RED ALERT:- Germans raid COMEX!!!!!!

[Mega]

Am i reading this right?
Is it right?
Can you check?
http://www.cmegroup.com/trading/ener...s/delivery.pdf

Mike

[idianov]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Mike,

It looks like DB offered to deliver 8.5K contracts (850,000 oz) to other counter parties with JPM and BNS accepting the big chunk of the tender. My best guess would be JPM and BNS are borrowing gold for sale.

Igor

[*T*]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Am i reading this right?
Is it right?
Can you check?
http://www.cmegroup.com/trading/ener...s/delivery.pdf

Mike

Where did you get this? What is the contract on?

[Sharky]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Where did you get this? What is the contract on?

What you were looking at is the COMEX daily delivery notices for the April 2009 contract, as linked from the following page:

http://www.cmegroup.com/trading/ener...y-reports.html

under "COMEX Daily Delivery Notice."

The report shows gold (GC), silver (SI) and copper (HG). The contract size for gold is 100 ounces, as shown here:

http://www.nymex.com/GC_spec.aspx

The "DEL" column in the report shows the amount to be tendered to (DELivered to) COMEX. The "ACC" column shows the amount ACCepted. DEL are the sellers, ACC are the buyers. So Deutsche Bank is a big seller of gold this month, and the Bank of Nova Scotia and JP Morgan were big "buyers".

ScotiaMocatta, which is a division of the Bank of Nova Scotia, operates one of the authorized COMEX warehouses.

And JP Morgan is a Bullion Bank. You know how gold leasing works, right??

[Diarmuid]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Couple of questions if someone would be so kind to answer

Are these figures out of the ordinary when compared to "normal" monthly trading?

If not is this a smoking gun for some major gold price suppression as outlined by the folks at GATA?

If the answer to both of the above is yes - what major movements in the financial market would such a price suppression hide?

Cheers

Diarmuid

[Sharky]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Are these figures out of the ordinary when compared to "normal" monthly trading?

They're high, but not unprecedented. IIRC, Dec 2008 was around the same level.

If not is this a smoking gun for some major gold price suppression as outlined by the folks at GATA?

GATA has many, many smoking guns already. They've done a really good job of proving their case. It doesn't seem like this month's info adds much.

[CanuckinTX]

Re: RED ALERT:- Germans raid COMEX!!!!!!

You know how gold leasing works, right??

Sorry if this is redundant for many others, but I've never understood how, or more importantly, why people lease gold. If you want to enlighten me or point me to a primer that would be appreciated.

[Sharky]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Sorry if this is redundant for many others, but I've never understood how, or more importantly, why people lease gold. If you want to enlighten me or point me to a primer that would be appreciated.

There are several different flavors of gold leasing, but here's one to give you an idea of how it works:

1. A central banks leases gold to a bullion bank for around 1% per year of it's then-current value. Why: it turns an otherwise static asset into an income-producing one.
2. The bullion bank sells the gold in the spot market, and takes the proceeds and invests them in "Treasuries". Why: to earn more than the 1% that they paid to lease the gold.
3. At the same time as the sale above, the bullion bank buys the gold back in the futures market, on margin. Why: to hedge their risk in the gold market over the term of the lease and the corresponding interest-bearing investment.
4. When the futures contract matures, the bullion bank can either take delivery of the gold, or roll the deal over and go again.

Example: today spot gold is at 931.20. Oct 2009 futures are at 938.00. Selling at spot and buying 6 months out costs about 0.7%. Add 0.5% to lease the gold, that's 1.2% total. If the bullion bank can earn more than that on Treasuries (or whatever), they have a profit.

In practice it's not quite that simple, of course, but that's the basic idea.

Of course in a market where T-Bills are paying under 1%/yr, things start to get more interesting....

[halcyon]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Am i reading this right?
Is it right?
Can you check?
http://www.cmegroup.com/trading/ener...s/delivery.pdf

Mike

Can you translate into plaing English?

"Raiding Comex"?

What? How? On what level? I've been hearing these "Comex is going to default, buy spam! Get ammo!" hysterical screams for over a year now. Is this in the same category or something real?

BTW, this wouldn't happen to have anything to do with the fact that ECB unloaded 35.5t on the market?

As you can tell, I don't read the gold-bug sites.

[loweyecue]

Re: RED ALERT:- Germans raid COMEX!!!!!!

There are several different flavors of gold leasing, but here's one to give you an idea of how it works:

1. A central banks leases gold to a bullion bank for around 1% per year of it's then-current value. Why: it turns an otherwise static asset into an income-producing one.
2. The bullion bank sells the gold in the spot market, and takes the proceeds and invests them in "Treasuries". Why: to earn more than the 1% that they paid to lease the gold.
3. At the same time as the sale above, the bullion bank buys the gold back in the futures market, on margin. Why: to hedge their risk in the gold market over the term of the lease and the corresponding interest-bearing investment.
4. When the futures contract matures, the bullion bank can either take delivery of the gold, or roll the deal over and go again.

Example: today spot gold is at 931.20. Oct 2009 futures are at 938.00. Selling at spot and buying 6 months out costs about 0.7%. Add 0.5% to lease the gold, that's 1.2% total. If the bullion bank can earn more than that on Treasuries (or whatever), they have a profit.

