Latest / Kinesis Money / Historic Gold Rush Reprices Global Debt - LFTV Ep 293

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Historic Gold Rush Reprices Global Debt - LFTV Ep 293 · Kinesis Money

• 0:00
  SPEAKER_00: The last time that US sovereign bond yields traded at current levels, gold was priced at around$311 per ounce.
• 0:10
  SPEAKER_00: They now have to keep printing a week.
• 0:13
  SPEAKER_00: We've got this ticking time bomb talking gold with the one and only Andrew McGuire.
• 0:19
  SPEAKER_00: Welcome to Life from the Vault.
• 0:26
  SPEAKER_00: Well, it's great to be with everybody again.
• 0:28
  SPEAKER_00: Thanks for all the questions.
• 0:30
  SPEAKER_00: The team sent me over really a good aggregate of them.
• 0:34
  SPEAKER_00: But hey, hey, I'll tell you what, what a day.
• 0:36
  SPEAKER_00: What a day to be recording.
• 0:41
  SPEAKER_00: This is a historic day.
• 0:44
  SPEAKER_00: And really, let's have a look.
• 0:46
  SPEAKER_00: I mean, this massive sell-off that we've got underway at the moment.
• 0:52
  SPEAKER_00: And that's why I'm I'm going to capture a lot of that, uh, those footprints in uh the live uh recorded session shortly.
• 1:03
  SPEAKER_00: And um we're gonna capture those footprints, see who they are, what's going on, and really whether an opportunity this is presenting.
• 1:12
  SPEAKER_00: But essentially, we just witnessed.
• 1:14
  SPEAKER_00: Um, I mean, we we know what we have a we we usually have the 1 a.m.
• 1:18
  SPEAKER_00: sell-offs.
• 1:19
  SPEAKER_00: I mean, who in their right mind wants you're not gonna get the best price if you sell at one o'clock in the morning.
• 1:25
  SPEAKER_00: So we we tend to know that's directional.
• 1:29
  SPEAKER_00: But we just the pit opens.
• 1:31
  SPEAKER_00: Now, this is when the traditional pit uh always opened in New York.
• 1:37
  SPEAKER_00: And uh it's still, although the pit isn't physically there, it's still called the pit open.
• 1:44
  SPEAKER_00: And guess what?
• 1:45
  SPEAKER_00: The and we've seen, and we'll look at them on the charts in a minute, but pit open after pit open, no matter who's been buying, um, and it's usually uh Asia that's been buying, as soon as the pit opens, bang, down it goes.
• 2:00
  SPEAKER_00: Well, either that or the selling started.
• 2:02
  SPEAKER_00: But today, and this is ludicrous because it exceeds all position concentration, uh, position.
• 2:10
  SPEAKER_00: So, in other words, if you're if you're a trader or you're licensed to trade, uh, you have position concentration limits.
• 2:19
  SPEAKER_00: Well, we just saw over 90 tons of paper gold flash sold.
• 2:26
  SPEAKER_00: I mean, talk about a ticket that came out and literally took everything below it out, and it was directional, had to be official, officially sanctioned.
• 2:38
  SPEAKER_00: So that was what we call a flash sale, and silver's flash exactly the same thing.
• 2:45
  SPEAKER_00: Out of the blue, over 1,400 tons of paper silver got sold in in a millisecond.
• 2:55
  SPEAKER_00: Now, this is an excellent day to really drill down into the this what is the final kick of the can ahead of Chinese liquidity re-entering the market when this is released tomorrow when you get this.
• 3:11
  SPEAKER_00: Now, since our last market update two weeks ago, I mean, silver and the broader commodities complex, they've really remained under pressure and they've got higher yields and a stronger dollar, pretty much outweighing uh it outweighed persistent physical supply tightness.
• 3:31
  SPEAKER_00: So even though there was tight supply at current prices, this is a is a mechanical reaction.
• 3:38
  SPEAKER_00: And the correlation has been macro driven rather than a reflection of improving underlying availability for the metals, with gold and silver markets remaining exceptionally tight at current prices.
• 3:52
  SPEAKER_00: And the divergence, what it does is reinforce the risk that any easing in yields or the dollar could trigger a renewed and potentially sharp repricing across both metals.
• 4:08
  SPEAKER_00: And we're going to look at the all the reasons for that shortly.
• 4:11
  SPEAKER_00: But despite the recent correction, looking at it today again, and we've talked about weeks of it, the Bloomberg Commodity Total Return Index still remains about 33% higher on the year to date.
• 4:25
  SPEAKER_00: Silver is more closely aligned with the broader commodity complex, is still up approximately 29%.
• 4:33
  SPEAKER_00: Gold has also remained resilient and is also absorbing the pressure from bond yields rising to 24 years.
• 4:49
  SPEAKER_00: And Monday sharp rally in the dollar, which tested April to 2015, 18-month highs at 102.31.
• 5:00
  SPEAKER_00: In fact, I'm looking at now and we're seeing uh what are we looking at?
• 5:04
  SPEAKER_00: 102.28.
• 5:05
  SPEAKER_00: So so although it came back off that a little under to under a under 100 again, or down to about a 101, it's come back up again today.
• 5:14
  SPEAKER_00: And as we're going to examine in greater detail shortly, despite headwinds, gold remains 6% higher year over year.
• 5:24
  SPEAKER_00: Um, and it illustrates how well really both metals continue to absorb historically bearish mechanical correlations.
• 5:34
  SPEAKER_00: So let's begin uh with a look at the charts, because as I say, it best illustrates the very clear official footprints that exploited thin Chinese Golden Week liquidity ahead of what is a traditionally volatile non-farm payroll release to sell down both gold and silver futures into October's first notice, which is when all the derivative bets in the COBEX bets come uh to have to be either fully paid or closed or fully paid up.
