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upon the breakout gold's going to make a new all-time high goldback to etf's inflows of over 5 billion 1.8 trillion dollar gold market why are we the only guys hi there welcome to live from the vault my name is shane moran i will be your host for today's episode and we have some breaking news for you fasten your seatbelt you will be the first in the world to hear this news uh so i'm really really excited look if you haven't already subscribed go ahead and hit that subscribe button hit the bell and click on all so that you'll be notified every time a brand new episode comes up you're not going to want to miss this also hit the like button and comment ask your questions we'll get to as many answers as possible and uh look if you are interested or already in the physical gold or silver market make sure that you download the kinesis app you can actually now on your debit card you can actually spend gold and silver using this mobile app so with that uh it's my pleasure uh to take you to the uk with talking gold with andrew mcguire we're fired up we're excited over to you and it's been great with you again and it's good to see you back in the office away from that lovely pool and the tropics so uh um you know i'm sure you're the adjustment is probably a little bit uh tough but uh hey we're locked down here uh we're in uh he's got ice and snow out the window um so really you know i guess we're all back in the same place now but you know what um i also want to welcome everybody and thanks for the great questions as shane says i mean this you know what we're trying to do here is is really answer the the most questions we can and really put things into into um context and and perspective there's so much going on now so really a good place to start uh uh really is the effect that basel iii uh will is gonna have a gold priced in every single currency now this is the elephant in the room i mean let's let's start by picking up on that thread um now if if subscribers want a little more information or color on this on puzzle 3 please review the last episode now obviously we're going to go through some updates to that so that's really important but it's important also to understand why this is so important now the magnitude of the bank of international settlements unallocated gold credits which is that's cafe that's just we're just talking about paper gold that absolutely must be bought back or covered by june the 28th is going to present a massive bullish driver for the for a higher physical gold price in every currency that is but but by default we're also going to see silver benefit and we'll continue to look at this closely as it unfolds over the next few weeks obviously now in the early stages which is what we're seeing now and people looking and saying hey it's pretty volatile what's going on i mean today we have another another day you know let me look we must expect volatility i will explain why in a minute but this is going to result ultimately in what we would anticipate to be a minimum 500 move higher in gold and at least a 10 to 12 move in higher in silver into the second quarter now i'm not saying that's where they're going to stop but this is these are the realistic expectations for gold and silver in the first within the by the second quarter but some of the breaking news we're going to talk about in a minute suggest this might actually be a bit quicker in fact look there's only 20 weeks by 21 weeks or something until compliance date and when accounting for derivatives along with i mean really glaringly obvious very large gld re-hypothecations that will need to be squared and again we'll look at this in a minute but time is extremely short here to be able to square up and i will estimate close to a trillion dollars of 100 to 1 leveraged unallocated gold contracts now this is ultimately an unprecedentedly bullish condition for physically priced gold and silver going forward andy well that's a mind-boggling amount of paper gold to cover and i know last time two weeks ago you covered the basil on our call talked a little bit about that we're getting a lot of questions uh andy about basil and what it means and what they should do and and we're seeing that buyers are are running into this tight physical again we're talking about the physical supply they have to buy this back if they're uh short all of these contracts this has to be bought back can you maybe uh go on and maybe go into a little bit more detail on on basil and how this buyback is going to affect the markets yeah a great question shane and and really one of the things i really did plan to cover off in more detail today as you say so many questions around this and the first thing to understand is that no physical bullying ever leads the bank of international settlements physical gold site account now physical gold held by the bank of international settlements is managed by the their gold their gold trading desk in basel switzerland but this bullion is owned by other central banks now the bis gold swaps and derivatives are currently reported at around 326 tons right now now gatters robert lamborn does an excellent job of reporting on this however granular data around the these these bis we'll call them bis for the sake of just to shorten it down a bit but the granular data around the bis leases and swaps are absolutely shrouded in secrecy um nevertheless we do have empirical evidence that this reported gold is swapped in the form of directly related freshly created unallocated gold in other words gold credit that can be accessed by insiders who are privileged to have bank accounts with the bank of england and there are several banks that do now this unallocated gold is surreptitiously lent to the commercial counterparties off balance sheet though that's why it's hard to discern so at least inception this unallocated bis gold is likely swapped one to one and is unlikely to be leveraged otherwise it could create issues for the bank lending it however once this unallocated gold is lent to the commercial banks there is absolutely no regulation that prohibits them from leveraging this leased gold further so also the five taxpayer insured too big to fail bullying banks privileged to