The Grant Williams Podcast: Ronan Manly

Grant Williams (00:10):

Before we get going, here’s the bit where I remind you that nothing we discuss should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. And now, on with the show.

Welcome everybody to another edition of the Grant Williams Podcast, coming thick and fast to begin the year because I’ve had so many great opportunities to have interesting conversations. And I always said at the very beginning of this podcast that I wasn’t going to stick to a set schedule and find out that it was Tuesday so I needed to find someone to talk to, but rather have conversations as and when I thought they would be interesting for me and of course, by extension, interesting for you. And I’ve had so many great opportunities that I think this may be my 12th or 13th podcast since the start of the year, which is quite the run rate. It will slow down, I promise you, if you’re still trying to catch up. But every single one of these conversations I’ve found fascinating and hopefully you have too.

Today’s guest is a gentleman who I last interviewed 10 years ago, which neither he nor I can believe that amount of time has disappeared between sitting down to talk to each other, and that’s Ronan Manly. Ronan writes a substack called BullionBrief. He’s also been a prolific writer on the BullionStar website as well as a contributor to the must-read Incrementum In Gold We Trust report, which is published by my friends Ronnie Stoeferle and Mark Valek every year from Incrementum.

Ronan has done a lot of work on the inner workings of the gold market, and with the price nearing $3,000 and an awful lot of crazy headlines around deliveries and wait times and all kinds of conspiracy theories coming forth, I thought it was a perfect time for the people out there who are new to the world of gold and all its infinite fascination to try and help you get a handle on what’s going on, and also for people who do follow the markets to get an update from Ronan on what’s really happening in the markets. So without any further ado, I hope you enjoy a conversation with Ronan Manly.

Ronan, welcome to the podcast. It’s been a long time since you and I have seen each other in person, but I’m delighted to have a chance to talk with you, especially with everything that’s going on in the gold market.

Ronan Manly (02:30):

Hi Grant. Thanks for having me on the show. I’ve been listening to your show for many years now. And it’s been 10 years since we met in London.

Grant Williams (02:36):

Time flies, doesn’t it?

Ronan Manly (02:38):

This is a great time in the gold market, because a few hours ago it hit a new all-time high. I think it was $2,940, so it’s pretty near $3,000. So it’s great time to be talking about gold.

Grant Williams (02:49):

Absolutely. And what I’d love to do today, because there are obviously a lot more people now, I keep saying to people there’s nothing like record high prices to make people suddenly want to buy something they could have bought for a third of the price a few years ago, but that’s just the way of the world I guess.

But there’s an awful lot of noise going on around gold. And with so many people new to it, I couldn’t think of anybody better for a part history lesson, part current assessment of the gold market so people understand a lot of the things they’re going to be reading about. And there’s been a lot of noise about the COMEX and the LBMA recently, which we’ll come to in a little while. But what I wanted to do, if we could, is go back to the very beginnings of the gold market as we know it now with the LBMA, with the COMEX, with the paper gold market. And let me turn the floor over to you to help people understand how the market came to be the way it is today and create these structural weaknesses, which we’ll come on to talk about in a little while.

Ronan Manly (03:39):

Well, I actually did quite a lot of research in the Bank of England archives back in around 2012. So I think that all stems to me now from having gone back and looked at the history of the London market and then the COMEX market. So basically, the London market has always been the centre of gold trading in the world for a few hundred years, and that was the case also up until the late 70s when the gold price hit an all-time high, as you remember back around January, 1980 of $800 per ounce.

But the gold market used to be a physical gold market, and the Bank of England then as of now had a very strong role to play. But there were five main brokers in the London Gold market, including Rothschild and Samuel Montagu and Sharps Pixley and Scotia-Mocatta, well, Mocatta, which is now Scotia. And COMEX Futures trading only began in around late December, 1974 or January, 1975. So that was pretty much a new concept for the gold market in the mid-70s.

But still, during that time in the 70s, you had record inflation. There was huge multi years of new all-time highs in gold price and there was IMS Gold sales. So they were really trying to keep a lid on the price, the US Treasury and the Bank of England. But still, the price was rocketing up because there was Arab buying and there was geopolitical risk then as of now like the invasion of Afghanistan. So there was a lot of similarities back in 70s compared to that.

But it was only really in the late 80s that the fractional reserve London gold market got going. The London Bullion Market Association, LBMA, was only created in 1987. And interestingly, even on their website it says it was created at the behest of the Bank of England. So the Bank of England again had this guiding hand role in creating the LBMA. And at that time, there was a few more bullion banks, if you want to call them that, involved.

So the founders of the LBMA were Morgan Guarantee, J. Aron, which used to be Goldman Sachs, and in a few others, Rothschilds. So at that time, there was seven main bullion banks, but over the next 20, 30 years, a lot more got involved. So there could be like 30, 40 bullion banks now involved in gold trading. And they’re all involved in gold trading in both London and in New York, so they trade COMEX gold futures and they trade unallocated gold credit in London. So if you want me to say a little bit about unallocated gold so people get a feel for it.

Grant Williams (06:12):

Yes, what I wanted to do was get you to expand on that and explain if you can, obviously the difference between the physical and the futures market in the way they trade, and also the idea of a fractional reserve gold market. Because there will be people, I suspect, who aren’t quite familiar with what that means with regards to the gold market.

Ronan Manly (06:32):

So basically, in London there is a lot of gold, but most of it is owned by specific entities like central banks or ETFs or some of the commercial banks, bullion banks. But the bullion banks really keep minimal floats of physical gold, and they borrow gold from central banks if the one top up their holdings or they sort of redeem baskets from the backed ETFs like the SPDR Gold Trust.

