COMEX EFP Use Continues To Surge

COMEX EFP Use Continues To Surge

Written by Craig Hemke, Sprott Money News

Back in April, we first reported upon the surge in the use of "Exchanges For Physical" on the COMEX. We thought we should provide an update today.

As a refresher, here's a link to the first report from eight weeks ago:

Recently, it was reported that Chris Powell of the Gold Anti-Trust Action Committee (GATA) had requested action and an investigation into this process from the U.S. Comptroller of the Currency, Joseph Otting. Below is a link to Chris' letter, but note that Chris reports he has yet to receive any acknowledgment from the Comptroller's office. This, despite the fact that the letter was dated five weeks ago!

So, again, why is this important to gold investors? Simply put, the increasing use of EFPs on the COMEX is very likely a sign of physical demand stress within the digital derivative pricing scheme. Why? Consider the sheer size of the EFP activity.

At Eric Sprott's urging, on November 24, 2017, we first began to monitor the increasing daily totals of Exchanges For Physical. As noted in our previous post, the best explanation of this process can be found in this link from 2009 with the key excerpt posted below:


But now also note this chart from that same 2009 post. The diagram lays out in simplified terms how EFPs are designed to operate. However, check the key passage that we have underlined for emphasis: 


"Move the physical gold from Trader A to Trader B" . Hmmm. In 2018, just how much "physical gold" are we talking about here? Again, since November 24, 2017, we've been monitoring the daily totals of EFPs as reported by the CME on this website

In that time, there have been 136 trading days, and the COMEX has lodged a total of 1,457,469 Exchanges For Physical in COMEX gold.

That's a staggering amount! Why?

Because each COMEX contract is alleged to represent 100 ounces of gold for future delivery. Thus, 1,457,469 COMEX contracts represent 145,746,900 ounces of "gold". At 32,150 troy ounces per metric ton, the sum total of metric tonnes "exchanged" through this opaque COMEX process since November 24 of last year is about 4,533.

Again, in less than seven months, the total amount of gold "exchanged for physical" through this process is 145,746,900 ounces or 4,533 metric tonnes!

Let's put that into context...

The entire COMEX vaulting system only holds a total of 9,014,904 troy ounces as of June 8, 2018.

The GLD ETF allegedly held in its "inventory" a total of 26,645,428 troy ounces as of June 11, 2018.

Excluding China, which by law is not allowed to export gold, the entire world mined about 92,000,000 ounces in 2017.

When last audited, the entire LBMA vaulting system reported just 28,000,000 ounces once you exclude the gold earmarked as the holdings of the Bank of England and various ETFs.

So, do you begin to see where perhaps there's something noteworthy going on here?

At the current run rate, COMEX EFPs will near 8,500 metric tonnes in 2018. Eight thousand five hundred metric tonnes! That's more that 3X global mine supply and more than 7X the combined holdings of the COMEX and LBMA vaults. How is this even possible?

In the end, this shines light upon the deliberately opaque and fraudulent digital derivative pricing scheme and the system of unallocated and hyper-leveraged "physical delivery" behind it. For now, the investment world accepts the risks associated with this current arrangement. But sometime soon the day will come when a holder of "gold"— who mistakenly believes he owns actual, unencumbered physical metal with clear title and demonstrable provenance —is going to be told that he does not own anything of the sort. He will likely be surprised to learn that he owns simple gold "exposure" in paper certificate form, instead.

What happens next is when the fun starts for all of us who recognize the current system for the fraud that it is and have taken steps to prepare for its eventual demise.

COMEX EFP Use Continues To Surge

Written by Craig Hemke, Sprott Money News

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Check out these other articles by our contributors:

Is It 2016 Again For U.S. Equities, Emerging Markets And Gold? - Avi Gilburt (12/06/2018)

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Sprott Silver Report: Silver’s Critical Role In Electrification May Fuel Its Rise - Maria Smirnova (08/06/2018)

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Conax Wed, 06/13/2018 - 12:13 Permalink

EFPs are where Comex obligations go to die. There's no way they manifested 4,000 tons of physical gold.

My theory is they are offered hefty bonuses to keep quiet and accept the fiat instead of bullion.  After all, this would be extremely lucrative for the longs, they can do it again and again, and probably are.

SDBullion Conax Wed, 06/13/2018 - 12:58 Permalink

Agreed, they are likely getting some sort of payment + premium for going that long.

Will be interesting to see how long this trend lasts, if it grows, and how long it goes on.

COMEX / NYMEX Price Circuit Breaker Rules are in place.

Sun burnt orange Terry Duffy probably still bull$h*tting about commodity price suppression (especially in precious metals) -

In reply to by Conax

Gatto Wed, 06/13/2018 - 12:33 Permalink

That's just two big banks flipping the same 100 oz bar back and forth between themselves 1,457,469 times!  Nothing to see here folks, keep it moving!
<sarc>   Gold is the next hot thing!  

KansasCrude Wed, 06/13/2018 - 13:16 Permalink

Thanks Craig, Sprott Money and GATA for staying on point here.  The FRAUD called the Comex is a disgrace to the free markets.  Having been involved in the commodity markets since 1981 all I can say about pretty much every commodity is its massive fraud.    I read a piece a few months back that indicated the work had been done to determine the prices that would sustain production for most of the commodity world.  Those prices now seem to be the upper bounds that the financial markets allow.  No one seems to be earning excessive economic rents....hmmm in this booming economy  (Hearty Har Har) shouldn't we have some sectors earning big profits?  

Now the banksters possibly in league with the gubmint and big biz have now decided to keep the producers on life support only.  Any excess profits can only go to the trio.  Its financial Fascism.  The PM straight jacket is nothing short of diabolical.  The most visible of the perversions in the all the markets.  To quote a great man.  "We have no markets only manipulations".