• 6:10
  SPEAKER_00: And then we that that then moved into the Bank of International Settlements, quarter end squaring, and the obligatory non-farm payrolls rinse.
• 6:21
  SPEAKER_00: So you've got a kind of a three-session whammo here.
• 6:26
  SPEAKER_00: So here, let's start.
• 6:28
  SPEAKER_00: It always helps to step through the various actors' footprints, especially as the final downside synthetic rinse has overshot central bank and sovereign support levels.
• 6:39
  SPEAKER_00: We'll talk about this in a minute, and the same in silver in a minute, because this was clearly a position concentration violation.
• 6:52
  SPEAKER_00: 1400 tons of silver was flash sold, and over 90 tons of gold flash sold at the bit open.
• 7:04
  SPEAKER_00: So let's go through the footprints though, because it's really important.
• 7:07
  SPEAKER_00: This is where we were and where we recorded our last episode.
• 7:10
  SPEAKER_00: So let's walk through because it always helps to actually look at who was active.
• 7:17
  SPEAKER_00: Now there's little doubt that insiders deliberately drove COMEX prices lower.
• 7:21
  SPEAKER_00: And this is where we opened up just before the SGE holiday.
• 7:28
  SPEAKER_00: And what on this Monday, the there was a definite flush, a targeted flush of Chinese retail participants out of the market ahead of the Golden Week holiday.
• 7:42
  SPEAKER_00: Clearly, they didn't want to be holding into a situation like this.
• 7:49
  SPEAKER_00: And while these retail longs, Chinese retail longs, were targeted, Shanghai's exceptionally strong delivery premiums over spot and Comex prices during this retail liquidation actually were pointed to a marked increase in institutional central bank and sovereign demand.
• 8:10
  SPEAKER_00: Very large premiums.
• 8:13
  SPEAKER_00: Now we highlighted three derivative events.
• 8:15
  SPEAKER_00: So let's step through the market footprints surrounding these three derivative-driven events.
• 8:21
  SPEAKER_00: Bond yields were testing 2002 24-year highs, and the dollar was strengthening.
• 8:28
  SPEAKER_00: Even so, risk assets alongside gold, silver, and commodities remained well bid after first notice.
• 8:36
  SPEAKER_00: And don't forget, this suited very well because this was October options expiry.
• 8:43
  SPEAKER_00: And first notice is the point where either you have to stump up and buy all your COMEX leveraged positions and stand for delivery, or deliver, or plan to deliver.
• 8:58
  SPEAKER_00: And essentially, that was the first dip by the insiders to bring that price down.
• 9:05
  SPEAKER_00: And that's also where the COT report was closed.
• 9:10
  SPEAKER_00: And actually, we'll look at that in a minute.
• 9:12
  SPEAKER_00: This was also ahead of the BIS end-of-month squaring.
• 9:19
  SPEAKER_00: So essentially brought it down, rinsed out the lungs, the potential longs in October COMEX position.
• 9:29
  SPEAKER_00: Then we saw very strong buying coming through, and this was institutional and central bank sized buying after the rinse.
• 9:38
  SPEAKER_00: And guess what?
• 9:40
  SPEAKER_00: As soon as the SGE holiday was commenced, mid-session, bang, down it went.
• 9:47
  SPEAKER_00: And guess who squared?
• 9:48
  SPEAKER_00: It was the Bank of International Settlements squaring event, where they managed to get it below last time, but slightly above the uh the last the prior two times.
• 10:01
  SPEAKER_00: So that explains all of those footprints.
• 10:04
  SPEAKER_00: Then let's track the footprints.
• 10:07
  SPEAKER_00: Directly after, this is when Hong Kong came back from its shortened holiday.
• 10:14
  SPEAKER_00: Obviously, while China is closed between the from Wednesday the 30th to the 8th of October, essentially Hong Kong came back in reopening last Friday after its shorter market holiday, took advantage of the dip immediately, bought, we had uh a very strong fix, then we saw the rally continue all the way into non-farm payrolls.
• 10:39
  SPEAKER_00: Now, this was the third of those events.
• 10:43
  SPEAKER_00: And just before that, even though yields were rising, strong, strong, strong buying had come in.
• 10:51
  SPEAKER_00: So, non-farm payrolls delivered another kick at the derivatives can.
• 10:57
  SPEAKER_00: And just again, that's going through the footprints, we'll get to where we are today.
• 11:01
  SPEAKER_00: But essentially, while gold has initially spiked higher, bond yields had also surged to 5.3% highs.
• 11:09
  SPEAKER_00: This provided cover for extremely wrong-footed insiders controlling the 1 trillion a week over-the-counter foreign exchange market to lean into immediate mechanical reaction and squeeze out as much COT short covering fuel.
• 11:24
  SPEAKER_00: In other words, the commercials needed some short covering fuel ahead of Shanghai's return on Thursday, which, as we record this, is on Wednesday, is tomorrow.
• 11:35
  SPEAKER_00: So we're recording this right here, and uh Shanghai comes back into the mix tomorrow.
• 11:41
  SPEAKER_00: So let's look at this.
• 11:43
  SPEAKER_00: Literally, and you can see every single pit open, every single pit open has seen these insiders sell every single rally.
• 11:56
  SPEAKER_00: So here we go.
• 11:58
  SPEAKER_00: But this was really, this one is had to be official in nature.
• 12:04
  SPEAKER_00: Literally 91 tons of pit sold gold futures and a massive 1400 tons.
• 12:16
  SPEAKER_00: Literally, this is where the pit was open, 1400 tons of silver were exchanged.
• 12:25
  SPEAKER_00: Now, who has 1400 tons of silver?
• 12:28
  SPEAKER_00: Nobody.
• 12:44
  SPEAKER_00: Commercials are long below this 41, 31, uh, 70 bare algo where large short covering is underway on dips below this.
