End of a Really Good Week for COMEX Gold and Silver - Weekly Wrap Up

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Craig: Happy Friday from Sprott Money News and sprottmoney.com. It's Friday, May the 21st. At the end of what was a really good week for both COMEX gold and COMEX silver, it's time for your "Weekly Wrap-up." I'm your host, Craig Hemke. And joining us is renowned precious metals trader and wholesaler, Andrew Maguire. If you spend any time following the precious metals, I'm sure you know who Andrew Maguire is. Andy, thank you so much for spending some time with me.

Andrew: Right, Craig, it's always been my pleasure.

Craig: It is. And let me tell you what a thrill it is to call you a friend. There've been hardly any better allies. I mean, I think of you, I think of Eric, maybe Rick Rule, it's a pretty short list of people that have been there slugging away for really decades. So first up, thank you for all you've done.

Andrew: Well, I also, and please send my best wishes to Eric.

Craig: Certainly will. Certainly will. And to all of you out there, thank you for listening and submitting your questions to us each week. Again, that email address is submissions, the word submissions@sprottmoney.com. If you enjoy today's "Weekly Wrap-up," maybe the "Ask The Expert" segment. I just recorded that a couple of days ago with Rob Kirby. That'll probably be up later today. Very, very interesting, "Ask The Expert" segment. Or even those monthly precious metals projection podcasts that I do with Chris from Ulan. Please be sure to subscribe, like, even share those posts on whatever channel you're listening to. They'll help us get the word out. No doubt about that.

Just a couple of those questions that came in this week I want to make sure we tackle before we get to Andy. First, somebody asked if we could talk about uranium. That's not really something that Andy and I follow, though the folks at Sprott Inc., including Rick Rule, though he's no longer...I think Rick's officially formally retired, but I know Rick Rule and everybody at Sprott Inc. is very excited about uranium after what has been a 10-year sojourn in the desert following Fukushima, but it looks good. And I know the uranium stocks are rolling too.

So for the person who wrote in and asked about uranium, heck I would just go to the Sprott Inc. website and look at some of the free research they have posted there. The second question was actually sent to me and asked what I think of this presidential candidate named Pedro Castillo down in Peru and his threat to maybe nationalize or semi-nationalize the mining companies in Peru. Look, I take that very seriously. And when I heard about that maybe about a month ago, I actually trimmed a few of my holdings. I didn't eliminate, but I trimmed a few of my holdings that have operations there.

All I know is what Eric has always told me. Jurisdiction and adherence to the rule of law is extremely important when looking and evaluating a mining company. Where they are and, again, whether the rule of law is adhered to and is stable in that jurisdiction, very, very important. So without speaking specifically to Peru, because who knows how that election will go, just a reminder that's something you've always got to check out as you do your own personal due diligence and risk assessment when making investments. And so now let's get to Andy.

Gosh, there's a lot going on, Andy. Again, I want to advise people to check back to the Sprott Money site for that "Ask The Expert" with Rob Kirby, because one of the things that I asked Rob to talk about was these pending enforcements of segments of Basel III, which looked like they might have a big impact on the precious metals market, specifically all the unallocated shenanigans in London. And I know that's something Andy wants to talk about. And to set that up is the third question that we got this week.

And it's all about silver, a question that comes up on my site, TF Metals Report, all the time. And that is, "Hey, look, these banks have infinitely deep pockets. They're too big to fail. They play this game, printing the contracts, dumping them on the COMEX. They're never subject to a margin call. I mean, they have infinite liquidity. What's to say this is ever going to end? How can we know? Because we know the price, isn't fair. We know the price isn't based off of physical supply and demand. How can this end?" And so with that teed up with a big old driver or a bat or whatever you want, that's teed up for Andrew Maguire. Andy, take over.

Andrew: Okay, Craig. Absolutely. And as you say, look, there's so much going on. So let's just focus. I know that you and Eric usually focused on, you know, basically, this is a weekly wrap-up, and you wanna see what... We're basically looking at what's going on, what happened this week, what we should expect. And there's two things that come straight to mind. And that is, basically from my wholesale market side, we see a massively strong wholesale market. Now, we're talking both gold and silver here, or we could put silver and you could put gold in, but they're both extremely strong wholesale markets.

