Mining executive and metals analyst David Jensen returns to the Palisades Gold Radio show, where they delved into the controversial topic of the London gold market. The London Bullion Market Association (LBMA) is estimated to account for 91-92% of the global gold trade, a staggering figure that raises questions about the concentration of power in this market.
The LBMA’s dominance is largely due to the Bank of England’s regulatory oversight since 1986, which permits unallocated gold contracts instead of physical bars. This system has led to a situation where the market trades $500 billion of gold daily, while only around 3.5% of London’s vaulted gold is actual physical. This is in stark contrast to the Shanghai gold market, where physical gold is more highly valued and traded.
David Jensen highlighted that the London gold market functions as a price-setting mechanism rather than one of price discovery. This means that prices are determined by supply and demand in the London market, rather than being based on the global market as a whole. This leads to concerns about the authenticity and transparency of price-setting in the London gold market.
We also discussed Gibson’s paradox, where interest rates follow price levels rather than inflation rate. Central banks benefit from this control scheme due to their control over monetary policy and debt levels using gold and silver as loose policy indicators. This highlights the importance of understanding the role that gold and silver play in the global financial system.
David Jensen raised concerns about the London Bullion Market Association’s voluntary code of conduct, known as NIPPS, which is under Bank of England oversight. He pointed out that the metals market is dominated in London, with around 90% global cash trading occurring there. This raises questions about the transparency and accountability of the London gold market.
We also discussed the issue of Exchange-Traded Funds (ETFs) and the claims made about the amount of silver held in these funds. David Jensen questioned the authenticity of these claims, raising concerns about sub-custodians, potential rehypothecation or selling, and the actual amount of silver held. If pricing proves to be fictitious, this could have significant implications for interest rates and the economy as a whole.
In conclusion, the London gold market is a complex and controversial topic that raises important questions about the concentration of power in the global metals market. With only a small percentage of London’s vaulted gold being actual physical, and concerns about the authenticity and transparency of price-setting, it is clear that there is a need for greater scrutiny and accountability in this market. We will continue to follow this topic closely and bring you updates as new information becomes available.
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