The Huffington Post reports about COMEX warehouses.
(emphasis mine) [my comment]
Where's The Gold?
June 26, 2009 07:45 AM
The Comex is the name for the largest gold futures market in the world, traditionally centered in New York City. Although the market recently became part of the Chicago Mercantile Exchange, it has retained its old nickname. Also, the depositories which hold the actual bars of gold used to settle the futures contracts remain in New York City.
A gold depository must be the most boring business on earth. They charge a small monthly fee to store 100oz. standardized bars of gold in an insured vault. It is an industrial-sized version of a safe deposit box.
The owner of a 100oz. bar owns a specific chunk of gold. It has a manufacturer, a serial number, and an exact weight measured to the 1/100th of an ounce. A written depository receipt -- similar to an old-fashioned paper share certificate -- shows the exact date the bar entered the depository, and the entire chain of ownership since that date; they often change hands without leaving the depository. You can request to withdraw the bar from the depository, and you should receive exactly the bar indicated.
Interest in precious metals as an investment has been heating up, and some fund managers have begun to take very large positions. Demand for Comex gold bars has been increasing -- especially as they are significantly cheaper per ounce than alternatives like 1oz. bullion coins or the kilogram bars popular in Europe.
Jim Sinclair of jsmineset.com, a legendary gold trader, reported that some of his contacts have told him that, when they request to withdraw their 100oz. bars from the Comex depositories, they have not received the proper indicted bars. They received a bar, but not one with the correct serial number or weight.
Why not? One possibility is that an honest mistake was made. The high demand recently has apparently kept the depository workers very busy. Wall Street veterans recall that delivery errors were chronic in the days of paper share certificates.
Another possibility is that the bar indicated on the warehouse receipt does not actually exist. The implications of that are rather dire.
This would not be so troubling if there were not already a series of very odd things happening down at the Comex. Delivery delays have been chronic. This could be a symptom of an overworked staff. Or, it could be a purposeful stalling tactic. In any case, it should not take weeks and possibly even months, and sometimes dozen of inquiries, to get the gold you already own out of the warehouse.
The Comex itself, however, has been reporting that business at the warehouse is very slow. The daily reports of warehouse movements show almost nothing happening, day after day. So which is it, busy or not busy?
As futures contracts expire, a certain number of holders elect to pay cash to receive the physical gold. The number of delivery notices has been very high since autumn of last year. For example, in May, investors requested the delivery of 20 million ounces of silver, against a dealer inventory of about 64 million ounces. Since then, there has been no record of anywhere near that amount of silver leaving dealer inventory, being delivered into the warehouse, entering customer inventory, or leaving the warehouse. Another 17.45 million ounces of silver were requested in March, evidence of which was nowhere to be seen in the warehouse reports.
In April, delivery notices were sent on a whopping 1.5 million ounces of gold, against 2.5 million ounces of dealer inventory. That month, Deutsche Bank alone delivered 850,000 ounces. This coincided, rather suspiciously, with a sale of 1.14 million ounces of gold by the European Central Bank that month, suggesting that Deutsche Bank was being bailed out in a big way. Nothing of this size turned up in the warehouse reports. Nothing followed similarly large deliveries in December 2008. By Comex rules, all physical deliveries must go through the warehouse. What happened? Until investors receive an explanation from the exchange, which has thus far been silent, we must regard it as being very suspicious. Very, very suspicious.
What does it all mean? First, there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.
Meltdown2011 reports about trouble at COMEX warehouses.
COMEX Warehouses in Trouble?
Posted on June 13, 2009 by Scott Gallup
Since I started tracking COMEX gold and silver warehouse levels last November I've grown to be very suspicious of the numbers COMEX reports each day. In spite of increased physical deliveries in both metals, "registered" inventory levels remain more or less stable. This is why I gave up daily updates in favor of weekly ones; I just don't have all that much faith in COMEX reporting.
Hero and venerable gold guru Jim Sinclair has experience in all things gold going back to the 1970s. Things happening NOW at COMEX gold warehouses are reminding him of severe delivery problems that bankrupted brokers BACK THEN.
Will Increased Delivery Demand Break The Gold Warehouses?
I have been speaking with many people this evening who have taken gold delivery.
What I am hearing is not impressive.
For decades warehouses have held, but rarely delivered as compared to store.
When examined closely it is a paper system that may have fallen badly behind as gold moved ahead since 2001.
There is a possibility the system is antiquated and more FUBAR than anyone, even the warehouses themselves, realize.
I have been told that bars delivered do not correspond with the receipts from exchanges.
I have been told that bars of slightly different weight (higher) have been received.
This may well be a system that has never been asked to handle volumes as are now taking place. This may well be like the old hand clearing equity systems that broke down as volume of trading increased in the early 70s.
F.I. Dupont went out of business because their back office could not meet the growing clearing and trading at that firm.
Pershing, and Vilas & Hickey were the two largest equity clearing firms.
