What Is Driving Gold And Silver Higher?

Hint: Not the tariffs

The following commentary is the opening salvo to my latest of issue of the Mining Stock Journal released yesterday afternoon (2/6/25). Behind the paywall below is an update to one of the stocks I cover, recommend and own. The stock has doubled since early January and lay out the rational for it to produce at least another double this year.

To see this stock pick requires a paid subscription to my Substack, which includes a subscription to my Mining Stock Journal:

By now most of you have seen the chart below, published by the Financial Times over a week ago:

The chart was part of a report by the FT that the amount of gold being shipped to the U.S. and into Comex vaults was a function of fears that the Trump import tariffs slapped on gold and silver would restrict the supply into the U.S. and thus gold was being hoarded on the Comex ahead of this. This supposed tariff-driven hoarding was being used as the reason for a gold bar shortage on the LBMA that has developed.

There's a lot of moving parts, plus "footprints in the snow" that lead to the truth, that are involved in explaining why this "tariff" narrative is nothing more than the cover story being disseminated by the big bullion banks using the ignorant mainstream financial media as the echo chamber. So I'm going to present an overview.

Note in the chart above that the amount of gold reported by the Comex banks to be in the Comex vault system has spiked higher, similar to the spring of 2020. Back in 2020 the amount of gold available to deliver to contract longs standing for delivery had become too low to withstand the possibility that a meaningful percentage of entities taking delivery might actually move the delivered bars being held custody at the Comex to alternative non-Comex vaults (which I would recommend). Thus a shortage of good-to-deliver gold bars had developed. The cover story for this was that the covid situation had created logistical problems for gold refiners which curtailed the amount of gold that could be refined and distributed to their end destination. But if that's the case, why did the Comex all of a sudden come into possession of so much gold in a very short period of time?

That gave birth to the Comex "enhanced 400 oz contract" (the Comex gold futures contract is based on 100 oz bars) which enabled the Comex and the LBMA to "co-mingle" their gold bars, making them available for delivery on the Comex. But that contract rarely, if ever, has traded and to my knowledge there has not been a delivery via this contract. However, as long as it enabled the Comex to show a much higher gold inventory, it pre-empted any potential run on Comex gold bars. I believe the bars accounted for under this contract are still sitting in London vaults not Comex vaults.

The real truth is that a shortage of deliverable bars had developed on the LBMA, where big buyers like China and India actually have the bars shipped to their respective countries because the buyers of gold in those countries want possession, whether it's the Central Banks, investors or jewelry buyers. The new co-mingled contract enabled the Comex and the LMBA cooperatively to kick the shortage can down the road.

Similarly, the latest spike in reported Comex gold is said to be occurring because of the tariff scare. However, this appears to be a cover-story for the fact that an even worse shortage of deliverable bars has developed with the LBMA 400 oz bars. The narrative is that 400 oz bars are being shipped to Switzerland and refined into 100 oz bars and shipped to the Comex in NY ahead of any supply constraints caused by the tariffs. However, why not ship those bars to U.S. refiners rather than Switzerland for refining into 100 oz bars?

In addition, the shortage is affecting the Bank of England, as it was reported last week that entities using the Bank of England as a custodian for their 400 oz bars are now subjected to a six to eight week wait to get their bars out of the BoE. If the owners of gold bars held by a custodian, particularly a central bank custodian, have to wait 6 to 8 weeks to take possession of the bars, where are the bars if they're not in the custodial vault?

This is an excerpt from Chris Powell's commentary about the delay to get bars from the Bank of England (Chris is theTreasurer of GATA, which has relentlessly exposed the fractional bullion scam and gold/silver price manipulation scheme for 25 years):

If a raging fire broke out at banker hangout Brasserie Blanc and was working its way down Threadneedle Street, showering embers on the grand old Royal Exchange building across from the bank [Bank of England], the Royal Marines would empty the bank's gold vault in about 35 minutes. They might haul all the metal around the corner to the Bank of China in Basildon House, ask to borrow the lobby for a few hours, and set the remaining pallets on the sidewalks outside with a heavy guard of armored fighting vehicles. (The British army still has at least five of those left outside military museums.)

Indeed, at first the tellers at the Bank of China might think the visit was just another delivery for transport to Shanghai.

