RE:RE:RE:Not a bad day allAs per many recent interviews and articles by Alasdair MacLeod (50 years in London banking and LBMA experience), a number of which are also posted on this site, June 28 is the crucial date for European banks, and Jan 2, 2022 for the UK (and therefore Comex also), when Basel III begins to phase in.
A tiny snippet from a very in depth recent article by Alasdair:
Since the end of the Bretton Woods agreement in 1971, the US has promoted a policy of dollar hegemony, suppressing any monetary rivalry from gold. Either deliberately or accidently, it has encouraged the expansion of synthetic supply in the form of futures markets and has not objected to London’s role in developing a remarkable forward OTC derivative market.
Regulated and unregulated balances of paper gold have grown to the equivalent of over 11,000 tonnes, according to the Bank for International Settlements OTC statistics and the Commodity Futures Trading Commission’s figures for the gold swap category of trader.
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The effect of gold’s paper supply has been to soak up demand which otherwise would have only been satisfied by buying physical bullion.
It has also kept other commodity prices suppressed, benefiting consumers at the ultimate expense of producers. Like all other commodities, gold is priced primarily in dollars, and the dollar itself has benefited from foreign demand because it is central to expanding foreign trade, as well as having its reserve status.
Indeed, the dollar’s Triffin dilemma has meant that inflationary US policies have supplied the world’s demand for dollars, to the extent that foreign governments and private sector entities now possess dollar-denominated financial assets and bank deposits totalling some $30 trillion — 150% of US GDP.
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The dollar’s hegemonic status has served the US government well since 1971. But the world moves on.
Central to the post-Bretton Woods policy was that oil-producing Saudis would always accept dollars for their oil.
Today, Saudi Arabia no longer sells oil to America. Including gas, Russia is now the world’s largest energy exporter — another financial enemy.
The EU, collectively now a rival to the US, is creating its own diplomatic identity.
And China and Russia cooperate with each other in the Shanghai Cooperation Organisation to bring under a collective roof 40% of the world’s population.
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The downside to Triffin is rarely mentioned, but clearly, the US with its dollar hegemony is now vulnerable to accidents. Yet the politicians are blithely debasing the dollar at a frightening pace, while the world watches, with $30 trillion riding on the outcome.
And it appears that an accident is about to happen in the form of bank regulations brought in by the new Basel 3 regulations. Under these regulations all banks will adopt a new method of calculating lending risk.
They will apply a Net Stable Funding Ratio, with the objective of ensuring counterparty risk is contained by banks being forced to match their liabilities to their asset maturities.
Briefly, a consequence of the NSFR is that any bank operating in commodities or running an uneven derivative position bears a funding disadvantage, making these lines of business uneconomic.
With respect to gold, they will effectively close down the London bullion market, virtually admitted in writing by the LBMA[iii], and because the Comex gold contract Swap category is populated with the same LBMA bullion banks, that will be similarly affected.
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The effect of defusing demand for gold, silver and other commodities by the expansion of paper markets is coming to an end.
People with unallocated gold accounts will find they have lost their exposure to the gold price, and some of them are likely to seek physical exposure instead.
The only problem is there is very little physical available — China and Russia are back in the market — and therefore the prices of gold, silver and even copper and energy are likely to rise as a consequence of the Basel 3 regulatory changes.