Discussion with Jay Taylor and David Jensen on January 14, 2015
Video: The LBMA's Silver Criticality with Jay Taylor and David Jensen
Audio Only Version
Jay Taylor Interviews Daved Jensen MP3
Discussion to first address some definitions then focus on Silver Market
on London's LBMA as it has the greatest disparity of open interest (claims on
silver) vs actual available silver to market.
1) Review of some key definitions and data for Listeners
Spot contract trading of metal - trading immediate metal ownership
contract
Forward position - forward metal delivery based on spot plus some fee
Futures - forward bet on price sometimes with option for delivery -
usually can't affect spot price as primarily cash settled
Open interest - the total number of ounces of gold for which there are
trading positions (claims for metal) in the market
Net settled clearing volume - the end of day net volume of trading when
all of the credits and debits between members have been netted-out
2) LBMA report "Loco London Liquidity Survey" http://www.lbma.org.uk/Clearing-Statistics
re. LBMA gold trading volumes (turnover) in Q1 2011
- in Q1 2011, average daily trading turnover of gold was
174 M oz. per day
- each trade averaged $39 M of gold
- ~ 10:1 ratio of daily gross trading volume vs average
net cleared trading statistics (as posted online)
- the Liquidity Survey estimate of daily average
trading volume was conservative - gold trading volumes are actually
higher than estimate
- 90% of daily trading volume on the LBMA is spot gold
trading and gold forwards are 5% of trading volume
Key items from the LBMA survey:
- survey is conservative estimate of daily trading volume
- real volumes are higher
- 10:1 ratio gross gold trading turnover (volume) vs net
settled volume at end of day
- 90% of daily gold trading volume in spot transactions
impacting directly the global price of gold
- each trade averages $39M - note these trades are so
large that they would dominate price discovery
3) LBMA report "Guide to London Precious Metals
Markets" (gold, silver, platinum, and palladium) published on
the LPPM website: http://www.lppm.com/OTCguide.pdf
- pg 12 (of 52) Majority of trading is in unallocated
accounts - client purchasing metal does not have title to specific
metal and is "an unsecured creditor"
- spot trades settled as "credits or debits to an
account"
- credits to an account "do not entitle the
creditor to specific bars of gold or silver"
- pg 16 Loco London (ie. LBMA) pricing is
the basis for "virtually all transactions in gold, silver, platinum
and palladium"; global price setting power of the LBMA for
transactions involving precious metals traded using virtual unallocated
metal.
4) The LBMA's Silver Criticality
http://www.lbma.org.uk/clearing-statistics
https://www.silverinstitute.org/site/wp-conte...tDemand2014.pdf
- Use the LBMA survey finding of a 10x multiplier to
estimate gold and silver gross trading volume and open interests from
end of day net-settled volumes
- Key: Open interest (claims on silver) far exceeds any
fungible silver metal stockpiles currently available for delivery or to
be produced in the near term
- LBMA silver positions are primarily unallocated
"credits to an account" - not silver itself.
- LBMA metals accounts represent an expandable electronic
repository of virtual gold and silver not actual metal bars themselves
- Silver jewellery in private hands is not reliable source
of fungible silver supply in size
- Calls for delivery of any material amounts of silver
through the LBMA will cause an enormous short squeeze and market disruption
- invevitable.
- Use of virtual metal trading (unallocated spot metal
positions) has broken the physical metals markets and created supply
that does not exist to investors
- Suppressing gold and silver prices with artificial
supply on the LBMA for decades has globally suppressed gold and silver
prices and suppressed global interest rates (Gibson's Paradox) spurring
in the global debt bubble
- Large institutional and sovereign investors sitting in
LBMA gold and silver positions are sitting in virtual metal
repositories; they are in line holding paper
- The LBMA silver market's paper imbalance is approaching
a point of criticality where physical metal market dysfunction will
drive metals exchange away from the New York and London to real physical
metals exchanges like Shanghai where actual metal is traded in the spot
market (i.e. to sell a spot contract you first have to deposit metal).