• 12:56
  SPEAKER_00: And actually, if you think about it, this is this was a setup, a constructed setup from the insiders.
• 13:03
  SPEAKER_00: This is where the selling came from.
• 13:05
  SPEAKER_00: This is the 50% line.
• 13:07
  SPEAKER_00: This was the extended 100% line.
• 13:10
  SPEAKER_00: It initially hit it on the nose, then we had a rally, and today they wanted to hunt out any last remaining longs.
• 13:18
  SPEAKER_00: Now, obviously, we've got FOMC minutes later.
• 13:22
  SPEAKER_00: So this was uh another another opportunity to use that kind of uh obligatory volatility that we get around any of those kind of news releases to actually create some uncertainty and to really, with most people on the sidelines, take this enormous stab at making new lows.
• 13:45
  SPEAKER_00: And while this is has incentivized Memchtum Shorts, who will just keep going, while commercials positioning for the return of previously rinked Shanghai demand, which is going to return, uh, are on the long side of them.
• 14:02
  SPEAKER_00: And with the US dollar back above 102.28 and the 10-year yield at 531 and the 30-year yield at 5.69%, it's the highest level since May 2002.
• 14:15
  SPEAKER_00: And as we'll look at in a minute, gold was trading at$311 the last time rates were this high.
• 14:24
  SPEAKER_00: So you can see the complete, even at rinsed levels today, you can see that this rinse has not diminished this huge amount of dollar debasement that has been occurring since the last time rates were at this level.
• 14:45
  SPEAKER_00: Very short-term, mechanical selling continues to drive foreign exchange correlated spot gold and silver lower.
• 14:51
  SPEAKER_00: However, liquidity providers continue to report strong institutional demand with buyers capitalizing on the stronger dollar to lock in lower prices for both metals.
• 15:02
  SPEAKER_00: We are witnessing history in the making here, because and when we look at the reasons which will come later after the charts, is pretty clear there's an awful lot going on that is going to change these markets forever.
• 15:18
  SPEAKER_00: And as we say, as been evident in gold and silver at each COMEX Pit Open through a little light bid pulling, bubble level momentum speculator shorts continue to be incentivized to take the short side of upcoming rallies.
• 15:32
  SPEAKER_00: They have no view into the physical markets.
• 15:34
  SPEAKER_00: And we're, as I say, we're recording this on Wednesday, and after this episode is published on Thursday, which is where you get it.
• 15:40
  SPEAKER_00: Friday's deliberately laid COT data will already have show the house insiders were once again positioned on the long side of tricked in spec sellers.
• 15:53
  SPEAKER_00: And that's just this one, let alone where we are here.
• 15:59
  SPEAKER_00: Outrageously, this Wednesday data won't be that we're witnessing now, won't be benchmarked until next Tuesday, the 13th, and not published until Friday the 16th.
• 16:13
  SPEAKER_00: Is it any wonder why institutional open interest has long departed the house-rigged game?
• 16:20
  SPEAKER_00: And while these shenanigans go on, exceptionally strong physical silver demand from India, Hong Kong, and across Asia shows that buyers continue to lean into dollar strength to accumulate silver and gold in size.
• 16:34
  SPEAKER_00: And while we expect it, the usual gaming around FOMC minutes, the scale of this sell-off exceeded any single entity's position limits, meaning it had to be officially sanctioned.
• 16:48
  SPEAKER_00: Liquidity providers assess commercials are already starting to ring the register on emboldened shorts ahead of Shanghai coming back into the mix tomorrow on Thursday.
• 16:59
  SPEAKER_00: Meanwhile, under the deliberately constructed chart noise, accelerating institutional central bank and sovereign physical demand is forcing the house to absorb the lower-hanging leveraged momentum shorts ahead of the expected return of Chinese demand after Golden Week.
• 17:19
  SPEAKER_00: Our first year liquidity providers assess that following the COMEX target itself, perpetuating Shanghai retail sell-off ahead of the holiday to watch out for the return of shaking out Chinese gold longs.
• 17:35
  SPEAKER_00: If not tomorrow, Thursday, and when you're recording this, it will be back in size by the weekend.
• 17:44
  SPEAKER_00: Now, by popular demand, I'm going to quickly look at the deliberately delayed but still current Friday's yet-to-be-to-published COT report.
• 17:55
  SPEAKER_00: That is this report here, which has not been published yet.
• 18:00
  SPEAKER_00: And if I just come back a little to show you where the last one was, which was here, that was what it this report recorded was a$196.70 discount in gold futures.
• 18:17
  SPEAKER_00: And if I do the same and can come back to where this report is populated, this is this relates to a$5.38 uh sell-off in silver.
• 18:31
  SPEAKER_00: So keep that in mind as we look at this report.
• 18:34
  SPEAKER_00: Now I will say, and this this is the latest report, now I will say the COT report should always be viewed in the context of its complete omission of the offsetting hedges buried within the 1 trillion a week over-the-counter market.
• 18:51
  SPEAKER_00: And a lot of this stuff, short side, is buried in that.
• 18:56
  SPEAKER_00: And there's a lot of hedging going on of these short positions.
• 19:00
  SPEAKER_00: Now, taken at face value, right on cue, as targeted speculative long stops were triggered.
• 19:07
  SPEAKER_00: If we just what did we see?
• 19:10
  SPEAKER_00: We saw shorts getting added.
• 19:12
  SPEAKER_00: This is the uh managed money group, the shorts getting added, and longs getting cut.
• 19:18
  SPEAKER_00: So they went short 7,000 odd contracts.
• 19:21
  SPEAKER_00: Oh, guess who went long?
• 19:23
  SPEAKER_00: Oh, yeah, the swap dealers against them, as did the producer merchants.
• 19:28
  SPEAKER_00: And this is ludicrous because as you'll see last time, into the rally, into the rise, they went short against these guys.
