Atlanta Gold & Coin rarely published investor alerts at the time this article was written. The article said the company had raised potential investor concerns only a few times in its history. It nevertheless said readers should be made aware of what it characterized as a potentially serious situation in the gold futures market. Most of the information below, it explained, came from a then-recent Zerohedge article, with additional analysis offered to put the situation in perspective.
According to this article from Zerohedge.com, outstanding gold futures contracts, or aggregate gold interest, were roughly 43.5 million ounces when the article was published. Using the then-current spot price of $1,105 per ounce, the article put total outstanding-contract value at about $48 billion. It said COMEX had historically been leveraged approximately 19 to 1. On the article’s reasoning, an average amount of eligible gold available for physical-delivery requests would equal about 2.3 million ounces. Ideally, it said, outstanding futures would be fully backed by bullion; however, because the ratio had remained relatively steady at 19 to 1, it stated there had been little prior cause for concern.
At the time of original publication, the article described the following: The article said readers might be surprised that on or about August 3rd, COMEX had its lowest-ever eligible physical-delivery gold amount, at 351,000 ounces. It calculated that COMEX was then leveraged nearly 124 to 1, comparing that figure with technology companies during the Nasdaq bubble and ensuing late-1990’s crash. The article further reported that a recent large JP Morgan delivery had reduced its available physical-delivery holdings to less than 20,000 ounces. It said total COMEX bullion-bank delivery holdings consequently reached a record low of 202,000 ounces. Compared with aggregate gold interest of roughly 43.5 million ounces, the article expressed astonishment that the eligible-delivery portion of the futures market was leveraged 215 to 1. It characterized this as a house of cards that could collapse at any time.
The article acknowledged that selling while prices were down could be difficult, as it reported they were at publication. It framed the alternative as retaining existing shares and hoping the gold futures market would not collapse. It argued that the m0re people who learned of the then-current COMEX situation and its perceived risks, the more physical-delivery requests could follow. In the article’s view, that could lead COMEX to alter bullion settlement policies or possibly close altogether. It predicted that either outcome would drive down futures prices and create a major separation between gold futures pricing and physical bullion and coin prices. Under that scenario, the article expected gold coins, bullion, and their premiums to rise sharply.
Based on the preceding analysis, the original article strongly urged readers at publication to leave gold futures positions and move into physical gold coins and bullion. It stated a belief that COMEX would eventually close or restrict settlement of gold contracts through physical delivery.
