From Market Skeptics: November 1, 2009

In order to secure gold at the lowest possible price, US investors are turning to the complex, lengthy process of taking delivery of gold futures contracts (thereby avoiding dealer mark-ups). By buying gold contracts (Contract Size is 100 troy ounnces .999 Fine Gold or 5,000 ounce .999 silver) in deliverable months and wait for them to expire, sophisticated investors are emptying COMEX warehouses at an unparralled pace. The incredible hassle of trying to pry gold out of COMEX warehouses appeals to investors because no other place in the US can offer a price equal to the COMEX exchange. Nothing even comes close.

Investors are discovering, that there is trouble at COMEX warehouses and some scary gold developments...

The Gold Market MAY SOON BE Reaching the Breaking point.

THERE IS Rising demand for physical gold and this is a threat to the dollar because it signals a growing loss of confidence in the paper currency. It is also key to understand that gold prices aren't rising because of the changing fundamentals of gold, but because of the changing fundamentals of the dollar. In other words, gold isn't rallying, THE DOLLAR IS FALLING.

Gold is history's oldest and most stable currency. Its utility is simply that it is rare, and for 5,000 years people have used it to store value for the future. All the gold that has ever been produced would fit in a solid cube of about 19 meters on each side, and this cube is only expanding by about 12 centimeters a year (2%).

It has been more than 40 years since governments and individuals concerned themselves about physically holding gold, but confidence in the dollar is falling and investors are being “dragged kicking and screaming into the bullish camp” as gold continues to break to the upside.
Gold demand is exploding as Investors turn to gold as investors around the world are buying gold bars for their safety. Big investors like David Einhorn are also turning to gold as an attractive alternative to cash, as falling interest rates on savings reduce the opportunity cost of holding gold, a non-interest bearing asset. As Mr. Einhorn put it, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield." Finally, a chaotic scramble to secure physical gold has also been unleashed by negative real interest rates (below inflation) which have upset the gold "leasing" machinery in the gold industry, creating a sustained market squeeze.

Anecdotal accounts from “boots-on-the-ground” gold and silver brokers are reporting heavy ‘net with drawl of physical metal’ at COMEX depositories, raising doubts as to whether there is gold in inventory to match existing warehouse receipts.
London gold vaults are being emptied. Hong Kong is pulling all its physical gold holdings from depositories in the UK and moving their $63 million worth of gold home to newly built vaults near the city's airport. Dubai is also planning to withdraw its gold from London. Meanwhile, private investors and Swiss ETFs continue to move gold out of London.
Many large money managers who were formerly in paper gold are now demanding physical gold bullion instead.

Anecdotal accounts reported on, during the week of Oct. 5, include some large allocated physical transactions that were settled in London under VERY strange circumstances. Banks like JPMorgan and Deutsche Bank (who sold endless amounts of gold futures at prices of 950 to 1025) and then have since tried to make “side deals” with the folks they sold the futures to, – offering them insane spot + 25% (around 1,275 per ounce) deals to settle in fiat currency after their counter parties demanded [allocated settlement] substantial tonnage of the physical gold and silver bullion.