Silver Breaks Free of COMEX Shackles (Uncut)
Silver Breaks Free of COMEX Shackles – LFTV Ep 207
This will ultimately shake gold and silver free of COMEX-driven paper shackles. They now have to keep printing or we crash. We’ve got this ticking time bomb.
Talking gold with the one and only Andrew Maguire. Welcome to Life from the Vault. Welcome back to your latest episode of Live from the Vault, the show that goes beyond the headlines to dig deeper, find out what’s really moving the precious metals markets.
I’m Craig Hempe, subbing this week for the irreplaceable Shane Moran. Shane, feel better. You’ll be back next week, we hope.
In the meantime, let’s get the show on the road. Let’s throw it over to my good friend Andrew Maguire for his latest update. Andrew, we’ve had a lot of subscriber questions on the large paper-to-physical differences that you drew attention to in our last episode.
If anyone missed it, I would highly recommend you go back and review that as Andrew explained how the cartel have been using position concentration to enrich themselves at the expense of speculators by gaming the EFP spreads. Yes, Craig. Well, thanks for compiling these questions that Shane got.
And yeah, let’s process this. And this kind of leads into our immediate focus, which is on an unprecedented breaking of the inverse correlation between gold, a rising dollar, and bond yields, and how this actually translates to this widening differential between legacy market, cash-settled, synthetically diluted, undeliverable Western price gold on one side, and the real supply-demand price of physically delivered first-year asset gold. Now, we’ll shortly circle back on how this leads into the current unprecedented breakdown in the exchange-for-physical spreads between, that’s the EFP spreads, between the non-compliant COMEX-derived prices and the compliant foreign exchange gold market.
And how attempts to close these paper-to-physical price disconnects are actually resulting in gold lease rates spiking up to 2002 levels. And the last time we saw them was when gold was trading at $300 back in 2002. And physical shortages drove a $600 rally in gold from here to here before any kind of settlement of those imbalances.
And in silver, we saw a similar, but in this case, it was an $18 silver rally. And again, from here to here before these EFP imbalances were restored, i.e., they were able to be arbitraged successfully. Now, look, the point is, bullion cannot be printed.
So prices had to rise to incentivize enough bullion to come on offer to restore the balance. Now, what’s missed by mainstream media analysts is that global central banks, sovereigns, institutionals, they’re moving to swap this much higher-risk first-year U.S. Treasuries for zero counterparty-risk first-year Basel III-compliant gold for physical delivery. And how this is exacerbating this widening paper to physical divergence.
And as we’ve relayed in previous episodes, it’s not just central banks and sovereigns hedging dollar exposure. It’s pension funds, fund managers who’ve got trillions under management. If you remember, we drew attention to UBS.
We drew attention to Swiss pension funds and others. Now, I’ve had so many questions, though, on this. So let’s look at the effect of this through physical market lenses and step through what has led to this and why this will ultimately shake gold and silver free of COMEX-driven paper shackles.
Now, what is not being factored into current gold and silver price forecasts is that physically settled global gold and silver exchanges outside of the cash-settled LBMA-CME ring fence have now become, and this is important, sufficiently liquid enough to break free of these historical inverse dollar and bond correlations. The lines have crossed and there is just no going back. Rising bond yields resulting from an impossible to justify, these impossible to justify rising debt levels into also a wrong-footed Fed, it’s pretty obvious, and the unknown effect obviously of Trump’s upcoming tariffs, they’re accelerating these diversifications.
Now, old guard Western-facing analysts relying on historical correlations to endure see rising bond yields and a rising dollar as limiting goals upside because their assessments are blinkered on how real physical prices are being discovered outside of the legacy cash settled markets. In fact, the bulk of these very large arbitrable spreads are destined actually to be cash settled with very limited physical gold flows from London to COMEX New York vaults. And I’m talking about gold here.
Now, for example, and we touched on this in our last episode. Now, while still bullish on gold at the open of January trading, at the end of the year and throughout 2024, Goldman at the open of January trading pushed out their $3,000 gold price projection all the way out to 2026. And that was based solely upon synthetic market expectations that a rising dollar and bond yields that could be through rate cut expectations being diluted, et cetera, et cetera.
