Latest / Kinesis Money / Hong Kong's 30,000 Tonnes Trumps Paper Gold - LFTV Ep 291

Transcript

Hong Kong's 30,000 Tonnes Trumps Paper Gold - LFTV Ep 291 · Kinesis Money

• 0:00
  SPEAKER_00: Gold has decidedly broken its relationship with real yields.
• 0:05
  SPEAKER_00: They now have to keep printing or we crash.
• 0:08
  SPEAKER_00: We've got this ticking time on talking gold with the one and only Andrew McGuire.
• 0:15
  SPEAKER_00: Welcome to Live from the Vault.
• 0:21
  SPEAKER_00: Welcome everybody.
• 0:23
  SPEAKER_00: Just to let everyone know, um, Shane has moved on from Live from the Vault.
• 0:28
  SPEAKER_00: Now, Shane helped host the show for many years, and we really true, truly wish him the very best in all his future endeavors.
• 0:38
  SPEAKER_00: But the team here um will be right like back to the early days here.
• 0:43
  SPEAKER_00: We'll be working twice as hard.
• 0:45
  SPEAKER_00: We're gonna gather all your questions.
• 0:47
  SPEAKER_00: We are gathering all your questions each week.
• 0:51
  SPEAKER_00: Uh and we won't stop unearthing really what are the biggest stories in the precious metals market.
• 0:59
  SPEAKER_00: Um so for our first question this week, let's get into it.
• 1:05
  SPEAKER_00: Now, the team has fielded really what your valued subscriber questions, um, which as I review them, I kind of trying to wonder make it absolutely appropriate to answer the questions that revolve around what we're seeing both short term and um from which is from basically from where we recorded our last episode two weeks ago on the 9th of September, um, as well as requests for an update of what we're seeing longer term, as that relates to my very still valid end-of-year projected market rally into the minimum of six to eight thousand dollar levels.
• 1:50
  SPEAKER_00: Now, you might say, hey, look at the market, what's going down?
• 1:54
  SPEAKER_00: Exactly, there's reasons for that, and it's very, very short term would explain it.
• 2:00
  SPEAKER_00: Don't get shaken out, keep stacking, and I'm just gonna explain why.
• 2:06
  SPEAKER_00: But let's start by connecting the action from where we were when we last recorded two weeks ago, which I can't believe it, the 9th of September, it seems like a month ago already.
• 2:19
  SPEAKER_00: Um, and then we're gonna look at the footprints through the synthetically driven chart noise, which is in the bigger picture, it's just chart noise.
• 2:28
  SPEAKER_00: Um, that that which is what we encountered during the Fed's rate hike.
• 2:33
  SPEAKER_00: Uh, we then had geopolitical flip-flops, and to where we are recording today, which is Wednesday the 23rd of September, ahead of the usual bearishly skewed Comex options, mark to market uh uh gold and silver cash squaring event, which is tomorrow when this episode gets released.
• 2:55
  SPEAKER_00: So you wonder where the action, why we're seeing um attempts at flushing long, uh flushing any downside longs, uh hunting for stops.
• 3:05
  SPEAKER_00: It's exactly that reason.
• 3:07
  SPEAKER_00: But we're gonna show how they're running out of enough open interest to actually do anything but shoot themselves in the foot.
• 3:14
  SPEAKER_00: Now, the price action over the last two weeks delivered the necessary flush of bearishly skewed COMEX open interest to test where the real physical supports lay.
• 3:29
  SPEAKER_00: And I'm talking about central bank size physical supports.
• 3:34
  SPEAKER_00: Now, the catalyst was last Wednesday's Fed decision and the unexpected hawkish post-meeting spin, uh, which although the rate height was baked in, the hawkish spin wasn't.
• 3:47
  SPEAKER_00: And that triggered a mechanically stronger dollar response and gave leverage paper sellers the cover to pressure gold and silver lower.
• 3:57
  SPEAKER_00: Now, some of it is purely mechanical and some of it is um is really directional.
• 4:03
  SPEAKER_00: Now, to add a little colour, let's start by looking at the chart footprints and how they still validate a substantial short squeeze when the least expected is coming.
• 4:15
  SPEAKER_00: Bearing in mind that while successful cap are successfully kept from triggering upcoming very large short stops, these stops are so large, once triggered, we will evidence a very large gap move higher.
• 4:32
  SPEAKER_00: Now, the leverage short paper to physical imbalance is increasingly being understood.
• 4:38
  SPEAKER_00: Do you recall Trump reposting um Jim Brickwood's uh$10,000 end-of-year estimation?
• 4:46
  SPEAKER_00: Uh, then we've seen two other houses come out, including yesterday um Chris Wood from uh Jeffrey's, and two other houses have come out, all talking about$10,000 gold.
• 5:00
  SPEAKER_00: And I think this is no coincidence.
• 5:02
  SPEAKER_00: This is this is a realistic target from people who understand this structural imbalance.
• 5:09
  SPEAKER_00: And so, really, um, they're just all of these people are just saying by the dip, guys.
• 5:15
  SPEAKER_00: And um, so that really kind of defeats a large lot of the open interest that is being targeted uh for these guys for the commercials to try and walk it down to really try and bail themselves out of some very large derivative bets, which were made months ago, if not 12 months ago.
• 5:36
  SPEAKER_00: Now it's our 8,000 is our largest Asians uh facing liquidity providers estimization.
