As long as gold remains in backwardation and COMEX inventories continue to fall the possibility of a COMEX default cannot be ruled out – especially as gold and silver bullion inventories are very small vis-a-vis possible capital allocations or foreign exchange diversification to gold in the coming weeks and months.
We believe that the sharp fall seen in emerging market currencies in recent weeks will lead to an increase in central bank demand for gold in order to buttress and support devaluing paper currencies.
COMEX gold inventories are down from 11.059 million ounces at the start of the year to 7.034 million ounces today. This is worth $9.66 billion at today’s prices meaning that a handful of billionaires or just one powerful creditor nation state with large foreign exchange reserves, such as Russia, could corner the COMEX gold market and cause a default.