But back in the 70s, there was no such concept as unallocated gold. It was just physical gold and it was earmarked to accounts. Say the central bank of the Netherlands has a gold account to the Bank of England, they would have like 300 tons earmarked in their account. And there was no gold lending market back then. Later on, I’ll explain a little bit about the gold lending market. I guess it’s very shrouded in secrecy and it’s very difficult to know much about what’s going on there.

But I think it was just after the creation of the LBMA in 1987, this concept of unallocated gold started entering. And the unallocated gold basically means you just have a claim against a bullion bank for a certain amount of gold. So if you are an institutional client, you could buy say half a ton of unallocated gold. But you don’t actually have that. You have a claim against a bank that if you wanted to get that allocated, they would have to go and find that gold to give to you. And interestingly, when you have an unallocated account, there’s no storage fees because there’s nothing being stored. That’s a good way of looking at it as well.

So the whole market became based on trading unallocated in London. And the London market is an over-the-counter market, so there’s no exchange as such. There’s just banks trading with each other over their trading desks. But then they centrally clear all their trades with a company which is affiliated to the London Bullion Market Association, and it’s called London Precious Methods Clearing Limited, LPMCL. And that’s a sort of private company, but it’s run by JP Morgan, HSBC, ICB Standard, and UBS at the moment.

And that’s a really secretive clearing platform as well. I was actually trying to find out information about that recently, and I contacted a lot of people who work in say, JP Morgan ops or HSBC ops or previously worked there, and nobody wants to talk to me about it. So it’s a very secretive thing. But interestingly, it clears all these unallocated gold trades for the whole London system. So you have this really secretive clearing platform doing that, and I think it’s an area that the media should really focus on investigating.

But going back to the unallocated gold, so every day there’s billions of dollars of unallocated gold traded in the London market in the form of spot, contracts, forwards, and swaps. And then, anyone looking at that would go, “Well, there’s only like 220,000 tons of gold in the world, but every year the London market trades hundreds of times that amount of gold.” And they do that because it’s not really gold, it’s just fractional reserve claims against the same amount of gold.

So it’s really like a fractional reserve system. You could look at it as an inverse pyramid where there’s gold at the bottom of the pyramid, and then you’ve got all these derivative trades on top of that, and derivatives on top of derivatives. And then, if you look in New York, the gold futures market, the main contract traded is called GC 100. It’s a 100-ounce contract for 100 ounces of gold. So most of that is going to be rolled over and cash settled. So normally, 99 or more percent of those trades which are on a futures exchange, the COMEX owned by CME. So normally all of those either roll over or get cash settled, but they are physically deliverable in the form of 100-ounce gold bars or three kilo gold bars. And normally, very little of that gets physically settled.

But there are a series of vaults in the New York area run by HSBC, JP Morgan, Brinks, and they’re all called COMEX approved vaults, and they all have gold in them. And a lot of that gold is either just put in reserve and left there by customers, or else it’s put on what it’s called warrant, where it can be used to physically settle these gold futures contracts.

So in the current day, the bullion banks trading out of London and New York, they trade both the OTC contracts in London and the gold futures contracts in New York. And they also trade the spread of those contracts, and maybe go short or long depending on which one is the higher price.

Grant Williams (11:20):

So for people trying to follow along at home, essentially what we’re saying here is that people can trade hundreds of times the actual gold that are in these vaults in futures contracts, and instead of actually physically taking delivery of the gold, which they’re perfectly entitled to do, but they’re not looking to own the gold. They are looking to trade the gold price, make a profit if it goes up, make a profit if it goes down and they’re short, and it’s really just a trading vehicle for many, many cases.

Ronan Manly (11:46):

So a lot of bullion banks would be doing their trades on behalf of customers, clients like jewelers. So you’ve got speculators who are just taking bets against prices, but you’ve also got people hedging their risk. So it’s a risk management also.

Grant Williams (12:00):

And of course, the beauty of this is that there’s absolutely nothing wrong with this in normally functioning markets. And it’s interesting that the LBMA was opened in 1987. We had Black Monday then, but since then we had this perfectly benign environment where rates were continuing to go down, central banks were sellers of gold, and it really was the perfect environment for this market to grow and thrive because nobody really needed to own the physical metal. Having an interest in the price movement was enough for a lot of people or having the ability to hedge was enough for a lot of people, and there really wasn’t any burning need to secure the physical metal because credit was so free, interest rates were going in one direction, we had geopolitical stability for the most part, we had market stability. And so, what we saw back then, Ronan, if I’m not mistaken, was really a very different market to what we see now.

Ronan Manly (12:53):

If you look at the early 2000s, central banks were selling gold, and even in the late 1990s, so there were a series of central bank gold sales by European central banks.

Grant Williams (13:03):

And these were the Washington Gold Agreements?

Ronan Manly (13:05):

They were the Washington Gold Agreements. I think there was four of them, each five years in duration, and at the end, the expiry of one, it would be renewed again. But interestingly, recently it wasn’t renewed, but it was there for about 16 years, central banks selling gold because gold was seen as an out of favor asset class. The price was very low.

So I remember back in 2002 or ‘03, the price in sterling was 200 pounds. I used to buy Krugerrands for 200 pounds, and I don’t know what they’d be now, 1,100, 1,200 pounds. But nobody was interested in gold. People I worked with, colleagues were kind laughing at me for buying gold coins. Nobody wanted to know about gold. And it was even very hard to buy gold. I used to work in London, so there was a few gold shops around London, but nobody really was interested in gold.

