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It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion.
The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world's annual gold production and the possibility of a sell-off.
...Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14bn for whoever's been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market...
...Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash – curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout. At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities.
Central banks in the troubled southern zone of Europe were considered the most likely perpetrators. According to the World Gold Council, central banks in Greece, Spain and Portugal held 112.2, 281.6 and 382.5 tons of gold respectively in June – leading analysts to point fingers at Portugal, or a combination of the three...
...[Edel Tully, an analyst from UBS] then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India and Taiwan – and the International Monetary Fund. This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year...
...However, the day after original reports about the swaps, BIS emailed a statement saying that the swaps had not been conducted with monetary authorities but purely with commercial banks.
This did nothing to quell the sense of mystery surrounding the deal or deals. It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet.
In this case, one or more of the so-called bullion banks – which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui and the Bank of Nova Scotia – would have agreed to act on behalf of a monetary authority.
This would add an extra layer of anonymity...
...when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion...
...[In] Ed Steer's Gold & Silver Daily...he noticed in the Comptroller of the Currency's "Q1/2010 Report on Bank Trading and Derivatives Activities" that "the bottom-line numbers show that two US banks ... JPMorgan and HSBC, USA hold between 97% and 99% of all the gold and silver derivatives held by all US banks." Yow!
This is a result of naked short selling. Normally, to short something, you would have to borrow it from somebody, and then sell that. Now, to short gold or silver is as simple as getting somebody to pay money for a piece of paper that says it represents gold or silver. Easy! There is nothing behind it!
Of course, there are the slimy apologists who insist that while it is true, the shorts can simply buy back the paper gold or silver with cash, so everybody is happy.
It was this ridiculous comment that was the start of the now-infamous Mogambo Food Supply Program (MFSP) where I sold pieces of paper that promised "One complete, five-course, home-cooked steak dinner", and I only charged them one dollar! I took the dollar and invested the money in no-risk Treasuries.
Of course, business boomed, and any time anyone wanted to "cash in" their paper dinners, I would pay them with another piece of paper promising a complete, five-course, home-cooked steak dinner. Or, when they got tired of that scam, I would offer to pay them back their original dollar, while I keep the interest their money generated.
Of course, this Fabulous Mogambo Plan (FMP) was soon shut down, and my defense was that this is essentially the same scam that is going on - right now! - in the gold and silver futures markets!
This is not, of course, about how I am a soulless, greedy vulture who wants to make a lot of money in a hurry without actually working and using the actual workings of the futures markets and the stock markets and the bond markets as my business model, but about how JPMorgan and HSBC hold almost all the derivatives of gold and silver and, even worse, how this may actually be understating it....
I think a big piece of the puzzle is the fact that there are probably several orders of magnitude more "paper gold" than physical gold. Not to mention the way derivatives distort the market, etc. Some very strange tectonic rumblings.
By Adrian Douglas
Sunday, July 11, 2010
For 11 years the Gold Anti-Trust Action Committee has been amassing evidence that the prices of gold and silver are suppressed. The mechanisms by which this is achieved are complex and multi-faceted. Attempting to convince industry insiders and investors that such an intricate price suppression scheme is not only active but has been active for more than 15 years meets a lot of resistance.
In this article I am taking a different approach; I am going to find some common ground between what GATA says and what its critics say. I am going to define some facts about the gold market that are practically undisputed and show that those facts lead unequivocally to a conclusion that the gold price is suppressed. Given that these conclusions are based upon facts on which everyone agrees, then everyone should agree that the gold market is suppressed.
What everyone can agree upon is that through unallocated bullion accounts, gold certificates, and pooled accounts the bullion banks and gold brokers are operating a "fractional reserve" operation. This means that dealers who undertake to sell and store bullion for their customers on an "unallocated" basis can sell a lot more bullion than they actually have. Many investors will buy and sell their bullion without ever seeing it. This allows the dealers to keep in their vaults only enough bullion to meet the demands of the small percentage of investors who demand physical delivery.
... Dispatch continues below ...
That's an extremely informative thread you linked to. Much appreciated; I will definitely be going through it.
...Just as Gordon Brown sold England's gold at artificially low prices to bail out the bullion banks in NY and the City, so the IMF and its constituent members are selling the public stores of gold, largely from a few developed western nations, to support what essentially appears to be a crony capitalist banking fraud involving the secretive sale of public assets at artificial prices with the gains pocketed by a few state-sponsored banks...
...The new Washington Agreement, which started at the end of last September, allowed signatories to engage in gold derivative transactions for the first time in a decade. Very convenient.
Although none of the major bullion banks (actual or potential CB counterparties) will want to discuss this, the high probability is that much of this gold was actually sold into the market...
...As we have most recently seen with the bloated CDS and CDO credit markets, long standing control frauds can cause quite a splash when they inevitably collapse. We need to bear this in mind when the governments start making their excuses, once again, for taking the 'necessary actions' to support the banks for the good of the people, from whom they have once again stolen billions to provide a fat living for their friends and themselves...
Your speculation regarding the queen represents original thought.
So a bank, or a group of banks, maybe even a central bank, liquidated their Gold holdings for a mere $16.2 Billion Dollars.
I say "mere" because in this crisis, $16B isn't really an extraordinary amount of money is it? .. When Citigroup had a back stop of 400+billion dollars, or AIG receiving over 100B ... what bank was desperate enough to liquidate Gold holdings for such a small amount of money?