by Alasdair MacLeod
Gold Money
This week saw a massive sell-off, sparked by three factors: the approaching half-year end, the FOMC admitting that inflation may become a problem (but they still don’t think so), and the implementation of the Basel 3 net stable funding ratio. Consequently, from last Friday’s close gold in the UK’s time zone this morning was trading at $1792, down $85 from last Friday’s close, after a low of $1768 yesterday (Thursday). On the same time scales, silver fell $1.47 to $26.40, after a low of $25.78.
Perhaps the principal driver of the three mentioned above is the pressure on bullion bank trading desks from their bank treasurers to close down their positions because of the balance sheet penalties of running them under Basel 3, which for both the EU and US banks will apply from the end of this month. Our next chart shows the last known position, when on 8 June the Swaps (mostly bullion bank trading desks) were net short 179,750 contracts. We can assume that the many of them will be closed down in the coming months, because Basel 3 makes it uneconomic for banks to trade commodities, including gold and silver, compared with other lines of banking business.