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Pat Heller: Did the London/New York markets default on gold deliveries?

Section: Daily Dispatches

11:55p ET Thursday, April 2, 2020

Dear Friend of GATA and Gold:

Veteran coin and bullion dealer Pat Heller of Liberty Coin Service in Lansing, Michigan, today provides via Numismatic News an excellent summary of the critical tightness in the physical gold and silver markets and the scheming being done by the London Bullion Market Association and the New York Commodities Exchange to conceal what are effectively defaults on futures contracts.

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Of the mysterious "exchange for physicals" mechanism by which most Comex gold futures contracts now are settled -- or, really, transferred off the exchange's books for private resolution in London -- Heller writes:

"There are some logistical problems with delivering a London gold contract. First, London gold contracts are for 400-ounce bars whereas the Comex contracts are for 100-ounce bars.

"Second, like the Comex, the LBMA also has a huge shortage of physical gold to deliver against maturing contracts called for delivery. As a consequence, a higher percentage of London gold contracts is being settled for cash than in years past.

"Even worse from the standpoint of the LBMA is that the negotiated cash settlements now are for an increasing premium above the spot price than in the past. What that means is that short sellers of contracts in the London market were already suffering financially when the Comex passed along its gold contracts.

"In response to the initial news of the lack of London market gold deliveries Tuesday last week, the physical gold market developed a large bid/ask spot-price spread -- as much as $100 that day. The bid/ask spot-price spreads also widened for silver, platinum, and palladium. As of Wednesday this week these spot-price spreads are much slimmer, though those for gold and silver are still larger than they were before Tuesday last week."

Heller concludes: "The sum total of all the developments at the LBMA and Comex last week reinforces that there is a huge shortage of physical gold (and, by extension, silver) inventories available to cover all promises for delivery. As more people are willing to pay ever-higher premiums to get their hands on bullion-priced physical coins and ingots, the risk of collapse -- a formal default -- of the "paper" gold and silver markets is also rising."

Heller's analysis is headlined "Did the London/New York Markets Default On Gold Deliveries?" and it's posted at Numismatic News here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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