Guest Post: "The Death Of The Gold Market", by Paul Mylchreest
Our friend, Paul Mychresst, has written this extraordinarily comprehensive report on the current state of the global gold "market". His timing couldn't be better. As price holds firm against the extreme efforts of The Bullion Banks, it is absolutely critical that you take the time to read this tremendous summary of the current situation.
As you've often heard me state, the global gold "market" is much more vast than the Comex-centric analysts would have you believe. There are literally hundreds of moving parts that affect price...and the price "discovered" on the Comex has no direct relationship to physical supply/demand fundamentals.
This new piece from Paul Mylchreest is the sort of thing I would have loved to have written myself...if I had the time and expertise to do it! With Bullion Bank leverage soaring to extreme levels and paper obligations to deliver gold reaching heights unseen for years, it is CRITICAL that you take the time to read through this report.
Additionally, NOW would be an excellent time to re-watch this exceptional presentation from another one of our friends, Grant Williams. Though originally posted in early January, many of the themes Grant discusses are still relevant four months later. PAY PARTICULAR ATTENTION to the information presented at the 20:00 mark and forward. I've grabbed screenshots so that you're sure not to miss them. In 2015, the cumulative allocation of global pension fund assets to gold and gold-related securities was only 0.15%. If that were to double to just 0.3%, the effects upon gold, the gold ETFs and the mining shares would be historic.
Now consider that, in this environment, The Banks are already on the run. As we learned a few weeks ago, the Central Banks are no longer providing unlimited amounts of gold to The Bullion Banks for the management of price. Without this supply, The Banks are desperately working to cover and manage all of their outstanding lease arrangements as well as meet the global demand for physical metal. We've often referred to this is living off of "flow" instead of "stock". The Bullion Banks manage the global physical gold market in much the same way your supermarket manages its inventory. Namely, with "just in time" delivery. So what happens at the first delivery failure...when the music stops and there's a sudden scramble for chairs?
And this is what the Banks on the Comex (The Bullion Banks for those too obtuse to otherwise understand) recognize and this is why they are so desperately doubling down and adding to their record short positions at present. Having been left to their own devices by the Central Banks, the Bullion Banks are left with no choice but to put "good money after bad" in the hopes of exhausting Spec demand and reversing price lower.
As of the most recent Commitment of Traders report, the gold "Commercials" were net short 295,000 Comex contracts. Again, that's NET. On a a gross basis, it's 411,545 contracts! But even on the NET basis, that short position is equivalent to nearly 30,000,000 ounces of gold. Therefore, every $10 move in price generates an additional paper loss of $300,000,000. Doing the math, a $100 move generates additional losses of $3,000,000,000! And this is just one reason why The Banks are so desperate to contain price here.
The other is the physical situation described by Paul Mylchreest. In "the west", investors only seem to value items that are moving up in price. Assets that are falling in price are considered dead money and "pet rocks". However, as prices rise, western investors seemingly want more and more. Therefore, a rising price...a price allowed to move through $1300 and $1400...would only exacerbate the physical situation for The Banks. And, as laid out here daily, it is the physical market that will ultimately bring about the demise of the Bullion Bank Paper Derivative Pricing Scheme.
Putting this all together, you can now see the urgency behind this rare Sunday morning post. The Banks (on the Comex and in London) are doing everything they can to stymie this rally as they realize the very real and existential threat that it poses. Will they win and will they survive? I suppose that depends upon just many folks learn of this struggle that is unfolding behind the scenes. At TFMR, we're glad to do our part to bring these issues to everyone's attention and we are extraordinarily grateful for the efforts of good folks like Paul Mylchreest and Grant Williams in aiding the cause.