Shanghai Gold Exchange and Other Topics
Interview with Jay Taylor on August 20, 2014 discussing acceleration of the price differential for precious purchased on physical metal exchanges vs virtual derivatives exchanges such as the LBMA and NY Comex. Physical silver is showing strongly accelerating price premia on physical exchanges vs LBMA/Comex markets.
1. LBMA GOFO positive with 1 month GOFO at .065%
2. Shanghai Gold Exchange and Shanghai Metal Exchange physical metals premia vs. LBMA paper contract pricing is increasing:
- SGE Gold: $1,297.61 /oz & premium of $3.91 /oz. = +0.3% price premium vs LBMA
- SGE Silver: $21.01 /oz & premium of $1.52 /oz. = +7.8% price premium vs LBMA
- SME Palladium $1,033.23 /oz & premium of $168.23 /oz. = +19.4% price premium vs LBMA
- SME Platinum $1,529.58 /oz & premium of $129.58 /oz = +9.3% price premium vs LBMA
Standout is Shanghai physical silver price premium which is accelerating vs. LBMA and NY paper contract price. Up from 2.5% Shanghai price premium on July 1, 2014 to 7.8% today.
Standard Bank estimates 2014 palladium supply deficit to be 2 million oz. vs total global annual demand of 8.5 million oz (or 24% of total annual demand). Global palladium stockpiles estimated at 4 million oz which includes all ETF holdings and private Swiss vault holdings.
3. Trading on the LBMA - CPM Group est. in 2010 large majority (~85%) of daily global gross gold and silver trading volume is on the LBMA. Gross daily trading volume is estimated by LBMA's survey of traders to be 10x larger than end of day net settled volume posted on LBMA website.
- LBMA gross trading volume is 1.6 billion oz. of silver each day which is greater than the global stockpile of refined silver estimated at 1.4 billion oz. which includes ETF silver holdings.
- This mismatch identifies the virtual nature of the gold and silver trading on the LBMA where the price is set primarily by virtual trading instruments thus determining Western sentiment toward precious metals by limiting the price. Creates shortfall of physical supply by disrupting the price.
- Premia for physical metals increasing in Shanghai driven by physical metal demand. NY and London metals market price discovery fading in relevancy vs. physical exchanges in Asia and elsewhere.
- New Shanghai Free Trade Zone gold market goes live on September 26, 2014. Allows foreigners to exchange Yuan for gold bullion.
4. New LBMA Silver Price to replace daily Silver Fix has gone live.
- Opaque algorithm selected price from virtual silver trading on LBMA. Core issue is the virtual nature of the instruments traded.
- Can't view setting of London Silver Price wtihout Reuters terminal subscription (CME and Reuters set daily price).
- See Goldcore's critique of the new price index: https://www.goldcore.com/goldcore_blog/new-lbma-silver-price-still-not-transparent