• 5:45
  SPEAKER_00: And later we're going to look at why these prices are just not outliers.
• 5:50
  SPEAKER_00: So let's first step through the short-term footprints from our last episode.
• 5:55
  SPEAKER_00: While this will be published tomorrow, we're recording this at about 5:30 p.m.
• 6:01
  SPEAKER_00: UK time after the PM fix on the 23rd of September.
• 6:07
  SPEAKER_00: It's good timing because what we're doing is we're capturing tomorrow, the day this is going to be published, is the October options expiry for the Comex.
• 6:18
  SPEAKER_00: And as we see into every single options expiry, we see selling continue.
• 6:25
  SPEAKER_00: So we see that here at the end of June, the end of July, and again in August, which was right about here.
• 6:37
  SPEAKER_00: So containment.
• 6:39
  SPEAKER_00: Since then, gold's broken out into a new higher stair step, but we're seeing the usual end-of-month selling into oversold conditions.
• 6:50
  SPEAKER_00: I just want to frame that.
• 6:52
  SPEAKER_00: And that's what we're witnessing today.
• 6:54
  SPEAKER_00: So let's step through from our last episode.
• 6:57
  SPEAKER_00: Essentially, what were the big mover?
• 6:59
  SPEAKER_00: What was it?
• 7:00
  SPEAKER_00: The big mover was the dollar reaction to the hawkish spin, FOMC uh 25 basis rate hike.
• 7:10
  SPEAKER_00: I mean, obviously there was no surprise there, but it was the hawkish spin.
• 7:13
  SPEAKER_00: And it enabled the Comex century algors to directionally push gold and silver through their respective moving averages.
• 7:22
  SPEAKER_00: Now, these moving averages have moved up, and the 50-day moving average was here.
• 7:27
  SPEAKER_00: That was really just the target.
• 7:29
  SPEAKER_00: And as we know, a moving average, something like the 50, or especially the 50 or the 100, or the 200, very, very, very can guarantee there will be long stops and shortstop into those levels.
• 7:44
  SPEAKER_00: So essentially, because it was a downstroke, there was obviously long stops at that level.
• 7:50
  SPEAKER_00: And silver recovered almost instantly.
• 7:54
  SPEAKER_00: And the move was less of a fundamental repricing than a positioning clear out of an aggressive paper-led probe, which ran into the zone where unleveraged physical demand stepped in.
• 8:07
  SPEAKER_00: Simple as that.
• 8:08
  SPEAKER_00: 13% premiums in excess of 13% Shanghai premiums here in silver.
• 8:14
  SPEAKER_00: Also very large HAU premiums in gold.
• 8:17
  SPEAKER_00: Now gold took a little longer to recover.
• 8:20
  SPEAKER_00: And while gold closed its upside gap, which was here was the gap, so it closed that pretty quickly and fixed at its highest level since the 11th of September.
• 8:34
  SPEAKER_00: What the action revealed was constructive physically anchored higher stair-sup support to commence the spec-free rally point, which is why we dropped back to the much larger charts, which cancels a lot of the noise.
• 8:51
  SPEAKER_00: And really, we then saw support coming in pretty quickly as well.
• 8:57
  SPEAKER_00: But this is a higher stair step of many along the way, and there will be more.
• 9:04
  SPEAKER_00: Into the spec-driven downside overshoot, liquidity providers had assessed that the short-term technical pressure was likely to run into deeply oversold conditions, which it did in silver and in gold, and that would attract physical support.
• 9:22
  SPEAKER_00: And that's precisely what developed with Asian physical buyers continue to capitalize on dollar-driven strength against inversely correlated gold weakness.
• 9:35
  SPEAKER_00: In other words, a foreign exchange currency, when you get a dollar strength, you tend to get the opposite side of that trade, would be gold weakness.
• 9:44
  SPEAKER_00: What they were doing is using the stronger dollar to accumulate underpriced gold and silver.
• 9:50
  SPEAKER_00: This is one more in a classic leverage spectrum, unleveraged physical demand scenario, where the house, paper, gold, and silver market makers are increasingly exposed when elevated SGE physical premiums trigger arbitrage into unleveraged physical delivery.
• 10:08
  SPEAKER_00: Those obligations must be fulfilled at these T plus one fixes.
• 10:15
  SPEAKER_00: And while the 600 to 800 tons of over-the-counter gold synthetically dilutes the fixed price, when it's fixed, that is actually NSFR compliant and deliverable.
• 10:28
  SPEAKER_00: And that is being arbitraged by large premiums in the SGE.
• 10:35
  SPEAKER_00: Now that ultimately forces the house to offset this exposure for one-to-one, taking the long side against a largely obvious, oblivious paper market sellers.
• 10:46
  SPEAKER_00: Now the legacy market's bearish skew have related directly to options when this is on the day this is released, which is Thursday, has repeatedly sought to push gold and silver futures below their 100-day moving average to trigger unbacked future selling.
• 11:04
  SPEAKER_00: However, an elevated gold HAU premium around 10 bucks and a 13% premium in silver show physical markets continue to absorb these discounts, increasing the likelihood that legacy pricing will be forced back above these key legacy market supports.
• 11:26
  SPEAKER_00: Now we drill down into the short-term charts just to show you the footprints and the gaming.
