Crude Collapse Concerns COMEX
Comment of the Day

April 22 2020

Commentary by Eoin Treacy

Crude Collapse Concerns COMEX

This article by Craig Hemke for SprottMoney.com may be of interest to subscribers. Here is a section:

Consider now the potential for a diametrically opposite situation in COMEX gold. Why and how could this unfold?

COMEX gold also has "delivery month" contracts that serve as the "front month" for trading purposes until they go off the board and into delivery—at which time the trading volume rolls into the next scheduled month.
In delivery, anyone still long the contract can stand for delivery through the COMEX vaults in New York. (And now might also stand for fractional ownership of bullion bars in London, too.)
But global demand for physical gold outstrips supply at present, as many refineries, mines, and mints are closed worldwide due to Covid-19.
Thus, we are seeing a growing need/demand to hold COMEX contracts into delivery. For the current month of Apr20, total gold deliveries on COMEX exceed 3,000,000 ounces. This is more than 3X the usual demand for a "delivery month".
If an extreme shortage develops—or if any sort of "run" on the bullion bank fractional reserve system begins—demand for delivery through the COMEX and LBMA will soar.
Demand for the front/delivery month contract will surge. However, to buy a contract, you will also need a seller—someone interested in adding a short or selling an existing long.
And in this case, there may be NO SELLERS. Thus, what you may see is a true offerless market.
The potential result? The exact opposite of what you witnessed Monday in NYMEX crude oil.

Could this opposite scenario actually play out in COMEX gold? You may be reluctant to say yes, as this type of situation would seem unlikely and unprecedented. However, prior to Monday, April 20, the idea of negative pricing for the world's most important commodity was similarly unlikely and unprecedented.

Eoin Treacy's view

The US Oil Fund ETF’s predictable roll schedule which has been gamed by hedge funds for years is the primary reason the April WTI crude oil contract hit -$40 this week. To the best of my knowledge there is no corresponding fund that is rolling over futures contracts in gold on a predictable basis. The vast majority of ETFs investors buy for gold exposure hold physical metal rather than futures.

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