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March 4, 2024 | Doomberg: Will The Shanghai Gold Arbitrage “Empty Vaults In London and Europe”?

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.

Gold is suddenly fun again.

We should probably just relax and enjoy it, but if you’re curious about why this is happening, Doomberg, publisher of the top-ranked Substack financial newsletter, has a plausible answer. Here’s a (lightly edited) transcript from a just-released Doomberg interview with Soar Financially’s Kai Hoffman, followed by the full video:

Two big gold market issues look set to be resolved in 2024. First, if the West confiscates Russian reserve assets, gold inevitably will reassert its place as a neutral asset for settling trade imbalances. And you’ll see an ongoing accelerated scramble [for gold] among central banks that are concerned about someday finding themselves in the crosshairs of the Americans and Europeans.

The second is this long-held belief that the paper gold price is depressed by Western banks at the behest of the BIS and other central banks. The opening of the Shanghai Gold Exchange (which Luke Gromen has presciently chronicled for years), and the fact that there’s a premium for the price gold in Shanghai, is opening up an arbitrage that taken to its extreme will empty the vaults in Europe and London. [The premium] is $30 today which means you can buy gold in London, sell it in Shanghai, and pocket the difference. The net effect is that gold leaves London and moves to Shanghai.

That the Chinese are doing this ahead of gold’s reemergence as a reserve asset for settlement of trading balances is a pretty shrewd move on their part, and it might be happening right under our noses. There’s only so much gold, so if the price is being suppressed, that bluff is going to be called by the Chinese this year. Eventually the relief valve hast to be opened and prices have to converge to stop the flow of gold from the West to the East.

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March 4th, 2024

Posted In: John Rubino Substack

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