Let's talk about the gold market

[kbird]

It appears that physical gold is disappearing from the retail and institutional market due to a combination of panic buying by retail and institutional buyers combined with Covid-19 related shutdowns at mints, refiners, and gold miners.

https://twitter.com/roysebag/status/1243181195329966088

Some initial questions for discussion but I'm sure there are many others:

- Is this just a temporary phenomenon that will pass when Covid-19 shutdowns stop?

- How is the gold price not going up given the enormous supply/demand imbalance? Isn't the problem of a lack of physical gold resolved simply by a higher price?

- How is GLD still adding allocated gold to its shares with physical gold drying up?

- What does this mean for the safety of ETFs which are backed by allocated physical gold and custodied by bullion banks that are trying to meet physical gold demands?

- What is the ever-expanding gold/oil ratio telling us?

[globaleconomicollaps]

Re: Let's talk about the gold market

It appears that physical gold is disappearing from the retail and institutional market due to a combination of panic buying by retail and institutional buyers combined with Covid-19 related shutdowns at mints, refiners, and gold miners.

https://twitter.com/roysebag/status/1243181195329966088

Some initial questions for discussion but I'm sure there are many others:

- Is this just a temporary phenomenon that will pass when Covid-19 shutdowns stop?

- How is the gold price not going up given the enormous supply/demand imbalance? Isn't the problem of a lack of physical gold resolved simply by a higher price?

- How is GLD still adding allocated gold to its shares with physical gold drying up?

- What does this mean for the safety of ETFs which are backed by allocated physical gold and custodied by bullion banks that are trying to meet physical gold demands?

- What is the ever-expanding gold/oil ratio telling us?

There are lots of 400oz bars available. GLD only buys 400oz good delivery bars.

[kbird]

Re: Let's talk about the gold market

There are lots of 400oz bars available. GLD only buys 400oz good delivery bars.

According to Roy Seybag, and I'm relying on his perspective because I am not involved in this market, there are shortages of 400 oz good delivery bars too.

For the first time since founding Goldmoney, I can say there really are shortages developing in the physical market for gold. No Kilo bars anywhere (except GM as our bars are mostly Kg!) and 400 oz bars now in short or no supply across multiple vaults and counterparties.

— Roy Sebag (@roysebag) March 24, 2020

[GRG55]

Re: Let's talk about the gold market

People losing their heads in a panic. Situation normal.

Until the time comes there's the real prospect of a global monetary system reset gold is just a fear-index trade.

When the virus has run its course and we start to rebuild our economies we won't need gold. But we will need oil...and a whole bunch of other things.

[jk]

Re: Let's talk about the gold market

i think we're seeing an acceleration of gold being re-valued up, i.e. the dollar being re-valued down vis a vis "stuff." maybe we're even getting ahead of ourselves and the paper price and physical price will come closer by the latter dropping a bit. but surely this is the future as cb's continue to accumulate gold and in general physical gold flows from the west to the east. in the meantime i've come to believe that the price is held down by the vast paper market, which is at least at times manipulated to bail dealers out of dangerous short positions. my biggest question is whether the u.s. really holds the gold it supposedly has, or whether it's been leased to bullion banks and its recovery thus open to question.

[kbird]

Re: Let's talk about the gold market

i think we're seeing an acceleration of gold being re-valued up, i.e. the dollar being re-valued down vis a vis "stuff." maybe we're even getting ahead of ourselves and the paper price and physical price will come closer by the latter dropping a bit. but surely this is the future as cb's continue to accumulate gold and in general physical gold flows from the west to the east. in the meantime i've come to believe that the price is held down by the vast paper market, which is at least at times manipulated to bail dealers out of dangerous short positions. my biggest question is whether the u.s. really holds the gold it supposedly has, or whether it's been leased to bullion banks and its recovery thus open to question.

Can the paper/futures market continue to exist without physical gold? Why wouldn't institutional investors looking for physical gold just buy futures contracts and ask for physical delivery of those contracts? And if you can't deliver on those futures contracts, what are those contracts even pricing?

