With gold trading near the $1,900 level and silver above $42, today King World News interviewed London Whistleblower Andrew Maguire. When asked about key developments in China regarding the Pan Asia Exchange Maguire stated, “Silver and this 11 kilo gold contract, international rolling spot contract, are the game-changers. This is not going to be welcomed by the naked short LBMA bullion banks. These are competing contracts, but the difference is they are 100% backed by physical metal. That means that this metal will have to be purchased one to one as these contracts open, and not just listed as a paper entry (as the LBMA does in many cases).”
“The LBMA bullion banks, as we know, operate on a fractional reserve basis and that’s been backed up by the industry apologists such as Jeffrey Christian. So unlike the LBMA, there is no counter-party risk associated with the ownership of these new Pan Asia contracts.
Eric, there have been some delays with regards to fully implementing the trading platform for the Pan Asia Exchange. The bottom line here is that the Chinese made a determination that they did not trust any trading platform or software developed in the West. Consequently, they are designing their own software from the ground up and the new platform will be launched very soon in the fourth quarter.
When fully launched, this is going to have two pivotal effects on the supply/demand fundamentals as worldwide business will migrate to this exchange. The last time we discussed retail demand taking place as the new exchange in Asia gets up and running, there will be institutional effects as well. This will force short covering as existing customers of the LBMA move their business to the Pan Asia Exchange. It will force the shorts to crystallize their losses as the tremendous short leverage will have to be unwound.
As an example, if you had a pension fund that went to the LBMA and said ‘We want ten tons of gold at $1,700,’ the LBMA banks do not purchase the ten tons of gold at $1,700, instead they merely issue a ledger entry, a ledger receipt and a piece of paper is given to the pension fund, which leads the pension fund manager to believe they own ten tons of physical gold.
Because the LBMA does not go out and purchase the physical gold, the price of gold does not experience upward pressure the way that it would under normal supply/demand fundamentals. Meaning supply/demand is not affected as it should be. Now typically this pension fund, like many others will not ask for their physical gold. That’s the system, they (the LBMA bullion banks) know that no one is going to ask for this unallocated gold to be allocated into a physical account. Furthermore they don’t expect this pension fund to ask for delivery.
“As soon as these pension funds know that they can have their ten tons of gold physically backed, based on the fact that they get receipts detailing bar numbers and it costs them nothing to do this other than to move their account, many will make that move.
In the previous example, they (LBMA bullion banks) would be forced to buy at today’s prices at around $1,900, forcing the banks to crystallize a $200 loss on the previous ten tons of gold, which was a ledger entry at $1,700. Simultaneously, the Pan Asia Exchange will actually be purchasing this ten tons of gold that the LBMA bank never did, forcing the price higher and creating more derivative stress on the LBMA system as this accelerates. This obviously has the effect of exposing the bullion banks to massive derivative losses and risk exposure.
It’s going to force true price discovery for gold and no one knows what that is. When you actually crystallize all of this paper derivative gold into physical metal, no one knows what the price will be.
So participants will shortly be able to go buy gold on the Pan Asia Exchange, knowing it is backed 100% by physical metal. Although gold can be purchased in any currency, this is China’s way of bringing the RMB into the international market over time as a reserve currency.
It enables participants to buy gold in RMB, giving them exposure to gold and silver, one to one backed. This is a true way to diversify out of dollars.”
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Eric King
