Jump to content
House Price Crash Forum

Comex Allowing Counterparties To Settle With Derivatives


Recommended Posts

So, the IMF reannounces it is selling off 191 tonnes of gold the moment that gold starts climbing strongly again. Now I read that Comex is changing its rules so that counterparties no longer need to settle with real gold and silver, but instead they may also settle with derivatives.

Now why would they want to do that? :unsure:

http://www.kitco.com/ind/Lewis/feb172010.html

Link to comment
Share on other sites

So, the IMF reannounces it is selling off 191 tonnes of gold the moment that gold starts climbing strongly again. Now I read that Comex is changing its rules so that counterparties no longer need to settle with real gold and silver, but instead they may also settle with derivatives.

Now why would they want to do that? :unsure:

http://www.kitco.com/ind/Lewis/feb172010.html

Clarify this for me please?

In this country, if someone owes me something, they might offer me a bag of beans instead of what they owe me. If I am happy with that, then that is the end of the matter, it doesnt matter what I am owed.

How does it work with Comex? If I am owed a pound of gold, then presumably I would have to accept a pound of gold if offered it?

But would I have to accept a derivative when I am owed a pound of gold? Is it Comex who now decide how my trade is satisified? If so, why would I do business there at all? Surely if I wanted gold, then only gold would settle the debt.

How can they change it? Simple explanations please.

Link to comment
Share on other sites

Clarify this for me please?

In this country, if someone owes me something, they might offer me a bag of beans instead of what they owe me. If I am happy with that, then that is the end of the matter, it doesnt matter what I am owed.

How does it work with Comex? If I am owed a pound of gold, then presumably I would have to accept a pound of gold if offered it?

But would I have to accept a derivative when I am owed a pound of gold? Is it Comex who now decide how my trade is satisified? If so, why would I do business there at all? Surely if I wanted gold, then only gold would settle the debt.

How can they change it? Simple explanations please.

Upon further research it appears that I am mistaken, in that the rule has been around for some time.

However, see "The Alchemists" article copied on this page ( a little over halfway down):

http://oikonomika-blog.blogspot.com/2009_07_01_archive.html

Basically, COMEX have stated that the rule in question implies that shares in ETFs backed by gold may be delivered instead of gold. Seehere for the announcement:

http://www.cftc.gov/files/submissions/rules/selfcertifications/2005/rul021805nymex001.pdf

A subtle disctinction, but given that there have been some questions concerning the true level of backing of some of these ETFs...well.

So, yes it appears you could be delivered shares instead of your pound of gold. I need to dig into this further.

Link to comment
Share on other sites

Upon further research it appears that I am mistaken, in that the rule has been around for some time.

However, see "The Alchemists" article copied on this page ( a little over halfway down):

http://oikonomika-blog.blogspot.com/2009_07_01_archive.html

Basically, COMEX have stated that the rule in question implies that shares in ETFs backed by gold may be delivered instead of gold. Seehere for the announcement:

http://www.cftc.gov/files/submissions/rules/selfcertifications/2005/rul021805nymex001.pdf

A subtle disctinction, but given that there have been some questions concerning the true level of backing of some of these ETFs...well.

So, yes it appears you could be delivered shares instead of your pound of gold. I need to dig into this further.

This is indeed curious. If you wanted to have a ETF, then you could buy one. The whole point of going to COMEX I presume, is to get some of the metal.

If you cannot guarantee that you get your metal, then you would have to go elsewhere. Unless of course you sign a document saying that you are happy with an ETF, then it is ok. I think if I had wanted gold, and got a bit of paper, I would go to court and sue like mad.

Link to comment
Share on other sites

Consider the krypronite market. There is no such thing as kryptonite so there can be no physical deliveries. You can still buy and sell kryptonite. If you buy and the price rises, you can sell your kryrtonite to someone else on the market. Likewise if you go short and the price falls, the counterparty settles the cash difference with you. What you are really trading is not kryptonite, which does not exist, but perceptions of kryptonite prices. The winner in this game will always be the person with the deepest pockets. If you feel prices are going to rise, all I have to do is sell to counter your buy. No matter how much you buy, if I have more money than you I can lower the prices by selling more. Thus by staking more money the richer will always take from the poorer. The market does not require the existence of ANY kryptonite to function.

