Gold Cartel In Turmoil As Derivatives Unravel (Uncut) 02-25-2025

BREAKING: Gold Cartel In Turmoil As Derivatives Unravel – Mike Maloney & Alan Hibbard

Your exposure is literally unlimited when you are short and here. We’ve got some of the largest banks on Earth. Caught with their shorts down and they’re trying to cover their butts right now.

Yes, they are. Everyone Alan Hibbert and I are back and you know, we were just talking about my last video. I talked about how the gold derivatives could lead to the next great financial crisis.

This could be bigger than 2008 actually. So, you know, Alan’s got a presentation for me and then I think I might have a little story for everybody. So Alan start off with you with the topics that you wanted to discuss.

Yeah, exactly. Thanks Mike. So yeah, the derivatives bubble is absolutely massive.

It’s huge. It’s hard to wrap your head around just how big it is, but we’ll do our best here in this video and a subset of those derivatives are precious metals derivatives and the banks have a record high short position. They have a record high amount of total derivatives.

It’s wild and it’s starting to unravel and what that means is that the prices of gold and silver and some other assets are going to skyrocket when that unwinds so we can only wait and see when that’s going to be but it’s going to be explosive. Yes, it will be so show us to share your screen. All right.

Yeah. So in a recent video Mike you actually presented this article and you said gold derivatives may become the epicenter of the next financial crisis, but I want to put that in perspective. So I want to read a couple paragraphs for anyone who didn’t see that video some gold industry observers have argued that there is evidence that the handful of large banks that issue most of the gold derivatives contracts have acted in concert to manipulate the price of gold an Illegal pricing cartel among the banks would not be unprecedented.

In other words, it’s happened before the public discovered similar practices in the mortgage securities fraud leading up to the global financial crisis and in the manipulation of the London interbank offered rate Libor the interest rate at which banks lend to one another uncovered a few years later. The recent sharp rise in gold prices may put pressure on these banks and lead to instability in any price fixing arrangement. If the cartel unwinds it could come quickly and violently there would be winners and losers and potential contagion into other markets.

In other words gold derivatives may become the epicenter of the next financial crisis in such an event demand for physical gold would spike further as would prices. Okay, they’re you know, they’re talking about gold derivatives and usually people just think of futures contracts, but there’s futures forwards leases and then there’s GLD and SLV and other exchange-traded funds that don’t actually have all the gold that they say they do and even if they did you can short these instruments meaning that your broker if your account is margin-enabled your broker can go into your account and take shares of GLD or SLV or whatever which is supposedly backed by physical gold. So you got an ounce of gold here.

They take those shares that represent that ounce of gold loan them to somebody else who sells them into the market and that person that was sold to thinks that he owns that ounce of gold. So two people own the same ounce if you can short it, it’s a derivative basically of gold. It isn’t physical gold.

If two people can own the same ounce and the problem with the whole derivatives market is that you’ve got like it. I believe more than three ounces currently or three people that think they own the same ounce on the Comex, but then there’s other exchanges around the world and there’s a there’s an over-the-counter market that we don’t know too much about and there’s then derivatives a lot of derivatives are over-the-counter derivatives where it’s very very opaque a lot of the gold market, you know, some of the information that I’ve been covering in my previous videos here Swiss gold. They report everything.

They’re very very transparent. When you look at where they got their gold a lot of times there was the United Arab Emirates big refineries and an exchange. They’re completely opaque no numbers from them.

So there’s a lot of areas in the world where we can’t see what’s going on and then Central Bank shenanigans is is usually shrouded in secrecy. The only reason for secrecy is if you’re doing something that might be perceived as being illegal or wrong or incorrect or scaring the public for some reason they want to keep it quiet. So these derivatives now you remember the crisis of 2008 was caused by mortgage-backed securities MBS’s and collateral collateralized debt obligations CDOs.

Okay, what’s a mortgage-backed security? It’s as if they’ve securitized mortgages. So there’s houses backing homes backing that mortgage-backed security imagine if there were three mortgage-backed securities with the same homes the same mortgages in them. That is what you have with precious metals and with with silver.

