- Shortage Of Gold Bars Develops In London – Follow The Money!
It appears as if that old adage that a rumor can’t be confirmed as being true until its been officially denied several times applies to the London gold bar market, as it was reported last night by a London Metals Exchange reporter that premiums on “good delivery” bars are now above the spot price of gold, something which is rarely observed in London: Gold Bar Shortage In London
Asian and Middle Eastern Central Banks and investors are hoarding an enormous amount of the 400 ounce LBMA “good delivery” bars that make London the largest physical gold trading market in the world. As the price of gold was aggressively manipulated lower by the Federal Reserve and its agent bullion banks since mid-2011, eastern hemisphere sovereign, Central Bank and investment buying – especially the Chinese – intensified.
With negative “gold forward” rates having been negative for a predominant part of the last half of 2013, I was wondering when a shortage of London bars would be reported. A negative “gold forward” rate means that the entity (bullion bank) who is borrowing or leasing the bars today in order to deliver them into buyers will pay more today for the ability to take delivery of bars now than it would cost to buy them for delivery in the London “forward” market – i.e. anywhere from a month to a year from now.
A rare premium for deliverable bars means a shortage of bars for immediate delivery – directly to buyers not using an intermediary like a bullion bank – has developed (as opposed to the GOFO rate, which applies to the brokerage firm intermediaries making markets in bars and who lease gold needed for delivery from Central Banks to deliver into the buyers who are buying from them).
We know that gold being drained from Comex warehouses and the GLD Trust ETF is being used to make good on deliveries into Asia’s voracious appetite for deliverable gold. Unless the Federal Reserve (Bank of England and ECB) can tap into new sources of above-ground gold stocks, we could well begin to see delivery defaults.