The Swiss population owns 920 tonnes in private gold, next to 1,040 tonnes in official gold reserves. In total, Switzerland likely has the highest amount of gold per capita in the world. This article is part of a series in which we examine how much private gold is located in major economies—information that can be decisive for a monetary reset.
In my previous article, “Europe Has Been Preparing a Global Gold Standard Since the 1970s,” we saw that the world is possibly heading towards a new international monetary system that incorporates gold. In the article I exposed that European central banks have sold monetary gold from the 1990s until 2008 to equalize reserves internationally. The same central banks are currently promoting gold as “the ultimate store of value,” protection against “high inflation” and the possibility “the system collapses.” In case we will return to an international gold standard the distribution of gold is essential, which is why I study the whereabouts of all above ground reserves.
I showed that since 1971 official and private gold reserves have been distributed more evenly across the world on a relative basis. In today’s article the spotlight is on Switzerland.
The main motivation for the Swiss to save in physical gold is as a long-term investment (53%), followed by security reasons (39%), and financial stability (34%). The study shows that in 2019 the Swiss invested 1.42 billion CHF in gold, which equals to a gold savings rate of 11.6%
My estimates for private gold ownership in different countries for 2019:
Hopefully more surveys will be conducted so we can get a better view on the distribution of private gold.
Next to the private gold hoard of 920 tonnes, the central bank in Switzerland holds 1,040 tonnes in official gold reserves. Combined, the Swiss own 1,960 tonnes, which is 231 grams per capita. This is higher than “total gold grams per capita” in India, China, France and even Germany. However, relative to “GDP per capita,” it’s in line with the global mean.
For all the countries I have data of, the amount of gold owned by citizens, directly or via their central bank, approximately equals their economic income (GDP per capita). At a gold price of $10,000 U.S. dollars per troy ounce, that is. We will save the number crunching and economic analysis for a future article.
Likely, Switzerland has the highest amount of “total gold grams per capita” in the world. As, there is a correlation between GDP per capita and private gold ownership, and Switzerland ranks very high on the list of GDP per capita.
Only small states with insignificant official gold reserves, like Monaco and Liechtenstein, have a higher GDP per capita. So, it's likely the Swiss have the highest amount of gold per capita.
H/t Mark Valek. All GDP data used in this article is pre-COVID.
The great investigative journalist Glenn Greenwald gave an hour-long lecture on how America’s billionaires control the U.S. Government, and here is an edited summary of its opening twenty minutes, with key quotations and assertions from its opening — and then its broader context will be discussed briefly:
2:45: There is “this huge cleavage between how members of Congress present themselves, their imagery and rhetoric and branding, what they present to the voters, on the one hand, and the reality of what they do in the bowels of Congress and the underbelly of Congressional proceedings, on the other. Most of the constituents back in their home districts have no idea what it is that the people they’ve voted for have been doing, and this gap between belief and reality is enormous.”
Four crucial military-budget amendments were debated in the House just now, as follows:
to block Trump from withdrawing troops from Afghanistan.
to block Trump from withdrawing 10,000 troops from Germany
to limit U.S. assistance to the Sauds’ bombing of Yemen
to require Trump to explain why he wants to withdraw from the Intermediate Nuclear Forces Treaty
On all four issues, the pro-imperialist position prevailed in nearly unanimous votes - overwhelming in both Parties. Dick Cheney’s daughter, Republican Liz Cheney, dominated the debates, though the House of Representatives is now led by Democrats, not Republicans.
Greenwald (citing other investigators) documents that the U.S. news-media are in the business of deceiving the voters to believe that there are fundamental differences between the Parties. “The extent to which they clash is wildly exaggerated” by the press (in order to pump up the percentages of Americans who vote, so as to maintain, both domestically and internationally, the lie that America is a democracy — actually represents the interests of the voters).
16:00: The Chairman of the House Armed Services Committee — which writes the nearly $750B annual Pentagon budget — is the veteran (23 years) House Democrat Adam Smith of Boeing’s Washington State.
“The majority of his district are people of color.” He’s “clearly a pro-war hawk” a consistent neoconservative, voted to invade Iraq and all the rest.
“This is whom Nancy Pelosi and House Democrats have chosen to head the House Armed Services Committee — someone with this record.”
He is “the single most influential member of Congress when it comes to shaping military spending.”
He was primaried by a progressive Democrat, and the “defense industry opened up their coffers” and enabled Adam Smith to defeat the challenger.
* * *
That’s the opening.
Greenwald went on, after that, to discuss other key appointees by Nancy Pelosi who are almost as important as Adam Smith is, in shaping the Government’s military budget. They’re all corrupt. And then he went, at further length, to describe the methods of deceiving the voters, such as how these very same Democrats who are actually agents of the billionaires who own the ‘defense’ contractors and the ‘news’ media etc., campaign for Democrats’ votes by emphasizing how evil the Republican Party is on the issues that Democratic Party voters care far more about than they do about America’s destructions of Iraq and Syria and Libya and Honduras and Ukraine, and imposing crushing economic blockades (sanctions) against the residents in Iran, Venezuela and many other lands. Democratic Party voters care lots about the injustices and the sufferings of American Blacks and other minorities, and of poor American women, etc., but are satisfied to vote for Senators and Representatives who actually represent ‘defense’ contractors and other profoundly corrupt corporations, instead of represent their own voters. This is how the most corrupt people in politics become re-elected, time and again — by deceived voters. And — as those nearly unanimous committee votes display — almost every member of the U.S. Congress is profoundly corrupt.
