Bailing-Out The London Bullion Banks - Good Luck With That

For every problem, there is a solution that is simple, neat, and wrong.

H.L. Mencken

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When the extent of claims for metal bars in the City of London’s cash, or ‘spot’, gold and silver markets are delineated to new observers and the point made that the market is heading to a crisis as the metal is not available there, a common response is “They’ll do something just like in 2008”.

The implication is that governments and bullion banks, working together, will make the problem will go away with a wave of a wand.

Let’s take a look at the London spot silver market where prior analysis indicates that there is an between 4.3 billion (B) oz. and 6.4B oz. of immediate ownership claims for silver standing in the London cash market.

This analysis from last week looked at London vault data and indications that there is a mere whiff of physical silver available in London vaults for delivery against these claims in an annual global silver market running 1.27 billion (B) oz. of consumption with an estimated 265 million (M) oz. of deficit in supply this year.

They’ll Disappear The Problem, Right?

Imagine that the central planners and bullion bankers who created this leveraged mess stepped in and ‘did something’ to disappear the problem.

The first obstacle encountered is that central banks and governments do not hold silver with which to resolve the problem. Silver is the historic money of the common person that these planners cannot create by decree and cannot control and has long since been disposed of by central banks.

The next issue is that the cash/spot claims for silver bars in the London over-the-counter (OTC) silver and gold markets are direct party-to-party claims for metal. Such contracts are governed by contract and Common Law and would include the ability of the contract holder to appeal to the courts for an order of specific performance.

Such a specific performance order by the court would direct the counter-party to the contract to deliver or ‘make good’ on the contract. The problem is of course that the scale of claims for metal in the London silver (and gold) market is not currently available for purchase and delivery, at current prices, to the spot contract holder (more on this later).

Ignoring the fact that the UK Government cannot override the Common Law, imagine then that the government was led by a thug who rode rough shod over the law and contracts and by edict simply struck-down the validity of all such claims in the London silver market.

At the lower-bound of the estimate of standing claims in London, 4.3B oz. of claims for physical silver will still be needed globally and the market will then turn elsewhere to source the metal.

The Demand For Silver Will Still Be There

With an estimated 25B oz. of physical silver above ground, the metal is available - but not at current artificially low prices that stand at just 60% of the high silver price back in 1980.

With the global market informed of London’s geared promissory note silver and gold market deception, the demand will then turn away from London’s digital promises to physical secured metal to meet need.

In a heartbeat, silver and gold markets globally will become physical and supply-demand price discovery will be reinstituted.

The ‘new’ silver and gold prices at that point will be difficult to comprehend.

It is coming.

Best regards,

David Jensen