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Last year
at the GATA Goldrush 2011 conference I presented
about the Pan Asia Gold Exchange (PAGE) and the likelihood of the ‘Spot
Dog’ shaking off its ‘futures handlers’. This was to happen
thanks to this new game-changing Chinese Exchange driving a return to a more acceptable
form of price discovery. Much water has passed under the bridge since the
‘soft’ opening of PAGE in the early summer of last year, and
everyone is well overdue an update. Meanwhile, thanks in no small measure to
the debacle at MFGlobal, the spot dog has indeed thrown
off its handlers (hence the emergence of backwardation in Silver) –
but, as can be inferred from the graphic above, PAGE has also been squashed,
Monty-Python-style.
![](http://www.24hgold.com/24hpmdata/articles/2012/03/img/20120305els225.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
Fortunately,
however, this is far from the full story, as the players behind the 1:1
allocated market concept are determined to make it run come hell and/or high
water. The market is begging for this return to real price discovery and inspite of the interference so far, the change IS coming.
It is disappointing to have to report that PAGE has not rolled out the way we
anticipated, however everything that I presented at the GATA Goldrush conference was accurate at the time. The fact
that a major Chinese regional development program was stalled appears, at
least in part, to have been due to the publicity generated by Andrew Maguire and
I. Too much is very evidently at stake in the world of Ponzi Bullion banking
for the status quo not to fight its corner. Soon after the noise was made
about PAGE and its forthcoming 1:1 allocated Gold contract, the shenanigans
started. Just after the publicised ‘soft
launch’ (with Central government mandarins in attendance) and the noise
made on the internet about its implications, the one shareholder in PAGE that
had a foreign listing (in the US) suddenly and stealthily increased its
shareholding from 10% to 25%, acquiring additional board directors along the
way. The rationale for this sudden change in the weighting of shareholders is
shrouded in mystery, however what we do know is that
this entity then insisted that they be allowed to build the trading platforms
for PAGE from the ground up, rather than buying a working platform off the
shelf to get PAGE operational in a timely manner.
This
blocking tactic at board level effectively stopped the progress of the
fully-allocated spot contract in its tracks, and it was immediately clear to
the international-facing people that something fundamental had changed
internally. Interestingly, the key Independent Director of this small listed
entity that blocked the timely roll-out of PAGE is a well-known Western
banker within China, whose CV includes work for the
Federal Trade Commission, the Sloan Foundation (related to MIT) and his wife
is a member of the Council on Foreign Relations. Whether this intervention
respect of the platform was nefarious or not, it was understandable that the
people behind the international-facing fully-allocated contract decided to
step aside from PAGE and set up their own dedicated exchange. More on that in
a moment. Following on from this removal of the 1:1 international contract,
the domestic and leveraged PAGE Gold contract (via the Agricultural Bank)
also subsequently went the way of the dodo, thanks to the wellpublicised
People’s Bank of China (PBoC) announcement
about control over domestic Gold trading outside of Shanghai. It appears that
the shiny Gold building constructed in Kunming City for PAGE will sadly remain
(as elsewhere in China) a ‘seethrough’,
at least until the new Communist Party Politburo are voted in and the new
political culture is embedded later this year when who knows, the rules on
Gold trading again may be relaxed. Ostensibly these new PBoC
rules about Gold trading were brought in to ‘protect the public’,
but it is interesting to me that such a U-turn in policy appears to have been
driven by pressure exerted somewhere within the People’s Bank, rather
than it being typically characteristic of the long-term planning of the
Chinese.
As
disappointing as this all appears, there is a very substantial Silver lining
to what has happened, both respect of the international allocated contracts
and the indeed the domestic leveraged ones. By freeing themselves of the
other shareholders within PAGE, the international-facing contracts are now
being developed independently and under a new name. After the shenanigans of
last year Andrew and I will not be giving the name of this new exchange until
it is properly ‘live’ in a few months time,
as it seems obvious that too much is at stake within the existing Bullion
Banking system for this to be allowed to launch without some attempt at interference.
The
aforementioned change in domestic Chinese rules mean that along with every
other regional Precious Metals exchange, the new unnamed 1:1 allocated
exchange is launching with Silver initially, which of course is the Achilles
Heel of the Bullion banking system. This in my opinion is far more bullish
and exciting short and medium-term than the Gold contract would have been, as
the physical Silver market is so tight. Furthermore, all the regional
exchanges mothballed by the PBoC rule change can
switch, and are switching to Silver trading which is not covered by the
change in rules. The contract itself will be, as before, an international rolling
90 day spot one, denominated in Rmb, and the new entity is supported by the same serious
players within the Chinese political and military establishment as before.
The physical will be acquired ahead of closing each monthly tranche and will
be vaulted entirely outside of the Bullion Banks (ie
private vaulting facilities). From there the allocated receipts will be recorded
on an electronic register and the issue will be tradeable
in the secondary market with the register adjusted real-time. This is
extremely good news for holders of real Silver and extremely bad news for
holders of fake paper Silver who rely on the 350:1 leverage being maintained
as the world’s sole price discovery mechanism for large purchases of
the white metal. This effectively will be like dealing in an Rmb-denominated and fully allocated version of some of
the popular Silver Bullion Trusts, but rather than trading at a premium, the
premium will price the issue ahead of purchase, affecting global price
discovery, as previously mooted.
The
guts of this new exchange that is rising Phoenix-like from the ashes of PAGE,
are agreed and under construction. The international conduit for the new
exchange has also been established and is ready to receive business once the
legal framework (well down the road) is given final sign off by their Chinese
legal team. Unlike PAGE, which was primarily established by domestic Chinese
interests, the new entity is much more streamlined, better funded and the
problems encountered last year by PAGE have helped to clarify the route going
forwards. All in all, the squashing of the Pan Asia Gold Exchange has in
truth only served to accelerate the move to real price discovery, and the
control over domestic Gold trading is in my opinion yet another reason to be bullish
about the prospects for the Silver price. Once the new exchange is
‘live’ in the summer we will be back with the allimportant
details about where and how to gain access for those interested in buying
physical in size rather than paper illusions. Many serious physical Silver
buyers, who are desperate to leave the farce of the Loco London system are ready to jump ship once the final sign off
takes place.
Ned
Naylor-Leyland
February
2012
Tel:
+44(0)20 7438 5683
Email:
ned.naylor-leyland@cheviot.co.uk
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