Discussion between Jay Taylor and David Jensen taped on January 29, 2015
1) Short recap key definitions and data for Listeners
Spot contract trading of metal - contract for trading immediate metal ownership; 90% of LBMA daily trading.
Open interest - the total number of ounces of gold for which there are trading positions (claims for metal) in the market.
Net settled clearing volume - the end of day net volume of trading when all of the credits and debits between members have been netted-out.
2) LBMA Data Points to Gold and Silver Default: LBMA report "Loco London Liquidity Survey" http://www.lbma.org.uk/assets/Loco_London_Liquidity_Surveyrv.pdf re. LBMA gold trading volumes (turnover) in Q1 2011 that daily gross trading volume is 10x the average net cleared trading statistics (as posted online at the LBMA website)
LBMA data analysis - data source http://www.lbma.org.uk/clearing-statistics
LBMA Daily Gold and Silver Trading Volume - Gold and Silver Claims In LBMA
Global gold stockpiles estimated as official global central bank stockpiles plus 200M oz plug number for China.
Silver imbalance between its London open interest of 3.5 to 5 billion oz. and global stockpiles is extreme.
3) The Gold Problem: Gold stockpile estimates do not account for off-balance-sheet central bank leasing of their gold; has been ongoing for decades.
Decades of central bank leasing of gold to set (rig) the gold price and hide both monetary inflation as well as contain interest in gold.
Depleted central bank gold stockpiles below official statistics; likely far below official holdings. Central banks only hold claims for the return of their gold.
Central banks (China, Russia, etc.) now actively buying gold - not source of gold to market but source of demand
Gold looted from Iraq's and Libya's central banks not visible but believed to have entered market.
Richard Pomboy estimated in 1997 at Grant's Interest Rate Observer investment conference that central banks needed to sell / lease 1,500 tonnes (48 M oz.) of gold to meet annual market deficit. Subsequent market analyses in ~ 2000 by James Turk, Reg Howe, and Frank Venerosso all independently estimated ~ 1,500 tonnes (48 M oz.) of gold leased to market each year with Enron-style off-balance-sheet gold transactions by central banks to contain gold prices and hide gold demand. Pomboy's presentation still available using WayBack archives:
Bank of England (BoE) acts as physical gold market liquidity maker providing gold to LBMA to keep paper market contained.
Bank for International Settlement (BIS) and BoE are keys for LBMA operation
Today's gold and silver prices are a creation of virtual metal positions at the LBMA - not backed with metal. Physical withdrawals will cause LBMA party default.
Majority of spot trading is with unallocated positions. Holders are simply unsecured creditors according to LBMA; not gold and silver holders.
Expect crisis on the LBMA from physical default.
We are now hearing that "capitalism has failed" - Bill Gross, Soros, and others.
What we are seeing the failure of central planning, regulatory capture, and market rigging - not capitalism's failure or the failure of a market economy.
Increased central planning and consolidation of power with world government, world currency, etc. being identified as solution by financial sector participants. Centralized power and abuse is the source of our crisis and not a solution.
LBMA report "Guide to London Precious Metals Markets" (gold, silver, platinum, and palladium) published on the LPPM website: http://www.lppm.com/OTCguide.pdf
- pg 12 (of 52) Majority of LBMA trading is in unallocated accounts - client purchasing metal does not have title to specific metal and is "an unsecured creditor"
- spot trades settled as "credits or debits to an account"
- credits to an account "do not entitle the creditor to specific bars of gold or silver"
pg 16 Loco London (ie. LBMA) pricing is the basis for "virtually all transactions in gold, silver, platinum and palladium"; global price setting power of the LBMA for transactions involving precious metals traded using virtual unallocated metal.