This is going to cap gold from rising to $3,000 in the short term. That was their rationale. They openly said that.
Now, truth be told, though, footprints affirm that Goldman Sachs are very long, both physical gold and silver for their own books. And par for the course, clearly they don’t like competition. And they’re using the Trump tariff uncertainty as an excuse.
And they’re going to be proved to have driven the price to $3,000 by the end of the first quarter. And they’ll come out and say, yeah, well, things changed. Now, our physical facing first year liquidity providers and yes, and we talked about this last time, one of them is a market maker at Goldman Sachs.
They’re betting that the forced unwind of dwindling COMEX open interest flowing into the physical settled markets outside the COMEX LBMA bubble, which they do see, will continue to evidence the dumping of US treasuries for gold alongside central banks capitalizing on swapping the strongest dollar since November 2022 into physical gold. Now, this exacerbates the break in historical inverse correlations. In fact, liquidity providers expect safe haven gold and silver will continue to be positively correlated to rising dollar bond yields while also benefiting in de-dollarization flows into gold and silver.
So it’s a perfect storm. And add in the corresponding alchemizing of a November 2022 strong dollar into gold, silver and dollar price commodities. Gold is gold sub three thousand dollars is considered to be way below fair value.
And hence, central banks continue to capitalize on every fixed sub this assessed value, fair value level. It’s also absolutely no coincidence that November 2022 was the exact point that the Bank of International Settlements took advantage of an equally strong plus 109 dollar index, which was the exact point that the BIS short covered the last of its over 500 tons ahead of Basel III compliance, valuing FX Gold as a first year asset class, which was about to compete with the US Treasuries and correlated dollars. Now, illustrating a massive global move to hunt out wealth protection assets, the historic bond and dollar inverse gold and silver FX correlations are actually pivoting into a positive correlation.
Now, we simply have to benchmark where gold and silver were priced in November 2022. And at spot six, and these are the spot. This is the spot market.
It’s not the futures market. This is the tradable spot market at spot 1616 and a dollar index at just over 109. The foreign exchange gold was benchmarked at well over eleven hundred dollars lower and following the same market making LBM act as short covering silver.
At exactly the time, same time at 17 and a half dollars in September, just slightly ahead of that. The silver was benchmarked is now benchmarked over 13 and a half dollars higher per hour was benchmarked 13 and a half dollars higher as of this week. And that’s even after we saw a sell off and a rigged sell off after silver tried to break out above 35.
So this is the futures chart for silver demonstrating exactly the same thing where the short covering actually occurred slightly ahead of the gold short covering at the BIS. So clearly, these guys were in the know of what was about to happen. So at current prices, and that is after we’ve seen a retracement and a higher low being actually cemented, was still 13 dollars or there about 13 and a half dollars higher in futures contract terms.
And that equates to silver having risen by 67,500 dollars per 5000 ounce contract. I’m just putting it into terms of where the futures markets prices have settled. So back to the spot charts.
And what this evidence is, is that while gold and silver physical bars are completely unchanged in purity composition, it now requires over 1100 more dollars to buy of more freshly printed dollars to buy the same ounce of gold. And it costs over 13 dollars more per ounce to buy an ounce of silver. And that’s in spike of being diluted by paper market inputs.
Now, the spike in U.S. Treasuries being dumped by foreign investors demanding much higher rates will undoubtedly reappear in the next round of regional bank failures with debt levels so high, attempts to bail out these banks will see bond rates further breaking out, driving investors to repatriate these funds to invest in higher yielding money market funds. Andrew, you had expressed concerns that investors would once again race into money market funds. What are the risks in doing this? Yes, money market funds pose a very big risk.
QE and or bail-ins will likely force these money market funds to also be gated. When you see bail-ins occurring elsewhere, why would they not gate money market funds? It is possible to do so. Now, the only zero counterparty risk first year asset class left standing will be physically settled gold and silver.
