the Spaceboy/Funky Gold thread

[motherfunky]

As a keen voyeur of the futures market I wondered if SB can shed light on the disconnect between the premiums being paid for bullion when you can get it since no-one has any for sale and the comex price?

This is a serious question greg

[spaceboy761]

Float. Without it, nothing would ever trade.

[bluffmanxx]

Upcoming Gold Default

The COMEX gold & silver markets are each hurtling down a dangerous path toward default. The artificial paper price has created enormous physical demand, and hampered supply production, if not delivery. The gap between the JPMorgan-led corrupted phony paper price and the legitimate physical price in actual trading markets has grown sharply, enough to force a breakdown like in any distorted market. When December contracts in gold & silver are demanded to be satisfied via delivery of the metal, it will be clear that the COMEX is running a scam. A default is highly likely.

[spaceboy761]

I would agree that the float has gotten so high that if everybody holding a long and short future contract were forced to EFP (exchange for physical), the COMEX would have no choice but to default.

The trick is that it is never really in anyone's interest to request physical delivery of the metals. It is in fact prohibitively expensive to do so and most people in the market couldn't cover the delivery costs if they wanted to. So unless someone is willing to go bankrupt just to prove a point, I thnik were OK. The exact same thing happened when Goldman Sachs tried to effectively corner the world gold market in the late 70's and we got through it well enough.

[motherfunky]

Im not so sure SB, its not that expensive to take delivery and with such an easy turn I hear December will see quite a few do exactly that.

Im not pinning all my hopes on December but shes gonna blow at some point. Its the Law of physics or something isn't it?

[spaceboy761]

Most customers don't even have the ability to take delivery since the clearing firms can't take on the liability of having their entire book demand a very expensive EFP (exchange for physical). Registering a trading account that can EFP costs more than most investors can afford.

We can debate whether or not having a system built mostly on float is a good thing, but I would argue that without float market participation would be so limited that the potential for hoarding and corruption would greatly outweigh the increased stability for physical redemption.

[motherfunky]

I thought as BM seems to be lurking he might be interested in this:

This past Friday, Nov. 28, 2008, was first notice day for delivery of the December COMEX [a division of NYMEX] gold and silver futures contracts which trade on the New York Mercantile Exchange. The chart appended below shows that on Friday, 8,600 gold futures contracts @ 100 ounces per contract [and 3,040 silver futures contracts @ 5,000 ounces per contract] were delivered. To try to give some perspective to these numbers the previous delivery month for gold futures was October, 2008 when there were 11,554 deliveries for the entire month – a “big” number by historical standards.



Lets be honest there's something is seriously wrong with comex isn't there?

[spaceboy761]

Most people that invest in gold have absolutely no interest in actually possessing gold. They are instead using it as a financial hedge against the dollar, to which they may be heavily exposed. Gold serves a bunch of purposes, and this is only one of them.

Let's not confuse the physical gold market with the gold futures market. They are very different and separate things used for very different purposes.

[spaceboy761]

Beyond excellent article explaining both sides of the argument here:

Our Updated Take on Gold Prices - Yahoo! Finance


Very good descriptions of both the real economic value of gold (and how seemingly out of whack it is) and the velocity of money argument.