Furthermore: Adam Smith’s opponent in the 2018 Democratic Party primary was Sarah Smith (no relation) and she tried to argue against Adam Smith’s neoconservative voting-record, but the press-coverage she received in her congressional district ignored that, in order to keep those voters in the dark about the key reality. Whereas Sarah Smith received some coverage from Greenwald and other reporters at The Intercept who mentioned that “Sarah Smith mounted her challenge largely in opposition to what she cast as his hawkish foreign policy approach,” and that she “routinely brought up his hawkish foreign policy views and campaign donations from defense contractors as central issues in the campaign,” only very few of the voters in that district followed such national news-media, far less knew that Adam Smith was in the pocket of ‘defense’ billionaires. And, so, the Pentagon’s big weapons-making firms defeated a progressive who would, if elected, have helped to re-orient federal spending away from selling bombs to be used by the Sauds to destroy Yemen, and instead toward providing better education and employment-prospects to Black, brown and other people, and to the poor, and everybody, in that congressional district, and all others. Moreover, since Adam Smith had a fairly good voting-record on the types of issues that Blacks and other minorities consider more important and more relevant than such things as his having voted for Bush to invade Iraq, Sarah Smith really had no other practical option than to criticize him regarding his hawkish voting-record, which that district’s voters barely even cared about. The billionaires actually had Sarah Smith trapped (just like, on a national level, they had Bernie Sanders trapped).
Of course, Greenwald’s audience is clearly Democratic Party voters, in order to inform them of how deceitful their Party is. However, the Republican Party operates in exactly the same way, though using different deceptions, because Republican Party voters have very different priorities than Democratic Party voters do, and so they ignore other types of deceptions and atrocities.
Numerous polls (for examples, this and this) show that American voters, except for the minority of them that are Republican, want “bipartisan” government; but the reality in America is that this country actually already does have that: the U.S. Government is actually bipartisanly corrupt, and bipartisanly evil. In fact, it’s almost unanimous, it is so bipartisan, in reality. That’s the way America’s Government actually functions, especially in the congressional votes that the ‘news’-media don’t publicize. However, since it lies so much, and its media (controlled also by its billionaires) do likewise, and since they cover-up instead of expose the deepest rot, the public don’t even know this. They don’t know the reality. They don’t know how corrupt and evil their Government actually is. They just vote and pay taxes. That’s the extent to which they actually ‘participate’ in ‘their’ Government. They tragically don’t know the reality. It’s hidden from them. It is censored-out, by the editors, producers, and other management, of the billionaires’ ‘news’-media. These are the truths that can’t pass through those executives’ filters. These are the truths that get filtered-out, instead of reported. No democracy can function this way — and, of course, none does.
Esoteric credit products like CDOs and CLOs gained mainstream notoriety ten years ago as politicians, pundits and a deeply humbled Wall Street accused them of helping to nearly destroy the global economy. But a few years ago, banks started looking for new ways to package and sell "safe" high-rated CLOs and other products based on the newly ascendant leveraged loans.
Now, it seems, lenders are facing a perfect storm: With the Fed making a foray into the corporate credit market, part of the central bank's quest to make investing losses a thing of the past (at least for now - or for as long as it can) and Robinhood-enabled retail traders buy up tech stocks, bitcoin, gold (or at least the precious metals ETFs that offer 'easy exposure' to gold and silver), ETF sponsors are quickly dreaming up new products to hawk to this newly invigorated generation of retail bagholders traders who understand only one thing about market dynamics: Prices simply don't go down.
And with brokerages now relying on bundling retail trades and selling 'order flow' to the big HFT firms - all of Robinhood's established competitors have now adopted this business model as commissions have gone out of fashion - there's a new perverse incentive to create products that will encourage mom-and-pop traders to play in markets previously reserved for institutional traders. And the latest example of this comes via Janus Henderson, the $337 billion asset manager that just filed to launch a new ETF that will allow Robinhood traders to buy into the highest-quality AAA-rated CLOs.
At a time of mounting corporate defaults and deepening economic gloom, a new fund may be about to bring collateralized loan obligations to the masses.
Janus Henderson is planning a U.S. exchange-traded fund that will seek floating-rate exposure to the highest-quality CLOs, according to a filing with the Securities and Exchange Commission this week. While many loan ETFs exist, there are currently none dedicated to CLOs.
CLOs, which package and sell leveraged loans into chunks of varying risk and return, have drawn scrutiny in recent months as the coronavirus pandemic spurs a wave of corporate distress. They typically don’t attract retail investors, though an ETF would in theory make them far more accessible.
