Take this gold move as a sign of eroding confidence in central bank-generated money generally. Not to write a fanatic ingot accumulator, terrified of a hyperinflationary Weimar-style flash, but JP Morgan in his latest report.
That is, the first bank for assets in the United States. And, in fact, the demiurge of the triggering event of the Fed’s return to the field after ten years of inactivity, when his convict mass displacement of reserves from the Central Bank accounts last summer created the prodromes of the mid-September repo crisis .
In conclusion, gold is not only the safe haven asset par excellence, the one that measures the expectations of a systemic crisis. And also the proxy, the canary in the mine of the growing mistrust of large layers of the market towards the operational omnipotence of monetarism from structural Qe.
What makes the stock exchanges fly but creates silent and karst disasters in the underlying macros and on the counterparty risk chain.
Confirmation comes from these three graphs, the first of which refers to JP Morgan’s study:
gold valuations, in fact, now have hit record highs against all safe haven assets, from the dollar to the Swiss franc to the yen. In the case of the post-Brexitthen, the surge appears truly without any historical precedent.
And worthy of reflection, also in light of the recent, first British debt issue with negative yield.
The second chart it correlates the global supply of liquidity, i.e. the set of expansion of the balance sheets of the various central banks, with the price per ounce and a possible re-couple on the upside he would even see gold with about $ 1,000 of potential growth ahead, especially if its new operations should continue and indeed spread as a direct instrument of hedging related to expansive risks: in short, $ 2,500 is not lunar at all.
Rather. The third graph offers an implicit confirmation of this dynamic, since shows how the so-called smart money has followed the slavishly mantra of the sell in May and go away, having sold stocks with the shovel during the month just ended and simultaneously bought their own gold through trading on Etf.
All with a Standard & Poor’s 500 growing by 5% in the same period, thanks to hedge funds and retail customers.
But the period of lockdown brought with it another decidedly interesting and unprecedented dynamic linked to gold. Taking advantage of the favorable arbitrage that arose between the spot price and the golden future at the beginning of March, with the latter decidedly higher than the former, traders have in fact created a mass shipment of bars and ingots to the United States, something that Alla Finn, head of the commodities department at the logistics and security company Malca-Amit, thus described with Bloomberg: “A physical gold flow similar to New York is unprecedented, so much so that our operational teams in the city had to work on shifts that covered the whole 24 hours to manage the loads “.
The graphs speak for themselves, compared to quantity of physical gold delivered to Comex, the stock exchange where metal futures are traded (gold ma also silver and copper): from late March to last week, at least 550 tons.
A quantity that alone, to put the issue in perspective, it represents the 11th gold reserve in the world, greater than that of the ECB itself with its 504 tons. Only in April, gold imports from Switzerland to the United States reached 111.7 tons, the absolute historical maximum.
At the current price, the quantity delivered in two months in the US is equal to 30 billion dollars worth. On May 28, then, at the end of the trading day, with reference to the Comex contracts in June, the traders were ready to deliver the record value of 2.8 million ounces of gold, the greatest delivery notice on the single day since 1994.
For Mark Woolley, managing director of Brink in London, “the amount of precious metal that he successfully transferred to New York has been decidedly significant, something with few precedents in my twenty years of activity in the sector. I think it was delivered the equivalent of the entire production of gold that came out of the mints in the same time frame “.
Not surprisingly, the demand for physical gold on the New York market appears to be such forced Comex introduced a new type of contract linked to 400 ounce bars, typology usually used on the London market. And that’s not enough, because in an equally unprecedented move, on May 1, Comex opened a $ 7 billion credit line – expandable up to 10 billion – with Bank of America, operating as collateral agent, in order to guarantee liquidity to the system in the event of a default clearing member or a custodian, a credit contraction or a temporary delay event on the internal payment server.
In conclusion, there is a growing fear that the exponential increase in the demand for physical gold may cause the system to tilt.
Because? This graph explains it without too many words, which shows the ratio between the number of gold futures contracts recorded as open interest in Comex and physical precious metal available upon delivery to the same stock exchange.
Once not too far away, this final question would have been purely academic, today it is no longer so, in light of the dynamics of the last few months: if all participants in the “paper” gold market decided not to sell those contracts or not to operate roll-on but they wanted instead the delivery of the metal in the form of ingots or bars, how much would the Comex hold before making the end of Lehman Brothers in what would be the most colossal and explosive margin call of history?
Gold speaks. And lately, it seems to suggest with increasing insistence how the road taken by Fed and associates appears to be facing a dead end.