China’s LBMA Silver Squeeze Begins. What’s Next? - LFTV Ep 245

Key Concepts

• Loco London Cartel: Refers to a group of entities, primarily in London, that allegedly manipulate precious metal prices, particularly silver.
• Unallocated/Unbacked Positions: Financial positions in precious metals that are not backed by physical metal, leading to potential delivery defaults.
• CME/LBMA: Chicago Mercantile Exchange and London Bullion Market Association, major financial exchanges for precious metals.
• Comex: Commodity Exchange Inc., a division of CME Group, a primary venue for futures trading in precious metals.
• EFP Basis Spread: The difference between the price of a futures contract and the price of the physical commodity for immediate delivery, indicating market tightness or oversupply.
• Lease Rates: The cost to borrow physical precious metals, which can spike when supply is scarce.
• Staging Points: Predicted price levels for gold and silver based on market analysis.
• Speculator Rinse: A process where leveraged speculators are forced out of their positions, often through margin calls, to clear market froth.
• Physical vs. Synthetic Pricing: The distinction between prices driven by actual supply and demand for physical metal versus those influenced by derivatives and unallocated positions.
• Basel III: International banking regulations that reclassified gold as a high-quality liquid asset, requiring physical backing.
• OC Report (Office of the Controller): A report that tracks derivative positions, including those held by the Fed.
• PBOC (People's Bank of China): China's central bank, which has implemented silver export controls.
• SGE (Shanghai Gold Exchange): A major exchange in China for physical gold trading.
• CNH Futures: Futures contracts traded in Chinese offshore Yuan.
• T+1 Settlement: A trading settlement cycle where trades are settled one business day after the transaction.

London's Loss of Control Over the Global Silver Market

The video transcript details a critical situation where London has allegedly lost control of the global silver market, leading to a potential crisis requiring continuous printing of currency to avoid a crash. Andrew Maguire, a precious metals expert, discusses the breakdown of price discovery mechanisms in the Comex and LBMA markets, particularly for silver.

Gold and Silver Market Performance and Predictions

• Recent Gains: Both gold and silver have experienced significant price increases. Gold rose by $350 to its next staging point, and silver broke out by $6 to its next staging point.
• Expected Dips: Dips were anticipated but were shallow and aggressively bought up, indicating strong underlying physical demand.
• End-of-Year Predictions: A significant portion of community questions focused on year-end price targets for gold and silver.
• Staging Points: At the beginning of the fourth quarter (October 1st), gold was at a staging point of $3850, and silver was consolidating at $4650. By October 15th, both had seen solid gains.

Breakdown of the LBMA/CME Silver Market

• Synthetic Price Capping: Attempts to synthetically cap prices on futures charts have been confined to cash-settled CME exchanges. These efforts primarily targeted naked long speculators who followed physically driven rallies.
• Broken Price Takers: The LBMA and Comex are described as "broken price takers," meaning they are unable to influence or set prices due to a lack of real money traders and insufficient downside sell ignition.
• Margin Borrowing Costs: A coordinated increase in margin borrowing costs for Comex gold and silver positions occurred on October 10th, timed with Powell's speech. This was strategically implemented to target leveraged naked long traders.
• Unallocated Short Positions: The CME/LBMA cartel alliance (including LPMCL - London Precious Metals Clearing) was reportedly on the wrong side of very large unallocated short positions. These positions were used to hedge imbalanced Comex gold and silver positions, creating a situation where banks had to buy physical metal when called upon.
• BIS and Fed Short Covering: The Bank for International Settlements (BIS) and the Federal Reserve (Fed) had to cover short positions at the end of the third quarter, incurring significant losses, especially for gold.
• Physical Backing Requirements: Following Basel III, gold requires physical backing at fixes. However, this discipline was not enforced on the silver cartel, allowing unallocated cash settlement processes to continue.
• Asian Demand and Undeliverable Liabilities: Ballooning undeliverable liabilities in unallocated silver positions are being called upon by Asian physical settlement markets, bypassing the LBMA.
• Fed as the Sole Short Central Bank: The Office of the Controller (OC) report indicates that the Fed is the only central bank still short gold and silver, and it is significantly wrong-footed.