In that environment, the bullion banks were still making money by trading enormous amounts of unallocated gold. And if people wanted gold exposure, they’d just get unallocated gold, which wasn’t necessarily backed by anything.

If you think about that compared to now, for the last 10, 12 years, central banks have been net bars of gold. And over the last three years, central banks as a group around the world have been buying in excess of 1,000 tons of gold per year. So gold has become a much more sought after asset now and reserve asset. Some of that was due to the Russian invasion of Ukraine and the sanctions that followed, which made a lot of central banks sit up and say, “Oh, if Russian FX reserves can be frozen, then ours potentially can as well.” So they increased their gold reserves as a proportion of the reserve assets as a geopolitical risk hedge.

What’s happening right now in the gold market is totally unprecedented. There’s a lot of gold moving from London to New York that’s being traded on COMEX. And those gold futures contracts, which normally would get cashed out of the rollover, the owners are waiting for them to get delivered with physical gold. A lot of gold has to be flown to New York for that.

Grant Williams (15:08):

I want to put a pin in that for the moment and come back to that. But I want, if I can go back and again help people understand because you’ve got this split market where you’ve got the physical metal, which generally doesn’t move. It sits in vaults and gets allocated either in a computer or in many cases physically lifted up from one cage and put in another cage depending on who’s bought the gold. But it never leaves the depository really, apart from all the stuff that people have in their own safes or their own custodial vaults elsewhere.

But the nature of this has been that the gold market and particularly the silver market, both precious metals, have been like a high for conspiracies over the years. Because you’ve had this enormous amount of trading going on in what is supposed to be a pristine piece of collateral, and the fact that we’ve had leverage applied to it, we’ve had rehypothecation applied to it, there have been all kinds of things put on top of this supposedly pristine collateral, that it has created a fervored amount of speculation about how much gold is really here and how much gold is missing and all this kind of stuff, which there’s been no answer to.

And it hasn’t really been a problem until now because nobody has actually really wanted, or needed more importantly perhaps, to secure and perfect that asset and to have their gold in their own custody. Now we saw a little bit of this back in 2011, ‘12 when first the Bundesbank decided they were going to repatriate their gold from the New York Fed. So talk a little bit about how central banks store their gold, where they store their gold, and the changes in that that we’ve seen in the last 10 to 15 years.

Ronan Manly (16:46):

Some of the big gold depositories of the world for central banks are the Bank of England vaults in London, the Federal Reserve vaults in Manhattan below the New York Fed Building, which is called 33 Liberty Street, and also the Bank of Paris in France vaults gold not just for Banque de France, but also for a lot of say previous colonies of France and you say West Africa, some other French colonies. And then, the Swiss National Bank also in Bern is the gold vaulter for not just Swiss National Bank but for the BIS, the Bank for International Settlements, and a few other central bank clients. So there’s four of the big gold vaults. Previously the Bank of Canada vault in Ottawa was quite substantial. A lot of the gold flowed into that during the Second World War when it was being protected from the war in Europe.

The real centre is still London. The Federal Reserve gold has been there for a long, long time, and it’s pretty secretive as regards to which countries have their gold there. But say there’s about 70 central banks have gold in London, and maybe like 30, 35 in New York, and maybe seven or eight in Paris.

As you say, gold doesn’t really do anything, it just sits there. And previously gold was just owned by entities, and they either bought or sold it. But then, on top of that has developed a huge leveraged fractional reserve system of claims and collateral and Scroll swaps and other derivatives. So it’s very difficult to know what is going on in the gold market because all of these entities are ultra secretive.

So central banks are traditionally really secretive about their gold reserves, even to the extent of where they would store them. And you saw back in around 2012 and ‘13 where politicians from Germany and the Netherlands had to really do Freedom of Inflation Acts nearly to get information about where the gold reserves of those enterprises were being held.

And another really secretive aspect of the central bank gold market is the gold lending market, where central banks lend their gold to the commercial banks, commercial banks pay them a small leasing fee, and then those commercial banks can take that gold and do whatever they want with it. But they have to eventually pay it back. And there’s a lot of conspiracies about the fact that central banks lent a lot of their gold and they never got it back. And they just pretend that they still have it on their balance sheets, but they don’t actually have it.

Grant Williams (19:20):

So they’ve lent this gold out, they still have the claim on that gold, so at any point in time they could go to the people who borrowed it and say, “Okay, we want our asset back.” And they would be forced to go into the market, buy the gold at the market price, and deliver it into the central banks, which is pretty standard practice across all kinds of different assets in financial markets.

But there is a difference with gold, because as I said before, gold is this pristine collateral that is nobody’s liability. And so, to lend that out in benign times, it’s not advisable, but it’s doable to earn a tiny bit of carried interest on your gold position rather than having it sit there costing you something. But it’s potentially a very dangerous thing to do, because as soon as there’s stress in the system, there’s the potential for a cascade. As soon as one of these central banks says, “Okay, we want to call in all the gold leases we’ve put out there. We’re going to actually demand that you settle and send the gold back to us.”

The potential cascade through the system as everybody tries to buy the gold to deliver into the people they owe it to has always been a big Achilles heel potentially for the system. And it’s been an area that has sprung a thousand conspiracy theories, many of which are very, very interesting. But really, in the scheme of things, none of them really mattered until they matter. Because the price will always ultimately take care of all this stuff. If the conspiracy theories are right, the price will reflect that ultimately whenever that pressure is finally applied. And if that pressure isn’t applied, then it really doesn’t matter.