• 11:31
  SPEAKER_00: Draw back to the bigger picture, and it irons it all out.
• 11:35
  SPEAKER_00: This is a physical support area for all the reasons we'll look at in a minute.
• 11:43
  SPEAKER_00: As the paper-to-physical market volatility settles down, the path of least resistance is a stabilization phase followed by renewed upside, as unleveraged physical demand absorbs leveraged paper selling and forces naked shorts to cover into tightening available supply.
• 12:01
  SPEAKER_00: Gold's rapid absorption of post-Fed volatility reinforces the point.
• 12:07
  SPEAKER_00: And that's where they spiked right back up.
• 12:09
  SPEAKER_00: And now we're seeing the weight into the end, but this into the options expiry.
• 12:14
  SPEAKER_00: But it really, when you think about it, we just had a rate hike.
• 12:18
  SPEAKER_00: And silver led the way higher, and gold followed.
• 12:23
  SPEAKER_00: Okay, so we've now seen these same actors pushing the envelope lower.
• 12:28
  SPEAKER_00: But it's short-term action.
• 12:31
  SPEAKER_00: What we're witnessing is leveraged selling versus unleveraged physical buying.
• 12:37
  SPEAKER_00: That leaves a lag.
• 12:39
  SPEAKER_00: But what the market's doing is clearing a layer of short-term positioning noise and allowing the underlying bid to reassert itself.
• 12:49
  SPEAKER_00: Asian-facing liquidity providers continue to expect any further dollar-led gold weakness to be met by physical accumulation, pushing back against the attempted chart-painted trend change and leaving the short side increasingly vulnerable.
• 13:04
  SPEAKER_00: Silver always provides an easier read because it's a smaller market and it can't hide the footprints so well.
• 13:11
  SPEAKER_00: So essentially, with SGE silver premiums still extremely elevated and Shanghai Asian physical goal strength intact, the failure to maintain a synthetic pressure below the silver 50-day moving average, which was initially down here, has risen here, is tells us that the insiders are short covering.
• 13:34
  SPEAKER_00: They've rinsed out, they've already rinsed out all the longs.
• 13:37
  SPEAKER_00: Now all they're trying to do is suck in more shorts to cover into.
• 13:49
  SPEAKER_00: What they've done is again rinse out the last layer of long stops, while Asian markets will come in tomorrow and buy everything up.
• 14:01
  SPEAKER_00: The flush has done its job.
• 14:04
  SPEAKER_00: It's exposed where real physical support sits, and that support remains firmly bid in the physical exchanges.
• 14:13
  SPEAKER_00: Exchange is where you have to own a bar before you can sell it, and you need to fully pay for a bar before you can buy it.
• 14:23
  SPEAKER_00: And really to answer a specific subscriber question, what's behind the current chart painting attempt?
• 14:30
  SPEAKER_00: It's this very low priority non-delivery month, October gold and silver options expiring.
• 14:37
  SPEAKER_00: As I say, it'll be expiring when this is published on Thursday.
• 14:42
  SPEAKER_00: And while options-related dealer positioning remains short biased, safe haven demand for physically backed collateral eligible, and that is for talking about specifically gold, will continue to raise the floor under the market, increasing the risk of a sharp upside repricing into first notice and delivery.
• 15:07
  SPEAKER_00: And that first notice comes in next Tuesday.
• 15:11
  SPEAKER_00: And that is because paper shorts are going to be forced to respond to tightening physical availability.
• 15:19
  SPEAKER_00: And take a look.
• 15:21
  SPEAKER_00: Into deeply oversold conditions.
• 15:24
  SPEAKER_00: So to kind of sum it up, the last two weeks' action underscores that leveraged synthetic price action is increasingly being absorbed by real unleveraged demand.
• 15:33
  SPEAKER_00: Each paper-led flush is helping to find higher physical price flaws, strengthening our liquidity providers' collective view that pullbacks remain tactical accumulation opportunities rather than evidence of a durable trend reversal.
• 15:51
  SPEAKER_00: Which, of course, is what all the shorts are trying to spin in the mainstream media.
• 15:57
  SPEAKER_00: Now, I'm responding to requests from subscribers here.
• 16:00
  SPEAKER_00: They wanted me to look at the COT report, which we did last time.
• 16:04
  SPEAKER_00: And so basically, in gold, just to put that into perspective, that was$106.20 move higher.
• 16:12
  SPEAKER_00: In silver, that was a much higher one.
• 16:16
  SPEAKER_00: That was$3.14 higher.
• 16:18
  SPEAKER_00: Now bear that in mind when we look at the COT report, which was completely different to the selling that went on.
• 16:25
  SPEAKER_00: And the selling drove short covering.
• 16:29
  SPEAKER_00: So, as we just looked at.
• 16:32
  SPEAKER_00: So essentially, we saw the last week's report, and that saw these commercials or the swap dealers going short against the short against and dumping longs.
• 16:46
  SPEAKER_00: And then what did they do?
• 16:48
  SPEAKER_00: They went long into the reversal because they'd already flushed out all the shorts.
• 16:55
  SPEAKER_00: So they covered their shorts and dumped them into the specs.
• 17:01
  SPEAKER_00: They can't hide their footprints so well in silver.
• 17:04
  SPEAKER_00: So they went long, uh, swap dealers went long last time and went long again this time.
