Tag Archives: paper gold

The Credibility Of Andrew Maguire

Andrew Maguire has been a controversial figure in the gold/silver world ever since he blew the whistle on JP Morgan’s silver manipulation.  The information provided by Maguire to GATA was presented by GATA’s Bill Murphy at a hearing held by the CFTC on the precious metals market manipulation in March 2010.  Maguire had originally sent an email to someone in the CFTC enforcement which detailed how the precious metals would be attacked two days later when the non-farm payroll report was released.  Maguire wrote to the CFTC after the attack:

It is common knowledge here in London among the metals traders that it is JPM’s intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC’s allowing by your own definition an illegal concentrated and manipulative position to continue.

GATA has detailed the entire event in this article:  LINK.

After Bill Murphy’s testimony at the CFTC’s hearing, Jeffrey Christian – a known shill for the bullion banks – publicly slashed and burned Maguire’s reputation with highly slanderous assertions about Maguire’s background and experience.  Christian’s remarks were intentionally deceitful, but the damage was done. The fraudulent attack on Maguire opened the door of doubt in the minds of many about the credibility of market intel delivered by Maguire to the public via venues like Eric King’s King World News.

I bring this up because a friend and colleague of mine – someone who has been around the precious metals sector longer than me, sent email to a myself and one other person asking for our thoughts on Maguire’s latest interview in King World News:  A Historic Event Is About To Shock The Gold Market

The interview is worth a listen and I believe there’s a high probability that Maguire’s insight and assertions are accurate.  Having said that, I wanted to share my response to the email, because it explains why I think Maguire’s intel is good.  The first part of my response references some comments made to my colleague from someone who expressed concern about the potential for Russia and China to unload gold like Venezuela did in order to avoid financial trouble:

Goldman has been working on getting Venezuela separated from its gold for over a year. Recall about a year ago that Goldman sent VZ a proposal for a leasing transaction. VZ was an easy prey. In my opinion, the way that VZ has been squeezed out of its gold tells us just how desperate the bullion banks are to source real physical gold. This move was analogous to taking Halloween candy from a little kid. But China/Russia are a different matter.

Russia running into financial trouble? Please show me any evidence of that OUTSIDE of western propaganda reports.  Russia continues to add a lot of gold to its Central Bank position every month. It that the behavior of an entity worried about liquidity? Have you looked at Russia’s debt/GDP ratio? As of 2014, the latest data available, Russia’s debt/GDP is 13%.  Russia is not in financial trouble. The western media wants us to believe that Russia is in financial trouble.

China? C’mon. China has $3.4 trillion in diversified FX reserves that needs to be netted against is sovereign debt position. China’s outright sovereign debt/GDP is 41% as of 2014. The number does not net out FX reserves.

As of July China’s household/corporate debt was 280% of GDP. The U.S. total debt (Govt + private sector) is 340% of GDP. The highest of any country in the world. US FX reserves are about $35 billion – i.e. nothing. Does the U.S. even have title to any gold that we use to add to its FX reserves? Doubtful. If any country is in danger of going insolvent, it’s the U.S if the rest of the world refuses to take any more paper dollars.

What if China were to include its true gold holdings at market in its FX reserves number?

As for Andrew, I had a long phone conversation with Eric King this past summer about Andrew. Eric is adamant that everything Andrew says is based in fact.  [note:  I came away from my conversation convinced that Maguire’s intel was bona fide.  As Eric and I discussed, the cartel has the backing of the U.S./British/EU Governments, which makes it impossible to predict the timing on actual occurrence of the events that we know ultimately will occur]

It’s hard to know for sure because Andrew references a lot of information that we have no way of verifying independently. For instance, he asserts that liquidity is leaving the Loco London market. Is there a way to verify this other than to have faith in Andrew’s assertions? If there is I’d love to see it.

Having said that, everything Andrew is talking about is exactly what Frank Veneroso said would eventually happen back in the late 1990’s. Frank never laid out “who and how” but he said eventually the western banks/CBs would be unable to contain the physical market with paper because the demand for physical would blow up the paper suppression schemes.

