ABG

Will COMEX Default on Gold and Silver?

I do not believe that COMEX will default. That is why I recommend that people buy gold and silver, for physical delivery there. I merely intend to explain why it will not happen even if, as appears obvious, the exchanges and CFTC have allowed the 90% cover rules to be violated. If you bother to read the article, you will learn that. In a worst case scenario, the exchange itself will be the counterparty.


On Dec 22 04:39 PM Donatella wrote:

> Having lived through every imaginable commodity scenario in my 30+
> years in the commodity business, I can say that the information listed
> above is confused. Sorry to say. It suggests that the onus of
> preventing defaults on physical deliveries on the commodity exchanges
> is in the hands of the CFTC. It is not. It is controlled by the
> exchanges themselves. It is incumbent upon the exchanges to use
> a series of measures to limit spot month positions when deliverable
> supplies are not available. I would suggest that you read the Delivery
> rules in the Exchange rulebook, posted on the CME website under COMEX.
> The rules are as follows. Sellers must have deliverable stocks in
> exchange liscensed warehouses the day prior to the delivery. If
> these are not available, the seller will be forced by the clearing
> member (financial institution which is a member of a clearing house).
> The exchanges responsibility is to prevent spot month futures positions
> from becoming so large in relation to the physical supply available
> for delivery that they will adjust the margin on positions as they
> get closer to delivery. In the past, the exchange (for platinum)
> has charged significantly over 100% of the value of the physical
> metal on futures positions in the spot month to prevent disruptive
> market conditions from taking place. Also, the clearing members
> (financial institutions which comprise the clearing house) are responsible
> for accepting clients and have stringent requirements for doing business
> with "speculators&q... and trade houses and are the ones which
> will be responsible for any defaults. It would be useful for you
> to read the rules on defaults and how the clearing house structure
> handles potential defaults. What clearing members do NOT want are
> clients which could potentially default on deliveries and will not
> deal with them having positions in the spot month if they do not
> have the material at hand. In the history of COMEX there was one
> default -- in the early 80s, Volume Investors, and the loss was made
> up by the clearing members, leaving all players on the exchange and
> every position whole. The exchange endured the Hunt mess, the 9/11
> attack (which left millions of ounces in the basement of the exchange
> in the Mocotta Metals warehouse facility ultimately intact.) Believe
> me, if you are looking for CDS or Subprime type cloak and dagger
> scenarios at the COMEX, believe me they have lived through everything
> and the checks and balances and transparency in this process is so
> clear that there is no way the precious metals Aramgeddon you describe
> would happen. They would charge 150-200% margin to eliminate large
> spot months positions first if the clearing members were reckless
> enough to take such business in the first place.