• 17:10
  SPEAKER_00: They have no supply to fulfill this enormous difference between the SGE and the spot market in London.
• 17:21
  SPEAKER_00: So par for the course, beyond the gradual exit of open interest, the report does not really adequately connect the remaining positions with the significant over-the-counter hedging flows used to offset the ongoing overhang of delivery obligations.
• 17:38
  SPEAKER_00: As a result, this backward-looking framework offers very limited practical value.
• 17:44
  SPEAKER_00: But in plain vanilla terms, as already signaled, the insider commercial swap dealer commercial positioning evidences the register being wrong.
• 17:55
  SPEAKER_00: Shorts were covered one for one, then flipped long as managed money specs were led by the nose into selling below the 100 and the 50-day moving averages that we just showed.
• 18:06
  SPEAKER_00: Now bear in mind this report was published here.
• 18:09
  SPEAKER_00: It's the current report because they won't have to publish this report, which is ludicrous, until Friday.
• 18:15
  SPEAKER_00: But essentially that's what we were looking at.
• 18:18
  SPEAKER_00: The deliberately delayed report doesn't capture the subsequent spec short covering triggered by the upside breach of the synthetic moving average levels.
• 18:28
  SPEAKER_00: Having pushed them through, they took the long side on the way up.
• 18:33
  SPEAKER_00: And what's also missing is the forced over-the-counter hedging linked to a large exit of arbitrageable bullion and open interest migrating into Asian and Saudi physical exchanges.
• 18:47
  SPEAKER_00: Liquidity providers assess the paper-to-physical structure as very bullish.
• 18:52
  SPEAKER_00: Now let's examine the key drivers behind the underlying bullish momentum, which continue to force highly leveraged cash settle LBMA and COMEX bullion pricing back into alignment with the unleveraged physical markets.
• 19:09
  SPEAKER_00: Now, Hong Kong bullion market build-out is moving from the July 6th proof-of-concept launch to a full-blown global launch.
• 19:19
  SPEAKER_00: And following the successful ongoing trial of this 100% physically black gold clearing and settlement system, Hong Kong is preparing for a full for a full operation in the first quarter of 2027.
• 19:33
  SPEAKER_00: And that is that is global facing, accepting everyone who cares to trade there.
• 19:42
  SPEAKER_00: And that is going to be supported by expanding vault capacity, which is high quality liquid asset eligible.
• 19:52
  SPEAKER_00: It gets high quality liquid asset collateral treatment there.
• 19:57
  SPEAKER_00: It gets tax incentives for physical commodity traders and rising official gold allocation through the exchange fund.
• 20:08
  SPEAKER_00: The strategic significance is absolutely clear.
• 20:13
  SPEAKER_00: Through the SGE Connect system, Hong Kong is positioning itself as the physical RMB linked alternative to London's largely unallocated and cash-settled over-the-counter spot market.
• 20:25
  SPEAKER_00: Now, as the first quarter 2027 launch scales as intended, with T plus zero immediate access to more than 30,000 tons of physical gold, the price discovery centre of gravity will increasingly shift out of the LBMA towards the venue that can prove title, custody, and deliverability in real time.
• 20:52
  SPEAKER_00: Now weighed against London's total holdings, including ETFs, that is, and other instruments that can be shorted and carry counterparty risk, the LBMA's total gold exposure is around 9,000 tons.
• 21:08
  SPEAKER_00: That includes ETFs, with a much smaller rolling float of about 1,200 tons.
• 21:14
  SPEAKER_00: And this makes Hong Kong's access to the SGE Connect system far more attractive as a trading venue than the LBMA over-the-counter unallocated hub, which prices gold through leveraged paper exposure and deferred cash settlement.
• 21:34
  SPEAKER_00: Now this marks a direct challenge to London's legacy role as the global price steer, basically.
• 21:41
  SPEAKER_00: Hong Kong's access to much larger pools of liquid of physical liquidity are already attracting high quality liquid asset collateral into a fully backed Asian clearing system.
• 21:53
  SPEAKER_00: We're seeing that already, where metal can be financed, it can be pledged, delivered, and repriced against.
• 22:00
  SPEAKER_00: A transparent physical inventory.
• 22:02
  SPEAKER_00: So you don't necessarily have to even sell your bullion.
• 22:06
  SPEAKER_00: You can collateralize it and lend against it and use it.
• 22:11
  SPEAKER_00: But you can't do that.
• 22:14
  SPEAKER_00: No one's trusting the COMEX for that.
• 22:16
  SPEAKER_00: No one's trusting the over-the-counter paper markets.
• 22:19
  SPEAKER_00: You're going to get caught out if some if you start building up big positions that can be targeted by the people that lend the money to you.
• 22:30
  SPEAKER_00: And because it's unallocated, this is a real price discovery shift, away from synthetic over-the-counter claims towards a benchmarked anchored anchor in allocated metal, institutional collateral demand, and it's got disciplined physical settlement rails.
• 22:54
  SPEAKER_00: So, but to answer some bigger subscriber questions, gold's longer-term bullish drivers are increasingly rooted into a phase structural reallocation.
• 23:07
  SPEAKER_00: Capital is moving out of once captive, cash-settled, unallocated LBME, COMEX open interest into far more trusted, physically backed, collateralizable bullion rails.
• 23:19
  SPEAKER_00: This is not just a tactical flow.
