The optimism about cryptocurrencies became stronger after concerns about the shortage of gold in the bullion market








The London Gold Market Association (LBMA) is said to have support for the US derivative company, CME Group, after they were accused of facing difficulties in finding enough gold bullion to deal with contracts that were about to expire.


Strong optimism about cryptocurrencies following concerns about a shortage of gold in the bullion market


This sparked fears in the bullion market, resulting in a 4% gap in spot gold and futures prices. As a result, the precious metal status as a safe-haven property was strictly inspected later.


On March 11, 2020, LBMA reported the daily trading volume reached an all-time high when they sold gold futures worth nearly $ 100 billion. However, two weeks later, CME Group is struggling to provide physical gold at the time of delivery. Now, according to experts like Roy Sebag, there is a strong possibility that banks have sold futures without adequate reserves and are currently having difficulties at the time of delivery.



“1/2 I have received some important information regarding what happens in the gold market. Today, some banks have failed to provide physical gold in the EFP. Therefore, these banks will soon announce great losses. They have also decided to leave the future market (Comex). ”


Spot gold prices fell under US futures


On March 24, 2020, LBMA and other financial institutions across the UK involved in gold trading requested CME Group to allow the use of a different piece of gold bar to pay futures contracts. . The 400-ounce gold bullion is commonly used in London to trade bullion, while the generally accepted norm across New York is 100-ounce gold bullion. Futures contracts traded on New York-based CME Group are naturally related to this 100-ounce standard.


Strong optimism about cryptocurrencies following concerns about a shortage of gold in the bullion market


Traders fear that the transport of gold bullion from London to New York is impossible due to the government-imposed embargo following the COVID-19 pandemic. This caused panic when placing in the bullion market when news spread that London-based banks did not deliver the gold at the time of payment and led to a 4% discrepancy between contracts. Gold futures are traded in New York and gold prices traded in London.


Under normal market conditions, the two prices move in the same direction with very little divergence.


Signs of crisis in the bullion market?


Roy Sebag, founder of Goldmoney, tweeted on Tuesday that some banks decided to leave the bullion trading market after they failed to deliver physical gold at the time of payment, causing them to face up to with heavy fines and financial losses. As a result, the US gold bullion market is in severe shortage. He believes that banks have engaged in excessive short selling of gold futures, without owning underlying assets.


US banks that provide CME's Comex contracts, however, are likely to be oversold futures that do not necessarily have physical gold in hand. Ownership of the underlying asset can easily be transferred if the New York-based exchange allows payment using the 400-ounce gold piece. The change in delivery terms will negate the need to melt gold bars into 100 ounces.



“Two important facts: 1) Which banks shorten $ 16 billion more physically than the CME vault and require guarantees? 2) How will the LBMA metal in London be used to solve NY deliveries during shutdown because of Covid? Another sad day for the "free" market.


On March 24, 2020, CME announced the launch of a new gold futures contract with delivery in 100-ounce, 400-ounce and 1-kilogram gold bars. The newly announced futures contract expired first in April but it is unclear whether changes in delivery terms are allowed for the old ones.


The cryptocurrency market provides a ray of hope for distressing investors


A series of latest events in London raises questions about the status of Gold as a safe haven asset during economic crises. For years, it has been wrong to assume that the total money supply in a country's banking system is directly proportional to the nation's gold reserves.


The global economic recession of 2008 proved that this concept was wrong when central banks were involved in unlimited money printing to counter any slowdown, leading to lower purchasing power and Other adverse side effects. This is because the total value of the currency in circulation is constant but the number of banknotes in circulation increases. Consequently, inflation rises and commodity prices rise.


Cryptocurrencies are built on the principle of decentralization, which means that traders are not dependent on a competent authority or third-party decision maker. The public nature of blockchain technology, coupled with the presence of honest nodes, ensures no market manipulation takes place in the network. Unlike fiat currencies, Bitcoin has a fixed supply and the inflation rate will eventually drop to zero. There will never be more than 21 million Bitcoins in circulation after the last unit is mined.


Futures contracts, on the other hand, are built on trust between the two parties, while liquidity is guaranteed by a transaction. If the banks involved sell futures without the underlying assets, the bullion market could be destroyed overnight. The stock market has witnessed strong selling as the global economy is forecast to slide into another recession.


Precious metals and digital currencies are two properties that are limited in nature and their mining cannot continue forever. Goods that are limited in nature cost more than other assets and are considered safe havens during periods of economic contraction. However, unlike futures contracts, excessive selling can be eliminated in the cryptocurrency market.


Smart contracts built on blockchains like Ethereum ensure that all parties own the underlying asset before starting the transaction. Any asset purchased through such a smart contract is linked to the blockchain using digital tokens and that token ownership is sufficient to prove ownership of the underlying asset.


Traditionally, gold is considered the safest asset during times of economic upheaval. However, cryptocurrencies are scarce and traceable due to the public nature of their networks.



"Very delicate for Bitcoin, a virus for the gold futures market" force majeure "


Institutional investors do not buy gold directly. Instead, they rely on supervisors to handle their gold, which could make the asset a risky proposition. However, Bitcoin and other digital currencies do not require third-party supervisors and can be safely stored in digital wallets. Therefore, digital tokens create a more compelling case than gold.


Mr. Teacher


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