Some Golden Speculation

Unusual Trends in the Gold Market

Since December, there have been many odd occurrences in the global gold market. These have led to all sorts of speculation as to what events of significance might be going on behind the scenes. Let's do some speculating here today too.

Let's start with what we know.

Trump’s Re-Election and Its Impact on Gold

First, Trump was reelected as President of the United States in early November. The initial response in gold was a sharp selloff, presumably caused by concerns that Trump's policies would trim the U.S. national debt and cause inflation. OK, fine.

However, things first began to get spicy in early December, as the price of the front month Feb25 began to open a wide gap versus the spot price. This level of spread/contango rarely exceeds $10/ounce, but by December 11, it had reached over $30/ounce. The futures price smash that followed the December FOMC meeting closed the spread, and December COMEX "deliveries" came in at 25,856 contracts, which is about the usual amount for a "delivery month".

All seemed back to normal...until January. By mid-month, spot vs the front/delivery month Feb25 contract had grown to over $40, and suddenly things started to get interesting. At the same time, demand for immediate delivery via the Jan25 contract soared. The month of January began with just 3,280 contracts open and "standing for delivery," but by the time the month ended, 22,538 contracts were delivered. That is an extremely unusual development for a "non-delivery month" and something I've not seen before in my 15 years of covering the gold market.

Gold Deliveries Reach Record Highs

And now here we are in February, and the Feb25 contract, which is considered a "delivery month," is in its delivery period. And it's a doozy! When the contract went "off the board" on January 30, there were a near-record 59,296 contracts still open and standing for delivery. In the two and a half weeks since, the delivery total has reached 69,477, and there are still ten days to go. This assures that February 2025 will post an all-time record amount of gold "deliveries" via COMEX with an amount in excess of 210 metric tonnes!

Is Gold Being Repatriated for a Bigger Plan?

So what's the deal? What's going on here? Well, quite obviously, something changed with the reelection of Trump...but what? The narrative put forth by the mainstream financial media is that the threat of tariffs impacting gold and silver is causing a rush to onshore gold, moving gold out of London LBMA vaults and into New York COMEX vaults.

And maybe that's all this is. Similar to the spring of 2020, there's plenty of gold; it's just not where it needs to be, and the logistics of moving it around the world are challenging. OK, maybe.

But maybe not.

Instead, what if Trump has an economic and fiscal plan that requires the use of U.S.-owned gold, and that gold needs to be held in the U.S. to make it happen? The proverbial cat may have been let out of the bag two weeks ago when SecTreas Bessent made some interesting comments while standing beside Trump in the Oval Office.

What did Bessent say? Within the next twelve months, what's going to happen?

• "Within the next 12 months, we're going to monetize the asset side of the U.S. balance sheet."
• "We're going to put the assets to work."
• "We've studied best practices as done around the world."
• "A combination of liquid assets and assets that we have in this country.”

Potential Gold Revaluation and Its Consequences

Now admittedly, that could mean A LOT of things. As such, all we can do is speculate as to what Trump's plan may be. However, if you're going to "put U.S. assets to work," then getting your gold back onshore and into your hands sounds like a necessary part of the plan. As such, the whole "tariff" mantra seems to be a ruse and simple gaslighting—a cover story, promoted in the mainstream media so as to avoid a panic.

And what kind of "panic" are they trying to avoid? A delivery squeeze. Since the dissolution of The London Gold Pool in 1968, the gold bullion banking world has relied upon a fractional reserve pricing scheme that utilizes a just-in-time delivery schedule. This system has created the illusion that gold is plentiful, and the price has been suppressed accordingly.

But it's not plentiful. What's plentiful are the derivatives of gold that serve as "low-cost alternatives" and "gold price exposure." The real thing has been leveraged, hypothecated, rehypothecated, leased, loaned, and borrowed for over 50 years, and now no one can say for certain just how many ounces remain with clear title and provenance.

Already, the LBMA is in a state of technical default as delivery delays stretch to 4-8 weeks from the generally accepted 2-3 days. What happens to the just-in-time delivery system—and the Bullion Banks which facilitate it—if the delays begin to stretch even further? And now you see why the "tariff cover story" has been so eagerly promoted in the mainstream financial media.

What Comes Next for Gold Prices?

What will the U.S. do with all of its repatriated gold, if indeed that's what's going on here? My guess is that the price at which the U.S. carries the gold on its "balance sheet" is soon to be adjusted sharply higher from the ridiculous and arcane $42/ounce level that has been the benchmark since 1973.

Will Gold-Backed Bonds Redefine the Future of U.S. Debt? An Investor’s Perspective

Once that's done, the gold will be "monetized" as SecTreas Bessent mentioned, most likely as the foundation of very long-term treasury bond issuance. Why back fifty-year treasuries with gold? Think of it this way. Knowing the current fiscal situation of the U.S., what interest rate would you demand as a buyer of 50-year debt? 10%? Maybe 15%? But if your principal was redeemable or, more likely, indexed to the gold price as a hedge against inflation, maybe you'd take 3-5% instead? Maybe. And that would be the rationale for the gold backing.

Of course, this new treasury issuance would barely put a dent in the ongoing new issuance refunding of the existing U.S. debt. However, if you're Trump and you're looking for a way to fund your Sovereign Wealth Fund idea, "putting the (gold) assets to work" just might be the plan.

The only question is: At what level do you revalue/repeg the gold in 2025? The current market price of about $2900 would value the total (alleged) U.S. stockpile at about $760B. That's a start. But what if they went higher? Again, we're just speculating here. Moving the peg to $10,000/ounce would get you about $2.5T. And now we're talking some serious buying power! But what about those bullion banks, you ask? Wouldn't they be on the hook for billions to trillions in losses if gold is revalued overnight? LOL. Yeah, dig up the Hunt Brothers and ask them about that! The exchanges would simply cash settle all of the open futures and forward contracts at the closing price before the revaluation. Would that "screw over" the long holders of those contracts? Yes, but how is that different from the 1930s, when the U.S. government confiscated gold at $20/ounce before revaluing it at $32? Same deal, different century.

Additionally, any further losses incurred by the bullion banks would no doubt be covered by the Fed/Treasury, and Trump could legally protect The Banks and the CME via executive order, similar to how the Emergency Use Authorizations shield drug companies from lawsuits against their products. Oh, and by the way, many of the bullion banks are also Primary Dealers in the U.S. treasury market. As such, you can be sure they'll play along and the government will have their collective backs, no matter the circumstances. Maybe they can cover some of their gold losses with profits from helping deal and market a couple trillion in new gold-backed debt?

Again, all of this is simple speculation on my part. This dot-connecting exercise is nothing but a thought experiment, and it's likely that I've drawn all the wrong conclusions. However, something significant is happening in the global gold market, and it all began shortly after the reelection of Trump late last year. If anything, my hope is that this column has sparked your curiosity and helps lead you to draw some of your own conclusions.