But have we reached a point now, do you think, Ronan, where given this desire of central banks to be bigger buyers of gold in the market for themselves to hold as reserve collateral instead of maybe US Treasuries in many cases, and the decision by those central banks to want to have that gold within their own borders as the world slowly fragments, is this the point in time do you think where we could start to see this cascade begin to happen? And if so, what does that look like?

Ronan Manly (21:23):

That’s really interesting, because back in around 2012 when Venezuela repatriated gold, it did start off what you might call a slow motion domino effect, where other countries sat up and said, “Why don’t we repatriate gold?” And then you saw Germany trying to repatriate gold from the Federal Reserve of New York. It took them about five years. And the Netherlands transported back some 122 tons of gold from the Federal Reserve. And then, countries like Poland and Hungary started buying gold in London and bringing it straight back. And then, India is doing that recently, repatriating gold. So that’s created a domino effect, and that’s creating some stress on the system because the more central banks that want to buy gold maybe in London, but bring it back to their home countries, that gold is then gone from the system and it can’t be lent out and it can’t be rehypothecated.

So there’s some interesting theories about the fact that Chinese Central Bank buys a lot of gold in London and straight away brings it back to China. So you’ve got these buyers at the margin constantly buying gold in the London market. And there’s only a certain amount maybe like, say 3,000 tons a year from mining and 1,500 tons from recycling all around the world globally. A lot of that will go through London to be maybe refined in Switzerland, and then it gets sent out to India and China and places. But if you have a certain amount of buyers just buying gold constantly like Central Bank of China and the Indian population, and then if you get central banks coming in like Poland and Hungary and for example, Slovakia, them buying as well, the more banks that try to buy a set amount of gold, you would think that the price will have to go up.

So I think what the bullion banks and the Bank of England have been doing is literally juggling a lot of plates, trying to meet demand from various central bank customers and maybe saying, “Well, you have to wait.” This is even before recent delays from Bank of England, but I was thinking of in the last few years with the huge central bank gold demand, they can’t all be getting their gold at the same time. They’re sort of like a club. They’re cooperative, and they’ll wait a few months to get gold delivered to them. But the more banks to join that momentum, the less gold there is to go around.

Grant Williams (23:40):

The interesting part of this is that of course you’re right, they are a club and they all have a vested interest in not scaring the horses. So I think they are willing to wait. However, that is a remnant from a world where there really wasn’t any kind of polarization. There really wasn’t a difference in interest. The world’s central banks operated together with a very similar set of aims.

That’s changed dramatically in the last couple of years. And so, we now find ourselves in a place where the world that we knew until really 2022 has basically gone away. We don’t have alignment amongst every central bank in the world. We don’t have the safe knowledge that your asset is your asset and it can’t be taken away by a capricious foreign government. We have this constant bid under it from not just the Chinese Central Bank, but also Chinese retail. We’ve seen Indian retail big buyers, basically the Eastern half of the world who think of gold very differently to the West. It’s a way of storing savings and a way of preserving purchasing power; whereas in the West, it’s deemed as by many people a trading vehicle for the most part. How dangerous is this setup, this new world that we’re in where political lines have been redrawn and the hierarchy of needs have been reshaped for different countries, how dangerous is this for the gold market?

Ronan Manly (25:03):

I think that’s a really good point because as you say, since the invasion of Ukraine by Russia and the sanctions and the freezing of reserves, central banks have noticed that and that they’re actually on that. And you can see that countries that are in the BRICS organization, such as China and India and now with the UAE and Iran and Russia. So all of those countries are actively discussing whether it could be possible to use gold in some form of international settlement in the future. And there’s theories that these countries are increasing their gold reserves for that time when gold might be used as a monetary asset for international settlement or to back a regional currency.

So the very fact that these central banks are not really following orders from G7 is quite obvious at this stage and that they’re breaking ranks. Even the central banks, which are, as you said, are a cordial club previously that would lease in the Bank for International Settlements in Basel and all agree not to shake things up.

Now they are actually shaking things up, different regional groupings, and that gold repatriation is one example. But also, I write some articles for the In Gold We Trust report, Ronnie Stoeferle’s report. And back, I think it was last year or the year before, the title of that whole annual report was called Showdown. What that is trying to convey is this showdown between the East and the West as regards the role of gold in the future.

You can see now it’s even happening in the States with Trump now coming into power. That’s very interesting that there’s a lot of talk and chatter now about a possible US Treasury gold-backed bond. And now Elon Musk is saying that the Fort Knox gold has to be audited. So this is really creating unprecedented breaking of ranks. Even the US is breaking ranks with maybe some of its central bank colleagues in Europe. And that should have an effect on the gold price. It’s difficult to imagine that it won’t have a positive effect on the gold price. And the gold price is going up. Maybe sort of that is reflecting all of these uncertainties.

Grant Williams (27:12):

We’ve seen gold rise against a backdrop, which at any other point the last 30, 40 years would have seen it fall precipitously. It’s had everything going against it, with a strong dollar, positive real rates, and rising interest rates, and rising stock markets. Everything that is normally associated with gold going down has had no effect on it whatsoever, which is certainly for those of us that have followed gold for a long time, is very notable.

But I was going to come onto something you mentioned there, and that is the gold that the US holds. It’s 8,133 tons of gold that the US, I will say supposedly holds, but we’ll come onto why that’s a loaded word in a second. But there’s been talk recently of revaluing the US gold on their balance sheet. So explain that to people, because it’s counterintuitive and I think a lot of people might be confused as to where gold is valued and why and what difference that might make if they do revalue it.

