Comex Vault Almost Empty as Gold Price Reaches 3 Month High

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gold bullion

When the Federal Reserve decided to raise interest rates last December, the experts were convinced that precious metals were going to take a beating. At first glance, that notion seemed to make sense. After all, a higher interest rate should lower inflation and motivate people to keep their dollars in the bank, neither of which would be good for the price of gold.

What these so-called experts didn’t consider, is that our whole economy hinges on easy money. All the economic growth we’ve seen over the past few years has been fueled by monetary expansion, so once the Fed raised rates, the easy money stopped being so easy, and our bubble economy started to deflate. We’re just now seeing the initial results of this decision, with the recent plummet of the stock market and the implosion of junk bonds.

That of course means investors are starting to look for safe haven assets. With the looming threat of another recession on the horizon, gold is making a comeback. By Monday the price rose to a two month high, and by Tuesday it had reached a three-month high of $1120 per ounce. There’s a good chance that another gold rally is in the works, provided the stock market continues to fall, and the economy takes a nosedive in the months ahead.

Unlike previous rallies however, there is an ongoing crisis at Comex pertaining to the amount of real gold the vault holds. In September, the number of paper contracts per ounce of physical gold had risen precipitously to 252. According to ZeroHedge, that ratio has since more than doubled.

As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.

comex vault

To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold’s owner.

Still, the reality that there are just two tons of gold to satisfy delivery requests based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.

We’re officially in uncharted waters here. At this rate, there won’t be any deliverable gold left in the vault by the end of the year, which has never happened before. Comex is one of several vaults that determine the spot price of gold, so what happens when they finally run out? Will the spot price of gold plummet while the value of real gold goes in the opposite direction? Will the next rally favor paper gold, allowing the Comex vault to restock their dwindling supplies? Or will any of the owners of paper gold even notice that nothing real is backing their portfolio?

Stay tuned. When the next gold rally arrives, it’s going to be interesting to say the least.

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Contributed by Joshua Krause of The Daily Sheeple.

Joshua Krause is a reporter, writer and researcher at The Daily Sheeple. He was born and raised in the Bay Area and is a freelance writer and author. You can follow Joshua’s reports at Facebook or on his personal Twitter. Joshua’s website is Strange Danger .

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  • Nexusfast123

    Does anyone know how much gold is in Fort Knox?

    • lloyd Lisco

      Nexusfast123, To answer your question NONE. During the Bush senior and the Clinton administrations They cleaned out fort Knox. These criminals had Tungsten blocks machined to the appropriate size, These blocks were Magnetically levitated in molds and molten gold poured into the molds, Encapsulating the tungsten with a thin gold plate. Tungsten weigh same as gold, The appropriate serial numbers were stamped into these phony ingots and they were trucked to fort Knox and replaced the real gold, This bank heist took about twenty years to pull off. The chinese were paid with some of these phony bars and discovered what had been done, They blew the whistle. The U.S. news media covered this up. Type in appropriate words, The facts are on the web. Once again we have been robbed by government.

  • frankw

    Paper gold = fantasy gold. Its not yours if you can’t hold it in your hands.

  • Eric Blake

    Can you imagine if the Bank of China bought a bunch of futures contracts via a proxy and then decided to take full delivery all at once?

  • doodaa

    “A fool and his money….”.

  • none

    Obviously enough for Mr Obama”s vacations.

  • T.j. Thomas

    It’s always revealing to watch what people do versus what they say. After the housing crash, wealthy investors were still buying up land because “land will always have value” – and yet they constantly try to discourage people at large from buying gold and silver, despite the fact that these will always have value too.

    The key phrase here is “people at large”. Most people can’t invest in land unless they’re living in a house on top of it, but many more people can buy gold and even more can buy silver. They’re not worried about us buying freedom with land, but the thought of the masses securing precious metals terrifies them.