• 19:36
  SPEAKER_00: So now it's flip-flop.
• 19:37
  SPEAKER_00: This is just flip-flop action for the commercial's benefit for another week, this time taking the long side.
• 19:47
  SPEAKER_00: Exactly the same in silver, same actors.
• 19:51
  SPEAKER_00: And following that non-farm payrolls rinse that we looked at on the charts, gold open interest had been rinsed by a further nearly 11,000 contracts to deeply oversold levels comparable with those last seen was gold when gold was trading in the 2000 level.
• 20:11
  SPEAKER_00: We will shortly examine how this evaporating COMEX open interest is migrating into the sticky ETF holdings.
• 20:18
  SPEAKER_00: So, silver, what it did was display a same pattern.
• 20:23
  SPEAKER_00: Inside the seeking short cover has rinsed out longs and newly drawn in shorts were pushed positioning in similarly deeply oversold levels.
• 20:32
  SPEAKER_00: So, with speculative logs being rinsed out, newly drawn in naked short momentums will be emboldened.
• 20:39
  SPEAKER_00: However, the house is taking alongside of every one of these short sales.
• 20:44
  SPEAKER_00: While Hong Kong is anticipated to front-run the Shanghai Open Interest a little, which it did, again, the backdrop, the COT structure is set up for a short covering into this synthetic supply.
• 20:59
  SPEAKER_00: This is a gift that keeps giving for the central banks, sovereigns, and all Asian buyers.
• 21:09
  SPEAKER_00: This will ultimately force discipline on the LBMA.
• 21:13
  SPEAKER_00: And we'll look at that in a minute.
• 21:15
  SPEAKER_00: Now we've been receiving a lot of excellent questions on gold's relationship with bond deals.
• 21:23
  SPEAKER_00: And we looked because we looked at that last time, I think we got quite a few questions on that.
• 21:27
  SPEAKER_00: So I really like to put that into perspective.
• 21:31
  SPEAKER_00: Now, before examining the positioning data, let's review September in aggregate.
• 21:38
  SPEAKER_00: And the divergence between the hedge funds and ETF investors was extremely pronounced, impossible to ignore.
• 21:47
  SPEAKER_00: Softer prices, rising treasury yields, and rate expectation, and the stronger dollar, what it did is prompt managed money to cut their net longs, and this is during September, by 27,000.
• 22:00
  SPEAKER_00: Thousand cost contracts, which is equivalent to 2.7 million ounces.
• 22:05
  SPEAKER_00: Yet those same monetary policy headwinds failed to deter ETF investors, who added approximately 1.7 million ounces and it lifted the aggregate holdings to a four-year high.
• 22:21
  SPEAKER_00: And this sustained accumulation, despite higher yields and a stronger dollar, indicates that strategic western-facing investors, limited to gaining gold exposure through ETFs, are actually looking beyond near-term rate pressures towards mounting fiscal and sovereign debt risks.
• 22:42
  SPEAKER_00: Now, obviously, we are not an advocate of ETF trading.
• 22:47
  SPEAKER_00: What you're doing is you're you what you do is the own the own the shares in what is purported to be bullion holdings, which are actually shortable, they can be shorted, etc.
• 22:59
  SPEAKER_00: So there's definitely some risk there.
• 23:01
  SPEAKER_00: But a lot of funds, hedge funds and um those and traders are not mandated uh to hold physical or know how to, or not even all geared up to buy and sell it.
• 23:13
  SPEAKER_00: So really that's where the ETF staff um investments are coming in.
• 23:18
  SPEAKER_00: So it in it represents a lot of institutional buying and a real move fighting this uh these these these um increasing rates and higher dollars by literally buying uh buying the uh gold exposure, the only gold exposure they can.
• 23:39
  SPEAKER_00: In fact, in tandem with real physical bullying demand, ETF demand has continued to pick up in October already.
• 23:47
  SPEAKER_00: So far, just GLD alone, just that one um major exchange that most people follow, um that added um it added 4.2 tons into yesterday's dip, and you can bet your life it's added more today, and and 14 and a half tons just in the last 20 days of trading.
• 24:07
  SPEAKER_00: That is size.
• 24:09
  SPEAKER_00: Um now drilling down into the same period, um net of the 121 tons of evaporating COMEX open interest, i.e., that's what got sold out of the COMEX, that's what we saw uh driving the dips down.
• 24:26
  SPEAKER_00: 46 tons of that were added into fund and ETF holdings, just as US Treasury yields have run into levels not seen since 2002.
• 24:39
  SPEAKER_00: Now, this is, you have to sit up and take notice of this.
• 24:42
  SPEAKER_00: And and through short-term, I mean, the reason is because short-term mainstream media analysis, all that does is focus on the mechanical pressure that these 24 years highs may exert on gold short-term.
• 25:01
  SPEAKER_00: And the current move is better understood as really though another, what it is is a paper-to-physical adjustment phase.
• 25:09
  SPEAKER_00: So you get short-term uh action, but then there's an adjustment within that.
• 25:15
  SPEAKER_00: And this is because beneath the near-term volatility, gold continues to reprice the mounting risk embedded in sovereign debt.
• 25:24
  SPEAKER_00: Now, stepping back from the short-term volatility reveals a measurable shift.
• 25:29
  SPEAKER_00: Gold is no longer merely reacting to real yields, it's steadily absorbing and repricing the associated sovereign risk bring-in.
• 25:39
  SPEAKER_00: Now, the relevant comparison is between the only two first-tier reserve assets, which is US Treasuries and gold.
• 25:47
  SPEAKER_00: And the last time that US sovereign bond yields traded at current levels, gold was priced at around$311 per ounce.
• 25:58
  SPEAKER_00: That really gets that is a that is where you really start to take note.
• 26:03
  SPEAKER_00: Hold on a minute.
• 26:04
  SPEAKER_00: This isn't just a short-term thing.
