Yesterday, for the first time in history, gold futures traded above $3,000/oz. Gold bugs who’ve waited a generation for this deserve their celebration.

Here at the Rude, we’ve been jumping up and down over gold since it first bumped its head on the $2,000 level—that was 50% ago. And if you’ve been in the miners, congratulations—you’ve had an incredible run. That run is still in its early stages.

While less exciting, silver futures hit $34.75 in overnight trading, setting the stage for a move over $35 and then over $50. Once we get out of the 30s, the excitement will be palpable.

What’s driving all this?

Central banks have been buying for years, and retail investors have yet to enter the market. As a story, inflation is getting old. No, I’ll let you in on a little secret. Something seismic is happening under the pavement of the markets that will change our economic system as we know it. Strap yourself in.

Is the Bullion There or Not?

My good friend and former asset manager, Iowa Michael, once told me that the gold market was the only one where “the paper leads the physical and not the other way around.” The paper he refers to is the futures market. The physical, of course, is the bullion itself.

In theory, commodity futures allow us to move the delivery of a physical commodity through time. So, instead of taking delivery of 100 ounces of gold (one futures contract) today, we can take delivery on any day in April.

Why do that?

We may not need the gold until then, so the seller can warehouse and insure it. We may not have the cash immediately to pay, so we only have to pay an initial margin on the futures contract. We may have the money, but we prefer to earn interest on that cash until we need the physical commodity.

Futures contracts also allow us to speculate on the price of gold. If I’m bullish on gold’s price, I think it will increase; hence, I would buy or go long on gold futures. If I’m bearish, I would short gold futures.

Here’s the onion: I never have to either deliver (if I’m short), or take delivery (if I’m long) of the gold itself. In fact, 98% of all futures contracts don’t go to delivery. Both speculators and hedgers are likelier to close out their contracts before delivery, taking the profit or loss in cash. And that’s where we might get into trouble.

Because it’s so easy to trade futures, we usually wind up with more futures contracts than the underlying physical gold available anywhere in the world. If everyone were to ask for gold according to their futures contracts, we’d be out of the barbarous relic in no time!

We will not know whether the gold market is authentic until we go to delivery. The futures markets are oversupplied, but the bullion market is undersupplied. What happens if everyone wants their physical?

Una Casa Di Carta

You may be thinking, “This is a house of cards!” But really, l’oro è una casa di carta: Gold is a house of paper.

Comex, a subsidiary of the Chicago Mercantile Exchange, is the exchange that gold futures trade on. Our macro maven Jim Rickards reminded us in Dave Gonigam’s The Five way back in 2013:

“...Comex has emergency powers to prevent longs from taking delivery in a way that disrupts the orderly functioning of the market. The Comex rule book makes it clear that a futures exchange is for hedging, price discovery and legal speculation, but is not a source of supply. (Physical delivery is permitted, but only enough to keep the paper price ‘honest.’ The irony, of course, is that the paper price is anything but honest, due to manipulation.)

“Another rule allows Comex officials to change the rules as needed in emergencies (something the Hunt brothers experienced when they tried to corner the silver market in 1980). The fact that longs know they cannot take delivery in the end is a major deterrent to the attempt.”

And yet, Comex’s inventory has skyrocketed lately. 

Credit: Zero Hedge

What gives?

Basel III and the Banks.

If you haven’t heard of Basel III, that’s okay. It’s a global regulatory framework established in response to the 2008 financial crisis to strengthen banks' resilience by improving risk management, capital adequacy, and liquidity standards. Really, Basel III was put in because politicians knew they could never ask the taxpayer to bail out the banks again.

Physical gold will be upgraded to a Tier 1 asset (risk-free, like cash and government bonds). Gold futureswill still count as a Tier 3 asset, meaning banks must hold reserves against their positions. Banks can now count physical gold toward capital reserves without risk-weighting penalties, encouraging them to hold physical bullion to meet capital adequacy requirements.

Reader, gold is real money again! Even the Krazy Keynesians running the world admit it!

We’re already witnessing the market implications of this move. Physical gold demand rises as banks and central banks increase holdings to optimize balance sheets. We’re benefiting from a paper gold squeeze that creates higher costs for unallocated gold transactions (for banks), which could reduce derivatives trading and curb price manipulation. I’ll get to this point in the next section.

Finally, physical gold’s Tier 1 status reinforces and codifies its role as a safe-haven asset, driving long-term price appreciation.

In short, as of July 2025, when Basel III is implemented in the U.S., banks will be rewarded for holding gold bullion and penalized for trading gold futures. That’s why gold is flowing so heavily back to the States.

Will The West Get Shanghaied?

But The West won’t get out of this without some pain, to say the least. 

Thanks to the USG idiotically letting U.S. banks lend their gold worldwide, we’re facing a reckoning. Speaking of that, Daily Reckoning Managing Editor Adam Sharp kindly sent me this note from the Scottdale Mint, which explains the history of our pickle.

The U.S. Treasury never sold this gold outright. That would have been a constitutional violation, as gold can only be sold to retire U.S. debt directly. Instead, in the 1990s, the gold was loaned out to bullion banks under a perpetual rolling structure. These banks then hedged it through carry trades, profiting off borrowed gold.

Who was behind this? Look no further than Robert Rubin and Alan Greenspan. The Fed facilitated it, the Treasury allowed it, and the bullion banks executed it. In some cases, what now sits in place of actual gold are IOUs issued by those same banks.

At the time, the rationale was simple:

The Fed got to monetize gold by loaning reserves, earning a small return.

Gold prices remained suppressed, preventing inflation fears from spiking (a lesson Greenspan learned from Volcker’s battles).

Bullion banks used the gold for leveraged carry trades, compounding their profits.

No laws were broken. But in the process, a critical asset tied to American sovereignty was placed in the hands of private banks—banks that could, and eventually would, default.

This gold leasing and carry trade structure went on for decades.

And now it’s ending. 

But the real cost is that the rest of the world loaded up on physical gold while American banks were shorting futures contracts. Remember, paper leads the physical gold market.

In other words, the U.S. megabanks and the U.S. subsidiaries of foreign banks, such as JP Morgan, Citibank, HSBC, Merrill Lynch, Bank of Nova Scotia, and Deutsche Bank, suppressed the gold price for decades, so the Chinese and Russians got a bargain!

Now, the Chinese want gold pricing to come out of the Shanghai Gold Exchange, where they trade the physical stuff. Though there is merit in this argument, the loss would be significant for The West.

James Grant’s Office of Unintended Consequences should sit beside Elon’s DOGE guys.

Wrap Up

What a crazy tale! And it’s still unfolding.

I’ve said this many times before: You can’t save the world, but you can save yourself.

Take advantage of the government’s idiocy and load up on gold. They may never see justice for what they’ve done, but at least your retirement will be comfortable!

Have a wonderful weekend!