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David Jensen: The London Metals Exchanges are the Crux of Market Pricing

Tom Bodrovics welcomes back mining executive and metals analyst David Jensen. Together they revisit concerns around the London gold market’s dominance, estimated to account for 91-92% of the global gold trade. This is thanks to the Bank of England’s ‘regulatory oversight’ since 1986, permitting unallocated gold contracts instead of physical bars. The market trades $500 billion of gold daily and and 2.9 billion ounces of silver. However, only around 3.5% of London’s vaulted gold is actual physical. They contrast the LBMA with the Shanghai gold market and point out the key differences.

David argues that the London market functions as a price-setting mechanism rather than one of price discovery. They discuss Gibson’s paradox, where interest rates follow price levels rather than inflation rate. Central banks benefit from this control scheme due to their control over monetary policy and debt levels using gold and silver as loose policy indicators.

David delves deeper into the London Bullion Market Association (LBMA), which regulates through a voluntary code of conduct called NIPPS which is under Bank of England oversight. The metals market are dominated in London, with around 90% global cash trading occurring there.

David raises concerns over the transparency and authenticity of silver holdings in Exchange-Traded Funds (ETFs), questioning claims against metal, sub-custodians, potential rehypothecation or selling. The actual amount of silver held and its implications for interest rates and the economy if pricing proves fictitious are discussed.

Time Stamp References:
0:00 – Introduction
1:12 – Size of London Market
7:07 – Paper Claims on Metals
8:45 – Silver a Virtual Asset?
9:50 – Opaque Market & Claims
14:44 – Fractional Reserve Metals?
15:57 – LBMA ‘Code of Conduct’
20:54 – Who Watches the Watchers
22:09 – Settlement Definition
24:29 – London Vs. New York
25:35 – Futures & Cash Markets
30:20 – ETFs & Bullion Banks
33:08 – Honesty & Transparency?
38:13 – Criticality Theory
41:10 – Scales & Incentives
42:18 – Wrap Up

Talking Points From This Episode

  • London gold market dominates, allowing unallocated contracts. Central banks benefit from opacity, influencing monetary policy.
  • Questions about physical holdings vs. claims in London’s vaults impacting interest rates and the economy.
  • Transparency concerns regarding ETF silver holdings, potential rehypothecation or selling of metal claims.

Guest Links:
Jeff Currie Video:

David Jensen, P.Eng., LL.B., MBA, is a Professional Engineer with a degree in Engineering from the University of Waterloo in Canada. He worked through 1993 on the F-5 Fighter Overhaul program and the Bombardier Regional Jet programs. Mr. Jensen then graduated with an LL.B. degree in corporate and commercial law from the University of Calgary and an MBA from Univ. of B.C., majoring in Logistics and Supply Chain Management.

Returning first to aviation, then, after reading Austrian School Economics, Mr. Jensen transitioned to the mining industry in 2004. First through his mining industry consultancy, then as Vice President of Corporate Development for Western Copper Corp., and most recently as President and COO of Skyline Gold.

Mr. Jensen currently serves as President and COO of a private mining company and provides strategic, operational, risk assessment, and precious metals consulting services through his consultancy, Jensen Strategic.

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