COMEX is usually just a paper market, with almost all positions closed out before settlement.
London has paper transactions, but is also a delivery market, where large quantities of real gold change hands. The gold may not actually leave the vaulting system: the transfer can often be accomplished with a warehouse receipt.
However, since November last year, clients of the COMEX (often acting through JPMorgan bullion bank) have been standing for delivery, e.g. 62 tonnes in the 2 weeks after Thanksgiving 2024:
COMEX has had to scramble to find the physical gold to deliver. The US price went up, creating a spread with London and an arbitrage opportunity. Physical deliveries from the LBMA vaults in London were flown to the COMEX vaulting system in and around New York.
If the deliveries cannot be made in New York, there is a rather murky process called Exchange For Physical (EFP), where the client is given a paper promise for gold delivery in London. Not sure if there is client discretion, or if they can be forced to accept EFP by the COMEX T&Cs.
I think that COMEX does have the right to cash settle delivery requests, but that would be seen as a soft default, and seriously damage its reputation as a physical market grounded in delivery.
First you have to fly the gold to Switzerland to a refiner and melt the London 400oz bars into COMEX 100oz bars.
New bars get new stamps, serial numbers, etc. It’s a spot where illegal gold can (doesn’t have to) be introduced.
Once you melted London 400oz bars into COMEX 100oz bars, then you fly them to New York.
This process in itself can inflate the COMEX price by the cost of delivery which is folded back into the forward price. When dealing with futures contracts it is important to know that the price is almost always localized based on the cost of delivery. There isn’t one unique global price of gold.
When I see comments like this I'm wondering why everyone including economists and Marxists is under the delusion that gold is this universal commodity whose physical properties make it money, when in reality the entire point of money is to minimize transaction costs, not create them!
Silly question, but how is the delivery of gold COMEX's problem?
I was under the impression futures (and derivatives in general) represent an obligation of whomever sold the future contract. Why is the exchange responsible for delivering all of a sudden?
The role of the exchange is to facilitate orderly markets by reducing counterparty risk. My knowledge is more stock market than commodities but normally they require collateral from the brokers so that they can recover from the broker, but ultimately they would be on the hook if they failed at their risk management. In reality though we know the government would not let a major exchange fail so there's also that unwritten rule.
So the COMEX is selling metals which they do not possess now? I thought the whole point is that COMEX coupons were backed by physical goods which you could actually cash out if you wanted?
The gold to paper ratio in Comex is 300 to 1. The truth is accepting delivery is expensive. You cannot get a small amount of gold on comex. You’ll need a vault to put it in, insurance, armored truck service, etc. Most people buy gold futures as a hedge or speculation, and don’t want to actually go through the cost of accepting delivery.
The concern has always been a run on Comex if physical demand suddenly increases. In some ways that would be good, as the paper market is artificially keeping the price of gold down. If you don’t settle in gold you sell more contracts, and the supply is artificially inflated. In short term it will be awful for Comex, which does a very large amount of commodity futures.
> COMEX is selling metals which they do not possess now?
You put $100 in a zero-balance account. You spend $10, deposit $20 and then spend another $30. Your ending balance is $80. The total value of transactions is $160. There is a 2:1 ratio of transactions to ending balance.
For technical reasons, when a commodities trader wants to exit or liquidate a position they typically do so by offsetting it. "To offset a position, a trader must take out an opposite and equal transaction to neutralize the trade. For example, a trader who is short two WTI Crude Oil contracts expiring in September will need to buy two WTI Crude Oil contracts expiring on the same date" [1].
If instead of a bank account the first example were gold contracts, the market would show $160 of gross contracts written netting out, in the end, to $80.
Ah, gold. Some things in the gold market worth being aware of:
1) China opened up a new gold exchange [0, 1] recently [2] and started a push to get more active in the market.
2) Central banks have been net buyers of gold since around 2007.
3) As part of the Ukraine war effort the US confiscated a bunch of money off Russia. It isn't entirely clear [2] what impact that will have on gold but it is conceivable that the risk of holding US dollars is high enough to make something interesting happen. There is a tipping point here somewhere and the US has been looking for it.
The basic trend in the gold market is it is in flux and there is a definite question of how the BRICS are interacting with it. I'm interpreting the situation as a revolt against US and British influence over the gold market as the productive capital moves to Asia.
My favorite fact I learned just the other day is that gold held by the federal reserve is "on the books" at a value of $42.22 per troy ounce and would represent a sizable sum if valued at market rates. But since we'll never sell it I guess it doesn't matter much what we value it at.
> Zachary Griffiths, head of investment grade and macro strategy at CreditSights Inc., said revaluing gold stocks “might be a viable consideration if we [the United States] had a debt problem, but we really have a deficit problem. It’s kind of crazy to say $800 to $900 billion doesn’t do a whole lot for us over the longer run, but it’s pretty much a fact.”
> Yawning fiscal deficits, currently nearly 7% of US gross domestic product, are one of the reasons investors flock to bullion to seek safety. That has helped drive gold prices to repeated record highs since last year. Total US federal debt held by the public now stands at nearly $29 trillion.
> “To use ‘a trick’ to try to plug at least the near-term deficit, I think the risk associated with that is far greater than any near-term benefit,” Griffiths said. “It seems desperate and shows an unwillingness to address the source of the problem, which is our outlays and revenues are way out of whack.” [1]
It'd be a hilarious (though unlikely) situation if it turns out they lied about how much gold they had, but do have the value of gold that was claimed in the books.
It matters a lot, it can make balance sheet look a bit better and therefore can help to reduce interest on treasury bills. I think and I'm almost sure Trump is not okay with the current rates.
> I'm interpreting the situation as a revolt against US and British influence over the gold market as the productive capital moves to Asia
This doesn't make sense. If you think gold is the new dollar, this is a story about gold being flown into America. Mostly from Britain, because of historic financial ties, but also from elsewhere.
I was sneaking a generic comment in with context that has little to do with the article.
This article isn't particularly interesting on its own. Someone(s) wealthy thinks their physical gold is better off in the US than the UK. Cool. I wouldn't trust the UK with my gold either but it isn't clear what these wealthy people are thinking. There are some rumours that this is happening because of tariffs. That seems a bit weird; if the gold is happily stored in London then a tariff won't affect it - it'll still be in London. But whatever.
> if the gold is happily stored in London then a tariff won't affect it - it'll still be in London
People aren't taking gold out of London because they're scared about it being in the UK. They're taking it out because they can sell it for more in America. There is a price gap between physical gold in America and claims on gold outside it; that's the article's point.
America is a net importer of gold. Our top source of gold is Canada. If we put a 25% tariff on gold tomorrow, its cost would go up. Someone who brought in gold today would be able to sell it for more tomorrow. We know that today, so the price starts rising in anticipation of tariffs.
Put another way, if you can get gold into America on the eve of the tarriffs' rollouts you can capture some of the value of that tariff yourself.
Not even European countries have tariffs or taxes on bullion. Putting a tariff on gold would be like putting a tariff on foreign currency or a tariff on stock market investments. Highly unlikely to happen.
But as far as I'm aware there are no gold tariffs, there has been no announcement of gold tariffs, any new general tariffs might have an exception for gold and the tariffs we've seen to date aren't even that big - gold already has years where the price goes up 25%. There also isn't a reason for Trump to put a tariff on gold; that won't help the US - there'll be a couple of gold bugs who can't afford as much gold and not much else changing.
It could be preparation for a tariff. But it might not be.
There wasn't a reason for the Canada tariff proposal in the first place, and yet it happened - doing lasting damage to US-Canada relations despite being quickly reversed.
> there are no gold tariffs, there has been no announcement of gold tariffs, any new general tariffs might have an exception for gold
They might or they might not. I'm not going to defend the market's rationale. I won't even confidently pin tariffs as the reason for the price difference.
What is factually certain is that there is a price difference in the global metals market that is sucking physical gold into America. London has a big, liquid gold market that's tightly tied to New York; herego, we see the ripples there clearest.
