Is The CME Preparing For An Eventual Comex Default?

Orwell would blush over what’s being done to our system if he were alive.  – Investment Research Dynamics...I think a lot of precious metals futures contracts are going to undergo a disappearing act.  – John Titus of BestEvidence

The CME curiously reported that it received notice from the Federal Reserve that it is authorized to open an account at the Fed which would “allow it to better safeguard cash deposited by its traders”  CME/Fed Account.

This is event is notable for several reasons.  First and foremost is the fact that the CME was designated as a “systematically important” financial institution as part of the Dodd-Frank “hoodwink the taxpayer” Act.  If anyone can explain to me why a corrupted derivatives clearinghouse and trading exchange is “systematically important,” I will receive the explanation with an open mind.

To be quite frank, no bank is systematically important, especially the big banks which are continuously wrist-slapped for committing criminal acts of fraud and screwing the public. As has been demonstrated, the “systematically important” designation is nothing more that a guarantee to the banks that Taxpayer money will be tapped to ensure bonus payments may remain uninterrupted in the event of a bank collapse.

Another puzzling aspect of the CME’s decision to open a custodial account at the Fed is in the CME’s statement that the Fed account will allow it to better “safeguard” cash deposited by its traders.  Note that the account is limited to “clearing members proprietary margin” accounts.   This would be the cash put up by Comex clearing members – like the Too Big To Fail Banks (JP Morgan, Goldman, Citi, HSBC etc) – against margin requirements.

Why is a Fed custodial account any better than a custodial account held by a big bank?   Is this an unintended signal from the Fed that the big banks are no longer safe as custodians of cash deposits? 

To me this reeks of the CME enabling a mechanism that “ring-fences” any cash equity put up by clearing members for the purposes of protecting that cash against an event of default or bankruptcy.  It would give the CME control over this cash.   This is what occurred when Jon Corzine incinerated MF Global and JP Morgan was able to grab any and all available collateral for its own benefit.

Again, this suggests to me that CME is concerned about the risk embedded in the proprietary futures and derivatives positions of its clearing members.  I would suggest that the CME is specifically nervous about the precious metals futures positions held by JP Morgan, HSBC and Scotia.

With the absurd imbalance between Comex gold/silver contracts and the amount of underlying physical gold/silver bars held at the Comex for delivery, it’s not a question of “if” the Comex eventually defaults but a question of “when.”   Anyone who disagrees with this assertion is either in a state of pathetic denial or appalling ignorance.

Don’t forget that Comex contracts have a “force majeur” provision which enables the cash settlement of these contracts.  Given that the outrageously large short positions in gold and silver futures contracts are primarily held by the big banks, who also happen to be clearing members, the move by the CME to ring-fence cash collateral at the Fed which is deposited by the big banks who are short gold/silver futures expressly suggests that an event of default may be closer than any of us realizes.

25 thoughts on “Is The CME Preparing For An Eventual Comex Default?

  1. Even Keynes said falling rates would eventually lead to the meaninglessness of money& permanent depression basically…the ficticious currency used to trade in metal is literally debasing the collateral it self ….these people are juggling dynamite….

  2. I know your probably suspicious too Dave but what is going on with the silver price snapping up & gold idling? asside from avoiding default.etc

    1. I have heard it said that in any PM rally, silver usually leads the way. Now the SGR is falling from a recent high of 83 to 1 to a current 76.5 to 1. Could silver be breaking out to lead the way?

  3. Thank you, Dave! You have elucidated the very message I have been conveying on various silver oriented websites, including yours. I find it astonishing that some gold/silver ‘pundits’ seem to be in complete denial about this – they seem to think COMEX is somehow immune. The inevitability of the collapse/default of COMEX futures and options contracts and any derivative contracts based on them is glaringly obvious! It may be that the date it all becomes ‘unmanageable’ (to put it at its politest) could be the opening of the new SGE offering ‘spot’ only contracts on Tuesday, 19 April 2016 which is less than a week away! Spot only was the way metal traded in London in the 1960s and early 1970s when I worked in a merchant bank in the ‘City’. I call it a return to sanity and honourable trading .

  4. Thanks for your take, Dave. I read Harvey Organ’s blog and I get confused. It looks to me that Comex hasn’t settled contracts for 3 months. I am I reading this correctly?

    THX again.

  5. Seems like just another bail- in provision for the TBTF’s. My concern is that when the Crimex and LBMA fail, China get’s to make the price discovery rules. Our markets are rigged, but theirs are goverment controlled with an iron fist, and it’s obvious they want as much cheap gold as they can get. I’m confident China has played a big part in the price smackdowns these past several years for their own benifit to hedge their dollar exposure as much as possible..

  6. Out of ALL information put out on this blog so far, this analysis has to be the best – and that’s saying something. This shapes up to be an event of earth-shattering consequences, and this place is the first to analyze it.

  7. Dave, I sure hope they are fixin to default. Us junior stackers have been waiting for the day that happens since early 2013. Dave, I have always enjoyed your commentary over the years, Job well done and I thank you ! ! !

