Gone...For Good?

346
Tue, Jun 19, 2012 - 11:44am

For weeks, I and others have been telling you about massive sovereign and central bank demand for physical metal at the current paper price. From this demand alone, we can infer quite a few things. Today, I can take it one step further.

First, some background. Members of "Turd's Army" become subscribers to Andrew Maguire's "DayTrades" and "MetalsTrades" service. This service allows traders to follow Andy's actions, thereby learning how and when Andy affects trades in the gold and silver markets. In it's own right, the service is very effective at producing consistent, monthly returns for his clients and the "Army". However, subscribers also have access to Andy's weekly "Market Commentary", which he posts every weekend. This commentary is always informative and provides subscribers with a sort "insider's perspective" which simply cannot be found anywhere else on the internet. No one has more experience, more wisdom and more contacts than Andy and, without question, subscribers benefit from the access he provides.

Similarly, I like to think that everyone here in Turdville benefits from the access that I am able to provide. I receive a lot of on-the-record and off-the-record information and I try to pass along as much of it as I can. Some of it is just speculation and some of it is the sort of "inside baseball" stuff that I attempt to further refine into nuggets that can help you plan for the future.

All of that said, what we now know is this. Beginning some time ago, but continuing today at an accelerating pace, physical metal is being purchased in London and then delivered out of the system. Under "normal" circumstances, this is not necessarily unusual. The bullion banks simply expect this metal to return to them at some point, where it can be re-leased, re-hypothecated and re-delivered in the future. This is how it has worked for decades. However, this time it's different.

What I have learned and have since been able to confirm via a second source is this: London Good Delivery bars are being delivered to Eastern buyers. Instead of being vaulted inside the LBMA system, these bars are being sent directly to refiners. The bars are then being melted and recast in 1 kilogram sizes. The new bars are then being stamped with official, government insignia and sent on to vaults outside of the LBMA system and points east, never to return again.

​What does this mean and why is this important? Quite clearly this information, if accurate, has several significant ramifications:

  • The Chinese and others are preparing for a new system. Whether it's simply a new gold pricing and delivery system to replace the LBMA/Comex or whether it's a new global trade settlement system that is guaranteed with gold is impossible to say, at this point.
  • The physical gold supply of the LBMA and secondarily the Comex, much of which has been acquired/supplied through leasing, is being rapidly depleted and will not be coming back.
  • The bullion banks, which have profited for years from leasing, trading, vaulting and the like, are about to feel the rather dramatic effects of this supply depletion.

As this pertains to the banks, last week I wrote this ( https://www.tfmetalsreport.com/blog/3893/still-pounding-away) and I think the auto dealer analogy is still a good one here. IF China and others are buying gold in London and IF the bullion banks are delivering to them leased and rehypothecated gold and IF the Chinese are taking this gold and melting it and IF they are then recasting it into non-LBMA, 1-kg bars, then the bullion banks have a serious problem on their hands. The delivered gold isn't coming back into "the system". It is no longer in "London Good Delivery" form. It's gone. For good.

My advice to you today is to ponder this information and its implications. Ask yourself these questions:

  • If you vault gold within the current system, do you really own it?
  • If the banks begin to scramble for physical metal, will paper price trade higher or lower?
  • If the Chinese and others are planning for a new, international trade settlement system to supplant the U.S. dollar as reserve currency, what does that mean for the future value of the dollar? What would that mean for the future value of all fiat currency? What would that mean for the future value of gold and silver?

Perhaps now would be a good time to go back and review this post, too. (https://www.tfmetalsreport.com/blog/3885/last-desperate-acts) At 34,000+ views, most of you have already read it. Maybe it's time to read it again.

Think. Look around. Trust your instincts. Prepare accordingly.

TF

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Key Economic Events Week of 6/21

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