• 23:22
  SPEAKER_00: It reflects a broader preference for high-quality liquid assets, where ownership, custody, and optionality over delivery are proven no matter what size, central bank, sovereign, institutional size, it doesn't matter.
• 23:38
  SPEAKER_00: And as we've recently highlighted, understanding gold's safe haven plumbing means knowing where the metal is held, who controls it, and whether it can be accessed when the market are under stress.
• 23:55
  SPEAKER_00: This is the only way gold can be collateralized as a true high-quality liquid asset.
• 24:00
  SPEAKER_00: And to bring it to bring it into full compliance with what was with Basel III compliance, which is basically only it's only T NSFR compliant at the actual fixes.
• 24:14
  SPEAKER_00: And as we know, we have up to six six to eight hundred tons of over-the-counter uh gold being squared up, uh, on settled on the amongst the books of the various market makers, with only the three to five tons at the fixes ever being compliant.
• 24:30
  SPEAKER_00: And those are deliverable, T plus one.
• 24:34
  SPEAKER_00: But gold only delivers genuine protection when ownership is clear, and you're not getting that in the over-the-counter markets.
• 24:42
  SPEAKER_00: And you need custody, it has to be robust, and delivery has the deliverable has to be dependable.
• 24:51
  SPEAKER_00: Sometimes when you buy size in the over-the-counter markets, when it comes to taking delivery, the larger the size, the more the premium.
• 24:59
  SPEAKER_00: So these mechanics expose legacy market counterparty, jurisdictional and liquidity risks that actually remain invisible in normal markets, making physical location and access as important as the headline price that you're buying at.
• 25:18
  SPEAKER_00: So you'd be quite happy to pay$10 more for gold, uh, 13% more for your silver.
• 25:25
  SPEAKER_00: Um, you know, it's physically backed.
• 25:28
  SPEAKER_00: As we looked at in far more detail last time, Hong Kong is just the first, really, of a growing number of physically determined pricing venues, hardwiring what is a series of interconnected global-facing exchanges building the infrastructure to pull bullion flows eastward and weakening the legacy market pricing monopoly.
• 25:54
  SPEAKER_00: So as Asian clearing, vaulting, and delivery capacity scales up, real liquidity deepens.
• 26:01
  SPEAKER_00: And as real liquidity deepens, we have dollar-denominated paper underpricing being exposed, enabling sovereigns, refiners, physical buyers to arbitrage the gap, turning cheap paper offers into immediate metal demand.
• 26:20
  SPEAKER_00: That physical drain is now feeding directly back into price discovery, forcing cash-settled markets that never anticipated this physical constraint to actually start to reprice against this hard constraint of deliverable metal.
• 26:37
  SPEAKER_00: The full launch of first quarter face global facing um uh SGE Connect will attract the full scale of open of global open interest.
• 26:50
  SPEAKER_00: And it's going to kill off the COMEX as we know it, as it's presently structured.
• 26:56
  SPEAKER_00: And just as January the 1st, 2023, Basel III NSFR compliance was front-run by the House.
• 27:04
  SPEAKER_00: Remember, the BIS closed all 500 tons of their existing um swaps two months ahead of the launch.
• 27:14
  SPEAKER_00: And they did that in November 2022, right at the beginning of November 2022.
• 27:20
  SPEAKER_00: That then forced a 20% price increase into uh Basel III that launch.
• 27:25
  SPEAKER_00: So it was front run.
• 27:26
  SPEAKER_00: So liquidity providers assess the full-blown launch of the global-facing SGE gateway will evidence similar front running between October, which is only a week or so away, and the end of the year 2026 close.
• 27:42
  SPEAKER_00: Now, with gold and silver deeply oversold, an upside short covering breach of their respective 200-day moving averages is estimated to be sufficient to really gap, close the gap into the 5,400 level, after which a little bit of short covering into 6,000 would come into frame.
• 28:03
  SPEAKER_00: Now, small pullbacks from there would likely clear the deck for the run to 8,000.
• 28:08
  SPEAKER_00: So we don't want it to all go in one leg.
• 28:12
  SPEAKER_00: We want each rally to be rinsed of its of its synthetic uh long supply so that we can build these higher stair steps.
• 28:23
  SPEAKER_00: And from a physical supply and demand perspective, the lag between mispriced leveraged selling and powerful, unleveraged demand creates an increasingly attractive exchange.
• 28:36
  SPEAKER_00: So you're able to sell a limitless, dilutive supply of debt-based dollars in order to secure a finite supply but underpriced safe haven bullion.
• 28:46
  SPEAKER_00: That's what's happening into this process.
• 28:51
  SPEAKER_00: And wait till those shorts get triggered.
• 28:54
  SPEAKER_00: They're going to have to compete with these central banks.
• 28:58
  SPEAKER_00: And we're going to compete who are price insensitive.
• 29:01
  SPEAKER_00: They don't care if it's lower or higher.
• 29:04
  SPEAKER_00: The migration into trustworthy, physically blacked, and collateral eligible gold raises the floor under the market and increases the risk of a sharp upside repricing, as paper shorts are forced to respond to tightening physical availability because of the arbitrage process.
• 29:25
  SPEAKER_00: The early September price action already points to this pressure building, particularly while very visible, options-related dealer positioning remains extremely short-biased.
• 29:38
  SPEAKER_00: And we're seeing it now, today.
