There is no cash settlement for the COMEX gold contract. "In fulfillment of every contract of gold, the seller must deliver 100 troy ounces (5% more or less) of refined gold, assaying not less than 995 fineness, cast either in one bar or in three one-kilogram bars by an approved refiner. The weight, fineness, bar number and identifying stamp of the refiner must be clearly incised on each bar by the approved refiner." Shorts either cover or deliver, no other choice.
You're correct, metals don't have alternative delivery payments like energies do, I mixed them up. Only as the last resort. December should get very interesting for gold & silver. Personally, I hope it stays at these depressed levels even longer.
I think the naked shorts covered last week, so expect no default in Dec. So the paper price really was a scam. I think today's action says the naked shorts are now less willing to risk it again. 1. Gold output is dropping. Mines are shutting down because the coproduct revenues can't pay for the cash costs, and no credit is available. Look at NG. Look at TCK. Look at FCX. More will follow if base metal prices don't rise. 2. central banks are now buying gold instead of selling. see Russia. China maybe soon. 3. mints going at full bore can't keep up with orders, means they must be consuming a lot more metal than before. see perth mint. see u.s. mint. 4. miner hedging not increasing. prices need to be higher for them to sell forward.
Well, the numbers are in. http://www.nymex.com/media/delivery.pdf Looks like the starting number is 8,600 contracts wanting delivery so far. That compares to 1,224 contracts total for the november contract. I guess we'll see how flush they are with metal after delivering this. According to Wellington West there appears to have been some CBGA BUYING. That's something I've never seen before, and I think supplies get tighter from here.
I have been watching this situation close and there is a significant increase in delivery requests for December. It will be interesting to see what transpires if there are any hints of possible defaults.
The thing is that IF there are going to be defaults then the COMEX will probably make the dec cash settled to 'uphold order in the market' - translation, help our buddies who are up shit creek. Comex generally likes the paper merchants, it doesn't like the physical guys especially when they're from out of town.