In recent months, an astonishing flow of gold and silver has swept into U.S. vaults at a speed never witnessed since the onset of the pandemicThis scenario has raised eyebrows and is ripe for analysis, especially when examining the underlying dynamics of global gold circulation.

According to the latest data, just this past Wednesday, a staggering 600,000 ounces of gold were transported to the Comex warehouses, predominantly housed within the Brinks facilityThe total gold stockpile at Comex now surpasses 37 million troy ounces, which is equivalent to over 1,152 metric tons—more than the entire gold reserves of SwitzerlandThis marks an all-time high since the major disruptions that the gold market faced during the coronavirus pandemicAlarmingly, there are no signs signaling an end to this trend of American gold absorption, characterized by a sort of “siphoning” from the rest of the world.

In fact, recent weeks have seen multiple reports highlight this American “siphoning” phenomenon, leading to what could arguably be the most significant cross-Atlantic movement of physical gold bars in yearsTraders from large banks are reportedly racing to extract gold from the storied vaults beneath London’s medieval streets and from Switzerland’s leading gold refineries, transporting it across the Atlantic.

This gold rush has even caused backlog issues at the Bank of England, where withdrawals have extended into weeksOfficials overseeing the London gold market have received urgent calls from numerous bankers and traders seeking to expedite the withdrawal processes.

However, amidst this tumult, there remains a peculiar lack of comprehensive reporting addressing one fundamental question: Why has there been such a pronounced surge in demand for gold on the American side?

One prevailing market explanation for this recent “gold rush” is the pursuit of arbitrage opportunities created by tariff threats from the U.S. that have introduced chaos into the entire precious metals market

Advertisements

Fears of impending tariffs on gold from the U.S. have contributed to a dramatic rise in New York's futures prices over the last several months, pushing the gap between these prices and the London spot gold market widerThis disparity has created a lucrative opportunity for traders able to transport gold “across the Atlantic.”

While this reasoning is the most evident and straightforward to grasp, there exists a pivotal player in this scenario that might easily go overlooked—banks that hold significant futures positions while facilitating the clearing of gold trades.

Looking closely at inventory data reveals a crucial detail: the rising gold inventory at Comex primarily originates from three major institutions—J.PMorgan, Brinks, and HSBCTogether, their combined inventory stands at an impressive total exceeding 30 million ounces.

Yet, herein lies an ironic twistDespite the remarkable surge in gold at the New York Comex, there is a suggestive notion that the actual amount of gold available for futures delivery in the U.S. could still be severely lackingThe major participants in transatlantic gold trading, namely J.PMorgan and HSBC, are, in fact, among the most concerned regarding their ability to ensure sufficient deliveryThis situation paves the way for lucrative profits when those banks can guarantee they have enough gold to facilitate delivery.

This scenario is intricately tied to the longstanding operational landscape of gold trading between London and New York: for centuries, the U.K. has been considered the preferred purchasing location for physical (spot) gold, while countless investors and institutions engage in trading gold futures contracts on the New York Mercantile Exchange.

In this context, J.PMorgan and HSBC find themselves occupying a rather fascinating positionThey maintain significant physical gold holdings in London, using their vaults to provide storage services to clients, often lending out gold bars for returns

Advertisements

Simultaneously, they also hold extensive gold hedging positions on the other side of the Atlantic by selling gold futures contracts in New York to mitigate the risks of falling gold prices.

As long as gold prices on both sides of the Atlantic remain stable, trading in this manner appears low-riskHowever, as observed at the end of last year, when prices in New York soared above those in London, contracts sold by these banks suddenly went into lossesOrdinarily, gold futures contracts rarely result in actual physical deliveryMost traders will close their positions ahead of delivering physical gold bars or extend their contractsYet, with gold prices climbing, more investors are eager to own physical gold, thus making futures-deliverable gold exceedingly scarceAs described by some market participants, this situation can be likened to a train wreck when everyone suddenly wishes to claim their share of an already exhausted supply.

Essentially, as banks like J.PMorgan, which initially aimed to hedge their positions, find themselves in a scenario where they have become the sole counterparties to this bullish trend, one might posit that they are facing a “short squeeze” of sorts.

In this complicated backdrop, these banks can purchase futures contracts in New York to cover their positions, yet doing so implies realizing these lossesConsequently, this would necessitate allocating more capital for their commodity trading divisions, potentially undermining profitability for several years to come.

As former gold trading supervisor Robert Gottlieb suggested, an alternative could be for these banks to airlift the physical gold they hold in London to New York for delivery to futures contract owners.

Documents from the New York Mercantile Exchange reveal that J.PMorgan alone anticipates delivering a staggering $4 billion worth of gold this month.

However, at this juncture, it remains difficult to ascertain how much of this movement is geared towards minimizing short losses versus leveraged arbitrage opportunities, because ultimately, it seems implausible that J.P

Advertisements

Morgan's short position can account for that sheer volume, indicating a likely situation where they are still profiting throughout this process.

In light of the precious metal market's opaqueness, the amount of gold flowing out of the London vaults could indeed exceed what is officially reportedLikewise, the gold entering the United States is unlikely to be fully accounted for within Comex’s registered stocks, stirring further speculation regarding the broader implications of America’s global gold siphoning.

This reality has provided fertile ground for a slew of theories that are tinged with a hint of conspiracyAs previously reported, a compelling rumor circulating Wall Street proposes that the U.S. government may be contemplating a reevaluation of its gold reserves.

Should the U.S. government revalue its gold reserves, they can achieve a notable financial boon: the Department of Treasury could re-establish its gold holdings at a much higher valuationIf the government modifies the pricing rules that have remained unchanged for decades, adjusting the official gold price from the 42 dollars per ounce set in 1973 to operate at current market rates, this could result in a reported increase of around $750 billion in Treasury asset valuation, effectively reducing the need to issue more government debt.

Therefore, if there is any truth to this speculation, the current uptick in gold prices would be beneficial for the U.S. governmentThe operations behind the revaluation would likely involve importing gold through the largest clearing banks to manipulate prices upward before U.S. authorities officially declare the newfound valuation of their gold reserves.

Additionally, macro strategist Simon White shed light on another tantalizing thought: a long-circulated rumor suggests that when the U.S. moves to adjust its reserves’ gold value, it may, in reality, not possess as much gold as previously thought, given that the last thorough audit of the vault dates back to 1974.

Though this claim resonates with the current phenomenon of America’s gold siphoning, it veers into speculative territory, lacking substantial evidence and best suited as fodder for thought.

Advertisements

Advertisements