[jk]

Re: Let's talk about the gold market

Can the paper/futures market continue to exist without physical gold? Why wouldn't institutional investors looking for physical gold just buy futures contracts and ask for physical delivery of those contracts? And if you can't deliver on those futures contracts, what are those contracts even pricing?

i believe the commodity exchanges have the right to settle contracts in cash if they can't do delivery. thus, if there's no physical in the warehouse, the settlement is at whatever the paper market says it should be.

[kbird]

Re: Let's talk about the gold market

i believe the commodity exchanges have the right to settle contracts in cash if they can't do delivery. thus, if there's no physical in the warehouse, the settlement is at whatever the paper market says it should be.

Again, I'm relying on Roy Sebag, but he would suggest that cash settlement isn't an option (yet). From a few days ago:

1/2 I’ve received some important information relating to what’s going on in Gold markets. Today, some banks failed to deliver physical in the comex bar EFP. As a result, these banks suffered large losses which will soon be announced. They’ve also decided to exit the comex market.

— Roy Sebag (@roysebag) March 24, 2020

2/2 Now there remains a big shortage in physical in the comex denomination so rumors are the Comex will announce a force majeure and allow banks to deliver LBMA bars instead. This should be announced imminently.

— Roy Sebag (@roysebag) March 24, 2020

And then he tweeted this out the following day:

The CME PR is out. Two important facts have been withheld: 1)Which banks were short $16B more physical than in CME vaults and required a bail out? 2) How will LBMA metal in London be used to settle delivery in NY during Covid shut-down? Another sad day for "free" markets.

— Roy Sebag (@roysebag) March 25, 2020

[kbird]

Re: Let's talk about the gold market

This article offers a good summary of the tightness in the physical supply of gold right now.

https://www.goldmoney.com/research/m...3sd3vY.twitter


In a dramatic week, gold and silver rose strongly on a decline of open interest on Comex. These conditions signaled an epic bear squeeze on the bullion banks. In early European trading this morning gold was trading at $1616, up $119 from last Friday’s close, and silver at $14.44, up $1.80 on the same timescale. Volumes generally declined over the week, most noticeably in silver, consistent with an absence of buyers other than capitulating bears.

A notable feature was gold’s April contract running off the board with its last trading day yesterday (Thursday). On preliminary figures, there was an open interest of 58,407 contracts, suggesting that more than normally there are likely to be longs expecting delivery. We will see over the next day or two how that one will pan out.

There were reports that some specialists who provide an exchange-for-physical market (EFPs) found it impossible to operate due to lack of delivery of bars from London and having been left nursing big losses. In response, the CME Group announced a new futures contract under which LBMA bars would be deliverable.

In prevailing conditions, that is unlikely to help much, part of the problem being restricted airline shipments due to the coronavirus. The LBMA issued a statement designed to cool things claiming that at 8,263 tonnes there is plenty of gold in London’s vaults. What they failed to say was that the total includes official monetary gold, ETF gold and gold in custody for institutions and high net worth individuals, leaving a true float of only 1,000 tonnes or less backing enormous daily volumes in London forwards.

The new Comex contract is mere sticking plaster over a deeper problem. There is not enough physical gold in the financial system to provide the required liquidity at these price levels. The reason this particularly matters is that three of the four Swiss refiners are in lockdown, and logistics are badly impaired. To this we must add central bank announcements that their common monetary policy now is to print to infinity in an attempt to save capital markets and global industrial production.

In light of these factors, at best the outcome will be a sharp readjustment of bullion prices or at worst a very public breakdown of bullion markets. The former seems certain with retailers of coins and bars cleaned out nearly everywhere and where they have availability they are charging significant premiums for delayed delivery. Physical gold appears to have decoupled from paper contracts, its premiums implying paper gold is under-priced. That the system appears to be breaking down is evident in the EFP traders’ problems.

Being a liquidity issue, the crisis in paper gold markets could accelerate rapidly. And as investment managers and hedge funds begin to assess the inflationary effects of monetary policies, belatedly they will come to the party – just at the moment there is no physical gold available.

While the headlines have centred on gold, silver has been left behind with the gold/silver ratio rising spectacularly as our final chart shows.

