Swiss Refiner: Physical Tightness in the Flow of Gold Is 'Reflected in the Price Not at All

"No correlation to the physical market.

On-going tightness in the physical gold markets.

physical tightness of flow is reflected in the price not at all.

Gold is moving in one direction from west to east with small exceptions over the last year.

The danger of less supply moving forward is more likely than the comfort of more supply."

I found this discussion between John Ward of Physical Gold Fund SP and an executive at one of the top Swiss Refiners highly informative, and suggest that you give it a listen.

The most difficult part I have found in presenting information is that once a group has amassed a great deal of data and putting it into some organized form of information, an arduous task indeed,  the next step of taking that information and putting it into a relatively simple and easier to understand format is a very important task and none too easy in itself.

I certainly learned that lesson through years of making presentations to the principal executives of Fortune 100 companies.  Most of the time they wish to have everything on one sheet or slide, with backup optional for their staffs or key questions they may ask in 'drilling down.' If you have ever worked at a large company I am sure you know the feeling.

I hope to have something out on this issue later day.

But this is quite interesting and stands alone.  We have been hearing about this 'tightness' from quite a few quarters recently including some bank analysts and Peter Hambro.


You may read about this and listen to the actual podcast at Physical Gold Fund.

The gentleman we are interviewing is part of senior management of one of the largest Swiss refineries. His refinery is one of only 5 global LBMA referees, which takes samples from other refineries around the world and certifies them to produce gold meeting the purity and form factor of the LBMA good delivery standard, which makes it part of the very core of the industry globally.

He has over 30 years experience in the gold markets and has in our view one of the most authoritative perspectives into global physical gold flows in the world. His unique outlook, formed from internal data on gold flows through the refinery, combined with colleagues throughout the industry including the largest bullion banks (versus news outlets) is an invaluable source of information and paints an important picture for the gold markets moving forward.


Topics include:

*Why trying to correlate physical flows with the price can be misleading;

*On-going tightness in the physical gold markets;

*There is less liquidity in the physical market;

*The physical tightness of flow is reflected in the price “not at all”;

*As long as the spot market is settled with cash settlement, the physical flows are not determining price;

*If investors dealing in cash markets begin to take delivery, the physical is just not around;

*The current pricing mechanism can continue indefinitely unless investor behavior changes to taking delivery versus cash settlement;

*The gold price has “no correlation to the physical market”;

*If this behavior changes (to taking physical delivery) it could become dramatically dangerous;

*Gold is moving in one direction from west to east with small exceptions over the last year;

*90% of the refinery’s business is currently supplying demand from the east (India, China) and 10% to western markets;

*China has imposed a new standard on the LBMA good delivery system of 1 kilo, 999.9 fineness;

*400oz bars being melted and refined to 1 kilo 999.9 fine bars and shipped into China are coming out of London and particularly the ETF’s such as GLD;

*In the next gold upleg, scrap may not be readily available – overall scrap has decreased remarkably;

*Declining investment in the mining sector and geo-political issues affecting mining viability will unavoidably reduce gold supply moving forward;

*The danger of less supply moving forward is more likely than the comfort of more supply.

Silver Coin Premiums Continue Running Much Higher Over Spot

Silver Eagles are in the 25+% range, and bags of 90% silver coins are a little over 24%.

These charts are from goldchartsrus.com.

The prices are discovered using actual quotes from the largest internet retail sellers.

Gold Daily and Silver Weekly Charts - Option Expiry On 24th - A 'Bent' Market - Timely Caution

"Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

Alan Greenspan, Testimony Before the Committee on Banking and Financial Services, U.S. House of Representatives July 24, 1998


"Secrecy is completely inadequate for democracy, but totally appropriate for tyranny."

Malcolm Fraser

We are going to have an option expiration on the Comex on this Thursday the 24th.   I am not expecting it to be a big event, since October is a light contract, with the real attention and action being concentrated in December.

However, there are over one thousand puts at the 1125 strike, so the cynical me might call that good support.

If I were trying to skin the specs and holders of options with shallower pockets, I would take gold down to about 1120ish, suck in more puts and scare the calls out, and then take the price up and skin all those put holders at expiry.

But this is a one dimensional view of the market, and does not take into account the trade in London and in the vastly out of control derivatives markets.   Or the side action in the miners and ETFs for that matter.