have these directly related gold accounts at the bank of england know exactly when gold supply will be made available and can bet accordingly ahead of this supply being made available now look if this is not sanctioned inside a trading i don't know what is now this way the bis can indirectly leverage this gold loans for their books off their books sorry contain the price of gold priced in dollars in the foreign exchange market while conveniently laying the liability on the balance sheet of these agent banks however following the lehman brothers collapse which is in simple terms everyone will know this but in simple terms was due to the collapse of a daisy chain of re-hypothecated assets being called on all at once which didn't have so lehman was a wake-up call that also shook up compliance officers in all the major gold trading houses now daily paper gold clearing relies on a daisy chain of lbma member banks clearing hundreds of tons which is trillions of gold derivatives every single day now counterparty risk is enormous obviously and if any one of these clearing members failed the whole daisy chain would implode now that's not that dissimilar to what happened at lehman but this is a hell of a lot bigger so really up until the uh efp paper market blew up the exchange for physically remember go back to some of the previous episodes we've covered this in such enormous granular detail but really what we're saying is if we refresh ourselves when this market blew up in march of last year unallocated paper gold positions could still be viewed as compliant by the banks by way of being hedged with a futures market paper position even though really what we're saying is these positions are leveraged and undeliverable paper to paper basically miss and what it's done these liabilities continue to aggregate with physical to paper mismatches ballooning to unsustainable levels now hence the paper to physical blow-up we covered in the last 10 months in our lives from the vault episodes and since then under the radar we've reported on virtually all first and second tier global bully bank participants scrambling to eliminate counterparty risk for their own books by going along physical gold for their own books now this again i'm going to just delay it for a minute but there is some breaking news that is related directly to that so but really up until basil through reels rules are implemented on june the 28th of this year there have been no regulations that have inhibited market-making bullying banks from leveraging swaps and lease call positions multiple times in the unreported bilaterally settled derivative markets now the this this has undoubtedly been the uh sanctioned by the bis as any too big to fail taxpayer insured uh agent bank liabilities um would would be known by them and but they could be squared and of course they have to be squared by june 28th and and and but if you think about it anything that they cannot square by june 28th can be settled and squared by officials with a keystroke hey look what's a trillion in this day and age a trillion who rolls off the tongue uh it's an enormous amount of money that most people can't even comprehend i find hard to comprehend comprehend that as an actual physical physical money supply but essentially we've seen trillions and trillions of trillions of of uh bailouts and and um you know for for for the banks what's this what's so what costs another trillion this can be squared and when it is squared what do you think is going to do to the price of gold and so really it it really would serve ultimately at this point then it would serve the bis and all central banks to support a higher gold price now that's something we've not experienced since 1971 and what what is clear these ballooning mismatches cannot exist in a strong physical market and have reached such epic precaution proportions by the 2007-2009 financial crisis by the time that appeared it was ballooned to enormous mismatches and following this debacle was when the bank of international settlements the bis moved to introduce reforms aimed at tightening capital requirements with the objective of reducing the risk profiles of internationally active banks obviously gold price in dollars falls inside the basel iii initiative so andy um just want to ask you a question on this uh we're talking about and it seems to me that we've we've talked a lot about the physical versus paper the physical versus unallocated uh the physical versus all of this stuff but there seems to be right now like a massive mismatch can you give us a an idea maybe of the scale of this mismatch between physical gold and this paper or whatever this other this other side this other dimension yeah you nailed it you know that uh um shane indeed you know this this leverage laid on the balance sheet of lessees must actually be calculable for the bis however such aggregated mismatches between what is swapped and least is not reported on the bank's annual reports now if it was gold would be priced hundreds of dollars higher because it would be recognized that there's no physical behind these these uh these positions now over the last 10 years utilizing wholesale market information we've conservatively estimated the volume of bis derivatives which are squared at the end of each calendar month which is the options derivative mark-to-market event which we're going to get again tomorrow are as we said easily calculated to be in the region of one trillion dollars hence the multiple price smashes into the the end of these uh month end um these month-end conditions have a look at the charts today what are we doing even though options expiry expired exactly in the sweet spots we said which was 25 and a half silver and we're talking about between 1850 and 1855 gold as soon as that was done it started to move towards this um towards a bis expiry on friday but i don't think this is going to be a major drama event sometimes it is but i think there's there's really very little in the way of spec open interest to start to rinse out you need something to cover into if you're gonna if you're gonna try and unwind a position then you need and the other side of that to target to actually to to be able to you know complete that task so it has to be realized