They deliver to the LME on occasion, and, frankly, have also in
the past sold metal to LME brokers as part of warehouse finance
deals. Over the years, they have tended to use the traditional
LME broker community, largely through long-standing personal
Interestingly, though, they told me how they are currently
being bombarded with approaches from banks, all telling them
that these banks are now in the physical metals business, and
could they please have a long-term contract for the purchase of
Now, actually, I think that’s stretching the
meaning of words. They may be in the physical business as far
as buying metal and storing it is concerned, but, as I pointed
out in a recent piece talking about Glencore, the true measure of the
physical trader is in reliable delivery to end-user
So do we really think that major banks, with their extremely
tight internal credit procedures, are genuinely set up to make
truckload deliveries of metal to consumers across Europe, the
US and the Far East? There are certain exceptions –
clearly there is one global bank which has a substantial
physical metal trading operation, but that one is a business
which grew up independently over years of understanding and
exploiting the fuzzy line where futures and physical metals
And there may be some smaller, nimbler operations who can cope
with the particular demands of the physical metal market. But
major investment banks as metal traders? Personally, I doubt
But what I do think is happening is yet another appearance of
the growing bubble.
Notwithstanding global economic woes, in fact looking at Q/E,
probably because of them, there are huge amounts of cash
floating around the world looking for a home.
Now, all of us in the metal business know how straightforward
it is to turn metal into cash – hard commodities and
dollar bills are two sides of the same coin. So why not do it
the other way round? Lots of spare cash – why not buy
metal? The price always goes up, doesn’t it?
It’s a great hedge against looming worldwide
So we get the proliferation of buy and hold strategies, ETFs
and all the rest; and in my view, banks in the physical
business – as they claim – is just another
manifestation of the same thing.
Is it a good thing? Well let’s not forget that
it’s being brought to us by just the same
institutions who brought us sub-prime mortgage trading. All
postulated on the same theory – some things, like
property prices and metals only go up in price.
I think that’s a naïve assumption, and has
been proven definitely incorrect in the case of property.
In the case of metals, my feeling is that when the true levels
of global stocks become apparent, then we will find that same
holds true – prices can go down as well as up.
And while on the subject of banks, more generally, why is it
that remuneration has risen over recent years at so much higher
a rate than shareholder value, as represented by the share
price? I know that’s a generalisation, and there
are honourable exceptions, but I think it’s driven
by something I’ve said before: banking is banking,
trading is trading, and confusing the two is probably the wrong
thing to be doing.