  8. Laughing instead of crying is the way I am coping with this totally bogus mess. I still remain a bit in awe of the fact that the CRIMEX deliveries according to Harvey are still unresolved all the way back to February. WTH waiting for GLD transfers for delivery PLEASE. This is big cluster and in my understanding a DEFAULT. Can you please give us your perspective on this?

    Trying to keep up with this circus…..not enough hours in the day.

    Thanks for keeping it real.

  9. Did you know its illegal to use a legal name? Yeah the crown owns the copyright to it, so if you use it they own you. See “crown copyright in the information age” pdf pages 29 to 31 or just google legal name fraud…

  10. Do you think the wise guys are front running the Fed on the Dow and S&P, Dave? Looking for an imminent announcement of a massive, new round of counterfeiting as the real economy goes south? Also, I wonder when the rats start chiseling on each each other before gold and silver prices go vertical. Maybe now in the pm equities.

  11. These spikes in metal are very perplexing? for last 10 years they have been the other way. I’m wondering if finally some of the geniuses in the billionaire “Club” have realised that all their wealth is in fact notional & that the first few to at least attempt to convert all these trillions in to real tangible value will be best dressed..I know that math dictates a heck of a lot of these so called “billionaires” will be joining the ranks of us plebs but they’re are totally incapable of the basic arithmetic and just wont see it when it hits them between the eyes like a good piece of 4×3 hardwood…

  12. “As has been demonstrated, the “systemically important” designation is nothing more that a guarantee to the banks that Taxpayer money will be tapped to ensure bonus payments may remain uninterrupted in the event of a bank collapse.”

    And John Titus has proven that a “systemically important” bank is above the law. None of the fraudster banksters are investigated for criminal acts of fraud. Cash fines and settlements are borne by the shareholders.

    So, there is no incentive not to break the laws when you are immune from prosecution. Especially when someone else pays your fines.

    From Best Evidence:

    1. “Cash fines and settlements are borne by the shareholders.”

      Yes and they are unlikely to decrease corporate executives bonuses either.

  13. May be a great time to put some of your ‘funds’ into a Credit Union instead of a bank.

    http://en.wikipedia.org/wiki/Credit_union
    In part;
    Tension has always existed between member-owned cooperative credit unions and for-profit banks in the United States. When credit unions were first organizing in the US in the early 20th century, the banking industry was opposed, remaining so ever since.
    The FDIC does not provide deposit insurance for credit unions, which are insured by the National Credit Union Administration (NCUA).
    https://en.wikipedia.org/wiki/National_Credit_Union_Administration
    The National Credit Union Administration (NCUA) is the independent federal agency created by the U.S. Congress to regulate, charter, and supervise federal credit unions
    http://en.wikipedia.org/wiki/Credit_union
    A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.[1][2][3]….
    Not-for-profit status
    In the credit union context, “not-for-profit” should not be confused with “non-profit” charities or similar organizations.[20] Credit unions are “not-for-profit” because they operate to serve their members rather than to maximize profits.[21][22][23]
    There is also in Texas —
    http://www.thenewamerican.com/economy/economics/item/21271-texas-launches-gold-backed-bank-challenging-federal-reserve
    15 July 2015 Texas Launches Gold-backed Bank, Challenging Federal Reserve Written by  Alex Newman
    The State of Texas is setting up a gold-backed bank that will allow depositors to bypass the controversial Federal Reserve System and its fiat currency in banking and commerce, according to the state representative who authored the recently enacted law. Under the measure, passed overwhelmingly by lawmakers and signed in mid-June by Republican Governor Greg Abbott, Lone Star State officials will establish and operate the Texas Bullion Depository for anyone who would like to deposit and trade in precious metals. The implications are as big as Texas.

    1. Aqua,

      Most credit unions are not really much better than most banks. In my case, my good community bank is better than most credit unions. My community bank does not have derivatives like some credit unions do. My community bank is much better capitalized and has a higher liquidity ratio than most credit unions. My community bank does not have any unsecured credit card loans like many credit unions and my community bank does not make sub-prime loans like some credit unions do. My community bank has all their securities classified as Available for Sale (AFS) which means they are marked to fair value (mark-to-market). Some credit unions though have some or even all of their securities classified as Held to Maturity (HTM) meaning that they are priced at amortized acquisition cost which can allow them to hide losses on those securities since all changes in market value after they are purchased are ignored. This is how some banks can hide their losses and make their capital levels look better than they are.

      My conclusion was to have some of my money with a very well-capitalized state-chartered community bank, that is not a member of the Federal Reserve, over all the credit unions in my area. So I think it is unwise for people to just assume that most or all credit unions are better than any bank.

  14. With all this Deutsche bank rigging of metal prices’ could there not be a massive civil action, perhaps class action on behalf of people who purchased metals prior to 2011? Is there not one lawyer out there that maybe take this on? surely an open and cut case of provable losses at torts?

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