NYSE defaults on gold futures

[unixronin]

[...] if you bought a mini futures contract from an NYSE-Liffe clearing member, prior to December 31st, you could bind them to their legal contract with you, and force them to either deliver the 1 kg bar, or pay for you to obtain it on the open spot market.  Based upon the original wording, NYSE-Liffe and its clearing members are legally obligated to deliver that 1 kg bar per contract, whether they want to or not, and regardless of the internal rules of the exchange.

But there’s been so much demand for delivery on gold futures the NYSE is no longer able to deliver 1kg bars.  So they’re giving out “warehouse delivery receipts” instead.  IOUs by any other name.

And what’s worse, the WDRs are not redeemable for the contracted 1kg bar.  They’re redeemable for one third of a 100oz bar.  That means you need to gather three of them to get your gold bar.

Invested your savings in gold futures and could only afford two 1kg bars?  Looks like you’re fucked, at least for now.

[...]  Unlike the American exchanges, the 1 kg. bar dominates deliverable contracts, for example, on the Tokyo Commodities Exchange, as well as many other commodities exchanges around the world.  They were also the primary unit of the mini-gold contracts (YG), offered by NYSE-Liffe, prior to the technical default.  In other words, the retail gold shortage has spread into the wholesale market.  What’s next?  Will there be a shortage of 100 ounce bars?  No exchange rule can be used to hide from a technical default on delivery of 100 ounce bars.  But, vast numbers of 100 ounce bars are stored at the iShares COMEX gold trust (IAU).  So, a default in delivery of 100 ounce bars will take a while.

All that said, however, given that the Fed printing press is running overtime, things are going to get tighter. It will take only a few months of delivery percentages similar to those seen in December, 2008, before all the 100 ounce gold bars are gone.  What will the futures exchanges do?  Hand out little slips of paper entitling contract holders to a ¼ interests in 400 ounce banker’s bars?  There is no rule that allows that.  What happens when people start taking mass delivery of the 400 ounce bars?  Will they hand out fractional shares in gold mines, along with picks and shovels?

Comments

[ilcylic.livejournal.com]

Hurrah! I'll be looking for gold to spike tomorrow.

[mrmeval.livejournal.com]

I've told people the only way to invest in gold is to own it. Invest is not even the right word, it's more of a pretty solid storage medium for wealth. No matter how much ob0 prints, specie will retain value.

[lizzibabe.livejournal.com]

One of my credit union members was doing exactly that. he showed me that he keeps gold and silver bullion in his safety deposit box. normally I try to avoid knowing what's in a member's box for liability reasons, but we had got to talking about the assorted coinage we had collected, and he showed me.

[mrmeval.livejournal.com]

In real bad times US coinage will be good, silver and gold better though some do not know how to verify it's not fake.

Silver bars and bullion are much harder to convert to necessities so you go to a money changer and convert it to smaller coins. Yes, history runs in big stupid circles. ;)

[ithildae.livejournal.com]

I actually bet on Indium a while back. It doesn't shine like gold, but we are using it faster.

[mrmeval.livejournal.com]

Did you buy paper or the metal? I want a piece of the metal to bend it to see if it actually 'cries'.

[ithildae.livejournal.com]

I have the shiny stuff in my possession. They are certified pieces, so I don't really want to carve them up.

[metahacker.livejournal.com]

Haha. Hahahaha.

...I'm laughing at the people who argued with me that gold isn't a form of currency...