And given these exchanges are BRICS centric and require fully paid up physical bullion to be lodged before it can be offered for sale. And if anyone’s guessed as to how high the offer to sell will be into a bid only market, that is. Now, the CME is going to be forced to market to really to margin call the Fed to buy back all the undeliverable, heavily leveraged shorts before the COMEX is drained of every ounce backing up synthetically priced bullion.
Now, while we’re seeing those EFPs stretching the other way right now, that would reverse. Now, every single market making bullion bank is Basel III and SFR compliant in gold. And while the latest COMEX reports evidence these banks appear to be short against heavily leveraged speculators, all of these fresh COT short additions are hedged to the extent of what they can lay off against the momentum’s who do control 75% of the COMEX open interest.
But netted out, these well connected market making banks are long for their own books and will also benefit from a much higher gold price. Now, as far as the naked short momentum specs are concerned, the potential reoccurrence of a potential COVID like plus or minus $100 spreads between an SFR compliant gold, a physically deliverable backed spot gold, and this 96% leveraged COMEX open interest, it’s going to trigger a rash of margin calls, in turn, forcing a bid only market. Now, only this time with no one to bail out the brokers holding this debt, and there’s a risk of a Bear Stearns like default.
And that is why we titled our last episode RIP the COMEX, as this also comes actually with a warning. Now, let’s put Trump tariffs just aside for the moment. We are exactly two years into Basel III and SFR compliant, 10 times larger globally settled foreign exchange market.
And it’s far too late for the CME to call a gold and silver futures force measure. Attempts to gate the COMEX backdoor, which is their Achilles heel, which is the ability to take a paper diluted price and put it into, and we’re talking gold here, but really then to convert that into a compliant T plus one deliverable contract, this game has historically enabled the COMEX price gold and non-compliant, related non-compliant silver, but not so directly, to be converted into physical at non-deliverable COMEX determined prices. Now, this would blow up, this time, such a discrepancy would blow up literally billions of dollars of office of the controller listed derivative bets, which are undoubtedly in on the Fed’s books.
They’re not on the bullion bank’s books. And while COMEX would go bid only and serve to bankrupt all the momentums duped into controlling 75% of historically capped synthetic ranges, they know their ranges for years they’ve been in place. They know exactly when to go short and literally cap the price and bet against it in the options market, et cetera, et cetera.
So they’re continuing to play this game because they’re blinkered to the gate, the game has changed. So other than what they can cover into these momentum traders, it’ll be the Fed that stumps up the difference. In other words, the COMEX would have to become a Basel III compliant, physically deliverable exchange, or it’s going to have to fold.
Now, crashing trust in the COMEX in COMEX open interest is not an option for the CME. However, to comply, they actually may raise margin levels to as high as 100%. That would be compliant.
And given the Fed is on the hook for billions of dollars of unbacked legacy OCC FX bets that we just talked about, because they’re FX bets, they’re not sitting on the COMEX. These are foreign exchange bets, which in gold would then be cut because in gold that would have to become NSFR compliant because they are FX bets. The only plausible way out for the Fed would do at least partly revalue gold.
However, we’re not, we’re only just at the beginning of uncovering the tail risks. So we should expect volatility, which is why kind of issuing a warning, it’s so important to issue a warning here to margins traders. It’s important to ensure your futures market brokerage funds are fully segregated.
Now, if it’s segregated, when a legitimate one-to-one hedge position, and maybe you’re hedging a physical and you’re on the short side to hedge a position, or indeed long positions for that matter, they’ll likely be safe. But please move to get this assurance in writing from your broker, alongside any shares that you own, demanding immediate physical delivery of the certificates. Now, given the enormous 96% leverage employed, a sudden unwind of the spread between futures and spot will be so fast.
And as proven when Gata uncovered that back in 2000, at the Brown’s bottom, they uncovered that UBS had advanced notice ahead of the Bank of England selling its 400 tons of its gold in the year 2000. So we had evidence that these things happen, and they happen in a structured way. Such timing would undoubtedly be known by the agent bank insiders and be announced over a weekend.
And really, the brokers who offer short bets on margin could be broken. It is highly likely there will be some broker bankruptcies in a situation like that. So just please, it’s a phone call.
