Shanghai Gold Contract Arbitrage Potential
Jim Willie CB
www.goldenjackass.com
THE STAGE IS SET FOR ARBITRAGE OF THE HIGHER SHANGHAI GOLD PRICE. A SNAPSHOT OF DECEMBER 7TH REVEALS THE DIFFERENTIAL. THE POTENTIAL FOR ARBITRAGE EXISTS, WHICH COULD CONCEIVABLY WRECK THE C.O.M.E.X. BY DRAINING IT. THE SUPPLY COULD GO TO SHANGHAI FOR SALE. OF COURSE, THE NEW YORK GANG COULD REFUSE TO MAKE DELIVERY, OR STEAL MORE CLIENT ACCOUNTS LIKE WITH MF-GLOBAL. THE PRICE SPREAD WILL EVENTUALLY BECOME A TOPIC FOR COMPLIANCE AND RISK DEPARTMENTS TO ADDRESS, AS THE MARKET WILL BE COMPELLED TO EXPLAIN THE DISCREPANCY FROM A CORRUPT MARKET IN THE UNITED STATES.
Thanks to the London Siren for reporting on the price differentials between the COMEX and Shanghai Gold price, which are not minor. A price arbitrage of $20 to $25 is plenty to capture and to exploit. Consider a snapshot taken on December 7th. The Shanghai Gold contract closed at 1728. At no point did the Gold price on the COMEX/Globex trade at that level overnight, no touch. Alert parties with a global footprint will start arbitraging this differential, since they can. They could sell gold in Shanghai, but buy gold on COMEX. Anyone doing that would essentially be going against the cartel with threat to bust the COMEX. The roadmap is there, which can be implemented for quick exploit. Some logistics could interrupt the process. If supply is taken in New York, the gold bars must be shipped to Shanghai for sale and delivery. That might cost must be managed in arbitrage, if indeed delivery is permitted and taken. The New York side might refuse to deliver if they see what is being done. They also might attempt to engineer a more targeted account theft if they could isolate the party conducting sales in Shanghai. It will be interesting to observe if the price differential expands.
Update with another snapshot taken on December 13th. The COMEX Gold futures contract was trading at 1691 at one point when the London Siren checked the price. The Shanghai Gold price closed at 1715. At no point did gold trade anywhere close to 1715 on COMEX overnight, no touch. The differential was $24 at that snapshot, equal to a tiny 1.4% spread. Note also, the COMEX Silver futures contract was priced on December 13th at 32.65, while at the India MCX it was 35.46, a very wide differential of 2.81 per ounce, equal to a ripe 8.6% spread. The COMEX Platinum also offers arbitrage potential, since the COMEX Platinum futures price was 1616, but in Shanghai at 1690. The dislocation between COMEX prices and Shanghai/India prices continues to grow, equal to a 4.6% spread. Execution of the arb trade is possible, just must be managed with certain challenges.
The London Siren made some conclusions. He wrote, "Some points are important to understand in sequence. 1) The Gold arbitrage is a tool that China can now use against JPM, GSax, USFed, USGovt, USTBonds anytime they want to cause a systemic failure. 2) They do not have to sell USTBonds as most people believe, since they now have an alternative weapon of mass financial destruction in the arbitrage. 3) China is now the price setter for gold. They would not start trading gold in Shanghai unless very confident about its success. 4) This is another step in making the Chinese Yuan a reserve currency, toward enabling its free convertiblity into Gold in size."
Thorny issues must be addressed eventually, which strike at the heart of the corruption behind the COMEX. Compliance and Risk Departments must determine which is the true market price, and at what price client positions are marked to market for equity determination and margin calls decisions. The logistics would not be any formidable challenge to a wealthy well-equipped merchant player in execution of arbitrage trades to exploit the price spread. A $25/oz spread translates to a $80.4k arbitrage potential gain per kilogram. A private jet could be secured to manage the transported bullion bars, loaded with several hundred kilograms. The key is actual delivery taken in the devil's den of New York. Sophisticated traders with big accounts and big vault space and assistant mules in both locations could conduct the arbitrage trades. However, unless physical bars move, the trades remain trapped within the paper world on the two sides, separated by a wall (two distinct markets) and ocean. Contracts are not interchangeable. Other risks would be from robbery by employed JPMorgan thugs or hired Blackrock thugs or dedicated FBI thugs working under the USGovt badges. If believed far-fetched, then naive to the core. The level of financial crime and protection by USGovt law enforcement and security agencies is astonishing, backed up by the US courts. The FBI protected Goldman Sachs when their UNIX box for snagging order flow data was stolen by the Russian employee. They painted the Russian as a theif and protected the venerable GSax putrid house.
Repost by S~P
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