• 26:06
  SPEAKER_00: This is actually a repricing.
• 26:08
  SPEAKER_00: And while gold has shown short-term mechanical response to these higher bond yields, Basil III compliant first-year gold now trades as at a central bank underpinned over$4,000 per hour.
• 26:25
  SPEAKER_00: Higher, higher than its 2002 level.
• 26:28
  SPEAKER_00: Well, that says everything.
• 26:31
  SPEAKER_00: Reflecting what it's reflecting the scale of the repricing required to balance the treasury gold abasement trade.
• 26:41
  SPEAKER_00: It puts it into real terms.
• 26:43
  SPEAKER_00: And this historic divergence between debt-free first-year gold and debt-laden U.S.
• 26:49
  SPEAKER_00: Treasuries is it's structural.
• 26:51
  SPEAKER_00: Every physical-facing liquidity provider we have spoken to takes the position that this largely overlooked divergence will remain a powerful driver of significantly higher gold prices.
• 27:05
  SPEAKER_00: Now, while legacy markets have not yet priced this shift, global central bank sovereigns and an increasing number of LBAA bullion banks most certainly are.
• 27:15
  SPEAKER_00: And as far as central bank sovereigns and institutional physical buyers are concerned, gold has just decisively severed its bearish link to rising real yields, and it's now repricing as a strategic reserve collateral in a structurally undersupplied physical market.
• 27:35
  SPEAKER_00: This is a really good setup.
• 27:37
  SPEAKER_00: And the same repricing dynamic is evident in gold's relationship with the US dollar.
• 27:43
  SPEAKER_00: I mean, futures-focused mainstream media analysts, they overlook the fact that gold and silver also trade as a currency cross against the dollar or other fiat currencies.
• 27:58
  SPEAKER_00: They spout the price in dollars on Bloomberg and all these uh other other networks, but they don't actually realize that this is a currency.
• 28:14
  SPEAKER_00: It is actually the other side of a currency, a global currency, unlike any other commodity.
• 28:20
  SPEAKER_00: And yet they measure it pretty much as a commodity.
• 28:23
  SPEAKER_00: So, but as measured against the dollar index from the August low of 98.5 to this week's high of 102.31, which is, goodness me, if it looks like it's almost got overtaken today, the short-term reactionary inverse correlation remains absolutely relevant.
• 28:44
  SPEAKER_00: However, the in the larger picture, its influence is weakening as gold increasingly absorbs dollar strength.
• 28:53
  SPEAKER_00: Now, in 2002, the US dollar index reached above 120, while gold also traded around$300 an ounce.
• 29:02
  SPEAKER_00: Now, more recently, the dollar index peaked of$114 in September of 2022.
• 29:08
  SPEAKER_00: That triggered an initial mechanically correlated sell-off in gold.
• 29:14
  SPEAKER_00: However, that point ultimately marked the breakout of the advanced through gold's long-standing synthetically capped$2,000 ceiling.
• 29:24
  SPEAKER_00: This is relevant because we are seeing an exact kind of setup here today.
• 29:31
  SPEAKER_00: And with gold now trading over$2,000 above very strong central bank support, and there is central bank support at$4,000, it is evident that structural demand is increasingly outweighing the traditional headwind from a stronger dollar.
• 29:54
  SPEAKER_00: Now, backing up this data, gold premium is becoming increasingly evident.
• 30:00
  SPEAKER_00: Now, while the exit of unallocated, unbacked liquidity flowing into physical exchanges is arbitraging the difference and forcing discipline on legacy pricing models, the question is where else is this Western-based open interest going?
• 30:18
  SPEAKER_00: Now, what's of interest is that gold ETFs that are breaking the legacy, it's gold ETFs?
• 30:27
  SPEAKER_00: Yes, the ones that we we often disparage because really, you're not really owning the physical.
• 30:37
  SPEAKER_00: And if there was a problem, Black Swanna went, would you be able to get your physical?
• 30:42
  SPEAKER_00: I don't believe you would easily bear in mind the on and the off ranks are unallocated and uh it is a shortable instrument.
• 30:51
  SPEAKER_00: So, but anyway, I mean, but it is interesting that these ETFs are breaking the legacy yield relationship.
• 31:01
  SPEAKER_00: I mean, sweet, it doesn't get better than that because it's like one uh paper market shooting the other in the foot.
• 31:10
  SPEAKER_00: Now, physically backed exchanges, where fully paid bullying establishes a true supply and demand equilibrium price, they've long since broken free of the legacy relationship with U.S.
• 31:23
  SPEAKER_00: Treasury Yields and the Dollar Index.
• 31:25
  SPEAKER_00: Ask China, ask any of the Asian central banks.
• 31:29
  SPEAKER_00: Western-based gold ETFs have attracted very sticky institutional grade inflows, adding a complementary bullish pincer effect.
• 31:40
  SPEAKER_00: Now, physical price discovery from the East is exerting pressure while Western capital is re-entering through these ETFs, as Western futures markets now experiencing open interest declining to multi-year lows.
• 31:56
  SPEAKER_00: We're seeing this migrating into ETFs and further weakening that traditional relationship.
• 32:19
  SPEAKER_00: Shares inverted physically backed gold ETFs, therefore, provide the most accessible, compliant instrument through which these investors can obtain gold exposure.
• 32:33
  SPEAKER_00: Now, continued ETF accumulations while bond yields rise is evidence that strategic demand for gold as the liquid monetary collateral is beginning to outweigh the traditional opportunity cost framework.
• 32:47
  SPEAKER_00: Now, this migration of demand away from leveraged futures and towards physically backed exposure further erodes the traditional yield and dollar relationship that reinforces the case for a structurally higher gold price.
• 33:02
  SPEAKER_00: Now, as can be seen, September provided further evidence that gold's legacy inverse relationship with uh sovereign bond yields is weakening.