Just make sure that your positions are segregated at your broker. Now, while Momentums continue to coattail the Fed’s obvious capping efforts in safe haven gold and silver, higher interest rates will likely lead to a bear market inequities, ultimately increasing bankruptcies in over-indebted businesses. In turn, that’s going to result in rising unemployment.
And as happens in every single recession, which we’re pretty sure has to occur, even with Trump’s new drive, the legacy is toppling at this point. And with such high levels of debt, I just saw Yellen stick Trump with a massive problem. We’ve also got ballooning personal and business mortgages rates, risking a daisy chain, Lehman-like too big to fail global bank default.
So there’s a lot of risks out there, and you need to just be sure that you are covered. Hey, Andy, in your most recent episode, you offered a great explainer on how the cartel is using that position concentration to exploit the spread between the spot price and the current front month on Comex. It’s been over $40 in gold and over a dollar in silver.
And now there’s these tariff threats that are threatening a kind of a COVID-like blowback. Can you tell us what you’re on the ground? Yeah, well, gold and silver should be exempt from tariffs due to their status as monetary metals because they trade as a foreign exchange across against the dollar. So it’s cash, it’s money, it’s money.
It’s actually, obviously, it’s an FX cross. Now, so it should be exempt. Now, the current widening EFP spreads have drawn unwanted attention to the very tight physical supplies of gold and silver at current synthetically diluted prices.
Now, nevertheless, tariff related disruptions are expediting a supply squeeze in the silver and gold markets, leading to a spike in prices. Now, the largest above ground holdings of gold and silver reside in the Comex related ETFs, gold and silver ETFs. However, on and off ramps occur in the risky unallocated form.
So none of these flows are, as they flow in and out, are NSFR compliant. And alongside the ability to short sell these ETF holdings, they are definitely not one-to-one physical equivalents, raising unknown counterparty risk double ownership concerns. And this means that at any point, real accessible physical free float is far less than is published.
Now, fear of Trump tariff threats have been responsible for around 23 million ounces of EFP physical silver to flow into Comex vaults over the last 30 days alone. That means buying spot silver to sell into a plus $1 per ounce higher Comex price in many cases, alongside short term annualized lease rates to loan out gold driven to around three and a half percent, but as high as 3.9% intraday on Friday, which confluenced with the Comex gold EFPs attracting as high as a $40 per ounce premium over spot. When really this close to expiry in just four sessions from Wednesday today and expiring, essentially expiring really options expiry on the next Tuesday should be about three or four bucks.
So we see it as high as 40 sometimes of these premiums over spot. And that’s the highest level actually since 2002 when gold was priced at 300 bucks. Now what’s not realized by many analysts is that the bulk of these very large arbitral spreads are destined to be cash settled with very limited physical gold flows from London to Comex New York vaults.
Now silver is a different story. Now we’re evidencing bullion shipped out, draining free float to actual critical levels, and in fact reaching almost the threshold. And this has not been seen since March, 2020, the physically driven COVID short squeeze.
Silver looks ready to break out, and if not before options, next Tuesday, directly after. Or could be if Trump does implement, and as of Wednesday it hasn’t happened yet, if he implements the Mexico-Canada tariffs to include silver. Now while these arbitrable gold and silver trades look attractive, the risks of being called on to actually deliver into a potential further widening of these physical to paper spreads poses enormous risks to the market makers and the fund managers attempting to close the gap.
And while this was evident in March, 2020, the only way to square a widening spread is if one has the physical metal on site to deliver, and they do not. However, into this risk, while acknowledging short-term volatility, the RBMA and Bank of America, their liquidity providers are playing down the tariff effect already, reaffirming that higher globally subtle effects, prices driven by supply deficits will quickly fill the EFP gap, which I don’t disagree with, albeit at a higher physical price though. And while they estimate a nuanced impact reflecting both direct and indirect consequences, tariff-free supply, they figure that tariff-free strong Asian physical gold and gold demand is just going to continue to tighten physical supply, driving higher globally benchmarked loco London spot FX benchmarks, and that will serve to underpin dips as these EFP spreads actually normalize, which they will.
