The ‘claims per ounce of gold’ deliverable at current prices has spiked higher once again, to 126:1.

As soon as the ‘active month’ of August was over at The Bucket Shop, JPM took a chunk of gold back off the registered for delivery roster. In the silver market JPM is gaining the reputation for a large physical silver hoard, and the role of a ‘fireman’ to maintain the stability of leverage.

These spikes higher in the ratio of open interest to deliverable bullion at current prices is not something that has happened in the past fifteen years at least. And neither has the steady increase in the ratio which we have been seeing in the past couple of years.

The Financial Times has finally noticed that the price for ‘borrowed’ gold bullion that is taken to Switzerland for re-refining and then final shipment to Asia for purchase and withdrawal is rising.

These are signs that one might expect to see in a late stage gold pool in which the manipulation of a market has gone too far for too long.

The clever quislings for the bullion banks will note that an actual default on the Comex is unlikely, and they are right.  It is not really a ‘physical delivery’ exchange, but is now primarily a betting shop. There is plenty of gold in the warehouses, if you do not concern yourself with the niceties of property rights. And claims can be force settled in cash on a declaration of force majeure.  

Heck, as we saw in the case of MFGlobal, when JPM shoved to the front of the assets allocation line, even receipts for actual physical gold owned outright can be forced settled in cash. If you hold gold in a registered warehouse or an unallocated account,  then your ownership is philosophically ‘conceptual.’ 

The physical delivery exchanges are in other places, like the LBMA in London and especially the markets of Asia such as the Shanghai Gold Exchange.

And this is where we will see the first signs of a breakdown in the gold price manipulation pool of the bullion banks, first as signs of ‘tightness’ in the delivery of metals, and then in the initial ‘fails to deliver.’

Rising prices will provide relief. But the pool operators are not shy about pressing and doubling down, in a familiar pattern of overreach. Remember the eventual demise of ‘the London Whale?’

Not to worry. Wall Street only keeps the profits, and socializes their losses. And it might not surprise anyone that they are operating under the cover of some bureaucratic boobs and a policy exercise gone horribly wrong.