There were no (zero) deliveries for gold and silver at The Bucket Shop yesterday.

The slow bleed out of the bullion warehouses continues.

I recall some fellow, I think it was from Barclays, saying that the record low plunge in deliverable (registered) gold bullion at the Comex was because those who owned it did not wish to see it stopped out 'in a short squeeze.'

And I remember thinking at the time, what short squeeze is he referring to?  The non-delivery Bucket Shop?

And then the rumours regarding the shortage of delivery ready bullion at the LBMA came out, Peter Hambro said it was 'almost impossible to find,' and a few analysts noticed that the gold is in backwardation, meaning a premium is being paid for real gold in hand.

And then Rickards said that he thought a couple of Banks were in a pinch on delivery in London and were hedging their exposure in the futures in New York.  As he noted, London is a 'fractional reserve' system, as is The Bucket Shop with a stated assumption of 2% redemptions, as are some unallocated depositories.

If this game of musical gold gets dodgy, it could begin to fall apart as fast as MF Global swirled down drain.  I would not wish to see that.  I would greatly prefer honest markets that are not so recklessly fragile, in which the small investors is not exposed to so much unknown counterparty risk.

The Banks participating in the London fix are now Barclays, HSBC, SocGen, Bank of Nova Scotia, UBS, and Goldman Sachs.

The Banks which Rickards said were rumoured to be caught short physical deliveries and had been hedging on the Comex with longs are JPM and Citi.

I should note that Jim, for all his expertise and knowledge which I do not dispute, has been leaning in this direction before but certainly early. He suggested that there might be a run on gold back in 2010.

So here we are.   They will never admit there is a problem with this, never.  They will keep doubling down while the music is playing and if it stops, they will run to the Treasuries and the central banks for a rescue, while keeping their profits and bonuses.

In the absence of enforcement of the rules and effective regulation I am afraid that the only thing that will stop this nonsensical looting is a bullion brick in the face.

The price discovery mechanism in the precious metals market is to hide the true state of the supply behind a wall of secrecy, and to jawbone the demand lower by saying ridiculous things and befuddling the average investors.

But there it is.  The flow of gold and silver, a massive exodus of wealth moving from West to East, covered up by a storm of paper.

And the peoples of Asia are letting the malarkey of the bullion Banks and their apologists just float by on the breeze,  while they keep stacking the only financial asset without counterparty risk.

As a caution, even if it proves that the highly leveraged LBMA in London, being backed up by the incredibly over-leveraged Comex, is indeed in a developing short squeeze, as Greenspan reminded us, the central banks have gold which they can lease out to their friends in the Banks, so it can be sold off in Asia, with a promise to return it at some future date.

As Sir Eddie George said, they were 'staring at the abyss' if a failure to deliver were to occur, and prompt a run on available gold forcing an unwind of the paper house of cards.

That may keep the books balanced, but it really does not solve the problem, the systemic fraud that is going on in this as it has in so many other markets.

I get the impression that Asia is in this for the long haul, and will not be deterred.

Stand and deliver, until you cannot.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Lawless Markets

"There is something profoundly wrong when we are seeing a proliferation of billionaires at the same time as millions of Americans are working longer hours for lower wages and we have the highest rate of childhood poverty of any major country."

Bernie Sanders, Portland, Maine, July 6, 2015

Stocks were flailing today on overnight concerns about China, and angst that the Fed did not raise rates, which everyone now says that 'they knew.'

It would not surprise me to discover that this is more of a 'technical trade.' The punters were betting on no change, and were going long stocks and probably overbought a little.

So the pros got the market set up for a smackdown, so they could make some short term cash on their shorts, and then pick some assets back up on the cheap.

For all its headline depths, the descent looked fairly in control to me.  When I was in there today making a few selective purchases the Level II view was showing them gaming the hell out of the stocks, taking they down 100 shares at a time, and then scattering if anyone came in with real decent bid.

Their greed, and the hypocrisy of those who serve them, knows no bounds.

We will know this was the case if the stock market fails to break down from here.  Right now I am thinking it is about 50 - 50 because there is no valid chart formation and too many people are saying the market is going to go lower.  But China is a real wild card.

But it is probably a mistake not to be overly skeptical of anything going on is this lawless markets.

So let's see what happens.

Have a pleasant evening.