Dave’s been writing about LCH Clearnet, CLS Bank, the new PAGE (Pan-Asian Gold Exchange) and the HKMex for nearly a year. If you think for one second that the Chinese are getting the upper hand on London’s gold fix, then you don’t understand how business works. The whole idea is to make it “appear” that the chain of custody in gold’s price setting mechanism is breaking so that you can fill the new Occidental/Oriental pipeline all the while avoiding being out of compliance with Dodd-Frank.
Through the effective reverse of Gresham’s law via the reduction in friction, Ned and Company appear to have constructed an entirely new set of price discovery mechanism to disintermediate the London fix, but who gets a piece of the action on every trade… the London Clearing House. Either Ned is naive or quite adept at appearances. Dave’s only got one question. What’s the fundamental difference between setting a price and charging a arbitrary fee of your own choosing at will? They’re both a disintermediation of a genuine price discovery process.
“You’ve got to bear in mind, they’re just selling leveraged paper, no one is selling physical. There is just a tsunami of paper selling in order to maintain the illusion of fiat value…and it will be overcome…the
physical buying will ride over the paper selling.” Ned Naylor-Leland
For anyone who has played ROCK – PAPER – SCISSORS, they know that paper covers rock… right Ned? It will be overwhelmed alright, but not via the “harkening back to the old days” and “arbitrage opportunities manifesting fairly quickly” that Ned describes. It’s a quaint idea, but Dave would suggest that the “harkening” and “manifesting” is going to be more along the lines of a bank holiday and overnight reset. Thanks to this Chinese back-door entrance Ned’s friends (the ones made to appear to be enemies) in the City of London won’t have the inconvenience of complying with Dodd-Frank when the switch is flipped.
From May 8th: http://tradewithdave.com/?p=6291
From July 12th: http://tradewithdave.com/?p=7292
From July 23: http://tradewithdave.com/?p=7401
From October 18: http://tradewithdave.com/?p=8197
From December 8th: http://tradewithdave.com/?p=8587