The gold market of COMEX is much the same. The amount of money buying and selling real gold is tiny. The vast bulk of money is speculative, first pushing prices high, then low, in order to try to take the other guys money. Supply and demand for gold has no bearing in such a speculation driven market. It is just like the kryptonite market outlined above. The problem comes when people wanting physical gold use COMEX prices to assess price. The actual market price of physical gold can differ from COMEX because that price is the price real people are willing to part with real gold.

Link to comment
Share on other sites

The problem comes when people wanting physical gold use COMEX prices to assess price. The actual market price of physical gold can differ from COMEX because that price is the price real people are willing to part with real gold.

It's a futures exchange for chrissake! If I buy a future contract for delivery of wheat to my third world country, I'd expect wheat to be delivered, not coupons for a wheat ETF!!!

Link to comment
Share on other sites

Thod, as usual, displays his elegant knowledge of the market to explain things easily. Best explanation I've seen. But I get the impression that Leicestersq does not understand the full wickedness of the gold (and silver) futures market (compared to other futures).

It has been rumoured for a long time, and rightly in my opinion, that unlike all other markets, the silver and gold do not exist to back these derivatives. These two markets are heavily manipulated to keep the price down as far as possible. Anyone who has followed these markets for some time will have seen aberrant behaviour, pushing the price down to force money out of the system into the hands of those doing the manipulating.

Any normal futures market exists to supply goods and commodities at a known price in the future. This, over time, has evolved into the speculating / gambling / investing market that Thod describes, where FOR MANY PEOPLE the goods being gambled with are irrelevant. Thus, a futures dealer may speculate all year about the price of pork bellies but be horrified if someone actually suggested he take physical delivery. The point I am slowly getting around to, is that in the last year, some people have actually started to purchase gold and silver contracts (especially silver) with a view to taking delivery of the physical metal. If one is very wealthy, this is the only way of getting your hands on the really large bars, at a price which has no premium (important if buying multiples of 400 oz gold or 1000 oz silver) over the spot price.

I have now started to get information that very, very wealthy people have started to want to invest in gold, having left it really a bit late. They are scared, and are taking huge amounts of gold out of the system to get the physical metal in their possession (remember, the idea of the unallocated accounts and ETFs of the LBMA is that the gold stays in the same vault all the time and just gets shifted around from shelf to shelf or gets a marker pen scribble on it as to who owns it). It is getting to the stage, I am told, that the amount of physical gold in the vault is getting so low that the public may find out what we already know, that the physical gold which is supposed to back ETFs and the like does not exist, having been sold long ago. So the COMEX has started to force settlement in paper rather than gold (or silver).

From this, we are close to a physical default, i.e. said billionaire wants his gold, gets truculent when he doesn't get it, and the fraud will come to light in a way that can't be covered up. This would not happen in any other futures market (such as wheat, or tumeric, say) but is "normal" for the manipulated gold and silver markets. When the default finally occurs, the price of gold, and especially silver, will justify all our interest in the metals.

Bring it on.

Link to comment
Share on other sites

Further to my last post, you may wish to read this...

http://news.goldseek.com/GoldenJackass/1265295600.php

The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York and Chicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years. Imagine selling lumber contracts without wood delivered. Imagine selling mortgages without home titles delivered. Actually, Wall Street did precisely that from 2003 to 2007.

LONDON AS TARGET

Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state's evidence. The Brussels Serious Fraud Squad is running with the data. All indications point to a strategic decision made by the Brussels Interpol squad. Their target is London, because it lies at the center of the syndicate enforcement of the fiat currency system, where the gold suppression is centered, where the greatest point of weakness exists, where the absence of gold is most glaring to make them vulnerable. London is the weakest link in the Ponzi Scheme chain, known as the global monetary system with USDollar price mechanism and USTreasury Bond reserve component in banks.

