Tag Archives: LBMA

A Slow Motion Short Squeeze In Gold

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

The inexorable rise in the price of gold, despite the concerted effort among the BIS, western Central Banks, CME and LBMA using paper derivatives to keep a lid on the price gold reflects the likelihood that a short-squeeze in physical gold bullion is percolating.

Former copper futures trader and Chairman of GATA, Bill Murphy, calls this a “commercial signal failure,” which occurs when the demand for the fulfillment of the physical commodity underlying a paper derivative overwhelms the ability of the entities short the contracts to fulfill the terms of the contract.  Soon this slow motion short squeeze will transition into “fast” time.

Chris Marcus and I discuss the likelihood of this development on the Comex:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

The Paper Gold Market Is Imploding

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

The CME/LBMA latest paper derivative product – the Accumulated Certificate of Exchange aka “4GC” – is failing. Badly.  After its introduction last week there has been zero trade activity in the contract:  4GC Settlement data.  The contract fabricates a paper claim on 25% of an LBMA 400 oz bar for Comex participants seeking delivery of the 100 oz Comex bar. It’s an attempt to transfer LBMA gold in fractional derivative form to the Comex.   The contract is an absolute farce, a fact confirmed by complete lack of interest in it from the market.

The effort by the western Central Banks in conjunction with the bullion banks to keep a lid on the price of gold is failing. It’s not the first time (see The London Gold Pool collapse).  This failure is reflected in the historic spread between the spot price of gold as determined twice a day on the LBMA and the Comex gold futures curve.

Chris Marcus and I discuss the causes and implications of this market signal in our weekly conversation:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Gresham’s Law And The Gold And Silver Squeeze

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

“Bad money drives out good money.”  When Gresham put forth this proposition, sovereigns were diluting gold and silver coins with metals of lesser value yet the diluted coins were given the same value for legal tender purposes as the more pure coins. Gresham observed that the more pure coins were hoarded and the lesser value coins were used for trade.

Sound familiar?  Go find pre-1964 dimes, quarters and half-dollars and try to buy them for their legal tender value.  Pre-1964 silver coinage contains 90% silver.  Post-1964 silver coins are made from nickel and copper.  No one who holds pre-1964 coins would use them for their face value. They have disappeared from circulation. The melt-value of the silver in a 1963 quarter currently is $2.60.

The disappearance of gold bars from the LBMA and Comex is Gresham’s Law in action. Though the virus crisis exacerbated the problem, shortages were developing on both trading venues well before anyone heard of “coronavirus.”  As an example,  Russia dumped its Treasury bond holdings and used the dollars to buy gold for its Central Bank. China, which holds 12x more Treasuries than Russia held, has been slowly converting its dollar reserves into gold for several years.

Chris Marcus of Arcadia Economics and I discuss the current developments on the Comex and LBMA in our latest weekly conversation:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

“Wanted to send through a note of thanks and support.

I felt in my gut that something was amiss with the markets a year or so ago and started reading up on sound money/macro. At that time I had most of my money in UK stocks but wanted a way out and a way into the metals. I needed guidance thus why I signed up to your short seller and mining journals.

Today I am way down on the mining stocks and somewhat down on physical silver and gold. But I have offset 80% or so of those paper losses with paper gains on a raft of put options on indexes and sector ETFs. I had limited options experience prior to these purchases.”   – Mike in the UK

The Comex Does Not Trade Gold

Financial Markets, Gold, Market Manipulation, Precious Metals, ,

Unequivocally, gold does not trade on the Comex. The Comex trades paper gold derivatives. It is a futures and options exchange on which a small amount of 100 oz. gold bars change ownership each contract month. The transfer of title is facilitated by the creation of an electronic record called a “warrant.” But even these “warrants” which assign title to specific bars are derivatives. Presumably gold is “delivered” to the parties who stand for delivery (the “stopper”). But that “delivery” most commonly is the electronic transfer of a warrant from the entity short a paper gold contract to the entity who is long the same.

Because the CME and the CFTC do not place a limitation on the number of paper gold contracts – 100 ozs per contract – in relation to the amount of gold reported in Comex vaults – the price discovery function has been largely removed. As an example, as of Wednesday there were 489,955 open contracts representing 48.9mm ozs of gold, or 1531 tons (roughly 50% of the amount of gold annually produced globally). Lucky for the Comex, less than 1% of the open interest in any given month stands for delivery.

