Synthetics dominate Opaque Bullion Market

Featuring Ronan Manly

Ronan Manly brings an investment banking background to his analysis of the London gold market, which is dominated by a handful of bullion banks and huge unallocated positions. An inability to convert these positions into physical gold could be an accident waiting to happen in an opaque market perpetuated by secretive ETF custodians. Filmed on June 16, 2017, in London.

Published on
7 July, 2017
Topic
ETF, Gold, Derivatives
Duration
21 minutes
Asset class
Equities, Commodities
Rating
42

Comments

  • HS

    Hendrik S.

    26 8 2017 13:18

    1       0

    Zkb gold etf is acceptabele imho. Liked the video but is actually a commercial for bullionstar.

  • AG

    Alexander G.

    15 7 2017 16:41

    0       0

    Worth to remember annual gold supply is around 3,000 tonnes from mining plus 1,000 from recycling = 4,000 in total. Compared that to the mentioned 7,000+ tonnes of DAILY turnover in London (with around same amount backing up that amount of trading). The ratio of gold claims to available unallocated gold is apparently 100:1.
    With fractional reserve banking (10:1 leverage) there is always a central bank to prevent a bank run, but with fractional gold trading I doubt that central banks would part with any of their gold.

  • jd

    john d.

    13 7 2017 20:18

    2       0

    I have recently set up an account with BullionStar and have some vaulted gold in their Singapore location on the recommendation (by several RV interviewees) of having a diverse geographic allocation and a 'channel' set up before it is needed (I live elsewhere). I can highly recommend BullionStar's service and I have been very impressed with them as a new client. All unsolicited from me, but just as I do with RV, I'm keen to give credit where it is due. Cheers John.

  • MA

    Mikael A.

    13 7 2017 15:49

    1       0

    He is wrong that gold gives you usd currency risk.

    • DS

      David S.

      13 7 2017 16:55

      0       0

      Not always, but often when the $US goes up the price of gold goes down. This may be what he is alluding to. DLS

  • BA

    Blair A.

    11 7 2017 02:03

    3       0

    I'd like to hear from one of the bullion banks or LME folks respond to a list of serious questions that BullionStar or Goldmoney prepare. This would be informative. Both sides please.

  • GR

    Gregory R.

    10 7 2017 21:00

    1       0

    An ETF’s claim of physical gold needs legal scrutiny. It is my understanding that leased gold meets the legal requirements of physical ownership just as bank dollar deposits do. Both are real in a ‘virtual’ sense (as they represent fractional reserve values) but not in an ‘actual’ sense, as would be born out in an extreme crisis. If the ETF’s have the bullion they would let you claim it … say in bar denominations for a fee. If they don’t let you claim it then they ‘ain’t got it.’

  • MS

    Matt S.

    10 7 2017 16:07

    6       0

    Between this and yet another "special offer" to sign up for more cutting-edge macro research (I thought that's what RVTV and RVP was anyway?) I'm starting to feel like I'm the sucker in the room!

    Good info on the gold market but to be honest, i think probably most people who play the gold ETFs are under no illusion that they will ever receive physical delivery.

    • M.

      Milton ..

      10 7 2017 22:07

      3       0

      Hi Max, we don’t want anyone feeling like a sucker. You’re correct that RVP, RVTV, and Macro Insiders share the same mission – to reduce the glaring asymmetries in financial information that exist in research and media, and give our users access to the most brilliant minds in investing. While RVTV and RVP do this by broadly introducing you to the thinking of hundreds of top investment minds, Macro Insiders goes deeper into the field of macro analysis than anything else we offer. This is something that we have been asked for repeatedly by our members and that is why we are launching it.

      I’ve reached out via email with some more information; thanks for the feedback and for being a part of Real Vision.

  • VS

    Victor S.

    10 7 2017 13:56

    1       0

    Very educational -thank you

  • PU

    Peter U.

    10 7 2017 09:01

    0       0

    test

  • PM

    Peter M.

