LBMA colludes with the COMEX – To lockdown the global gold market?

With extreme demand and supply shortages in the physical gold market, it was only a matter of time before the paper gold markets in London and New York would come under strain. That time is now.

With the spot price of gold lagging the price of COMEX gold futures for the third day running, the LBMA is now colluding with the COMEX on bailing out bullion banks. But who is bailing out who and in what direction?

For when you trade limitless synthetic unallocated gold and de facto cash-settled  gold futures in a tag team shakedown, as the COMEX futures / London spot OTC brothers continually do in the CME and London Bullion Market Association (LBMA) controlled venues, while providing fictitious price discovery when the physical gold market is on fire, and there is no gold supply to be found, then there is no alternative but that you are going to get burnt.

Tag Team Smackdown

So it is far from surprising to see what we are now seeing in the gold market – the LBMA-COMEX chuckle brothers beginning to get slammed, with one covering for the other as both reach for the ropes.

Those who look at gold prices may have seen the signs first, an unusual divergence that began on Monday (23rd March) between the US dollar spot gold price (XAUUSD) and the price of the most active COMEX gold futures contract (April GC), with the spot price falling noticeably below the futures price, at first by between $5-$7, than by $10, and then as the day wore on by up to $20.

However, this was only the beginning, for in the early hours of Tuesday morning eastern time (New York and Chicago), the spot gold price fell by $30 below the COMEX futures gold price, then by $40 as the London gold market came on-line, then by up to $80 in the London morning as you can see in the chart below (blue line is spot, green and red line with bars is futures). Notice the huge divergence over 23 March and 24 March.

Divergence – US$ gold spot price (XAUUSD) vs US$ COMEX gold futures price (GCJ20), 22 March – 24 March 2020. Source: www.barchart.com

This spot gold price to futures gold price divergence continued to gape strongly all through the Tuesday trading day (24th March) with buy-sell spreads on spot gold also blowing up to at times $100, causing bewilderment among MSM reporters, and market watchers scratching their heads trying to find explanations, with Kitco News claiming that there were:

“unconfirmed reports that London spot gold price quotes have become unreliable or have been pulled as U.K. market-makers shut down due to the Covid-19 outbreak”

But how could any of this be true given that the LBMA was guaranteeing the continued smooth functioning of the loco London precious metals market in light of the Coronavirus outbreak “ with its ‘London Market Business Continuity‘ plan?

Ross Norman of Sharps Pixley in London was more revealing in his choice of words, saying that:

“Evidently the lack of liquidity in the spot market has meant that market-makers are clearly reluctant to take on a trade. With physical supply much diminished, it follows that taking on a position carries significant inherent risk”

But still, LBMA market-makers have a duty and obligation to make a market in gold. It is part of the LBMA rules. The market makers are liquidity providers for gold and they have to provide liquidity. So where were these market makers as the spot price seized up, and why would these market makers not be making a market and providing liquidity for gold?

Efficient Lockdown… of the global gold market?

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