Here’s the other key assertion that we have no way of verifying: “the aggressive and predatory bullion banks that largely infest the swap dealer category of the COT report recognize the gold market has changed and are about to split ranks and reposition more bullishly, a position they would already have if they had not accrued such large underwater proprietary positions”

If you guys have any way of verifying that assertion, then we would know that Andrew is 100% bona fide.

At this stage, I have no reason to disbelieve Andrew based on my own observations and research into the precious metals market.  I really want to believe everything that he says is happening right now, but I’ve been taking a wait and see mind-set with regard to his assertions.

Is Japan “Inc.” Pulling Out Of The Comex And LBMA?

One of Japan’s largest global precious metals trading companies, Mitsui Precious Metals, is closing down its operations in New York and London by the end of 2015.  Note that it will maintain its operations in Tokyo and Hong Kong – interestingly:   Mitsui Pulls Out Of NY, London.

Mitsui is one of the largest business groups in Japan and one of the largest corporations in the world.  “When in doubt, pull out.”  In my view, this move reinforces the growing global fear of the massive paper to physical gold/silver leverage embedded in the NY/London banking system.

Remember, we are able to assess only what might be available to back visibly traded paper gold and silver derivatives (Comex futures, LBMA forwards).  And reported inventories are based on reports submitted by the bullion banks and Central Banks.  Do any of us really trust these bank reports as reported without visual confirmation and independent audits?

In fact, I will go as far to say that any analyst in this sector who presents any analysis and commentary based on bank-generated gold/silver inventory reports that does not stipulate up front that any and all information is based on reports that may or may not be accurate is thereby presenting invalid analysis.

missingbullionAnd, too be sure, all analysis that can be reasonably issued in entirely incomplete because it is impossible to assess the realistic exposure of OTC precious metals derivatives.   Even the banks who issue these opaque securities likely are in the dark.

I would suggest that Mitsui’s move pull out of the NY and London – thereby joining Deutsche Bank and Barclays – is symbolic of the world’s increasing perception that the New York and London financial markets are the biggest Ponzi schemes in history.  At the very least, it suggests that the world of growing weary of the fraudulent paper gold and silver markets on the Comex and the LBMA.

 

How Come No One Will Attack The Comex Gold Short?

The open interest on the Comex for the December contract is approximately 293 thousand contracts (final number as of Friday is not posted until Monday morning).  That represents  approximately 29 million ounces of gold.

Yet, as of Friday (Oct 2), the Comex vault operators were reporting 161,642 ozs of gold in their “registered” vault accounts, which is the amount of gold that has been declared eligible for delivery.

This means that the ratio of December open interest to deliverable gold is approximately 180:1.   Thismissingbullion is a mind-blowing number.  There’s 180 ounces of long/short positions for every ounce of deliverable gold sitting in Comex vaults.  This ratio of paper gold to “allegedly” available real gold represents the most extreme exploitation of the paper liability fractional reserve banking system in the history of the known universe.  

Of course, history tells us that every fractional banking system throughout the ages has collapsed under the weight of far too many liabilities piled on top of too few assets to back those liabilities.  This one eventually will collapse as well.

In 1992, George Soros attacked the British pound sterling in what was billed at the time as “the trade of the century” (I was a junk bond trader at the time on Wall Street and worshiped Soros’ success (I despise the man now, for the record).

Prior to the implementation of the euro, an European “Exchange Rate Mechanism” was created in 1979 in which the exchange rate value of each European country currency was fixed against each other.   Previously the currencies “floated” and price discovery was set by the market.

In 1990 Britain entered the European ERM and by 1992 the pound had become egregiously overvalued relative to the German mark.  It was pretty obvious to everyone including the British Government, which was spending a fortune to prop up the pound vs. the mark.

Long story short, George Soros via his Quantum Fund had built a $10 billion short position in the the pound.   To put this in proper context, a $10 billion bet in 1992 (using Government calculated inflation) would be a $17 billion bet today.  That one bet against the pound and the British monetary system by George Soros was bigger than the size of most hedge funds in the world today.

