The CME announced today a case of "force majeure" regarding one of its physical gold storage facilities, Mantra, Tordella & Brookes (NYSE:MTB), managed for the COMEX, located in the southern part of New York City, in an area that was inundated during the storm known as Sandy. MTB's warehouses were holding 29,276 ounces of gold for the COMEX as of November 23, 2012.
A case of force majeure is a clause in a contract that authorizes the parties to renege on their obligations in extreme cases, in this case the non-delivery of physical gold due to a storm and water damages.
As explained by Hardinvestor.net and Silverdoctor.com, this case of force majeure, curiously, is happening on the greatest deadline of the year for the COMEX: the physical delivery of gold for the December 2012 contracts. So, for holders of December 2012 contracts, physical delivery is jeopardized (although it is possible to get delivery via Brinks, but at a prohibitive cost). It may be just a coincidence, but more and more rumors abound pointing toward a massive scarcity of physical gold and silver.
Let's recall that GATA has stated for years, and they have proof, that for each ounce of gold in existence, a hundred ounces of "paper gold" have been sold on the markets. This position will become untenable should there be a massive demand from investors wanting to convert those contracts into physical gold.
The recent gold reserve repatriation requests from many countries (Venezuela, Germany, Austria, etc) reveal a growing worry (at the highest State level) about the materiality of those gold reserves that belong to the countries but are managed and held by the central banks (mainly the New York Fed and the BOE, the Bank of England).
Will the financial/banking sector be able to handle all delivery requests for physical gold and silver that it sold in the form of paper gold certificates if a massive demand materializes from holders of said paper certificates?
This global movement toward tangible assets will not reverse. The level of mistrust has risen to a point of no return, and the monetary policies leading to the destruction of the currencies' purchasing power are only aggravating this mistrust.
We shall soon know more, in the months to come, about an eventual delivery default or any convertibility problem into physical gold from the COMEX or another ETF issuer.
The recent LIBOR scandal should make us reflect on the sheer magnitude of all the manipulations the banking system has been able to realize up to this day. One should not exclude the reality of a fractional gold and silver market that functions only until delivery is requested.
In this context, investors must avoid all exposure to any counterparty default risk and hold their gold and silver in physical form and in their own name. Many indications are pointing toward massive scarcity of physical gold and silver, so invest and protect your wealth accordingly.
Disclosure: I am long physical gold and silver. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.