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LBMA’s Silver Criticality with Jay Taylor and David Jensen

TND Podcast Spotlight:  Jay Taylor’s Turning Hard Times Into Good Times | 

Discussion to first address some definitions then focus on Silver Market on London’s LBMA as it has the greatest disparity of open interest (claims on silver) vs actual available silver to market.

1) Review of some key definitions and data for Listeners

Spot contract trading of metal – trading immediate metal ownership contract

Forward position – forward metal delivery based on spot plus some fee

Futures – forward bet on price sometimes with option for delivery – usually can’t affect spot price as primarily cash settled

Open interest – the total number of ounces of gold for which there are trading positions (claims for metal) in the market

Net settled clearing volume – the end of day net volume of trading when all of the credits and debits between members have been netted-out

2) LBMA report “Loco London Liquidity Survey” re. LBMA gold trading volumes (turnover) in Q1 2011

  • in Q1 2011, average daily trading turnover of gold was 174 M oz. per day
  • each trade averaged $39 M of gold
  • ~ 10:1 ratio of daily gross trading volume vs average net cleared trading statistics (as posted online)
  • the Liquidity Survey estimate of daily average trading volume was conservative – gold trading volumes are actually higher than estimate
  • 90% of daily trading volume on the LBMA is spot gold trading and gold forwards are 5% of trading volume

Key items from the LBMA survey:

  1. survey is conservative estimate of daily trading volume – real volumes are higher
  2. 10:1 ratio gross gold trading turnover (volume) vs net settled volume at end of day
  3. 90% of daily gold trading volume in spot transactions impacting directly the global price of gold
  4. each trade averages $39M – note these trades are so large that they would dominate price discovery

3) LBMA report “Guide to London Precious Metals Markets” (gold, silver, platinum, and palladium) published on the LPPM website:

  • pg 12 (of 52) Majority of trading is in unallocated accounts – client purchasing metal does not have title to specific metal and is “an unsecured creditor”
    • spot trades settled as “credits or debits to an account”
    • credits to an account “do not entitle the creditor to specific bars of gold or silver”
  • pg 16 Loco London (ie. LBMA) pricing is the basis for “virtually all transactions in gold, silver, platinum and palladium”; global price setting power of the LBMA for transactions involving precious metals traded using virtual unallocated metal.

4) The LBMA’s Silver Criticality


  • Use the LBMA survey finding of a 10x multiplier to estimate gold and silver gross trading volume and open interests from end of day net-settled volumes
  • Key: Open interest (claims on silver) far exceeds any fungible silver metal stockpiles currently available for delivery or to be produced in the near term
  • LBMA silver positions are primarily unallocated “credits to an account” – not silver itself.
    • LBMA metals accounts represent an expandable electronic repository of virtual gold and silver not actual metal bars themselves
  • Silver jewellery in private hands is not reliable source of fungible silver supply in size
  • Calls for delivery of any material amounts of silver through the LBMA will cause an enormous short squeeze and market disruption – invevitable.
  • Use of virtual metal trading (unallocated spot metal positions) has broken the physical metals markets and created supply that does not exist to investors
  • Suppressing gold and silver prices with artificial supply on the LBMA for decades has globally suppressed gold and silver prices and suppressed global interest rates (Gibson’s Paradox) spurring in the global debt bubble
  • Large institutional and sovereign investors sitting in LBMA gold and silver positions are sitting in virtual metal repositories; they are in line holding paper
  • The LBMA silver market’s paper imbalance is approaching a point of criticality where physical metal market dysfunction will drive metals exchange away from the New York and London to real physical metals exchanges like Shanghai where actual metal is traded in the spot market (i.e. to sell a spot contract you first have to deposit metal).

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About David Jensen:

David Jensen, P.Eng., LL.B., MBA, is a Professional Engineer with a degree in Engineering from the University of Waterloo in Canada (1987). He worked through 1993 on the F-5 Fighter Overhaul program and the Bombardier Regional Jet programs. Mr. Jensen then graduated with a LL.B. degree in corporate and commercial law from the University of Calgary (1997) and an MBA from Univ. of B.C., majoring in Logistics and Supply Chain Management (1999). Returning first to aviation then, after reading Austrian School Economics, Mr. Jensen transitioned to the mining industry from the aerospace industry in 2004 first through his mining industry consultancy, then as Vice President of Corporate Development for Western Copper Corp., and most recently as President and COO of Skyline Gold. Mr. Jensen currently serves as President and COO of a private mining company and provides strategic, operational, risk assessment, and precious metals consulting services through his consultancy, Jensen Strategic

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About Jay Taylor:

headshot-jayMr. Taylor is editor of J Taylor’s Gold & Technology Stocks newsletter (click here to learn more) and host for the popular radio show, Turning Hard Times into Good Times on the Voice America network.  His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments from Baruch College, NYC. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp. In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital. Along with the publishing of his newsletter he currently also hosts the web-based radio show “Turning Hard Times Into Good Times.”

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