by Art Cashin
In his weekend note, my friend and fellow market veteran, Jim Brown, over at Option Investor posed the following puzzle:
Don’t look now but the physical gold shortage is growing. Everyone knows that JP Morgan is one of the biggest gold holders on the planet. They store gold for themselves and others. On Thursday JPM reported the single largest withdrawal in history at -321,500 ounces. Actually that was a tie with December 13th, 2012 when exactly 321,500 ounces were also withdrawn. Registered gold in JPM vaults has fallen to the lowest level in history at 87,000 ounces. Registered gold at all Comex warehouses has hit a new low at 400,000 ounces. Comex claims there is a huge 92 owners per registered ounce today. Registered ounces are available for delivery to settle futures contracts. In other words the registered ounces are all that is backing up the existing futures contracts. Since the majority of futures contracts are never held until the delivery date there are tens of thousands more contracts then actual gold. If everyone suddenly began demanding delivery of the gold referenced by the futures contracts we would be in serious trouble.
On January 17th there were roughly 500,000 registered ounces. At that time there were 111.6 owners per ounce. There are currently 41.309 million ounces being traded through futures contracts. This is “paper gold” not real gold. Where else but America could we be trading 41 million ounces of futures against 500,000 registered ounces? Obviously if only a fraction of the holders of those futures contracts began demanding delivery the price of gold would be much higher.
We are currently seeing all time lows in registered gold and all time highs in claims against that gold. What is wrong with this picture?