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No Gold in Warehouse?
By Patrick A. Heller
January 21, 2014

As of Jan. 10, 2014, the COMEX “registered” inventories of gold had fallen all the way down to about 420,000 troy ounces from 2.6 million ounces in early 2013. Registered inventories are the only ones that may be used to make delivery of physical metal upon maturity of a COMEX futures contract.

As of a Jan. 17, 2014, preliminary report, there were about 41.6 million ounces of open gold contracts for all future months on the COMEX. Out of this, approximately 15.5 million ounces are for the February 2014 contract that matures next week.

For the February 2013 futures contract maturity, about 1.25-1.3 million ounces of physical gold were held for delivery by the COMEX. If the same scenario plays out again in the next few weeks, where is the COMEX going to come up with enough physical gold or cash to settle such contracts?

From the maturing December 2013 COMEX gold futures, it appears (I have not yet seen confirming evidence) that the last 100,000 of contracts may have been settled for cash instead of delivery of the physical metal. Cash payment is a legal option for settling mature contracts. Either the gold or silver (or both) maturing COMEX futures contracts held for delivery may also be settled by transfer of the equivalent shares in exchange traded funds.

COMEX warehouses hold much more gold inventory than has been registered by dealers as being available to fulfill maturing contract deliveries. The COMEX warehouses report these other holdings as “eligible” inventory, of which there are currently more than 6 million ounces.

Eligible inventories are not available to fulfill delivery needs for maturing COMEX contracts unless the owner agrees to convert their holdings into the registered category. It is likely that some eligible inventories might be purchased by commodity brokers to reclassify as registered inventory to deliver against maturing February contracts that called for physical delivery.

However, I do not expect that enough owners of eligible gold inventory will part with their holdings unless they are paid a premium above the current spot price. So, expect that there will be a combination of physical gold delivered, cash payments, and perhaps, delivery of ETF shares for those who have sold February contracts to muddle through.

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Just because you own a COMEX gold futures contract does not mean you own physical gold. What you own is a paper contract. Even if you try to redeem it for physical metal at maturity, you are not guaranteed to receive settlement in this form.

At the rate of depletion of COMEX registered gold inventories, there is a significant prospect that remaining supplies could come close to zero in the next few weeks. If not, there are another 14 million ounces of COMEX gold futures contracts that mature in April that may well finish off the COMEX as a practical venue for trading gold.

I have warned in the past, if you want to make sure you own gold, only buy it in physical form. With people having difficulty redeeming their shares of gold ETFs for physical gold and the imminent depletion of COMEX gold inventories, you especially need to take prompt action to protect yourself.

Addendum to last week’s column:

In my table at the end of the column, I listed how precious metals prices and popular U.S. stock indices fared for the year ended Dec. 31, 2013, and for the 14 years ended the same date. This provided you some historical perspective. In addition to the data listed, I meant to include the U.S. Dollar Index track record. Here it is:

Change in U.S. Dollar Index for the year ended Dec. 31, 2013, +1.2 percent

Change in U.S. Dollar Index for the 14 years ended Dec. 31, 2013, -21.3 percent

I consider the U.S. Dollar Index to be biased toward overstating the value of the U.S. dollar compared to its share of world commerce. Even so, for the past 14 years the dollar has obviously not been healthy in comparison to other currencies.


Patrick A. Heller is the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Other commentaries are available at Coin Week and He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly.” His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing.


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