It's a very good question. I'm not an expert here, but as I understand it, as long as investors have confidence in the system, a falling spot price provides a financial incentive for folks to roll over their contracts instead of redeeming them.
The big story I'm following that seems to be quietly transpiring behind the scenes is that of JP Morgan's COMEX registered gold depletion. The depletion rate has accelerating tremendously since the price crash, and at the current rate of depletion they will have no registered gold left IN LESS THAN TWO WEEKS!
Specifically, JP Morgans supply of COMEX registered gold has declined by 36% since last Thursday, from 1.34 million ounces to 0.86 million. They obviously do not have much, if any, gold available for delivery, whether it is because the gold is already gone or they simply are not willing to part with what's left. What's going to happen if/when it's all gone is anyone's guess, but no gold available for delivery at COMEX seems like pretty big news to me.
As first reported here on April 9th, Comex gold inventories have been plummeting, demonstrating the highest levels of physical removal ever during a single quarter in Q1, 2013.
Most shocking however, is that Comex warehouse inventories are accelerating their downward plunge, with dropping inventories now spreading to the world’s largest fund depositories.
Over the last four weeks alone, total reported inventories of ETFs, funds, and depositories collapsed by over 5.5 million ounces, or in dollar terms, by over $7,000,000,000 dollars.
The largest physical removals were reported by the Comex at about 1.4 million ounces, or nearly $2 billion dollars, and the GLD, which reported total inventory removal of nearly 4 million ounces, or roughly over $5.6 billion dollars.
Here is a chart illustrating the continued gold inventory plunge at Comex warehouses ...
What many may not know, is that while registered Comex gold has been flat, the amount of eligible gold in Comex warehouses (the distinction between eligible and registered gold can be found here) in the past several weeks has plunged from nearly 9 million ounces, to just 6.1 million ounces as of today- the lowest since mid-2009.
What nobody knows, is why virtually the entire move in warehoused eligible gold is driven exclusively by one firm: JPMorgan, whose eligible gold has collapse from just under 2 million ounces as of the end of 2012 to a nearly record low 402,374 ounces as of today, a drop of 20% in one day, though slightly higher compared to the recent record low hit on April 5 when JPM warehoused commercial gold touched a post-vault reopening low of just over 4 tons, or 142,700 ounces.
This happened just days ahead of the biggest ever one-day gold slam down in history.
More: http://www.zerohedge.com/news/2013-04-25/jpmorgans-eligible-gold-plummets-65-24-hours-all-time-low... checking every five minutes for the Comex gold depository update for April 25. Moments ago we finally got it, and it's a doozy. Because in just the past 24 hours, from April 24 to April 25, according to the Comex, JPM's eligible gold plunged from 402.4K ounces to just 141.6K ounces, a drop of 65% in 24 hours,and the lowest amount of eligible gold held at the vault on record, since its reopening in October 2010!
http://www.zerohedge.com/news/2013-04-26/jpmorgan-accounts-993-comex-gold-sales-last-three-monthsTotal Net gold deliveries Feb 1 to April 25:
Vision Financial – 1 contract
R J O’Brien – 2
ADM Investor Services INC – 2
Marex – 5
Citigroup Global Markets – 10
ABN AMRO – 110
JP Morgan – 19,660
For gold, perhaps. Silver appears to be the opposite situation:Seems like it's only JPM's inventory dropping. The other firms inventories are rather stable. ...
More (incl charts): https://countdowntozerotimegoldnews...tories-withdrawn-from-comex-vaults-in-2-days/...
30% OF CNT SILVER INVENTORIES WITHDRAWN FROM COMEX VAULTS IN 2 DAYS!
Brinks’, CNT, Delaware, HSBC, & Scotia (every vault except JPM) all saw significant physical withdrawals, as a massive 2.7 million ounces of physical metal fled COMEX depositories.
http://www.goldchat.blogspot.com/2013/04/comex-stock-drawdown-single-most.htmlBron Suchecki said:To understand what is going on with COMEX stocks, don't look at the stock level - it will lead you astray. You need the metric I presented at the Gold Standard Institute's 2009 seminar; one which Professor Fekete thought was the single most important metric to determine stress in the market. ...