    10 7 2017 05:37

    1       0

    When you invest in Oil to see the price rise, do you need to have the several million barrels shipped to your home? It is a commodity exchange. You don't take possession of wheat, soy or nickel.

    • FS

      Fred S.

      24 7 2017 03:22

      0       0

      Someone takes possession. Someone provides the product. The rest of us speculate.

  • ii

    ida i.

    9 7 2017 12:36

    1       0

    so do we believe this video ? or this one? https://www.realvision.com/channel/realvision/videos/858331d4bcd34f28bf418724e1fac17f

  • DR

    Debra R.

    9 7 2017 06:38

    8       0

    Wonderful presentation. My greatest wish is that there is a run on the Bullion Banks, we can only hope. Thieving bastards. Fed up PM investor.

    • DS

      David S.

      13 7 2017 16:57

      0       0

      Be careful what you wish for. DLS

  • RI

    R I.

    9 7 2017 01:48

    2       0

    Where does Goldmoney fall into this picture?

    • RM

      Ross M.

      9 7 2017 09:38

      2       0

      Goldmoney as far as I know is fully backed vaulted metal. Redeemable as cash or metal.

  • DS

    David S.

    8 7 2017 19:56

    4       0

    Excellent presentation and comments, especially ETFs should be used for price speculation. When the next major financial crisis occurs, be it in stocks, bonds, fiat gold, bitcoins, you will still need local currencies to pay bills and buy groceries. Gold and silver coins will be useful too, but gold bars will be an investment. DLS

  • HM

    Hot M.

    8 7 2017 13:29

    4       0

    Gold ETFs aka paper gold (ie, the antithesis of gold) enable bullion banks to get speculators to pay their physical storage/carrying costs.

  • TH

    Timo H.

    8 7 2017 05:58

    15       1

    I've been a "gold bug"/"CB sceptic" since 2006, but I think this presentation still managed to clarify some things to me.

    Let's see if i got this right:

    Real gold price = the amount of fiat money needed to buy physical gold.
    Paper gold price = real gold price - counterparty risk.

    Today, the counterparty risk is assumed to be practically zero, although, in reality, the system is extremely heavily levered and backstopped by central banks. If this assumption ever breaks, e.g. if/when the trust in the backstopping CBs is lost, real gold price and paper gold price will diverge like nothing else has ever before. There's only a few per cent of gold backing the derivatives. This may give you an idea about the maximum size of the hidden risk. What if only 1% of claims can be honored? What's the divergence? 99%?

    Here's the kicker: Most ETFs track the paper price as you can't get your gold out of them in physical form. When push comes to shove, they'll fail their only objective, i.e. tracking the real gold price. Want to own 100% of what you think you own or does 1% suffice?

    Therefore, buy physical. Do it now, if you suspect, that the system is in trouble. Add some miners to the portfolio, if you want leverage.

    Right?

    • WM

      William M.

      8 7 2017 13:41

      3       0

      Excellent summary Timo. This is where I am and now examining my storage options which though extremely secure and flexible and located in Switzerland, are costing me 1.35% per year and thats too much.

    • DS

      David S.

      9 7 2017 02:17

      1       0

      Secure and flexible in Switzerland for 1.35% per year does not sound excessive. It is a cost of doing business. DLS

    • MS

      Matt S.

      10 7 2017 16:20

      0       0

      Bury it under your house. Really.

  • js

    j s.

    8 7 2017 01:34

    6       0

    If anyone wanted gold, why on earth wouldn't you buy gold? Anything else is just speculation in an imaginary number.

  • VK

    Viresh K.

    7 7 2017 23:18

    1       0

    Aim of gold ETF is to reflect generally the gold price. Upvoted for that excellent distinction.

  • HJ

    Harry J.

    7 7 2017 20:54

    0       0

    Ment to say Eagles vs GLD

  • HJ

    Harry J.

    7 7 2017 20:53

    0       0

    Glad I bought American Eagles vs god.
    It'll be interesting to see what happens when the divergence occurs.
    Frauds always come to grief, ask Maddox!!!