This has nothing to do with BRICS or people de-risking from dollars. And it makes no sense for it to be a revolt against American influence over the gold market; the gold is being flown to America and paid for with dollars.
> isn't a reason for Trump to put a tariff on gold
Canada. Would be weird to exempt gold of all things.
The things happening in the gold market might be related to the largest players in the gold market. It seems too early to rule that out. We don't know exactly what is happening here.
> Canada
I very much doubt that tariffs on Canada are a factor in the UK->US movements; it'd need to be a tariff on gold specifically. If the tariff is on Canadian gold, why would they need to slip English vaulted gold (presumably of all sorts of origins) in before the tariff barrier comes down? It'd be more sensible to wait until the tariffs are a known quantity and fly the gold in on demand.
The market price does that sort of logic on autopilot. If the price differential is enough to have European gold re-vaulted the market has to foresee something bigger than a Canadian tariff. Otherwise the price differential would be just enough to justify moving Canadian gold in early, but not enough to justify flying gold over the Atlantic.
re: #3 a lot of the recent reporting (usually citing 'world gold council') points out that most of the large central bank purchasers are some combination of russian commodity purchasers, intertwined with the russian economy, or might otherwise want insulation from relying on USD for international exchange.
Because of that I'd also clarify/quibble on the 'confiscation' aspect. I expect the larger motivation is freezing russian entities out of SWIFT and dollar denominated banks. That interrupts foreign transactions even more than losing access to reserve capital.
PS: I dont think anyone's moved beyond freezing access to existing russian assets, eg disputing rightful ownership, yet.
>I dont think anyone's moved beyond freezing access to existing russian assets, eg disputing rightful ownership, yet.
They "just" appropriate "profits" from those assets, which effectively means inflationary erasure of purchasing power on the scale of several billions per year, and use assets to back Ukrainian loans with everyone's tacit understanding of future prospects of those loans.
> ...are some combination of russian commodity purchasers, intertwined with the russian economy, or might otherwise want insulation from relying on USD for international exchange.
I'm going to twiddle my thumbs for another year or two before even looking up data because the Ukraine war will be obscuring the trends - but that phrase could be describing all of Asia and most of Europe as far as I know. A lot of people trade with Russia. "want insulation from relying on USD for international exchange" could even include US citizens.
> I expect the larger motivation...
Do those aspects affect gold though; it seems like it'd maybe affect the crypto markets and international diplomacy. Scenarios where gold is used for everyday transactions still seem a bit far fetched to me. It seems more likely that people would trade in local currencies. Maybe, I suppose.
Reserve confiscation is something that the central banks have to worry about more directly and they tend to be gold holders.
>It seems more likely that people would trade in local currencies
Use of local currencies is certainly on the rise, but the problem is lack of bilateral financial trust caused by various factors, including capital controls. There is the recent example of Russian companies being unable to get rupee-denominated profits out of India, they had either to buy something from India or invest money there. China is also quite strict with its onshore RNB flows which is multiplied by risks of secondary US sanctions.
Honestly, I am really surprised that BRICS+ countries haven't yet developed a gold-based settlement system centered around central bank reserves. My main guess: such system would work fine with a more or less balanced trade, but many countries intentionally pursue the export-oriented model, which would work poorly with such system.
BRICS currency will not happen because China holds all the cards while keeping RMB non convertible. It's a charade with the only goal to piss of US a bit
> BRICS currency will not happen because China holds all the cards
More than that, like half of the BRICS have threatened to shoot at or actually shot at each other in the last decade [1]. A BRICS currency is like America proposing a currency union with North Korea.
Physical gold is a common middle and upper middle class method of transferring internationally and protecting wealth. (Feel free to read that as tax evasion or money laundering - in these situations it’s often a matter of perspective)
If you’re trying to do it with millions of dollars equivalent, it’s not great but functions. $100k+? Very common, and remarkably easy compared to other options. During times of great social upheaval and war, it’s often about the only option that works historically.
It doesn’t really help the ultra wealthy as much, unless you’re talking nations during wartime type situations, due to physical logistics and security problems.
And the poor can’t afford anything anyway, so this kind of thing isn’t exactly a problem for them.
> Missing out on gains in every macroeconomic environment, QE, ZIRP, NIRP, rate hikes, deflation
People who had 10% of their wealth in gold before 1929 only lost at most 30% of their wealth, something insane like that (losing 30% when nearly everybody loses all their savings is quite a feat).
I don't know if goldbugs and gold permabulls are literally only stockpiling gold coins and gold bars.
Actually I wouldn't be surprised if most gold permabulls only had 10% of their wealth in gold.
And if anything I've noticed when talking to people that most who like gold actually consider the USD and EUR to be toilet paper: it's not so much that they're goldbugs, but they're "anything that's not toilet paper bugs".
So from what I've seen those who bought gold overlap a lot with those who bought digital gold (aka Bitcoin).
The article has failed to address the most interesting question: why this spread exists.
The most interesting theory is that it's effectively a "bank rank" on "paper gold" issued by London, i.e. traders may fear that there are significantly more claims on gold than physically exists in London vaults. If this market blows up, it would be the most spectacular failure with very significant consequences for global financial markets.
This theory came up years ago when sites such as ZeroHedge were claiming JP Morgan controls a precious metals international scam and there isn’t enough physical gold or silver to cover everything. People were told to buy as much physical gold and silver as possible because it was all about to burst. Silver went to $50 and then collapsed and it was never mentioned again.
The difference now is that professional market participants act on this "theory" by physically moving a significant amount of gold from UK to US. And "weeks-long" withdrawal queues certainly do not look great and confidence inspiring.
And yet this physical transfer of gold has had largely zero impact on the price of gold. Nobody was fretting about 'where will we source Poland's gold?'
Well, there's the notion that price no longer quite reflects what's going on under the surface. Certainly, it's in the interests of an entity experiencing a run on its reserves to do everything it can to obfuscate any indication that a run is taking place, including suspicious price shifts. Perhaps it's even more suspicious that such clear movement isn't being reflected in price volatility. If there were no trouble, a small shift reflecting physical movement wouldn't be too dangerous to allow to happen. But what if it wouldn't be a small shift?
>there isn’t enough physical gold or silver to cover everything
What does this even mean in the context of trading derivatives of commodities? Of course there isn't, people financed other purchases by borrowing precious metals and selling them, or trading futures on margin with no physical position. Isn't that literally what this market is?
And, like it or not, it's the endpoint for all holdings of non-productive assets. Lease the metal back to traders and make 1%; hold it and pay 1% in storage fees.
There may be practical issues that explain delays. Consider a team who are staffed to suit normal activity. Then there is a period of increased activity, the team fall behind.
If there wasn't enough gold in London, wouldn't that mean that gold claims there would be more valuable, not less? Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.
> Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.
this is what happening now, gold price keeps rising
as for the reason behind gold price is higher in NY, there're many theories and we can not know the truth untill it passed
theories:
1. Most paper gold transactions take place in New York, when a short squeeze mentioned occurs, it can cause New York prices to react before London prices
2. some players are draining physical gold from london(world market de facto) by pricing gold higher
The last real corner was the Piggly Wiggly corner, and the exchange changed the rules to screw the guy who cornered it rather than the shorts. With that kind of precedent, people understandably don't really try to do a proper corner any more.
You would have to have a contract that gives you claim on these other assets. I would guess that those kinds of contracts are very rare, because you’d no longer be buying gold but a derivative whose value derives in part from gold and in part from the other assets of the company selling the contract. I would bet that in practice buying gold plus a corporate bond would make a reasonable, simpler and more flexible substitute for said derivative, making demand for the derivative basically zero.
I do not understand your logic. Imagine I have 1 gold bar and issued 100 paper claims on it. How would one claim worth more than one physical gold bar? After someone retrieves the bar, I will have zero gold bars and 99 claims. Would you buy such claim knowing that I do not have any gold in my vault?
It may not be even an outright scam. Those 99 claims may be backed by claims on someone else's gold, but it's likely I will not be able to exercise those claims in a timely manner, making me insolvent. Thus we have a "bank run" situation.