Wary day traders can rest assured: because the loans comprising these CLOs are among the safest and most highly rated on the market.
The riskiest corners of the $700 billion CLO market may be signaling trouble, but the highest-rated tier tends to be a safe space, he said.
"In the case of AAA CLOs, it’s a safe and low-risk asset class,” said the chief investment officer. "Yields are fairly low on AAA CLOs in the first place, but if investors can earn 150 to 175 basis points of spread on a short duration asset, it can be attractive."
And with the Fed bent on keeping rates low until things get "back to normal", this might be only the beginning.
The central bank’s intent to keep them low for the foreseeable future could mean the more-than $4 trillion U.S. ETF market sees a spate of launches like the fund planned by Janus Henderson, according to Ken Monahan at Greenwich Associates.
"Given that yield suppression is here to stay it would seem, you’ll probably see a lot more of this," said the senior analyst covering market structure and technology. "RMBS and CMBS are probably not far off."
CLOs are a cousin of collateralized debt obligations, which became notorious for their starring role in the 2008 financial crisis.
There are several major differences, however, not least that CDOs bundle loans to consumers rather than businesses.
But once the Fed backstop is removed - if that ever happens - the only real beneficiaries of this product will be the fund sponsors who collect the management fees, and the HFT firms who front-run the order flow in the underlying CLOs.
An important public statement was made on July 27th by Bill Binney, the U.S. Government’s top expert on the internet, and on computer hacking. He had been the Technical Director of the NSA when he quit and became a whistleblower against that Agency while George W. Bush was the U.S. President and invaded Iraq on the basis of faked evidence.
Binney has now laid out, in this speech, the evidence that he wants to present in court against Barack Obama’s CIA, that it defrauded Americans to believe in “Russiagate” (the allegation that Russia ‘hacked’ the computers of Hillary Clinton and Democratic Party officials and fed that information to Wikileaks and other organizations). Binney cites evidence, which, if true, conclusively proves that Russiagate was actually created fraudulently by the CIA’s extensive evidence-tampering, which subsequently became covered-up by the Special Counsel Robert Mueller, in his investigations for the Democratic Party’s first (and failed) try at impeaching and removing from office U.S. President Donald J. Trump.
Here is the transcript of his 10-minute speech (and I add links to explanations of the meaning of technical phrases, and also boldface for emphasis of his key findings, and I place into [brackets] explanatory amplifications of my own), summarizing why he is convinced that the CIA (under President Barack Obama) did this frame-up against Russia, ‘Russiagate’ — it’s a case that he is seeking to present to Congress, and in court, and to debate in public, instead of to continue to be hidden from the public; he wants to show, and publicly to debate, this evidence, so that the public will be able to see it, and evaluate it, for themselves:
Basically the problem is that I can’t seem to get the forensic evidence into a court or up into the mainstream of evidence for defeating-refuting Russiagate. The point is that in the Veterans Intelligence Professionals for Sanity we have a bunch of technical people including Kirk Wiebe and I and some others and some affiliates that were in the UK who also joined the analysis process, and we were looking at the files posted by Wikileaks, because the allegation from the beginning is that Russia hacked the DNC and gave the emails to Wikileaks to publish. So, we looked at those emails, to see if there was something there that might give us some idea of how Wikileaks got that data. Well, in all the 35,813 emails that they posted in three batches, one [batch was] downloaded according to last modified times on the 23rd of May, and another on the 25th of May, and one [other] on the 26th of August, of 2016. Now, all those files, all 35,813, had a last modified time that was rounded off [rounded up] to an even [the next-higher] second, so they all ended up in even [meaning complete or full, not fractional] seconds. Now, if you know anything about data processing and data storage and things of that nature, there is a program that was quite common in the past [including 2016] using what’s called fat file formatting file allocation, table formatting, which is a process that when doing a batch process of data and transferring it to a storage device like a thumb drive or a CD-ROM, it rounds off the last modified time to the nearest even [next-higher] second, so that’s exactly the property we found in all that data posted by Wikileaks. Now, that said very simply this data was downloaded to a storage device a CD-ROM or a thumb drive and physically transported before Wikileaks could post it, so that meant it was not a hack[since there’s no rounding off to the next-higher second, as it would be if it’s a file that’s been carried over the internet], no matter how you look at it. We’re looking at the forensic evidence that says the DNC emails were not hacked, they were downloaded and physically transported to Wikileaks.
