late bombshell in from Dave in Denver...

Subject: Bill, I can't believe this

We accumulated 3 emini contracts on Comex for December delivery and we had been given serial numbers and weights last week for the 3 bars. Today we are informed that Comex, which is now a division of NYSE Liffe, is invoking a rule in which they can deny delivery of individual mini bars (roughly 33 ounces) and issue you only a Warehouse Delivery Receipt (WDR) against your mini-contract unless you have 3 WDR's, and then they'll issue you a 100 oz. bar. Otherwise, if you have only 1 or 2 mini-contracts, you only own a WDR, which you sell by shorting a mini against it. If you own a WDR for a 100 oz., the WDR issuance encourages you to safekeep the gold at the Comex.

CLEARLY, the Comex has run out of the bars that were being delivered to holders of emini contracts. Our back-office guy at RJ O'Brien told us that he's been doing Comex deliveries for 30 years and he's never seen anything like this, and he's never heard of this NYSE Liffe rule on the mini contract. Fortunately we have 3 WDR's and we will be getting delivery of a 100 oz. Comex gold bar.

But this whole episode brings into the question the validity of the Comex gold inventory. Clearly they had so many people taking delivery of mini-bars this year that they ran out of them. Otherwise, there would be no reason to do this. The other point is that, out of nowhere, some obscure rule is invoked and is used to override the terms and conditions of the emini contracts that we purchased over a month ago and fully funded for delivery. More importantly, the Comex is now going to issue WDR's, which are paper claims to gold to those taking delivery of mini-contracts, rather than delivery of physical metal. How long will it be before this happens with the big bars. We have witnessed delivery notices issued for close to 50% of the gold supposedly held in the registered category on the Comex during the month of December, and yet the reported Comex inventory of gold as of 1/2/09 shows almost no physical gold leaving the registered categor y at the Comex. What is going on? It would appear that they are slowly trying to morph the Comex into a pure paper exchange. Are they becoming a "fractional" reserve depository, where they can issue several WDR's against the same bar of gold/silver, knowing that some of those people will opt to keep storage on Comex? And never require actual physical delivery?

If we had the resources and time, we would absolutely hire a good attorney to look into this and litigate the matter....

we are fortunate to have 3 WDR's - we almost bought a couple mini silvers instead of the 3rd gold. the point is that LAST WEEK we were GIVEN actual serial numbers and weights of the actual bars that were supposed to be delivered to us starting today and now they are not delivery any of them. We will be getting a 100 oz bar, but why would they be doing this unless they are out of mini bars - and what happened to the bars we were told - via the Comex warehouse - that were going to be delivered. So, yes they are refusing delivery in a way. and the other point of highlight is that they may be issuing multiple WDR's against the same bar, expecting that everyone with a WDR will leave the bar at the Comex. I suspect that may have happened here....

It looks like the warehouse delivery receipt is only used for the mini-contracts. however, going over the rules of the NYSE-LIFFE, it looks like a "vault receipt" is issued for delivery against the 100 oz contract. However, if you take delivery of a 100 oz contract and have the Comex safekeep it, what's to prevent the Comex from issuing multiple vault receipts against the same bar? Comex would never run into a delivery problem unless people take actual delivery FROM the Comex.

I am also just informed that our RJ O'Brien guy told us that they had been processing delivery of a lot mini-contract bars until today with our situation. Now Comex is not delivery mini bars. Hmmmm....

Anyone who has gold being safe-kept at the Comex is an idiot. Based on this experience, I would suggest everyone needs to take delivery of their gold FROM the Comex. The best place to keep it if you don't want to hold it at home is First State Depository in Delaware, which is where we have our metal delivered and kept....

Clearly Comex has delivered so many mini bars in the past few months that they no longer have the mini bars to deliver. So in effect, they have defaulted on mini bars, even though there is a NYSE LIFFE rule that let's them out of the default.

Default on the big bars is next.