Update on London Gold Market Shortage Stress Level

I checked with a large London bullion bank this morning - a ‘slight’ contango has developed between the London spot/cash gold contract and the 2-month gold forward contract whereby the 2 month gold forward is priced slightly higher than spot/cash gold. This signals a slight decline in market stress.

The market seems to be pausing while it awaits further delivery of physical gold and silver from London.

Each day, we continue to see between 2,000 and 4,000 Exchange For Physical (EFP) contracts traded on the NY COMEX. That is an additional 200,000 to 400,000 oz. of COMEX gold contracts that are effectively standing for delivery in London.

Given the current tightness of the London gold market, this pace of gold extraction as well as the need for those who have temporarily leased gold to make delivery to then buy gold bars to close their lease, will at some point visibly exacerbate the gold delivery problem in the London spot market.

Events such as we are observing in the exit from London of spot/cash gold and silver contract holders via taking metal delivery and moving it into the US affects the market in waves - until the paper market finally breaks.

Let’s see how long market participants tolerate less plentiful gold delivery from the Bank of England (BoE), via their stop-gap gold lease facility, and more plentiful BoE excuses as to why such delivery is now pushed-out up to 8 weeks.

Don’t Get Head-Faked By The Gold & Silver Markets

The slight drop in the gold and silver price last week had some market observers saying we were in for a market correction as prices had run ‘too far, too fast’.

While delivery problems persist in the London market, it is difficult to see how a sustained correction can be generated.

Globally, we are seeing a nascent move into securing delivery of physical gold and silver and exiting of the promissory note digital metal market - that is terminal for the digital promissory note faux pricing of cash/spot gold and silver that have persisted in London since 1987.

Figure 1 - Barchart of Spot Gold Price - 3 Hour Bars; source: TradingView.com

We will see how this develops with time.

Best regards,

David Jensen