC&month=Dec&cmonth=Z&year=8&currPrev=C

- The largest place for wholesale gold is AFAIK LBMA, with monthly trading volume of approx 27 million ounces:
http://www.lbma.org.uk/stats/clearing

So if all COMEX contracts must be paid for in cash, bought at LBMA, and delivered physically, it would take 2-3 weeks of LBMA volume. This will cause a significant run up in gold spot price for sure, but not enough to cause panic or require default.
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What percentage of expiring COMEX gold contracts result in delivery? I doubt that even 20% of the current open interest will want delivery.

Traders trade gold futures because they want to speculate on the price movement, not because they want the actual gold. Anyone who wants actual gold in large quantities can buy all they want by going to a gold dealer and handing over the cash.

How many of these clowns whining about "paper gold" even have enough cash to qualify to deal in the wholesale gold market? LBMA says "The London bullion market is a wholesale market, where minimum traded amounts for clients are generally 1,000 ounces of gold and 50,000 ounces of silver."

I haven't yet seen anyone complaining that they can't buy their 1000 plus ounces of gold or 50,000 plus ounces of silver.
 
Quote from kubilai:

Mecro, please present your line of investigation leading to that conclusion. We'd love to hear it.

Here's my own line of thinking (yes it took 5-10 minutes to do):

- COMEX open interest on Dec 08 contract is approx 17 million ounces:
http://www.nymex.com/gol_fut_condet.aspx?product=GC&month=Dec&cmonth=Z&year=8&currPrev=C

- The largest place for wholesale gold is AFAIK LBMA, with monthly trading volume of approx 27 million ounces:
http://www.lbma.org.uk/stats/clearing

So if all COMEX contracts must be paid for in cash, bought at LBMA, and delivered physically, it would take 2-3 weeks of LBMA volume. This will cause a significant run up in gold spot price for sure, but not enough to cause panic or require default.
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I would not look at AFAIK LBMA. Just look at CME warehouse stock. It's half the open interest.

If Im asking for delivery on my contract, I am not asking for a 2 month wait. Because that is what most dealers are requiring.

I think Gold is ok but Silver is even harder to get, at least most forms of it. Is a default possible? Yes It it likely? I don't think so. I can get physical gold & silver shipped to me within days. But not all forms of it.
 
Paper gold has been manipulated for many years now......the perfect storm is ahead imo (global wealth entities will have their market manipulating SHORT trades blow up in their face.....their plans will backfire as they try to move to only 3 major currencies).

This will be as enjoyable to watch as oil dive bombing down from $147! :cool:
 
I'm a gold bug but this rumour goes around every few years, last time about 2 years ago I recall.

Yes, it's possible, somebody could really shake things up by taking delivery but a) you'd need a crapload of money, b) probably trust worthy partners and c) most importantly remember who the COMEX works for - the paper shufflers and not the physcial guys. So even if it happened the rules would be changed as some sort of emergency to 'protect the exchange'.

Chances of it happening about 5%-10%.
 
Quote from AK100:

I'm a gold bug but this rumour goes around every few years, last time about 2 years ago I recall.

Yes, it's possible, somebody could really shake things up by taking delivery but a) you'd need a crapload of money, b) probably trust worthy partners and c) most importantly remember who the COMEX works for - the paper shufflers and not the physcial guys. So even if it happened the rules would be changed as some sort of emergency to 'protect the exchange'.

Chances of it happening about 5%-10%.
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Well here is something I'm still trying to figure out. CME is just an exchange, they are not on the hook if the contract seller defaults, it's on him and legal action is then taken, as well as trading of futures for that individual or entity forbidden for life.

Also, I think CME itself is not allowed to take positions in the contracts.

The CME warehouse stocks are just a gauge of how much physical is available to back up the paper contracts by its participants.
 
Quote from Mecro:

Well here is something I'm still trying to figure out. CME is just an exchange, they are not on the hook if the contract seller defaults, it's on him and legal action is then taken, as well as trading of futures for that individual or entity forbidden for life.

Also, I think CME itself is not allowed to take positions in the contracts.

The CME warehouse stocks are just a gauge of how much physical is available to back up the paper contracts by its participants.
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"I don't know what desk you work on, but I feel sorry for whoever's money you are trading."

I think your last comment applies here...

:p
 
I noticed December 2009 (year from now) gold future contract has a premium $1000 only compared to current month ( DEC 2008) future contract price
- where as for crude oil 'one year future contract' premium is $10000 i.e DEC 2008 price $59 , where as DEC 2009 price $69

Can somebody explain me why is this big difference between premiums GOLD vs. CRUDE OIL ? is it this way always i.e crude commands big 1 year premium vs. 1 year gold future contract?

OR is it because now economy worldwide outlook is bleak for next one year, market thinks people do not buy much gold for next one year.

Appreciate forum thoughts.
 
Quote from InvestVision:

.........thoughts............
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1) Gold is a "financial" commodity. Its carrying charges are dominated by short-term interest rates, which are very low, which translates into small "carry".
2) Crude oil is a "physical" commodity. It's carrying charges and premiums are related to supply expectations, which can be "all over the place".
 
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