• 29:40
  SPEAKER_00: Yeah, because options expire tomorrow.
• 29:43
  SPEAKER_00: There's no, this is an age-old game, which is now being exploited by the physical market who wait for these events to capitalize on it.
• 29:55
  SPEAKER_00: And we see the dollar rising today.
• 29:57
  SPEAKER_00: And guess what?
• 29:58
  SPEAKER_00: You then get to actually exchange a higher price dollar for a lower price bullion.
• 30:04
  SPEAKER_00: It's a win-win-win situation.
• 30:07
  SPEAKER_00: What we're witnessing, though, between because of this SGE launch, it's monetary statecraft at work.
• 30:16
  SPEAKER_00: The scale of this is as yet unrealized.
• 30:21
  SPEAKER_00: The build-out is exponential.
• 30:24
  SPEAKER_00: Less than 12 weeks after opening limited institutional access to the SGE gold corridor, ahead of it going full-ball global, Beijing is using this infrastructure to tighten control over physical gold liquidity to build the remembries credibility as a one-to-one physically backed settlement currency.
• 30:46
  SPEAKER_00: These are long-term plans being consolidated and racing to the forefront now because of the huge debt load into rising interest rates.
• 30:56
  SPEAKER_00: They want to bring this forward.
• 30:58
  SPEAKER_00: Now, switching from years of stealth mode unreported monetary gold accumulations, China is very publicly displaying it has skin in the game.
• 31:08
  SPEAKER_00: That's not a coincidence.
• 31:10
  SPEAKER_00: This 1,000-ton customs data report is just a fraction of the 400-ounce monetary gold bars that PBOC has salted inside the state health banks during the same period.
• 31:24
  SPEAKER_00: Now, here's the latest very public PBOC push to accelerate its mandate to internationalize the gold back RMB.
• 31:32
  SPEAKER_00: These are not coincidences.
• 31:34
  SPEAKER_00: This is all carefully coordinated.
• 31:36
  SPEAKER_00: Now, the SGE-backed Hong Kong gold strategy marks another decisive step towards a gold-backed renembi settlement system and a public signal, very public signal, that the PBOC is moving to take global control of gold market pricing, providing assurance to people who enter this market that they are going to be looked after.
• 32:02
  SPEAKER_00: Now, legacy markets have not yet priced in this shift at all.
• 32:06
  SPEAKER_00: Hong Kong's latest policy direction materially strengthens the case for a wider gold-backed renimbi architecture, physically settled RMB denominated ecosystem in which the Yuan can be exchanged one for one against deliverable physical gold.
• 32:23
  SPEAKER_00: And this makes gold as trusted collateral for RMB internationalization, and it moves physical price discovery further away from the cash-settled Western derivatives and towards PBOC aligned infrastructure.
• 32:42
  SPEAKER_00: There's no coincidences here.
• 32:45
  SPEAKER_00: Gold becomes the credibility anchor.
• 32:48
  SPEAKER_00: The Shanghai Connect architecture connects Hong Kong's 30,000 tons of physical liquidity feeding into a rapidly expanding SGE physical corridor connected to an estimated 60,000 tons of onshore physical gold liquidity.
• 33:07
  SPEAKER_00: A physically subtle RMB gold contract gives global holders of Renembe a sufficiently liquid platform to exchange currency exposure for tangible bullion.
• 33:19
  SPEAKER_00: This is an easy FX process.
• 33:21
  SPEAKER_00: Hong Kong is the first really of a planned rollout of international bridges into China and global capital.
• 33:31
  SPEAKER_00: The West's blown this.
• 33:33
  SPEAKER_00: As the leading offshore RMB centre, Hong Kong has the liquidity, the legal framework, the clearing infrastructure, and the vaulting capacity required to support first quarter 2027 wider international adoption.
• 33:50
  SPEAKER_00: Hong Kong has assembled the clearing rails, the legal structure, the vaulting capacity.
• 33:58
  SPEAKER_00: Offshore RB depth is convertible.
• 34:04
  SPEAKER_00: The RB is convertible.
• 34:06
  SPEAKER_00: This liquidity is convertible into physical bullion exposure.
• 34:11
  SPEAKER_00: Here's the point.
• 34:12
  SPEAKER_00: At large scale.
• 34:15
  SPEAKER_00: And this provides investors, sovereigns, and commodity counterparties a credible collateral channel outside the dollar system, which is really what this is all about.
• 34:26
  SPEAKER_00: The global appetite for a viable debasement hedge represents trillions of dollars of demand.
• 34:34
  SPEAKER_00: And this gold-backed initiative is ultimately designed to attract this liquidity.
• 34:38
  SPEAKER_00: Now, liquidity providers assess the scale of this adoption should be sufficient to drive a physical goal breakout of the current capped synthetic structure requiring a plus or minus 8,000 end-of-year offer price, just to be balanced to rebalance the supply-demand structure.
• 34:58
  SPEAKER_00: Hong Kong is also set to detail a new RB-denominated physically settled gold futures contract, linking Renembi pricing to deliverable bullion.
• 35:11
  SPEAKER_00: This will be a COMEX killer.
• 35:15
  SPEAKER_00: Concurrently, Hong Kong is also deepening offshore RMB liquidity, expanding RB facing tools, and supporting the development of an offshore RMB yield curve.
• 35:27
  SPEAKER_00: So you need all these things in place.