And, then, we had the other issue, [which was] with Guccifer 2. Now, Guccifer 2 came out shortly after, you know, Julian Assange announced that he had emails on Hillary Clinton, and so on, and the DNC. Well, we looked at all the material that Guccifer 2 posted and [he] was saying here are the hacks that I did on the DNC. He claimed he did one on the fifth of July, and one on the first of September, of 2016. Well, when you start looking at that — and we looked at the files — he posted a series of files, with file names, the numbers of characters in the file, and a timestamp at the end of the file. Then, the next file number of characters and timestamp, and so on, for I don’t know how many thousands of files. So, we looked at all those files, and we ran a program to calculate the transfer rate of all that data, because all you have to do is look at between the two time stamps, the file name and the number of characters in the file, and take the difference between the times [start-time versus end-time], and that’s the transfer rate for that number of characters, so we found that the variations ran from something like 19 to 49.1 megabytes per second. Now, that means for 19 to 49 million characters per second, and [yet] the world wide web would not support that rate of transfer, not for anybody who’s just, you know, a hacker coming in across the net, trying to do it. They won’t support that kind [speed] of transfer, and some people thought we could be wrong [and] that it could be done, and so we said okay, we’re going to try it. So, we organized some hackers in Europe, to try to transfer a data set from the U.S. over to Europe, to see how fast we could get it there, and we tried it from Albania, and Serbia, a couple of places in the Netherlands, and London. Well, we got various rates, but the highest rate we got was between the data center in New Jersey and one in London, and that was [the one which had gone at] 49.1 megabytes per second, and it went at 12 megabytes per second, which is one-fourth the rate, little less than one-fourth the rate necessary to do the transfer at the highest rate that we saw in the Guccifer 2 data, which meant it didn’t go across the net, so, in fact, the file rate transfers couldn’t. We were nowhere near the maximum rate that [would have been necessary if this had been a hack]. And so we said, okay, if anybody has a way of getting it there, let us know, and we’ll help you try to get to do that, and so far no one has ever come forward to dispute either the facts on the DNC data last file, modified file times, nor the transfer rates, for the Guccifer 2.
Plus, there’s another factor with Guccifer 2, there’s actually two more with Guccifer 2 data, the first of the five July data, and the one September data, if you ignored a date and hour they could merge like you’re shuffling a deck of cards the holes in the five July data timing were filled by data from the first September, that said to us that Guccifer 2 was playing with the data, separating in the two files, saying he made two different acts and and doing a range change on the date and the hour on the one file, so this to us was also an indication of fabrication on the part of Guccifer 2. Then, there’s another factor: when Guccifer 2 put out some from files on 15 june of 2016, with the signatures of Russian saying it’s a Russian hack, our fellows in the UK looking at the data found five of those files at a minimum, I don’t know they’re through yet looking, but they found five files that Guccifer 2 posted on the 15th of June with Russian signatures saying the Russians did this because of a signature they found the same five files posted by Wikileaks from a Podesta emails and they did not have the Russian signatures, so that meant Guccifer 2 was inserting Russian signatures to make it look like the Russians did the [alleged] hack. Well, if you go back to the Vault 7 release from Wikileaks again, from CIA, and you look, they have this Marble framework program that will modify files to look like someone else did the hack, and who were the countries that they had the ability to do that, in the in the Marble framework program? Well, one was Russia, the other was China, North Korea, Iran, and Arab countries. Well, to us, then, that means that the fabrication of the insert of the Russian signatures means that somebody modified the file and made it look like it fits the Marble framework definition of doing that kind of activity, which thus says all of this boosts with two materials pointing back now to CIA, as the origin of it, that’s the basic evidence we have, and none of it points to Russia.
In fact, we can’t even find anything that points to Russia, when in fact the Mueller indictment, or the Mueller report, and that Rosenstein indictment, named some that they called trolls for the Russian government, the IRA, the Internet Research Agency, out of St. Petersburg, and Russia, they named it in a court document, and, well, the IRA over there said we are no way near, we are not in any way associated with, the Russian government, so they sent lawyers in to challenge that in the court of law here in the U.S., and the court charged the government to prove it, and they couldn’t, they couldn’t prove anything, and so the judge basically reprimanded them and said you were never to mention the IRA as in any way affiliated with the Russian government again, so their whole case was falling apart. Everything looked like the rooks were two potato, was a fabrication, the alleged hack and so on, all applications, fabrication, and even if you look at some of the testimony that came out from the Crowdstrike CEO [hired by the Democratic National Committee], I think his name was Sean Henry, he said we we had no indications of exfiltrating the data, but we had evidence that it was exfiltrated. Now, if he’s talking about the last modified times as an indication of exfiltration, which it was but it wasn’t from a hack it was from a download, so that download then is an indication it was done locally as were the Guccifer 2 data that couldn’t go across the net. It was a download locally. All that stuff happened locally. In fact, some of the data and the Guccifer 2 material had all the time stamps indicating it was done on the East Coast of the United States, we had one in Central time, and one on the West Coast, but most of them fell on the East Coast, so it implied that all this stuff[both Wikileaks and Guccifer 2] was happening on the East Coast, and that really pointed right back at CIA, as the origin of all this fabrication.
Binney wants to present this case at trial, against the CIA’s top officials under President Barack Obama.
Traders on the main gold futures exchange in New York just issued the largest daily physical delivery notice on record.
In the latest sign of how the market's norms have been upended by the price disconnect that struck in March, Bloomberg reports that traders on Thursday declared their intent to deliver 3.27 million ounces (over 100 tonnes) of gold against the August Comex contract, the largest daily notice in bourse data going back to 1994...
