Stop watching the price
The price is the greatest tool of misdirection. What matters is what the biggest, best-funded, and best-informed buyers do: central banks, commercial banks, and whoever stands for delivery. Delivery gives away the truth. If this were only about price, the central banks and the Chinese would not be buying, because they are not fools. The fundamentals should drive everything, but the mainstream keeps them blurred and hidden by never talking about what actually happens.
The delivery numbers
In June, about $14 billion worth of gold was delivered on COMEX. Not all of it left the market, and that does not matter. For decades this market ran on one belief: that investors would never stand for delivery. They would cash settle, roll the position forward, or exit. It was mostly a hedging tool, not a speculating one. A miner with production coming due forward-sells it on COMEX to lock in a price he likes. A dealer holding 2 million oz of silver in a warehouse hedges those ounces to offset risk, then closes the position when the metal sells.
Now that pattern has flipped. Massive deliveries have run for 18 straight months. In February, 4.1 million oz of gold was delivered for almost $20 billion. Every single month it is delivery, delivery, delivery. Nothing like this has appeared in 35 years, and the mainstream ignores it. Since Trump won the election last November, roughly 18 to 19 months, every month has seen between nine and ten figures of gold and silver delivered. Historically, less than 1% of these contracts ever stood for delivery.
Why new buyers are arriving
For first-time buyers, the pull is not the price. It is a general unease about the world: wars in Ukraine and Iran, fiscal irresponsibility, and a dollar that buys less as inflation pushes prices up. For the last six years everything has felt inside out, with some jarring event every other day. Many people cannot even put the feeling into words, so they turn to metals as defensive insurance rather than trusting that retirement is funded only by mutual funds and stock certificates. Look at the S&P 500: the whole market is held up by ten stocks, and calling it ten is generous, since it is closer to seven. That is not healthy, which pushes some money toward risk-off assets.
Why the price fell while demand surged
The big money does not care about price. In February the Bank of International Settlements, the most powerful bank in the world, addressed the price slam and said it was structural and synthetic, not fundamental. Several mechanics hit at once.
First, ETF rebalancing. Commodity-backed ETFs must rebalance early in the year per their prospectus. Gold and silver had run straight up week over week into year-end, so the ETFs got badly out of whack and were forced to sell hard in the first week of January.
Second, the CME Group, which runs COMEX, hiked margin rates 300% from early December to the first week of January. Margin is the collateral you must hold in your account to trade these contracts, and it applies to hedgers and speculators alike. In early December it cost roughly $15,000 to hedge 5,000 oz, which is five 1,000-oz bars. By the first week of January that figure was $54,000. If you did not post the extra money each time margins rose, you were liquidated within 24 hours.
Someone holding $100,000 to $110,000 in December could carry seven contracts. Five weeks later those seven cost 300% more, over $350,000. Anyone short of that cash was liquidated. Selling begat selling, and every stop along the way was triggered, feeding more selling. On the surface it looked like demand was collapsing. The opposite was true.
As the price got destroyed, China bought more silver in the first quarter than at any time in its history and bought $54 billion of gold in the quarter. In the United States in February, 4.1 million oz of gold was delivered, worth about $20 billion at prices near $5,000, or $18 to $19 billion even at $4,500. February was a non-delivery month for silver, yet about 26 million oz of silver was still delivered.
Metal on trucks
In February, 39 million oz of silver got on trucks and left COMEX, which is 160% of what deliveries alone could explain that month. That is 2.9 million pounds of silver worth almost three-quarters of a billion dollars, gone. Someone loaded the trucks, ran the logistics, paid the insurance, and had somewhere to send it. Someone stood for nearly $20 billion of gold in February and $14 billion in June while the price did nothing but disappoint.
Much metal leaves, and much stays. When it stays it moves from eligible to registered. Registered bars back the contracts, so if you want to stand for delivery you draw from registered. Eligible metal could be moved to registered but is not for sale. There are nine Brinks storage locations across North America, and only the New York one is a COMEX vault; the rest are not. One client holds 2 million oz in 1,000-oz bars there, sitting as ineligible and unregistered. She could move it to registered but has no intention of offering it to COMEX. So whether delivered metal drives away on a truck or sits in the eligible category, the demand for real ownership is the point.
Ownership over paper
The old assumption was that no one would take the real bars. Now buyers say they want the numbered bars in their own possession. That has never happened before at this scale, and it is a very big deal. Ask who has this kind of money for 18 to 19 straight months while the price disappoints.
The buyers are sovereigns. Poland has bought more gold than anyone in the world; the only holder even close over the last two years is Tether. France is repatriating its gold from the New York Fed, and India from the Bank of England, because the Bank of England is tied to the LBMA and the New York Fed is tied to COMEX. They follow the Dutch National Bank, Germany's Bundesbank, and the central banks of Austria, Hungary, Turkey, Poland, and the Czech Republic, all telling the West they want their metal back and will give up the convenience of COMEX or the LBMA to hold it themselves.
This sits on top of three straight years of 1,000 metric tons or more bought by central banks. The first quarter of this year was the largest first-quarter central bank buying in history. Officials claimed they bought only 16 tons. The World Gold Council put the real figure at 15 times that, about 160 tons, calling out an underreport of 15 times. Central banks are buying in a completely inelastic way. They do not care about CPI, employment, or anything else. Every month they buy, and they let the price mislead everyone.
The July 4th letdown and a gold revaluation
July 4th was a disappointment for the industry because a hoped-for gold revaluation did not arrive. The backdrop made it seem plausible. Scaramucci had spoken of remonetizing the balance sheet of the United States. Trump called it the golden era. Judy Shelton, a nominee to run the Fed, discussed it and thought it might land on July 4th. This is the best idea I have heard to date, it should happen, and it might. But a gold revaluation is not something to count on. At the very least they should mark their gold to market on the balance sheet, which would hand the Treasury General Account $1 trillion free and clear. The missed date is just another small disappointment, not the end of the story.
The long view
Through all the volatility, white-knuckling, and counterintuitive price action, gold and silver have found a way to outperform almost everything. The tortoise reaches the finish line before the hare, not every time, but often enough. You own gold and silver not to get rich but because they are wealth that has outlasted two world wars, German hyperinflation, the Great Depression, and every pandemic. Six thousand years on, and named cumulatively more than 700 times in the Bible, they endure.
Central banks have bought nine years in a row and are now escalating those numbers while hiding them, as the World Gold Council pointed out. Whoever stands for billions in delivery every month, and the central banks buying inelastically, seem to know where the puck is going and are skating there while everyone else stares at the current price.
The biggest mistake is treating gold like a trade instead of financial insurance. Look at what large institutions consistently choose to own through the volatility. Capital moves before the narrative does. Either you look at the facts behind these actions logically or you dismiss them. When buyers spend nine and ten figures a month, they have the information, and their actions make the case for them. The delivery betrays the price.
