Semantics is frequently ignored when people discuss precious metals. It is important to precisely describe the difference between physical and paper when one speaks about the metals. The COMEX is a market consisting of paper contracts and the price quoted is only relevant to the price of the paper contracts.
The problem exist that this price is seen by the majority of people as the price of physical gold and silver and the price is easily manipulated. This is precisely what occurred on Friday. Over a 60 minute period about 90,300 contracts were dumped on the COMEX, these contracts are equivalent to 9.03 million ounces of gold but remember not physical gold.
If one examines COMEX, there was reportedly a total of 9.01 million ounces of gold of which only 507,453 ounces were listed as available for trading. There are 2 categories in COMEX, registered and eligible. Only registered is available for trading.
Since the traders using COMEX rarely take actual delivery of the physical metal, the COMEX market should not be relied on to provide a realistic price of the physical metal. The manipulated price provides some buyers to obtain physical metals at a lower price but buyers wishing to secure large quantities will probably not be able to find a seller because the physical supply is limited – again remember that the supply listed on the COMEX is paper not physical.
It has been long awaited for the COMEX to default when the holders of the futures contracts which come due request delivery and the COMEX is unable to provide the physical. When this occurs it is speculated that the price of actual physical metals will soar in price.