On September 17, 1992,  Soros’ gargantuan bet paid off.  Soros and the market ultimately forced the British Government to “reset” its monetary system.   The Quantum Fund is said to have made $7 billion on the trade, or a 47% rate of return unannualized in well under a year.  It’s impossible to know the actual “cash on cash” return because we don’t know to what extent the short-pound bet was leveraged.

This brings us to the situation with paper gold vs. physical gold at the Comex.   If shorting the pound was a quite conspicuous trade opportunity in 1992, then attacking the 180:1 paper:gold ratio on the Comex by going long Comex gold futures and standing for delivery is the most overtly obvious trade opportunity in anyone’s lifetime.

This particular predatory trade would exploit the most imbalanced market condition in the history of mankind.  With only 161,646 ozs of gold declared to be available for delivery, attacking this highly artificial market condition would require only $182.6 million dollars worth of Comex contracts (assume $1130/oz for gold).  This is less than 2% of the size of the bet that Soros made in 1992.

There are several hedge funds that are more than large enough to take on this trade, which is a “lay-up trade” in the purest sense of the definition.  So how come no one will take it on?

The obvious answer is that hedge fund managers point to what happened to the Hunt brothers when they attacked a similar trade set up on the Comex in silver in 1979. Eventually the Comex changed the rules of the game and charges were levied against the Hunts by the CFTC for an attempt at cornering the market.  It was the epitome of Government intervention in a market to protect the Comex bullion banks under the “veil” of market manipulation.  A true tragedy in the history of the financial markets.

But where are the charges of market manipulation against the entities who are selling-short paper gold contracts into the market at a 180:1 paper to gold ratio in order to satisfy the demand of Comex futures buyers?   And better yet, how come the long side of the gold open interest trade never stands for delivery.   A mere $182 million bet that stands for delivery has the potential of a more than doubling or tripling (or more) in a very short period of time.

Concomitantly, if the rules of the game were changed to rules that reflected the true supply and demand of physical gold globally, it would force the mother of all short-covering trades.   In all of the other products with futures markets in the U.S. the ratio of paper to physical is not even remotely close to the 180:1 ratio in gold.  In fact, the CFTC cracks down if when the percentage of paper to deliverable exceeds much more the 20-40% in any other futures market.

It is a riskless bet that no one is willing to take on.  This is because it’s loaded with 100% risk in one aspect.  If someone were to attack the fraud on the Comex in order to make a lot of money on the obvious, the Government would step in and prevent the trade from occurring to completion even though the Government is unwilling to prevent the fraudulent market condition from developing in the first place.

This is a bigger injustice to our country and our financial system than was the Hunt brothers debacle.  And the truth of the matter is that when the Comex finally does crumble under the weight of its own fraudulent, Ponzi scheme grotesque obesity, it will trigger or coincide with the collapse of the entire U.S. systemic Ponzi scheme.

The Comex Is One Big Lie

The total amount of ALL gold held by ALL market participants at ALL the Comex warehouses, whether it is on offer or not, is about 218 tonnes. That is less than one month’s demand for physical bullion in China and India and India alone. And by far the vast majority of that gold is not for sale AT THESE PRICES. And given the leverage of paper claims everywhere, not just Comex but at the more important LBMA, and one can see that a misstep by the gambling goofballs of Wall Street could lead to quite a messy market situation. This also is what Peter Hambro said.  – Jesse’s Cafe Americain (must read article)

In fact, the United States itself has become the biggest lie in history, but that’s for another day.   For some reason there’s a debate raging about whether or not a shortage of bullion – gold and silver – really exists.  That in an of itself is a fatuous endeavor because nearly every ounce of gold ever mined still exists.   Furthermore, there will always be a fiat currency price level at which a holder of gold or silver will be willing to exchange their bullion for paper currency.

