A Look At The World Wide Bullion Market Why Gold Tariffs Would Ultimately Be Ineffective How The "Big Boys" Always Win In The End * * * Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. David: It's interesting, isn't it? Well, this is sort of a special commentary focused exclusively on gold. Tariffs on certain Swiss gold products have stirred enough speculation. I think it's worth exploring a number of market nuances in an effort to bring some insight. Kevin: You just told me you're reading a book that I love called, Surely You're joking. Mr. Feynman. It's about Richard Feynman, the physicist. But surely, Dave, you're joking. I mean, let's talk about tariffs a little bit because this has been an interesting week. David: And from one day to the next. This may be resolved by the time this is aired, which is interesting. Kevin: True. David: So there was an assumption by industry practitioners that tariffs would not apply to precious metals, as they had up to recently been specifically exempted. Metals are too critical as a reserve asset. They move amongst central banks and they play back and forth from one bank to the next. The ebbs and flows of the above-ground inventories, it's critical to reserve managers. Despite that thinking, risk managers and lawyers insisted that the US exchange take on more inventory prior to and just in case tariffs were implemented. This goes back to the first quarter of 2024, and we actually began to see an as soon as tariffs were mentioned, late in 2024. Kevin: Yeah, there was a lot of Swiss product being moved to the United States, wasn't there? David: Yeah. In the last quarter of 2024, first quarter of 2025, an extraordinary amount of Swiss product was moved to the US, and product from London as well. In fact, the amount from London was at one point bringing London inventories to worryingly low levels. In the first quarter of 2025, because of the threat of Trump's tariffs, and again extending to gold, the totals imported into the states hit $38 billion. And if you look at our import-export numbers and the GDP statistics, they were skewed because of the scale, because of the size of that gold import. Distorted our import export numbers dramatically. But remember, the disruption, the distortion in supply would not have occurred without the threat of tariffs from the Trump Administration. Kevin: Well, and Trump uses these things. This is the bully factor. I mean, he at this point is saying that the Swiss, they're not playing fair. David: Now, in response to elevated import figures from Cheese Land— We sometimes talk about Switzerland as Cheese Land. Kevin: Stinky Cheese Land. When I was with you, you introduced me to stinky cheese. David: Oh, but it can be delicious. Cave aged Gruyere is one of my favorites. But the Swiss are being accused of running an unreasonably high trade balance with the US. It's ironic to the core that we are leveling a 39% tariff on those Swiss imports, which includes the kilo and hundred-ounce gold bars. Kevin: So you mean imports into the United States, correct? David: That's correct. Kevin: Okay. So let's jump to a conclusion here, because there are a lot of listeners going, "Oh my gosh, I need to call in right away." David: Well, yeah, if I could offer my conclusion on the front end before setting that conclusion aside, and we can explore a couple more market details and minutiae. I don't think the tariffs will stick. Kevin: On gold anyway. David: Correct. There is a flow of gold going both ways across the Atlantic. Mostly scrap from the US to Switzerland, and that's for refining, and then refined product in the form of kilos and hundreds back to us. But let's start with this. The CME's largest single depository—that is the Chicago Mercantile Exchange—its largest single depository is run by JP Morgan. Kevin: You mean Jamie Dimon? David: Well, yeah. I mean, as a practice, JP Morgan is long gold and short the futures. Specifically short EFPs. EFP stands for exchange for physical, which is like an off-market arrangement. You don't have to trade in the futures contracts and distort volumes when you use an EFP. It's almost like a side agreement. Kevin: It's a gentleman's agreement. Hey, don't make us deliver. David: Right. But it still is affected by a move in the futures market. So they are short the futures market, long physical gold. In recent days, there's been a problem with that trade. Spot gold has been flat to down while the December futures contract has moved considerably higher. In fact, the December contract has hit or taken out its new all-time highs. Kevin: So let me ask, I mean, Jamie Dimon, he has a big, big hammer. Do you think he's going to try to swing it at this point with Trump? David: If you were Jamie Dimon running JP Morgan and you were getting margin calls on your EFPs, again, your exchange for delivery futures exposure, yes. So