While millions of ounces of gold trade on the futures market every day, typically only a tiny fraction of that goes to delivery. But in recent months, huge amounts of bullion have flowed into New York and the COMEX has seen record deliveries.
a persisting spread between the price of futures in New York versus spot gold in London,
Physical delivery on the largest gold futures exchange in the world, the COMEX in New York, has reached all time highs this year. Usually, delivery is “negligible.” What has changed?
An important change in the global gold market occurred on March 23, 2020. On that day the price of gold futures in New York started drifting higher than the price for spot gold in London. Ever since, the spread has persisted, though it continuously widens and narrows. The reason for this disturbance in the market can be read in my previous article “What Caused the New York vs. London Gold Price Spread and Why it Persists.”
To understand the shift in deliveries, first let's have a look at how the global gold market operated before March 23, when things still ran smoothly.
Before March 23, the price in London (spot) and the price in New York (near month futures contract) always traded in tight lockstep because of arbitrage. If, for example, the futures price would trade above spot, arbitragers would “buy spot and sell futures” until the spread was closed. Arbitragers would hold their positions—long spot, short futures—until maturity of the futures contract, because at expiry the price of the futures contract was guaranteed to converge with the spot price. In this example we can see that strong demand in New York would be translated into spot buying in London.
Worth noting is that when a futures trader rolled its position into the next month, and his initial futures buying was translated into spot buying in London by an arbitrager, on a systemic level the arbitrager would roll its position as well.
Of course, the opposite happened as well. When futures traded below spot, arbitragers would “buy futures and sell spot” until the spread was closed.
So far, a simplified version of the market before March 23.
The Global Gold Market After March 23, 2020
Since March 23 of this year, futures have persistently been trading above spot, though the spread isn’t constant. As a result, arbitragers aren’t assured the futures price in New York will converge with the spot price in London. An arbitrage trade as described above, through a position in both markets, incurs risk.
What arbitragers currently do to profit from the spread is buy spot, sell futures, fly the metal to New York, and physically deliver the gold. This is how the profit is locked in. If the spread between spot and futures is $40 per ounce, the arbitrager’s profit is $40 minus costs for transport, insurance, storage, etc.
Now you can see why the persistent spread between New York and London has increased physical delivery on the COMEX through arbitrage.
Physical delivery on the COMEX is elevated because of the current unusual situation in the global gold market. The gold delivered in New York has been imported from spot markets such as Singapore, Switzerland and Australia. U.S. imports directly from the U.K. are rare, because in London 400-ounce bars are traded and the main futures contract in New York requires smaller bars for delivery.
You might wonder who takes delivery from arbitragers that make delivery on the COMEX. Possibly, these are arbitragers, too. In the chart below you can see the spread between the “near month futures contract” and the “next near month futures contract.” This spread has also blown out on March 23. Arbitragers can buy the near month, and sell the next near month for a higher price. Subsequently, they take delivery of the near dated contract and make delivery of the further dated contract.
At the time of writing the near month (August) is trading at $1,973, while the most active month (December) trades at $1,994 dollars.
Arbitragers can buy long August and sell short December to collect $21 dollars per ounce.
One reason I can think of why the spreads persist, is because bullion banks are currently less active on the COMEX. Previously, bullion banks—having access to cheap funding—often performed the arbitrage trades.
The spread between the New York futures and London spot gold price was initially caused by logistics and manufacturing constraints, and likely persists because of credit restrictions.
If you read into the economics of commodities, much of it is about geography. The Corona crisis and its effects on global aviation has disrupted large shipments of gold, and created price discrepancies geographically. Normally, bullion is transported in passenger planes, but as those have stopped flying, there is more friction in bullion logistics. Partially, this created the spread between the futures gold price in New York and the London spot price. In my view, the spread persists because arbitragers don’t have enough access to funding, and demand in New York remains elevated.
How it Started
On March 14, 2020, President Trump started curbing passenger flights between Europe and the US. Including those from Switzerland, where the four largest gold refineries of the world are located. This didn’t happen in isolation. Passenger flights all over the world were being curbed. One of the most important airports in London—home of the largest gold spot market by trading volume—is Heathrow. Since March 10, 2020, arrivals at Heathrow started declining from 600 flights per day, to 250 two weeks later.
On March 23, 2020, three refineries in Switzerland where temporarily shut down due to the coronavirus. Reuters reported:
Three of the world’s largest gold refineries said on Monday they had suspended production in Switzerland for at least a week after local authorities ordered the closure of non-essential industry to curtail the spread of the coronavirus.
The refineries - Valcambi, Argor-Heraeus and PAMP - are in the Swiss canton of Ticino bordering Italy, where the virus has killed more than 5,000 people in Europe’s worst outbreak.
Normally, airlines transporting gold and refineries manufacturing small bars from big bars, or vice versa, keep the price of gold products across the globe in sync. If supply and demand for gold in one region is out of whack relative to another, arbitragers step in (buy low, sell high). But with planes not flying and refinery capacity crippled, everything changed.
