My homies

We have this from Gata and Bill Murphy, the plaid shirts of the gold community:

I received a call this morning from a commodities broker who told me that the Comex is alerting various futures firms about the potential of a squeeze on the December contract and is advising the $840 December shorts to exit their positions. That is the remaining open position.

There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest. They must be delaying. As I understand the situation, that represents about 40 percent of the gold available at the Comex, and of course someone could enter the scene late, buy February gold, and then spread into December, which would stun the shorts.

My broker friend said his back office said this sort of alert is highly unusual and that the concern is real, not only for gold, but for other commodities too, like copper and palladium, as there is a good deal of talk of taking deliveries there too. But gold is the one for which the advice to cover went out.

This is an extremely productive development and could spur the price of gold up quickly as word spreads. As we all know, buying Comex gold and silver (the cheapest way to buy precious metals) makes all the sense in the world in this financial environment.

1. The only way you can issue a delivery notice is if you have the metal and the metal satisfies delivery requirements. That is, issuing a devliery notice amounts to delivering the gold. A 'large number' of notices, then, is only indication of 'large supplies' of gold available for delivery. Certainly, the number of delivery notices issued is no gage whatsoever as to the presence or likelihood of a squeeze. 2. Twelve thousand plus notices for gold is at any rate not abnormal. So, there is no squeeze on for the Dec contract. The Dec contract is, barring any last minute fireworks, and past experience suggests this is highly, highly unlikely, dead.

And if there were to be a squeeze, it wouldn't look like this. Rather, you'd see persistent high open interest into the delivery period and near-month spreads in severe backwardation. This is simply not happening.

A friend writes: "I read [Murphy's above dispatch] 3 times and thought either he's dangerously stupid or he's purposefully lying."

Then there's this guy, howling up another tree: "Backwardation that shook the world." I don't even know where to begin. The gold market is not in backwardation right now. It's flat, it's tight, it's somewhat strange times. But it's not in backwardation, and certainly not in a term structure that would "shake the world." The author is quite simply on drugs.

There are in fact reasons to think the flattening of gold forward rates is a positive development and it is, there's no doubt. (See here.) Then your cousins from Thunder Bay show up with a half bag and cooler.