• 33:10
  SPEAKER_00: Although gold prices uh softened as US Treasury yields rose, physically backed gold ETF holdings increased for a second consecutive month.
• 33:21
  SPEAKER_00: In fact, while speculators sold, these holdings just rose again into yesterday's bearish mechanical headwinds.
• 33:30
  SPEAKER_00: And I haven't looked today, but I know they are.
• 33:48
  SPEAKER_00: They've risen to 3,145 tons as of today.
• 33:52
  SPEAKER_00: And of course, in related sticky fund investments, these holdings have actually, if you now look at the ETF and uh investment, 4,500 tons of gold.
• 34:04
  SPEAKER_00: Now, the divergence indicates that institutional demand is becoming less sensitive to the opportunity cost of holding non-yielding assets and more responsive to longer-term concerns over fiscal sustainability and sovereign debt risk and monetary credibility.
• 34:24
  SPEAKER_00: Now, the shift is reinforced by a structural change in market liquidity.
• 34:29
  SPEAKER_00: Now, COMEX futures open interest near multi-decade lows, while institutional grade liquidity is increasingly migrated towards physically backed venues.
• 34:41
  SPEAKER_00: That including Hong Kong, Shanghai Gold Exchange ecosystem, and a growing number of SGE compliant exchanges where prices are established against deliverable metal.
• 34:54
  SPEAKER_00: No other mechanism, literally supply demand of somebody with a fully paid up bar willing to pay for a fully paid up bar.
• 35:06
  SPEAKER_00: And it's liquid.
• 35:08
  SPEAKER_00: So that is the only price.
• 35:11
  SPEAKER_00: Now, these physically suppled exchanges provide a less diluted expression of true underlying demand, supply and demand.
• 35:19
  SPEAKER_00: And while supporting gold use as a secure, collateral, collateral, eligible high-quality liquid asset infrastructure, so it provides all those things.
• 35:32
  SPEAKER_00: You don't actually have to sell your gold.
• 35:35
  SPEAKER_00: You can utilize your gold and use the liquidity of that as any other high-quality liquid asset.
• 35:43
  SPEAKER_00: And although ETF inflows are recorded through Western market structures, their persistence alongside the rising yields should be viewed in the context of stronger physical market price discovery.
• 35:58
  SPEAKER_00: So higher clearing prices on fully backed exchanges are really helping to establish a firmer global reference price for gold, which influences the ETF price, encouraging institutions to maintain strategic exposure, even when conventional real rate models would otherwise imply a liquidation.
• 36:19
  SPEAKER_00: Now, this is progressively flattening and in the larger picture, overturning the historical relationship between higher yields and lower gold demand.
• 36:30
  SPEAKER_00: Now, the rise in sovereign bond yields is itself increasingly part of the gold thesis rather than a straightforward um straightforward headwind, shall we say.
• 36:46
  SPEAKER_00: So because higher yields reflect weaker demand or selling of heavily indebted sovereign paper.
• 36:54
  SPEAKER_00: So in other words, really that's why they're higher, their yields are higher.
• 37:00
  SPEAKER_00: Because there's weak demand.
• 37:02
  SPEAKER_00: Or people are selling them, debasing them, or so basically, uh really because investors are reassessing duration, refines, refinancing, and inflation risks.
• 37:18
  SPEAKER_00: So they find gold a very, very good um alternative.
• 37:24
  SPEAKER_00: In that environment, reserve managers and sovereign institutions seeking an alternative liquid first-year asset, they're naturally drawn towards allocated physical gold held within secure, vaulted, and collateral compatible uh market infrastructures.
• 37:43
  SPEAKER_00: So, so kind of to sum that up, persistent ETF accumulation alongside higher yields points to a structural allocation shift that is really just beginning, and it's influenced by the physical markets, is beginning to outweigh the legacy real rate framework.
• 38:01
  SPEAKER_00: With any easing in rate pressure, providing an additional cyclical tailwind yet to come.
• 38:09
  SPEAKER_00: Now, ultimately, when yields do stabilize and energy-led inflation pressures ease, well, any reduction in rate pressure is going to add to an already strengthening structural allocation case.
• 38:25
  SPEAKER_00: Now, to answer some more questions, really essentially asking, will it boils down to will physical demand continue to underpin gold and silver?
• 38:39
  SPEAKER_00: Especially when you have a look at a day like today, where you see literally that kind of um flash cells coming through.
• 38:50
  SPEAKER_00: And clearly some be the official, there's it officially sanctioned.
• 38:53
  SPEAKER_00: So you you you have to it it does beggar that question.
• 38:57
  SPEAKER_00: I mean, the key takeaways though, um, from the derivative physical battle since our last episode, and we tend to do this every two weeks, and we just kind of sum it up, is I mean essentially gold and silver remain structurally supported.
• 39:15
  SPEAKER_00: And despite options-related markdowns, physical demand uh continues to absorb weakness and raises the market floor.
• 39:25
  SPEAKER_00: And Shanghai premiums remain the key signal here.
• 39:29
  SPEAKER_00: Ahead of closing for the three-day holiday on on Thursday, uh, sorry, for the for the holiday for the holiday on Thursday, gold premiums, and that was a four-week holiday, um, gold premiums into that SAF were$24, and silver premiums of about 13.3% confirmed that physical buyers were leaning into dollar strength to uh actually accumulate discounted metal.
• 40:01
  SPEAKER_00: And the commercial activity points to underlying strength.
• 40:06
  SPEAKER_00: Commercial short covering and delivery-related hedging, it suggests that paper market sell-offs is masking a firmer physical market backdrop.
• 40:16
  SPEAKER_00: We just looked at the COT report, and you can see how they're basically just getting the market to their advantage.
• 40:24
  SPEAKER_00: And the paper-to-physical disconnect, what it what's happening there?
