Upheaval With The LBMA Gold & Silver Bullion Banks

Key Concepts

• LBMA Franchise: Refers to the dominant position and operational control within the London Bullion Market Association, particularly concerning vaulting and clearing of precious metals.
• Vaulting and Clearing Business: The process of storing physical bullion in secure vaults and facilitating the transfer of ownership and settlement of trades.
• Overton Window: The range of ideas that are considered acceptable in public discourse at a given time.
• CTA (Commodity Trading Advisor): Professional investment managers who trade futures and options on behalf of clients.
• BIS (Bank for International Settlements): An international financial institution that fosters cooperation among central banks and other institutions in pursuit of monetary and financial stability.
• Fibonacci Retracement: A technical analysis tool used to identify potential support and resistance levels based on the Fibonacci sequence.
• 50-day Moving Average: A technical indicator that smooths out price data by creating a constantly updated average price over the last 50 days.
• Physical Demand: The actual buying of physical gold and silver, as opposed to trading in derivatives or futures.
• ETFs (Exchange Traded Funds): Investment funds traded on stock exchanges, which can hold physical commodities like gold.

City and Morgan Stanley Challenge JP Morgan's LBMA Franchise

City Group and Morgan Stanley are reportedly preparing to enter London's vaulting and clearing business. This move is seen as a direct challenge to JP Morgan's current dominant role in the world's largest physical bullion hub, the LBMA. The entry of these two major financial institutions suggests a potential shift in the established power structure within the LBMA.

Implications of the Move:

• LBMA Weakness: The speaker suggests that the LBMA's business has been too concentrated on a single counterparty (JP Morgan), indicating a potential weakness in its structure.
• Crisis Response: It is speculated that City and Morgan Stanley's involvement might have been a factor in the LBMA's survival during recent crises, implying JP Morgan may have struggled with its responsibilities.
• Supply Chain Fortification: The expansion of vaulting and clearing services by multiple entities is viewed as a positive development for strengthening Western Hemisphere supply chains for gold. JP Morgan is likened to a "general" and City/Morgan Stanley to "reinforcements."
• Fragility of the System: The need for these new entrants highlights the perceived fragility of the LBMA system, which has been a concern for years.

Gold for Bitcoin Rumor and Senator Lumis's Proposal

A rumor circulating suggests that the US might consider selling a portion of its gold reserves to purchase Bitcoin. This idea has been renewed by Senator Lumis, who advocates for using such funds to retire national debt.

Key Points:

• Lack of Market Confirmation: As of the transcript's recording, market behavior does not confirm this rumor. Gold prices have been weak, and Bitcoin inflows have been soft.
• Overton Window Shift: The discussion itself is seen as moving the "Overton window," indicating a growing acceptance of such unconventional ideas in public discourse.
• Simon White's Analysis: Macroeconomist Simon White (via Zero Hedge) notes that flows between gold and crypto typically rotate, with gold being a "risk-off" asset and crypto often seen as "risk-on." He argues that the current simultaneous pressure on both assets suggests a technical shakeout in gold rather than a direct shift of money into Bitcoin.
• Speaker's Perspective: The speaker believes the "gold for Bitcoin" idea, while not entirely without merit in terms of the conversation, is flawed in its premise of reducing debt. The primary motivation behind this proposal, in the speaker's view, is to "keep a lid on gold" and "steer money into Bitcoin," creating a desired "bubble" in Bitcoin while avoiding one in gold.
• Trump's Endorsement: The renewed advocacy by Senator Lumis, now with Trump's endorsement, adds significant weight to the discussion.

Market Analysis and Price Action

The transcript provides a snapshot of market movements at the time of recording:

• Bonds: 10-year yields were unchanged at 3.98%.
• Dollar: Down 8 points at 98.71.
• Equities: S&P 500 was unchanged at 68.880, and NASDAQ was up 2 handles.
• VIX: Unchanged.
• Precious Metals:
  • Gold: Down $54, trading at $39.27, having been down $90 earlier.
  • Silver: Down 47 cents at $46.49, also off its lows.
  • Palladium: Down $34.
  • Platinum: Down $21.
  • Gold/Silver Ratio: Holding in the 84 range.
• Commodities:
  • Copper: Down almost 3 cents at $5.07.
  • WTI Crude Oil: Down $1 at $60.89.
  • Natural Gas: Down 4 cents.
• Cryptocurrencies:
  • Bitcoin: Holding steady at $114.
  • Ethereum: Volatile but around $4100.
• Grains: Up a decent amount.

