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Re the still-widening spread between spot and front month futures as well as EFPs, here's what I wrote for TFMR members a few minutes ago.
Maybe next week I can summarize this in a public post.
This is starting to get more attention and all you have to do is search X to find all sorts of analysis and possible explanations. Pending tariffs, supply issues, delivery delays....all of these things are mentioned. For now, let's just concern ourselves on the two things that we KNOW are true.
1. That wide of spread should never happen this late in the month. Never ever. Why? Because right now...right this very instant...you can buy spot at $2711 and sell a Feb25 at $2746 and then deliver your spot purchase to cover your short as soon as January 30. That's an easypeasy $35 profit (logistics, interest, etc notwithstanding). Each contract is 100 ounces so that's $3500. Do it on $100 contracts and you've to $350,000. But it's not happening...at least not in the size needed to close the spread.
2. The spread is going to close. It will. Just watch. Either the usual Spec washout and roll will dump the Feb25 price sometime in the next 5-6 days OR some sort of in between happens where futures fall and spot rallies as the arbs finally begin to take action. Either way, it's going to close. It will. It always does.
But then what? What does this all signify? This is the second consecutive month where this has happened. It shouldn't be happening but it is. My suspicion is that it's much deeper than just "current supply concerns" due to possible tariffs. The Banks have been playing the EFP game and profiting from the spread for years so none of this is new.
Eric told me to start watching EFP volume seven years ago...and I did. In fact, on a spreadsheet I have the EFP volume for EVERY DAY going back to November 24, 2017! Would you like to know what the total number of EFP trades is since that date?
It's 9,689,356.
So, if every EFP is for 100 ounces, that's 968,935,600 ounces for a theoretical 30,137 METRIC TONNES. That's an astonishing amount of "gold". Close to the sum total of ALL the gold held by the global central banks and here are The Banks passing it back and forth for a few bucks in spread arbitrage.
As such, do you think that EFPs signal real demand for real metal to deliver or are they just part of the paper game, which The Banks play for their profit and enjoyment?
Back to the current predicament...Why is this occurring now and for the second month in a row? For me, it's about trust and, right now, no Banker trusts the system enough to act and close the spread. If it continues, there will be delivery delays and the fraud of the pricing scheme will be exposed...and that's WHY it will close, one way or the other, most likely through a Spec flushing paper smash that forces the Feb25 end back down toward spot. That's what they were able to do last month and that's no doubt what they'll try to do next week, too.
#EFP Alert and update
The following is a summary of the latest commitment of trader (COT) report and the 1/8/2025 and 1/16/2025 #Gold Stock reports
Bottom line. Someone(s) or some bank(s) have to be very nervous over the weekend.
Latest COT report saw a net increase in new short contracts from producers /merchants/swap dealers of 21,269 contracts or 2,126,900 oz equivalent. At the same time a wave of gold has been deposited into the registered category of about 2,178,362.97 ozs. This matches up as new short contracts are opened and gold is delivered to take advantage of the increased EFP or to settle against existing shorts.
However, we have a massive problem. With all this gold delivered, this should have eased the EFP. Instead the EFP went from +15 on 1/8/2025 to +42 this morning (1/17/2025).
We are only 10 days from the February delivery month and this EFP is priced as if we are 3 months away. Someone is taking serious losses.
Check out the highlighted sections which provide the details I mentioned above.
Will China be forced to unleash more stimulus?
Let me break down why DeepSeek's AI innovations are blowing people's minds (and possibly threatening Nvidia's $2T market cap) in simple terms...
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1/ First, some context: Right now, training top AI models is INSANELY expensive. OpenAI, Anthropic, etc. spend $100M+ just on compute. They need massive data centers with thousands of $40K GPUs. It's like needing a whole power plant to run a factory.
2/ DeepSeek just showed up and said "LOL what if we did this for $5M instead?" And they didn't just talk - they actually DID it. Their models match or beat GPT-4 and Claude on many tasks. The AI world is (as my teenagers say) shook.
3/ How? They rethought everything from the ground up. Traditional AI is like writing every number with 32 decimal places. DeepSeek was like "what if we just used 8? It's still accurate enough!" Boom - 75% less memory needed.
4/ Then there's their "multi-token" system. Normal AI reads like a first-grader: "The... cat... sat..." DeepSeek reads in whole phrases at once. 2x faster, 90% as accurate. When you're processing billions of words, this MATTERS.
5/ But here's the really clever bit: They built an "expert system." Instead of one massive AI trying to know everything (like having one person be a doctor, lawyer, AND engineer), they have specialized experts that only wake up when needed.
6/ Traditional models? All 1.8 trillion parameters active ALL THE TIME. DeepSeek? 671B total but only 37B active at once. It's like having a huge team but only calling in the experts you actually need for each task.
7/ The results are mind-blowing:
- Training cost: $100M → $5M
- GPUs needed: 100,000 → 2,000
- API costs: 95% cheaper
- Can run on gaming GPUs instead of data center hardware
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9/ Why does this matter? Because it breaks the model of "only huge tech companies can play in AI." You don't need a billion-dollar data center anymore. A few good GPUs might do it.
10/ For Nvidia, this is scary. Their entire business model is built on selling super expensive GPUs with 90% margins. If everyone can suddenly do AI with regular gaming GPUs... well, you see the problem.
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What proof is there that it even exists? ...
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What if everyone downloading the app creates a HUGE nural network across the globe and the computing power of several billion phones is what DeepSeek is using to function?
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Spring Festival: SGE will be closed from January 28 (Tuesday, Chinese New Year's Eve) to February 4 (Tuesday). It will be closed as usual on January 26 (Sunday) and February 8 (Saturday). There will be no night session on January 27 (Monday). SGE will resume normal operations on February 5 (Wednesday).
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Bob Coleman said:For all those who are trying to understand the tariff issue, let me blow your mind.
There is an assumption that Chinese Gold bars do not leave Mainland China and the existing USA tariffs on Chinese gold does not matter.
The GLD ETF contains Chinese Good Delivery LBMA bars made by Chinese refiners.
Shenzhen Point Gold Refinery Co LTD is located in Shenzhen, China. The Bars held by JP Morgan Vault in London on behalf of GLD ETF contain 235 bars from Shenzhen Point Gold Refinery.
If these bars were ever delivered to the USA or used to settle short positions on the Comex, they would incur a 25% tariff.
This is squeezing available hallmarks for banks and market makers to use to settle commitments.
President Donald Trump said his 25% tariffs on Canada and Mexico are coming on Saturday, but he’s still considering whether to include oil from those countries as part of his import taxes.
“We may or may not,” Trump told reporters Thursday in the Oval Office about tariffing oil from Canada and Mexico. “We’re going to make that determination probably tonight.”
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The highest on record you say... in an Odd Feb contract.
Shot Across the Bow me thinks.
White House press secretary Karoline Leavitt ... announcing new tariffs Donald Trump plans to impose on countries from Saturday, including:
“25% tariffs on Mexico, 25% tariffs on Canada, and a 10% tariff on China ...
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Leavitt also said Trump had not made up his mind about a timeline for implementing tariffs against the European Union.
She declined to say whether any future tariff would be one-size fits all or different for each EU member state.
White House officials announced that President Donald Trump has imposed 25% tariffs on Mexico and Canada and 10% tariffs on goods from China.
The tariffs will be imposed via three separate executive orders that have been signed for each country, according to a White House official.
There will be a 25% tariff on all Mexican exports to the U.S. as well as on all exports to the U.S. from Canada. However, Canadian energy products will be tariffed at a lower rate of 10%.
There is a 10% tariff on all China exports to the U.S.
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