Will the Comex default?

Gold guru Jim Sinclair has given a remarkable explanation for the strong rise in the gold price yesterday (+3%). The physical gold reserves of the Comex, the institution that sets the gold spot price, are depleting fast.

The forced declines in the gold price since April this year as a consequence of the huge sales of paper gold contracts on the Comex, have had the opposite effect of that desired. Where the sellers sought to stem the demand for gold by pushing the price down to unattractive levels, a huge run has occurred on physical gold, both in the retail sector and by the central banks. The result is that JP Morgan in particular has been forced to deliver large volumes of physical gold, and the bottom of the Comex gold vault is now well and truly in sight. Inventories have dropped from 3 million ounces to just over 1 million ounces in just a few months.

Sinclair therefore expects the Comex will be forced to announce within 90 days that no more gold can be delivered, and that only settlement in cash can be made. The Comex, the main instrument of the Fed used to control the price of gold, will default. Sinclair sees this as the beginning of the end of the manipulation of gold, and its significance as a system for setting the gold price will come to an end. Sinclair sees a revaluation of the gold price to real levels, and predicts $3,500 at least.