Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
All of us follow COMEX in New York and assess the ‘net speculative long position’ there, so as to see the actual weight of opinion on the gold price. It gives us a clear market opinion after all. But many of you out there may believe that COMEX is a very large factor in the gold price. Is it?
It would be easy of us or any other commentator to give their opinion on the matter, but would that be enough to be absolutely right? So as to not give an opinion, we felt it important to go direct to COMEX to get the proper story. We spoke to the Director of Metals Products in the COMEX Marketing Dept. This is what COMEX says;
What you may have thought about COMEX
It may seem reasonable to you to assume that the ‘net’ position on COMEX would be covered by COMEX actually ensuring that this amount of gold or silver is held in one of their four COMEX approved depositories that are all located in New York city. After all, delivery of the gold and silver is effected via electronic warrant. This would reassure us that COMEX dealings did affect the gold or silver price, would it not?. After all, supposing someone went short and could not deliver, who would supply the metals? The implications are that COMEX is constantly adjusting their gold & silver holdings to make sure that no-one would be left without the metal they bought there. Not so!
What really happens?
1. Does COMEX hold gold or silver to cover the net position to ensure market players will get their metal?
– COMEX does not ensure the net long positions are covered by gold or silver. But, COMEX does perform oversight and regulatory due diligence, to ensure that no adverse events disrupt the marketplace to ensure that all market participants meet their contractual obligations. Yes, holders of COMEX approved depository electronic warrants can withdraw gold and silver from the depositories.
2. So where does the sellers gold or silver come from?
– The Exchange takes all short notices tendered and matches them to the appropriate long positions per an Exchange system algorithm. COMEX DOES NOT supply the gold. The Seller supplies the gold as part of the contract rules. The deliverable gold resides in four (4) COMEX approved depositories that are all located in New York City and the delivery of the gold is effected via electronic warrant. Find our warehouse stocks on a daily basis on our website:
http://www.cmegroup.com/trading/energy/nymex-daily-reports.html
3. So if a seller doesn’t have the gold to supply to the buyer, what happens?
– COMEX positions in spot (current) month Gold are settled by trading out (rolling) of the position or engaging in the Exchange delivery process. When someone wants to take delivery, they will establish a Long (buy) futures position and wait until a Short (seller) tenders a notice to delivery.
4. Where does the gold come from, that’s held in approved depositories?
– Should you hold to delivery, you will get your gold. We match buyer and seller….one cannot exist without the other. The majority of positions are settled via trading as opposed to delivery. I cannot comment on where participants buy physical gold.
5. So how is physical delivery made?
– The gold contract is physically settled meaning if you stay to delivery you must deliver gold or you receive gold. If you trade out of your position or roll into other month you are paid or must pay the difference. You must know that less than 1% of the trades actually go to delivery.
6. What if a seller [Short] does not have the gold to deliver [naked short]?
– If a short does not have Gold to deliver he must liquidate his position by the last trading day. A short who goes to delivery must have the Gold in an approved depository. This is represented by the holding of electronic depository warrants.
7. What percentage of sellers are ‘naked shorts’
– Don’t know what percentage of shorts do not have physical gold and am not aware that any such statistics are kept. I imagine you could get some idea by looking at open interest and comparing that to registered stocks [gold] in the depositories. [Go to the above website and check the totals against the Commitment of Traders report on Fridaysand look at “Open Interst” to get that number.]
8. Does the COMEX gold market directly affect the gold price?
– Our markets are used primarily for price risk management or financial reasons…..although we can be a source of physical metal we are not used for that reason. The Exchange does not set the price – the market does. The gold price is created by the buyers and sellers.
The exchange in no way determines the price….we only report it.
The long and short of it is that COMEX is simply a ‘cash’ market that does not deal in gold or silver or other items at all. They simply provide a cash market where risks are laid off. Yes, physical dealers in gold and silver may well use the market to ‘hedge’ opposing real physical positions so that they don’t face a price risk and yes, traders o[or gamblers] use the market to take leverages speculative positions that are in now way backed by the ophysical possession of the metals.
Gold Forecaster gives the Fundamental and Technical reasons behind the gold price in their weekly newsletter. Subscribe through www.GoldForecaster.com
For Private Consultations with Julian D.W. Phillips directly please, contact him on [email protected] or subscribe to the newsletter to see the instructions prior to the consultation.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
