As noted below, their might be some fireworks in the PM sector in December should investors request physical settlement of their contracts on the infamous COMEX. Someone may want to ask the Hunt Brothers if taking delivery on this exchange is a relatively easy and pain-free transaction?

Regards - VHF

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UBS Metals Daily

October 9, 2008 4:49:20 AM

Author: John Reade

Dubai Gold and Commodities Exchange (DGCX) completed its largest-ever physical settlement of gold and steel reinforcing bar futures contracts with a total value of $25.2 million, it said on Wednesday. The settlement involved the delivery of 908 kg of gold and 40 tonnes of steel rebar for Oct 2008. No further details were available. Gold prices rallied more than 3 percent on Wednesday as investors rushed to purchase safer assets, while the worst financial crisis in nearly 80 years battered global stock markets. DGCX, which offers futures contracts in gold, silver, steel, fuel and crude oil and currencies, aims to become a major commodities centre in the region. Its activities almost doubled in 2007.

This is a very interesting story that merits further investigation. We have heard investors, unable to get physical investment bars due to the safe-haven induced credit crunch, have bought Dec Comex futures with an intention of holding them to expiry. It seems that a similar trade took place on the DGCX. Historically we have discounted the chances of a physical squeeze of Comex gold because so few futures investors take physical delivery and, if they did, metal would be shipped in from London and Zurich. But the shortage of Comex-eligible bars may make the physical settlement of large deliveries "complicated" to say the least. We will be closely monitoring this situation: if the market remains tight for kilobars over the next month or two then a squeeze in Comex gold could materialise. And if gold lease rates keep heading higher due to a supply / demand mismatch in the loco London market, the gold market could get very interesting into the end of the year.