What did Eric say at 40:30 when he’s explaining the bridge connection the LBMA and COMEX has with the etfs ( example was GLD ), he said it was like a piggy bank what? that second word I couldn’t make out
I am a bit confused regarding how it is that China can buy massive amounts of gold if the market is apparently ALL paper (except for the actual producers). Are they buying directly from them or does JPM and UBS accumulate the actual mined production and then sell it to China? Is that the net operating thesis of the bullion banks? Agents for China?
The word paper gets thrown around and kind of muddies the delineation between physical and futures. So here’s a short version.
For this explanation, I will use the word futures not the word paper. Paper is a pejorative term used by gold people. Futures is the actual word. Features are derivative of physical gold. Futures are designed to be very convenient and very cost-effective to trade when you have an opinion. They offer large leverage as well. They are electronically traded as well. They can go out five years. So you could theoretically own a gold future for $10,000 that controls $100,000 worth of gold. The keyword is controls as in moves consistently with the price of the physical gold. The reason that you buy this futures contract is because you have belief and faith that this contract will track reliably what the physical Price is doing. The reason that the futures do track the physical gold is because if you hold that futures contract to the very very very last day, you can Put up the other $90,000 and get your gold. So ultimately the Comax futures contract is a physical contract. What happens is you don’t want to spend the other $90,000 for the gold so what you do is you sell the gold contract out that is expiring tomorrow, and you buy Another gold contract one year out. Your investment remains at $10,000, and you still have price appreciation potential for gold.
The futures market is dominated by speculators. Speculators who don’t want the physical gold, but they want the price potential of physical gold. And every month none of them take delivery of physical gold. And over the years central Banks stopped buying physical gold. Enjoying that timeframe, the gold bullion banks would sell even more futures than there was physical gold in existence driving the price down, looking for buyers.
Then other derivative contracts were created that track the price of gold, but did not settle in gold futures at all. And so on and so on and so on and then one day while everyone was being comfortable selling the gold market because no one took delivery, someone took delivery so that there are now many many more futures contracts that are open then there is physical goal that’s available statistically only 1/50 of those contracts would take delivery in the past. And you can build a business around that assumption. But now 50% of those contracts are taking delivery. And the game of kicking the can down the road is no longer viable. The futures contracts are now a risk.
TY VBL. So, I assume that China, BZ and others are buying their gold with futures rather than direct purchases from producers, as China has been doing with silver slurry. Is it that straight fwd?
What did Eric say at 40:30 when he’s explaining the bridge connection the LBMA and COMEX has with the etfs ( example was GLD ), he said it was like a piggy bank what? that second word I couldn’t make out
Did you look in the transcript there’s a full transcript attached? Is it in there or no?
I’m not seeing any there, there’s only that import chart at the bottom that’s it
I am a bit confused regarding how it is that China can buy massive amounts of gold if the market is apparently ALL paper (except for the actual producers). Are they buying directly from them or does JPM and UBS accumulate the actual mined production and then sell it to China? Is that the net operating thesis of the bullion banks? Agents for China?
The market isn’t all paper.
The word paper gets thrown around and kind of muddies the delineation between physical and futures. So here’s a short version.
For this explanation, I will use the word futures not the word paper. Paper is a pejorative term used by gold people. Futures is the actual word. Features are derivative of physical gold. Futures are designed to be very convenient and very cost-effective to trade when you have an opinion. They offer large leverage as well. They are electronically traded as well. They can go out five years. So you could theoretically own a gold future for $10,000 that controls $100,000 worth of gold. The keyword is controls as in moves consistently with the price of the physical gold. The reason that you buy this futures contract is because you have belief and faith that this contract will track reliably what the physical Price is doing. The reason that the futures do track the physical gold is because if you hold that futures contract to the very very very last day, you can Put up the other $90,000 and get your gold. So ultimately the Comax futures contract is a physical contract. What happens is you don’t want to spend the other $90,000 for the gold so what you do is you sell the gold contract out that is expiring tomorrow, and you buy Another gold contract one year out. Your investment remains at $10,000, and you still have price appreciation potential for gold.
The futures market is dominated by speculators. Speculators who don’t want the physical gold, but they want the price potential of physical gold. And every month none of them take delivery of physical gold. And over the years central Banks stopped buying physical gold. Enjoying that timeframe, the gold bullion banks would sell even more futures than there was physical gold in existence driving the price down, looking for buyers.
Then other derivative contracts were created that track the price of gold, but did not settle in gold futures at all. And so on and so on and so on and then one day while everyone was being comfortable selling the gold market because no one took delivery, someone took delivery so that there are now many many more futures contracts that are open then there is physical goal that’s available statistically only 1/50 of those contracts would take delivery in the past. And you can build a business around that assumption. But now 50% of those contracts are taking delivery. And the game of kicking the can down the road is no longer viable. The futures contracts are now a risk.
TY VBL. So, I assume that China, BZ and others are buying their gold with futures rather than direct purchases from producers, as China has been doing with silver slurry. Is it that straight fwd?