... The important metric is to compare stocks in relation to open interest. If stocks decline but open interest declines as well, then the stock drop is to be expected.
Thankfully Nick at Sharelynx calculates this for us - what he calls Owners per Ounce, or Stocks Cover and you can find the charts here. It is just open interest in ounces divided by stock in ounces. I like to invert it, which gives you a percentage indicating how much of the open interest is backed by stock, a sort of fractional reserves figure. The table below has those approximate figures I've eyeballed from Nick's charts.
Year Gold Silver
1980 13% 10%
2001 9% 28%
2012 26% 22%
Now 19% 21%
So even after that COMEX stock drop in gold, we still have a coverage ratio that is way above that which applied in the 1980 bull and which is not down much on 2012. The current coverage of around 20% also needs to be kept in context of the percentage of open interest which stands for delivery, which for gold and silver over the past five years averages between 2% to 4%. So it looks like COMEX has plenty of stock on a historical basis. It is when that percentage coverage gets a lot closer to the average standing for delivery rate that we can consider COMEX under stress and at risk of cash settlement. We aren't close, no matter how the much the pumper sites like to hype the recent stock declines.
More: http://www.zerohedge.com/news/2013-04-29/jpm-reclassifies-another-47k-ounces-gold-eligible... JPM decided to do some more redefinition, and converted another 4.7k ounces of gold from registered into eligible, pushing up the total by a fractional amount to 163.8k ounces, still just a hair's breath away from the all time record low reported last Thursday.
And as a tangent, it is perhaps just as notable that HSBC just saw 76K ounces of its registered gold, or 17% of the total gold stored underneath Bryant Park, exit through the front door, destination unknown, leaving just 378K ounces of registered gold ...
"My buddy in NYC just called me. He was chatting with a high level relationship manager in a big bullion bank private wealth management area. It's a pretty small-knit community. This guy worked at JPM until about 6 months ago and now works at another Euro-based bullion bank (there's only a few).
He (my friends contact) said that there's a massive scramble going on in Europe right now by very wealthy families and individuals to get their 400 oz. bars OUT of the bank vaults. He said "imagine a very wealthy Swiss family walks into a JPM office and says 'Id like to take my $30 million in gold bars out of your bank and if you don't let me do that I'll move my $100's of millions you manage somewhere else.'" Apparently this scenario is going on en masse. In fact, he said not too long ago JPM sent around a notice to wealthy clients that their bars were safe in a segregated vault account at JPM.
He said everyone is aware of what's going with the paper vs. physical scheme and now these wealthy entities are doing what they can to get their physical bars out of the bullion bank vaults. It certainly explains the drain in "eligible" gold from the Comex, most of coming from JPM's vault.
He also said that he suspects - although he can't confirm - that someone like a John Paulson held a gun to GLD's head to get their gold out of GLD. That's part of the bar drain from GLD. He can't confirm it was Paulson specifically, but Paulson is a private bank client of JPM's. JPM is also Paulson's main hedge fund prime broker."
I know a guy that makes a living as a middle man between commodity produces and buyers. He has been approached by southern European buyers, who represented very wealthy Italians and Spanairds, that told him they would buy any amount of gold he could source. They were also willing to provide a private plane to move the gold from any where on the planet to Europe for free!The below is a comment I read under a subsequent ZH article but obviously I have no idea how credible this is.
'DavidPierre' wrote this in the comments section of the article
More (incl. pics): http://www.tfmetalsreport.com/blog/4684/bear-market-goldOn 1/2/13, the GLD showed an alleged "inventory" of 1,349.92 metric tonnes of gold. As of this evening, the GLD "inventory" is listed as 1,078.54 metric tonnes following another drawdown today, this time for 2.10 tonnes.
So, year-to-date, the GLD "inventory" is now down 20.1%...thus the title of this post. What does this mean? How much gold is this? At what rate is gold exiting the GLD? Here are some random bullet points:
So, let's have some fun and attempt to put all of this into context. Again, the GLD has now shed 271.38 metric tonnes in just the first four months of 2013. This is:
- Down over 20% means that for every 5 bars that the GLD allegedly held 4 months ago, it now holds only four.