It’s a whole lot worse than gold. There are they resell the same ounces over and over and over again. So, you know, I’ve been talking about this for years as have many others and I expected this whole charade to come to an end much sooner than this but it looks like there has been a short squeeze that has begun here and and and that there’s shenanigans that has gone on with the central banks, you know, as yeah, so we’ll get into that in this video.

I don’t want to just dominate this with my reacting to this one thing. But yes, this can bring down the entire world financial system, even though it’s a smaller market than mortgage-backed securities or than the real estate market was of 2006 and 7. It’s so highly leveraged that that it really can cause banks and brokerage houses to fail and the entire world monetary system to have some major calamity. Absolutely.

Absolutely. And the whole effect of all these derivatives as you alluded to is to artificially inflate the supply. So the market kind of trades as if there’s a lot more gold and silver and really exists.

And when it starts to unwind, we get better price discovery and the supply and demand dynamics reflect a fairer price, a higher price, you know, where it says in such an event demand for physical gold would spike further as would prices. It doesn’t say that the price of paper gold, all of these promises to pay gold that don’t have gold behind them will collapse to zero, just like mortgage-backed securities did. Mortgage-backed securities had real homes behind them.

There was and yet they went to zero. You couldn’t sell these things for anything. Well, imagine a paper contract where it’s suspected that three or five or seven of the same ounces have been sold to or the same ounces have been sold to numerous people.

And so you if you think that you’re buying a contract where you it may not get delivered into that contract is suddenly worthless. Exactly. Exactly.

All right. Well, as a sort of anchor point for our video today, I found a great thread by Bob Coleman. He’s got nine tweets here.

We’re not going to look at all of them, but we’re going to look at most of them. So he says number one, the biggest buyers of physical gold and silver right now are the banks who are involved in the precious metals derivatives and trading markets are growing risks of default or failures imminent. Yes.

Yes. Yes, they are. Okay.

Let’s see what Bob says. He’s got some charts some data below is a report from the OCC the office of the comptroller of the currency. They compile a quarterly report on banks involved in derivative trading amazingly for for for large US banks held 88% of the total banking industry notional amount of derivatives.

These derivative notional amounts increased in the third quarter of 2024 by 10 trillion dollars or 5.2% up to 218 trillion dollars, right? Well, there’s a lot of currency to be made if you can sell the same ounce of money three or four times and that’s what they’ve they are issuing these derivatives and they’ve always got a backstop because they can always go to the Federal Reserve and lease gold and I believe that is what we are seeing is this scramble to return least gold before an audit. I believe the reason that this started back in December and early January is somebody sort of caught wind that Trump might be going to authorize an audit of well, they keep on saying Fort Knox. They have to audit all the US gold Fort Knox.

That’s just like a token audit. It would be stupid to I mean idiotic if they don’t audit the Fed is where the gold is missing. It’s it’s the Feds basement their vaults five floors underneath the New York Fed.

So go ahead. Yeah, exactly. I do think you’re right.

I mean the timing is beyond suspicious. So I like to are connected but this 218 trillion dollars number. I mean, this is so large.

I was trying to wrap my head around it and I think our audience would struggle to do that as well. So I looked up a company for scale at McDonald’s the entire market cap of McDonald’s is 218 billion with a B and this is the whole company. It’s not like one location or one country worth of their restaurants.

I mean, this is the entire company market cap 218 billion with a B, right? So you’re talking about McDonald’s in China and you know, they used to have them in Russia and everywhere. I mean, I’ve traveled and you see McDonald’s everywhere you go. So if it’s so if it’s a thousand times the size of McDonald’s everybody has to imagine their town with 1,000 times more McDonald’s in it.

There will be a McDonald’s next door to your house. Yeah. So there’s there’s this is huge.

This number is so staggering. It’s hard to wrap your head around it. And that’s a notional amount of derivatives.

That’s not even, you know, the value at risk so to speak. So if there’s leverage on top of that, which there is it could cascade into even much larger numbers and you know bankruptcies that are unfathomable and in size. So this is massive.

There’s a lot these this derivative market is huge. And by the way, these are all derivatives not just precious metals precious metals is a subset of this. That’s where we’re going next part of these derivatives are precious metals.

I have two charts below that show a snapshot of the four largest holders again. Those are the big banks in the US. The report is delayed by three months.

