WHERE IS ALL THE GOLD AND SILVER GOING?
Did you know that more silver has been taken off the COMEX exchange in one year than the past 10 years combined?
And more gold has been taken off the COMEX than what the bank of Japan owns entirely. That’s about 845 TONNES!
You may already know that the Comex is the global market for trading in futures contracts. They allow parties to either go long or short. In other words, to sell or buy at future prices with a paper contract.
To trade a contract the investor puts up a small amount of money to control a large amount of product, whether that is gold, silver, oil or many other items.
Usually, paper contracts are bought and sold as speculation or to offset other positions.
For example. If you owned a gold mine and you have a good idea how much gold you will produce in a given period, you can “lock in" that price so that you know what your profit is. Let’s say you want to lock in your sale of 1000 oz of gold, but you have not mined it yet. You can sell a contract for a future date and lock in your price. When you actually mine the gold you sell the gold and buy back the contract. So, whether gold goes up or down your price is locked in. I know it’s a little confusing. But it is crucial for many businesses to control costs and profits. Speculators will buy or sell contracts hoping to make money if the product goes up or down. The advantage is you only put up a small amount of money instead of paying full price up front. Typically, if you win or lose you simply liquidate your contract and settle your gain or loss in cash.
Lately people have been using contracts to take delivery of gold and silver instead of just cashing out. This is not what normally happens, although when you buy a contract it is technically for future delivery of the product (gold or silver in my example) at a previously agreed upon price.
Naturally the Exchange does not have enough gold and silver to deliver on every contract. It operates similarly to the banking system. They know they are not likely to need all the gold at any one time. Just like your bank doesn’t really have everyone’s money to give back if everyone wanted their money.
See a correlation?
Banks are failing because too many people want their money.
What happens when the Comex can’t deliver enough gold or silver? The price will go through the roof.
If any of you remember the huge run-on silver in 1980 you may be familiar with the consequences of people taking delivery.
Back in 1979-1980 the Hunt Brothers were attempting to corner the silver market by taking delivery of as much as they could get. Silver went from about $6 per ounce in Jan 1979 to $50 an oz in January of 1980.
Of course, some of the increase was due to the inflation of Jimmy Carter but the bulk of the rise was due to shortages of physical silver.
The past two years we have had sporadic shortages of physical gold and silver. Right now we are seeing small delays. Many silver coins and bars are taking 2-4 weeks for delivery and some gold products are taking a week or two.
It makes sense for big money buyers to be depleting the Comex.
It’s a dangerous situation and if it should continue it will lead to shortages and much higher prices.
Demand for physical gold and silver has been much higher over the past couple years from individual investors, while the Central banks across the globe are on a gold buying spree.
This is just one reason that I believe everyone should be putting away some more gold or silver while its readily available. I will go into other reasons next week.
And there are quite a few.
- Nick Grovich