by Craig Hemke, Sprott Money:
We wrote last week about what seems to be a growing tightness in deliverable gold and silver. But not at the retail, single ounce, or tube level. The tightness is instead seen at the institutional and central bank level, and that tightness appears to be growing by the day.
If you haven’t been following this story, perhaps we should begin by posting the link to last week’s summary. Reading this would be a good starting point:
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If you would rather skip the details and just read the conclusion, here you go:
The past week has brought more signals that the wholesale/institutional gold and silver markets are getting tighter and tighter. For this week’s post, let’s summarize what we’ve seen.
Gold Lease Rates and Market Tightness
Let’s start with gold lease rates in London, the current global hub for physical metal. Soaring lease rates would suggest a reluctance to lend the metal you have on hand, perhaps expressing a concern that you won’t get it back in a timely manner. To be compensated for that risk, you demand a higher rate. Hmmmm, what do you see below?
Also soaring are the borrowing costs of shares in the GLD and SLV ETFs.
- Why would someone borrow shares? To sell short, primarily.
- However, if you’re an “Authorized Participant” bullion bank, you might borrow enough shares to cobble together a “basket” and redeem those shares for physical metal.
In this case, high borrowing costs and a lack of shares being made available to short signals an unwillingness to lend. Again, hmmmm. What do we see here?
Delays in Gold Delivery from London
Next, let’s check what has been said publicly about the situation. Here’s Dave Ramsden of the Bank of England stuttering and stammering his way through an answer as to why there’s currently a 4-8 week delay for physical gold delivery in London:
Bank of England was again asked today: Gold Bar withdrawal delays
And here’s a statement from the LBMA where they attempt to reassure the gold market by pointing out that their vaults house 8,535 metric tonnes of gold. That sounds like a lot! But what they fail to mention is that, of the 8,535 total, about 7,500 metric tonnes are owned by the Bank of England or the various ETFs which custodian their gold in London. No big deal, you say? That’s still over 1,000 metric tonnes! However, you might keep in mind that global central bank demand exceeded 1,000 metric tonnes for the third year in a row in 2024, and that’s a trend that’s very likely to continue in 2025. At some point (currently, perhaps?), that 1,000 metric ton “float” is going to disappear.
Originally Posted at https://www.sgtreport.com