So the third quarter of 2024 is the most recent data. So what we’re about to see I’m sure it’s got an even more egregious census precious metals derivatives grew from the second quarter of 2024 of 486 billion to 566 billion in the third quarter of last year. That’s an increase of 83 billion in one quarter.

That’s about 17% in one quarter 17% per quarter. So you do that four times a year. I mean, this is massive.

Massive compounds. So I mean the percentage increase is absolutely enormous and this is before the panic started. So who knows what this could be now? It could be like a trillion bucks.

So a trillion bucks worth of derivatives collapsing and these derivatives were issued directly by these big banks these big bullion banks. So you’re talking about what you’re talking about is something so large that it’s impossible for the United States to bail out JP Morgan or one of these things the taxpayers. It would be absolutely impossible.

There just isn’t enough for them to bail this out. When you talk about those are the derivatives and a lot of them are empty promises, right? One two out of three on the gold are empty promises. And so yeah, let’s continue.

Yeah, exactly. They’re all promises and only a small percent can be honored. The chart below gives a great snapshot of the growth.

We have seen in derivatives by bank in the precious metals markets. Please note in 2023. The big jump this big orange jump here was simply recharacterizing how these derivatives are classified.

So moving the gold derivatives from the interest rate swap category to the precious metals category. So it’s really just an accounting change, right? You know, I had this in one of my previous videos and I pointed out that he said the jump was in 2023. It was in 2022 and you and I put it in the book that we were writing back in and this came out in at the end of 2022 early 2023 is when the book came out and it had already happened and it was just recategorizing it correct and it unveiled for the first time people could actually see what the how these banks were so dominant in a market and able to manipulate it and you know during this time a bunch of traders from JP Morgan had already gone to jail.

There’s all these people that called the the guys at Gata the gold antitrust Action Committee lunatic conspiracy theorists and it turned out they were right. They were talking about Central Bank gold manipulation. They have yet to be proven right on that.

But I think that’s coming within a very short period of time here. That is what this big scramble is about is to return gold. Some people try and misdirect you by talking about other things, but it’s it’s trying to get the gold back to the Federal Reserve that’s been leased out.

It’s gone. It went into the market and these are the guilty parties right here. Go ahead.

Yeah, exactly. So even though this big jump here is sort of like an accounting change. We can still see how much it jumped after that.

And by the way, these last three bars are all 2024. So these kind of first two probably should be ignored. If you want to actually pay attention to the trend goes 2022 2023 2024 at the end here, but that’s the third quarter.

So it’s probably up off the top of the charts because December is when when the feces impacted the air acceleration device. That’s right. Exactly.

Couldn’t have said it better myself. So yeah, so absolutely massive increase here. So massive derivatives things are out of control.

I don’t I don’t see a nice clean peaceful way that this unwinds. It’s too far gone. So, all right moving on here number five.

So what does all this mean? In summary banks are on the hook. If the cost of obtaining physical metal rises, right and it does because they’re short. Yeah, right and we’re going to see we’re going to see how well, obviously the price of acquiring physical.

We know that’s rising because we are aware of it, but we’re going to see in a second that the cost of borrow metal is also rising. So if the cost of obtaining physical metal rises in these derivatives, they have sold and used as indexing or money management transactions need to be backed or related to actual physical metal rather than deferred spot contracts. The sudden rise of leasing and financing costs associated with the need to obtain physical precious metals rather than relying on existing spot or spot deferred paper contracts adds unforeseen exposure.

Yeah, very complex way of saying that if they don’t settle for cash, they’re in trouble. Yes, exactly. Exactly.

And we get a 2008 really want their gold. I had this friend Joe Freitas when I used to do a high-end audio equipment and and Joe used to say, hey, forget about it. I like it.

Yeah, right exactly. Yeah. So if they have to get physical metal, which they do right, they can’t just settle in cash.

They’re screwed. So yeah, this made me think of an old an old financial axiom here. Where there is value.

There is no liquidity and where there is liquidity. There is no value. And that’s true.

The liquidity is all the paper promises and the lack of liquidity is in the physical market. It’s just not there. Exactly.

Yeah, let’s move on. Yeah, it’s like the difference between money and currency gold is money. It has value.

Currency is liquid. It’s got nothing. The final chart below is something I’ve created over the years to measure the leverage of paper ounces to physical ounces in the futures market since the election.

