7/30/2019 Smelly Smoke Signals

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Ned Naylor-Leyland

Cheviot Asset Management Limited

Tel: +44(0)20 7438 5683 Email: ned.naylor-leyland@cheviot.co.ukwww.cheviot.co.uk

Cheviot Asset Management, 90 Long Acre, London, WC2E 9RA

LBMA SMOKE SIGNALS SMELL FISHY

When a new Pope is elected, as we know, smoke is pumped out of the Vatican (either white or black) to indicate the success or failure of a ballotof Cardinals. What is less well known is that before this happens, in order to check that the previous Pope is indeed dead, his cadaver is tapped(on the forehead) three times with a Silver hammer. It would appear from the black smoke signals coming from the LBMA at the moment thatthe Silver hammer has been deployed, but no agreement has yet been reached as to what the LBMA does about it. I am of course referring tothe decision by the LBMA to go dark on their reporting of the Silver Forward Rate (SIFO) from Nov 2nd 2012. The LBMA claim that they didthis in consultation with all LBMA forward market makers. They, apparently, had decided at the bottom of the most recent wash and rinse cycle(see the Silver Spot Chart below) that there was no need to publish this data anymore, as it is just an indicative level, not a dealing level. Quitewhat that means for GOFO is anyones guess, but according to the LBMA that, unlike SIFO, is a real data point.

I spoke to the LBMA today and asked what other indicative levels I could look at to get a feel for the market in the absence of SIFO, and theysuggested that I could subscribe for $14 a month to an LME feed of the end of day silver forward curve. When I asked how to do this, theytold me I had to send them (the LBMA) an email, which they would then forward on to the LME for their consideration. The data to compile this

curve must be coming from the LBMA, so it seems, shall we say, a touch odd that they should farm this role out to the LME who have no activeinvolvement in Precious Metals markets. At the very least this whole arcane process reiterates exactly how opaque Precious Metals marketsare, and puts a further premium on those who can shed light on what is really going on.

Below is the key extract of the LBMA announcement:

Following consultation with the LBMA forward Market

Makers, and more generally with other market participants,

the LBMA Management Committee has agreed that after

2nd November 2012, the forward Market Makers willcease making contributions of their mid-price silver forward

rates to allow the calculation of the SIFO means on the

Reuters system each day. The reason for the withdrawal of

the dataset was that unlike GOFO these rates wereindicative rates only and therefore not dealable rates

between forward Market Makers.

For a while now I have ignored SIFO and GOFO anyway,as I subscribe to Sandeep Jaitlys splendid Bullion BasisService (http://feketeresearch.com/gold-basis-service.php ),which gives far more depth and visibility into the truemachinations and physical tightness of the LBMAsystem. Imagine my surprise to note the hugecoincidence that his much more accurate Silver Basis-Co-Basis was screaming into a state of clearbackwardation at exactly the same time as the LBMAwent dark on SIFO. Silver is, as Sandeep would say,going into hiding and being taken off the market. TheSilver is, of course, still there, but peoples intentions toput this on the market are retreating rapidly. This is the

definition of a silver shortage nothing to do with thephysical amount of the substance being in deficit, but

peoples psychological intention not to sell. The extent to

which a shortage is developing is witnessed by the

extent of backwardation.

Bearing in mind that while this was going on there hasalso been near-frantic churning taking place between theCOMEX and SLV (see Andrew Maguires recent articleon this subject) and reports of genuine trouble in sizeorders of Silver being delivered by LBMA members, itseems to me that there are presently a lot ofcoincidences layering themselves all over the Silvermarket. Gods work perhaps either way, these

backwardation smoke signals are black as can be, andindicate that a move to much higher ground is imminent.

Ned Naylor-Leyland

November 2012

SPOT SILVER CHART

IS THIS THE REASON WHY SIFO DISAPPEARED?:

LBMA PULLS THEPLUG ON SIFO