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.