Ronan Manly (28:04):

All other central banks around the world value their gold on their balance sheets at market value. But the United States Treasury, which is the holder of United States’ sovereign gold is the exception. And they value gold at a very unusual price of $42.22 per ounce, Troy ounce. And that’s the price that it was back in 1973. So it’s based on some sort of US legislation that they’ve never changed.

But what it does, it means that perversely the United States, which is supposedly the largest sovereign gold holder in the world with 8,130 tons, all of that gold valued at $42.22 per ounce is something like $6 billion. So it’s very tiny. So when they’re talking about a gold revaluation, it’s to either change those rules to value the US gold at market value or even put a higher set value on it, maybe like say $3,000, $4,000. And what that would do would mean instantly the gold price would probably have to rise up to whatever the US says is the market value of gold. And that’s why it’s created such excitement, because also it would give the US Treasury a windfall. So on their balance sheet, say currently their gold is worth $6 billion. It could instantly be worth, having done the calculations but it would be something like-

Grant Williams (29:23):

I think it’s close to $1 trillion.

Ronan Manly (29:25):

So that would be a one-time windfall. And they could use that, because they can say that their assets value has now increased by that much. So that’s why it’s so important.

But then, the question is, as you mentioned, do they have the gold they claim to have? Because it’s located in four different places. More than half is in Fort Knox in Kentucky, in this sort of legendary gold depository there that was in the James Bond Goldfinger film. Then there’s West Point, where the US has a military academy. There’s actually a US Mint vault there. Supposedly there’s about 1,680 tons there. And then, the third-largest vault is the US Mint in Denver with about 1,200 tons. And then, there’s a small amount in the New York Fed belonging to the US Treasury. So literally, there’s four places that the US Treasury claims their gold is held. And with this current chatter from say, Elon Musk’s Department of Government Efficiency, he is now saying that Fort Knox needs to be audited. But by extension, all of these other vaults need to be audited all at the same time to make sure that the gold isn’t being moved around. So that’s why it’s very important to the US Treasury to demonstrate that they have the gold they claim to have if they want to revalue it.

Grant Williams (30:46):

This is the problem. When you get someone like Musk coming in, having watched him very closely for a decade or more, I’m pretty sure and confident in saying has a very rudimentary understanding of the gold market and a very rudimentary understanding of gold’s place in the financial system.

This idea of a gold audit at Fort Knox is fraught with peril, I think. Because once you say you’re going to do it, even if you say it’s in an off-the-cuff pronouncement, which both he and his boss in the White House are prone to do. Let’s say, let’s play devil’s advocate and say that not all the gold is there because of what we talked about earlier, this gold lending market. It’s not they don’t have claims on it, but it’s not available to them at this time, at this market price. So if they wanted to perform the audit and they have all the gold there, they would have to contact all the people that have got lease contracts with them and say, “Okay, we want our gold back.” Those people would of course have to go and buy it in the gold market or borrow it from someone else. And I can’t imagine anyone is going to lend any gold if they know that the US Treasury wants their gold back.

So you create an enormous set of waves by just saying, you’re going to do this audit. Because there’s a chance someone is going to tap you on the shoulder and say, “Hey, if you go through with this, here’s what’s going to happen.” And then, you’ve got to walk it back, which obviously just deepens the conspiracy theories in the gold market. So once this cat is out of the bag, it seems to me that unless everything is as it should be, and as you say, there’s a great amount of secrecy around all this, that is the only situation really that things don’t get very squirrelly very quickly, I would imagine.

Ronan Manly (32:25):

Yeah, definitely. A lot of the gold in Fort Knox is not good delivery gold. What good delivery gold means is that it’s in a big central bank bar form and it’s 99.9% purity. A lot of the gold bars in Fort Knox are old 90% purity bars which were created by melting down gold coins, which were confiscated during the US 1933 gold confiscation.

And there’s not really conspiracy theories, but it’s true that in the 1960s in London, there was a thing called the London Gold Pool, where the US central bank and the European central banks were trying to keep the price gold at $35 per ounce. And they did that successfully from around 1962 up to 1967. And then, at that gold pool, which is sort of a cartel, got shaky because there was so much demand for gold that they had to keep supplying physical gold to the London market to keep that price in $35. And that huge amount of gold had to be flown over from the US Treasuries, both to London to try and keep that $35 price going.

And ultimately, it collapsed in March, 1968, and the price of gold became what’s known as the free price of gold. It just took off from there. So a lot of the US Treasury gold stocks were drained around that time, late 1967, early 1968. And that feeds the conspiracy theories that Fort Knox has a lot less gold than it claims to have.

There’s also the issue, as you mentioned about gold lending. So some of the gold that the US Treasury has might still be there, but it could be in a gold swap with a different central bank, where the US Treasury has taken, say the Bundesbank’s gold in New York, and the Bundesbank has a claim on gold in West Point. So any auditor would have to look at not just is the goal there, but who owns it or who has title to it.

Grant Williams (34:15):

Of course, the other thing that it’s useful for people to understand is this is not as simple. If you deliver gold through London, you can’t just take it from the COMEX or vice versa, because obviously in London you have a very different delivery criteria. You just talked about the COMEX good delivery bars, but in the LBMA that’s also very different. So if you have to take gold from London to deliver it into New York, there are extra steps that have to be taken that make the process more complicated.