All your customers won’t withdraw all the gold at once. So you don’t need to have 100% reserves. That’s a fact. The problem is once you go less than 100% it’s always tempting to inch that number down. Because selling new claims, or selling reserves is free money.
OP is assuming the oversubscription is due to counterparties being on the hook for gold they are obligated to deliver at a certain time (this is commonplace with commodity derivatives, you simultaneously create contract to buy a certain amount of a commodity at a certain time in the future + a contract to sell a certain amount at the same time in the future - they cancel each other out), not that the entity holding the gold fradulently issued more claims than they could deliver on.
So OP is saying that if more gold was redeemed than expected, the counterparties to those claims would be forced to buy gold at whatever the price it ultimately settles on to fulfill the contract.
Of course the problem is that there is such a thing as counterparty risk. If delivering the contractually obligated gold bankrupts an individual counterparty, or is physically impossible in aggregate (eg more claims than gold exists) then the contract won't be fulfilled at least for someone.
But there is a lot of complexity here because not all futures are settled physically (they can be cash-settled) and there could be mechanisms in place to manage counterparty risk at various levels, like at the exchange, eg https://www.cmegroup.com/education/articles-and-reports/coun...
I wasn't able to read the article because of the paywall but stuff like this is why regular joes tend to think there are bigger problems with gold or finance in general than there actually is. "There is more paper gold than physical gold" - regular Joe thinks there is a problem. "Actually the paper claims' settlement are subject to various conditions, typically closed out before taking delivery, and there is a complex system in place which does its best ensure that anybody who actually wants to take delivery or settle their contract gets it settled as expected" - regular Joe lost interest and went back to doomscrolling.
The problem here is obviously liquidity management. You could think of the vault as a battery that charged and discharged.
If you drain and charge the battery at the same time, there is no net change in the charge level. Theoretically, you wouldn't need the battery to begin with.
Now add time lags. Now discharge may happen before charging. The net change is zero over the full duration of the cycle, but the battery is being drained temporarily and it is changing its state all the time.
If the battery is not large enough, the system will shut down. This in itself is not necessarily a catastrophe, but you will have to pay damages over the shutdown duration for the consequences of that shutdown. This will probably ruin profitability of the counterparty.
I mean, if it's oversubscribed by 100x the amount in existence it complicates things (unless the issuers have 100x the value of their gold in other assets). But if you issued 100 claims on 99 bars, clearly one person is getting something else. If I offer to sell you my paper claim for 2x what it was worth yesterday (for example) then you lose the value of 101 bars of gold after selling 100 bars of gold (net negative 1 bar) and I make a tidy profit. Just like a short squeeze sent GME to $400/share.
Um, what sovereign default scheduled to happen within a month? Without some detail (and some supporting evidence), that sounds like conspiracy theory drivel. It also, frankly, sounds unrelated to the article.
The US Federal government reached its limit on borrowing on January 21 and is currently taking "extraordinary measures" to avoid a sovereign default. There is currently no agreement to raise the debt limit in Congress. While there is some variability in spending (e.g. natural disasters may cause the federal government to spend more money for FEMA aid), the sovereign default is expected to occur in about a month.
> Depending on who is doing the research, it is said that the US has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.[1]
While I would never be so bold as to venture a prediction, the risk of a partial default seems elevated. No previous administration has voiced the opinion that partially defaulting by halting payments from the Treasury would be a legitimate exercise of executive authority.
"Musk said in social media posts over the weekend that his “DOGE team” of enforcers is shutting down some payments, claiming that “corruption and waste is being rooted out in real-time.”
If the Musk team veered into legally legitimate transfers, that could spark debate over whether the federal government is following through on its obligations. Former Treasury Secretary Janet Yellen said repeatedly — during debt-limit standoffs — that even prioritizing some payments ahead of others amounted to “default by another name.” Trump’s first Treasury chief, Steven Mnuchin, said in 2017 that “the government should honor all of its obligations."
> that even prioritizing some payments ahead of others amounted to “default by another name.”
You are mis-interpreting this. Based on your interpretation, a government can never cut any spending to not be considered in default.
I think what Yellen meant is that you should pay all your obligations for services rendered and that you actually want to be rendered. This is not what DOGE proposing (and in no way I support that insanity) and the difference is quite clear.
One theory for Elon getting into Treasury's computers is that when the gov defaults he wants to prioritize paying bondholders over benefits claimants to keep the market calm. Treasury has refused to do prioritization in previous debt limit crises.
there was a related comment by the president about the legitimacy of some of the bonds the treasury was paying interest on[1], which might add to this uncertainty.
it could be related to his common tactic of creating strategic uncertainty, but this one was oddly specific. most heads of state refrain from commenting on default risk as the 'bond vigilantes' who lend their treasury money by buying their bonds are essential to their ability to fund government and govern.
the risk of course is that there are trillions in derivatives stacked on top of any so-called "illigitimate" debt, which creates a kind of mexican stand-off where defaulting on those bonds causes systemic liquidity problems elsewhere in the system that will require policy intervention to recover from it, hence it is never a priority to touch it. That's a sci-fi interpretation, and any actual practitioner in finance (I am not one) might call that irresponsible speculation so ymmv.
but still, maybe it's a political play. a certain set of asset managers is orchestrating political problems around the world and the only way to dislodge them is to do something unthinkable. Even if he doesn't, how big are you willing to bet he won't? That hesitation is the essence of this president's strategy. Very interesting times.
Before it happens it's conspiracy thinking to go around connecting random dots.
After it happens, everyone will say it was obvious all along, if only you could have connected the dots.
Dots such as famously bragging about defaulting on personal and business debts, big promises about radical reductions in debt levels with zero public plan for how it's supposed to happen, eagerness to renege on long standing treaty commitments, withdrawal from international organizations, threats of economic warfare against allies and adversaries alike, immediate seizure of the Treasury systems that execute payments for bond interest and principal, a stated desire to dramatically devalue the dollar, etc.
Usually gold just sits in underground vaults and changes in ownership are recorded in a ledger.
When massive quantities of physical gold are put on airplanes, something unusual is happening.
Whatever that wolf might be, it isn't going to be that the government can't produce more dollars to spend. It always authorizes itself to spend money and it always produces enough of that money to spend.
Governments going into too much debt is a very old problem that has happened hundreds of times before, even in the USA, so we know with high likelihood how it ends: inflation and soft default, not hard default. The timeline is the major unknown.
Inflation is not exactly preferable to hard defaults, although it really depends on who is being defaulted on. Defaulting on pensioners would be pretty awful. Defaulting on foreign-owned bonds would be less awful.
The Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits or the stock market going up.
Defaulting on the debt has no upside for them now, so probably won't happen.
Seriously, have a look at some of the people involved. They are waaaay out there.
The GOP don't have a majority that support either the budget or extending the debt ceiling. Dems should let them stew and make various demands in exchange for their vote, as the GOP has done to them.
I think the D's are justified in saying that there's too much uncertainty right now to allow funding to be passed through the continuing resolution process. The R's remain welcome to articulate their plans in the form of a budget, that is debated via the regular appropriations process.
> R's remain welcome to articulate their plans in the form of a budget, that is debated via the regular appropriations process
Reconciliation is a Senate parliamentary procedure [1]. Thune could just (a) fire parliamentarians until one agrees with Trump or (b) revise the rules with a party-line vote.
> Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits
Literally the last time these clowns were in power [1].
They've been in control of Congress for most of the period since 1994. They are the ones primarily responsible for running up the massive spending deficits.
> The Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits or the stock market going up.
Fortunately the UK has extremely efficient systems for removing people who fuck up the money. She was the shortest serving PM and removed on her fiftieth day in office. The US is stuck with its current government until at least the midterms.
I mean, if there was a Truss-type response from the markets, I suspect the congressional Republicans might actually act to put Trump back in his box to some extent.
They kicked a bunch of subsidies out from under big AG in their first month in office and the AG lobby is the absolute bedrock of the party. Your assumptions are no longer safe.
