MIDWEEK METALS MADNESS / MACLEOD FINANCE

Midweek metals madness

After rising nearly 14% in just two months and the premiums on Comex futures normalising, you would have thought gold would have a correction. Instead, it threatens to rise even further…

ALASDAIR MACLEOD

Despite recent strength, gold’s chart still looks good. 

Speculator positions on Comex are far from extreme, suggesting that they have yet to get fully on board the trend. 

In the last three sessions, prices have been driven by overnight (Asian) demand. 

Broadly, where gold goes silver tends to follow.

The extraordinary thing is that western financial markets have missed out in this game entirely. 

Even momentum-playing speculators appear luke-warm about the trend, otherwise Comex’s open interest would be significantly greater whereas it has declined by some 76,000 contracts in the last 18 trading sessions.

So, what’s going on?

I have often emphasised the standing for delivery problem on Comex. 

It is where ephemeral futures meet physical reality. 

Since mid-December, when the current bullish move started 290 tonnes have been stood for delivery, supposedly a staggering withdrawal of bullion from bullion banks’ reserves. 

In the past, they have used every trick in the book to not part with actual possession, but that only works so long as those standing for delivery accept an certificate promising ownership from the likes of Goldman Sachs or JPMorgan instead of actual delivery.

But what happens if these ownership certificates are no longer acceptable?

I believe that this is why the bullion bank establishment in New York has had to suck physical liquidity out of other financial centres and even the Bank of England, because there was a run on their US bullion reserves developing with increasing numbers of stand-for-deliveries insisting on actual possession.

Since Covid, gold stand-for deliveries on Comex have totalled over 2,500 tonnes. 

This conceals an enormous build-up of undelivered obligations, inevitably leading to a run on the system. 

But why now?

Following President Trump’s election, there has been enormous uncertainty over his own and his team’s attitudes to gold. 

We hear that Treasury Secretary Scott Bessant is bullish of gold, and that he supports the Treasury’s gold being transferred to a new sovereign wealth fund. 

But what if the rumours about Fort Knox and also the New York Fed misrepresenting the actual position? 

What if most of the gold is missing?

If that is true, then precedence suggests that gold in the Comex vaults might be confiscated to make up for shortfalls in the Treasury’s stocks. 

And a promise to deliver made by a bullion bank (“Don’t worry, we will look after your gold for you at no storage cost — here is a piece of paper confirming the arrangement”) suddenly is not good enough.

It certainly explains the panic in New York.

Then there’s Trump’s stated objective to devalue the dollar as part of his MAGA policy, in order to make US production more competitive in export markets and shut out foreign competition. 

That alone points to a rush into gold.

The fact is that with all the rumours and uncertainty over Trump’s trade and financial policies, plus his seeming disregard for others’ property rights (talk to Gazans, and now Ukrainians!) any foreigner holding dollars, storing gold, or possessing gold certificates from a bullion bank for gold in US vaults is at risk of losing it all. 

In these turbulent times, the only safety looks like possessing physical gold held beyond America’s reach.

The only problem is that liquidity elsewhere has already been cleaned out!