• 35:31
  SPEAKER_00: If you're collateralizing and you're using your gold as it should be used, the ability to exchange RMB-linked claims for deliverable gold levels the playing field, strengthens the confidence versus purely cash-settled synthetic structures.
• 35:48
  SPEAKER_00: Hong Kong's gold market build-out is the strategic step towards embedding physical gold in the offshore RB system.
• 35:56
  SPEAKER_00: Look how they've woven this all together.
• 36:00
  SPEAKER_00: There's nothing here that doesn't work.
• 36:04
  SPEAKER_00: What it's doing is strengthening the perception that the Renembi can increasingly function as a trade, reserve, and settlement currency with hard asset optionality.
• 36:16
  SPEAKER_00: And to accelerate the adoption, the government is preparing tax concessions as well for physical commodity trading and qualifying activity across the golden and commodities ecosystem.
• 36:29
  SPEAKER_00: This includes hard assets.
• 36:32
  SPEAKER_00: And for the paper market, the signal is absolutely clear.
• 36:36
  SPEAKER_00: This SLG, this SGE-led framework creates a credible physical exit route that's going to drain every ounce of physical liquidity from the LBMA and COMEX open interest, forcing more 400-ounce bars out of the synthetic system into deliverable demand.
• 36:59
  SPEAKER_00: Now, add in the PBOC's growing concern over Washington's ability to service its ballooning plus 40,000 trillion debt into higher interest rates, it's expected to prompt a wider central bank sovereign reallocation into these non-dollar assets and the mechanism to do so.
• 37:19
  SPEAKER_00: That includes the Goldback Yuan further in insulating the currency against depreciation.
• 37:27
  SPEAKER_00: And against the backdrop of rising US debt issuance, dollar weaponization, which is again Trump, and we're recording this when uh Trump is meeting Xi Jinping.
• 37:38
  SPEAKER_00: I mean, you know, this is all about threats, tariffs, um, weaponization of the dollar.
• 37:46
  SPEAKER_00: And really, well, this is this is your exit route.
• 37:52
  SPEAKER_00: And obviously that creates greater scrutiny of leverage paper clone claims when when you're de-dollarizing, then they are hung on those dollar claims.
• 38:02
  SPEAKER_00: So institutional demand is shifting towards transparent physical collateral and, as I say, jurisdictional diversification.
• 38:09
  SPEAKER_00: I know I've seen people going on about it.
• 38:11
  SPEAKER_00: This is so important.
• 38:12
  SPEAKER_00: This is why gold is going to rally so significantly.
• 38:18
  SPEAKER_00: It's gold's not replacing the dollar, it's just reasserting itself alongside it.
• 38:23
  SPEAKER_00: Central banks and sovereign institutions are just simply diversifying reserves, increasing physical gold allocations, and building settlement systems beyond the dollar framework.
• 38:33
  SPEAKER_00: So it's a win-win.
• 38:34
  SPEAKER_00: The dollar remains dominant, of course, but its monopoly over monetary trust is being steadily diluted.
• 38:41
  SPEAKER_00: Gold's advantage is neutrality.
• 38:44
  SPEAKER_00: It's got no issuer risk, no counterparty exposure, no sanctions risk, and no dependent on another sovereign's balance sheet, which is so important.
• 38:54
  SPEAKER_00: So, in short, gold's monetary value comes from what it does not require.
• 38:59
  SPEAKER_00: No issuer, no promise, no political backing, no faith in another country's balance sheet.
• 39:06
  SPEAKER_00: Now, consistent with the PBOC's broader strategy to integrate gold more deeply into the RMB ecosystem, the renewed decline in foreign holdings of U.S.
• 39:17
  SPEAKER_00: Treasury debt is notable.
• 39:20
  SPEAKER_00: In July, overseas holdings fell for a second consecutive month, with Japan and China, two of the three largest US creditors, both reducing their positions.
• 39:31
  SPEAKER_00: China's US Treasury holdings have declined to their lowest level since 2008, below those of Japan and the UK.
• 39:40
  SPEAKER_00: Notably, this reduction in exposure is unfolding against a backdrop of deepening rift between the world's two largest economies.
• 39:51
  SPEAKER_00: China's continued reduction in official US Treasury exposure alongside the reallocation of reserves towards gold and other assets reflects a deliberate strategy of diversification and geopolitical risk mitigation.
• 40:07
  SPEAKER_00: Holdings now stand at an 18-year low, while the precedent set by the post-Ukraine reserve freezes has further strengthened Beijing's incentive to reduce exposure to dollar assets that remain vulnerable to US policy actions.
• 40:23
  SPEAKER_00: China is incrementally reducing its reliance on paper claims against the US and shifting towards politically neutral physical reserve assets, with gold at the center of that transition.
• 40:39
  SPEAKER_00: Now, the PPFC is positioning China as the an increasingly credible uh destination for global gold liquidity by expanding access to a safe, ring-fenced, physically settled, high-quality liquid asset bullion exposure outside the dollar credit system.
• 40:55
  SPEAKER_00: Now, China's continued official sector accumulation reinforces this trend.
• 41:00
  SPEAKER_00: It's visible if you look.
• 41:03
  SPEAKER_00: And it supports gold role as a neutral reserve collateral, and it contributes to a structurally higher long-term bullion price flaw, which is evident.
