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View Full Version : What Everyone Should Know About COMEX Gold - By Eric deCarbonnel



mick silver
4th November 2008, 18:56
It appears that there is a common refrain going around the investment community. It goes something like this:



"Gold should be doing better, and, since it isn't, I am not going to buy it"



Investors who believe this are making the mistake of thinking COMEX gold is the same as real physical gold. It is not.



COMEX gold is a form of debt. It involves one party promising to produce gold (money) to another at a future date. Like all forms of debt, a COMEX futures contract is only as good as the counterparty behind the contract. Right now, because of low margin requirements, sellers of gold futures only have enough gold to cover 10% of outstanding contracts stored in COMEX warehouses.



Considering that the biggest sellers of gold futures contract are insolvent financial institutions, it is obvious that COMEX gold has enormous counterparty risks.



If even a quarter of outstanding contracts asked for physical delivery, it would be enough to guarantee a default. Since a financial collapse would actually create the risk of total default (insolvent banks can't produce the gold or cash), COMEX gold fails miserably as a safe haven.



This is why COMEX gold prices are falling, while physical gold is disappearing from the market place.



Because of scarcity, physical gold is selling at an enormous premium to gold spot price (which is set by COMEX). How big a premium? Well, on eBay 2008 gold buffalo are trading between 300 to 400 over spot price. That is a 50% premium. The enormous premiums being paid in the physical market means that a large number of December gold contract holders are likely to request delivery. A volume, whether it causes defaults or not, is likely to change the marketplace perception of gold and cause a rush of into a physical gold plagued by shortages. Gold will skyrocket over 2000 in a matter of days.


http://www.futurefastforward.com/component/content/article/479

mick silver
4th November 2008, 18:58
paper is paper , gold is gold , silver is silver , paper is paper