that's the question, not if they're getting margin calls, but how big are they? Kevin: Okay, so Dave, how— David: But truly you're talking about the number on the speed dial. Which one would be using? You guessed it. It would be Donald Trump. Kevin: Well, this is sounding strangely familiar to something that happened many years ago with the Hunt Brothers. Can you explain how that would be like that? David: Yeah. In at least one respect, this replay is the vulnerability that CME members faced during the Hunt brothers' cornering of the silver market. You had Merrill, you had Mocatta, a handful of other firms that were getting margin calls in the tens and hundreds of millions of dollars. And Mocatta was really smack dab in the middle of it. Two brothers on either side of the pond, and one of them making bets that the other brother couldn't cover. And they start calling the CME, asking for help, crying for help, right?, because they're on the brink of insolvency. Kevin: Well, and just a reminder for our listeners, Mocatta Metals is a 500-year-old metals firm. They had an office in New York in the World Trade Center, and they also have an office in London. David: So the CME was responsive. They were protecting the members from bankruptcy, and I think that's where the similarities end, because at that time, silver was in scarce supply, and that is not the case with gold today. In fact, if you look at CME inventory coverage of open interest, it currently sits at about 86%. There's not a threat of an eminent short squeeze in the gold market. There is no cornering of the market today. There is no scarcity of product today, but there is in all likelihood margin calls happening for J.P. Morgan, which will elicit a call to the White House. That kind of madness has to stop. So I would expect, sometime in sort of the next 2, 3, 5 days, for this to be resolved. December futures would not be diverging from the spot price to this degree if tariffs were not in play. So you're dealing with unintended consequences in this case, and it lands very hard and very close to home for the CEO. Frankly, he has the ear of the administration. So again, I think that would be a strong reason why the tariffs don't stick. Kevin: Okay, so let me play devil's advocate. Let's go ahead and take the other side, though. Let's say they do. David: Trump sticks with a 39% tariff. In that case, over a long enough time frame—more contracts, people take delivery of them, more of the exchanges for product will make sense to investors with futures gold exposure—and you could see CME inventory drained. And then you really could see a supply squeeze, taking prices considerably higher in a very short period of time. Again, I don't think that'll be the case, but if you left the tariffs in place for 90 days, I think you could see CME inventories really put to the wall. Would the CME defend against a squeeze as they typically have, ratcheting up required margin, things like that? You bet. Kevin: Okay. But there is product available at this point. I mean, especially the smaller stuff right now, it seems like there's a lot in the market. David: And by the way, if CME was in that position, there is enough of these dynamics which are well understood by traders, and given the activity in Q1 where you had a lot of exchange for delivery occurring, I think you'd have a lot of contracts delivered on an even quicker basis. So in that scenario, it would likely only drive more investors to the physical market. But you're right, there's no real threat of that happening in the short run. There is ample product available, particularly smaller format product. One ounce coins and bars are trading cheap, really cheap. We talked about last week how the World Gold Council figures had coin and bar demand in the US dropping by 37% quarter-over-quarter. In fact, you've got products so cheap that the bid on most gold today is below its melt value. And as that has remained the case for some time, where there's more supply than demand, traders have been taking gold below spot and melting it down, having it refined domestically, turned into exchange-deliverable bars for which they can receive the spot price. So quick math, this is kind of a fun exercise. As a trader, if you can buy and melt down 5,000 ounces of gold, you convert it into exchange-deliverable bars and take advantage of the current soft bid to pick up small format product at, say, 2% back of the melt price. I'm buying product, 5,000 ounces, at today's price. I'm buying product worth $16,985,000, roughly $17 million. And then I'm turning it around— Let me say this differently. I'm buying product that at the spot price has a value of right at $17 million, and then I'm turning around and paying the retail person who wants to liquidate, they're only getting 16,000,645. So on the trade, you pick up $340,000 for every 5,