Making delivery at the New York futures market, the COMEX, wasn’t that simple anymore. As we all know, shorts and longs on the COMEX are mostly naked. They either don’t have the metal to make delivery (shorts), or don’t have the money to take delivery (longs). In normal circumstances this isn’t a problem because neither shorts or longs are interested in physical delivery. They trade futures to hedge themselves or speculate. However, when sourcing small bars from Switzerland—only 100-ounce and kilobars are eligible for delivery of the most commonly traded COMEX futures contract—became “more difficult,” the shorts became nervous.
Likely, after the refineries closed, shorts wanted to close their positions as soon as possible to avoid making delivery. Closing a short position is done by buying long futures to offset one’s position. These trades were driving up the price in New York, and the spread was born.
Usually, such a spread is closed by arbitragers (often banks). They buy spot (London) and sell futures (New York) until the gap is closed. If necessary, these arbitragers hold their position until maturity of the futures contracts, and make delivery to lock in their profit. But because flights were cancelled and refineries were shut down, the “arb” was risky and the spread didn’t close.
Bullion Banks Losing Money Through EFPs
Bullion banks often have a long spot position in London and are short futures on the COMEX. When a refinery in Switzerland, for example, casts big bars (400-ounce) and sells them to a bullion bank in London, the bank hedges itself on the COMEX. This makes the bank long spot and short futures.
Exchange For Physical (EFP) allows traders to switch Gold futures positions to and from physical [spot], unallocated accounts. Quoted as dollar basis, relative the current futures prices, EFP is a key component in pricing OTC spot gold.
(The London Bullion Market is an OTC market.)
An EFP is usually a swap between a futures and a spot position. In banking jargon the word “EFP” also refers to, (i) having a position in both markets, and (ii) the spread in general (because the price of the EFP is equal to the difference in price between New York futures and London spot). A bullion bank that is “short EFP” is long spot and short futures.
As mentioned, banks are most of the time short EFP. When the spread widened their short EFP starting bleeding. To avoid further losses, some banks “were forced to cover,” which added fuel to the fire. (It can also be the banks themselves started the spread to widen.) Many banks suffered severe losses.
Currently, most refineries in Switzerland have reopened. So, why does the spread persist? After all, arbitragers can hire planes to transport gold to wherever. On April 30, 2020, the spread was still $15 dollars per troy ounce.
Because I couldn't figure this out myself, I asked John Reade, Chief Market Strategist of the World Gold Council, and Ole Hansen, Head of Commodity Strategy at Saxo Bank, for their views.
Reade wrote me:
I guess for two reasons: firstly, banks and traders probably still have large EFP positions that they haven’t been able to cover. And secondly, I doubt that risk officers and banks are prepared to allow large EFP positions to be run, so the usual arbitragers of this market cannot add to their positions, flattening the spread.
Which is in line with what Hansen wrote me:
While COMEX has now allowed the delivery of 400oz bars (the most popular bar size in London) and raised spot positions limits the problem has not gone away. This means that the mechanism that should balance the gold market still isn’t functioning correctly despite improving underlying physical conditions.
Market makers [banks] have suffered major losses last month and as they tend to natural short the EFP (long OTC, short futures) the risk appetite and ability to drive it back to neutral has for now been disrupted.
Banks lost so much money, they are cautious not to lose more. They don’t access funds to close the spread.
Generally, just the threat of delivery keeps markets in line as well. Any trader that sees an arbitrage opportunity can take position without the intention of making/taking delivery, in the knowledge that New York futures and London spot will converge. Now this certainty doesn’t prevail, traders are cautious. If they take positions but the spread widens, they lose.
Another reason why the spread can persist, is because of strong demand in New York. Speculators that reckon the price of gold will go up will buy long futures, increasing the spread. Normally, this type of demand is smoothly translated into the spot market by arbitragers without increasing the spread. But not now.
In a nutshell, I think that logistics and credit restrictions prevent the spread to close. However, if anyone has a better analysis please comment below.
It can be, as John Reade wrote me, “banks and traders probably still have large EFP positions that they haven’t been able to cover.” I noticed on Nick Laird’s website Goldchartrus.com that EFP volume cleared through CME’s ClearPort is decreasing since early March, to levels not seen in a long time.
Perhaps this is a reflection of a market that is slowly trying to heal itself. Perhaps when all losses have been crystalized, banks, or other financial entities with sufficient firepower to hire planes etc., will close the spread.
Another possibility is that when the new COMEX futures contract—that can be delivered in 400-ounce bars—becomes active, the spread closes. At the time of writing, the open interest of this contract is virtually zero. Time will tell.
“They make it so easy.” – Richard Dobatse, Robinhood user (via New York Times)
“A fool and his money are soon parted.” – Thomas Tusser, poet
Imagine if you knew, ahead of time, exactly what bait to use?
