With all of the world’s refined silver stockpiles estimated at approximately 1 billion oz. (including holdings by investor Exchange Traded Funds or ETFs), the situation created in the silver market is extraordinarily unstable.
by David Jensen, Safe Haven:
The Governor of the Bank of England Mark Carney has a problem and it is a severe problem. For decades, the Bank of England has acted as a coordinating market-maker for bullion banks in the City of London that trade ‘unallocated’ or unsecured gold and silver contracts through the London Bullion Market Association (LBMA). The market is uncovering that the Bank of England (BoE) has in effect been facilitating what amounts to a kiting operation in maintaining the structure of the London metals market where the vast majority of spot claims for gold and silver can never be settled with actual metal delivery. The irony is not lost when one considers that the BoE operates the Prudential Regulation Authority that regulates 1,700 UK banks to ensure their “safety and soundness”.
By facilitating unsecured, or unbacked, paper gold and silver spot ownership contracts that are held by a host of private, corporate, financial, and sovereign wealth fund interests, paper claims for ownership of an estimated 400 million to 600 million oz. of gold and 4 to 6 billion oz. of silver have been created through the LBMA. These spot metal contract holders, deflected into holding paper promises for metal instead of metal itself, hide true metal demand with the result that real price discovery is thwarted and precious metal prices are held at artificially low levels.
Former US Treasury Secretary Larry Summers wrote that a phenomenon called Gibson’s Paradox identified that rising gold prices have historically forced interest rates higher. These rising rates thwart prolonged inflationary money and debt creation by central banks. The scheme of suppressing global gold and silver prices for decades has allowed loose monetary policy globally by central banks over this period and has created a secular global bond bubble with worldwide bond holdings now exceeding $220 trillion and 340% of GDP – twice the historically sustainable level of 150% of GDP.
Estimated leverage at the LBMA for spot metals claims vs the amount of metal available for delivery range from 100:1 and higher for gold and are much higher for silver. If we consider gold and a 100:1 leverage ratio, the result is that 1% of spot claimants for gold in the London spot market can receive metal or 100% of claimants can receive 1% of the metal that they believe they own – or somewhere in between.
With all of the world’s refined silver stockpiles estimated at approximately 1 billion oz. (including holdings by investor Exchange Traded Funds or ETFs), the situation created in the silver market is extraordinarily unstable. Each of the 1 billion oz. of refined physical silver in global stockpiles is held by claimants and is not available for sale unless the holder decides to dispose of the asset. And with annual mine supply of the order of .850 billion oz. already being consumed by industry and investors taking delivery of the metal, the silver spot market claimants in London face a disturbing realisation. The spiking silver price that we see today warns us of impending exceedingly large price spikes and market disruption as the metals market deleverages.
To date, the LBMA, bullion banks and the BoE have created the appearance of a liquid market using leased gold from sovereign metal holders and central banks and also using the metal flows from the global gold and silver miners who themselves are enabling this price suppression by selling their physical metals through the LBMA to the detriment of shareholders and society at large.
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