All Is Not Well in the Gold Paper Markets / Commodities / Gold & Silver 2020
London Bullion Market Association (LBMA) officials have loudlyproclaimed there are plenty of gold bars in LBMA and COMEX vaults tomeet surging demand from buyers.
Unfortunately for them, confidence is particularly fragile thesedays and cracks are starting to appear.
Which is why anxious officials there issued not one, but twomemos last week in an attempt to reassure traders.
It’s interesting the LBMA, along with the COMEX, felt a need toput out back to back statements. If inventories are plentiful, both exchangesshould be busy delivering gold, on time and without delay. The best way tobuild confidence is simply to meet buyers’ expectations.
Thetrouble is these expectations are not being met, and officials blamingdisruptions related to COVID-19. There are, for example, not enough 100-ounce gold bars in theU.S. to cover demand from those standing for delivery on COMEX futurescontracts.
The reason offered is that the Swiss refiners who normallyconvert 400-ounce bars stored in London to 100-ounce bars needed in the U.S.are temporarily closed. There has also been difficulty in arranging airtransport of the gold.
This sounds plausible, but it does not explain a morefundamental problem. Bullion banks sold way more paper 100-ounce bars than theycan actually deliver. While there may be lots of physicalgold in London, there isn’t enough deliverable gold in U.S. basedCOMEX vaults to meet delivery demands.
U.S. investors standing for delivery on a contract shouldn’thave to rely on inventory stored in London vaults.
Yet that is exactly what they will have to do. The COMEX changedthe terms of their gold futures contract. Now bullion banks can meet deliveryrequirements with 400 oz bars in an LBMA vault stored overseas.
U.S. buyers might not like getting a partial interest in a 400oz bar vaulted in London instead of a 100-ounce bar they can take actualpossession of here in this country. That is tough luck for them and great newsfor bullion bankers on the verge of default.
Perhaps the joint statement issued by LBMA and COMEX officialson April 1st was an April Fool’s joke. They claimed a “near record” 8,326tonnes of gold are stockpiled in LBMA vaults – the equivalent of 666,045400-ounce bars.
However, they published an inventory number from 3 months agoinstead of the current stocks... suspicious to say the least. They also didn’texplain that a large majority of the stored gold is not available for deliveryat this time. The vast majority of that gold belongs to the Bank of England,other central banks, and ETFs.
Metals analyst Ronan Manly estimates the actual amount of goldavailable for delivery is less than 500 tonnes – at least at the current goldprice.
Craig Hemke, of TF Metals Report, points out just whata paltry amount that is. The “CME/COMEX posted a total of 290,847 ‘Exchangesfor Physical.’ That's a total of over 29MM ounces of gold or NINE HUNDREDMETRIC TONNES!!!”
In other words, the LBMA vaults may only have about half of whatis needed to cover COMEX “Exchanges for Physical” in London, let alone what isneeded by the LBMA directly. Keep in mind, these numbers are just from thefirst three weeks in March.
It is starting to look like a lot of speculators who hold papergold and hope to redeem that for actual bars could be disappointed.
By Clint Siegner
Clint Siegner is a Director at MoneyMetals Exchange,perhaps the nation's fastest-growing dealer of low-premium precious metalscoins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon,puts his experience in business management along with his passion for personalliberty, limited government, and honest money into the development of MoneyMetals' brand and reach. This includes writing extensively on the bullionmarkets and their intersection with policy and world affairs.
© 2020 Clint Siegner - All Rights Reserved
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