Silver Market Specifics and Supply Shortages

• Official Defense in Silver Futures: The defense of silver futures revealed the scale of global physical supply shortages.
• EFP Basis Spreads: Ballooning EFP basis spreads (difference between undervalued Comex futures and higher-priced spot deliverable markets) indicate that Comex silver is acting as a price taker and is being targeted for a "backdoor loadout."
• Lease Rates Spike: By last Friday's London Open, lease rates to borrow silver for immediate delivery spiked above 24% (actually over 30%), driving the silver short squeeze and EFP basis spreads to a high of $2.80 ($14,000 per contract), and even $3 ($15,000 per contract).
• Unprecedented Backquidations: Futures backquidations extended as far as July 2028, indicating a broken Comex silver market where futures are completely mispriced relative to spot.
• SGE Mirroring Spot Prices: Shanghai Gold Exchange (SGE) silver prices are consistently mirroring fresh highs in spot silver and gold.
• Reasons for Slow EFP Basis Spread Closure:
  • Unprecedented Supply Constraints: Hoarding and strategic positioning around critical minerals have led to global export controls.
  • Bare London Cupboards: London's silver vaults are described as "absolutely bare."
  • Impossible to Cover Obligations: Unallocated Loco London FX obligations, used to hedge Comex short positions, are impossible to cover with globally driven higher physical prices.
  • Naked Derivative Bets: These mismatched LBMA/CME derivative bets are exposed as naked and are being called in, threatening default if not covered at higher prices.
• Global Physical Shortages: These shortages have spilled into all global exchanges, with examples like India's Kotak Mahindra halting ETF investments due to a lack of supply.
• Lack of Trust to Lend: Unprecedentedly high risk and unfulfilled lease fees illustrate a lack of trust in lending metal into global supply tightness.
• Comex Registered Inventories vs. Loco London Supply: While Comex registered inventories may appear adequate, they are inequitably hedged against a lack of Loco London supply.
• US Silver as an Outlier: US-denominated bullion is slow to ship to London to capitalize on the attractive profit margin ($15,000 per contract) due to global physical shortages.
• Record High Global Spot Prices: Spot silver is at record highs in every currency except the US dollar, which is being targeted.
• LBMA Clearing Members Facing Default: LBMA clearing members are racing to ship available silver from Comex to London to satisfy unallocated over-the-counter bets, essentially trying to avoid immediate default.
• Higher Prices Needed to Bring Silver to Market: The basis EFP spread and lease costs expand significantly into lower prices, indicating that no one wants to lease out silver at current levels. Higher prices are required to incentivize bringing more bullion to market.
• PBOC Silver Export Controls: China has implemented silver export controls. While some actors can access offshore futures, the physical bullion is being competitively bid for other global shortages.
• Short Covering at All Costs: Silver cartel members are being forced to buy back unallocated silver exposure with physical metal at higher prices to protect large short stops on Comex, preventing a disconnect from global spot benchmarks.
• Staging Points and Liquidity Providers: Liquidity providers assess $140/ounce for silver as a likely staging point to bring sufficient bullion to market for short covering. The spot market, driven by FX currencies, has seen silver testing the mid-$50s.
• Hunt Brothers Squeeze Comparison: The current situation, with unprecedented backquidations, is compared to the 1979-1980 Hunt brothers short squeeze, but the scale and global nature are far greater.
• Fed's Derivative Bets: The OC reports reveal unallocated, unbacked FX silver derivative bets managed for the Fed by JP Morgan and City.
• Proposed OC Rule Change: A proposed rule change by federal banking regulators aimed to curb bank supervision of derivative risks, including unallocated FX gold and silver, by removing "reputation risk" as an examination factor. This is seen as a panic measure given the lack of bullion to meet delivery demands.

Gold Market Updates

• Less in the Crosshairs: While silver is in the spotlight due to its broken market, gold has been less directly targeted, though Bloomberg is now discussing it obsessively.
• Overbought Question: The common question is whether gold is overbought, but the narrative is shifting towards a lack of exposure.
• Speculator Margin Downsides: Similar to silver, gold has seen speculator margin downside rinses.
• Central Bank and ETF Demand: Subsequent spot calls have uncovered strong central bank sovereign demand, now competing with institutional ETF demand.
• Diversification from Dollars: Investment banks are increasingly adopting a 60/20/20 portfolio allocation (20% to gold), weighing on treasuries and limiting derivative-driven downside attempts in gold futures.
• Geopolitical Drivers and Geological Constraints: These factors suggest gold is undervalued at $5,000/ounce.
• Price Targets: Bullion banks are aligning with Goldman's $5,000 target, with some, like Hartnet, assessing $6,000.
• Basel III T+1 Fixes: Higher Basel III T+1 AM and PM gold fixes have occurred, and the SGE Golden Week holiday ending did not provide an opportunity for Western markets to lower prices.
• Dollar Rally vs. Safe Havens: While a rising dollar typically leads to selling gold, both are considered safe havens. The strong dollar is being exchanged for gold, offsetting each other and causing both to rise.
• Dio's Affirmation: Dio affirmed gold as a safer haven than the dollar, supporting a real money 15% allocation to gold.
• 60/20/20 Allocation: This allocation strategy is being adopted by first-tier investment banks.
• Moving Averages Irrelevant: Current analysis of moving averages is criticized as being anchored in a past era of paper market dominance.
• Real Money ETF Demand: This demand is just beginning and has a zero allocation basis, with the race to diversify out of dollars potentially pushing gold well in excess of $8,000/ounce.
• Central Banks Holding More Gold than US Treasuries: Official data shows this, but unreported monetary gold, especially from China (80,000 tons) and Russia, India, Saudi, and BRICS (30,000 tons), suggests a much higher percentage (closer to 60%).
• Chinese and Indian Buying: This continues to compete with Western ETF demand.
• Swapping Dollars for Gold/Silver: Liquidity providers are fulfilling large physical orders, capitalizing on derivative discounts by swapping depreciating dollars for gold and silver.

Conclusion and Call to Action

• London's Lost Control: It is unequivocally clear that London has lost control of the global silver market.
• Actionable Insight: The question posed is whether individuals are using dollar strength to swap debt-loaded, depreciating dollars for real money (gold and silver).
• Recommendation: Buy physical precious metals, ensuring they are backed one-to-one.
• Community Engagement: Viewers are encouraged to subscribe, like, share, and submit questions for future episodes.