Gold keeps making new highs, signaling there may be something that is not working properly in the global financial system. There are fundamental and technical aspects behind the recent rally. The fundamental case rests on the fact that nations are too indebted in absolute terms and relative to their GDPs, with their fiat currencies being debased. The technical case is based on the dynamics between LME (spot prices) and COMEX (futures). In an environment of deficits and tariffs, gold has become more interesting than before, and particularly physical gold, which now may need to be imported into the U.S. to settle futures contracts, and therefore be subject to a potential 25% tariff. That has created an imbalance between physical gold supply (which needs to comply with specific characteristics) and demand for physical gold which has spiked. London vaults are currently experiencing shortages of physical gold and delays in deliverables, which has pushed up the price of gold. There is an additional issue related to re hypothecation of physical gold: the amount of outstanding derivatives and supposedly gold-backed ETFs is much higher than the actual physical gold in the LME vaults, which is how a fractional financial system works. But a spike in demand for physical gold can create a bank run, where the LME may not be able to satisfy the demand for physical delivery in the agreed timeframe, creating a solvency issue.
Want to know more? join Fund@mental here https://www.myfundamental.net
#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning
Comments