http://news.coinupdate.com/is-the-comex-manipulating-gold-margins-to-mask-silver-supply-deficits/Is The COMEX Manipulating Gold Margins To Mask Silver
June 17, 2011 By Patrick A.
The COMEX has just dropped the minimum margin requirement
for gold contracts to $6,075 from its former $6,751 minimum. This move does not
make economic sense as the price of gold is now within 2% of its all-time high
The lower margin requirement also does not make sense when compared to the
COMEX margin requirements for silver contracts. With the lower margin
requirements it is now possible to control more than $25 worth of gold for every
$1 of margin put down on a gold contract. In contrast, the silver contract
minimum margin requirements are much higher. At today’s closing silver price,
investors could only control up to $8.30 of silver for every $1 of margin put
down on a silver contract.
You have to remember that common sense and consistency aren’t the only
factors that the COMEX considers when setting these requirements. Could it be
that the COMEX is trying to lure speculators and investors away from the silver
market by offering them greater margin opportunities in the gold market?
Think about it for a minute. By the end of this month, the next round of
COMEX silver options will expire and the first day of notice for delivery of
July 2011 silver contracts will occur. Both of these events could trigger
strong demand that could seriously deplete COMEX registered silver
On June 16, 2010, the COMEX had 119.5 million ounces of total silver in its
bonded warehouses. Since then, there has been a steady outflow of silver from
these warehouses, especially of the registered silver that is available to
fulfill contract deliveries. Early this week, total COMEX silver inventories
had fallen below 99 million ounces, a decline of more than 17% in the past
year. Even more important, the quantity of inventories that were registered had
fallen to record low levels below 30 million ounces! The remaining COMEX
inventories are “eligible” which means that that they are owned by investors who
are simply storing the silver in COMEX warehouses. Eligible inventories cannot
be used to fulfill COMEX contracts unless the individual owners choose to make
them available for that purpose.
When the March and May 2011 COMEX silver contracts matured, a significant
percentage of them were settled for cash, as is permitted under COMEX rules.
However, the cash prices that contract owners received were at levels reported
to be as much as 30% higher than the prevailing spot prices! Looking back at
when the December 2010 COMEX silver contracts matured, it appears there may have
been a larger than normal percentage of contracts that were settled for
The sellers of COMEX contracts obviously would not be willing to pay up to
30% above the spot price to settle their liability for cash if they had the
alternative of simply delivering physical silver. The fact that comparatively
little silver is being removed from COMEX registered inventories to fulfill
maturing contracts is a significant indicator of a major physical supply
I don’t know if the COMEX reduced gold margin requirements in order to draw
some leveraged investors away from holding maturing silver options and commodity
contracts. The timing is definitely suspicious.
Today was not a good day for the US government on multiple fronts. The
unofficial Misery index, which adds the Bureau of Labor Statistics official
figures for unemployment and the rise in consumer prices stands at 12.7, which
is the highest figure since 1983! From June 1993 through May 2008, the Misery
index had been below 10. This index has been continuously above 10 since
The news got worse from there. At the International Monetary Fund press
conference in Sᾶo Paulo, Brazil the United States was lumped with Greece,
Ireland, and Japan as being the countries most in need of restoring their public
finances to reasonable debt levels.
In a recent Bloomberg interview, former Federal Reserve Chair Alan Greenspan
warned that a default by the Greek government could push the US back into a
recession. He further said that, “chances of Greece not defaulting are very
small.” He further emphasized the risk by saying that the risk of a Greek
default was now “so high that you almost have to say there’s no way out.”
Today, Germany and France put together another bailout package for the Greek
government. There is widespread fear that Greece may default on its debt and
start a domino effect of defaults much worse than experienced when Lehman
Brothers collapsed in 2008. In the commercial market, Greek companies are
already paying 27% interest for 2-year loans, which is a rate so high that it
almost assumes that a government default is inevitable. Today’s bailout package
did not cure the problem of the Greek government spending beyond its means.
Instead, dealing with the debt problem has been pushed a few months into the
If Greece goes into default, there is a very real risk that Ireland, Italy,
Spain, Portugal, California, New York, and Illinois, to mention only a few,
could themselves quickly begin defaulting on their debts.
As I have been suggesting all along, to protect yourself you might want get
rid of some of your fiat currencies to increase your holdings of physical gold
and silver, the only forms of money that have never failed.Patrick A. Heller owns Liberty Coin Service in
Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering
rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold
market commentator for Numismatic News. Past columns online at http://numismaster.com/ under
“News & Articles”.
His bimonthly columns on collectibles can also be
read at http://www.lansingbusinessmonthly.com
under “Articles” and
“Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So,
And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings
on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and
text archives posted at http://www.1320wils.com.