Not sure why you're being down voted here. Silicon Valley folks like Thiel, Vance, and Musk are all huge libertarians who want to burn the current system down. It is not the traditional Republican crowd of the past. They share name only.
They don't share the name, they took the name. It's theirs now. Not yours. Look, I get it, I too wish it hadn't happened, but it did, it's reality now, and I'm not hearing a good reason to deny reality.
Suppose that now is the time for the part of the agenda that will upset the democrats--to keep those people formerly known as republicans from getting too antsy. Later on, we'll see the other half of that agenda.
At that time, when those formerly known as rebpulicans are angry about being misrepresented, are you going to tell them that they're not real republicans because they voted for a narcissist who was flattered into turning the wheel over to people with contradictory goals, and now "republican" means something that they have no control over? That's absurd. A party is a party insofar as it represents the will of its constituents, coups not withstanding.
Not sure I understand. There are three main groups of Republicans now. The first are the traditional neocons like Mitch McConnell. The second are the evangelicals and the third are the libertarian tech bros. They literally share the same party and collaborate, but have different end goals. For example, group two wants to return to the 1950s or enact christian nationalism, while group three wants the nation to be run like a corporation with a board of directors having ultimate power. The latter two groups don't care about the constitution at all.
> US Federal government reached its limit on borrowing on January 21 and is currently taking "extraordinary measures" to avoid a sovereign default
Based on the current MO at the Treasury, it would seem that--possibly to the greatest degree in generations--whether Treasuries keep paying is almost entirely unlinked from what the Congress does.
No, the sovereign default will never happen, or, it's always avoidable
However, unrestricted fiscal deficits and debt could lead to a reversal of the low positions of the US dollar and gold, shifting from "the US dollar pricing gold" to "gold pricing the US dollar."
By actively choosing to? The current administration appears to view funds as being permanently capable of getting clawed back, based on their current whims as to whether the payments are "fraudulent" or not.
When they talked about upending the current order, the banking system and debt in general being sacrosanct are pretty foundational to said order
Government debt that is denominated in a currency that the government can create at any time is hardly the same as the debt you or I have.
Governments do not actually borrow from anyone if they can create their own money. They provide a facility for the rich to park some of their immense wealth but that is not where the money comes from, those individuals accumulate they do not create money.
You are ignoring the part where I said they would actively chose to not pay the debt.
I understand how nation states who print their own currency have a different set of rules than any agent working with currency that they do not control the monetary supply of.
None of that changes the fact that they can _choose_ to default
It has not yet happened because of the presence of at least a minimum of responsible players who both understand the consequences and care about the consequences (at least more than their particular political goals).
But there is no structure that prevents it from happening, no part of the machine that prevents a mistake.
There are also forces pushing it to happen.
The past performance of your advice is no guarantee of future performance, and it is particularly bad today.
I sincerely hope you turn out to be right, but if so, it will only be by chance.
I clicked this by accident, but then read the full thing after noticing the author was Matt Levine! I'm sure there are other readers here who might appreciate his knowledge and writing style, so I mention it.
[ To those who post opinion pieces: Is it against the site rules to have the author listed after the actual title? It would help me in this case and others ]
> To those who post opinion pieces: Is it against the site rules to have the author listed after the actual title? It would help me in this case and others
It's not "against the rules" as such, but moderators (at least those in my timezone) will consistently reverse any change in the title like that.
This was a misleading headline on an opinion piece which required a few minutes of reading political opinion before getting to anything it's really about. This is typical for Bloomberg.
COMEX is usually just a paper market, with almost all positions closed out before settlement.
London has paper transactions, but is also a delivery market, where large quantities of real gold change hands. The gold may not actually leave the vaulting system: the transfer can often be accomplished with a warehouse receipt.
However, since November last year, clients of the COMEX (often acting through JPMorgan bullion bank) have been standing for delivery, e.g. 62 tonnes in the 2 weeks after Thanksgiving 2024:
https://www.goldmoney.com/research/massive-comex-deliveries-...
Now JPMorgan is standing for delivery of 93 tonnes in February 2025 (3m troy oz, $4bn):
https://finance.yahoo.com/news/jpmorgan-plans-4-billion-gold...
COMEX has had to scramble to find the physical gold to deliver. The US price went up, creating a spread with London and an arbitrage opportunity. Physical deliveries from the LBMA vaults in London were flown to the COMEX vaulting system in and around New York.
If the deliveries cannot be made in New York, there is a rather murky process called Exchange For Physical (EFP), where the client is given a paper promise for gold delivery in London. Not sure if there is client discretion, or if they can be forced to accept EFP by the COMEX T&Cs.
I think that COMEX does have the right to cash settle delivery requests, but that would be seen as a soft default, and seriously damage its reputation as a physical market grounded in delivery.
First you have to fly the gold to Switzerland to a refiner and melt the London 400oz bars into COMEX 100oz bars.
New bars get new stamps, serial numbers, etc. It’s a spot where illegal gold can (doesn’t have to) be introduced.
Once you melted London 400oz bars into COMEX 100oz bars, then you fly them to New York.
This process in itself can inflate the COMEX price by the cost of delivery which is folded back into the forward price. When dealing with futures contracts it is important to know that the price is almost always localized based on the cost of delivery. There isn’t one unique global price of gold.
I believe COMEX changed their delivery standards 5 years ago to include LBMA 400oz bars, using a mechanism called 'ACE':
https://www.cmegroup.com/trading/metals/precious/faq-gold-en...
Every wriggle of the weasel needs a good 3-letter acronym. Perhaps they knew what might happen :)
Thanks for pointing it out :) Pretty interesting. I guess the trip is now a bit shorter!
When I see comments like this I'm wondering why everyone including economists and Marxists is under the delusion that gold is this universal commodity whose physical properties make it money, when in reality the entire point of money is to minimize transaction costs, not create them!
The total of COMEX deliveries in the last 2 months is almost 500 tonnes:
https://www.bullionstar.com/blogs/bullionstar/gold-silver-sh...
It seems the deliveries for Feb are now approaching 200 tonnes:
https://x.com/TFMetals/status/1889708073930919967
P.S. Gold is just under $100k/kg (~= 1 BTC :) So 1 tonne is ~$100m.
https://www.apmex.com/gold-price/1-kg-gold-price
P.P.S. The original JPM delivery of $4bn mentioned above is ~40 tonnes share of the 93 tonnes (3m troy oz).
Silly question, but how is the delivery of gold COMEX's problem?
I was under the impression futures (and derivatives in general) represent an obligation of whomever sold the future contract. Why is the exchange responsible for delivering all of a sudden?
The role of the exchange is to facilitate orderly markets by reducing counterparty risk. My knowledge is more stock market than commodities but normally they require collateral from the brokers so that they can recover from the broker, but ultimately they would be on the hook if they failed at their risk management. In reality though we know the government would not let a major exchange fail so there's also that unwritten rule.
So the COMEX is selling metals which they do not possess now? I thought the whole point is that COMEX coupons were backed by physical goods which you could actually cash out if you wanted?
Otherwise you are just betting on paper.
The gold to paper ratio in Comex is 300 to 1. The truth is accepting delivery is expensive. You cannot get a small amount of gold on comex. You’ll need a vault to put it in, insurance, armored truck service, etc. Most people buy gold futures as a hedge or speculation, and don’t want to actually go through the cost of accepting delivery.
The concern has always been a run on Comex if physical demand suddenly increases. In some ways that would be good, as the paper market is artificially keeping the price of gold down. If you don’t settle in gold you sell more contracts, and the supply is artificially inflated. In short term it will be awful for Comex, which does a very large amount of commodity futures.
> The gold to paper ratio in Comex is 300 to 1.
I think this says there is 300x as much physical gold as there is gold on paper. Context and common sense indicate the opposite was intended.
> COMEX is selling metals which they do not possess now?
You put $100 in a zero-balance account. You spend $10, deposit $20 and then spend another $30. Your ending balance is $80. The total value of transactions is $160. There is a 2:1 ratio of transactions to ending balance.