• 40:27
  SPEAKER_00: It's widening with Chinese liquidity returning on Monday returning tomorrow, which is um uh, of course, um Thursday when you get this.
• 40:40
  SPEAKER_00: Tightening physical availability raises the risk of a sharp upside repricing.
• 40:46
  SPEAKER_00: So silver actually remains the higher beta leader on this.
• 40:52
  SPEAKER_00: Physical silver is expected to lead the next move higher and challenge the Kermex unallocated price cap.
• 41:00
  SPEAKER_00: A quick look at Goldman Sachs late September report, with just a particular focus on silver.
• 41:06
  SPEAKER_00: I drill down into it, I'll just put the headline here because I think it is an institutional copy.
• 41:12
  SPEAKER_00: I don't think I'm allowed to share it.
• 41:13
  SPEAKER_00: I don't believe I am.
• 41:14
  SPEAKER_00: So I'm just really gonna go through it.
• 41:17
  SPEAKER_00: Goldman is, which is also one of our first year liquidity providers, uh, backs up our recent assessment that silver is both underpriced and undersupplied at current prices.
• 41:29
  SPEAKER_00: Now, while the report refers to the risk of ETF or investment demand ramping up and leaving silver stocks, as they put, stranded, the far bigger upside risk actually stems from as an yet unfactored ramp up in Asian, Hong Kong, and SGE physical demand, where the trading arm actually estimates the price impact.
• 41:53
  SPEAKER_00: And they figure some eight to ten times larger than the legacy market paper diluted cash settle estimates, which is somewhere between$180 and$480.
• 42:06
  SPEAKER_00: Now, this is first tier, a first-tier bank.
• 42:10
  SPEAKER_00: This is the liquidity providers talking about these kind of numbers.
• 42:15
  SPEAKER_00: Now, obviously, this is not a one-to-one supply-demand correlation, as there will be some demand destruction and willing sellers, hedgers along the way, of course.
• 42:25
  SPEAKER_00: However, even in plain vanilla terms, and notwithstanding the massive embedded uh short stops that would force accelerated short covering, the upside potential remains clear.
• 42:38
  SPEAKER_00: And while it seems a long way off, our$140 target is just not an outlier.
• 42:44
  SPEAKER_00: And obviously, looking, we're only just started the fourth quarter.
• 42:50
  SPEAKER_00: Uh, and so we really now got to look towards the end of the fourth quarter, there's a lot of room here.
• 42:56
  SPEAKER_00: And Goldman's core message really is that US tariff uncertainty is already uh uh functioning as a de facto stockpiling policy.
• 43:05
  SPEAKER_00: And by keeping a tariff risk alive, which it is, Washington is encouraging traders to move critical metals to the US ahead of any formal measures that are coming.
• 43:17
  SPEAKER_00: But that boosts US domestic inventories without direct government buying.
• 43:23
  SPEAKER_00: But here's the key: it also removes tradable metal where from the rest of the world tightening available supply outside the US, where the real physical demand is.
• 43:38
  SPEAKER_00: Now, for silver, the implication is especially bullish.
• 43:42
  SPEAKER_00: The market is already structurally undersupplied, uh, import uh import dependent and slow to bring on new mine supply is one of the issues.
• 43:53
  SPEAKER_00: If a US bound inventory remains stranded while uh ETF and investment demand revives.
• 44:00
  SPEAKER_00: The available float in London and other trading hubs, it just tightens up enormously.
• 44:05
  SPEAKER_00: And Goldman's key point is that in a liquidity constrained silver market, the same investment inflow has a much larger price impact.
• 44:19
  SPEAKER_00: And they say, on the record, nearly three times greater than under normal inventory conditions.
• 44:25
  SPEAKER_00: And that is in their report.
• 44:27
  SPEAKER_00: Now, in summary, tariff uncertainty is draining global silver liquidity, magnifying price sensitivity to fresh demand, and making an already underpriced tight market more vulnerable to a disorderly upside repricing.
• 44:44
  SPEAKER_00: So looking at the larger picture, now the LBMA is increasingly under pressure, with actually many members expressing interest in adapting to the SGE physically settled protocol.
• 44:57
  SPEAKER_00: This comes off the back of an announcement from several large LBMA Bunning banks and that they see gold as an alternate first-year asset class, alongside a potential lawsuit against the LBMA that actually has the power to extinguish the LBMA in its current form.
• 45:15
  SPEAKER_00: And while they're fighting it, they don't have the resources.
• 45:18
  SPEAKER_00: I think they've only got something like 1.0 billion in funds as an organization.
• 45:24
  SPEAKER_00: I think the lawsuit is estimated to be something like 4 billion.
• 45:28
  SPEAKER_00: So, you know, seriously, they have a problem.
• 45:34
  SPEAKER_00: So put it this way: LBO in its current form is at risk.
• 45:40
  SPEAKER_00: So into this rigged sell-off day, let's look at the underlying bullish drivers that will increasingly eat the LBMA's lunch.
• 45:52
  SPEAKER_00: Because over the last few weeks, we've been tracking openly, we've been constantly looking at this, we've been tracking the PBOC's endeavors to take full control of the physically backed and several global gold pricing venues.
• 46:05
  SPEAKER_00: They need to.
• 46:06
  SPEAKER_00: And they're doing that through it's a through an aggressive expansion of the multi-jurisdictional SGE gold pricing and storage corridors.
• 46:16
  SPEAKER_00: Interestingly, you talk about the LBMA, some of the LBMA members saying they may want to participate in this too.
• 46:22
  SPEAKER_00: And we're talking about physically, which we're not talking about paper settled uh gold here.
• 46:27
  SPEAKER_00: We're talking about physically settled gold.
• 46:31
  SPEAKER_00: Now, taking on the 1 trillion a week, that's a$52 trillion a year legacy, unallocated, cash-settled, loco London over-the-counter settlement benchmark, exposes its structural mispricing, forcing a substantially higher gold price to rebalance constrained physical supply against rising sovereign and institutional demand.
