Below is a cut
and paste of some of my comments on this issue at FOFOA's
latest post. Also see here
for some comments on the GBI system which was the focus of the FOFOA post, in
particular the "fully insured" claim, which many operators imply
“You will maybe find this one interesting”
I had seen the
SNA papers and tend to agree with Paul I's "egghead" analysis
- in the end there is no forced requirement to split out physical gold from
unallocated from leased out, so they can continue to play their games.
“How do you have true allocated storage of any bullion less than a full
bar? Ie, yes: bars have numbers that you can put on
the statement. Coins do not.”
I've posted on
this issue here.
In my view "true" allocated can only be for full bars and coins.
Bar numbers help in trusting the custodian, but can still achieve the same
with unnumbered bars and coins by marking them (eg texta). One way to really test if allocated is being
offered is to ask if you can view your metal and if there will be any problem
if you mark your coins and bars.
“The interview with Ned Naylor-Leyland
describing PAGE is a must watch IMO, as I agree that this has the potential
to be a real game-changer.”
I'm underwhelemed by PAGE. So there may be a "fully
allocated spot gold contract". Guess what, we sell the 300t of physical
gold we refine each year at spot in the OTC market - the buyers can be
totally private. I don't think we will see much trading moving to PAGE beyond
what bullion banks will feed it to meet local demand as other buyers aren't
going to want their activities out in the public and visible to the
benevolent Chinese Govt.
The Giants are
going to continue to deal with the bullion banks in the OTC market where they
can wade about without anyone knowing.
"The significance I see in PAGE is as a physical gold price discovery
market. If it is fully allocated contracts that create the spot fix, then I
see an arb developing between the existing
(paper-based) exchanges and PAGE where the contracts are backed by
Just to be
clear, in the wholesale markets the price of paper unallocated gold with a
bullion bank in London and physical gold are the same. Tonnes and tonnes of physical deals (as well as paper) are priced
off the London Fixes. The Giants don't need PAGE as a "physical gold
price discovery market" - it already exists in the OTC market. There
already are arbitragers between paper futures exchange and "contracts
backed by physical" ie allocated and spot
This is not to
say it will always be like this, but right now paper price = physical price.
Through all the ups and downs of the past five years and all the rumors of
imminent market failure I have not seen paper and physical diverge.
As to PAGE
being a way to get renminbi exposure, well that
will be interesting to watch but note what Victor
said "long the allocated contract at the PAGE and short gold
in US$" - the end result is no impact on the gold price because the long
cancels the short.
“Right now, the gold spot market is like a big, stupid, compliant
Labrador, Perth Mint included. It doesn't mind having it's
tale wagged by the paper market. PAGE will turn out to be a snarling Rottveiler.”
I'd say that is
debatable. Everyone assumes paper is in charge, when the only data we have is
COMEX and other visible exchanges but nothing on what goes on in the OTC
market, save for some opaque “transfer” numbers from LBMA.
“Quite frankly, as an Australian, it makes me sick to see our national
gold wealth sold off for pennies on the dollar. I may be naive, but I have to
ask why an organization like the Perth mint hasn't long ago tried to maximize
value for Australia and Australian gold mines by proposing something along
the lines of PAGE.”
I don't think
you are getting what I'm saying. Perth Mint doesn't need to start an
Australian PAGE – every week we offer 5t or so of physical gold to the
OTC market and the bullion banks and other bid for it. You may consider the
current gold price undervalued, but that does not mean that we aren't maximising Australia's gold – if the demand is
there then those banks bid for it. If anything
changing the current private OTC approach to a public PAGE would likely
hamper the process.
“Instead, we see them pushing massively over-priced
"collectable coins" to Grandmas in Post Offices, more demand divertion, very little education.”
guys push those fancy coins because they are our highest margin product
– that makes business sense, we aren't going to waste prime “shopfront” pushing low margin kilo bars. But that
stuff is small by volume compared to kilo bars where ultimately the big
“To separate physical gold in unallocated from leased would be at this
stage too much, they got so far to clear definitions and on what is allocated
what is not and that is a progress.”
that document does is make it clear what unallocated is. No professional
player is unaware of that, they just believe in the system and thus believe
in the “value” of their unallocated, because they are of the
system. I do not believe there is any big move from unallocated to allocated at the moment, nothwithstanding
the antics of Chavez. If that was the case we would be seeing a lot more
bidding for our weekly 5t.
“According to Bron the Perth Mint relies on
mine supply of silver for its refinery as very little scrap silver finds its
way to them. I see your point about the price of copper and silver. I would
be interested to hear Bron's thoughts on this. Is
it merely a question of price?”
about “silver scrap is mainly sold and refined locally because it is
not high enough in value to justify shipping it around the world” were
primarily focused on Australia, which is more geographically remote, and does
not have much silver refining capacity. In other markets silver may be far
“Concerning PAGE: my impression is that any offer which is closer to
physical than what the LBMA & Co offers might be taken up and will push
the price of Au up. But, I am only a small shrimp and not into finance”
Again, this is
an assumption that the LBMA banks are all paper and ignores the huge physical
market that exists side by side with paper.
costata: “Recently I came to the opinion that
leverage on the currency side was irrelevant. The key point is that the gold
itself is not fractionalized. If PAGE said no margin that doesn't prevent
someone from borrowing outside the exchange and trading a 100% cash account
Ha, now we are
peeling the onion, or should I say seeing more of the spider's web.
costata: “We should also not underestimate how much
the Chinese love to gamble. The paper gold market appears to be going
gangbusters right alongside the development of the physical gold market
according to this
point, I noted that comment as well. We should not blindly think that Asia is
a physical only market and cannot be tempted by the leverage paper offers.