In this column, JWR also covers hedges, derivatives, and various obscura. This column emphasizes JWR's "tangibles heavy" investing strategy and contrarian perspective. Today, we look at the LMBA's delivery crunch. (See the Precious Metals section.)

Precious Metals:
The London Bullion Market Association (LBMA) is running into a physical delivery crunch for gold contracts. There are now so many long contract holders demanding delivery that the delivery part of the LBMA's traditional "next working day" contract settlement promise has been nullified. Deliveries are now being delayed by 60 to 75 days.  Their use of rehypothecated (fractionalized) contracts is running them into serious trouble. They now have an extreme physical gold shortage. Even with just a few more contract holders now demanding delivery instead of cash, they cannot keep up with the demand. When I last checked their clearing data and vault holdings, the LMBA had only about 37 million ounces of physical gold on hand, versus 378 million ounces in pending gold contracts. ("Paper gold.") A similar situation exists for the LBMA's silver vault holdings. If there is an international monetary crisis or if a regional war breaks out anywhere in Asia, then a huge number of contract holders will demand physical metals delivery of both gold and silver. Ipso facto, the LBMA will surely collapse. Watch this situation closely, folks. And, more importantly, do not invest in "paper" precious metals. (Such as GLD and SLV.)  And only store your physical metals at home, well-hidden! – JWR