Sparky
21st May 2013, 11:01 AM
Usually my eyes glass over when I read posts about Comex defaults, because 1) it seems that Comex is always about to default, and 2) it seems that very few people here really understand how Comex works, e.g. what does it mean for inventory to be qualified, allocated, registered, etc.
However, this article actually shed some light for me. The bottom line is that Comex can usually get away with light inventory as long as there is a steady flow of physical through Comex. In essence, this gives them flexibility with how the inventory is allocated at any given time. Miner hedging provides this physical flow, because this represents a steady physical flow into Comex that can be counted on, regardless of what speculators and investors are doing.
The article points out that miner hedging has decreased significantly (about 85%) since the last time there was a paper-physical disparity. This means much less reliable inflow to juggle to fill gaps. At the same time, requests for delivery in May are up about 10x compared to a normal May. However, May tends to be a low delivery month, so the net impact has not been dramatic. Typical deliveries start to ramp up in June, so if this unusual rate of delivery were to continue during the heavier contract months, it would start to take on more significance.
The last paragraph has two interesting quotes that should please the GSUS crowd:
"With inventories quite low and producer supply at a trickle, investors should avoid all paper gold markets such as the Comex and even the GLD."
"The various individual advanced stage stocks represented by the GDXJ are at extreme deep value, as is the GDX."
As for the latter comment, "deep value" means that these mining companies hold a lot of tangible assets compared to their liabilities, regardless of whether they are good companies or not, yet these assets are being undervalued in terms of stock price. It's like saying the price of the stock is low compared to their book value, regardless of their future prospects for creating new revenue.
http://seekingalpha.com/article/1449881-is-a-force-majeure-of-the-comex-paper-market-really-just-a-tinfoil-hat-theory?source=yahoo
However, this article actually shed some light for me. The bottom line is that Comex can usually get away with light inventory as long as there is a steady flow of physical through Comex. In essence, this gives them flexibility with how the inventory is allocated at any given time. Miner hedging provides this physical flow, because this represents a steady physical flow into Comex that can be counted on, regardless of what speculators and investors are doing.
The article points out that miner hedging has decreased significantly (about 85%) since the last time there was a paper-physical disparity. This means much less reliable inflow to juggle to fill gaps. At the same time, requests for delivery in May are up about 10x compared to a normal May. However, May tends to be a low delivery month, so the net impact has not been dramatic. Typical deliveries start to ramp up in June, so if this unusual rate of delivery were to continue during the heavier contract months, it would start to take on more significance.
The last paragraph has two interesting quotes that should please the GSUS crowd:
"With inventories quite low and producer supply at a trickle, investors should avoid all paper gold markets such as the Comex and even the GLD."
"The various individual advanced stage stocks represented by the GDXJ are at extreme deep value, as is the GDX."
As for the latter comment, "deep value" means that these mining companies hold a lot of tangible assets compared to their liabilities, regardless of whether they are good companies or not, yet these assets are being undervalued in terms of stock price. It's like saying the price of the stock is low compared to their book value, regardless of their future prospects for creating new revenue.
http://seekingalpha.com/article/1449881-is-a-force-majeure-of-the-comex-paper-market-really-just-a-tinfoil-hat-theory?source=yahoo