[Down Under]

Re: Let's talk about the gold market

but surely this is the future as cb's continue to accumulate gold and in general physical gold flows from the west to the east.

jk, Just curious how you know this? Not saying it's not true, but I know you posted a while back stating that cb's are buying gold for the first time in years. I think when you made the previous post, you included a link, as I believe I looked it up. If that is the case, that you did provide a link in your previous statement, is this what you're still relying on, or do you have new information confirming this?

[Down Under]

Re: Let's talk about the gold market

Until the time comes there's the real prospect of a global monetary system reset gold is just a fear-index trade.

The above statement of yours, is the following what you meant by it?

"Until the time comes, and there's the real prospect of a global monetary system reset, gold is just a fear-index trade."

If I have interpreted your statement correctly, does this mean you don't think we are about to see a global monetary system reset at this time?

[Mega]

Re: Let's talk about the gold market

Am thinking of buying "in" to Hydrocarbons in late July ish....
Mike

[jk]

Re: Let's talk about the gold market

jk, Just curious how you know this? Not saying it's not true, but I know you posted a while back stating that cb's are buying gold for the first time in years. I think when you made the previous post, you included a link, as I believe I looked it up. If that is the case, that you did provide a link in your previous statement, is this what you're still relying on, or do you have new information confirming this?

i've seen numerous charts of holdings increasing in russia, china, kazhakstan, i think turkey, and others. i didn't save them, nor the references. i was going to google it, but you can google it as well as i.

[kbird]

Re: Let's talk about the gold market

Until the time comes there's the real prospect of a global monetary system reset gold is just a fear-index trade.

This is a difficult statement to disagree with. Where I disagree perhaps is that the odds of us being near a system reset seem to be high and increasing.

What would you expect to see just before a system reset?

Here's what I would expect to see before a system reset:
- a significant recession which punctures the everything bubble
- helicopter money where fiscal stimulus is funded by money printing
- the rest of the world not able or not interested in funding U.S. deficits
- a quiet run on physical gold
- problems with the banking system

I recall EJ mentioning that the system reset wasn't likely to happen because everybody is dealing with the same emergency at the same time, so money wasn't going to be withdrawn from the United States. But foreign CBs are now starting to sell their U.S. Treasuries.

I was thinking about what I would expect to see before a system reset that we haven't yet seen, and I couldn't come up with anything.

Now it may well be that the world economy soon opens back up, that the CARES act was enough to re-stimulate the economy, and everybody will soon be off blowing bubbles again. But I just don't think that's a base case scenario anymore.

[jk]

Re: Let's talk about the gold market

This is a difficult statement to disagree with. Where I disagree perhaps is that the odds of us being near a system reset seem to be high and increasing.

What would you expect to see just before a system reset?

Here's what I would expect to see before a system reset:
- a significant recession which punctures the everything bubble
- helicopter money where fiscal stimulus is funded by money printing
- the rest of the world not able or not interested in funding U.S. deficits
- a quiet run on physical gold
- problems with the banking system

I recall EJ mentioning that the system reset wasn't likely to happen because everybody is dealing with the same emergency at the same time, so money wasn't going to be withdrawn from the United States. But foreign CBs are now starting to sell their U.S. Treasuries.

I was thinking about what I would expect to see before a system reset that we haven't yet seen, and I couldn't come up with anything.

Now it may well be that the world economy soon opens back up, that the CARES act was enough to re-stimulate the economy, and everybody will soon be off blowing bubbles again. But I just don't think that's a base case scenario anymore.

don't you think the helicopter money, etc, has to have time to create some effects before any serious monetary reset? at the moment we have a deflationary recession- low production and low consumption.

but prior to a monetary reset i think we have to start seeing significant inflation [beyond the narrow sectoral price gouging in certain medical supplies]. i can imagine a serious inflationary recession, like the one in the 1970's but on steroids, being the necessary trigger. low supply/production meets helicopter funded demand/consumption.

[the main area in which this is NOT happening is energy, which at the moment is characterized by high production and low consumption]

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edit- so an hour after writing the above i came across an article, link below, which i highly recommend on precisely the topic of how inflation will emerge as we get past the pandemic.

https://voxeu.org/article/future-imp...er-coronavirus