More Surprises In The Physical Gold Market Reaffirm Gresham’s Law

While I don’t follow the data reporting on the Comex on a day-to-day basis – primarily because 1) I don’t have the time, 2) enough people do follow it and report on anything unusual and 3) I don’t fully trust what is reported.

However, Avery Goodman posted an article on Seeking Alpha, The Big Long,  that caught my eye.  He noted that Goldman Sachs and HSBC reported delivery of 7.1 tons of gold into their “house” accounts on August 6.   Goldman stopped 3.2 tons and HSBC stopped 3.9 tons.

This equates to 250,438 ozs of gold, or roughly 2,500 contracts.    It also coincidentally, or not coincidentally, represents just a little less than the amount of gold that JP Morgan moved from its “eligible” account to its “registered” account in order to meet the  JP Morgan issued delivery notice on 2,750 contracts on August 4.   So it would appear as if Goldman and HSBC “stopped,” or took delivery in their house account of most of the gold what was delivered from JP Morgan’s customer house account.

My initial response to this development is that it should not surprise us that Goldman may be accumulating a long position in physical gold despite having noted analysts at the firm issuing bearish gold research reports.  Goldman is infamous for taking the other side of trades that it convinces clients to implement.

What I will say, however, is that we can’t necessarily assume that the Goldman and HSBC gold was ultimately destined for their respective banks’ proprietary positions.  For instance, it could well be the case that Goldman is on the hook for delivery of physical gold to a counterparty of one of its OTC precious metals derivatives contracts.  If that’s the case, perhaps the easiest source of gold to fulfill that obligation was to take the other side of some of JP Morgan’s reported Comex vault inventory.

Similarly, while its conceivable, perhaps even probable, that HSBC might be building its own “nest egg” of golden eggs, it’s also quite possible that HSBC needed to source gold for the GLD vault, of which it is the custodian.  Yes, GLD uses 400 oz bars and the Comex “traffics” in 100 oz bars, but it would be easy enough to do a gold bar swap in order to convert 100 oz bars into LBMA 400 oz. bars.

My point here is that the available information on Comex gold transactions is opaque by design.  But having said that, the relevant piece of information here is that a significant amount of physical gold has been removed from the visible of publicly reported vault holdings.

It seems that the above-ground, available supply of physical gold and silver continues to disappear down rabbit holes all over the world, further reaffirming Gresham’s Law.


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