Watch the Chart- The Market is ALWAYS Right
The most important near term technical development for gold prices this week has seemingly gone unnoticed or at least uncommented by gold market analysts. COMEX gold prices have made a series of higher lows and higher highs.
After touching a low at $1,167.90 on June 4, COMEX gold at this writing is trading at $1181, up $14 since then. More importantly for a longer term indicator of the direction of gold prices, this pattern has emerged after gold closed at its 2014 low at $1,142 on November 5. This price has not been seen since April 2010. After that, gold prices moved steadily to the September 2011 high of $1,895.
For those of you who are not interested in the details, gold has made a five year low at $1,142 last November and is currently trading at $1,181, up $39 with solid support at $1,168.
The JP Morgan Bail Out of COMEX
Last week I wrote about the developing shortage of physical gold and the unprecedented shortfall of the COMEX physical gold inventory versus buyer demand for delivery:
“The COMEX does not have enough gold to meet its June delivery obligations. There are 375,000 registered ounces in COMEX warehouses against 550,000 ounces of required delivery claims. These delivery claims must be met with physical gold, not dollars or gold contracts. This is a shortfall of 175,000 ounces. There is not enough COMEX gold to meet the demand for physical delivery. A shortfall of this magnitude has never happened before in COMEX history.”
In the first week of June, JP Morgan deposited 177,000 ounces of gold in the COMEX to cover the 175,000 ounce shortfall. This leaves COMEX with 2,000 ounces of registered gold to cover incidental demand as always happens in delivery months. If you do the math (we do) this effectively, leaves the COMEX with no unclaimed gold in its warehouse. In other words, COMEX apparently now has no gold to back the gold futures contract market. Is anybody paying attention?
The bailout’s effect is to ensure that COMEX will continue to function as the primary price-setting venue in the world gold market. For now, at least the COMEX is a “too big to fail” institution.
In gross numbers, the shortfall of world physical gold supply for 2015 projects to be about 606 tons. Given the current status of the COMEX gold stockpile and the projected deficit of world gold supply to meet physical demand, future failures of COMEX to meet demand for delivery are very likely.
Consider Also the Following:
The current price of gold is at or below the average cost of mine production. Mines are taking drastic action to stay in operation.
- The largest gold mine in Nevada- Allied Nevada has filed for bankruptcy
- Newmont Mining has laid off 20% of its workforce since November 2014 and ceased exploration
- Freeport- McMoRan cut its dividend from $1.25 to $0.25
The shortfall of physical gold to meet world demand is likely to grow larger in 2016 as a result of the benchmark paper “spot” price held at these artificially low prices.
If the COMEX is to retain its status as the benchmark pricing exchange for world gold prices, the gold futures contract “spot” price must be allowed to rise to meet the real world actual demand or risk a ruinous default for failure to deliver.
If you own physical gold, sleep well knowing that you have secured assets in the only medium of exchange that has held value throughout human history. If you are considering diversifying into physical gold, call one of our precious metals experts today for the information you need to make an informed investment decision.