For technical reasons, when a commodities trader wants to exit or liquidate a position they typically do so by offsetting it. "To offset a position, a trader must take out an opposite and equal transaction to neutralize the trade. For example, a trader who is short two WTI Crude Oil contracts expiring in September will need to buy two WTI Crude Oil contracts expiring on the same date" [1].
If instead of a bank account the first example were gold contracts, the market would show $160 of gross contracts written netting out, in the end, to $80.
[1] https://www.cmegroup.com/education/courses/introduction-to-f...
They (bullion banks) assume everyone will close out contracts on COMEX.
Yes, paper promise. Sometimes promises can be kept, but not always.
Ah, gold. Some things in the gold market worth being aware of:
1) China opened up a new gold exchange [0, 1] recently [2] and started a push to get more active in the market.
2) Central banks have been net buyers of gold since around 2007.
3) As part of the Ukraine war effort the US confiscated a bunch of money off Russia. It isn't entirely clear [2] what impact that will have on gold but it is conceivable that the risk of holding US dollars is high enough to make something interesting happen. There is a tipping point here somewhere and the US has been looking for it.
The basic trend in the gold market is it is in flux and there is a definite question of how the BRICS are interacting with it. I'm interpreting the situation as a revolt against US and British influence over the gold market as the productive capital moves to Asia.
[0] https://en.sge.com.cn/eng_about_Overview
[1] https://www.gold.org/gold-market-structure/global-gold-marke...
[2] Gold is a sedate commodity.
My favorite fact I learned just the other day is that gold held by the federal reserve is "on the books" at a value of $42.22 per troy ounce and would represent a sizable sum if valued at market rates. But since we'll never sell it I guess it doesn't matter much what we value it at.
https://www.federalreserve.gov/data/intlsumm/current.htm
> Zachary Griffiths, head of investment grade and macro strategy at CreditSights Inc., said revaluing gold stocks “might be a viable consideration if we [the United States] had a debt problem, but we really have a deficit problem. It’s kind of crazy to say $800 to $900 billion doesn’t do a whole lot for us over the longer run, but it’s pretty much a fact.”
> Yawning fiscal deficits, currently nearly 7% of US gross domestic product, are one of the reasons investors flock to bullion to seek safety. That has helped drive gold prices to repeated record highs since last year. Total US federal debt held by the public now stands at nearly $29 trillion.
> “To use ‘a trick’ to try to plug at least the near-term deficit, I think the risk associated with that is far greater than any near-term benefit,” Griffiths said. “It seems desperate and shows an unwillingness to address the source of the problem, which is our outlays and revenues are way out of whack.” [1]
[1] “Wall Street Talk of Revaluing US Gold Is Drawing Attention — and Skepticism” by Jack Ryan, Yvonne Yue Li and Saleha Mohsin, February 13, 2025 (Bloomberg) https://finance.yahoo.com/news/wall-street-talk-revaluing-us...
It'd be a hilarious (though unlikely) situation if it turns out they lied about how much gold they had, but do have the value of gold that was claimed in the books.
FTX bankruptcy accounting.
Not sure it is that unlikely. They refuse to do an audit of the gold and have not done one in decades.
Fort Knox was not shown publicly since 1974
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What audits are done yearly?
Mental image: a CNN reporter standing in an empty vault spouting off on how the absence of gold is misinformation and something-something alt-right.
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> that gold held by the federal reserve is "on the books" at a value of $42.22 per troy ounce
Bizarre. https://www.youtube.com/watch?v=dYiR0Vh8Gjk explores that a bit.
And a bit of history: https://www.bullionstar.com/blogs/koos-jansen/can-pretend-fo...
Huh, interesting. They claim to have $11B of gold but at market rates it's closer to $450B.
It matters a lot, it can make balance sheet look a bit better and therefore can help to reduce interest on treasury bills. I think and I'm almost sure Trump is not okay with the current rates.
> I'm interpreting the situation as a revolt against US and British influence over the gold market as the productive capital moves to Asia
This doesn't make sense. If you think gold is the new dollar, this is a story about gold being flown into America. Mostly from Britain, because of historic financial ties, but also from elsewhere.
I was sneaking a generic comment in with context that has little to do with the article.
This article isn't particularly interesting on its own. Someone(s) wealthy thinks their physical gold is better off in the US than the UK. Cool. I wouldn't trust the UK with my gold either but it isn't clear what these wealthy people are thinking. There are some rumours that this is happening because of tariffs. That seems a bit weird; if the gold is happily stored in London then a tariff won't affect it - it'll still be in London. But whatever.
> if the gold is happily stored in London then a tariff won't affect it - it'll still be in London
People aren't taking gold out of London because they're scared about it being in the UK. They're taking it out because they can sell it for more in America. There is a price gap between physical gold in America and claims on gold outside it; that's the article's point.
America is a net importer of gold. Our top source of gold is Canada. If we put a 25% tariff on gold tomorrow, its cost would go up. Someone who brought in gold today would be able to sell it for more tomorrow. We know that today, so the price starts rising in anticipation of tariffs.
Put another way, if you can get gold into America on the eve of the tarriffs' rollouts you can capture some of the value of that tariff yourself.
Not even European countries have tariffs or taxes on bullion. Putting a tariff on gold would be like putting a tariff on foreign currency or a tariff on stock market investments. Highly unlikely to happen.
But as far as I'm aware there are no gold tariffs, there has been no announcement of gold tariffs, any new general tariffs might have an exception for gold and the tariffs we've seen to date aren't even that big - gold already has years where the price goes up 25%. There also isn't a reason for Trump to put a tariff on gold; that won't help the US - there'll be a couple of gold bugs who can't afford as much gold and not much else changing.
It could be preparation for a tariff. But it might not be.
There wasn't a reason for the Canada tariff proposal in the first place, and yet it happened - doing lasting damage to US-Canada relations despite being quickly reversed.
“Reversed” seems premature, we'll presumably know in a couple weeks whether the “pause” will stick.
> there are no gold tariffs, there has been no announcement of gold tariffs, any new general tariffs might have an exception for gold
They might or they might not. I'm not going to defend the market's rationale. I won't even confidently pin tariffs as the reason for the price difference.
What is factually certain is that there is a price difference in the global metals market that is sucking physical gold into America. London has a big, liquid gold market that's tightly tied to New York; herego, we see the ripples there clearest.
This has nothing to do with BRICS or people de-risking from dollars. And it makes no sense for it to be a revolt against American influence over the gold market; the gold is being flown to America and paid for with dollars.
> isn't a reason for Trump to put a tariff on gold
Canada. Would be weird to exempt gold of all things.
> This has nothing to do with BRICS or people de-risking from dollars.
I think it indicates Americans are derisking. Buying gold and taking delivery could be a vote of no-confidence in both dollars and paper-gold.
> This has nothing to do with BRICS
The things happening in the gold market might be related to the largest players in the gold market. It seems too early to rule that out. We don't know exactly what is happening here.
> Canada
I very much doubt that tariffs on Canada are a factor in the UK->US movements; it'd need to be a tariff on gold specifically. If the tariff is on Canadian gold, why would they need to slip English vaulted gold (presumably of all sorts of origins) in before the tariff barrier comes down? It'd be more sensible to wait until the tariffs are a known quantity and fly the gold in on demand.
The market price does that sort of logic on autopilot. If the price differential is enough to have European gold re-vaulted the market has to foresee something bigger than a Canadian tariff. Otherwise the price differential would be just enough to justify moving Canadian gold in early, but not enough to justify flying gold over the Atlantic.
I'm imagining a literal liquid gold market.
re: #3 a lot of the recent reporting (usually citing 'world gold council') points out that most of the large central bank purchasers are some combination of russian commodity purchasers, intertwined with the russian economy, or might otherwise want insulation from relying on USD for international exchange.
Because of that I'd also clarify/quibble on the 'confiscation' aspect. I expect the larger motivation is freezing russian entities out of SWIFT and dollar denominated banks. That interrupts foreign transactions even more than losing access to reserve capital.
PS: I dont think anyone's moved beyond freezing access to existing russian assets, eg disputing rightful ownership, yet.