China's Role in Gold Pricing and Negotiations

The speaker posits that China strategically increased its gold holdings ("gold longs") prior to the US-China trade summit to signal its involvement and influence in the negotiation process.

• China's Strategy: China's actions were interpreted as "flexing" and demonstrating its participation.
• Negotiation Outcome: As negotiations progressed, China either "backed off out of weakness" or engaged in "consiliatory cooperation."
• "Calling the Bluff": The speaker believes China "called the West's bluff on gold pricing," and the US "pushed back," indicating this was part of the negotiation dynamics.

Technical Analysis of Gold

The speaker delves into technical analysis of gold charts to explain the recent price action and potential future movements.

Daily Gold Chart (November 2022 onwards):

• Trend Identification: A clear upward trend is identified from November 2022, following the Fed's pause in rate hikes. This trend is described as having multiple upward movements.
• Overbought Conditions: The chart shows periods of extreme overbought conditions, analogous to a high RSI reading.
• Seller at Trend End: The speaker emphasizes that at the end of every trend, a seller emerges.
• Long-Term Trend and Potential Pullback Levels:
  • The "dead" trend is identified, influenced by China's macro discretionary buying leading up to negotiations.
  • First Pullback Level: 3770 to 3800 is identified as a crucial level to watch. If gold reaches this point, it could signal the completion of the pullback and a potential setup for further upside.
  • Second Pullback Level: If the 3770-3800 level breaks, 3400 is the next significant support area. A move below 3400 would be a cause for concern.
  • Consolidation: The speaker anticipates sideways consolidation or a gradual downward movement towards the 50-day moving average (around 3770-3800).
  • Potential Reversal: A sudden reversal upwards is also possible, potentially triggered by inflammatory comments from Trump or Chinese reactions.

BIS Capping and Trade Mode:

• The chart with arrows (China buying) and rectangles (BIS capping) suggests the market is in a "trade cap and trade mode." The recent capping is followed by a period of trading to determine the extent of the downside.

RSI Analysis:

• Daily RSI: The RSI on the daily chart has moved from 90 to 50 in just three days, indicating it's not significantly overbought on a daily basis.
• Monthly RSI: On a monthly chart, gold would still be considered overbought, and this could technically signal the beginning of a larger downtrend.

Buying Support:

• Despite the technical indicators, the speaker asserts that buying support from China, physical demand from insurance companies, and US/Chinese ETFs remains strong.
• CTA Selling: Commodity Trading Advisors (CTAs) are identified as the primary sellers, contributing to the recent price drop.
• "Buy Season": The current period is described as "buy season," with significant buying activity expected to support the market.
• Rocket Fuel: When CTAs go short, it could provide "rocket fuel" for a rally in November or December.

Tactical Levels:

• 3974 Level: This Fibonacci retracement level acted as a pause point, but only for one day, indicating strong buying interest or short covering.
• 3865 Level: This is identified as the next significant level to watch.
• 50-day Moving Average: A "destiny" or "date" with the 50-day moving average is anticipated, either through a price drop or by the moving average catching up to the price.

Goldman Sachs Report and Market Outlook

Goldman Sachs released a report that remained unfazed by a 6% sell-off in gold, reiterating that "nothing has changed."

• Key Takeaways from Goldman Sachs:
  • Physical demand remains robust.
  • ETFs are not selling off their holdings ("not puking").
  • The sell-off was attributed to an overbought CTA situation and selling from Shanghai traders.
• Raised Target: Goldman Sachs reportedly raised its gold price target for 2026 from $4,900 to $5,050. This upward revision is linked to central bank buying of physical bullion in September and October.

Conclusion and Future Outlook

The speaker expresses a shift in their own analysis, moving from expecting downside to being confident that the "knife is going to get caught." The market is expected to consolidate or work its way down to key technical levels before potentially rallying. The underlying physical demand and institutional buying are seen as strong support. The speaker anticipates a market that will "rally 20% a year for the next five to 10 years," with occasional spikes.

Key Events to Watch:

• Fed Day: Wednesday is highlighted as a significant day for market movements.
• S&P Case Shiller Home Price Index: Scheduled for 9:00 AM.
• PCE (Personal Consumption Expenditures): Scheduled for Friday, with an asterisk indicating potential uncertainty about its release.

The video concludes with a disclaimer that the content is for informational purposes only and not financial advice.