Thread by @profitsplusid

1/ Could the #LME #nickel fiasco happen to the #Comex #gold and #silver market?

On my recent Twitter Spaces with @PalisadesRadio I mentioned that we may have a problem with current and future availability of gold and silver bars from the expanded refiner list.

Please retweet!

2/ Back in 2020, the #CME expanded the list of approved refineries whose bars are eligible for good delivery to the Comex. This was due to overwhelming demand for physical product and to maintain an orderly market. bullionstar.com/blogs/ronan-ma…

3/ 51 #LBMA approved gold refineries had been added to the eligible brand list for the COMEX 100 (GC 100) gold futures contract. Of the 51 refiner brands, the top countries represented are 12 refineries from China and 7 from Russia.

4/ 65 LBMA approved silver refineries have been added to the eligible brand list for the COMEX SI (5000 oz) silver futures contract. Of the 65 silver refiner brands added, the top countries represented are 26 silver refineries from China and 5 from Russia.

5/ China and Russia are 2 of the largest producers of #physical gold and silver.

Fast forward to today and the sanctions on #Russia have eliminated the ability to deliver any new metal from Russia onto the Comex. reuters.com/article/ukrain…

6/ However, what many did not know or were unaware of was on September 2018, the U.S. Trade Representative imposed additional duties on goods of #China as part of the action in the Section 301 investigation of China's acts, policies, and practices.

7/ The #tariff imposed were 25% of the value of the goods originated from China and being imported into the USA. Guess what, gold and silver bullion which did not have a special duty for products originated from China prior to this rule change now are subject to this 25% Tariff.

8/ In fact this has been in effect when the CME expanded their refiner list. I do not believe the CME was aware of the tariff impact when they added the refiners to the list. hts.usitc.gov/view/Chapter%2…

9/ This is enormous because any bar of Chinese origin trying to be imported into the USA and delivered onto the Comex to be put on receipt or used for settlement of a futures or options contract would recognize an additional 25% cost of the value of the metal.

10/ Very important to note that this includes any #Chinese bar being delivered from anywhere in the world not just directly from China. The tariff cannot be hedged.

11/ At this point one would ask, if this has been in effect since 2018, why would it matter now? One reason is that the demand for physical metal has not slowed down. In fact, millions of ounces which have been put onto the Comex in 2020, have been leaving the last 2 years.

12/ Eliminating Russia and China products from this market adds potential pressure to future physical tightness. The LME incident was a case of a major Chinese producer hedging production by shorting contracts.

13/ Although, they may have had the underlying nickel on a boat or in a warehouse somewhere, they may have used that metal to ultimately deliver against the short position.

14/ If a similar producer or an investor with Chinese or Russian #hallmarked bars attempted to use gold or silver as collateral to short futures contracts or sell call on options on futures as either a hedging or strategic transaction,

15/ the ability to deliver these gold or silver bars would not only be costly but could create a default on the settlement transaction if the price blew out to the upside due to the inability to use the collateral.

16/ Some may say, one could swap/exchange the metal for "like kind" bars of another #hallmark. However, the 2017 Tax Cuts and Jobs Act eliminated like kind exchanges for gold and silver. Any exchange is a taxable event.
irs.gov/newsroom/like-…

17/ These are structural components when combined with other events could develop a foundation for unexpected consequences. With various product premiums at very high levels, investors increasing #demand for physical #delivery off the #exchange is one such event.

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