Andrew Maguire: “The essential point is that the officials may still have control of the synthetic markets, but they are increasingly constrained in their activities by the outflows of the underlying physical fractionally underwriting these synthetic (bullion bank) short positions. It is not possible to have a paper market price that remains dislocated from the physical market without it failing, or a deliverable price being dragged up higher.
Why? Because the resulting spot gold and silver benchmark price resulting from the creation of synthetic supply is deliverable in the global physical markets, which key off the resulting over-the-counter spot gold price in London, or for that matter Comex positions that can be exchanged for physical at the London spot price. This is the paper market’s Achilles heel. Each time we witness officials forced to defend trillions of dollars worth of fractional reserve gold positions, they erode their synthetic base a little more and bring forward the day there will be insufficient synthetic supply to offset physical offtake..."