Another important event occurred, this in December. A clearinghouse held a Letter of Intent to supply the London metals exchange with 250 metric tonnes of gold bullion. The contract was interrupted. The method used to disrupt and derail the contract is a story unto itself. Little is known in verifiable form. The point is that London bankers were denied an important channel of gold in supply. At the same time, demands came from private billionaires to take back possession of their gold in allocated accounts. They are often called in the gold industry the 'sovereigns' politely. When pressed for details, my sources tell of their Chinese background. In recent weeks, the billionaires have been joined by others from Central Europe, in particular from Switzerland. So London is being drained of gold and not being resupplied, from the front door and from the back door. A breakdown is coming, and accidents assured. Gold is the ultimate vulnerability. It underpins the USDollar, competes with the USTreasury Bond, while the USDollar remains buttressed by the Petro-Dollar defacto standard. That too has been served notice. See the Saudi announcement last May 2009, with Russia, China, Japan, and Germany at their side. Eventually, crude oil sales will not be fulfilled in US$ settlement.

Well, I never!

Link to comment
Share on other sites

Further to my last post, you may wish to read this...

LONDON AS TARGET

Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state's evidence. The Brussels Serious Fraud Squad is running with the data. All indications point to a strategic decision made by the Brussels Interpol squad. Their target is London, because it lies at the center of the syndicate enforcement of the fiat currency system, where the gold suppression is centered, where the greatest point of weakness exists, where the absence of gold is most glaring to make them vulnerable. London is the weakest link in the Ponzi Scheme chain, known as the global monetary system with USDollar price mechanism and USTreasury Bond reserve component in banks.

Well, I never!

Very interesting indeed. Do you personally think that gold is about to, or will eventually, shoot up in value (against GBP anyway).

Link to comment
Share on other sites

I think it is inevitable that gold will rise in the medium term. The rate of rise is open to discussion, but not the fact of it rising, and rising quite high. When times are pretty stable, then gold bumps along the bottom of the charts, and people are stupid enough to believe idiot bankers who say gold is a barbarous relic, but we have left those days behind some time ago, despite some fool of a banker in London who was clearly paid to bad-mouth gold a couple of weeks ago. There are at least four factors, none of which are open to serious dispute.

One, all major western governments have so much bad debt now, that they are unable to service their debts in the way we lesser mortals would be expected to do, and therefore the only way of getting this debt out of the system is to write it off (default on the debt), run the printing presses, or inflate it away. Therefore, all western governments will allow inflation to rise as high as they can get away with, without the populace becoming too aware of the fact. (Seen the price of food, petrol, etc recently?) I remember seventeen percent inflation in the seventies; what would this mean for mortgage rates? To put it simply, one borrows the debt in “valuable” pounds and pays it back in “far less valuable” pounds once inflation has taken hold. Others will correctly point out that this doesn’t mean gold will increase in value; it will merely preserve the value of one’s wealth. This is, however, a perfectly good reason to hold it, and the paper price of gold will increase.

Two, almost all the eastern and smaller central banks, especially India and China, are buying gold quietly and as fast as they can, exchanging their dollars for metal. They are desperate to change the dollars into something more valuable, even if it’s only base metals. They prefer gold. This has the effect of pushing upwards on the price and we are seeing this occur despite the attempts at manipulation.

Three, various individuals and smaller countries are taking a very hard look at some form of re-monetisation of gold, despite the wishes of some major Western central banks. For an example, see http://ascc.sterligoff.com/how-it-works but there are obvious ways we could do this privately, Goldmoney goldgrams being a simple way of settling debts in gold between individuals. International debts paid in gold are settled debts – no default, no inflation. These same wealthy individuals are sucking gold out of the vaults in London at a rapid rate. When people like these go shopping, they don’t talk in terms of half-a-dozen Krugers, they think about kilobars of gold or 1000oz bars of silver. I personally saw a consignment of 5-kilo bars of silver being delivered to a bullion dealer, and was lucky enough to be allowed to photograph it. The consignment was half a metric tonne, and I was led to believe it was mostly for one individual buyer. (I bought two bars for myself). Gold is being removed from the vaults and it is going into very strong hands indeed (that is, people who will not be panicked into selling except at a time of their choosing, if at all. They may be so wealthy that they are thinking of the bullion as an inheritance, rather than as a profitable trade). There are those who believe that one of the reasons Iraq was invaded was to stop Saddam trading oil in Euros rather than dollars. Iran would like to do this too. War is also very bullish for gold.