The futures market Comex has been in the process of deleveraging. Meaning a wave of physical deliveries are reducing the paper ounces of existing open interest relative to physical ounces held in Comex depositories backing those paper ounces. So deleveraging this is going to allow for better price discovery because all these contracts have effectively suppressed the price for a long time.

And as this deleverages the fake supply supply paper metal will disappear. And so you’ll only you’ll be left with the the real shortage of physical metal. And of course the price will rise.

So just to finish it up here. I’ve compared the dates back in October to earlier in February silver paper ounces to physical ounces dropped from 10 to 1 to about 9 to 1 so dropped a little bit gold paper ounces to physical drop from 7 to about three and a quarter. So, okay.

So just for an analogy for people. So you’re playing musical chairs. You’ve got a hundred chairs.

Can you zoom back up on that Dan? There’s 1,026 people dancing originally back in October. Some people have left the room, but there’s still 871 dancing with where there’s the silver chairs. There’s 100 chairs to sit in.

There’s 871 people dancing. What happens when the music stops with gold? There were 692 people dancing for each hundred chairs. Now, there’s 326.

So what? Yeah, they are deleveraging. There’s not as much leverage, but there’s still going to be 200. There’s 226 people out of the 326 that don’t have a seat at the party here.

They’re at when the music stops. They’re out of luck. Their paper contracts will go to zero just like the mortgage-backed securities did back in the global financial crisis and the people that actually have the real physical are going to win because the desire and the need to get the real stuff when all of these people that thought they owned gold discover they don’t.

They own a paper promise and that goes for the ETFs as well. So, okay. Let’s move on.

That’s my opinion. Do you agree with all that? Of course. Yeah.

Yeah, 226 out of 326 people aren’t going to have a chair. That’s most people that’s like nine out of every 13 people are going to have a chair. Exactly.

Well, I was doing it in my head. I was thinking as you were as you were talking there. I like it.

Anyways. Yeah, most people are going to be screwed nine out of every 13. They’re going to be broke and there’s going to be ripple effects into other markets, which will cause even more people to be broke.

It’s not going to be good. All right, final final tweet from Bob here. What few people are expecting is a market where this deleveraging continues higher carrying and lease costs are also having a similar effect.

This may allow more price discovery by the physical metal versus traditional finance instruments. Many players who have been benefiting from this arbitrage have gotten stung by being short the futures and have disengaged or taken severe losses. President Trump seems to be setting a policy going forward, which makes tariffs a more involved strategy for tax revenue and trade policy.

I do not believe this volatility is going away anytime soon. Okay. Okay.

The tariffs is a mixed misdirection again, you know, Peter ever all these articles that I see about the price of the gold price rising and all of this gold movement the price rise the tariffs wouldn’t cause this dramatic a scramble for real gold the threat of an audit and the discovery that the Federal Reserve is pretty much empty and they keep on saying Fort Knox Fort Knox Fort Knox and they got to stop saying that and say the US gold all of it has to be audited simultaneously the and they need to do it like right away before JP Morgan gets the gold back into the feds vaults. That’s what this scramble is all about is these big banks that have been manipulating the price of gold because it is competition for the dollar. It’s the canary in the coal mine.

And so they the US has been taken for a ride by the creation of a Central Bank when they pass the Federal Reserve Act and it’s it’s not the first time there was the Bank of the United States, which is the the acronym for that is the BUS the bus the bus took America for a ride a long time ago and the second bus Andrew Jackson, you know put into the scrapyard. So it’s been tried twice before this is the third time. Hopefully three strikes and you’re out.

I hope so. I hope so. 19,535 days after Nixon took the world off gold the paper games are finally ending.

Yep, certainly certainly seems that way and I’ve got two little bits of data just to add here that kind of demonstrate that banks now have a new record high net short position in gold. You can see that right up here. This blue bar.

It’s never been this high. People need to understand shorts. If you’re long your your losses are limited to whatever your investment was you you make a hundred dollar but you buy a hundred dollar share of stock.

You can lose a hundred dollars if you go short and you should you borrow that hundred dollar stock from your broker and then you sell it into the market and somebody else buys it. You have to buy that back and that hundred dollar investment. If the stock goes to a thousand bucks, you lose nine hundred dollars on that one hundred dollar investment.