In other words, supply deficits will force deliverable spot silver to rise in price. Now while London and global FX benchmarks are exempt from US import tariffs, this widening EFP spread between tariff-free spot market and the duties attributable to COMEX prices, it places unhedged COMEX shorts into the short squeeze crosshairs. Okay, Andy, that’s a lot about gold, but how do you see this impacting the silver price? Yeah, silver is a monetary metal trading as an FX cross against the dollar.
So the risk of a regional silver prices trading at a premium to spot will impact the global FX crosses, and it’s going to continue to attract critically tight, cheaper loco London benchmark global supply. It’s more draining out. So the risks of short selling futures to buy spots, you know, you’ve got a higher futures price, so you would traditionally sell that and buy spot and you’d be hedged.
But there’s a massive risk to that because the risks of short selling futures at all to buy spot is far too dangerous when silver free float is at risk of dipping below its critical threshold as this would further expand the spread. And as providers of the bulk of US silver supply, the proposed very large 25% duties on Mexico and Canada are particularly in focus, as this threat has largely been responsible for driving this large up to a buck 30 spread between spot silver and March futures are currently today is Wednesday. And we’re looking at a 70 cent is still the spread is still enduring at around 70 cents.
Now, while there’s an element of naked long speculators chasing silver higher, you have to remember that the traditionally the cartel or the market makers take, they realize it’s naked short, naked long. So they’ll take the short side of that. But there is an element of that.
75% of all comex open interest, there is the hand in the hands of the momentum’s and is these heavily leveraged comex centric actors that have been reported to be short selling March futures at these over $1 premiums in anticipation of this spread normalizing. However, and if you remember in the oil trade, they tried it one day and it went below zero. Remember that unless you have a swimming pool where you could tip the oil into you could not take delivery.
So, um, so we’ve had some, obviously some other institutionals coming out, we’ve got former JP Morgan, managing director, Robert Gottlieb, he assesses, and he just read his Bloomberg piece. If the spread he says if the spreads keep rising, these traders risk, of course, incurring these heavy losses, as they seek to unwind their positions, and their efforts to buy the New York futures contracts back from having short sold it to make the market risks sending prices spiraling even higher, if they can’t do it in an orderly fashion. Now, the likely best case for unhedged US centric shorts, that includes the Fed held OCC derivative bets, is that the net effect would balance out at around perhaps 10%.
Because there’s going to be a net effect, which LBMA and Bank of America liquidity providers estimate would be very similar to the effect tariffs had netted out on with the LM, when the LME benchmarked aluminum, as you call it. Now, nevertheless, so that would be a kind of like a netting out because you’ve got less people buying it, you’ve got the arbitrage effect, but you’re also, you know, the price, just the price ramp, actually, will actually see less demand. Nevertheless, at spot, even at 10%, at spot $30, 10% would equate to a $3 premium, that would be $33, which would be sufficient to blow through, this is the important point, the blow through long standing Comex centric options resistance at $32, opening up an even larger short squeeze.
So once it starts, there is very little to stop it. And even an even greater risk for the Comex shorts would be if the threatened 25% Mexico Canada tariffs imposed, just as stocks in London dry up, which is occurring. And as Bloomberg affirms, freely available silver is edging closer to a critical threshold, as you can see.
If so, in plain vanilla form, if Trump follows through with 25% tariffs, with tariff free spot at 30 bucks, Comex silver futures would translate to $37.50. It would translate to that, although almost certainly a spike higher would then be quickly nuanced by initial dampened US demand, much like it did with Aluminium, alongside arbitrages gaming the cash settle Comex to spot EFP spreads. Now the widening price disparity would be sufficient to force CME brokers though, to tighten credit overnight, which would trigger margin calls, because it’s going to happen in a disorderly way. Blowing silver futures through these very large low hanging naked short stops, much like we evidenced into the COVID short squeeze, this would raise the offer to sell non-tariff type for supply FX silver into regionally inflated US price silver, because there is still demand regardless, it’s industrial demand, et cetera, et cetera.
