China Took Delivery of US Based Gold Last Month
China Took Delivery of US Based Gold Last Month
“[T]he Chinese have now taken delivery of a bunch of physical New York gold in response to that arb.”
Subtitles:
- The Shanghai Arb and Gold's Exit Strategy
- Connecting More Dots
- Who Does This?
- Who Could Trade The Arb?
- China’s Gold Market Structure
- Because Gold is Money
- SGE and International Arbitrage
1- The Shanghai Arb and Gold's Exit Strategy
Authored by GoldFix ZH Edit:
We had an extended conversation with Tom Luongo last week which he posted yesterday in podcast form.
Regarding Gold we shared with him the following exclusively:
Over the last month or so, China has been taking delivery of Gold out of New York presumably related to the Shanghai Premium. We’ve believed this for some time, knowing that JPM and others have strong banking relationships and would be able to effect such a transaction. We also had no evidence of it except the drawdown in China followed by a drawdown in US Comex.
But now it can be said here, that two unconnected sources confirm the delivery of Gold in China from the USA. One is a respected banking analyst who dabbles in journalism. The other is a fund manager in Asia. Here is one of those sources quoted here out of context in October:
[Emphasis ours]
“Separately, ██████████████ ██████████████ the Shanghai premium for gold….” 3
“And on that front ██████████████ 4 understands from other sources that the Chinese have now taken delivery of a bunch of physical New York gold in response to that arb.”
“This could or could not be why the GLD ETF has been acting weirdly since Friday”
2- Connecting More Dots
We are adding the following important details for subscribers here now as the dots have finally connected sufficiently to be circumstantially accurate, if not verified with evidence.
- About a month ago we were told by our China contact Bai Xiaojun that there was a mini vault run on SGE gold in August/September where a significant drawdown was effected for local entities taking delivery. Things were watched here by us with piqued interest afterwards.
- Bai also stated China was determined to honor its promise for complete deliver-ability and had to slow down and queue the process for orderly execution. The deliveries got done over time we later noted.
- Subsequently, We don’t know what Gold China took delivery of or who delivered it to them last month. But we’re almost certain they did get New York Gold delivered as the source states. The word “New York” is commonly interchanged with “Comex” in the industry.
So absent someone telling us, who/what/why is going on?
3- Who Does This?
[Excerpt]
From China's Monster Silver Buyer Revealed
Chengtong PM cooperated with the People's Bank of China and other top-degree units, to design and establish Shanghai Gold Exchange, and to lead the historical reform of silver from the planned economic system to the market-oriented system, to organize the listing of silver products, and participate in the design of silver contracts in Shanghai Futures Exchange. It is the founder and pioneer of China's silver market, as well as the maker of gold and silver trading rules and industrial policies.
4- Who Could Trade The Arb?
[Excerpt]
US Broker-Dealer model Banks can trade the arb
5- China’s Gold Market Structure
Keep in mind that Gold taken delivery of out of the SGE vault does not leave the country, only the vault. China does not let metal leave the country in large quantities. China does not pretend to be a free market. It is a walled garden. But when you think about it, can anyone in a western country export large quantities of money without government permission?5
PBOC/SGE Ownership
- China owns the PBOC
- The PBOC owns the SGE
- All Gold in and out of China must pass through the SGE
- The overwhelming majority of Gold in China is stored in SGE vaults
- China created an interbank Gold market expressly so its free standing banks can act as agents for the PBOC in buying more Gold
- The SGE: because of its stored Gold and its designated status as the intermediary for China's interbank Gold market is the only Bullion market in China
- China's free standing banks are under the PBOC thumb both commercially and legally.
- China has encouraged its citizenship to buy Gold, even going so far as to pitch the first IMF bond issue that includes the Yuan as part of the currency basket. "To buy the Yuan is to own Gold" we imagine is their motto
- If the PBOC wants to own all the Gold in the SGE vaults, it merely has to tell those banks to buy it, and they will comply.
- More deviously, the PBOC can simply seize that gold as it owns the SGE, its assets and its vault
China’s Gold Market Structure does not easily permit delivered Gold to leave the country. But, they would surely handle trusted client gold (who also trusted them) for arbitraging price differentials. Especially one that imported that gold.
6- Because Gold is Money, its Flows Must Be Controlled
This is in no small part because (we feel) China necessarily views Gold as money and as a store of value to replace US Treasuries in some fashion, and therefore is an important part of their FX calculus.
Here is the policy logic3.
- Gold is money
- If Gold is money then it is not a traditional commodity.
- If Gold is money, then it is subject to capital controls as in the RMB
- Then its physical flows are to be managed closely
More on this: (Profanity)
— VBL’s Ghost (@Sorenthek) November 10, 2023
That is their way, right or wrong. And it also is why Gold and Silver are special assets. Gold is useful only (for now) as money. Silver is useful as both money and industrially. Neither is destroyed in industrial use.
7- SGE and International Arbitrage
[Excerpt] As we’ve said here before- the kids are all taking their balls and going home. Global trust, and with it globally used institutions like exchanges are dead. Exchanges are again Mercantile tools for their respective nations. Exchange price transparency is misinformation at worst, fly paper for sellers at best. As the saying goes—Metals and other critical resources check in, but they don't check out unless you are a player.
One thing is certain in trade. In critical natural resources, either the price reaches an equilibrium, or supply moves from the lower priced location to higher priced one. The other axiom applicable here is: Commodity buyers determine price and delivery destination, not sellers.
Therefore absent protectionist polices, any nation that gives access to its reserves will lose those reserves over time. Further, the implementation of price controls domestically do not regulate price globally. With global cooperation dead, that makes former friends now opportunistic predators.
Continues here ...
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