Even more silly is the fact that the paper bullion market apologists point to the published Comex warehouse stock of gold and silver and use that as their “proof” that there’s plenty of bullion available.  I’m not sure why the argument uses the Comex as the point of focus. Maybe because, in theory, it has more “transparency” than the LBMA.

However, there’s one small problem in using the Comex as data a proof of existence:   “The information in this report is taken from sources believed to be reliable: however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.”

This disclaimer showed up mysteriously without any formal news release on the daily Comex warehouse reports in June 2013.  The legal translation of that one sentence goes like this:  “this report shows numbers which represent quantities of gold and silver which may or may not exist and the CME hereby is legally immune from any legal claims against it should those numbers be fraudulent.”

My point here is that the Comex is a big lie.  It’s the precious metals market equivalent of Enron.  The trade and inventory data are cleared, accounted for and reported by the big banks that operate the Comex.  Do you trust the banks to report accurately and honestly the data in that report with an air-tight legal disclaimer attached to it by the CME’s lawyers?

Anyone can see that the Comex is nothing but a paper bullion trading exchange.  The amount of gold represented by the paper gold open interest is now well over 200x the amount of alleged gold that has been designated as available to be delivered.  As of today, the paper gold o/i is more than 6x greater than the total amount of gold reported to be held in Comex vaults (see the disclaimer again).

The entire matter could be settled with an independent audit made available to the public.  It should be required by law because if myself and many others are right, if and when the Comex defaults the the CME will likely look to the Government for a bailout.  Here’s why:

41 million ounces of paper gold – the current open interest in paper gold – is valued right now at around $45 billion.  If and when the Comex eventually defaults, the only card it has to play is the force majeur clause in Comex contracts, which enables the Comex to settle paper contracts in paper currency. But as of its latest 10Q, the CME had only $1.5 billion in cash and $21 billion in book value (which assumes its assets are properly marked as to their worth).

My friend and colleague, Craig Hemke, offered some compelling arguments today in response to neanderthal analysts who were out and about serving up half-truths, distorted trusts and willful omission of facts in the commentaries regarding the current supply and demand of gold and silver.  Please take the time to read his work here:  Attack of the Comex Apologists.

Back to half-truths, distorted truths and willful omission of facts.  This chart was making its way around the internet in an attempt to prove that the Comex paper to reported physical ratios are not out of whack vs. historical highs:

ComexCrapThe facts that have been willfully omitted are these: In 1998, the Comex only reported total ounces, not registered vs eligible. Second, the total amount of gold reported at the time was only 1 million ounces. Finally, the comment in yellow was added by me. This denotes the infamous “Brown’s Bottom” when the Bank of England dumped 400 tonnes of gold on the market, marking what turned out to be the bottom of the bear market in gold.

About 5 years later, a hearing was conducted to find out why Gordon Brown unloaded half of England’s gold on the market.  This stunning full-truth with regard to the paper short position of the bullion banks vs. the available supply of gold to deliver into those contracts was revealed (Eddie George, BOE Governor):

“In front of 3 witnesses, Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the Washington Agreement gold price explosion in Sept/Oct 1999. Mr. George said “We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.”

When you shine the light in the right places, the truth emerges. Now we know that the Bank of England bailed out the Comex and LBMA in 1999. It will be interesting to see if a bailout is possible this time around, because the western Central Banks have been drained of most of their gold and the paper to physical leverage numbers are significantly larger by several factors than they were in 1999.

Wax On, Wax Off – Interest Rate Hike On, Interest Rate Hike Off

Non-farm payroll report comes out and Spoos [SPX futures] go down 32 handles. Gold starts off up $4, now down $6. This is totally rigged. I’m going to Vegas, at least the tables are more level then these markets and I get free booze and some really hot chicks.  – reader comment after employment report hit the tape

Despite the rhetoric coming from the Richmond Fed’s Lacker, there will be no interest rate hikes in September.  It’s not about the fictitious and indisputably managed and manipulated non-farm payroll report, it’s about the catastrophic degree of leverage in the banking system.

