The distortionary effect of LBMA unallocated gold contracts and surreptitious central bank leasing of their gold holdings into the market have increasingly shown signs of coming undone in recent years and now months... the real gold market is awakening. This awakening is, again, only at the margins but has already had a material effect on the gold market but not yet on the LBMA paper gold price... The LBMA has next to no visible London gold stocks backing the estimated 11,000 to 19,000 tonnes of spot gold open interest. And bullion banks are now attempting sell their once needed, now empty, London vaults.


The LBMA appears now to be in an intractable and rapidly degenerating position - with the vaulted gold available outside of the Bank of England and ETF holdings largely gone from London, how do you manage the appearances of a spot gold market with turnover of 200M oz per day and a massive open interest? While gold flow from the miners provides some liquidity and enables the LBMA paper gold market to provide some gold delivery and suppress gold prices, it is obvious that a massive gold event has occurred and that this paper market will not be the same given increased pressure for physical delivery. The London market cannot sustain any material gold withdrawal as occurred in 2013.

We now approach an event that may provide the catalyst for the inevitable repricing of gold and expiry of the LBMA paper/digital gold scheme. That event is the April 19, 2016 initiation of a daily spot domestic Gold Fix on the Shanghai Gold Exchange (SGE) that will be followed at a later date for the SGE international gold market.

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