By Mac Slavo
Back in September Zero Hedge reported that something snapped in the COMEX market and all indicators suggest there was a relentless outflow in registered gold. At that time there were about 202,054 ounces of gold available for delivery. To put that into perspective, Craig Hemke of TF Metals Report points out that just earlier this year there were nearly one million registered ounces available.
What this likely means is that someone, somewhere is requesting that their paper holdings be converted into deliverable physical gold. All the while many a mainstream pundit has declared that gold is nothing but a relic of times past. Yet, despite its purported unpopularity, since the last time the COMEX snapped in September even more registered gold has disappeared.
As of December, notes Hemke in his latest interview with Crush The Street, we’ve hit an all-time low in registered physical metal at the COMEX which has in turn led to a massive amount of leverage.
We’re at an all time low of about 120,000 [ounces of registered holdings].
But yet the total open interest- the amount of paper contracts based upon that declining amount of physical metal – has stayed the same.
Now, there’s about 325 paper ounces for every one physical ounce backing it. In the past that number was always around 10-to-1 or 20-to-1.
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It’s another one of these data points that we follow that seems to indicate a global physical tightness.
In the full interview Hemke explains what this means for the gold market, as well as why the leverage in COMEX precious metals is significantly different than stock markets:
Though the physical tightness, low amount of registered gold at COMEX, and potential for panic in global markets is very real, Hemke takes care to mention that even though COMEX is leveraged to historically obscene levels, it doesn’t necessarily mean we’re going to see a meltdown in the next few days or weeks.
It does not indicate that the COMEX is going to fail tomorrow.
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I don’t know how far this ratio can be stretched. It’ll be interesting to see what the actual physical price is discovered to be once people actually begin demanding their physical metal.
Think of it as a game of musical chairs where there’s one chair representing an ounce of gold and there’s 325 people walking around that chair… they’re going to try to sit on it and pick up that ounce of gold should the music ever stop. And if the other 324 people that think they own gold all of a sudden realize “wait a second, I thought I owned gold.”
If all of a sudden they want to get their fill and they realize the world is just this gold pricing scheme with over-hypothication and over-leverage… when the world figures that out and the music stops so to speak, the price isn’t going to be $1075.
In coming years there is a real possibility that we will experience a monetary or market event. It may not happen tomorrow, as Hemke notes, but tomorrow will eventually come.
When it does and the music stops we should assume that The Powers That Be have lost control of the system (or let it detonate on purpose). Some analysts like Marc Faber, Martin Armstrong and Gerald Celente have suggested that in this air of panic gold prices could rocket to new levels as price discovery for real, deliverable metal is finally realized.
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You can read more from Mac Slavo at his site SHTFplan.com
I’m no economist, but it seems to me when the first paper ounce of gold was sold that didn’t have a corresponding ounce of real gold, a crime was committed.
Well didn’t Jesus throw the money lenders out of the temple?
The original “fractional banking” was devised after bankers who were using gold receipts issued to gold depositors in their banks discovered that on the average only about 1/10 of the gold on deposit was reclaimed.
These clever bankers realized that they could loan out gold receipts ( which was being used as paper currency) at 5% interest and lend out ten times more gold receipts than actual gold that they possessed and actually receive 50% interest on the actual gold they possessed. For years conservative fractional banking kept this 10/1 ratio of lending to actual deposits. But just before Leighman Bank collapsed, they were lending out over a 20/1 ratio which was the primary reason for their collapse. The leverage ratio of 325/1 of Comex indicates a very high probability of it’s soon to happen collapse also.
Lehman Brothers et al were not just lending out at 24:1, but sometimes 1000:1 and higher. Banker and insurer AIG claimed not to have broken the 12:1 fractional reserve banking guidelines, even when caught out.
In simple terms, AIG would have $10k in assets, and would call a business buddy and say, “Hey, we’ll lend you $120k, however, you must promise to deposit $100k into an account with us for a month.” The co-conspirator agreed, and with the new (fictitious) $100k in their bank as an “asset” (albeit one they created on paper), the bank could now lend out $1.2M.
They would then call a business buddy and say, “Hey, we’ll lend you $1.2M, however, you must promise to deposit $1M into an account with us for a month.” The conman agreed, and with the new (bullshit) $1M in the AIG bank as an “asset” (more bullshit), the bank could now lend out $12M.
This bullshit stacked upon bullshit continued, with AIG exponentially “doubling up” ten times over on the 12:1 ratio OVER SIXTY TIMES.
Is it any wonder that the US housing market rapidly accelerated and then collapsed? The gifting of NINJA loans and sub-prime mortgages to anyone with a pulse was a recipe for disaster.
When more money floods the system, and the “assets” to back it are illusory, there can only be one outcome. We saw it in the sub-prime crisis, the GFC and the Great Tulip Crash. The collapse will happen again. There’s a reason why the wise old Templar Knights set fractional reserve limits at 12:1. There’s a reason why it was unchanged for centuries. It works. When we go past it, out of short-sightedness, arrogance and greed, the whole system collapses.
Th e Nixon monetary policy is taking closer our tomorrow, the collapse of the US imperialism, when no longer the other countries loose confidence in the paper money printed in US, a real counterfait of gold. To trade US will have to pay in gold or be selfsufficient after defaulting the world with its Ponci scheme. Life is not going to be easybutI am sure that therewill be jobs –ful ltime jobs– for everyone. To escape the debt US will no longer exist and will be split in regions, as happened to the Union of Socialists Soviet Republic, leaving Russia with its debts. Maybe the sacrificial lamb will be California.