• 41:12
  SPEAKER_00: Now, if you just knock out the short-term 10-minute chart chatter, you can see it.
• 41:20
  SPEAKER_00: By contrast, London's waning dominance still rests heavily on unallocated, opaque, leveraged, and cash-settled over-the-counter traders.
• 41:31
  SPEAKER_00: As I say, 600 to 800 tons a day versus the three to five that are delivered.
• 41:35
  SPEAKER_00: As central banks increasingly prioritize allocated metal, sovereign custody, and physical settlement, price discovery is naturally gravitating towards the hubs where real bullion is available and deliverable.
• 41:48
  SPEAKER_00: And the scale of this expansion is completely unfactored into price.
• 41:52
  SPEAKER_00: But what is the LBMA and CME response?
• 41:56
  SPEAKER_00: It's laughable to tokenize unallocated ETF gold.
• 42:02
  SPEAKER_00: Get your head around that.
• 42:03
  SPEAKER_00: This is ludicrous.
• 42:05
  SPEAKER_00: And as we know, while ETF and gold can't be leased, it shares, it's shares that underpin it, that link to it can be borrowed and shorted with the on and off ramps in unallocated form.
• 42:23
  SPEAKER_00: You don't know who your counterparty is if there's a black swan event.
• 42:30
  SPEAKER_00: This is not going to go well.
• 42:33
  SPEAKER_00: And this is why I've been drawing public attention to London's tokenized gold push, which is a defensive, attempted digital upgrade of really just an unreformed, unregulated, unallocated paper gold market scam.
• 42:49
  SPEAKER_00: London is trying to tokenize confidence while Shanghai and Hong Kong are building deliverability.
• 42:56
  SPEAKER_00: It's a no-brainer.
• 42:57
  SPEAKER_00: Paper claims can be rolled, recycled, and repackaged until physical settlement finally puts a bid under the real metal and exposes what can actually be delivered.
• 43:09
  SPEAKER_00: That's what we're seeing today in this options discount.
• 43:15
  SPEAKER_00: This is the HAU FX spread, which is steadily being arbitraged.
• 43:21
  SPEAKER_00: Now, physical-facing liquidity providers are treating this as a structural, long physical, short paper signal.
• 43:28
  SPEAKER_00: And as the London float continues to tighten while Shanghai-Hong Kong physical liquidity deepens, the risk is not a one-off squeeze, but a sustained repricing of deliverable metal versus synthetic claims.
• 43:43
  SPEAKER_00: Yes, it'll start with a one-off squeeze and then it'll evolve into the bigger picture.
• 43:49
  SPEAKER_00: In that environment, dips driven by paper selling are viewed increasingly as a forced liquidity event, while physical premiums, lease rates, ETF flows, and London bar availability become the key towels for the next lay hire.
• 44:08
  SPEAKER_00: Anyone that understands a chart, a longer-term chart, and the pressure behind it and the weighing it up against the physical markets knows, as the central banks do, as the sovereigns do, as the institutions do, why that's why they are exiting paper gold.
• 44:27
  SPEAKER_00: And unless the LBMA and the UK regulators address over-the-counter market core weakness, which is a cash settlement over physical delivery, opaque unallocated claims, and unresolved rehypothecation risks, tokenization will not restore trust.
• 44:43
  SPEAKER_00: It will simply make the existing leverage faster, more mobile, more efficient in that response.
• 44:51
  SPEAKER_00: And that is the strategic flaw.
• 44:54
  SPEAKER_00: Shanghai and Hong Kong are offering a cleaner alternative, one-to-one, physically backed, unallocated deliverable metal.
• 45:03
  SPEAKER_00: Now, as we looked at in more detail a couple of weeks ago, gold has decidedly broken its relationship with real yields.
• 45:13
  SPEAKER_00: As posted by Saxos Oli, he's a good, he's a he's a smart guy, worth following.
• 45:19
  SPEAKER_00: It's worth a good read.
• 45:22
  SPEAKER_00: As far as central bank sovereigns and institutional physical buyers are concerned, gold has decisively severed its bearish link to rising real yields and is now repricing as strategic reserve collateral in a structurally undersupplied physical market.
• 45:38
  SPEAKER_00: Gold is no longer merely reacting to real yields, it's repricing the mounting risk embedded in sovereign debt, just as Basel III reclassification of gold as a tier one asset, which net of all pullbacks has attracted some$3,000 of central bank sovereign liquidity into the US Treasury gold debasement trade from 2023 to even to current levels, even at the sell-offs today between 4,300 and 4,400.
• 46:07
  SPEAKER_00: This historic decoupling will drive the next leg higher towards our 8,000 end of fourth quarter projection and be looked at as its defining catalyst.
• 46:19
  SPEAKER_00: Well, that brings us to our single action point, the one that we have control of.
• 46:26
  SPEAKER_00: The reset is coming.
• 46:28
  SPEAKER_00: Make sure you're holding real metal when it arrives.
• 46:33
  SPEAKER_00: But thank you so much for the questions.
• 46:36
  SPEAKER_00: Please keep them coming.
• 46:38
  SPEAKER_00: I look forward to joining you again on Monday with our special guest, and that's Daniela DiMartino Booth.
• 46:46
  SPEAKER_00: Really smart woman, as well as our next full market update in two weeks.
• 46:51
  SPEAKER_00: See you then, guys.