Question: Thanks for your valuable
comment on the metals market. My question is,
why would China keep accumulating the Comex
silver future knowing that there is no chance to
stand for delivery beyond 7.5 tons? Wouldn't it
be a waste of efforts? -Thanks, Gordon
Answer: That presupposes that it is
China, and we really do not know that. Whomever
it may be there is a restriction of 7.5 million
ounces per entity as you state. So, possibly
there could be two or more entities that ask for
the limit and in theory more than 7.5 million
could come off the Exchange. Further, it is
possible that pressure could continue for
several months forcing that amount from the
Exchange again and again until something
happens. Most likely cash settlement by the
Exchange instead of physical delivery would take
place if
this very unlikely scenario were to take place.
This would of course mean a default in a
practical sense. However, from my experience in
watching what happened in the Hunt situation,
and what took place in the Palladium market the
authorities most likely would head off this
situation. My view has not changed that the
physical market for the precious metals will be
the tipping point. The main idea here is that it
is very unlikely to come from the COMEX.
Therefore it could be a waste of effort as you
state.
The big players in physical are almost always
big players in paper as well. Again, we are not
allowed to know who holds the positions. Just
because a "well known" expert says it is China
does not make it so.
Best Wishes,
David Morgan