- GLD has shed 271.38 metric tonnes YTD, that's about as much as the entire holdings of Austria and more than the combined holdings of Brazil, Denmark, Australia and Indonesia. http://en.wikipedia.org/wiki/Gold_reserve
- Using the same source as above, even after this 20% decline YTD, the GLD still holds as much gold as the country of Switzerland. Rrrrright....uh-huh....
- It took over two months for the GLD lose it's first 100 tonnes for 2013. The "inventory" fell to 1,243.05 on March 7.
- It then took just six weeks to lose the next 100 tonnes, reaching 1,145.92 on April 16.
- Three weeks ago tonight, just days before the massive, two-day beatdown of paper price, the "inventory" stood at 1,200.37. Again, this evening, it stands at 1,078.54. That's nearly 122 metric tonnes (over 10% or roughly the size of the total holdings of Mexico) in just the past three weeks alone.
- In contrast, the SLV has seen its "inventory" rise YTD. It began 2013 at 10,084.96 metric tonnes. As of this evening, it allegedly holds 10,407.44. Up 3% since the first of the year. Now Bob Pissonme would have you believe that the drop in GLD "inventory" is related to simple investor liquidation and re-allocation. If that's the case, how do explain this change in the SLV? <crickets>
- 8,725,069 troy ounces OR
- 21,813 London "good delivery" bars OR
- If you stack those bars onto pallets holding 192 bars a piece, it looks like this:
http://www.reuters.com/article/2013/04/30/comex-gold-stocks-idUSL2N0DD2LE20130430Physical gold stocks held at CME Group's Comex warehouses in New York have dropped to a near-five year low in a further sign that gold's price crash unleashed a frenzy of demand as investors scramble to buy bars and coins.
U.S. gold stocks, comprised of 100-troy ounce COMEX gold bars, have fallen almost 30 percent since February, as dealers have switched to selling into the burgeoning Asian market, where prices and demand are higher than in New York.
"Some investors feel much safer having gold within their reach and their hands," said Jonathan Potts, managing director of Delaware Depository, a CME-approved silver warehouse which also holds gold and other precious metals for investors.
Total gold stocks held at CME's COMEX warehouses, often viewed as a gauge for physical supply and demand, fell almost 30 percent to around 8 million ounces on Friday, their lowest level since July 2008, from this year's high of nearly 11 million ounces in mid-February, CME data showed.
The strength of physical retail buying has taken dealers and mints around the world by surprise, leaving them struggling to keep up with demand.
Potts said that Delaware Depository, based in Wilmington, Delaware, has so far this year delivered about $500 million worth of physical precious metals, or about 340,000 ounces of gold, a jump of 10 percent from the same period last year.
Comex stocks had fallen since February on buying by affluent Asian investors.
U.S. export data for December showed an exodus of privately owned gold from the United States into emerging economic powers, such as China, which analysts attributed to a growing number of gold vaults and new precious metals investment products, particularly exchange-traded funds.
Pressure on Comex futures in recent months, as speculative investors have grown more bearish, have also spurred some U.S. banks and traders to sell bullion in Asia, where demand is better. U.S. COMEX futures had fallen 21 percent to $1,320 an ounce on April 16 from the 2011 year-end prices.
Implied gold lease rates, seen as bullion's premium calculated by subtracting the London interbank offered rates (LIBOR) from the gold forward offered rates (GOFO), had turned positive since February.
GOFO are the rates at which bullion banks are prepared to lend gold on a swap against U.S. dollars.
Since gold's cost of carry is negative in the United States, analysts say, it is profitable for dealers to take up Comex stock, remelt the bars into the correct specification and sell it to markets in Asia or Europe where physical gold demand exceeds that in the United States.
We had huge activity at the gold vaults.
The dealer had 0 deposits and 0 dealer withdrawals.
We had 0 customer deposits today:
total customer deposit: nil oz
We had 2 customer withdrawals:
i) Out of Scotia: 128,099.009 oz
ii) Out of Brinks: 64.18
total withdrawal: 128,163.18 oz
We had 1 big adjustments
1. From the Scotia vault: 44,243.633 oz was adjusted out of the dealer and back into the customer account.
Thus the dealer inventory rests tonight at 2.103 million oz (65.41) tonnes of gold.
The total of all gold declines again at the comex and this time breaking below 8 million oz as it rests at 8.000 million oz or 248.8 tonnes.