Political Metals

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It’s getting cold and dull here in NZ, but for most sound money enthusiasts north of the equator, summer is finally here, but this is no ordinary summer! As discussed in this piece, “PAGE is Dead. New Allocated Silver Exchange in the Making“, many are bubbling with exciment in anticipation of the launch of the new Chinese exchange that will trade 1:1 fully allocated silver contracts. Please read the abovementioned article if you’re not sure what the exciment is all about.

In a timely interview with the good doctor at silverdoctor.com, Ned Naylor Leyland gave an update on the debut of the new exchange that will “in due course suck metal away from the LBMA system”. You’ll be glad to note that it is “on schedule”, will indeed be launched “this summer”, and to be more specific, “mid summer”.

It’s quite unsurprising what happened with the PAGE, although ultimately we’re in a better situation than we were before, and I’ll explain why.

The Pan Asian Gold Exchange was a sort of dual functioning exchange based in the Hunan Province down in southern China.   The thing about it is it was a regional program to develop that area into a trade zone within SE Asia.  The main part of the exchange was for domestic use, leveraged products, etc., but they also had this very, very interesting plan for a fully allocated spot contract in gold.

Now two things happened.  The first thing is the bit you alluded to that other shareholders within PAGE, because PAGE is effectively made of up 10 shareholder groups.  One is the one that I’m involved with, and then the other 9 were effectively Chinese SOE’s or Chinese companies.   The one Chinese company that was listed on NASDAQ  is an information technology business.   They were the ones that blocked it.  Effectively they started saying that they insisted (and they owned slightly more than the others in truth) on building the platform from ground up using Chinese tech and Chinese workers.

Now that would have taken a very, very long time and that wasn’t the original plan, which was very frustrating for the people I know who wanted to roll-out the fully allocated contract by buying a platform off the shelf.

So that happened, which for the guys in China they were a bit confused.  I wasn’t, I thought it stunk straight away.   But then interestingly, following that  was then a change in Chinese laws as well.
They turned around in the Central Government and said we’re now not allowing any trading in gold outside of Shanghai.   So it got smashed on two levels.

The reason I say we’re in a bit of a better situation is that the guys behind the allocated contract then understood what they were trying to achieve better, and understood the dynamics of the market better.
They realized that they weren’t necessarily going to be welcomed with open arms by the rest of the bullion trading community, or at least on the custodial side.

So they thought about it carefully and they’ve gone about setting up a new exchange which unfortunately I can’t give you the name right now, but it should I’m very much hoping, mid-summer we’ll be there, and I intend to go out there at some point as well.   It’s a fully allocated spot receipt in silver which will have monthly offerings, and the idea is for it to offer an alternative for those guys who are trading spot in size through the LBMA system, to own something which is transparent, tradable, and should in due course suck metal away from the LBMA system across to this new exchange.

Now Eric (Sprot) would be able to tell you this himself, it’s not a straightforward process setting something like this up.  It requires a lot of hard work that goes into it.  There are always little gremlins here and there that need to be ironed out, particularly with something like this where it’s an international offering.   There’s a lot of serious people behind it, it’s very much on schedule to happen this summer, and I’m very excited about what it could do once it’s up and running!

Other topics of interests include:

• Euro zone crisis and the 100 billion Euro Spanish banking system bailout
• Solved mystery behind the now famous “GLD bar” purportedly owned by the GLD ETF
• Posibility and implications of bond fund managers flooding the physical gold market, and more…