Loading ...India imports about 800 tons of gold each year. Most of it is fabricated into 22 karat jewelry. The jewelers must have this gold to satisfy demand and the cost of the finished product is mainly dependent upon the cost of the imported gold stock.
Ok…now say that the Comex price is $1480 per ounce but these jewelers can only obtain the actual physical at a much higher price, say $1530. What do you think would happen? Well the arbitrage boys would be all over it…free money for them! Buy Comex Futures, demand delivery @ $1480 and sell to India @ $1530. If Comex refuses to honor these contracts then they have defaulted via settling in cash @ $1480. Though legal this would be a MAJOR news item and probably cause a run on all Gold supplies including retail dealers and worldwide central bank mints. So, the Fed would have to give Comex an emergency physical supply to prevent a panic disaster in the gold market.
Could be done on an emergency basis but, you can only go to that well so many times before the well itself runs dry. Therefor Comex would be put on notice to not let this happen again and heads would roll with probable criminal indictments.