And, you know, now we're even seeing Swiss refiners sold out for immediate delivery. And that's in conflict though with the upcoming Bank of International Settlements options expiry event, which will come in a day earlier than usual on the 28th of May due to the UK market holiday on Monday the 31st. Obviously, there's no gold or silver fixes to market this derivative event. And so it has to be settled on the 28th. Now, I understand, look, this does also directly relate to the COMEX structure. Because obviously, as we know, these markets are intricately connected.

So if we're looking at the "Weekly Wrap-up," that really...I think probably that should be our focus. So I'm going to put that right into the crosshairs here. And so given that the over-the-counter gold market turns over some... And this is the reason I'm concentrating on the BIS OpEx expiry because it really does reflect the COMEX positions. But it's a much larger market. Look, it's basically 15 trillion a year. And if you add in all the derivatives anchored to the PM of gold fix, which we've just been through today and every day at 3:00 p.m., my time, obviously UK time. This is multiples higher. Probably closer to 70 trillion.

Now, all derivatives anchored into a precious metals fix, gold fix in London is basically...what we're looking at here is primarily over-the-counter derivative swaps forwards, which get marked to market at that hour and on the same day. We're talking about BIS expiry here, the OpEx expiry. That's the last day of each month. And so let's just say they have to represent at best estimate at least a trillion dollars, where this is where the BIS nets out swaps open on their books. You only have to look at the medium-term chart to see for some strange reason gold prices mark monthly lows at this event, albeit if we are stair-stepping higher, which we are.

So if we'd go back to March, and we look at the 31st of March, and these swaps totaled 487 tons, and where were they skirt squared, 1,691. So last month they'd reduced a little to 472 tons. And they were squared at 1,767, which is a $76 higher stair-step. Now, although the BIS can cash settle the bulk of the remaining unallocated gold credit liabilities, which are definitely laid on the books of the too big to fail bullion banks privileged to have gold accounts at the Bank of England. These swaps are nevertheless being gradually unwound.

So at best estimate, these swaps are likely reduced to around 440 tons, which is worth about 30 billion at current prices. And, you know, in other words, I mean, that's basically what we're looking at. And to best assess where the sweet spot is for next Friday, which also reflects with what we're looking at next Wednesday. It's Tuesday, Wednesday next week? Yeah, absolutely.

Craig: Tuesday on the COMEX.

Andrew: Yeah, Tuesday on the COMEX. So currently, if we look at...because we're looking at June. Now, the June COMEX structure, and anyone's going to access that. As we go into first notice, as you say at 26th May, the OpEx structure, what its' done is actually significantly improved. So the footprint suggests that the naked portion of the bearish OpEx bets sold at 1,800 are now partly in the hands of hot money, looking to gain some alpha inside a previously cap range. And while further out the curve, actually, 1,900 looks to also have been heavily bet against.

Now, while the BIS would ideally like to close-spot gold at 1,800, and obviously we look at 1,875 as we speak right now in futures, And spot gold really, to be honest, I mean, it's almost tick for tick at this point into this expiring COMEX contract. It's been in backwardation for months, to be honest. But essentially, so really, what we're running into the BIS, although they'd like it at 1,800 or maybe just a slight notch below, the enormous sovereign size T+2 physical gold spot demand has really stair-stepped up to 1,850.

Now, you cannot ignore this into a strong wholesale market, you know, which is starved of immediately deliverable bullion at current prices. Now, look, nothing. We are seeing nothing coming off of any size that does not command a strong premium. And obviously, you know, I do realize we need to look at silver here because I think the question was about silver.

Craig: Let me back up for just a second, Andy, because I'll make sure everybody catches that. This is what you've always taught me about the wholesale market. If you can identify where those bids are to buy, then you know the banks are going to be reticent to take the paper price below there and trigger those buys. So when you say 1,850, that's going to be really hard for them to take it below there if those bids remain. Correct?

Andrew: Correct. Even though the option structure does suggest that these guys, and as we've just said, we looked to look at the last two months and look at the spike lows into those stairsteps higher. And really at the time, we were pretty sure that's where the wholesale bids were aggregated. Now, in sovereign size, they've moved up to 1,850. So it was going to be really interesting. Do they dare? But, look, you also know for something very suspicious, gold and silver, this is. Have you ever seen in all the history, Craig, have you ever seen the CME come out and issue a margin reduction into a rising gold and silver price?

