14 June 2010

The truth: there is zero gold in LME's vaults

There has been a lot of speculation recently about how much gold is held in London against unallocated accounts, see some examples below:

Bix Weir: "... stay away from COMEX/LME good delivery gold and silver bars ..."

Arnold Bock: "... there is little bullion in storage at the London Metals Exchange or New York's COMEX ..."

Bob Chapman: "... Do you really think that the COMEX and LME would deliver the gold even if they had it ..."

John Dizard: "Many of them apparently prefer to have their gold in vaults near where they are, Mr Smith’s “middle of nowhere”, rather than in LME or COMEX warehouse receipts."

Jim Willie: "A clearinghouse held a Letter of Intent to supply the London metals exchange with 250 metric tonnes of gold bullion."

I am now prepared to finally reveal the truth - there is actually NO gold in the vaults of the LME (London Metals Exchange). Now I know this is an explosive claim and I'm sure you'll want to know if I can back it up with proof. Well, go to the LME website and tell me where you see gold mentioned?

That's right, gold isn't mentioned. The LME is a base metals exchange and does not trade precious metals. Problem is this makes the commentators quoted above, who talk about gold on the LME, look foolish. In my opinion, if you do see a commentator make the mistake of thinking gold trades on the LME it is an indication that they don't know what they are talking about with regards to precious metals and you should treat their analysis with caution.

Gold is traded in London over-the-counter, in other words in direct deals between counterparties. There is no gold exchange in London. There is the London Bullion Market Association (LBMA), but that is just a trade association and it does not operate an exchange or have any vaults.

You may think I'm being a bit hard on those who confuse the LME and LBMA. You might argue that it is a reasonable mistake, since they are both in London and both deal in "metals".

To that I would say what sort of credence would you give a commentary by a stockbroker who talked about Pepsi trading on NASDAQ, or Microsoft trading on the NYSE? Would you feel comfortable following stock advice from someone who did not know which exchange a stock traded on?

Confusing LME and LBMA is actually worse than that because the LME is a base metal exchange whereas the LBMA is just a precious metals trade association - a basic Google search would reveal that.

Sorry, I don't think there is any valid excuse. Getting LME, LBMA and gold mixed up is a sure indicator that one has no actual precious metals market experience, an example of ultracrepidarianism. In which case, how can you trust them to know what is really going on, how can you know they haven't made other mistakes in their analysis of the gold market?

7 comments:

Jayson Oates said...

Now Bronwyn,
If everyone writing on the internet had to have experience and an in depth knowledge of their subject then there would be very little written....

Guido said...

Hello,

Am new to your blog.

When Hong Kong recently requested to withdraw their gold holdings from London expressing the wish to store it in a new vault facility nationally, where is that gold held?

Thanks

guido

The ONHR said...

Well done getting mentioned in JonNadler's daily wrap up. Famous!

I had wondered the the legal risks were of buying unallocated gold from the Mint, so thanks for clearing it up. A very good legal analysis.

Have also happily spent time learning about ultracrepidarianism and Apelles, so thanks.

Bron said...

Jayson,

Problem is, people are making decisions based on what these people write. I'm a man, by the way.

Guido,

HK built a new vault at their airport which is where the metal went. It was only two tonnes and the move more of a marketing exercise to raise the profile of the new vault.

guidoamm said...

Thank you

but where was it kept when it was in London?

Bron said...

The metal was either held with Bank of England or a bullion bank.

Bron Suchecki said...

Need to add Jeff Nielson to the list http://www.bullionbullscanada.com/gold-commentary/26273-fraud-confirmed-100-day-delay-to-take-bullion-delivery-in-london-