Ronan Manly (34:41):

So during the Covid lockdowns and when some of the refineries in Europe were closed, it created a sort of scare, where the gold price in New York became higher than the gold price in London. And a lot of bullion banks in London flew gold over to New York to take advantage of that arbitrage, and they delivered gold to the COMEX. So the vaults of the COMEX in and around New York became swollen with extra gold that was flowing in.

And the same thing is happening now in the last few months, initially due to fears that Trump would put tariffs on countries like Canada and Mexico and even around the world. So the gold price went up in New York because people were bidding for physical gold in anticipation that they needed to get it before the tariffs might be applied. So that created the beginning of a trend which has continued even now in the middle of February, to the point where there’s a of gold flowing in from London to New York.

But as you say, the criteria is different. In London, they trade 400-ounce bars, big bars, you can just barely lift with one hand. In New York, the criteria is, the gold futures contracts are for 100 ounces, which can be either a 100-ounce bar or three kilo bars. And recently they did create this sort of fudge in the COMEX where they have these things called certificates, which represent a quarter of a 400-ounce bar, but they rarely trade. So a lot of the gold that has to go to New York has to go to refineries first to be melted down from 400-ounce bars made into either kilo bars or 100-ounce bars before it’s delivered to New York.

Grant Williams (36:19):

Which lengthens the timeline, which increases the cost, et cetera, et cetera. There are so many moving parts to this which are problematic for people. So as we’ve seen this frenzy in the last couple of weeks, and there’s been all kind of stuff on social media, which it’s getting harder and harder to avoid at the moment. But people are talking about the rush to secure gold in the LBMA and the delivery times that are extending out in both the LBMA and the COMEX. Just help people understand what the fears are that are being amplified, what people are actually worried about, and the chances of this becoming a major problem, and the disruption that it would cause if it were to become that.

Ronan Manly (37:01):

It appears what happened is that the commercial banks in London had a slew of gold, so they had this stockpile of gold, or they have, and that they started sending a lot of that to New York. And once that had dried up, they started borrowing gold from central banks to then also ship or fly over to New York. And recently, you’ve seen that gold lending interest rates, gold lease rates have spiked, so they’ve got higher, which means that there’s more demand to borrow gold, but less central banks are willing to borrow gold. So the gold that is available for borrowing seems to have dried up as well.

And then, that creates conspiracy theories that there’s no available gold in London. There’s a lot of gold in the vaults of the Bank of England in London and in some of the vaults of say, JP Morgan, HSBC. But a lot of that is either central bank gold or exchange-traded fund gold in say GLD, the SPDR Gold Trust. So if you take away all the gold that’s owned by central banks and all the gold that’s in ETFs, then whatever the residual is, is what people are talking about. Is that available or has that been diminished in a very profound way? And that’s what is creating the conspiracy theories that the Bank of England is delaying the ability of people to withdraw gold from the Bank of England. Is that suggesting that there’s a sort of systemic problem with the amount of available gold in London?

Grant Williams (38:30):

Obviously, the Bank of England have been asked about this and members of the working committees have made public statements, and I’ve seen you on Twitter taking these guys to task somewhat. So talk a little bit about that. Talk a little bit about what’s been said by the officials and the issues that you have with what’s been said in order to calm the maddening crowd.

Ronan Manly (38:51):

The governor of the Bank of England is called Andrew Bailey, and one of the vice governors is called Dave Ramsden, and both of them have been on various news programs. Bailey was in front of Commons Treasury Select Committee, and Ramsden was in front of some financial reporters for a conference. And they’ve even been on Sky News on different segments. So they’re saying that there is no problem about the amount of gold available, but it’s delivery delays, because they’re saying that only a certain amount of gold can be withdrawn from the Bank of England every day because the vaults are old and there’s logistical issues with the amount of security files and things that can take gold out of the Bank of England.

But I don’t think that’s true. I think they’re using that as an excuse because there isn’t a lot of available gold in the Bank of England. And literally, they were saying that four or eight-week delays for customers getting their gold out of the Bank of England. And in London there’s OTC contracts trading at a discount for gold coming out of the Bank of England. So they’re trading at less than the spot price because you’re not going to get your gold now. They’re discounting the time value of how long it takes to get the gold.

But the reason that I’m critical of the Bank of England’s explanations is that I read a huge amount of archived material in the Bank back in 2011, 2012. I was there for a few weeks during that time, and I read a lot about the way that the gold vaults used to operate. And there was never any logistical problems. Thousands of tons of gold could come into the London market during a certain month, and thousands of tons could go out. When I mean go out, it goes out to the market, it goes transported around the world. So there was never logistical problems back then. So why would there be now? That’s my reasoning.

Grant Williams (40:41):

And again, this is a corner of the market that, to your earlier point, is shrouded in secrecy. It’s also shrouded in mystery, and it is ripe at every single turn for conspiracy theory because what is in effect, perhaps the simplest corner of the financial markets, i.e., you buy gold, you store it in a vault, it’s yours. It’s sitting there and it’s yours whenever you want it. It should be the most conspiracy theory-free, straightforward piece of the financial jigsaw puzzle. And yet, no matter where you turn, there is credible reason to believe that all is not as it seems in the gold markets.

Ronan Manly (41:20):

Exactly. Like as you say, it’s all opaque and secretive. And if you want a really good conspiracy theory, I’ll give you one now, which actually was told to me by an ex-head of precious metals trading in one of the big, big billion banks. He said there’s tunnels under the Bank of England linking the gold vaults of the Bank of England to some of the commercial vaults in the city. So if there’s tunnels, then there’s no need for delivery delays, because they can just bring it out through different vaults.

