antal fekete has written another essay on how the comex could fail. here is part of it, explaining how the game could end:

I have received several inquiries how to explain the simultaneous occurrence of gold backwardation and a further fall in the price of gold. Here is my answer. Comex is at the verge of bankruptcy, at least as far as its gold trading is concerned. The trouble is twofold.

First, Comex has a problem that the shorts are overextended opening themselves to a squeeze or, ultimately, to a corner. These are attempts on the part of gold bulls to buy up the gold certificates, instruments of delivery against gold futures contracts. These certificates give you legal title to the metal deposited in Comex-approved warehouses. Such a squeeze would cripple the operation of the exchange and make Comex lose its credibility as a viable market. When the cupboard is empty, the game is up.

Second, Comex can no longer attract sufficient quantities of gold from investors to its warehouses which, in consequence, get more and more depleted. Such a gold flow is the lifeblood not only of Comex, but of the irredeemable dollar as well. There is a world of a difference between the irredeemable dollar with the gold window of Comex open, and the irredeemable dollar with the gold window of Comex closed. The institute of the gold futures market is the prop keeping the global game of musical chairs of fiat money going. The music stops when Comex closes its gold window.

But Comex will eventually have to declare “liquidation only” policy, effectively closing its gold window. The phrase means revoking the right of holders of contracts to demand delivery on their expiring gold futures under certain circumstances. Clients have to accept settlement on their contracts in cash. This has happened in the past, e.g., in silver and palladium, although it has never happened in gold. It is not widely known that Comex would not go bankrupt de jure if it declared “liquidation only”. Small print in the contract makes allowance for this option in case of force majeure. Nevertheless, Comex would be considered bankrupt de facto in the eyes of the public if it declared “liquidation only” on its gold futures contracts. Comex is the residual source of the world’s only currency that is not the liability of some government, gold.

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