And so your exposure is literally unlimited when you are short and here we’ve got some of the largest banks on Earth caught with their shorts down and they’re trying to cover their butts right now. Yes, they are. It is a massive short squeeze.

We’re seeing a play out the last thing I want to mention here. The cost to borrow GLD shares hit over 10% almost ten and a half percent gold shorts are in big trouble. And if you look at this chart here, what we’re looking at here is the the green and red bars this large green candle here showing over warp over 10% typically if you look at these bars the the cost here is like half a percent maybe less.

Yeah, it’s under half a percent is the average right? Yeah, and we’re up over 10% so that’s 20 times as expensive. I mean that’s massive right? And you know the story I was going to tell there was a whole chapter. It was a short charming chapter that was only three pages, but it got cut from my original book and hopefully I will get the time to narrate this and then Dan can put some images to it.

And but the there was something called the panic of 1901. It was a stock market crash that turned into a banking panic as well, but it was all because of short covering and the Northern Pacific rail railroads were like the internet technology of the day. They were the AI of the day.

They were the hot investment back in the late the late 1800s early 1900s and the Northern Pacific Railroad some people tried to corner the stock market and the people that were trying to corner the stock market was the guy that ran the Northern Pacific was EA chairman. He was chairman of the Union Pacific and the Northern Pacific Railroads and he was backed by Kuhn Loeb as a banker and another major stockholder William Rockefeller. Now Kuhn Loeb is where Paul Warburg worked.

He’s the guy that designed the Federal Reserve System. This is one of the largest banks in the world Kuhn Loeb back then and William Rockefeller and then and they owned quite a bit of the stock and then actually no, I’m sorry. They were making a bid and they gained a 25% share the stock price went way up against 25% in a very short period of time and traders just began piling on the shorts because this was a large cap stock.

So everybody noticed it and then the Northern Pacific stockholders James Hill and his banker JP Morgan found out that EA chairman and Rockefeller were trying to buy their railroad away from them. And so you’ve got JP Morgan going to war, you know with one of the largest banks on the planet going to war with William Rockefeller and Kuhn Loeb over this one stock and then the public found out that that it was the largest banks in the world going to war over this the ownership of this one railroad and the stock went from a hundred from under a hundred dollars to over a thousand dollars in actually in one day it went from I believe 120 or 140 to over a thousand in one day and that caused all the shorts had to cover and when they did, you know, when you cover you’ve got to buy back the stock that you’ve sold so covering causes the price to go up squeezing the rest of the shorts that are left and then they have to cover in the price continues to go up. Well now we’ve got some of the largest banks in the world short gold during a short squeeze and what happened was everybody had to get liquid so they had to liquidate their other stocks to be able to cover their shorts and when they liquidated their other stocks one stock went to the moon the rest of the stock market crashed and the stock market crash and the banking panic are called the panic of 1901 and it finally led to the to Teddy Roosevelt going after the trusts and in the landmark 1904 Supreme Court ruling invoked the Sherman Antitrust Act and the first trust to be made example of was this trust where Harriman and Rockefeller created a truce with Hill and Morgan and they joined forces and created one giant railroad trust so fascinating story someday I’ll get to read it and will animate it or whatever but this was something that was cut out of my first book back in about 2006 I think is when it was cut so I just dug it up recently but this reminds me of it the biggest banks in the world here are in some deep doo-doo this isn’t the public that the panic of 1901 was the public that was that had gone short that was in in trouble and it caused at the entire stock market to crash what happens if these banks are cut so short what are the lot what do they look like these are lease rates for GLD GLD has gold that people think they own so you buy shares in GLD.

They’re supposed to buy gold bars with those shares, but these lease rates. This is some big players borrowing a ton to be able to redeem baskets of gold out of the so it’s the public putting gold in and then the big bullion banks taking the gold out and they’re willing to pay this 10% to be able to have that gold that they need so that they can return it to the Federal Reserve. I believe that is what is happening.

I think you might be right and I’ve learned a valuable lesson. Don’t go short go long get physical. That’s it.

That’s no secret. It’s easy. Thanks.

This is a great video. I’m glad you put all of that stuff together. We’ll see you next time.

Thanks.