Recent Developments in Gold and Silver

We wrote last week about what seems to be a growing tightness in deliverable gold and silver. But not at the retail, single ounce, or tube level. The tightness is instead seen at the institutional and central bank level, and that tightness appears to be growing by the day.

If you haven't been following this story, perhaps we should begin by posting the link to last week's summary. Reading this would be a good starting point:

• On Tariffs & Gold Prices

If you would rather skip the details and just read the conclusion, here you go:

The past week has brought more signals that the wholesale/institutional gold and silver markets are getting tighter and tighter. For this week's post, let's summarize what we've seen.

Gold Lease Rates and Market Tightness

Let's start with gold lease rates in London, the current global hub for physical metal. Soaring lease rates would suggest a reluctance to lend the metal you have on hand, perhaps expressing a concern that you won't get it back in a timely manner. To be compensated for that risk, you demand a higher rate. Hmmmm, what do you see below?

Also soaring are the borrowing costs of shares in the GLD and SLV ETFs.

• Why would someone borrow shares? To sell short, primarily.
• However, if you're an "Authorized Participant" bullion bank, you might borrow enough shares to cobble together a "basket" and redeem those shares for physical metal.

In this case, high borrowing costs and a lack of shares being made available to short signals an unwillingness to lend. Again, hmmmm. What do we see here?

Delays in Gold Delivery from London

Next, let's check what has been said publicly about the situation. Here's Dave Ramsden of the Bank of England stuttering and stammering his way through an answer as to why there's currently a 4-8 week delay for physical gold delivery in London:

Bank of England was again asked today: Gold Bar withdrawal delays

• Current queue to pull bullion, 1—2 months of wait 

  James Anderson (@jameshenryand) February 6, 2025

   

And here's a statement from the LBMA where they attempt to reassure the gold market by pointing out that their vaults house 8,535 metric tonnes of gold. That sounds like a lot! But what they fail to mention is that, of the 8,535 total, about 7,500 metric tonnes are owned by the Bank of England or the various ETFs which custodian their gold in London. No big deal, you say? That's still over 1,000 metric tonnes! However, you might keep in mind that global central bank demand exceeded 1,000 metric tonnes for the third year in a row in 2024, and that's a trend that's very likely to continue in 2025. At some point (currently, perhaps?), that 1,000 metric ton "float" is going to disappear. 

"Mainstream" financial media is starting to catch on as well. Here's a list of links you might want to review:

• https://www.ft.com/content/f6459ed1-8a65-4d89-8bd8-40e8546912f0
• https://finance.yahoo.com/news/gold-dealers-sell-boe-bullion-181612058.html
• https://www.reuters.com/world/uk/london-gold-market-queues-up-borrow-central-bank-gold-after-big-shipments-us-2025-01-29/ 

Unusually large gold "deliveries" on COMEX are continuing too. The "non-delivery" month of January saw 3,280 contracts open and "standing for delivery" when the Jan25 contract went off the board on December 30. An additional 19,258 contracts appeared during the month, taking the total amount of "deliveries" to a record-shattering (for an off month) 22,538 contracts. At 100 ounces per contract, that's alleged to be 2,253,800 ounces or just over 70 METRIC TONNES.

We're now into "deliveries" of the "delivery month" Feb25 contract. When that contract went off the board on January 30, a whopping 59,296 contracts remained open and "standing". Through Friday, February 7, there have already been 55,127 "deliveries" made with over 9,000 contracts still open—a number that, like January, is likely to grow as the month continues.

Let's say the torrid pace of Feb25 "deliveries" continues and COMEX finishes February at 70,000 contracts. Not only would that be unprecedented and an all-time record high, a total of 70,000 contracts equates to 7,000,000 ounces or 218 metric tonnes! Recall that London float of just 1000 metric tonnes or less and now you know why suddenly there's that 4-8 week delay for London delivery!

Is the U.S. Preparing to Monetize Gold?

Lastly, why the sudden rush for physical gold? Signs of a brewing crisis began in December, when the spread between the London spot price and the COMEX futures began to widen, reaching over $30 in gold and $1 in silver by December 11. Those spreads narrowed by late December but began to widen again in January, reaching as high as $45 in gold and $1.30 in silver later in the month. Spreads continue to be unusually wide at present. Why did this start in December?

Perhaps it's driven by the reelection of Trump and his potential policies. The mainstream line of thought/excuse is that this is all driven by tariff concerns. As I wrote last week in that link posted at the top of this article, I think that's gaslighting and misdirection. Instead, what do you make of this?

Good catch by Chris Marcus of Arcadia Economics

Chris' full commentary and YT upload link is below

• Chris Marcus' Commentary
• James Anderson (@jameshenryand) February 9, 2025

SecTreas Bessent says a few curious things here:

• "Within the next 12 months, we're going to monetize the asset side of the U.S. balance sheet."
• "We're going to put the assets to work."
• "We've studied best practices as done around the world."
• "A combination of liquid assets and assets that we have in this country.”

Conclusion on Recent Developments in Precious Metals 

In politicalspeak, those statements could mean anything. However, gold is definitely an "asset", and the U.S. is alleged to hold as much as 8,133 metric tonnes. Could all of this sudden movement of gold, out of London and into the U.S., be preparation for "monetizing the asset side of the balance sheet"? If so, what would that mean? Some analysts think that all of these events foreshadow an official revaluation. Some think it will be an issuance of the sort of gold-backed treasuries that are favored by Trump's onetime Fed Governor nominee Judy Shelton. Either way, you can certainly make the case that the election of Trump has changed the just-in-time delivery dynamics of the NY/London Gold Pool, and the stresses are seeming to grow by the day.

With that, we'll stop here. However, keep an eye on this space and consider favoriting this Sprott Money page as we'll be sure to stay on top of this rapidly-evolving situation in the weeks ahead.

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