Four, the easy days of mining gold have gone, possibly for good. The grade of ore is reducing and the depth and difficulty of extraction has gone up. This will depress the rate of supply of gold, already low at about two percent per annum. This means the price of gold will rise despite attempts at manipulation.

Does anyone else have some input?

Link to comment
Share on other sites

I think it is inevitable that gold will rise in the medium term. The rate of rise is open to discussion, but not the fact of it rising, and rising quite high. When times are pretty stable, then gold bumps along the bottom of the charts, and people are stupid enough to believe idiot bankers who say gold is a barbarous relic, but we have left those days behind some time ago, despite some fool of a banker in London who was clearly paid to bad-mouth gold a couple of weeks ago. There are at least four factors, none of which are open to serious dispute.

One, all major western governments have so much bad debt now, that they are unable to service their debts in the way we lesser mortals would be expected to do, and therefore the only way of getting this debt out of the system is to write it off (default on the debt), run the printing presses, or inflate it away. Therefore, all western governments will allow inflation to rise as high as they can get away with, without the populace becoming too aware of the fact. (Seen the price of food, petrol, etc recently?) I remember seventeen percent inflation in the seventies; what would this mean for mortgage rates? To put it simply, one borrows the debt in “valuable” pounds and pays it back in “far less valuable” pounds once inflation has taken hold. Others will correctly point out that this doesn’t mean gold will increase in value; it will merely preserve the value of one’s wealth. This is, however, a perfectly good reason to hold it, and the paper price of gold will increase.

Two, almost all the eastern and smaller central banks, especially India and China, are buying gold quietly and as fast as they can, exchanging their dollars for metal. They are desperate to change the dollars into something more valuable, even if it’s only base metals. They prefer gold. This has the effect of pushing upwards on the price and we are seeing this occur despite the attempts at manipulation.

Three, various individuals and smaller countries are taking a very hard look at some form of re-monetisation of gold, despite the wishes of some major Western central banks. For an example, see http://ascc.sterligoff.com/how-it-works but there are obvious ways we could do this privately, Goldmoney goldgrams being a simple way of settling debts in gold between individuals. International debts paid in gold are settled debts – no default, no inflation. These same wealthy individuals are sucking gold out of the vaults in London at a rapid rate. When people like these go shopping, they don’t talk in terms of half-a-dozen Krugers, they think about kilobars of gold or 1000oz bars of silver. I personally saw a consignment of 5-kilo bars of silver being delivered to a bullion dealer, and was lucky enough to be allowed to photograph it. The consignment was half a metric tonne, and I was led to believe it was mostly for one individual buyer. (I bought two bars for myself). Gold is being removed from the vaults and it is going into very strong hands indeed (that is, people who will not be panicked into selling except at a time of their choosing, if at all. They may be so wealthy that they are thinking of the bullion as an inheritance, rather than as a profitable trade). There are those who believe that one of the reasons Iraq was invaded was to stop Saddam trading oil in Euros rather than dollars. Iran would like to do this too. War is also very bullish for gold.

Four, the easy days of mining gold have gone, possibly for good. The grade of ore is reducing and the depth and difficulty of extraction has gone up. This will depress the rate of supply of gold, already low at about two percent per annum. This means the price of gold will rise despite attempts at manipulation.

Does anyone else have some input?

Excellent summary and I completely agree with you. Unfortunately the price of gold is heavily manipulated by the Fed which sells futures on the Comex at opening - you can see it almost daily on Kitco.com. However, as you say, in the medium term gold can only go up.

the reasons for this IMHO are as follows:

1. The USD, despite its current apparent strength, is actually in a terminal decline, and their paper has lost about 98% of its purchasing power in the last 100 years. They are drowning in debt, and the only answer the Fed has is to print more dollars, which brings us to...