Vilas & Hickey, a NYSE firm of which I was a general partner (at 27 years old) recognized the growing problem and transferred our clearing business to Pershing and merged our activities into another firm, Muller & Company, in order to avoid the impending problem.
I was the sole general partner of the merged NYSE firm so I know what I talk about. We preserved our capital and side stepped a problem that busted many firms.
I smell exactly the same thing in the precious metals warehouse business. How pervasive it is we all will soon find out.
And Jim's friend J.B. Slear, who helps people out with getting physical delivery from COMEX, is reporting:
1) "We're finding out that some brokerages will not help with the delivery process or refuse to help even after the commissions are paid."
2) "Calls today are reflecting concerns about accounting practices in Canada and other G7 countries."
3) "...We have witnessed cost increases in just about everything "Comex", from Prudential's verification process (which is matching buyers monies and sellers bars) all the way down the line to the delivery itself."
As proof that COMEX warehouses have been under strain for more than a year, below are some message board posts from someone taking delivery of a 5000oz silver contract in March 2008.
...I am currently waiting on a Mar. delivery and no word yet (only 3 days left). Do you think that this last sell off could be indicative of the dealers sugar coating their books at the end of the delivery month by dropping the price until they clear their contracts. This way they could say the loss was not as bad when they enter their profit/loss into their books. Or is it possible they are just having trouble finding the metal? I've taken delivery before and it was made at the beginning of the month in the first week. Kind of makes you wonder.
Just called my broker to find out wtf is going on with my March contract. Last delivery day is Thursday and no word yet...........EXCEPT..........he said he has heard they are having delivery problems. Really????? I asked him about the possibility of default and he said he was calling the clearing dept. to ask how to handle a default. He figured it would be a cash settlement. So where would that leave me????? Having to go out and replace $14 dollar silver with $x. Can that be right? Doesn't the selling entity have any obligations to deliver under this contract. Something smells really bad...
Negative. LT is on the 27th but the seller needs to make notification before that date. As far as the certificate is concerned, I will only get that upon requesting receipt of it. As far as I understand, no notification by 27 and it is a default. Fwiw, my broker (or I) have never seen a delivery dragged out to the last 3 days.
I do own and hold but this was my latest install. The weird thing is my broker was not very familiar with the legalities of a default and seemed to think they could just settle for cash based on current price?, expiration price? Arbitrary price?......wtf. I sure as fuc hope there is a little more accountability than that. Otherwise why would you put up risk capital to establish a good buy price (~$14) in my case.......then what.....go out after cash settlement and buy at $20 or whatever spots at?????? I guess I will know a bit more tomorrow after talking to him but will be on the net until then to try to find out what I can for myself.
I will keep you informed. Thanks for the support.
Tell me about it. My contract value was 14.80 and to replace 5000oz at 20(?) would put me behind by ~25k. Total bullshit. I'm hoping it does not happen like that. Incidentally, I spoke with my broker today and he said he took delivery of some Pt recently and it got delivered on the LAST day.
I mean, take a look at the 24hr chart. I think they are starting loose it...
Nothing Thursday (Last trading day), but have been informed they do in fact have until the last of the month. Fwiw they said I WILL be getting delivered on today.....we'll see. I'll let you know.
Just got off the phone. Broker said they cleared all march contracts and notice will be in the system on Mon. am. Again.......we'll see.
Does anyone follow the comex inventories? Ted Butler and David Morgan used to follow them closely when the totals for silver were ~100Moz. I took a look today and that figure is at 135Moz more or less.
Does anyone know the significance of these #'s and how they 'really' relate to silvers availability? [Very good question. I believe COMEX inventory numbers are bogus]
CHA........ching!:D:D::D:D (actually, Ker......klang!):D
Ya, it came through today. It was quite a relief. I have zero trust in the integrity of the system so I'll be very happy to close the loop and get the metal.
No more playing for delivery for me on the comex. I think it is getting too risky. However, I will still play a position in paper for cash. When you define your risk in these leveraged markets and you ensure your own ability to stay solvent through any volatility, there is money to be taken off the table as long as the major trend remains up. I actually consider it fairly mild risk (don't want to say low, as "rules can change".) as long as the trend remains up.
But, to be prudent, especially in this criminal business arena, it is essential to take money off the table, and then redeploy a percentage for more gains. I just don't have the faith in the system to allow someone else to be a custodian of my digital wealth. And then buy what you want outright, in hand. Of the comex or across the counter, difference to me.:D
Keep this thread tucked away and hit it if you hear of any delivery issues in the future. Rest assured we'll be back very soon......:D
Sorry for dropping off the face of the earth on this one Mr. Steak....no offense intented.
Anyhow........Yes I did a pick up myself. As the bars were originally in NY and I am in Ontario, I endorsed the warehouse receipt to Kitco who also has room in the same vault in NY. Once they recieved it in their system, they just replaced them out of their Montreal office. Saves the hassle of crossing the border. Shipping insurance would have been 2k vs $200 for gas. Prov. licence for id and canvas for carry out.