that we are in the very early stages of this deleveraging mandate so as i say we wouldn't anticipate heightened volatility as these unallocated bis contracts are squared so just to understand and i know there's a lot of traders here and i'm sorry to have to to make it you know really dumb it down but in in in plain vanilla form to understand how this works the volatility emery and emanates from one side of the ledger when unallocated long gold and short dollar foreign exchange contracts are squared off or closed which is essentially saying that in order to get rid of another electricity contract what you have to do is sell the gold and buy the dollar square it now this involves selling these gold longs buying dollars and when timed with coordinated price smashes this has been very effective in creating unnecessary volatility really to disincentivize gold investments now this explains the action through the first four weeks of january which we are now concluding on friday now on the other side of this ledger it's not all bad on the other side of this ledger as more investors holding unallocated gold accounts seek to convert them and take delivery in allocated form it forces these banks to source at least 99 ounces of physical gold for every 100 ounces demanded and as we've evidenced in march 2020 those banks still reporting holding long gold unallocated positions can be targeted for delivery of these contracts and that is exactly what blew up the paper to physical efp conduit in march 2020 and was the the reason we saw banks exiting from uh from from high counter body risk positions now it is this concoction of the unwind attempts that is driving this short-term volatility however ultimately this is very bullish now obviously you if you're a stacker you can take advantage of this because you any dips down are just simply huge value when you're talking about a price a gold price that's worth some 500 below value and at least uh you know 10 12 ramp in silver and this bis defensive action that commenced on january the sixth on the opening trade uh well fourth but it really it rose until the sixth and then it got smacked what that's evidenced is a series of consecutive fix painting exercises i.e to technically paint the pm goal fix a little lower to to basically create a negative trend however when looking at the footprints through a wholesale market lens these fixed painting efforts point directly really to basil three preparations which is actually a bullish thing namely an attempt by the bis to unload as many unallocated contracts as possible which are directly related to large re-hypothecated gld holdings now gld being the uh the etf that uh that is the primary etf for gold and these holdings must be marked to market on the deadline of june 28th wow andy we just mentioned the this large uh gld paper position that needs to be squared okay we went through that now does this apply to silver or the slv or is there a correlation there yeah you know that again shane i mean gld's is is is actually we talk about the elephant room gld's the mammoth in the room hundreds and hundreds of tons of gold that supposedly flowed into gld and slv for that matter after the march debacle um had to be delivered in unallocated form there was nothing available if you remember we talked about this there was no physical available for sale during this period look the swiss refiners weren't just on a slowdown because of kobe they were shut down and the physical market was absolutely frozen yet hundreds of tons were supposedly entering this gold etf and the slv silver etf during this period there was a scramble to pull the curtain over this event but it simply drew attention to the multiple ownership structure of bullion sitting supposedly bullying sitting in this trust so just to understand that people say well i've invested in gld i've invested in slv why maybe a hedge fund i've got exposure to gold yeah but what you what you're failing to capture is that the off and on ramps for gld and slv are conducted by way of unallocated bullying which is then supposed to be allocated once it enters the vault the trust in fact it's just not feasible for most gld investors and i put investors in refer to bracket to withdraw bullion from the trust as it would be actually delivered to them in unallocated form at a price that will still have to be bilaterally negotiated at a large premium to spot so you would still have to go to the market saying i've well i've got this spot index price but some people are going to say to you yeah but i'm not going to select you at that so that's where the rubber meets the road so really what we're saying is holders of gld believe they have a physical ownership stake in the trust however given it is an i mean slv too obviously however given it is all possible to borrow and short sell officially you can go on the website you can see you can short sell and borrow gld and srv inventory and it's possible to finance this borrowing against these positions with leveraged unallocated bullying that is clearly not the case either i mean so this is this is a i mean it's so obvious that this is not um that it's not physical it's just beyond comprehension that people would think this was physical when you can actually borrow against it and short sell it and in other words so hopefully then you've created a counterparty risk where can that person who borrowed it can they pay it back and as we discussed last time and also we made public in a recent arcadia interview gld and slv are the paper markets achilles heel and based upon the counter-intuitive action these massive re-hypothecated holdings are the focus of the bis unwind exercise but as gld inflows and outflows do not represent this physical bullying priced in the real world these flows simply represent unallocated gold credits which really fixed at the spot pm price so therein lays the problem when looking to convert this over-the-counter spot gold the foreign exchange position into real physical insider the credit holder must still find a willing seller at a price much larger than that then they've actually received credit for so given all the gld positions must be allocated on june 28th and with spec open interest to cover into running very thin as