commodity trades are in “contracts”. these contracts have specifications which describe what may be delivered and where. the person who promises to accept delivery is known as a “long” (buyer). those who wish to make delivery are know as a “short” (seller). whenever a new long and a new short form a contract, open interest interest has increased by one. these contracts are readily transferable. the same contract may have a life of seconds or months. as delivery approaches, longs and shorts may liquidate their positions by the opposite action they used to form the contract. a long will sell and a short will buy and each are out of the market. if the longs feel the shorts are weak or can’t make delivery, they will hold their position until the price rises high enough to force the shorts to cover. the only way a short can exit the market is to buy his contract back or make delivery.

in the delivery process, the long must deposit in his account the full purchase amount of the underlying commodity. the short must produce a warehouse receipt from an approved warehouse or vendor. the fiat is transferred from the buyers account to the seller and the warehouse receipt is transferred to the buyer. less than 1% of contracts go to delivery.

given the current demand for gold and silver and the absence of supply in the retail channel, common sense would dictate that some buyers will take delivery. coin dealers must have inventory to stay in business. the only way they will get them now is to take delivery and send the bars to a foundry to be melted and poured into smaller bars and coins.

since price of gold and silver is not going up, it’s logical to assume that the comex has adequate supplies or the shorts really don’t think the longs can cough up enough fiat to take delivery. delivery is at the option of the seller. they can wait until the last delivery day if they choose. they may wait until the last delivery day and pay the fiat penalty for non-delivery. if several shorts pay the penalty and not deliver, a firestorm will follow. most markets have a system of delivery or an index to settle trades. if that index can be influenced by a small group and not market oriented, the fan will become very dirty and the lawyers will get wealthy.(to hell with the people who didn’t get what they bought) gold and silver are traded on a threat to take/make delivery. if sellers fail to deliver, and the fee is not substantial, the threat of delivery is gone and the buyers lose market gain.

a current example is silver on the comex and silver on ebay. comex silver is less than $10. while it sells on ebay for just under $15. if silver closes on the last trading day at $10. and the penalty for non delivery is 10%, the positions are closed out at $10. and the seller must deposit an additional $1.00 per oz (10%) to go to the buyer. the seller saves $4.00/oz and the buyer gets screwed.

i personally believe the sellers are prepared to pay the penalty and continue screwing the buyers.

rno