>I dont think anyone's moved beyond freezing access to existing russian assets, eg disputing rightful ownership, yet.
They "just" appropriate "profits" from those assets, which effectively means inflationary erasure of purchasing power on the scale of several billions per year, and use assets to back Ukrainian loans with everyone's tacit understanding of future prospects of those loans.
> ...are some combination of russian commodity purchasers, intertwined with the russian economy, or might otherwise want insulation from relying on USD for international exchange.
I'm going to twiddle my thumbs for another year or two before even looking up data because the Ukraine war will be obscuring the trends - but that phrase could be describing all of Asia and most of Europe as far as I know. A lot of people trade with Russia. "want insulation from relying on USD for international exchange" could even include US citizens.
> I expect the larger motivation...
Do those aspects affect gold though; it seems like it'd maybe affect the crypto markets and international diplomacy. Scenarios where gold is used for everyday transactions still seem a bit far fetched to me. It seems more likely that people would trade in local currencies. Maybe, I suppose.
Reserve confiscation is something that the central banks have to worry about more directly and they tend to be gold holders.
>It seems more likely that people would trade in local currencies
Use of local currencies is certainly on the rise, but the problem is lack of bilateral financial trust caused by various factors, including capital controls. There is the recent example of Russian companies being unable to get rupee-denominated profits out of India, they had either to buy something from India or invest money there. China is also quite strict with its onshore RNB flows which is multiplied by risks of secondary US sanctions.
Honestly, I am really surprised that BRICS+ countries haven't yet developed a gold-based settlement system centered around central bank reserves. My main guess: such system would work fine with a more or less balanced trade, but many countries intentionally pursue the export-oriented model, which would work poorly with such system.
BRICS currency will not happen because China holds all the cards while keeping RMB non convertible. It's a charade with the only goal to piss of US a bit
> BRICS currency will not happen because China holds all the cards
More than that, like half of the BRICS have threatened to shoot at or actually shot at each other in the last decade [1]. A BRICS currency is like America proposing a currency union with North Korea.
[1] https://en.wikipedia.org/wiki/BRICS Egypt & Ethiopia, UAE & Iran, India & China, et cetera
Physical gold is a common middle and upper middle class method of transferring internationally and protecting wealth. (Feel free to read that as tax evasion or money laundering - in these situations it’s often a matter of perspective)
If you’re trying to do it with millions of dollars equivalent, it’s not great but functions. $100k+? Very common, and remarkably easy compared to other options. During times of great social upheaval and war, it’s often about the only option that works historically.
It doesn’t really help the ultra wealthy as much, unless you’re talking nations during wartime type situations, due to physical logistics and security problems.
And the poor can’t afford anything anyway, so this kind of thing isn’t exactly a problem for them.
Gold permabulls crack me up
Missing out on gains in every macroeconomic environment, QE, ZIRP, NIRP, rate hikes, deflation
to finally get a little rally that rewards their multiple decades of dollar cost averaging
all while apparently central banks have been hoarding it endlessly for twenty years and you’d think that would be the bull case to the stratosphere
but nope. anyway enjoy the all time highs. just needed threat of tariffs all along
> Missing out on gains in every macroeconomic environment, QE, ZIRP, NIRP, rate hikes, deflation
People who had 10% of their wealth in gold before 1929 only lost at most 30% of their wealth, something insane like that (losing 30% when nearly everybody loses all their savings is quite a feat).
I don't know if goldbugs and gold permabulls are literally only stockpiling gold coins and gold bars.
Actually I wouldn't be surprised if most gold permabulls only had 10% of their wealth in gold.
And if anything I've noticed when talking to people that most who like gold actually consider the USD and EUR to be toilet paper: it's not so much that they're goldbugs, but they're "anything that's not toilet paper bugs".
So from what I've seen those who bought gold overlap a lot with those who bought digital gold (aka Bitcoin).
I'm not sure who missed on gains here.
Exactly, gold reduces risk in ways no other asset can. It’s a preservation of wealth tool.
One thing we know about low risk investments —- they have low returns.
The basic trend in the gold market is it is in flux
end.
The article has failed to address the most interesting question: why this spread exists.
The most interesting theory is that it's effectively a "bank rank" on "paper gold" issued by London, i.e. traders may fear that there are significantly more claims on gold than physically exists in London vaults. If this market blows up, it would be the most spectacular failure with very significant consequences for global financial markets.
> why this spread exists
"...when prices on the Comex surged above those in London late last year, baking in possible tariffs..."
It's anticipating tariffs on the import of foreign gold into the United States. (We import a lot of gold, mostly from Canada [1].)
[1] https://oec.world/en/profile/bilateral-product/gold/reporter...
This theory came up years ago when sites such as ZeroHedge were claiming JP Morgan controls a precious metals international scam and there isn’t enough physical gold or silver to cover everything. People were told to buy as much physical gold and silver as possible because it was all about to burst. Silver went to $50 and then collapsed and it was never mentioned again.
Is this theory back doing the rounds?
The difference now is that professional market participants act on this "theory" by physically moving a significant amount of gold from UK to US. And "weeks-long" withdrawal queues certainly do not look great and confidence inspiring.
And there is the example of Poland which has repatriated all of its gold from UK years prior and stories like this: https://x.com/SenatorRennick/status/1891051795159429514
And yet this physical transfer of gold has had largely zero impact on the price of gold. Nobody was fretting about 'where will we source Poland's gold?'
Well, there's the notion that price no longer quite reflects what's going on under the surface. Certainly, it's in the interests of an entity experiencing a run on its reserves to do everything it can to obfuscate any indication that a run is taking place, including suspicious price shifts. Perhaps it's even more suspicious that such clear movement isn't being reflected in price volatility. If there were no trouble, a small shift reflecting physical movement wouldn't be too dangerous to allow to happen. But what if it wouldn't be a small shift?
>there isn’t enough physical gold or silver to cover everything
What does this even mean in the context of trading derivatives of commodities? Of course there isn't, people financed other purchases by borrowing precious metals and selling them, or trading futures on margin with no physical position. Isn't that literally what this market is?
And, like it or not, it's the endpoint for all holdings of non-productive assets. Lease the metal back to traders and make 1%; hold it and pay 1% in storage fees.
Never mentioned again? You haven't been on the right parts of the Internet. It's still a common belief. Probably true too
I do suspect BoE doesn't have enough gold to deliver now, it looks like so
It’s also standard practice to delay or slow walk withdrawals when you know they’re going to run you dry.
There may be practical issues that explain delays. Consider a team who are staffed to suit normal activity. Then there is a period of increased activity, the team fall behind.
If there wasn't enough gold in London, wouldn't that mean that gold claims there would be more valuable, not less? Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.
> Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.
this is what happening now, gold price keeps rising
as for the reason behind gold price is higher in NY, there're many theories and we can not know the truth untill it passed
theories:
1. Most paper gold transactions take place in New York, when a short squeeze mentioned occurs, it can cause New York prices to react before London prices
2. some players are draining physical gold from london(world market de facto) by pricing gold higher
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> in order to fulfill
Well, there's the rub. They'll just throw their hands up and the claimants are left holding the bag. Which is what sometimes happened historically.
Aren't most of those claims issued by giant diversified companies who have many other assets I can get in exchange?
When has this happened historically (I don't know of any examples, but I don't claim that means there aren't any).
The last real corner was the Piggly Wiggly corner, and the exchange changed the rules to screw the guy who cornered it rather than the shorts. With that kind of precedent, people understandably don't really try to do a proper corner any more.
You would have to have a contract that gives you claim on these other assets. I would guess that those kinds of contracts are very rare, because you’d no longer be buying gold but a derivative whose value derives in part from gold and in part from the other assets of the company selling the contract. I would bet that in practice buying gold plus a corporate bond would make a reasonable, simpler and more flexible substitute for said derivative, making demand for the derivative basically zero.