we just mentioned yes you can create volatility yes you can you can short sell you can create dips in the market but you need someone to cover into and it's running very very thin and we see this bearish trade reversing requiring much higher prices to square off the recent inflow of these re-hypothecated gld positions you cannot possibly get to june the 28th and say uh and without actually attesting to the fact that this actually is compliant with bis rules now to provide a perfect example of how deeply rehydrated these trusts are now the silver trust the srv look that provided a perfect we've seen lots of these cases but this is a perfect example was um the last thursday where we supposedly saw over 600 tons of of silver flow into the trust this is absolutely impossible not just implausible it's impossible now if we look calls to our close european and swiss banking sources tell us that no silver bullion moved in physical form in europe or the uk to evaluate to validate a 600 ton inflow just not possible okay so you might say well that only leaves the us as a possible source for delivery and but we're equally certain that no physical silver held by the house accounts of jp morgan uh standard chartered italian would be sold into the into into the trust at current prices why would you do that you are busy accruing physical silver in the knowledge that it will be priced much higher why would you unload that no no you're not going to do that so what is recorded as delivered is little more than silver credit in unallocated form well andrew you'd be talking about silver now for our silver fans i know we've got a lot of gold fans here but also silver it seems to me there will be event eventually an upside gold price reevaluation when this happens what does it mean for silver for example yeah shane as we discussed in our last episode silva will be a massive beneficiary of the unwind of this undeliverable unallocated uh contracts uh silver contracts now paper silver positions will have to be closed this is extremely bullish for silver and white every major bullion bank is loading up on physical silver and as a result dips will be competitively jumped on by both good and bad actors and now as a very large percentage of slv holdings represent unallocated silver credit and not a physically delivered price slv will also evidence short covering of unallocated highly leveraged positions as well as the short covering of borrowed silver now you'd be crazy to hold a short position in silver if you were not 100 hedged with physical i have a strong feeling as we've said that none of these positions which are supposed to be hedges for physical are actually backed by physical these you can borrow you can take an unallocated contract and borrow against an unallocated contract now these same banks and i'm talking about the banks the community providers and trading houses that we deal with value silver at a minimum minimum of 35 bucks into the second quarter of 2021 if not before now once silver closes there is a technical gap we've been talking about this for a little while and it hasn't got there yet we need to get a technical gap close between 26 225 so remember that number and a move up to 35. now that will be that's kind of like really a nine ten dollar move that we would see as a minimum that really just takes uh someone back to where it was in 2012 but there's a big gap to fill there and it will take no prisoners on the into 50 either and and again we as we've said multiple times once silver gets into the 30s huge amount of sideline money is going to roll into it and we're going to see a lot of short coverings so what we are is 100 certain that every insider along with every first-tier bank is fully filling their boots with all the physical silver they can get and they're busy taking delivery of all this uh anything that's on offer any silver that's on offer so deep below fair value this is a no-brainer i mean the upside profits in silver are off the scale not just for the march contract but as we move further in towards this june this june expiring in fact looking at the options structure as we've said we knew that silver would not close before below 25 we also knew that gold wouldn't close below 1850 options exposed yes okay so now we see some volatility going on today why bank of international settlements mark to market opex event this should be a wake-up call for everybody this is a scramble to cover nothing else well andrew i know that we have some breaking uh news that we talked about just before we started recording here but before we get into that i think it'll tie right in here because last episode and one of the most asked questions that we're getting is you know we talked about the bullish effects that basil 3 will have on the price of gold and can we maybe just circle back because we're hearing and we're getting a lot of questions on people are worried about hey is this really happening or it can be delayed will it be delayed maybe you can touch on that because we're there's all kinds of you know different stories coming out now around this very topic yeah and this is good because this breaking news couldn't have come at a better time because i know you're right shane there's been so many questions about this that so many doubts that and questions that basil iii the rules will be implemented will there will not be implemented by june the 28th there's so many uh bad actors in this game who are highly influential but i'm going to explain why it has to be implemented regarding and i know the lbma have been fighting this tooth and nail obviously these are the guys that are running this ponzi scheme and you know where you've got really thousands of literally tens of thousands of tons of gold and silver cleared every year amongst a daisy chain of of uh member banks with no physical really required to back those up fractionally held physical now so as we discussed over the last few weeks of our and we've been talking about this over the very i think at least two episodes ago uh basel iii net stable funding funding ratio standards coming in onto the front burner in that came onto the front burner in march but then that's when we started really talking about it but then uh but really has to then move