Not only which bait to attract and influence the behavior of specific customers, but how to package the output of those behaviors – into an additional form of bait – in such a way as to leverage US listed market structure and maximize the probability of financial windfall. If so, chances are, you would share some of the vision that the founders of retail trading app and rising zeitgeist symbol, Robinhood, did circa 2013…
Now, the fact that Alphacution has been beating this drum for four weeks in a row (starting here, here and then here) is unintentional and unrehearsed. Certainly, we much prefer that our riffs come with a level of variety – and we will return to that variety shortly. However, as we have been grinding the numbers around order routing revenue, the new Rule 606 reporting format, provocative players (like, Robinhood) and secretive players (like, Citadel Securities, G1X/SIG or Two Sigma Securities, among others), we continue to learn more about how this puzzle fits together…
Our latest findings – and the thing that makes this next seemingly redundant drum beat necessary – relate to the economic value of trailing stop loss orders…
Most amateur traders are taught to use stop loss orders to do precisely what they say they are supposed to do: limit losses. For traders that aren’t able to watch their risks all day long, stop loss orders represent one tool by which part-time traders – like those who have other day jobs – can put their trades on autopilot. Moreover, in a zero-commission environment, there is no explicit cost to the trader if a trade gets stopped out. That trader can always get back into the trade, at no explicit cost.
Now, from an order flow perspective, it turns out that stop loss orders – and other variants, like trailing stop loss orders – are quite valuable. This category of orders is otherwise known as non-marketable limit orders (NMLO’s), and they are the type of order that high-speed market makers covet more than any other, as we will illustrate below:
Based on Alphacution’s current assembly of ~$490 million in order routing revenue for Q1 2020, NMLO’s represent 45.4% of the total – or, $222.9 million – and, the sum of marketable and non-marketable limit orders represent 67.7% of the total – or, $332.3 million:
That’s all fine and good, but here’s where the plot thickens:
When we break down the contributors to NMLOrouting revenue, you’ll never guess who’s punching way above its weight class. Depending on how we account for TD Ameritrade – as two entities (including TD Ameritrade Clearing) filing two separate 606 reports, or as one large retail brokerage platform – Robinhood sits in the #1 or #2 slot, representing $46.0 million (or, 20.7%) in total NMLO routing revenue for Q1 2020 – and clearly larger on this analytic than E*Trade, Schwab, Interactive Brokers (IBKR) and Fidelity (which does not engage in PFOF in stocks, but does so in options):
But wait, it gets even better:
There are 4 categories of order types and 3 categories of products in the new 606 reports, which means that there are (potentially) 12 order type-product revenue pairs for each retailer of order flow. And, of the 12 order type-product pairs for Robinhood, non-marketable limit orders in options represent the largest category of order flow revenue. Not only that, at #2 amongst its peers, this category for Robinhood is within $2 million of being equivalent to the same option NMLO category for the combined version of (the much larger by client assets) TD Ameritrade as of Q1 2020. In other words, Robinhood is close to being the #1 largest player in the ecosystem by this measure:
With this in mind, let’s return to the idea that the Robinhood figures above have been targeted in advance, by design:
A frictionless and highly gamified environment that is made easy for its users to be stopped out as often as possible (in OPTIONS!) turns out to be a coveted counterparty to those who seek to compete for fleeting slivers of alpha in closest proximity to the sources of listed liquidity. In Alphacution’s vernacular, this is known as the structural alpha zone. By Silly Valley vernacular, this is known – by last count – as $8.6 billion…
In the chart, below, Alphacution presents a detailed summary of Robinhood’s order revenue breakdowns by product category, order type, and broker-dealer:
Hopefully, we can take a break from this topic for a while, but no guarantees. I would not be surprised to see Robinhood’s IPO announcement arrive in the months to come while valuation insanity and historically-aggressive interventionism persist…
Spot Gold is surging in Asian trading as the dollar is dumped.
Spot Gold traded above $1930, taking out the $1921 highs from 2011...
The dollar has crashed to 19 month lows...
Gold appears to be more and more in favor as an alternative place to allocate wealth amid the growing pile of negative-yielding debt (and note that cryptos are starting to get a bid for the same reason)...
The Fed wants us to believe that we should believe that there will be no inflation out of all this and to me that is a vast unknown. We have America’s fasted peacetime money-growth coexisting with the all-time 4,000-year record lows in interest rates. It’s a most curious and troubling juxtaposition there.”
Grant said aggressive moves by governments and central banks are unwise.
I think what we have is a monetary moment that is unprecedented and therefore calls for extreme caution and great humility on the parts of all of us.”
So is the "monetary moment" sparking a loss of faith in fiat?
Financial writer and precious metals expert Bill Holter says, “Gold is like a tractor in first gear pulling up a hill,” as it touches all-time highs once again.
Holter thinks the “gold tractor” is going to be shifting up a few gears in the not-so-distant future. Holter, who has been dubbed the new “Mr. Gold” by the reigning “Mr. Gold,” Jim Sinclair, explains,
“There is no rush like a gold rush. The reason being is you get momentum followers. You get people who are greedy who want to make money. Then you have the fear trade, and the fear trade is probably the most powerful emotion.
What you are seeing around the world is big money understands we have a credit implosion coming, which is going to take the currencies with it.
