Hey There Income Hunters,
Another Power Income prediction is closer to becoming a reality …
Central banks are planning to use gold as the vehicle to devalue paper currency.
As Trump would say — but can’t because even his personal blog has now gone dark — “this is yuge!”
It all begins with the central bank of central banks — the Bank for International Settlements (BIS). The BIS, you see, is rolling out new rules this month that will all but eliminate unallocated paper trading of silver and gold.
These rules require an 85% haircut — which means 85% of the value of the asset must be held as a buffer against the position on all gold and silver derivative contracts that are not covered by the physical metal.
The wholesale physical metal does not require a haircut, which essentially lifts the physical from its derivative, and opens the door for a revaluation of physical silver and gold.
And there is a lot more to this story, including what the Chinese have been doing behind the scenes.
A Corrupt, Bank-Manipulated Derivatives Market
This is another tale of banks taking advantage of their role as middleman between end investors and their central bank. It’s essentially the London version of the U.S. primary dealership.
There are 43 approved London Bullion Market Association (LBMA) dealers who up to now have been responsible for providing liquidity in gold, silver and other commodities derivative markets.
The largest markets are the SPDR Gold Trust ETF (TICKER: GLD) and iShares Silver Trust ETF (Ticker: SLV) products, which are the most popular ETFs to trade as a proxy for Physical metals
The moral hazard created in these markets stems from the banks’ ability to lease physical gold and silver from the Bank of England (BOE), the U.K. central bank.
I will take you through the structure, similar to how the U.S. prime broker model operates, which we discussed during the Archigos default.
Creating Gold and Silver Out of Thin Air
The LBMA rules allow the banks to short GLD and SLV derivatives and lease the physical underlying product from the BOE.
The actual metal never leaves the BOE, yet that initial lease can be borrowed and re-leased many times over …
If this sounds familiar to you, it should. This process also supports the U.S. financing market, including Treasury repo and stock loan.
Once the ability to rehypothecate assets out of thin air is created, counterparty exposure is multiplied. That’s called a daisy chain — and in a crisis, when one link defaults, it causes a chain of failures.
However, I congratulate the BIS on removing moral hazard from the global system, and I need to show you the motivation behind the change …
The Great Reset in a Couple of Keystrokes
Folks, you are going to love this.
The original structure for the precious metal derivatives markets was facilitated by the central banks leasing underlying assets so the banks could gain leverage and manipulate the system.
That is one way the central banks get other banks to buy a country’s debt. However, now that the central banks want to cut out the banks and take total control of their monetary system, they are changing the rules.
By requiring the banks to hold 85% capital against the underlying value of their derivatives trade, they are forcing the banks to close down their operation.
This disconnects the physical from the derivative and creates a pure physical wholesale silver and gold market …
Revaluation of the Metals Will Boost Prices
If you are a holder of physical, derivatives or miners, you should be getting pretty excited right about now
The ten European banks that are London Bullion Market Association members have to unwind their unallocated derivative contracts by June 28 or put aside the 85% capital requirement against them. The capital requirement removes the economics of holding positions, so most bank positions will be closed. UBS, Julious Baer and Credit Suisse have already unwound their derivatives book.
Following the June 28 deadline there will be a revaluation of the physical metals. Andrew Maguire, a British commodities trader and whistleblower, is an expert on this topic. He recently shared that Tier 1 banks think it will play out this way:
- On a Friday night, the physical and derivative market will be settled…
- On Monday morning, the Gold market will trade on it’s own for physical delivery and revalued to $2,500. (Gold is currently trading at $1,865.)
The major central banks work closely with the BIS. In my opinion, it is highly likely this was all put together to create a facility for increasing the price of gold and devalue fiat or paper currency in preparation to launch digital currency backed by gold and silver.
A Central Bank Gold War
Once the physical market is revalued, which could be a 2022 event, the fight for digital currency dominance will begin.
Like other currency wars, the nation with the strongest currency wins. That means whoever owns the most gold wins.
According to Maguire, China holds 20,000 tonnes of gold and recently lifted its cap on imports of gold for investors.
20,000 tonnes, by the way, is twice the official amount of gold the U.S. holds.
After June 28, and after the official amount is announced, there could be a massive amount of central bank money flowing into physical gold and silver to strengthen their currencies, as well.
Bring It Home
June 28 will be here in a flash, and you can be sure there will be a lot of volatility in GLD and SLV right up to the end.
The banks still have the power to manipulate prices, and they will push prices down whenever they can to help them unwind positions favorably.
Meanwhile, I am building a diversified portfolio of miners …
Here is my logic: miners are already making a nice profit at current levels of gold and silver. They will be less volatile than the outrights, but they’ll also completely participate in further upside.
My current portfolio is listed below.
History is about to be made, #IncomeHunters. Let’s stay focused and make some money.
Live and Trade With Passion My Friends,