A few days ago, one of the world’s largest refineries informed its customers that the London warehouses were empty and that the London gold market was dry of liquidity.
Confirmation last Wednesday: The Bank of England published the information that it would be able to deliver the gold currently awaiting delivery only in 4 to 8 weeks.
Background
Donald Trump had announced, even before his election, his intention to impose customs tariffs on all imports. Even without specifics on this subject, many investors saw this as an inevitable increase in the price of precious metals.
Since the announcement of Trump’s victory, the COMEX has been facing exceptionally high Gold delivery demands.This required a veritable airlift to transfer 393 tonnes of gold from the LBMA’s London warehouses to the COMEX vaults in New York, bringing the New York gold stocks to 926 tonnes.
This movement emptied the “liquidity” available in gold in the Bank of England’s vaults.
Default
For years, Andrew Maguire has been pointing out that the official rules of the "Exchange For Physical" (EFP) between the COMEX and the London Bullion Market require delivery within 14 days. He even gave a presentation on this subject in the House of Commons, thus challenging the government.
The fact that the BoE can only deliver gold before 4 to 8 weeks is, in a way, equivalent to a "default". The term "failure" may seem too blunt, but the reality remains the same.
The BoE has officially asked other central banks to lend it their national gold, which is supposed to be stored in its vaults. (Reuters)
Confidence Crisis
What is happening is absolutely dramatic for confidence in the London gold market, the LBMA, which has just proven that the regularly published gold stocks have nothing to do with the reality of the float, that is to say the gold really available for sale.
According to the published stocks, a large majority belongs to ETFs, another part is held by central banks, family funds or individuals, and a fraction is also owned by Chinese banks.
For silver, a study by Ronan Manly revealed that 85% of stocks in London belong to ETFs. The question now is: how much silver is actually available for sale on the London market today?
If the BoE defaults on gold and is not able to deliver, it is the entire fiduciary system, based on trust, that should be deeply shaken.
Bond crisis?
Recall that the BoE announced last week that it had put in place exceptional security measures for the market for “Gilts”, British Treasury bonds. This shows that the Central Bank anticipates a new crisis of confidence in this sector. (Reuters)
Paper Gold
20 Moz are traded each day, or 100 Moz per week in the London Bullion Market, it is roughly a year of production traded each week. 27 Moz are traded each day on the COMEX.
96% of the gold traded daily on the London and New York markets has no physical reality. It is paper-gold or electronic-gold, which can never be delivered. Once the 4% of real physical gold has been delivered, what will happen?
Will the snowball triggered by Trump’s tariff statements will turn into an avalanche?
China's game?
Chinese banks have offered their clients the option of keeping their cash in gold instead of Yuan. This would have led to very strong demand. To meet this demand, China had bought gold in London, starting in November 2024.
Remember that a few years ago, Chinese banks bought vaults in London and New York. For several years, they have been agreed by the LBMA and have been investing in gold. Some of their gold is exported to Switzerland, where the 400-ounce bars are melted down into 1-kilo bars for the Shanghai Gold market, the SGE. Another part of they gold is stored in the London and New York warehouses, where they continue to give the illusion of the wealth of Western stocks. But their metals are most likely not for sale.
On the SGE, when a bar is sold, it must be delivered the same day. This is a physical gold market, not a virtual one.
Is China, which is at the moment celebrating the Chinese New Year, imploding the Western virtual system right now?
It would be enough for its banks to ask for delivery on the London or New York markets, when there is already a panic, to blow up the whole system.
Gold prices soar
The price of gold broke through its resistance last Thursday, recording a new all-time high every hour.
The $3,000 per ounce forecast for the end of the quarter now seems within reach:
Silver, which had been lagging considerably behind gold, also broke through its oblique resistance today.
Is silver starting a new bullish rally towards $40?
... or will the global financial crisis, which could be on its way, delay the inexorable rise in precious metals for a few months?
This rise will be nothing more than the expected continuation of the devaluation of the purchasing power of fiat currencies.
DeepSeek was no more than the flapping of a butterfly's wings, triggering a veritable hurricane in Wall Street's AI bubble.
The BoJ's rate hike to 4.5% last week could create a new shock in the Yen Carry-Trade, similar to that of July-August 2024, which caused a sell-off in the stock markets and a surge in the Yen. Will the same causes produce the same effects?
The Bank of England's default on the gold market can only provoke a crisis of confidence in the fiduciary system put in place after the US defaulted on the Bretton Woods Agreement in August 1971.
This crisis has only just begun.
Reproduction, in whole or in part, is authorized as long as it includes all the text hyperlinks and a link back to the original source.
The information contained in this article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell.