Craig: Who are they letting off the hook in reducing their margin calls? Right.

Andrew: Clearly, it was trying to add some more casino chips to the shorts. Clearly. I mean, this expansion of open interest though really that we've been watching has been what we've been seeing a lot of failures to get this traction down. And I think that's partly some of this open interest increase. Obviously, there are some doubling down efforts by the insiders, but I'm also seeing that there is definitely some force delta hedge futures buying to protect, I mean, some bearish bets. And we know, Craig, they're not just made some months out.

In some instances, these bets are made a year ago, and you could look fast-forward now and look at options structure a year out. And these bets are in place. Plus it creates a lot of alpha for these guys. Some of them are specks too. But I think, to me, we never count out the BIS. They're very strong.

Craig: And, again, before we get to silver, just, again, we've had a great week this week, we've had a great six or seven weeks. And that trend should continue I think all the way to 2000 by maybe early July, but just don't be surprised, everybody listening, if next week's a little tough and a little sideways. Because, again, we've got COMEX options that expire. The COMEX close Tuesday. We got the front month and what will be a delivery month, June contract going off the board. The COMEX close Thursday. And then as Andy said, all of these BIS and LBMA options will price at the London fix, which is 10:00 Eastern next Friday.

So we've got a lot of rationale reasons for banks to actively work to keep price held back next week. And then we'll see what happens as we go into June. Andy did want to talk about silver though before we...and then we'll wrap up with some Basel III stuff. But what do you think about silver?

Andrew: And I'll also say that this option structure for gold just before we leave gold is not dissimilar to what drove gold to rally through strong COMEX 1,758 resistance on the 15th of April. And we were looking at a very similar structure at that point, and we've got gold well over 100 bucks higher. So it's not always a guarantee that these guys can pull off. When the wholesale market is that strong, you've got to cover off your delivery exposure. But, yeah, silver, look, as we know, it's not in a rollover. I mean, look, the hope and interest is relatively small to gold. But, for instance, also suggest to us that the bearish options bets made at 28th are extremely vulnerable to being run and into OpEx.

Now, this structure, again, it's so remarkably similar to when we saw the capped 25,675 range. If you remember on April the 15th, that was 2 bucks ago, we saw a very similar setup. So yeah, I mean, I actually see further out the curve we're seeing with such a strong market. I think there's going to be some fireworks here, but I honestly don't think I'd be really surprised given that silver is tied at the hip to gold, and this is a massive BIS OpEx expiry. I would say the rallies really probably start to commence after the BIS OpEx is done on the 28th.

Craig: Yeah. And I should point out too, anybody can pull up a chart of silver this week. I keep telling people on my site, "All this rally from last year we've yet to have a weekly close above 28." That was going to be a kind of a trigger point for me and anybody that pulled up a chart. Just even this morning, we were above 28 about an hour ago, and now we're 2750. Pull up a chart of just the action this week. And you'll definitely see the heavy hand at 28. Andy, as we wrap up, people are catching on to these, and, again, these regulations of Basel III were written in 2014 in response to the financial crisis.

And, you know, all the different shenanigans that banks have done, you know, the quadrillions of derivatives, not in the precious metals only, but, I mean, it's mind-boggling. The dollar value and the exposure and the counterparty risk all these banks have and how they're all systemic risks. And so Basel III was written as this pertains to at least for gold and silver and in London. Some of these provisions are going to go into effect for the EU-based banks at the end of next month and then all the way over to the UK first of next year. I know you've got some thoughts on this. There's a lot of information out there. How do you see all of this, and why is it being done, and how do you see it playing out?

Andrew: Yeah, I think this raises the main question. If people say, "Well, okay, after 50 years of gold price suppression, why would the Bank of International Settlements, the central bank of all central banks, why would they allow the gold price to be revalued higher?" And the bottom line is, and it's in defense of U.S. dollar hedge money, which is most definitely under attack by China and Russia. Look, warfare isn't done on a nuclear basis. It isn't undertaken in weapons. Everyone would be smoked from this planet.

