paper gold default report - february edition

We had some excitement last week when gold jumped from 1660 to 1730, and as I looked at the reasons behind this, I thought that I might revisit that old chestnut - the futures short squeeze. (You never can tell. Like the Second Coming, it might actually happen one day!)

For those of you unfamiliar with this idea, COMEX gold futures contracts have a total open interest of 400,000+ (that is 40 million ounces of gold) as a normal matter of course. The "paper gold" fraternity correctly point out that there is insufficient physical gold available to meet these obligations if all the longs decided to take delivery, and they predict that the futures market would collapse and the physical gold price would go through the roof.

The problem with this "paper gold" short squeeze theory is that in the past the open interest in the near contract mysteriously disappears as the contract enters the delivery period and the short squeeze never happens.

Well here we go again!

Source: http://www.cmegroup.com/trading/metals/precious/gold_quotes_settlements_futures.html

I have written about the reasons for this a number of times before. Does anyone need to hear it again?