Andrew Maguire and Chris Powell discuss how this shock withdrawal will affect the gold & silver bullion markets.
Talking Gold is a fortnightly round-up of the recent action in the gold and silver markets from precious metals expert, Andrew Maguire. This week features Chris Powell, the Secretary and Treasurer of the Gold Anti-Trust Action Committee (GATA), discussing the Scotiabank’s withdrawal from the LBMA.
Word from behind closed doors at the Scotiabank, reveals the key market maker is set to withdraw completely from the London Bullion Market Association (LBMA), and close its doors permanently by the end of the year.
The major Canadian financial institution had previously announced a winding down of some bullion banking provision, assuring the industry that the bank’s role as a key market maker would remain unaffected. Scotiabank’s u-turn and sharp exit from the bullion banking space could have far-reaching implications across the gold and silver markets.
Suspicions of Scotiabank’s hushed departure first arose when associate LMBA member, Bullion Management Group, BMG, declared the financial institution would no longer act as their custodian. The Canadian bank’s unexplained withdrawal from the risk-free and profitable income of custodianship sounded the first alarm among industry experts.
For a detailed discussion on the wholesale physical silver bullion shortage with GATA chairman and co-founder, Bill Murphy, watch the week before last’s Talking Gold with Andrew Maguire here.
What are the reasons behind Scotiabank’s closure?
Termination notices sent out to Scotiabank employees first detailed the bank’s impending closure, the cause of which still remains unclear.
According to industry experts, the imminent shutdown bears all the hallmarks of a forced regulatory decision, leading on from the market rigging lawsuit filed against the bank in March. The US court filing showed that Scotiabank provided 800,000 pages of evidence for regulators probing the metals trading of investment bank, JPMorgan.
Does Scotiabank have the physical bullion to back its paper positions?
Upon exiting the market, Scotiabank will be made to square up all gold and silver paper market positions, but questions linger whether they have the required physical gold bullion and silver bullion – or any whatsoever, as the case may be.
With an industry source attesting that they conducted an audit of Scotiabank’s all but empty bullion vaults, the situation looks far from promising. In which case, the financial institution will have no choice but to square off its naked unbacked, unallocated gold and silver positions.
Implications across the industry
The fall of Scotiabank could have widespread ramifications for other key bullion banks across the gold and silver markets. As the Canadian bank has been leasing gold from other major bullion banks, all industry players will likely feel the sting of its closure.
In Scotiabank’s absence, only two of the six major market-making banks remain standing. As another of the major market makers fades into obscurity, the task of agents for central banks and the Bank of International Settlements (BIS) grows ever more difficult.
Andrew Maguire’s parting thoughts:
The trigger for a massive spike higher in gold and silver prices is the wholesale exit of these 1st and 2nd tier bullion banks trading CME Futures.
Next Episode: Andrew Maguire talks gold and silver with an industry expert who audited the non-existent gold and silver bullion of Scotiabank firsthand.
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