2. China, Russia, the Middle East, India and Brazil are fed up with holding trillions of useless dollars, which over the medium term are losing value, and are backed by nothing other than the "good faith" of the US. China and India are now encouraging their private citizens to own gold, unlike the 70's. In the case of China and India only about 0.5% of their foreign reserves are backed by gold, unlike most European countries (except for the UK) where the figure is about 25%. If China succeed in their stated aim of bringing the gold up to 12% of their external currency reserves China will mop up ALL available gold for the next 15 years.

3. China, Russia, the Middle East, India and Brazil are quietly dumping their dollars and buying gold. They cant dump their dollars too fast, or the price of dollars will crash. So, it is quietly does it.

4. The Middle East is very turbulent, and this is very good for gold. In 1979 when Russia invaded Afghanistan gold doubled in 8 weeks. War is guaranteed in the Middle East .. It is not a question of if but when.

5. Inflation. The world "appears" to be in a deflation at the moment, but this cannot last long. The true definition of inflation is an increase of the monetary basis and credit. The monetary base in being dramatically increased, especially in the US and the UK. At the moment this extra paper is staying in the bank, who are simply lending it back to their respective central banks at large profits. However, this cannot last long. As soon as that money hits the general population as credit is eased, there will be an unstoppable wave on inflation which will make the 70's look like a tea party, due to the fractional reserve system.

6. Sovereign default. The story of Greece is not over. Whether Greece is bailed out, or Greece defaults, then we have a sovereign default. This will spread to Spain, Portugal, Ireland and the UK. In the US it will be individual stated like California. Again, the sovereign default story will make the sub prime crisis look trivial.

7. With all these factors gold will go up in the medium term. In the short term, because of heavy manipulation of the gold price by the Fed, the price of gold will be very volatile.

8.Eventually futures prices will have to be settled in physical gold. There is about one cubic tennis court of gold on the whole planet. All mining activity is increasing this cube by 1mm per year. It is anyone's guess how much futures paper gold there is, but eventually there will be a short squeeze on physical gold (and silver).

9. For the gold price to be equivalent to the peak in 1979 it would have to be $2100 approx. The situation is dramatically worse than 1979, and the eventual price, when the public start buying in phase 3 of this long term secular bull market is anyone's guess - but will almost certainly be far higher then $2100 for all the reasons above, with violent gut wrenching fluctuations of 30% on the way.

I am 50% of my net worth in gold, but it is a very bumpy ride!

Link to comment
Share on other sites

So, the IMF reannounces it is selling off 191 tonnes of gold the moment that gold starts climbing strongly again. Now I read that Comex is changing its rules so that counterparties no longer need to settle with real gold and silver, but instead they may also settle with derivatives.

Now why would they want to do that? :unsure:

http://www.kitco.com.../feb172010.html

Oh, good grief! This is a 5 year old story. And a wrong one at that.

Several points:

1. The issue is not about derivatives, but about shares in metal ETFs. As these ETFs explicitly own the metal backing their shares, they are not derivatives.

2. Comex does not, and never has, accepted ETF shares as an alternative to physical delivery.

3. The 'new' rule launched in 2005, recognises ETF shares instead of cash as an acceptable method of payment when physical metal is delivered as part of a futures contract.

Link to comment
Share on other sites

Quote from the O.P. link

"Under the clause 104.36 in the COMEX rulebook, exchanges can take place on the exchange as long as the products meet certain criteria. After sorting through legalese, investors find that the criteria isn't as demanding as one would expect from a multi-trillion dollar exchange, but is actually quite loose. COMEX requires that exchanges be made in economically equal products. For instance, a 1000 ounce silver futures position can be used in the delivery of 1000 ounces of silver, despite their inherent differences."

This seems quite clear to me. I am open, as always, to differences of opinion but this would not be allowed in any other commodity. If you wanted black pepper or copper, you wouldn't stand for being given a substitute to the original contract if you were a manufacturer. A futures contract must be capable of delivering the actual commodity if the buyer of the futures contract wants to take delivery, as that was clearly the original intention of the concept itself. I have no problem with those who wish to play on the futures market, it's a free country, but I still think the whole silver and gold futures system allows corrupt behaviour, and I stand with Jason Hommel and Ted Butler on this one.

Edited by Old Nis
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.




×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.