further into it's really starting to hit the front the front burners now as we move into january as we said there's only 20 odd weeks to this deadline uh what it's going to do it's going to begin to devalue unallocated gold and begin to treat physical gold at very close to an equivalent cash asset that's the bottom line of it and given an allocated gold receives an 85 haircut in june this is a game changer and telegraphs that an officially sanctioned gold price re re revaluation is absolutely unavoidable the bis is behind this and we explain the reason why this compliance is so important for the global economy now this timing actually jives with 2500 gold revaluation target which was assessed by most of the first year banks we've been there's nothing has changed since when we first profited that target um some some episodes ago now there's been an awful lot of concerns that the lbmas attempt to obtain an exemption from this unallocated gold haircut 85 percent it makes the gold unallocated gold trading in impossible too expensive and impossible and having failed to do that they've moved to try and delay the implementation of these rules and they've managed to get a six-month extension however even though they got this six-month extension it's not gonna halt the value the revaluation process as most importantly the us switzerland and the eu will will implement this 85 haircut on unallocated gold by june 28th now given physical gold is completely fungible not for a nice bar it's fungible from in every country in the world it doesn't matter where you are in the in on the globe and because it's fungible and that the primary goal go uh global physical trading hubs and refineries are centered in switzerland and europe the primary ones are and that all the market-making lbma bullion banks also have a physical presence in the eu in switzerland like olympic the rbma will largely be exposed to these standards at the same date and despite all their stamping of their feet it will impact the hundreds of tons of the unallocated gold that we talk about clearing every day by the lpncl and these their members member banks really that do this clearing um really just settled these paper contracts amongst themselves but what this does is this actually opens up a massive arbitrage opportunity for a physically starved market at the current diluted unallocated price only a goal a higher gold price will incentivize more bullion to be put on offer and that is what we're gonna see so also these lbma banks exposed to the eu and swiss compliance will not be able to shuffle paper market settlements uh positions for settlement which they've traditionally done and if it's not by physical which it isn't and this is not the case now as we've always stated it only takes one of the daisy chain of lbma boolean banks breaking rank to short-circuit the kval's paper shuffling scan just like happened with with lehman but much much larger now even if i mean kobe 19 rules have been used as i mean i mean excuses i mean were used to try and delay this implementation but the cat's out of the bad guys and with at least a 500 uh higher price anticipated into the second quarter we're going to see first tier banks adding to their long books physical it's already obvious that no one and absolutely no one is naked short gold you'd be crazy in this circumstance with such a with such a limited time span to actually be naked short gold unless you had something to cover into but as we've said it's very cover for for your positions is very very very small so it's an equation and if you'd if the equation's no good you'd better start covering you better start buying physical and furthermore way into this bullish uh wave as i say when these when the speculators realize that they are actually there's nothing left to rinse and when the speculators are mostly rinsed out which we've seen in the in the co2 reports ourselves that really what where's the cover and there isn't any cover and that's really going to cause more and more physical buyers to come in so in summary implementing these nsfr rules will extinguish and forced to mark to market any unallocated gold contracts that are not closed or squared by june 28th period now the closing of billions of dollars of unbacked and okay unallocated contracts is required to comply with these net stable funding ratio rules now this this is required ahead of a sanctioned and very necessary gold price revaluation and as i say we the timing drives of 2500 so finally on this note and i will end with some unprecedented and time stamped here on tuesday news as yet unreported anywhere else which i've just received firsthand from very very a very reliable um banking friend three swiss banks just moved to comply with basel iii nsfr standards immediately and that is we're talking some whales here we're talking ubs credit suisse julius baer for three and there will be more that will no longer allow third party custody all of these banks are exiting this business only allowing physical gold to be stored this is huge news this is going to affect this is going to speed this process up there's a scramble guys to get out of unallocated and these rules really apply to the european banks swiss banks and although and the u.s banks and if you think for a minute that the lbma who have been threatening to try and scupper this and try and drag it out can do that when when even their own member banks in these jurisdictions are forced to actually cover and get out of this business it ain't gonna happen guys so what i'm saying is look out above because once this short-term volatility is out of the way gold and silver will be significantly higher in price well there you have it another episode of live from the vault and i hope you enjoyed that breaking news you're the first in the world to hear about this and make sure you hit that subscribe button if you already haven't done that do it right now again if you hit the bell and you click on all you'll be notified every time a new episode comes up you don't want to miss especially in this time in history you don't want to miss any of these uh episodes so with that thank you so much for visiting and we'll see you next time on live from the vault bye for now [Music] don't get caught up