Look, China, Russia, and the gold-rich BRICS countries are going to greatly benefit from revaluing gold against the dollar. And Basel III puts this up to the front burner. And I think, you know, we've been all over this Basel story now for almost a year. And, obviously, there's been a great deal of skepticism now, but now it's on the front burner on every channel. And you know what, the LBMA begging letter came out recently. That was a sign of absolute desperation. Look, I think, bottom line, every central bank will be able to reevaluate its physical reserves higher from the current 50% haircut into a fully cash exchangeable asset.

And, look, we've already seen central banks... And you talked about it recently in one of your interviews, it looks central banks are seeking to repatriate reserves. They're scrambling over each other to do it. As they're adding reserves, Russia, China have added significantly more gold purchases than have ever been disclosed. And look, you know, I don't know where you sit on this, but we're not alone in assessing. The PBOC's probably surreptitiously added around 25,000 tons to reserve. Russia's openly sold U.S. treasury supply gold.

In fact, by January, Russian gold reserves officially surpassed U.S. dollar holdings. But, like China, they have seriously understated what they're doing. So, you know, really, bottom line, you know, central banks will be able to pay off trillions of dollars of debt by revaluing gold. And I think, you know, look, I know that we're short of time here, and I know we've got to keep this brief. But, look, Craig, what we are assessing here is we're marking the end of a failed credit-based fiat monetary system where gold will once again gobble up the obligations and how that has to be done by a price reset. It's going to benefit every single central bank to do this.

Craig: That's the important part to remember in the end. I mean, they could say it's all part of eliminating some systemic risk. Okay, sure. Get some of these derivatives off their books because we know, you know, again, the trillions of dollars of derivatives. Andrew, you told me earlier, I think about this, the unallocated trading in London is almost 10,000 metric tons of silver a day and 600 metric tons of gold.

Andrew: It's wild. Yes, absolutely.

Craig: That's outrageous.

Andrew: What we're talking about, as you say, we're talking about 650 tons of gold today, but silver, because everyone's asking about silver. Look, that is 9,350 tons cleared every single day in the...I mean, this is a third of supply. I did a Wallstreet silver review, and I said, look, put this picture in your mind. And I hope you do this on your website. Look, picture 10,000 pallets, each comprising of thirty 1,000-ounce bar. You stack them vertically. That is 85 feet high. That is cleared every single day in London. Tell me that that is legitimate bullion banking business. Crazy.

Craig: Well, and, Andy, remember the LBMA put out that first-quarter report. So they were almost out of silver with the silver squeeze. And yet they're still able to clear 9,000 metric tons a day by just shuffling paper. It's all pretend. And if we can call them to the carpet, get them out of that business. So we have to actually find price based off of something closer to a physical price. Oh my gosh.

Andrew: And our woolly-headed friend...

Craig: Woolly-headed friend.

Andrew: CPM Group, 500 to 1 is what he said that brazenly is what silver is leveraged that. So, hey, every time you take 2 ounces off the market in physical form, you're taking a 1,000-ounce bar off the market.

Craig: That's a beautiful thing. And if you need some of that physical metal, you want to diversify out of dollars as Andy said, all of these central banks are doing around the world, man, if they are diversifying, they're getting rid of some of their dollar reserves, why would it not be a good idea to get rid of some of your dollar reserves? It's the same thing. Now, Monday, of course, is Victoria Day in Canada. To all our Canadian listeners who enjoy their three-day weekend, try not to drink too much Moosehead or whatever the favorite is up there.

But if you're looking to invest in precious metals over the weekend, go straight to sprottmoney.com. Great deals on gold, silver, platinum, bars, rounds, coins. If you want, you can also just talk to an actual person, but then you got to wait till Tuesday if you don't get that done today. But, again, that number, (888) 861-0775, and someone from the team will be happy to help out. Andy, as I said when we got started, I'm glad you're on our team. Let me tell you that. Thank you for all this great information, and I hope you have a great weekend too.

Andrew: And you too, Craig. Thank you. And greetings to all your listeners.

Craig: Thank you, Andy. Have a great weekend. And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. Please enjoy your weekend.