In practice it's not quite that simple, of course, but that's the basic idea.

Of course in a market where T-Bills are paying under 1%/yr, things start to get more interesting....

Thanks for a great explanation, sounds like the Yen Carry trade, except here they use gold instead of a foreign currency. Borrow at a lower rate, lend at a higher rate, same principle.

[halcyon]

Re: RED ALERT:- Germans raid COMEX!!!!!!

More fuel to the fire, fwiw:

Did the ECB Save COMEX from Gold Default
http://seekingalpha.com/article/1291...le_lb_articles

[Guest]

Re: RED ALERT:- Germans raid COMEX!!!!!!

What kept me from believing in runaway gold leasing for the longest time, was the awesome degree of stupidity required to engage in this activity on a systematic basis. The lack of awareness of what the mechanism would be, by which they would paint themselves into a corner - among purported "financial professionals". I kept thinking - "heck, if I'm smart enough not to get snared in an arbitrage scheme this rickety, these bankers who are far more versed in financial transactions than I am, must have avoided it with a ten foot barge pole, no?".

I could not bring myself to believe this was done, because when the spread between gold leasing and prevailing yields in acceptable abritraged alternative trades narrows to one or two percent, it simply is not worth the RISK. As you lease out increasing amounts, one tranche after another going forward in time, you begin to lean every more heavily on your futures contracts. This is supposed to be a conservative trade for a bank's core capital?

But I was hopelessly naive as to how tremblingly eager a bullion banker can get, in their gnawing hunger to squeeze some cash return from a "low risk reserve asset".

The bullion bankers who dribbled this central bank gold out to the retail market, and grew their positions more, and more and more and more - and rolled over the hedging contracts figuring they could buy the whole lot back "when they chose" - these people reside in banks, and are "financial professionals" but it is sometimes difficult to distinguish their grasp of the "risk thingy" from the serial real estate speculator who loaded up with ten properties within the space of 3 years in the housing boom and then reacted with shock at the propensity of his "holdings" to magnify his losses when the markets turned.

The bullion banks leasing out this "notional gold" are some of the biggest twits out there. And yet when the knot tightens and these banks feel the squeeze, I have no doubt the governments will collude to rescue them all from this colossally stupid activity. Meanwhile they turn around and impose "vat taxes" and "capital gains taxes" verging on 40% for any taxpayer citizen who choses to patiently hold fully bought positions for five or ten years. Makes one's blood boil.

There are several different flavors of gold leasing, but here's one to give you an idea of how it works:

1. A central banks leases gold to a bullion bank for around 1% per year of it's then-current value. Why: it turns an otherwise static asset into an income-producing one.
2. The bullion bank sells the gold in the spot market, and takes the proceeds and invests them in "Treasuries". Why: to earn more than the 1% that they paid to lease the gold.
3. At the same time as the sale above, the bullion bank buys the gold back in the futures market, on margin. Why: to hedge their risk in the gold market over the term of the lease and the corresponding interest-bearing investment.
4. When the futures contract matures, the bullion bank can either take delivery of the gold, or roll the deal over and go again.

Example: today spot gold is at 931.20. Oct 2009 futures are at 938.00. Selling at spot and buying 6 months out costs about 0.7%. Add 0.5% to lease the gold, that's 1.2% total. If the bullion bank can earn more than that on Treasuries (or whatever), they have a profit.

In practice it's not quite that simple, of course, but that's the basic idea.

Of course in a market where T-Bills are paying under 1%/yr, things start to get more interesting....

[Sharky]

Re: RED ALERT:- Germans raid COMEX!!!!!!

I could not bring myself to believe this was done, because when the spread between gold leasing and prevailing yields in acceptable abritraged alternative trades narrows to one or two percent, it simply is not worth the RISK. As you lease out increasing amounts, one tranche after another going forward in time, you begin to lean every more heavily on your futures contracts. This is supposed to be a conservative trade for a bank's core capital?

I think it's another symptom of the underlying problems that have infected the whole finance industry: confusing paper with actually holding an asset. Money, fractional reserve banking, stocks, bonds, CDS, MBS, Treasuries, you name it -- they are all just paper, and they all have counterparty risk.

In theory, one of the reasons CBs own gold in the first place is because it's free of counterparty risk -- it's supposed to be a backstop against an economic meltdown. But no, somehow they completely forgot that, and we end up with bullion leasing.

Well, the good news is that it can't last forever....

[ThePythonicCow]

Re: RED ALERT:- Germans raid COMEX!!!!!!

I think it's another symptom of the underlying problems that have infected the whole finance industry: confusing paper with actually holding an asset.

It's a symptom of managing to the numbers. Beleaguered managers who need to look good to ambitious executives will hire obedient twits to drive whatever can be assigned a numeric value in what ever direction is desired. Risks outside the tracked numbers are "off the screen."

This creates immense firms that are hugely successful so long as the circumstances stay within the envelope being modeled by those numbers. When the circumstances break outside that model, the big firms are under immense stress, and some of the smaller firms still driven by the seat of the pants of some crafty old farts are more likely to survive, even thrive.

Similarly, the huge dinosaurs did quite well, until some asteroid changed earth's climate too much for them, leaving an opening for small mammals.

[CanuckinTX]

Re: RED ALERT:- Germans raid COMEX!!!!!!

Thanks for the education Sharky!