All along, despite the disingenuous pretenses of helping “main street,” the Fed’s money printing has been targeted specifically at keeping the big banks from collapsing and to enable them the continue sucking wealth out of the U.S. economic system.  Secondarily, it’s enabled the U.S. Treasury to continue issuing debt obligations that will never be repaid.

There will be no interest rate hike in September, or in 2015 for that matter.

In order to support this intended monetary policy, the Fed has to discourage investors from converting fiat paper money into real money – gold and silver – by creating shock and awe terror in the paper precious metals markets (hey, it worked with 9/11 and we got the Patriot Act, Detainee Bill, Homeland Security Act and an unfettered NSA).

Here’s what this anti-gold terrorism looks  like in the paper gold trading market – click to enlarge – the time-scale on the x-axis is MST:

Untitled1As you can see, after a quick initial move up, an avalanche of paper selling hit the paper market, driving the paper price of gold below where it was when the report hit the tape. We would have expected a big move up in gold as the logical response to a jobs report which badly missed Wall Street’s consensus estimate, and thus convincing the hedge fund algos once and for all that there would be no rate hike in September.

Between the 8:30 a.m. (EST) report release and 9:00 a.m., over 42,000 paper gold contracts traded, most of them “sell” orders.  This is 4.2 million ounces, or the equivalent of 122 tonnes of paper gold.  122 tonnes is more than the amount of gold that India is said to have imported in August – Business Standard, Mumbai

Of course, this action in the paper gold markets on Fridays, especially non-farm payroll report Fridays, has become standard operating procedure for the Fed.  With all of the physical gold trading markets closed for the weekend, the Fed is free to operate unfettered from the pressure that physical demand exerts on the paper gold pornography.  In fact, China has been closed for the past two days, which has alleviated temporarily China’s inexorable demand for physical gold that is delivered in to China.

To give you an idea of the extreme degree to which the bullion banks – backed by the Fed and the U.S. Treasury – have gone in order to keep a lid on the price of gold using paper, you’ll note that the ratio of paper gold outstanding to the amount of gold being reported as available to deliver has spiked back up to 126:1:

Untitled

I sourced this graph from Jesse’s Cafe Americain and recommend reading the the accompanying commentary:  LINK

In any other commodities market on the CME, if the ratio of the amount of paper to the amount of available underlying physical commodity approaches anywhere near even a 2:1 ratio, the CFTC cracks down the “manipulator.”  For some reason the paper gold and silver markets have the dubious distinction of existing free from any legal regulation by the U.S. Government and the bureaucracies that exist that are supposed to enforce the rules governing market manipulation.

Meanwhile, retail demand for U.S. mint gold and silver eagles surged this summer.  From June to August silver eagle purchases were up 126% over the same period last year.  And gold eagle purchases tripled from Jun-Aug this year vs. last year (data source:  SRSRocco Report).

I won’t go into the flow of gold from west into India and China.  Imports into those two countries will hit all-time record highs this year.  That’s a lot of Pet Rocks being bought with U.S. fiat currency.

Without question the extreme intervention in the paper precious metals markets – NYC and London – is serving the purpose of hiding the fact that the Fed will not be raising interest rates this year, or next.  In fact, the next policy move will be more money printing.  Or “QE4” if you want to call it that.  But until the Fed sells its Treasury and mortgage holdings, for now what is occurring is pure money printing.  And more of it is coming.

WaxOnWaxOff

So Much For Bloomberg’s New Bull Market In Oil

As I mentioned two days ago when oil popped about 10%, Bloomberg was all giddy in declaring a new bull market in oil.  Within two days oil took back all of Monday’s gains, and more.   With oil now down over 10% from Bloomberg’s “point of new bull market,” is this a “correction” or a sell-off from a paper-manipulated bounce:

OIL

Next up: the “new bull market” in fraudulent Government non-farm payroll reports…

Gold has worked down from Alexander’s time… When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory – Bernard Baruch, famous Wall St financier, philanthropist and Presidential advisor

The Trading In Paper Gold Reflects Sheer Desperation By The U.S. Government

I got this comment in my email from John Embry this morning in reference to the blatant paper attack on gold after London closed this morning (see graph below):

How do you like these antics after the London close today? I still believe that to be this blatant they must sense real trouble.

