Tuesday, March 29, 2011

Commodities and the claims upon them...

...again, the risk is clear, and commodities markets may have started to price this risk instead of assuming a security that "guarantees" a supply of a precious metal is precisely the same thing as owning the physical metal and storing it in your home. Those cryptic "disclosures" regarding the risks of holding Silver and Gold ETS (and other structures) and the "reasonability" of delivery of physical gold to satisfy outstanding claims will be put to the test soon enough. If I were counsel to these companies, I would be actively pursuing preliminary opinions from regulators as to safe harbor conduct.

From the excellent markets website Minyanville:

Just to quickly review, for the month of March (a silver delivery
month) 1,383 contract holders deposited enough cash in their COMEX
accounts to fully fund the purchase of 8.9 million ounces of silver.
As of Thursday, March 24, there were still 632 futures contracts open,
meaning 3.16 million ounces are still awaiting delivery even though
the month is quickly drawing to a close.

The fact that such a large amount of silver contracts remain unfilled
is mystifying to many investors since the COMEX reports 104 million
ounces of silver in inventory. If such a relatively small amount of
silver can strain physical inventory so much, investors have started
to believe that the exchange’s inventory is paper rather than metal.

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