**Podcast Transcript: Use the transcript tab above for follow along reading. Warning, Profanity.
Sound is a little tinny…. apologies in advance
At 11:34 p.m. ET the price of gold in prompt contract form on the Shanghai Gold Exchange was approximately equivalent to $2004/oz. with Gold trading $1935 on the COMEX. This was a recent new high in the spread between the two exchanges. People took notice of this as posted by our friend and writing colleague Bai Xiaojun in China.
That prompted us to record the following for subscribers asking questions on topic.
Transcript: Why is China’s Price higher than Comex?
I am happy to say that finally there's an increasing awareness that the disparity between say China's pricing of gold or Japan or India and US pricing of gold.
We're talking about silver here obviously as well, but gold is easier to see.
The disparity between those two markets is consistent, persistent and widening.
What does that mean?
Along With the USD, Global US Pricing Power is Waning
That means the pricing mechanism is broken in the U.S.
It means that the price in China, which is higher, can be viewed as the right price if you want to sell, and the price in the U.S., which is lower, can be viewed as the right price if you want to buy1.
De-Globalization, Mercantilism, and Fragmented Collateral
The reason it persists and is increasing is because this is a deglobalized market, a function of mercantilism, which means, I'm sorry I say it all the time, which means that there is a lack of flows across the border between East and West now.
And as a result of that
You have a fragmentation in pricing power, which is what the US, the COMEX, is now starting to see in a little bit more zealous fashion.
The pricing power, as the pricing power weakens here, the pricing power increases elsewhere.
Multipolar would be the word.
But let's assume that it's just going from here to China.
It's going from here to China and the price contains a disparity and there's a bigger spread and it has for a longer period of time.
It either does not rectify because of a complete bifurcation of economics and U.S.
Gold is in the U.S.
and Chinese gold is in China
or it rectifies and it rectifies by arbitrage.
An arbitrage which used to be freely permitted across the globe is now becoming more restricted.
Either Price Converges, or Gold Moves East
Who can't take advantage of arbitrage?
Here's the word, the merchants, the merchant banks, the banks that can put a foot in both countries without causing regulatory or international scenes or problems.
Merchant banking will rise again.
Merchant banking meaning a bank that trades internationally, and that's what happens in arbitrage.
COMEX is Dead, Long Live GLD and SLV
Now, if the arbitrage were restricted and prohibited completely, what you would have is you would have a two-priced or two-tiered marketplace for metals in the world, kind of like Cuban cigars and Cuba versus Cuban cigars here.
Contraband, so to speak.
How would they prevent the quantity of gold from the West going to the East if they did not let the price fix?
Well, they would take the U.S. contract, the gold contract, and they would sever it from deliverability, which is what's going to happen.
If you sever a contract from deliverability, it tracks the future, but it's not the future.
You can't get physical delivery.
Another way to do that is to take the gold that is deliverable on the COMEX and you put it into the GLD, which is not deliverable except to
SEC permitted entities, which is to say it only gets delivered inside the US.
Chinese Policy in American Clothes
The US is doing the same fucking thing China is doing, but they're just not doing it with the same label.
China is using an authoritarian government to keep all the gold that it buys within China.
It's basically saying, no, you can't leave China.
The US will do the same thing in the US and take it outside of the US.
How do I know this?
Because I know it.
Because I used to try and take gold out of Brazil on an arbitrage betweeb 2007 and 2012 and they wouldn't let me for years.
And that's what every country does in a mercantilist, de-globalized world.
They protect their own collateral by any means necessary.
That's it. That's what's going on.
Note: Same thing is happening in Oil, but in Oil, it is happening by regionalization of different crude prices.
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