If the Bank of England can't oblige gold sale or lease requests in less than a month or two, it almost certainly means that even if gold remains in the bank's vault, its owners are not willing to sell or lease it, having realized that the 50-year fractional-reserve gold banking system engineered by the United States and the United Kingdom is coming to an end, now that many central banks have stopped cooperating with it and have switched from leasing and price-suppression mode to repatriation and revaluation mode.

But Bloomberg News, the Financial Times, the Wall Street Journal, Reuters, and all the other mainstream financial news organizations will be the last to report it. (Here's the full dispatch: Royal Marines wouldn't need a month or two to empty Bank of England's gold vault).

As has been well reported in the precious metals' news flow space, eastern hemisphere Central Banks, sovereign wealth funds, large and small investors, have been buying an enormous amount of gold. For years the purchased gold - other than the gold bought by China, Russia and India - was left in London vaults for safekeeping (this includes the Royal Bank of India). However, several more eastern Central Banks began to buy gold for their reserves. After the U.S. seized Russian reserves being held in western Central Banks, many of the eastern entities began repatriating their gold held in London. Recently both India's and Poland's Central Banks announced the repatriation of 100's of tonnes of gold.

The point here is that, in effect, there's been a run on the gold bars held in London (LBMA and the Bank of England custodial vaults) which has created a shortage of gold available for the rightful owners of those bars to take possession by removing the bars from the London vaults and moving them closer to home and out of the reach of the U.S. and UK governments. This dynamic is layered on top of the fact that, in reality, both the LBMA and the Comex are "fractional reserve" bullion ecosystems - more so the Comex than the LBMA.

This of course mirrors the fractional reserve banking system, in which banks are required to hold just $1 for every $10 loaned. Similarly, though it can't be proved because inspection of the vaults by third-party auditors is intentionally not permitted, the Comex and LBMA hold far less gold and silver than the amount of gold and silver that could potentially be subjected to removal and delivery requests by the rightful owners of those bars. It's quite possible that the run on LBMA bars has broken the "50-year fractional reserve gold banking system" in London and NYC.

It's possible if not probable that the Comex banks have pulled a lot of gold into the Comex vaults to be made available for removal by the entitled owners. But there's many times more potential contract claims than there is gold that can be removed if enough entities take delivery and possession. To date only a small percentage of contract open interest takes "delivery" and very few of those entities take possession, thereby removing the bars from the Comex fractional gold reserve "ecosystem."

This also means that, for accounting purposes, owners of bars held in NYC and London custodial vaults hold account statements that show the gold (or silver) in their custodial accounts, but in reality those gold/silver bars have been leased or given ownership attribution to more than owner.

Without drifting too far into the weeds on the topic of the LBMA and Comex fractional reserve gold and silver bullion system, this is the mechanism that has been used by the Central Banks via the bullion banks to artificially suppress the prices of gold and silver. It creates the illusion that the supply of deliverable physical gold and silver bars is greater than the demand, which in turn prevents bona fide price discovery in the bullion markets.

This system failed the test in the 1960's leading to the closure of the gold window. It also failed in the 1970's when the Hunt brothers figured it out and tried to get as much silver as possible out of the Comex (contract longs were only allowed to sell, not stand buy more or stand for delivery). It failed again in the 2008-2011 bull run and in 2020. The Central Banks were able to kick the can down the road using various means, which "fixed" the shortages. Every time this happens the Comex and the LBMA change the rules of the game. I don't know if that will be the case this time. If so, this rally in gold and silver will take the prices to levels that will shock and awe even some of the most ardent gold and silver bulls.

As a final note, I am reminded of an interview in 2012 with Kyle Bass in which he explained why he advised the University of Texas endowment fund to take physical possession of $1 billion worth of gold being held in its name at Comex vaults after his conversation with a Comex delivery manager:

"As a fiduciary, to the extent that you own gold and are going to own it a long time, it is not a trade...in the COMEX warehouse they had $80 Billion of open interest, and $2.7 Billion of deliverables...that's an easy one, you go get it."

Kyle: "What if 4% of the people want delivery?"

COMEX Delivery Manager: "Oh Kyle that never happens. We rarely ever get a 1% delivery.

Kyle: "Well, what if it does happen?"

COMEX Delivery Manager: "Oh, well price will solve everything."

Kyle: "I said thanks, give me the gold." (Give me the gold)

We are now watching unfold the reason Kyle Bass made that decision back in 2012.

The paid subscription to this Substack includes a subscription to my Mining Stock Journal. The welcome email includes a handful of back issues.