• Podcast

    Harvey Organ: Get Physical Gold & Silver!

    Gold & silver prices suppressed with prejudice
    by Adam Taggart

    Friday, April 20, 2012, 10:10 PM

Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to have earned him an invitation to testify before the CFTC on position limits for precious metals back in 2010.

And he minces no words: Gold and silver prices are suppressed. With extreme prejudice.

In this detailed interview, Harvey explains to Chris the mechanics of how he sees this manipulation occurring, why he predicts this fraudulent pricing scheme will collapse soon, and why it's critical to be holding physical (vs. paper) bullion when it does.

The real suppression of the metals started in 1988. That’s when the leasing game started and was invented by J.P. Morgan.

These guys would go around to the mining companies and say, Listen, I’m going to pay you for your gold in the ground and I will sell it. You just pay me as you bring it out. So that was cheap financing to the miners. Barrick, the biggest mining company of them all, went in on this and it financed a lot of Nevada projects.

Once the leasing game came, the actual selling, the extra selling, suppressed the price. In the first five years, it started at maybe three hundred to four hundred tons. It didn’t start to get really bad until probably ’97-’98 with the Long Term Capital affair. And that’s when the leasing started to become around maybe 1,000 tons of gold. And it hasn’t stopped.

And silver is the same.

And that’s why you've had a long-term, 20 years of suppression of the metals. The problem now is that the physical is now gone. Where is going? It’s gone from West to East. 

A lot of people don’t know that China used to refine close to 80% of the world’s supplies of silver, because it’s very toxic. Up until probably 1985, the Chinese handled 80% of the world’s refining of silver. Now they're down to 40%, but that’s still a major part of China’s industry. They are keeping every single silver ounce they refine, and gold. They are keeping it for themselves; their reserves are rising (though they don’t tell exactly). Two years ago they went up to 1,054 tons and I can assure you it’s probably triple that now. These guys are not stopping. Just like they are not stopping in oil. They know what the game is, and they are slowly taking all their U.S. dollars that are on their shelf and converting them to gold, oil, copper – anything that’s real.

And the game ends when the last ounce of gold has left London – not COMEX, because in a nanosecond it will come back to here. 

The big problem in London is that their derivatives on gold are about 50 to 100-to-1. That’s the amount of derivatives. So if I take out that 1 ounce, the balloon around it – the derivative – is getting bigger and bigger and bigger until it’s ready to totally implode.

And that’s what you are seeing now. So right now, people are going to say: How high can it go? And I’m going to tell you: You are going to go to sleep on Thursday night and gold may be $1,670. And then you wake up the next day and it’s going to be a banking holiday. And gold will be $3,000 bid, no offer. No offer – and it will be a banking holiday. Because there will be a failure to deliver.

You’ve got to have physical coins or bars. If all you have is a piece of paper – that’s all it is!  It will just blow up in smoke.

So just go buy your physical and be thankful that you are getting it at a cheaper price today.     

Click the play button below to listen to Part I of Chris' interview with Harvey Organ (runtime 32m:36s). 

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To listen to Part 2 – Click Here.


Harvey received his Bachelor of Science degree in 1970 and an MBA in 1972 at McMaster University, majoring in finance. It was during this time period where Harvey got exposed to the derivative market that was just starting on Wall Street.  Harvey has been trying to expose the fraudulent manipulation of the gold market ever since  the "Long Term Capital" downfall in 1998.  It has been Harvey's duty to share what he knows and expose the fraud and educate the intricacies of of the gold and silver paper and physical markets, which he does through his website Harvey Organ's Daily Gold and Silver Report.


Our series of podcast interviews with notable minds includes:

 

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375 Comments

  • Sat, Apr 21, 2012 - 9:49am

    #1

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    What a contrast!

    My hat is off to Adam and Chris for bringing us such an outstanding contrast of guests. The most important skill for investors to develop is their ability to both listen with an open mind, while at the same time being skeptical and critical. Learning to differentiate between concrete, logical, fact-based arguments and emotionally charged bullsh*t - and correctly identifying each - is a learned skill, and it takes a lot of work to perfect.

    Regulars on this site have, in just 7 short days, been treated to both the well-reasoned arguments of a truly accomplished and well-spoken precious metals expert with well researched views supported by facts and evidence (Paul Tustain, featured last week), and have now also been exposed to a completely transparent charlatan, who asserts emotionally charged but factually hollow arguments that categorically lack credibility (Harvey Organ, in this interview).

