taking a short position in a futures contract is not an illegal short
Did the ECB Save COMEX from Gold Default? -- Seeking Alpha
It is quite important to determine whether or not Deutsche Bank was bailed out by the ECB because that will answer a lot of questions about allegations of naked short selling on the COMEX. If the ECB knew that its gold would be used as post ipso facto "cover" for uncovered shorting, staffers at the central bank might be co-conspirators. At any rate, if the German bank did sell short on futures contracts without having enough vaulted gold it sold a naked short. It also means that the ECB has facilitated a major rule violation in a jurisdiction (the USA) with which Europe is supposed to have extensive joint regulatory agreements, any number of which may have been violated by this action of the ECB. At the very least, naked short selling is a blatant violation of CFTC regulations, which require 90% cover of all deliverable metals contracts. If the delivered gold came directly, or indirectly, from the ECB, it means that Deutsche Bank's gold short contracts were "naked" at the time they were entered into.
The author is under a misconception as to the role of futures markets. Selling "naked short" contracts is what COMEX and all the other futures markets is for. The regulation he has fixed upon relates to forward physical/OTC contracts.
While I can only guess why DB were so massively short of the market, picking up the gold from a Central Bank (probably leased), to fulfil the contract, is routine, although the size of the transaction is not. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
