The CME Opens Pandora’s Box – Craig Hemke (31/03/2020)
- The CME Opens Pandora’s Box – Craig Hemke (31/03/2020)
by Craig Hemke, https://www.sprottmoney.com/
With mines, mints, and refineries closed around the world due to coronavirus, the demand for physical gold has blown through the roof. This has led to some drastic measures by the CME Group, which in turn may have unwittingly sealed the fate of the COMEX and the entire fractional reserve and digital derivative pricing scheme.
This latest crisis began last Tuesday, when the spot market for gold appeared to seize up as the futures price roared ahead following the announcement of formalized QE∞ by the U.S. Federal Reserve. The event has been chronicled by many analysts and experts, with even Reuters and Bloomberg joining in the reporting.
As the Reuters article notes, a clear shortage of the COMEX standard 100-ounce bars had developed. To counter this— and in a desperate attempt to maintain the integrity of their trading system —the CME Group immediately responded by amending the delivery procedures of their standard COMEX contract. Instead of the required 100-ounce bars, the COMEX would now be able to deliver fractions of 400-ounce London Good Delivery bars as well.
First of all, this exposes the charade of what has always passed for the bi-monthly physical settlement process on COMEX. Oh sure, the COMEX vaults may have always shown 8,000,000 ounces of gold, but quite obviously, none of that was actually available for physical delivery. Instead, each delivery month consisted of simple journal-entry transfers of nothing but warrants and warehouse receipts. To maintain the charade, one bank would issue some “gold” and another would take delivery. We’ve written about this scheme on countless occasions, most recently here: