Debunking the Post-CFTC Precious Metals Fear Mongering Campaign

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  • Sun, Apr 18, 2010 - 03:08pm

    #11
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

Brian,

I should be clear that I’m no expert on bullion vaults. CM knows a lot more than I do about that subject.

It certainly makes sense that they should not let you into the actual vault. That would be a security risk to other investors. But to come and say “show it to me”, I can’t think of a good reason why not. I suggest asking them directly. Seems me me that if you have the right to go there and say “Turn it over to me”, you should just as easily be able to say “Turn it over to me, let me double-check the serial numbers, and I’ll turn it back over to you.”

This weekend’s FSN did an interview on bullion vaults and the guy interviewed said exactly that: No way will they let you into the actual vault, but happy to bring your gold out to a viewing room and show it to you.

Erik

 

  • Sun, Apr 18, 2010 - 06:17pm

    #12
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

Erik, I replied earlier but encountered a computer gremlin.

I guess I’m in a minority as I said your article was too long, caused me to lose interest and could be much improved by making it tighter with drastic copy editing.

It seems there are two major themes; a blow by blow account of the last 3 weeks and who said what and a discussion of the precious metals market. IMHO the blow by blow account and who’s making silly statements and who isn’t detracts from the value of the article, particularly if it achieves some level of permanence here. I know you feel strongly about this but maybe you could consider teasing this part out and publishing it separately.

The more valuable aspect I see are your take on:

1. Is there market manipulation?

2. What, if any, are the dangers of the 100:1 ratio in the futures market, particularly for the retail investor shorting the market?

I think the “The REAL Issue: Understanding What You Own!” paragraphs are particularly informative and helpful.

Overall an outstanding piece, but you need a good copy editor with a dose of heavy red pen.

  • Mon, Apr 19, 2010 - 01:29am

    #13
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

SteveW: Thanks, good feedback, and please know I’ve taken it to heart.

All:

I’m in the process of a major re-write of this article. I ask that the DRAFT in the base post be treated as such, and that you NOT forward it around yet. I’ll be posting a much better version soon.

The strongest feedback I’ve gotten has been that I don’t know what I’m talking about because I’m talking futures and the issue is with the PHYSICAL market, the LBMA. They are wrong – the supposed issue is with LBMA derivatives, and my fundamental arguments still hold up. But I need to restate them in the context of LBMA Forwards rather than COMEX futures. Expect a new version soon.

Erik

  • Mon, Apr 19, 2010 - 05:08am

    #14
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    FINAL DRAFT

I have updated this article to incorporate feedback I’ve received, and have a final draft ready.

[Ed. note: The final draft now appears as the base text of this thread.  Please see above.]

  • Tue, Apr 20, 2010 - 11:47pm

    #15
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

Erik, I just read your article in its entirety and want to say – thanks, I am not a futures contract trader so I learned a bit myself about how they work from your detailed piece. It also cleared up a few misconceptions of mine as well, such as I did not know that contracts which stood for delivery were only settled in the underlying commodity if there was enough of the commodity present to satisfy delivery.

You make some great points as to why a ‘run on the physical’ in terms of the futures markets may not be very realistic, however history does show that the way these cycles work out, people do at times demand a great deal of metal in a short time span (London Gold Pool comes to mind, albeit that was over a span of a few years) – I could see that at least causing some disturbance in those markets to include temporary closure.

For us the overall concern/opportunity lies in the idea that there is far more paper in the world than gold period, which in itself is important to note and the reason we tend to ‘preach’ about physical being better than paper (everything serves it purpose, nothing ill intended there).

Re clients physically viewing their bars: Our firm vaults with Viamat, which is an LBMA accredited security transport and storage firm that has been in business for many years. No one is allowed into the actual vault (there are more than one) for security purposes, and on my most recent visit it was pointed out to me that not even the Director of the facility is allowed into it without an armed escort.

A small point of trivia, the way these vaults are insured is that a certain value ‘per vault door’ is ascribed to an ‘individual location’.  The amount per door is actually quite small, in the contracts we have seen around $50 million.  At todays prices, that would come to about 44,000 ounces, a bit more than a metric tonne, and around 110 “400 oz +/- Good Delivery Bars” – this isnt that many, and might be stacked on a single pallet, if a bit crowded. It is quite possible the fellow who claims to have stepped into the Scotia vault was looking at a newly opened ‘door’ that did not represent the entirety of the metal under their custody.