• 46:59
  SPEAKER_00: Now, China's move from concealed accumulation to public buying signals the PBOC's push for a gold-backed international RMB.
• 47:09
  SPEAKER_00: And the customs data captures, as we looked at, only a fraction of monetary gold held by state banks.
• 47:18
  SPEAKER_00: Now, China's US Treasury holdings are at their lowest since 2008.
• 47:23
  SPEAKER_00: We showed some charts last time.
• 47:25
  SPEAKER_00: That's way below Japan and the UK.
• 47:28
  SPEAKER_00: I mean, because bilateral tensions are actually deepening, not relieving.
• 47:35
  SPEAKER_00: Gold is reasserting itself alongside the dollar.
• 47:38
  SPEAKER_00: So it's not taking advantage, it's not replacing, it's just reasserting itself alongside.
• 47:45
  SPEAKER_00: The PPFC is advancing de-dollarization through its SGE backed RMB gold ecosystem, uh centered currently in Hong Kong, linking and remember, remember liquidity to deliverable bullion.
• 47:59
  SPEAKER_00: And that is, of course, expanding.
• 48:01
  SPEAKER_00: That is just the test case.
• 48:03
  SPEAKER_00: And we know that that is first quarter of next year, that becomes accessible to everybody.
• 48:10
  SPEAKER_00: Right now, you need to be licensed to use that uh that that facility.
• 48:16
  SPEAKER_00: Now, concern over servicing more than 40 trillion of US debt at higher rates will continue to accelerate sovereign reallocation into non-dollar assets, including a goldback yuan.
• 48:30
  SPEAKER_00: So we see all those things.
• 48:32
  SPEAKER_00: Nothing's changed.
• 48:33
  SPEAKER_00: All these bullish drivers are there.
• 48:35
  SPEAKER_00: Uh rising US debt, dollar weaponization, leverage paper claims.
• 48:40
  SPEAKER_00: They're pushing institutions towards physical collateral and jurisdictional diversifications.
• 48:46
  SPEAKER_00: Of course.
• 48:47
  SPEAKER_00: Why wouldn't you?
• 48:48
  SPEAKER_00: Central banks are raising physical gold allocations and building non-dollar settlement systems.
• 48:55
  SPEAKER_00: The dollar remains dominant, but gold offers issuer-free, sanction-resistant neutrality.
• 49:02
  SPEAKER_00: You can't get that on in any other asset class.
• 49:06
  SPEAKER_00: Even cash is cash is a trade.
• 49:11
  SPEAKER_00: Cash is being debased.
• 49:13
  SPEAKER_00: You get no protection from having uh cash.
• 49:17
  SPEAKER_00: And well, uh I I know that um Daniela Gigi Martino Bu said it can't be gated, and and I'm sure that's the case.
• 49:25
  SPEAKER_00: It can't be gated anymore.
• 49:26
  SPEAKER_00: But I I I just wouldn't trust it.
• 49:29
  SPEAKER_00: There are only two first-tier assets.
• 49:33
  SPEAKER_00: One of them is is full of risk, and the other one is debt-free, and that's gold.
• 49:37
  SPEAKER_00: And Basel III NSFR rules made LBMA FX gold fixes physically deliverable in January 2023.
• 49:46
  SPEAKER_00: So where we just have three to five tons, um uh which which uh against against six to eight hundred tons of daily cash settlements, and as I say, it's one trillion a week.
• 49:58
  SPEAKER_00: Um, while HAU LBMA arbitrage is sucking 400-ounce bars out of London into Hong Kong and the SGE.
• 50:09
  SPEAKER_00: This is this is you couldn't actually have a better setup.
• 50:14
  SPEAKER_00: This is this is bullish.
• 50:16
  SPEAKER_00: Flows into Hong Kong SGE discipline, LBME, CME, market makers, it pressures paper gold and strengthens physical price discovery.
• 50:26
  SPEAKER_00: So you see a short-term move.
• 50:27
  SPEAKER_00: Okay, so we see a short-term move.
• 50:30
  SPEAKER_00: And what what are they doing?
• 50:32
  SPEAKER_00: Literally, the the commercials are on the long side of this, and they're just hunting out any tourists that are holding uh any leverage positions.
• 50:43
  SPEAKER_00: Obviously, a stacker is not going to be dissuaded.
• 50:46
  SPEAKER_00: A stacker is looking at this today as we are and saying, well, so close to central bank support levels here.
• 50:55
  SPEAKER_00: What where's the problem?
• 50:58
  SPEAKER_00: And so essentially, physical depositories uh they they streamline basically ownership and delivery actually for sovereign and institutional participants, uh, where you need a liquid, high quality, liquid asset uh asset settlement um system so that you can use your first-tier gold as you could have used your debasing US dollars.
• 51:28
  SPEAKER_00: And this expands.
• 51:29
  SPEAKER_00: So obviously, this is all expanding from Hong Kong um into the SGE physical pricing gateway.
• 51:37
  SPEAKER_00: Uh, this is happening, this is history in the making.
• 51:42
  SPEAKER_00: As offshore physical liquidity grows, confidence in paper gold weakens, as we see with open interest evaporating.
• 51:50
  SPEAKER_00: You just got a few speculators now being able to be gained.
• 51:55
  SPEAKER_00: So a structural repricing is gathering force.
• 51:59
  SPEAKER_00: This is the lull before a tsunami.
• 52:04
  SPEAKER_00: We think we are there, but the only question is are you along with every central bank, sovereign, and a growing number of first-tier bullion banks, ready for a widely anticipated over$4,000 end of gold increase in price and a hundred and forty dollar physical silver realignment?
• 52:29
  SPEAKER_00: Guys, are you ready?