At the beginning of the contract “roll” period, there was well in excess of 200,000 April contracts open representing over 20 million ozs of gold. If 50% of these longs decided to stand for delivery because the Comex appears to be only entity with gold deliverable in quantities, not only would the gold determined to be free and clear of encumbrances and conforming to Comex delivery specs – i.e. “registered” gold – be wiped out but the entire Comex gold stock would be wiped out. But there’s just one problem. The “eligible” gold – gold not registered – belongs to someone else who does not want that gold loaned, leased or hypothecated.

If the Comex regulated the open interest such that the amount of open interest was tied to the amount of gold in Comex vaults – since theoretically eligible gold can be registered – the resultant introduction of price discovery would force the price of gold much higher – higher to a level at which the price functions to balance supply and demand – not paper supply/demand in the form of printed contracts – but physical supply/demand based on the amount of gold sitting in Comex vaults as reported by the Comex vault operators. Given that apparently there’s not much gold in London and a massive imbalance between paper gold and physical gold on the Comex, it would likely require a significantly higher gold price to balance the physical gold supply and demand.

Currently a run on Comex gold appears to be starting, notwithstanding the Comex’s attempt to kick this can down the road with the use of Exchange For Physicals (EFPs) and Privately Negotiated Transactions (PNTs). But EFPs/PNTs are nothing more than second order derivatives created to sidestep the delivery of Comex bars. In fact the EFPs were used largely to transfer the settlement liability of a Comex contract to the LBMA.

Physical gold thus in fact does not trade on the Comex. Rather, the Comex is nothing more than a derivatives exchange with a small amount of physical gold relative to the notional value of the derivatives created.

As with the rest of the paper Ponzi schemes created by the banks and Central Banks, the Comex’s derivatives house of cards has always been fated to collapse. Based on all indications plus the signs of desperation emanating from the Comex and the LBMA, the collapse has begun. This will ultimately lead to much higher prices for gold and silver. Note: this situation started to unfold well before the virus crisis.

The Comex And LBMA: Paper Gold On Steroids

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

I truly thought I had seen all that was possible in the creation of paper gold when the Comex rolled out its “pledged gold” category which enabled technically insolvent banks like HSBC and JP Morgan – the only two Comex banks to have taken advantage of this new gold derivative product – to use paper gold to satisfy the performance bond requirement of CME clearing members.

But now the LBMA and CME operators have rolled yet another paper gold derivative productive in the hopes that the two entities can stave off defaulting on futures and forward contractual delivery requirements.  The Accumulated Certificates of Exchange (“ACE”) facilitates the “fractional” delivery of a 400 oz gold bar.

There’s just one minor problem with this set-up.  According to the Cambridge Dictionary, the word “delivery” is defined as:  “the act of taking goods, letters, packages, etc. to people’s houses or places of work.” To me this means if I want delivery of the 100 oz bar of gold for which I contracted, I would like to have the 100 ozs deposited in the location of my choice so that I can possess the gold bar for which I paid upfront.  In effect, the Comex has technically defaulted on the contractual terms of the 100 oz Comex futures contract.

Ronan Manly of Bullionstar.com has written an excellent analysis of this new paper gold derivative scheme:

And just like that, when you thought bullion bankers and their frontmen, the CME and LBMA, could not create even more paper gold, they just went ahead and did. And it gets better, since according to the CME:

“Once issued, ACEs can be held as long as necessary. A client can use ACEs to comply with short delivery requirements (1 ACEs reflecting one futures contract of 100 oz) or it can be swapped back against a 400 oz bar by exchanging 4 ACEs. A customer can comply with delivery requirements with ACEs or regular bars, or a combination of both.”

Here’s his entire article:   Comex delivery problems.

It’s only a matter of time before the markets wake to this reality. At that moment we will see the $100-$200 or more daily moves in gold that many have discussed as an eventuality.