I replied:

John this is pure desperation.  An incredible amount of gold was delivered into the SGE the past two weeks. Everyone follows “withdrawals” because that’s what “prince” Koos has them conditioned to watch.  But you can’t “withdraw from” without first “delivering into.” You can get delivery numbers daily at the SGE website.

Did you see this:  http://www.zerohedge.com/news/2015-08-14/alarming-indicator-back-level-last-seen-10-days-bear-stearns-collapse

Also this report hit the wires today:   Chinese Gold Premium Spikes, Indian Imports Surge.

There was also a report out yesterday showing a huge increase in non-performing loans at the big banks in Q2.  I really think the economy hit a wall the last two months.  That industrial production report was purely a function of the big downward revisions in May and June that made the “increase” in July look relatively healthy.  The IP number was a product of auto industry inventory build-up – cars that won’t get sold.

John, they can try to cover-up the carnage to the economy by pumping up the stock market and smashing the metals, but they can’t hide the coming sub-prime driven debt implosion OR the massive gold-buying going on in China.

GOLD

Physical Gold: “There Will Not Be An Opportunity Soon” – Guest Post

There is a feeling shared by many investors that something is not quite right in the financial world today. They do not know or understand exactly what is going on but the recovery that is supposed to be happening is not showing any visible signs of that being the case. Their neighbors are losing their jobs. Food costs and daily living expenses are going up even though there is supposed to be no inflation. The world is becoming a dangerous place. Countries are going into default. States and counties are under financial duress, pensions are underfunded.

In spite of all of the above, the stock market continues to make new highs and has not had a significant correction since it turned up in March of 2009. That is not natural in normal markets. Governments around the world keep printing an inordinate amount of money on a monthly basis yet there have been no positive economic effects produced from this activity. Closer examination of the economic numbers published by the government, especially those in the monthly jobs report and housing data, cause many to be extremely suspicious if not outright agnostic. Something isn’t right in the financial world and we totally agree. However, I do not want to get into a discussion as to what and why we are where we are today. Make no mistake about it, the world is facing a financial crises the likes of which have never been seen before. This has been discussed ad nauseum and is not the purpose here.

What is pertinent is now is the time to put your investment portfolio insurance in place. NOW!

Everyone should have a minimum of 10-25% of their investment portfolio insured. Insured against what? Insured against a falling bubble bursting stock market, geopolitical uncertainty, unrestrained government printing of currency, and a global collapse of the financial system with the traditional “bank holidays as seen recently in Greece”. Greece is already gone and Puerto Rico will be defaulting on bonds this week. Several other countries in the EU are soon to follow Greece. Chicago and the state of Illinois are in deep financial trouble as are many other states and counties.

The precious metals; gold and silver, have a 5000 year history of being the ultimate safe haven for wealth preservation. Gold and silver bullion and bullion coins held outside the U.S. banking system is the insurance that will provide the wealth preservation. Today the precious metals asset class is held in total utter contempt by the U.S. public and financial industry while at the same time being the most sought after asset by Europe as well as the eastern world ( China, India, Russia, Indonesia are buying inordinate amounts of gold and silver and have been for the last 4 years). The demand however, is still so strong in the U.S. that the sales of gold and silver Eagle coins have been suspended by the U.S. mint because of shortage of bullion supply. This contemptuous attitude will change very quickly as it is only a question of when not if. When it does change, it will be a sudden and immediate event that will not allow time for new passengers to board the train. The time to act is now. Noah did not wait until it started raining to build the Ark.

All the wealth held inside the banking system will be seriously impaired or destroyed. The ETF’s GLD and SLV used by the mainstream financial community as an “investment in precious metals” is a sham used only for the manipulation of the precious metals markets and does not eliminate the counter party risk. Inside the banking system includes all 401k’s, IRA’s not held by alternative investment custodians, mutual funds and stock portfolios at brokerage firms.

