http://truthingold.blogspot.com/2009/12/is-comex-next-madoff-disaster.html

"Comex is putting forward the offer of paper in the form of money or ETF positions very aggressively, and making it the much easier alternative. Delivery of physical gold from the Comex is no longer as straightforward or even as semi-convenient as it had been in the past. In fact, it is difficult, and one must be very persistent and wait long periods of time"

My point here is that it is becoming more apparent on a daily basis that the Comex is yet another one of the many large Ponzi schemes operating in the United States financial system, some already busted and some yet to bust - many operating with the enablement of the U.S. Government. It would seem that a bright light is now illuminating a reality that was once criticized as being pure conspiracy theory.

My next issue is with the idea of settling a Comex position with GLD. I wrote a research piece last year, and several others have as well, based on a very close reading of the GLD prospectus, in which the validity of GLD's actual physical gold holdings were questioned. Without going into details, and at some point I'll post my work, there is no possible way to force the Trustee, Sponsor and Custodian of GLD to verify and prove that they actually possess the gold they say they do. In fact, GLD has been so openly criticized, and has so blatantly rejected calls to provide the market with an independent physical audit of its gold, that GLD's Sponsor, the World Gold Council, and its Trustee, Bank of New York, should feel thoroughly embarrassed. The same SEC that let Madoff off the hook for several years is the entity which blessed the GLD prospectus, to the utter horrification of those who understood how exposed to fraud GLD investors would be.
As you can see, the fact that Comex would allow contracts to be settled using GLD in lieu of physical gold is absurd. Essentially, when you get long a Comex contract thinking you are buying into the ability to take delivery of a 100 oz. ounce bar of gold, you are in reality buying into a piece of paper which in all probability is not backed by that bar of gold. Then, when the Comex asks you to take delivery of the equivalent amount of GLD, you are getting whacked with another piece of paper, which not only is most likely not backed by gold, but you need 100,000 shares of it in order to convert into gold (GLD gold is only redeemable in 100,000 share increments, roughly $11.7 million in GLD stock at today's price).
And finally, to come full circle, an argument can be made that the Comex has turned into just another massive paper Ponzi scheme. To make matters worse the CFTC, as regulator of the Comex, appears to be looking the other way while a few big banks violate position and trading rules in gold and silver that the CFTC strictly enforces in other commodities markets. With all signs pointing toward the Ponzi scheme view of the Comex, and in the absence of the Comex itself or its regulator providing any explanations to the contrary, it would appear that the Comex could be headed for the same graveyard as Enron, Refco, Madoff, et. al. And anyone considering investing large sums of money into GLD or with John Paulson's new gold fund should make sure they engage in very thorough due diligence - the kind of due diligence that many of us have been doing over the 9 year duration of the precious metals bull market.