And the last piece of the puzzle is taken from the December 2008 gold contract on the NYMEX exchange. It is noted that the level of open interest (total number of open contracts – on the December 2008 gold contract is 9.8 million ounces as of 21 November 2008, with the first day delivery notice scheduled for Friday 28 November 2008. The problem is that there are only approximately 5 or so million ounces in the exchange warehouse according to various sources (see same reference from Lance Lewis for example), so that if there are enough participants that take delivery this month of December (especially due to the disconnect in physical supply with paper), there is a chance of a short squeeze driving gold to higher prices. There has been some speculation in “gold bug” circles about this potential – the problem with this reasoning is that participants usually take delivery on only 2% of the open interest. However the potential exists when physical supplies are tight.
It looks like you would need about 51% of all Dec. contracts exercised to have a problem (5/9.8 = 0.51). I know that physical demand has gone way up, but what are the chances that there is going to be a 25x increase in physical delivery in Dec?
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