The precious metals asset class is very small and given the enormous amount of money that has been printed in the last 7 years; even a slight shift in demand will have the effect of trying to divert Niagara Falls through a funnel. The survivors of the coming financial crises will be those who have managed to preserve at least a portion of their wealth.

The only bullion available will be the in the ground proven reserves of the gold and silver mining companies. They will see an enormous revaluation that will make the dot.com bubble seem like a small pinatta party.

If this theory is TOTALLY wrong, the insurance portion of your portfolio may see a temporary loss but gold and silver have never gone to zero. If on the other hand this analysis is accurate; your portfolio may not only have preserved your wealth but greatly enhanced it.

We can help you get the proper insurance for your portfolio.

Don DiPaola
Golden Returns Capital – LINK
Don@goldenreturnscapital.com

Was The July 19 Paper Raid On Gold Implemented To Remove Gold From GLD?

Craig Hemke of the TF Metals Report wrote an article which has sniffed out the probable motive behind the shamelessly blatant paper smash of gold on Sunday evening July 19 at one of the quietest trading periods of the week:

As a readily-accessible source of instantly-available gold, The Authorized Participant Bullion Banks are once again redeeming their 100,000 share lots for physical gold from the GLD “inventory”. That this gold is then utilized to settle physical demand from around the globe is hardly arguable, given recent history.  – Craig Hemke, TFMetalsReport.com

I believe Craig has hit the nail on head here.  Ever since first reading James Turk’s original dissection of the GLD Trust legal structure from the Prospectus, it’s been pretty obvious that GLD was created to act as a “holding reservoir” of physical gold that would be used by the Central Banks/bullion banks as a source of gold to required to settle LBMA forward commitments to buyers (i.e. China, India and Russia) who would refuse to settle in cash.  99% of all Comex trades are settled in cash.

The one unresolved question, for me anyway, is the issue of how much gold really still exists in unencumbered (e.g. leases or hypothecation agreements) physical bar form in HSBC’s vault or the vaults of designated subcustodians.  It’s an question that won’t be answered until the system implodes because GLD, by design, has made it impossible for anyone to conduct a bona fide, independent audit.

This is an excerpt from a post I wrote on the The Golden Truth, the predecessor blog to Investment Research Dynamics – it looks like my analysis was correct back then which reaffirms Craig’s analysis of what happened two weeks ago:

We have witnessed a stunning drain of gold from the GLD ETF trust.  Through last Friday, an incredible 479 tonnes – more than 35% – of GLD’s gold has been removed and has disappeared, most likely to Asia – in the space of about 10 months.  The biggest chunk of that 479 tonnes was removed shortly after Germany’s Bundesbank issued it’s feeble and hopeless request to the U.S. that the Federal Reserve start shipping back some portion of the 1500 tonnes of gold that is supposedly being “safe-kept” on behalf of Germany by the Fed in its vault in New York City.   Gold luck, Angela…

I have looked at GLD suspiciously ever since James Turk issued the first analysis of GLD’s prospectus back in 2004.  Those of us who are familiar with securities laws and investor “safe guards” supposedly enforced by the SEC were absolutely shocked that the SEC approved the GLD prospectus as it was filed because of the egregious lack of GLD sponsor and custodian legal accountability standards typically required by the SEC for publicly traded securities.

Given this fact, I believed at the time that GLD was a scheme devised to suck  in retail and institutional cash that might otherwise flow in massive quantities into actual physical gold that would be safe-kept in private vaults in this country.  Although GLD has a mechanism to enable investors with a minimum of 100,000 shares to convert those shares into gold that would be delivered to the investor, the procedure is exceedingly cumbersome and expensive and there’s a mechanism embedded in the language of the prospectus that enables the trustee of GLD to deny such requests.

