Has Janet Tavakoli gone mad?

Jim H
By Jim H on Sun, Mar 30, 2014 - 10:01pm

For those of you who don't know of Janet, she is one of our most incisive expert commentators when it comes to derivatives and their abuse.  Janet is not anti-Gold... in fact, she understands it pretty well as explained in this piece, and she also states that she owns some;

http://www.tavakolistructuredfinance.com/2013/08/tavakoli-says-gold-is-m...

And that is why I am so confused about the piece she posted earlier today, which is something of an Anarchist's Cookbook for someone intent on cornering the Gold market;

http://www.tavakolistructuredfinance.com/2010/03/corner-gold-market/

She starts out the piece like this;

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities. Stay away from people like me, and fly under the radar, because I’d like to see you thrown in jail. Most Washington officials, regulators, and Wall Street managers are probably safe to hang around, especially if you cut them in for a piece of the action or give them vague promises of a future lucrative job.

Say what?  Stability of the global market?  We have been told by Bernanke that Gold is merely a tradition.. how on earth would any particular change in the Gold price, manipulated down, or up (as the case may be in this discussion) cause some kind of global instability?  Secondly, how on earth could any entity or cooperating group of entities "corner" a market that has a stock of approximately 170,000 tons, unless of course this market was already severely out of balance from a supply vs. demand, aka market clearing price perspective?  More on how unique the Gold market is from the standpoint of stock vs. flow;

http://www.incrementum.li/research-analysis/gold-stock-to-flow-ratio/

Gold Stock-To-Flow Ratio

The greatest misunderstanding in the gold sector

There is a clear difference between commodities, which can be explained by a consumption model (e.g. crude oil, copper, agricultural commodities) and goods that are bought in order to be held (gold, diamonds, works of art). While the economic utility of a consumable good is created when it is destroyed or used up, the utility of investment assets lies in their possession and later resale. Industrial commodities therefore have low stock-to-flow ratios, this is to say, inventories usually only cover consumption demand for a few months. If there were no inventories at all, supply would have to correspond exactly to production and demand exactly to consumption. However, if there are inventories, consumption can temporarily exceed production. Since inventories of consumable commodities are as a rule very low, prices will rise quickly in anticipation of a future supply shortage and bring consumption into balance with production.

Unlike consumable commodities, gold and silver exhibit a large discrepancy between annual production and the total available supply which is a high stock-to-flow ratio. It is our premise that the high stock-to-flow ratio represents the most important characteristic of gold (and silver). The entire amount of gold ever mined totals approximately 172,000 tons. That is the stock. Annual production was about 2,700 tons as of 2012. That is the flow. If one divides the two amounts, one arrives at the stock-to-flow ratio of currently 64 years.

Gold isn’t as valuable because it is so rare, but quite the opposite: Gold is valued so highly because annual production relative to the existing stock is so small. Putting it differently: not only scarcity, but primarily the relative constancy of the available stock is what makes gold unique. The annual production of 2,700 tons is therefore not relevant to price determination. This characteristic was attained over centuries and can no longer be altered. This stability and security is a crucial precondition for creating confidence.

Back to Janet's piece...

Step 2: Get the banks to let you finance your gold. They will lend you most of the value of your gold, especially if you do not argue about the interest rates they charge. Since they are borrowing from the Fed or another Central Bank at nearly zero, they consider the difference they get from you (backed by your gold) as gravy. As the price of gold rises, they will lend you more, and you can add to your gold position.

Be careful with the loans, though. In March, 1980, Paul Volcker was Chairman of the Federal Reserve. As the Hunts tried to corner the silver market, Volcker inadvertently ruined their plans. Volcker raised interest rates to fight inflation and issued a special credit restraint to banks admonishing banks not to provide financing for speculators in gold and silver. Borrowing costs rose, while silver prices dropped. The former billionaires were bankrupted by Volcker’s prudence. Fraud is not for sissies. But don’t worry too much. No one in Washington is really listening to Paul Volcker today. They just trot him out for a photo-op, and then dilute any “rules” he suggests to render them totally ineffective.

Yeah, I don't think anyone needs worry about a rapidly rising interest rate... 

So what is Janet up to here?  Is she winking and nodding to the hedge funds?  Does she not realize that you could only corner a market with a 64 year stock-to-flow ratio if most of the stock were in hiding due to the false low price that has been created in the paper markets?  There is plenty of Gold, just little for sale at today's prices.  Personally, I would celebrate any group of conspiring manipulators who set out to break the grip of the current conspiring cartel manipulators... but that's just me.  

3 Comments

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
and furthermore...

Janet is wrong, China has already cornered the physical flow.  Janet says in her piece;

China is a wild card. If it is not part of your scheme and decides to lend its gold, it could dampen your profits or even upset your short squeeze. But China may not want to help out your victims. Why should they? If China buys enough gold mines and increases its reserves enough, it may be in its interest to befriend you. Your combined ownership will have made the futures markets irrelevant. Together you will not only have cornered the gold market, you will have cornered gold.

link:  http://www.tavakolistructuredfinance.com/2010/03/corner-gold-market/

Think of it this way....  the UK has 310 tonnes of Gold in it's national reserves.  They hold lots more Gold than that in London, but it does not belong to England.  Wanna know how much Gold went out of LBMA vaults just in the first two months of this year, headed East ?  Koos Jansen knows;

A we can see from the chart not only did the UK net exported 118 tonnes to Switzerland in January, in February another 114 tonnes were shipped to the Alps. In two months the Brits net exported 232 metric tonnes to Switzerland, while GLD inventory was up! What Keynesian is still selling in the UK? Or more important, how much is there left to sell? There are probably a few thousand tonnes left in the vaults of the Bank of England, but that’s all owned by foreign nations.

link:  http://www.ingoldwetrust.ch/west-to-east-gold-exodus-in-full-swing

Yeah, 232 tonnes, headed for the (already all booked up) Swiss refineries, to be re-melted into the Asia 1 Kg bar standard...  

 

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
Joined: May 28 2009
Posts: 864
Janet is right.  Plan for

Janet is right.  Plan for government intervention. Watch geo-politics. Be very careful about best laid plans. 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
How to Corner the Gold Market

The first article is from August 2013 and "How to Corner the Gold Market" is from March 2010.  So things can change after more than three years!

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