Until you discover all those assets they had were also vapor, and their total debt exceeds their total assets
I do not understand your logic. Imagine I have 1 gold bar and issued 100 paper claims on it. How would one claim worth more than one physical gold bar? After someone retrieves the bar, I will have zero gold bars and 99 claims. Would you buy such claim knowing that I do not have any gold in my vault?
It may not be even an outright scam. Those 99 claims may be backed by claims on someone else's gold, but it's likely I will not be able to exercise those claims in a timely manner, making me insolvent. Thus we have a "bank run" situation.
All your customers won’t withdraw all the gold at once. So you don’t need to have 100% reserves. That’s a fact. The problem is once you go less than 100% it’s always tempting to inch that number down. Because selling new claims, or selling reserves is free money.
OP is assuming the oversubscription is due to counterparties being on the hook for gold they are obligated to deliver at a certain time (this is commonplace with commodity derivatives, you simultaneously create contract to buy a certain amount of a commodity at a certain time in the future + a contract to sell a certain amount at the same time in the future - they cancel each other out), not that the entity holding the gold fradulently issued more claims than they could deliver on.
So OP is saying that if more gold was redeemed than expected, the counterparties to those claims would be forced to buy gold at whatever the price it ultimately settles on to fulfill the contract.
Of course the problem is that there is such a thing as counterparty risk. If delivering the contractually obligated gold bankrupts an individual counterparty, or is physically impossible in aggregate (eg more claims than gold exists) then the contract won't be fulfilled at least for someone.
But there is a lot of complexity here because not all futures are settled physically (they can be cash-settled) and there could be mechanisms in place to manage counterparty risk at various levels, like at the exchange, eg https://www.cmegroup.com/education/articles-and-reports/coun...
I wasn't able to read the article because of the paywall but stuff like this is why regular joes tend to think there are bigger problems with gold or finance in general than there actually is. "There is more paper gold than physical gold" - regular Joe thinks there is a problem. "Actually the paper claims' settlement are subject to various conditions, typically closed out before taking delivery, and there is a complex system in place which does its best ensure that anybody who actually wants to take delivery or settle their contract gets it settled as expected" - regular Joe lost interest and went back to doomscrolling.
The problem here is obviously liquidity management. You could think of the vault as a battery that charged and discharged.
If you drain and charge the battery at the same time, there is no net change in the charge level. Theoretically, you wouldn't need the battery to begin with.
Now add time lags. Now discharge may happen before charging. The net change is zero over the full duration of the cycle, but the battery is being drained temporarily and it is changing its state all the time.
If the battery is not large enough, the system will shut down. This in itself is not necessarily a catastrophe, but you will have to pay damages over the shutdown duration for the consequences of that shutdown. This will probably ruin profitability of the counterparty.
> or is physically impossible in aggregate ... then the contract won't be fulfilled at least for someone.
> "There is more paper gold than physical gold" - regular Joe thinks there is a problem.
Is it a bunch of regular Joe's that are making gold "worth more in New York?"
I mean, if it's oversubscribed by 100x the amount in existence it complicates things (unless the issuers have 100x the value of their gold in other assets). But if you issued 100 claims on 99 bars, clearly one person is getting something else. If I offer to sell you my paper claim for 2x what it was worth yesterday (for example) then you lose the value of 101 bars of gold after selling 100 bars of gold (net negative 1 bar) and I make a tidy profit. Just like a short squeeze sent GME to $400/share.
One thing I think crypto has been good for is it’s gotten a lot of people to think much harder about the nature of money.
It’s so easy to spot incentive problems like this and communicate their seriousness to the public.
https://archive.ph/5DEdv
Is this related to the sovereign default scheduled to happen within a month?
Um, what sovereign default scheduled to happen within a month? Without some detail (and some supporting evidence), that sounds like conspiracy theory drivel. It also, frankly, sounds unrelated to the article.
The US Federal government reached its limit on borrowing on January 21 and is currently taking "extraordinary measures" to avoid a sovereign default. There is currently no agreement to raise the debt limit in Congress. While there is some variability in spending (e.g. natural disasters may cause the federal government to spend more money for FEMA aid), the sovereign default is expected to occur in about a month.
https://www.voanews.com/a/us-treasury-to-launch-measures-tue...
> Depending on who is doing the research, it is said that the US has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.[1]
[1] https://en.m.wikipedia.org/wiki/History_of_the_United_States...
While I would never be so bold as to venture a prediction, the risk of a partial default seems elevated. No previous administration has voiced the opinion that partially defaulting by halting payments from the Treasury would be a legitimate exercise of executive authority.
"Musk said in social media posts over the weekend that his “DOGE team” of enforcers is shutting down some payments, claiming that “corruption and waste is being rooted out in real-time.”
If the Musk team veered into legally legitimate transfers, that could spark debate over whether the federal government is following through on its obligations. Former Treasury Secretary Janet Yellen said repeatedly — during debt-limit standoffs — that even prioritizing some payments ahead of others amounted to “default by another name.” Trump’s first Treasury chief, Steven Mnuchin, said in 2017 that “the government should honor all of its obligations."
https://finance.yahoo.com/news/musk-moves-treasury-risk-deba...
> that even prioritizing some payments ahead of others amounted to “default by another name.”
You are mis-interpreting this. Based on your interpretation, a government can never cut any spending to not be considered in default.
I think what Yellen meant is that you should pay all your obligations for services rendered and that you actually want to be rendered. This is not what DOGE proposing (and in no way I support that insanity) and the difference is quite clear.
One theory for Elon getting into Treasury's computers is that when the gov defaults he wants to prioritize paying bondholders over benefits claimants to keep the market calm. Treasury has refused to do prioritization in previous debt limit crises.
there was a related comment by the president about the legitimacy of some of the bonds the treasury was paying interest on[1], which might add to this uncertainty.
it could be related to his common tactic of creating strategic uncertainty, but this one was oddly specific. most heads of state refrain from commenting on default risk as the 'bond vigilantes' who lend their treasury money by buying their bonds are essential to their ability to fund government and govern.
the risk of course is that there are trillions in derivatives stacked on top of any so-called "illigitimate" debt, which creates a kind of mexican stand-off where defaulting on those bonds causes systemic liquidity problems elsewhere in the system that will require policy intervention to recover from it, hence it is never a priority to touch it. That's a sci-fi interpretation, and any actual practitioner in finance (I am not one) might call that irresponsible speculation so ymmv.
but still, maybe it's a political play. a certain set of asset managers is orchestrating political problems around the world and the only way to dislodge them is to do something unthinkable. Even if he doesn't, how big are you willing to bet he won't? That hesitation is the essence of this president's strategy. Very interesting times.
[1] https://www.reuters.com/markets/rates-bonds/bond-traders-wav...
Before it happens it's conspiracy thinking to go around connecting random dots.
After it happens, everyone will say it was obvious all along, if only you could have connected the dots.
Dots such as famously bragging about defaulting on personal and business debts, big promises about radical reductions in debt levels with zero public plan for how it's supposed to happen, eagerness to renege on long standing treaty commitments, withdrawal from international organizations, threats of economic warfare against allies and adversaries alike, immediate seizure of the Treasury systems that execute payments for bond interest and principal, a stated desire to dramatically devalue the dollar, etc.
Usually gold just sits in underground vaults and changes in ownership are recorded in a ledger.
When massive quantities of physical gold are put on airplanes, something unusual is happening.
This seems like a tautology.
By definition people with low credibility have to fight an uphill battle to get their claims accepted.
s/conspiracy/conspiracy theory
Ah, the debt ceiling news cycle. Is this your first time?
I know how many times it’s been cried before, but I am worried this time there might actually be a wolf.
Whatever that wolf might be, it isn't going to be that the government can't produce more dollars to spend. It always authorizes itself to spend money and it always produces enough of that money to spend.
Until it can't anymore. It will eventually fall apart. It is inevitable.
Governments going into too much debt is a very old problem that has happened hundreds of times before, even in the USA, so we know with high likelihood how it ends: inflation and soft default, not hard default. The timeline is the major unknown.
https://www.imf.org/external/pubs/ft/wp/2015/wp1507.pdf
Inflation is not exactly preferable to hard defaults, although it really depends on who is being defaulted on. Defaulting on pensioners would be pretty awful. Defaulting on foreign-owned bonds would be less awful.