But I also knew – through GATA’s invaluable research – that there would eventually be a shortage of physical gold that would be available to allow the western Central Banks and bullion banks to maintain their oppressive and incessant manipulation of the paper gold market for the purposes of maintaining a cap on the price of gold, for the purposes of defending the credibility of the U.S. dollar.  I figured that at some point the gold in GLD would used for this purpose once the Central Bank stocks of gold were largely if not fully depleted.  In this context, please recall that about three years, the ECB system, which had been selling 400 tonnes per year on average, pretty much stopped selling any gold.  That’s sign-post #1 that I was right.

Then along comes the Bundesbank in early 2013, with a request that the Fed start shipping Germany’s gold held in in New York back to Germany.  That’s when all hell broke loose:

(The graph above is from the TFMetalsReport.com)

There’s something really wrong with that picture because the intuitive response from the market by Germany’s request of the Fed should have been a quickly rising price of gold.  But as you we all know, the Fed defaulted on the request – for all intents and purposes – and that’s when the massive drain of gold from GLD commenced.

The truth is that my original hunch was correct.  100% correct.  The gold in the GLD trust is being used to satisfy the enormous physical delivery demands from China and the other big gold buying countries because the western Central Banks have run out of gold to deliver.  That is an unmistakable fact. Reports and data ad nauseum have been published in the last six months describing and verifying the voluminous, unprecedented amount of gold bars that have been moved – literally physical transferred – from the Comex in NY and  the LBMA and Bank of England vaults in London to Switzerland and then on to Hong Kong, where it flows to its ultimate destinations in China.  Anyone who would deny that this is the case has a blatant and catastrophic disregard for the truth as supported by provable facts.

So the question is, how much longer can the depletion of gold from GLD continue before this scheme falls apart?  Let me first say that it is likely that the U.S Government’s “Waterloo” in this situation will be the gross miscalculation – when GLD was originally devised – of the growth and size of China’s appetite for physical gold for which actual physical delivery is demanded.

Along with all the other manipulated schemes of the western Central Banks/Governments, I believe that the GLD fraud is starting to unravel.  I would argue that the ability to execute successfully the intervention  in interest rates, currencies and equities requires the unfettered ability to manipulate the price of gold.  In my view, the western Central Banks are losing their grips on gold and this will likely bring the entire western financial system down.

Shanghai Gold Exchange Has Third Largest Withdrawal Week In Its History

I was exchanging emails with Eric King of King World News earlier this week and, in the context of the unprecedented degree of paper gold manipulation and anti-gold propaganda regurgitating from the financial media, I asked him if he thought what was happening signaled a bottom:

Yes I do think it’s the bottom, Dave.  The anti-gold propaganda is off the charts.  I have never seen it this bad.  Every bullion bank and mainstream media station is bashing gold.  – Eric King, King World News

I thought the “pet rock” article in the wall street journal was the height of the madness.  But an article featured by Marketwatch which suggested that gold might hit $350 and that its fair value is $875 is perhaps the culmination of absurdity.

The irony in this is that, while the U.S. propagandists who are pulling the proverbial rug out from under the American public and extracting as much wealth from the public as they can before the country collapses, the Chinese are accumulating physical gold – aka real money – at a record rate.

Meanwhile gold and silver eagle sales from the US Mint have begun to accelerate this summers.  My good friend and colleague of several years, “Jesse” of Jesse’s Cafe Americain posted commentary which succinctly encapsulates contrast between fact and fiction:

And as you may have seen in the posting from earlier today showing the sea change in leverage over even the past ten years there, it is seemingly getting a lot less physical all the time, even compared to just five or six years ago. Winning…Even the US Mint seems to be getting in on the act.  The mint sold 202,000 ounces of gold in the form of coins for the month of July, one of its largest monthly sales totals in several years.  

That’s a lot of pet rocks.  Do the math. I wonder where the poor, deluded ignoramuses who obviously do not understand finance are getting all that money to spend on such worthless trifles.  Does the US Mint take food stamps?

You can read the rest of his piece here:  Jesse’s Cafe Americain

In contrast to Jesse, the Wall Street Journal’s Jason “Gold is a pet rock” Zweig is perhaps the most pathetic journalist of our era…