Grant Williams (41:47):

You think? And look, I’m always in the market for a new gold conspiracy.

Ronan Manly (41:51):

So that’s a good one. We’ll have to try and verify the accuracy of that. But it was told to me by an ex-head of one of the big bullion banks, Precious Metals Trading.

Grant Williams (41:59):

So Ronan, let’s talk a little bit about the role gold could play in terms of we’ve seen the dollar be weaponized through the SWIFT system, be weaponized and used as a stick to beat the non-compliant into submission through. But there is a set of circumstances under which gold could be weaponized. I don’t think we’re there yet, but having watched gold closely for more years than I care to remember and seeing the shift in ownership of gold move from East to West. And while the US is certainly the largest supposed holder of gold, 8,133 tons, the block of the US plus Europe might be significant, but the amount of gold that’s flowed into Eastern vaults has also been significant over these years. There’s no real certainty on what China owns. There are official figures which are released, and most people that watch the gold markets every day will tell you that the Chinese figures vastly underestimate the amount of gold that is owned by the People’s Bank of China. How could gold actually be weaponized in the future if it comes to that?

Ronan Manly (43:08):

You mean weaponized by the West against the East or weaponized-

Grant Williams (43:12):

No, quite the opposite, quite the opposite.

Ronan Manly (43:12):

The opposite.

Grant Williams (43:14):

Weaponized by the East as a means to, as you say, set up a separate settlement system that bypasses the dollar and has net settlement in gold. This idea that the BRICS countries will find a way to be able to trade in energy in their own currencies and settle net through gold would have significant ramifications for the dollar. And we’ve already seen Trump threaten anybody that doesn’t use the dollar. It’s clear that that’s uppermost in US minds at the moment. So what does a weaponization of gold against the US dollar look like, do you think?

Ronan Manly (43:45):

So if the BRICS group or if the Shanghai Cooperation Organization or if the Global South, if you want to call all of those countries which aren’t Western countries, if they all together decided to start recognizing gold as either a unit of settlement for international trade settlement or else as a backing for a new regional currency, then that straight away would put a value of gold on everything, like oil trading, on the value of currencies in the FX market. So any currency that was connected to either gold settlement or gold as a backing to a regional currency would have a higher value than fiat currencies which weren’t part of that. So it could straight away lead to a flight from the dollar, selling of US Treasuries, selling of euros. And it would mean that those countries that aren’t part of a region trade agreement would have to come up with gold also to settle international imports and exports. So there’s a whole lot of unknowable consequences, but they’re all really about putting the West at a disadvantage because the East will be using gold.

Grant Williams (44:57):

Now the other part of this obviously is there is gold at the ECB, and as you said earlier on, that’s marked at market. But of course, that gold is not collective gold. That’s not gold owned by Europe. There’s gold on the balance sheets of the various central banks that make up the European Union. You have a country like Italy that has a significant amount of gold on its balance sheet, and you have a country like the UK that basically sold all their gold thanks to good old Gordon Brown. So if gold becomes a meaningful part of either a new currency system or an attempt to stabilise a creaking old one, that too will most likely lead to political schisms. Because no one in Italy is going to want Germany using their gold for settlement presumably.

Ronan Manly (45:42):

And a lot of these central banks who claim to have large gold holdings like Italy, half of Italy’s gold is supposedly in the Federal Reserve vault in New York. That hasn’t been audited either. So domestically and politically, if gold makes a comeback in terms of a settlement unit, all of these other countries that have gold in foreign jurisdictions will have to work out if that gold is still there as well. And countries that have sold their gold like Britain will have political backlash about why was that done? And maybe reprimandations against it.

Grant Williams (46:17):

You would think. Canada did likewise. These are big important countries. Canada sold pretty much all their gold too. So kind of wrapping all this up into a ball, we’ve lived through very calm, benign times, particularly with regards gold’s place in the world financial system. But as the world’s geopolitical climate changes dramatically, I don’t know that many people automatically think of the effect that that’s going to have on the gold price. They think of it in terms of potential fear and uncertainty. And people are used to connecting those dots. When there’s fear in the world, people buy gold as a hedge. But they’re probably pretty stupid for buying that. Why would you buy a lump of metal just because you’re afraid of geopolitics? But it’s just been that way forever.

But this is a very, very different world we’re in now, and the kind of upheaval that we’re seeing on a geopolitical level in my mind has a lot to do with the monetary system rather than geopolitics. What do you see as the future for gold if the world continues down its current path? And it’s very difficult to see how there’s some kind of magical kumbaya moment anytime soon and everybody shakes hands and goes back to the way things were because the sheer of debt won’t allow that to happen. What do you see gold’s role as in the future? And what do you think could happen to gold either as a monetary reserve asset or as a trading vehicle?

Ronan Manly (47:42):

Right now, China and the East is at the forefront of, they have a physical gold exchange called the Shanghai Gold Exchange. And they’re becoming important for pricing gold. So I think what’s going to happen is that that will continue. China will become more important in pricing gold physically, and it could lead to the downfall of the London market as a pricing mechanism, or at least diminution of the importance of the London price.

So I think that physical gold pricing will come into the ascendancy and that the paper gold market that’s sort of fractioning back in first pyramid could even implode, and that could lead to a whole new repricing. And that could be part of the strategy of the East, to bring gold into a monetary role. And if China announces suddenly that they’ve like 12,000 tons of gold instead of 2,500, that will instantly create huge ruptions in the international monetary system. So I think that gold will become a monetary asset for at least part of the world’s countries, and it will lead to a large revaluation in the gold price in coming years.