  • BG

    Bruno G.

    7 7 2017 19:17

    1       0

    Does anyone know or have any idea what effect Andrew Maguires 250 tonnes of physical gold purchase have on gold price that is expected to happen any day now???? Thanks

    • MS

      Matt S.

      10 7 2017 16:15

      0       0

      if it's expected, then shouldn't that be priced in already?

  • MM

    Michael M.

    7 7 2017 18:00

    1       0

    Great presentation, but aren't GLD etc just trading tools? DO people really use them thinking they are as good as physical?

    • TF

      Terry F.

      8 7 2017 02:40

      4       0

      Micheal M., You are correct in that gold and silver derivatives (which is what precious metal ETFs are) primarily exists as a trading tool. It is used for short term trading and by folks who want to be exposed to a run up in the gold price. All of these folks want a cash settlement. They do not believe in a collapse in the economy or fiat money. They do believe their will be crises that will drive up the price of gold and this is what they are speculating on. I also suspect that there are a portion of gold ETF holders that think they are actually holding shares that can be converted into gold in an emergency. Not everyone reads the prospectus.

  • IO

    Igor O.

    7 7 2017 17:44

    6       0

    Come on people claim your gold from LBME. And blow that mother up! I'll watch fireworks

  • LA

    Linda A.

    7 7 2017 17:43

    0       0

    Love those PAMP bars. They are so beautiful!

  • SC

    Shane C.

    7 7 2017 17:32

    0       0

    PAMP is the king!!!! I go no where else

    • MS

      Matt S.

      10 7 2017 16:13

      0       0

      massively over premiumed though....

  • T~

    Tshort63 ~.

    7 7 2017 16:15

    4       0

    Excellent presentation, timely too. I can't wait until these fractional gamblers are left with fiat gold on their claims. Appreciate the demystification of the "fat finger" trades that occur when trading is thin. Ultimate dump and pump. Works, until it doesn't.
    Love me my gold porn.

    • MM

      Michael M.

      7 7 2017 18:03

      1       0

      that was a fun fat finger last night in silver. not.

  • TJ

    Terry J.

    7 7 2017 15:38

    9       0

    Excellent overview of what many of us already knew or suspected. It only tocuhes the surface of course of the decades of price manipulation and sheaningans employed by the Fed and other major central banks in concert with the bullion banks to ensure the canary in the mine isn't allowed to perform its normal role of honest money. I suspect this is why many who realise what has been going on have turned to cryptocurrencies in frustration, and in readines for when the dollar and the other fiat currencies finally collapse under all the debt created. It would however be madness to not have adequate real physical gold in our portfolios for this eventuality.

  • DT

    Douglas T.

    7 7 2017 15:30

    14       0

    In the university of Real Vision, there has been some explantion of the Eurodollar market. I am struck by how similar this is to the LBMA 'paper' gold market. The Eurodollar market uses real dollar collateral like treasuries MBAs etc. to collateralize a fractional system of synthetic dollar loans that are not in any US bank. They use a sequence of futures to multiply the colalteral value by 10 or more. You can say these synthetic dollars 'don't exist', but a lot of internation trade is conducted with them. The LBMA does the same thing with a small amount of real gold collateralizing the creation of up to 100 times in futures contracts. I'd like to know if these can be used to create the same synthetic loans as with Eurodollars. If so, is the LBMA is really creating money (credit) for use in inernational markets, backed by a smidgen of gold, instead of treasuries?

  • CY

    C Y.

    7 7 2017 14:35

    2       0

    very balanced and informative

  • RM

    Ronnie M.

    7 7 2017 11:16

    22       0

    Thanks for clearly highlighting the imbalance between paper and physical. Would be interesting to hear your views on miners as a leveraged play on gold.

  • EF

    E F.

    7 7 2017 11:08

    12       0

    would caution anyone interested in PHAG and related funds to read section D.6 under risks, in particular the paragraph starting "An early redemption of Metal Securities may be imposed on investors, which may result in an investment in Metal
    Securities being redeemed earlier than desired"