However, into a wider global Trump effect, even if FX gold and silver are not directly tariffed. Once short-term regional volatility settles, a higher less synthetically diluted silver price will emerge, which liquidity providers assess will likely underpin spot at $33 spot. But having broken out of the range, short covering would be expected to conservatively settle at a fair value of around 38 bucks.
That is the general consensus. Also, wider BRICS related global universal tariff sanction uncertainty is going to continue to drive already evident, very strong safe haven gold and silver demand. And while we’ve already evidenced widening, extremely arbitrable gold and silver EFP spreads, we’re not aware of any size of local London physical gold flowing West to square these large EFP spreads.
What is missed by many analysts I have to reiterate this, COMEX is a cash settled 96% leverage exchange where FX spot gold. On the other hand, let me say is that on the other side of that trade FX spot gold has to be settled into a T plus one physical form if called upon for delivery. So because spot gold FX gold is NSFR compliant and market makers in the 10 times larger foreign exchange markets also have a COMEX ETF footprint and have so far been able to manage these EFP differences barely.
These paper settled EFP spreads are easily, easily fly wheeled off the books in the spot forward markets, which are technically not NSFR compliant and thereby escaping NSFR compliance. Now we drew attention to the UK parliament. And that was back in 2019 where we had it read out by the speaker and it was addressed to by parliament where we’re drawing attention to and also to the FCA, the treasury, the bank of England.
And we drew their attention to the OCC rules, these little known OCC rules, which allow spot forwards of less than 14 days duration to continue to be rolled forward without any form of reporting. Essentially this little window still provides the fed cartel a mechanism to cash settle these EFP spreads without being obliged to provide bullion to the COMEX for settlement. However, following foreign exchange gold being revalued as a first tier asset class and having to be backed up with T plus one, one day delivery, physical delivery compliance, global central banks have been quick to arbitrage mispriced forward spreads, largely defeating the scope of this trade.
And that has been because the central banks, the Asian central banks, the global central banks know this trade and have been very, very quick to capitalize on it. So really to kind of sum up, as our friend Ole Hansen, head of commodity strategy at Saxo Bank, I respect him enormously, says investors around the world have really started the year looking for protection against sticky and potentially rising inflation, their fiscal debt worries, and the unpredictability of the Trump trade. And the blowout, he says, and the blowout in COMEX prices is definitely part of Trump’s unpredictability story.
So this is Ole’s take. So Daniel Gill, senior commodities traders at TD Securities, he also draws attention. I’m just bringing attention to that this is other institutional stuff coming through that observing what every central bank is observing and what every bullion bank is observing, and the Fed has been fighting.
Now, Ghali is his name. He’s a commodity strategy at TD Security, and he’s also drawing attention to how silver stockpiles in the London markets have been drained heavily following four years, he acknowledges four years of severe shortfalls in global mine silver production, which, although we know that, and we have that data, it’s rarely talked about by an institutional. And he notes that further outflows of silver risks creating a knock-on spike in prices.
Now, he expects the drain to be significant in Australia. And what he said was, this is the silver squeeze that you can buy into while the market is sleepwalking into a squeeze right now, his comments. And he says people are completely disregarding this risk, not central banks, not the bullion banks.
Now, Trump tariff tail risks simply expose the unsustainability and the degree paper market pricing has dislocated from the real physical supply demand fundamentals. Now, it’s the same in gold, but it’s much easier to see in silver. However, whichever way one looks at this is because the physical markets are being settled outside the LBMA CME ring fence and tariff volatility aside, a fair gold and silver price will restore the balance, but not at current prices.
We’re witnessing the demise of the only remaining paper pricing exchange. Now, the only question remaining as usual is, are you ready? And how much wealth-protecting silver and gold bullion do you own right now? Well, that’ll do it for this week’s Live from the Vault. But be sure to never miss an episode, including next week.
So make sure you like, subscribe to this channel wherever you’re watching it so that you’re notified as soon as a new episode comes out. And boy, at a time like this, you want to make sure you catch every single episode. So from all of us here at Live from the Vault, thanks for watching, but be sure to join us again next week for more from the great Andrew McGuire.