Grant Williams (48:56):

The importance of gold being priced out of Shanghai as opposed to being priced out of London is perhaps difficult for people to quite understand. Talk a little bit, if you can, about the importance of where gold is priced. And then, if you can draw a picture for me of what that implosion looks like. If the LBMA, the London market or the fraction reserve gold market implodes, what does that look like?

Ronan Manly (49:21):

China’s Shanghai Gold Exchange is a physical gold exchange. There’s a series of vaults and the trading contracts are for physical gold. So the price in China reflects physical gold trading.

In London, the price is based on unallocated gold, which we previously chatted about being a claim. And it’s a fractional claim because there’s more claims on a certain amount of gold than the amount of gold that is under those claims. So if the London market imploded, you’d see the price in London fall below the physical price because it’s representing a fractional claim on gold. So it’s like it would be a fraction of the physical gold price. Whereas at the same time, I think the physical price would take off because it’s been kept under. It’s like putting a ball under water and keeping it down. Eventually it’s going to pop back up again.

So I think that for years now, the COMEX market and the London market have been artificially keeping the physical price down, and it should be multiples higher. So once confidence will be shaken in trading the unallocated gold contracts in London, like the LBMA gold fix is unallocated, the futures price in New York is based on, there’s only a small amount of gold backing huge volumes of trading. So if that all collapsed, I think it would collapse quite quickly, and that there could be some very big shockwaves with physical gold taking off, like a two-tier pricing.

Grant Williams (51:02):

That seems a distinct possibility to me. And the two-tier pricing would obviously also attract more physical gold into Shanghai, which means it puts it out of the West and into the East once more.

Ronan Manly (51:13):

London would lose its grip on being a gold trading centre.

Grant Williams (51:19):

Ronan, the gold market is an endless source of fascination. And there will be a lot of people who are, now that gold is approaching $3,000 and certainly when it goes through that kind of mythical $3,000 barrier, will suddenly start to look at gold and assume right away that they understand it. As you’ve demonstrated in this past hour, it’s a very complicated corner of the financial markets and a very difficult thing to get a handle on really when things start to get squirrelly. But this has been a hugely educational and incredibly interesting hour. But for people who are new to this, how can they either follow your writings on the subject, which are copious, or get in touch with you to ask questions and try and get a better handle on how this whole thing works?

Ronan Manly (52:01):

This has been a great hour and I hope people got a lot out of it. I was previously full-time working with BullionStar, but now I’m still writing for them on a part-time basis. So I’ve got a lot of articles already written on the BullionStar website, which is Bullionstar.com, and you can see all the blogs there. They go back until around 2013. So there’s a few hundred of them, and a lot of them are to do with the monetary aspects of gold, central bank gold, vaults, the LBMA, the COMEX. So people who want to dig a bit deeper can look at those.

I also have a relatively new Twitter account, X account, which is called BullionBrief, all one word, where I post and tweet about monetary gold and all of the happenings right now in the gold market. I also have started a substack, which is Sub-Stack.BullionBrief. But I’ve only written a few articles so far, but I’ll be writing a lot more in the near future. So that’s another place to look. And also, the In Gold We Trust report, which is Ronnie Stoeferle’s Incrementum In Gold We Trust. I’m writing three chapters for that this year, and that’s out in May, the annual In Gold We Trust.

Grant Williams (53:11):

Terrific. Ronnie cracking the whip on you this year. Look, Ronan, most people who have spent time studying the gold markets will know who you are. If there are people who have been looking at gold for a while now that haven’t come across your work, this is the perfect time to familiarise yourself with it because it’s excellent. And for anybody who is just starting to develop an interest in the gold markets because the price is moving, I cannot recommend strongly enough that you go to all those places and you follow Ronan’s work, and make sure you go back and read some of those articles and stay current with what he writes. Because it’s a very, very multi-layered, multi-faceted, complicated corner of financial markets, which is ridiculous for such a simple asset. But that’s just the way it is. Ronan, it’s been a real pleasure. I’m so glad we got chance to do this. Thanks for doing it on short notice, and hopefully we can talk again as the story continues to unfold.

Ronan Manly (53:59):

It was great. And we could even talk about silver. That’s another kettle of fish.

Grant Williams (54:03):

I didn’t want to mix the two. We will come back and we’ll have a separate conversation about silver. Let’s let people’s heads calm down a little bit first, because silver will take it to a whole new level.

Ronan Manly (54:11):

Okay, great. Thanks.

Grant Williams (54:12):

All right, my friend. Thank you so much for doing it.

Ronan Manly (54:15):

All right. Thank you.

Grant Williams (54:16):

Well, there you go, folks. For those of you who thought gold was all about the price, hopefully that’s given you a few thoughtful teeth to suck and a little bit of homework to do. For those of you that knew the complexities and the beauty of the gold market and all its crazy machinations, hopefully that’s given you an updated view from a man who’s really spent an awful lot of time studying it.

As Ronan said, a lot of his work you’ll find at BullionStar.com. BullionBrief is his Twitter handle, and I can’t recommend his new substack BullionBrief highly enough, because Ronan’s work is really best in breed and he really does understand how the gold market works. And understanding how the gold market works and the various potential weaknesses in it, I think is going to be a really, really important thing if you want to try and figure out where the price is going to go. That’s it from me. I’ll be back with another podcast in the very near future. In the meantime, as always, thank you so much for listening.

Nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.