For us, if there was a consideration to be made for a client to view their bars, it would only make sense fees-wise if it was a very large client. Reason being, is that our governance requires the metal to actually be removed from the vault for a client to inspect it – this requires the presence of an auditor, an agent of the vaulting company, and a representative of AFE to be present to ensure the bars are sight verified on their way out, as well as on their way back in, checked off the weight lists and auditors reports properly furnished. This is all performed at the clients expense. So long as the client didnt mind flying to Switzerland to be present at such a viewing, as well as willing to cover all of the costs involved it would be fine.

Of course a client is always offered the option to take delivery of their metal, and depending on the quantity this option may be less expensive than a sight inspection like the one described above. The disadvantage of that would be that by removing metal from the LBMA “Good Delivery” system, there may be inconveniences involved when it comes time to liquidate – which is the reason most LBMA metal stays within the LBMA system.

 

  • Wed, Apr 21, 2010 - 05:33am

    #16
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

rapidtrends,

Thanks for the compliment and for sharing some very interesting information!

I’m surprised at how little discussion there’s been here. The same article was posted here on iTulip.com and a very interesting discussion rapidly ensued. For anyone with strong interest in the subject matter, I suggest also checking out the discussion over at iTulip.

There’s talk of a possible Jeff Christian vs. GATA debate on FSN, but nothing firm yet. Stay tuned…

Erik

 

  • Wed, Apr 21, 2010 - 07:32am

    #17
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

Eric,

I also want to thank you for the time you took to put your thoughts together and share what is quite helpful and important stuff. For many others it will make sense to trim it down as it is long, but for me the personal opinions on the actors involved and depth is appreciated – Gold/Silver is an important enough holding to me that my view is the more i can understand the better. Nice to see someone willing to push against the “everything is a conspiracy and fraud!” simplifying bias that appears at times in the blogs and what you are saying is right in line with why i appreciate this site so much – that all Chris Martenson’s writings are based in fact, reality and thoroughly researched rather than just throwing out exciting headlines not quite based in fact – and what you say here is in that same spirit. (I do like King World News but “Greatest Fraud in History” does fall into this i have to agree).

One point of fact, though only a small part in your writing – i had checked into the prospectus of SLV, and it also has the same language that allows them to use sub-custodians, i.e. they don’t need to have it all – same language as GLD. So it is equally likely if JPM explodes holder of SLV just get in line on a claim on metal held by someone other than JPM that JPM says is a “sub-custodian”.

Also, i think there are differences between COMEX and London and you do mainly speak for COMEX standpoint throughout regarding settlement, but i honestly don’t know enough to know if anything you said was incorrect.

But, in any case, you cover several topics here, and probably better to break into multiple writings to make each topic more focused and avoid this being too long – but i’m personally glad you put it all together, as it was interesting to go through all in one shot. I agree GATA is being goofy. At the end of the day, shouting loudly makes one feel better, but changes nothing, Ted Butler’s approach to zero in on a tangible change that would make all the difference and is in the juristiction of what is being administered by CFTC makes all the sense in the world. Maybe “position limit” is less emotionally satisfying than screaming “fraud! default! 100x leverage!” but effecting change normally does require focus…

Doug

  • Wed, Apr 21, 2010 - 02:25pm

    #18
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

[quote=Erik T.]

I’m surprised at how little discussion there’s been here. The same article was posted here on iTulip.com and a very interesting discussion rapidly ensued. For anyone with strong interest in the subject matter, I suggest also checking out the discussion over at iTulip.

Erik

[/quote]

Erik,

I hope that you don’t think that because there has not been as much discussion here as on Itulip that this is not a useful thread. I find it to be very valuable. Even though I have not directly responded to any of the posts I certainly read them all. I suspect that  many others do the same. At the very least this discussion has been educational for  many people.

I do think that GATA has done a very valuable service for us all by bring this subject to the forefront of many discussions. i hope that all interested parties can come to some agreement on how best to proceed to stop the manipulation.

 

Ken

 

  • Wed, Apr 21, 2010 - 04:21pm

    #19
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

Thanks, Ken.

Everyone: FinancialSense has fixed the problem, and the correct version is now up on their site.

Erik

  • Wed, Apr 21, 2010 - 04:44pm

    #20
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    Re: Debunking the Post-CFTC Precious Metals Fear Mongering …

[quote=Erik T.]

I’m surprised at how little discussion there’s been here.

Erik

 [/quote]

Maybe it’s because you pretty much said it all!  And very well.

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