Well, everything seems to be different nowadays.
My guess is it's not that different. But I've been wrong every time I tried to predict the US on this leadership...
The same party controls both houses of Congress, the executive branch, and the Supreme Court. Surely they'll work this out.
Have you per chance looked at the people that make up this party?
The Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits or the stock market going up.
Defaulting on the debt has no upside for them now, so probably won't happen.
Seriously, have a look at some of the people involved. They are waaaay out there.
The GOP don't have a majority that support either the budget or extending the debt ceiling. Dems should let them stew and make various demands in exchange for their vote, as the GOP has done to them.
I think the D's are justified in saying that there's too much uncertainty right now to allow funding to be passed through the continuing resolution process. The R's remain welcome to articulate their plans in the form of a budget, that is debated via the regular appropriations process.
> R's remain welcome to articulate their plans in the form of a budget, that is debated via the regular appropriations process
Reconciliation is a Senate parliamentary procedure [1]. Thune could just (a) fire parliamentarians until one agrees with Trump or (b) revise the rules with a party-line vote.
[1] https://en.wikipedia.org/wiki/Reconciliation_(United_States_...
People forget that the Senate Parliamentarian only stops Democratic maneuvers
> Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits
Literally the last time these clowns were in power [1].
[1] https://en.wikipedia.org/wiki/2018%E2%80%932019_United_State...
But did we default? No, and we won’t now.
> did we default? No, and we won’t now
I agree that default is a remote possibility. But the reason isn't Congressional Republicans will avoid shooting themselves in the foot.
They've been in control of Congress for most of the period since 1994. They are the ones primarily responsible for running up the massive spending deficits.
> The Republicans, for all their whinging over the debt when they're not in power and using it to give the Democrats temporary black eyes, are highly unlikely to do anything that directly endangers big business profits or the stock market going up.
Everyone said that about the UK Conservatives until the Liz Truss budget. https://en.wikipedia.org/wiki/September_2022_United_Kingdom_...
Fortunately the UK has extremely efficient systems for removing people who fuck up the money. She was the shortest serving PM and removed on her fiftieth day in office. The US is stuck with its current government until at least the midterms.
> Fortunately the UK has mechanisms to circumvent elected officials via the monetary system.
I mean, if there was a Truss-type response from the markets, I suspect the congressional Republicans might actually act to put Trump back in his box to some extent.
They kicked a bunch of subsidies out from under big AG in their first month in office and the AG lobby is the absolute bedrock of the party. Your assumptions are no longer safe.
> are highly unlikely to do anything that directly endangers big business profits or the stock market going up.
Like picking Trump? It seems like the president is the biggest risk of overturning the board for no logical reason
It's not the republicans, but a cadre of crypto bros, who are in power. They stand to gain a lot from the destruction of the dollar.
Not sure why you're being down voted here. Silicon Valley folks like Thiel, Vance, and Musk are all huge libertarians who want to burn the current system down. It is not the traditional Republican crowd of the past. They share name only.
They don't share the name, they took the name. It's theirs now. Not yours. Look, I get it, I too wish it hadn't happened, but it did, it's reality now, and I'm not hearing a good reason to deny reality.
Suppose that now is the time for the part of the agenda that will upset the democrats--to keep those people formerly known as republicans from getting too antsy. Later on, we'll see the other half of that agenda.
At that time, when those formerly known as rebpulicans are angry about being misrepresented, are you going to tell them that they're not real republicans because they voted for a narcissist who was flattered into turning the wheel over to people with contradictory goals, and now "republican" means something that they have no control over? That's absurd. A party is a party insofar as it represents the will of its constituents, coups not withstanding.
Not sure I understand. There are three main groups of Republicans now. The first are the traditional neocons like Mitch McConnell. The second are the evangelicals and the third are the libertarian tech bros. They literally share the same party and collaborate, but have different end goals. For example, group two wants to return to the 1950s or enact christian nationalism, while group three wants the nation to be run like a corporation with a board of directors having ultimate power. The latter two groups don't care about the constitution at all.
> US Federal government reached its limit on borrowing on January 21 and is currently taking "extraordinary measures" to avoid a sovereign default
Based on the current MO at the Treasury, it would seem that--possibly to the greatest degree in generations--whether Treasuries keep paying is almost entirely unlinked from what the Congress does.
No, the sovereign default will never happen, or, it's always avoidable
However, unrestricted fiscal deficits and debt could lead to a reversal of the low positions of the US dollar and gold, shifting from "the US dollar pricing gold" to "gold pricing the US dollar."
Considering that at any moment the US can conjure into existence as many dollars as it needs how can it possibly default?
By actively choosing to? The current administration appears to view funds as being permanently capable of getting clawed back, based on their current whims as to whether the payments are "fraudulent" or not.
When they talked about upending the current order, the banking system and debt in general being sacrosanct are pretty foundational to said order
Government debt that is denominated in a currency that the government can create at any time is hardly the same as the debt you or I have.
Governments do not actually borrow from anyone if they can create their own money. They provide a facility for the rich to park some of their immense wealth but that is not where the money comes from, those individuals accumulate they do not create money.
You are ignoring the part where I said they would actively chose to not pay the debt.
I understand how nation states who print their own currency have a different set of rules than any agent working with currency that they do not control the monetary supply of.
None of that changes the fact that they can _choose_ to default
Nothing ever happens
YET.
Nothing has happened YET.
It has not yet happened because of the presence of at least a minimum of responsible players who both understand the consequences and care about the consequences (at least more than their particular political goals).
But there is no structure that prevents it from happening, no part of the machine that prevents a mistake.
There are also forces pushing it to happen.
The past performance of your advice is no guarantee of future performance, and it is particularly bad today.
I sincerely hope you turn out to be right, but if so, it will only be by chance.
It’s not going to happen. Nothing ever does
Another year passes, another year of AnimalMuppet using "conspiracy theory" as a slur.
Not sure why you're getting downvoted. I observed the same thing.
For those interested in broader NYC gold discussion, this recent Bloomberg podcast interviews a gold dealer in the NYC Diamond District:
https://www.bloomberg.com/news/articles/2025-02-14/gold-pric...
I clicked this by accident, but then read the full thing after noticing the author was Matt Levine! I'm sure there are other readers here who might appreciate his knowledge and writing style, so I mention it.
[ To those who post opinion pieces: Is it against the site rules to have the author listed after the actual title? It would help me in this case and others ]
> To those who post opinion pieces: Is it against the site rules to have the author listed after the actual title? It would help me in this case and others
It's not "against the rules" as such, but moderators (at least those in my timezone) will consistently reverse any change in the title like that.
This was a misleading headline on an opinion piece which required a few minutes of reading political opinion before getting to anything it's really about. This is typical for Bloomberg.
So the gold refiner is the real arbitrageur
Because that dont actually have to refine the gold for the differing contracts, they just need to exchange it in London
As this recent gold market perturbation was kicking off, gCaptain laid out a conjecture that follows Cryptonomicon:
Can we talk about how, before WWII, nearly every village in China had a gold Buddha filled with gems, serving as the local bank?
Can we talk about how the Japanese looted them all and launched a massive sealift operation to stash them in the Philippines?
[...]
Or how at least one of the CIA’s secret ship registries was accidentally exposed in the USAID data dump?
https://x.com/johnkonrad/status/1887856186231263285
Getting news from people who wear "blacklisted from Wikipedia" as a badge of honor is probably not a good idea.
I had no idea. There doesn't seem to be a way to verify that claim either. Strings "gcaptain" and "konrad" to not appear in the depreciated sources.
https://en.wikipedia.org/wiki/Wikipedia:Deprecated_sources
> Or how most of that gold is STILL buried in the Philippines— And how Taiwan is a distraction while China builds a massive Navy to take it back?
That's enough X for me today.
Wasn’t that part of the plot of Neal Stephenson's Cryptonomicon?