The Shortage Of LBMA Bars Persisted Before Coronavirus

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , , ,

I found it amusing that Zerohedge tried to take credit for reporting the problem of a physical gold shortage on the LBMA and Comex earlier last week. Several of we “gold bugs” have been discussing and reporting on this issue since before the virus crisis exploded. The Comex has been settling contracts that stand for deliver through EFT and PNT transactions by which the counterparty accepts cash payment or the transfer of the Comex obligation to London for several months.

GATA’s Chris Powell expounded on this in a must-read essay on Friday: “What the heck are those mysterious ‘exchange for physicals,’ the mechanisms by which contracts to buy gold on the New York Commodities Exchange are neither fulfilled by delivery on the Comex nor settled for cash there but transported for supposed delivery elsewhere?

The mechanism long has been incorporated by the Comex trading system but was described as an “emergency” procedure undertaken upon agreement by buyer and seller — except that the use of this “emergency” procedure has exploded in the last year, involving tens of thousands of contracts and, nominally, hundreds of tonnes of gold.” Gold Traders Paid Not To Redeem Comex EFPs

Chris Marcus of Arcadia Economics and hash out this issue in our latest podcast:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

“I felt in my gut that something was amiss with the markets a year or so ago and started reading up on sound money/macro. At that time I had most of my money in UK stocks but wanted a way out and a way into the metals. I needed guidance thus why I signed up to your short seller and mining journals.

Today I am way down on the mining stocks and somewhat down on physical silver and gold. But I have offset 80% or so of those paper losses with paper gains on a raft of put options on indexes and sector ETFs. So, thank you for your journals and keep up the excellent work.” – Mike, who subscribes to both journals

Tesla, Gold And Coronavirus – Fraud And Global Depression

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , , , , ,

To say the current stock market is in a bubble is an insult to the word “bubble.” Tesla experienced an insanely idiotic stock price move after reporting “shock and awe” headline numbers for revenue and EPS which “beat” estimates – estimates that had been lowered by analysts throughout 2019. But as always there’s plenty of dirt in the details which point to a reality that is far different than is represented by headline numbers and Tesla’s highly orchestrated earnings presentation.

There’s just no telling when this Electric Tulip will inevitably crash. But, as with any investment bubble the popping will happen suddenly and unexpectedly, when the bulls are convinced that the upside is limitless and the bears are in a state of terror.

Meanwhile, the physical gold market which underlies the complicated web of paper gold derivatives continues to push the gold price higher despite aggressive efforts by the western Central Bank and bullion bank price management team. In fact, data from the BIS indicates that the BIS had a heavy hand in the effort to cap the price-rise of gold during January using its physical gold swap and leasing transactions.

Paul at Silver Doctors invited me onto its podcast to discuss these issues

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Bullion Shortages Will Push Junior Mining Stocks Higher in 2020

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

The chart above shows the ratio of GDXJ/GDX. Although I don’t consider GDXJ to be a junior ETF per se, the GDXJ index does contain smaller cap, later-stage juniors and smaller cap producers. In that sense, it offers slightly higher risk/returns than GDX. That ratio has popped above the downtrend line that was established at the peak of the last bull cycle in the sector.  Prospectively, as long as it stays above that trendline and moves higher, it’s a great indicator that the precious metals sector will stage a big move higher for the next couple of years.

Trevor Hall and I discuss the physical bullion shortage developing in London and New York and why the precious metals sector will likely make a big move in 2020 – click on the graphic below or this link to listen:

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I cover several junior exploration stocks with upside that is several multiples of their current price. I also specialize in looking for value plays in larger cap producing miners as well as reviewing stocks to avoid.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

NOTE: I do not receive compensation from any mining stock companies and I do not accept any precious metals industry sponsors. My research and my views are my own and I invest my own money in many of the stocks I present.

Time To Buy Gold And Silver On Every Pullback

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , , ,

The soaring paper gold open interest on the Comex is just one indication of a shortages developing in the physical gold bullion market. It’s no coincidence that just prior and accompanying the sell-off in gold this week that Exchange for “Physical” and Privately Negotiated Transactions (EFPs and PNT) volume spiked up on the Comex. EFPs and PNTs are “derviative” transactions which enable the bullion banks to settle futures with cash or some other form of gold derivatives like shares of GLD.

There are other indications as well, which Chris Marcus and I discuss this week on his Arcadia Economics podcast:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.