Vincent Lanci: Gold is Perfectly Useless
Tom welcomes Vincent Lanci back to the show. Vincent discusses the position of J.P. Mogan and Citibank, who hold a large gold derivative position. They’ve changed their balance sheet accounting methodology due to Basel III rules. Banks are going to take advantage of different countries regulations to arbitrage. The banks are in the same condition they we’re in previously. The gold dealer market has become smaller, and regulators seem happy to herd these derivatives into one large bucket. Smaller banks have exited out of the market.
In light of what has happened with nickel at the LME and the government will do whatever necessary to protect the major banks. As Keith Wiener says, “Gold is not like other commodities because it is not consumed. All the gold ever mined remains, still exists. It’s not destroyed and doesn’t become irretrievable.”
Gold is a useless item, which is why it’s a great store of value. Money, including fiat, has no real practical purpose. At the central bank level, gold remains money unless we find a broad industrial use for it.
Vincent explains why the BRICS countries are looking for ways to improve their economies with a commodity backed currency basket. China and Russia have been sanctioned and are looking for alternatives to the dollar. At some level, gold will need to be remonetized for trade at the country level.
The Fed is likely to back off soon. We may already be nearing a breaking point. Between now and November if inflation remains in the headlines then they will continue to raise rates. Once we see recession concerns as mainstream news, then they will back off.
Tom explains Vincent’s recent most about a downward economic spiral caused by economists and governments attempts to resolve problems. We won’t be able to recover until there is major pain. Those in charge will have to admit the current system is unfixable. Things have to change.
Tom and Vincent discuss what it would take to get back to normal and why we’re likely going lower first. The jenga pyramid is unstable and parts of the economy are faltering. Policies around energy and agriculture are exacerbating the situation. Vincent explains why all famines are created by men and the multiplier effect around crop shortages. These will further compound effects, and basically, we are looking at disaster.
Time Stamp References:
0:00 – Introduction
0:44 – Gold Derivatives
4:46 – Gold, Leverage, & Bank Risk
8:10 – Systemic Risks & Bail-Outs
9:45 – Gold is Useless
21:45 – Gold Being Remonetized
23:30 – Russia Gold & Ruble
27:19 – BRICS+ Basket
31:47 – Fed’s Path Forward
39:14 – Unemployment Numbers?
41:00 – The Downward Spiral
47:30 – Best-Case Scenario?
51:36 – Compounding Effects
55:16 – Wrap Up
Talking Points From This Episode
- Basel III effects on derivative positions of major banks and gold dealers.
- Government and the Fed will do whatever it takes to protect the big banks.
- Why sanctions on some BRICS nations are accelerating alternative economic systems.
- A likely scenario for further inflationary spirals and disastrous stimulus attempts.
Vincent Lanci is the Owner and Founder of Echobay Partners LLC. and is a regular contributor on ZeroHedge.
In 2018 Vince was honored to be a part of Market Wizard Larry Benedict’s Opportunistic Trader project as precious metals and Option expert. In addition, in 2017, Mr. Lanci and Professor Robert Biolsi co-authored Forecasting Oil and Natural Gas Volatility for UCONN.
From 2004-2008, Mr. Lanci was Co-Head of Metals & Energy Trading for CiS Options LLC, Echobay’s predecessor, where he ran the long-short and vol-arb portfolios for CiS’s parent fund and generated $103MM during that time.
From 1993-2003, Vince owned and operated Berard Capital LLC option market makers. In 2000, he co-founded Whentech with David Wender, where he was the chief architect of the “Pit-Trader” user interface. Between 1987-1993 he gained experience at Lehman Bros and Cooper Neff. Mr. Lanci contributes to Zerohedge, BBG, and RTRS. He has paneled at Mondo Visione, NYC Mines & Money conferences, and is a champion of level investor playing fields.