The Gold And Silver Monster Created By The Bank Of England Turns On Its Creator

An Intractable, Terminal Situation - Its Not Going Away

The ‘square mile’ City of London has a problem with the world’s largest cash/spot precious metals market that is located therein.

This cash market, created under the oversight of the Bank of England (BoE) in 1987 to trade leveraged promissory notes for immediate ownership of gold, silver, platinum and palladium, is moving rapidly towards its ineluctable end due to an increasing demand for physical metal delivery against these largely unbacked contracts.

The end of London’s price fixing scheme operated by the BoE through the Bank for International Settlements (BIS) will be accompanied by much higher gold and silver prices and, consequently, much higher interest rates that will rapidly deflate the central banks’ $300 trillion (T) global debt bubble.

Looking at gold, its leverage in London is of the scale that a withdrawal in early 2025 of less than 30 million (M) oz. of the 280M oz. said to be in London vaults cause a London market conniption that was temporarily reduced by the Bank of England and other central banks leasing their gold into the market.

A common refrain given that a global upset is visibly approaching from this stubbornly increasing run on gold and silver is that ‘they’ll do something’.

Surely the consequences will be negotiated or militated away.

Two primary factors prevent the quiet smoothing-away of this embarrassment of a market.

Leverage Scale

Data from the London Bullion Market Association (LBMA) show that, on a net-settled basis, the London gold and silver markets trade 20 million (M) oz. of gold and 343M oz. of silver each day.

The LBMA’s 2011 survey of traders tells us that the gross daily trading turnover is at a minimum 10x higher than the end-of-day net-settled volume giving 200M oz. of gold and 3.43 billion (B) oz. of silver traded each day. The LBMA states that more than 90% of daily trading in its London market is of cash/spot contracts which are for immediate metal ownership and delivery on-demand.

The open interest or total contractual claims in a commodity market are typically between 2x and 3x daily trading volume implying contractual claims for 400M oz. to 600M oz. in the London gold market alone.

Using the lower bound of 400M oz. of gold claims, this translates to ownership claims of $1.32T in gold in the London market, that have been paid for and are owned by investors, sovereign funds, industry, and financial institutions globally.

Nullifying this scale of owned assets from the world’s largest gold market would trigger financial crisis by upending large financial institutions and investment funds and end the City of London as a financial market.

Contractual Law

A second intractable barrier to simply nullifying gold and silver ownership contracts in the London market is UK contract law which is governed by UK common law. These ownership contracts are protected by established law.

The Prime Minister and Parliament are themselves subject to the common law and cannot override the rights protected by centuries of decided contractual law in the UK.

There are no exchange rules that govern these contracts allowing their forced liquidation as there is in the New York futures market.

Nullification of these assets is illegal. If the UK government were to attempt to override these contracts, that would similarly be fatal to the UK’s financial sector and throw the UK into a constitutional crisis.

The question as to what will trigger the leveraged London market into crisis for all its four precious metals remains open.

Earlier this year we saw technical defaults in the gold and silver spot market and now the demand for platinum, a vital strategic metal, has driven London platinum lease rates north of 20% signaling a developing squeeze.

As decades of loose central bank monetary policy and serial asset bubbles is forced to a close by the market, the London market (surprisingly) limps on.

This washing machine serves as an apt metaphor for the mortally wounded precious metal markets in the City of London. While the London market continues on for now, the trend is clear. “Best washer kill evah”:

The City of London could use a massive crisis or event, something right in the City, to make this all go away.

Everyone is watching.

Best regards,

David Jensen