Now for Uncle Twister......
[Those are silver bars in picture]
Saiorse started the thread fyi.
Also, sorry about the delay in answering, busy couple of days.
Although you can take delivery, after going through this process several times, I would settle in cash and then buy 1000oz bars directly from Kitco or some other dealer. To me there is no real benefit to taking off the comex. You still get hit for cap gains and you have to jump through hoops to get it. Let alone the supply concerns which are surfacing (possible default looming).
If however you do, here is the basic task list.
1. Make sure you have the appropriate funds in your investment account. When you take delivery, you will be charged the price of silver on the day you are delivered on. The equity gain/loss is the effective hedge against where you entered the market. The following is an example for clarity:
You went long at $14.00. Upon purchase of the long position you have $20k margin in your account. The price of silver is at $20 the day you are delivered on. They will be expecting a cheque for $100k. In your account you have $20k (initial margin) plus the $30k (gain in equity)($5000 x $6/oz = $30k ). In this situation you must be prepared to top up your account by $50k. Be very aware of what your obligations are at upon delivery and have a very clear understanding between the terms "liquidation value" and total account value.
2. Assuming you have been delivered on and the proper funds are in your account, the next thing you will have to do is provide a written request to the clearing house to have the reciept associated with this contract sent to you.
This is where Kitco's involvement came in. I made prior arrangements for the following process.
3. The reciept will have to sent to the depository. In my case it was HSBC in NY, which was very convienient as Kitco also stores there. With the reciept, send a letter stating that your silver is to be place in Kitco's vault, and that Kitco is to be informed.
4. Once Kitco confirms how many ounces you have in storage in NY, they will provide you as close to the equivalent from there Montreal holdings, which you can either have shipped or p/u.
It is a pain in the ass.
The alternative is settle in cash and take the cash and buy directly. The 1000oz'er will still have to be taken off the comex to be replaced anyway so it still sticks a thorn in the side of the shorts.
Hope this helps. Ask for more detail if you need.
Saiorse, thanks for the thread.
Last month, I commented that COMEX inventory numbers are completely bogus.
1) More and more US investors are turning to the futures market when they want to buy physical metal at the lowest prices
2) More restrictions being applied to overseas buyers for deliver of COMEX gold
3) Buyers are having to wait more than two weeks to take delivery as delays and complications in the process have become increasingly commonplace
4) These delays and complications are even more frequent now then during the Christmas season, where interest in taking delivery of COMEX gold increased significantly
5) Although warehouse facilities themselves confirm large gold outflows every month, the activity does not show up on COMEX warehouse stock data. Over the last six months, total gold in COMEX warehouses decreased ONLY 3% or 7 tons (237,000 oz). See for yourself:
COMEX Gold Stocks - October 30, 2008 (total=8.56 million oz)
COMEX Gold Stocks - May 29, 2009 (total=8.32 million oz)
These excel documents were downloaded directly from NYMEX's website.
6) The physical gold redeemed from ETFs in London is placed into "unallocated bullion" accounts (gold IOUs). If these London ETFs were truly backed by real gold, they would produce physical/allocated gold upon redemption.
7) The providers of London's gold ETF also reserve the right to settle on cash not bullion terms under certain circumstances.
8) There are only two gold ETFs I consider safe:
ZKB Gold ETF - SWX
Julius Baer Physical Gold — SWX
9) These Swiss ETFs are slowly moving gold out of London and into Zurich (70 tons so far this year).
Conclusion: On top of investor demand prying gold out London and COMEX vaults, you have Germany and Switzerland demanding the return of their custodial gold from the US, and Dubai planning to withdraw its gold from London. With this type of demand, the US/UK will soon run out of gold.
Finally, there is overwhelming evidence that COMEX inventory numbers are completely bogus. The real amount of physical gold available to meet delivery demand is probably far, far lower than officially reported. In fact, gold prices rising towards 1000 for a fourth time is probably a sign that they are just about out.
My reaction: Do NOT trust COMEX depository receipts!
1) Investors withdrawing their 100oz. bars from the Comex depositories are being given bars with incorrect serial numbers or weight.
2) It should not take weeks and possibly even months, and sometimes dozen of inquiries, to get the gold you already own out of the warehouse.
3) Despite the large deliveries taking place, there has been no record of anywhere of large quantities of silver leaving dealer inventory, being delivered into the warehouse, entering customer inventory, or leaving the warehouse.
4) There are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments.
5) The information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction.
6) There is some doubt as to whether there is gold in inventory to match existing warehouse receipts.
7) The Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there?
8) If it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.
9) Some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.
10) The cost in just about everything "Comex" is increasing.
Conclusion: Defaults on silver or gold contracts are one of the many possible catalysts for the dollar's collapse. Other possible triggers include a default by the state of California or defaults on September soybean contracts.