Where do you hide? The place to hide is in gold and silver.”
As much as Holter likes gold, he says silver is way undervalued compared to gold. Holter has long said when silver prices takes off, “it will be like gold on steroids.” Holter says,
“The reason silver is undervalued is it comes out of the earth at 10 (ounces of silver) to 1(ounce of gold). That’s God’s ratio. Man’s ratio had gotten to 120 to 1. I can tell you which ratio is right and which ratio is wrong.” Holter thinks God’s ratio is the correct one.
Holter says, “All roads lead to gold” especially in today’s economic environment. Holter explains,
“Gold is the arch enemy of fiat currencies. . . . You can just use your common sense and see we have a big, big problem out there, and capital is going to need a place to hide. Gold and silver are the only money that do not have any liability. Gold and silver are proof that labor, capital and equipment were used to create that. It already has been done, whereas everything else is a future promise, and promises are made to be broken . . . . .
The central banks must either inflate or die. . . . The central banks have to reflate or inflate, whatever you want to call it; otherwise, the entire credit system comes down. If they don’t inflate and they let the credit system come down, then you have a massive deflationary event where credit implodes. All the currencies themselves are credit. So, if the credit system comes down, it also takes the currencies with it. . . .
With all the debt out there, the central banks must hyper-inflate. Where’s the best place to be in a hyperinflation? Gold and silver. If they don’t hyper-inflate, and they let the credit markets completely collapse and everything defaults, what’s the best place to hide? Gold and silver because they have no liability. They are pure money. That’s why all roads lead to gold.”
Holter goes on to say, “You could have both. We could have a credit implosion, and the Fed creates $100 trillion and puts it into the system. That’s the only response they have if things get out of hand. . . . It’s inflate or die.”
In closing, Holter warns people to get ready and buy physical assets. This include food and water and anything else you might need. Holter predicts,
“You are going to lose purchasing power. Just look at history. Every time a currency has failed, the population loses its purchasing power. Just because this is the United States, it doesn’t mean we can break the laws of Mother Nature. We are going to face a huge drop in purchasing power and a huge drop in our standard of living. We have said this for years and have been trolled for years, and now here we are.”Holter also points out the legendary gold investor Jim Sinclair is the original Mr. Gold, and Holter says, “Jim is Mr. Gold emeritus.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with the new “Mr. Gold” Bill Holter of JSMineset.com.
Over the weekend the world learned of the Senate Republican’s “opening bid” for the next round of fiscal stimulus in the United States. That number came in at a nice, round $1tn. Now, as large as that number is, it still pales in comparison to the $3.5tn House bill that already passed. Importantly, the Senate’s version of stimulus is rather light on some Democrat “must haves” like state and local aid, for example. That is to say, there is quite a chasm between the Senate and House versions of the next round of stimulus. How might investors interpret this chasm and what is the likely resolution?
It’s clear the authorities are still in “whatever it takes” mode, so a compromise does appear to be the most likely scenario as opposed to a breakdown in talks. This is especially so since unemployment remains high and leading indicators of unemployment like initial claims appear to be ticking up again. It’s also clear the House will not get its $3.5tn wish list. So at what level might we find a middle ground?
For that, we think the US Treasury Department’s deposits at the Federal Reserve is a good place to start. US Treasury deposits at the Fed is essentially the Treasury’s checking account balance. It’s money that has already been “raised” (AKA printed). It currently stands at $1.8tn vs a normal run rate balance of $400bn on the high side. This implies that $1.4tn is already sitting on the sidelines in the Treasury’s checking account ready to be deployed. In other words, the Treasury has capacity to spend $1.4tn without having to issue more debt. Therefore, this seems like a reasonable dollar amount for the next stimulus package.
Regardless of the actual number though, what is clear is that deploying that money will increase the money supply even further, even if the velocity (i.e. circulation rate) is still low. That fact is likely to keep the US money supply growing at a faster rate than Eurozone money supply, even with the recent Eurozone stimulus announcement. The relative money supply growth between the US and Eurozone has been a good coincident indicator of the US dollar index, since that index is weighted nearly 60% towards the euro. As of this writing the US dollar index is trading at multi-year lows.
The likely $1tn stimulus plan will also serve to widen the US government’s budget deficit even further, possibly to 20% of GDP. The US budget deficit as a percent of GDP is highly correlated with the level of the US dollar index.
So, we can say with at least a decent level of confidence that the stimulus round in the offing is US dollar bearish. The magnitude of any weakness is a different story and harder to establish ex-ante given the number of variables involved. Of course, the possibility of more than transitory US dollar weakness appears to be growing.
What would it mean for stock market leadership if the US dollar does truly and meaningfully depreciate? It would most likely spell the end of technology leadership and usher in leadership of a different, forgotten group: materials.
The chart above overlays the US dollar index (blue, right, inverted) against the relative performance of materials vs technology (red line, left). A falling US dollar is highly correlated with materials companies outperforming technology companies. We’re seeing a very, very slight turn in the relative performance differential. Is it the beginning of a new trend or yet another false start?