    I suggest readers listen to both podcasts again before reading further. The expose that follows debunking Mr. Organ for the charlatan he truly is will have less value if you just read it. You'll learn a lot more by first listening to both podcasts and keeping score yourself. Listen for assertions of apparent fact, and see which of the claimed "experts" supports his arguments with logic and reason, versus nonsense and emotional innuendo. Develop your own skill at differentiating well reasoned analysis from utter nonsense, then compare your own notes to mine to see whether you picked up on the same things I did.

    This interview was particularly compelling because Mr. Organ never once - so far as I was able to tell - ever supported a single thing he said with shred of evidence or objective data. His arguments were persuasive to be sure, but they were emotional statements that lacked the support of evidence. For those who have studied precious metals markets, they were also just plain inaccurate in many cases. I was only willing to listen once, and thought I would note any factual inaccuracies to myself on a Post-It sticky note. By the end of the first half of the interview, I had no less than 7 sticky notes full of notes on the most absurd things Mr. Organ said. I couldn't keep up with all the BS because it was coming faster than I could write, but I'll outline just a few highlights below.

    Please forgive the fact that the quote mechanism inserts the word "wrote" after the attributed author. Where you see "Harvey wrote:" below, please read it as "Harvey said:". Please also excuse the fact that I was scribbling notes as fast as I could, and cannot reproduce exact word-for-word quotations. But you'll get the gist of it.

    [quote=Harvey]The Banking Cartel raids [the precious metals markets] to contain the price

    ...

    They Raid and Fleece the longs out of the COMEX[/quote]

    Ok, those are some pretty strong allegations, and they certainly ignite the imagination of anyone whose general disposition is to distrust government. But where's the supporting arguments? Why would the banking cartel want to suppress the price, and how do they achieve that? Contrast to Paul Tustain, who made very clear statements about how the AM/PM London fixes can be and are manipulated by bankers who seek to profit from the general trend of metals movement from west to east.

    I think the key here is to understand that charlatans like Mr. Organ and GATA strive to appeal to investors' emotions, rather than positing logical arguments and/or citing verifiable facts. But why do they do this? What comes to my mind is a very impressive and pertinent book, The True Believer, written in 1951 by Eric Hoffer. I cannot recommend this book strongly enough to investors who wish to hone their ability to separate cogent logical argument from irrational appeals to our emotions, which is what people like GATA and Mr. Organ are all about. Here's a summary of Hoffer's perspective from Wikipedia:

    [Quote=Wikipedia]

    Hoffer believed that self-esteem was of central importance to psychological well-being. He focused on what he viewed as the consequences of a lack of self-esteem. Concerned about the rise of totalitarian governments, especially those of Adolf Hitler and Joseph Stalin, he tried to find the roots of these "madhouses" in human psychology. He postulated that fanaticism and self-righteousness are rooted in self-hatred, self-doubt, and insecurity. In The True Believer he claimed that a passionate obsession with the outside world or the private lives of others was an attempt to compensate for a lack of meaning in one's own life. The book discusses religious and political mass movements, and extensive discussions of Islam and Christianity. A core principle in the book is Hoffer's assertion that mass movements are interchangeable: fanatical Nazis became fanatical Communists, fanatical Communists became fanatical anti-Communists, and Saul, persecutor of Christians, became Paul, a fanatical Christian. For the "true believer", substance is less important than being part of a movement.[/quote]

    My contention is that Hoffer's thesis is exactly what this is all about. GATA, Harvey Organ, Ted Butler, and other charlatans appeal to what Hoffer described as the True Believer. People who are dismayed by the world around them, and who correctly perceive great injustice to exist around them. Their frustration with that bona-fide injustice generates an emotional need for something to believe in - to feel they are part of the in-the-know crowd who is up on the scam, whether it exists or not. Organizations like GATA provide service that emotional need, with a complete and total lack of logical or factual support.

    But enough on Hoffer. Let's get back to Mr. Organ's fantasies.

    [quote=Harvey]

    Open Interest is basically defined as longs who are standing for delivery.[/quote]

    Umm, hello? Open interest refers to the number of outstanding contracts - for each open contract there is exactly one long and one short (it takes two to tango), and by definition, there are always an equal number of longs and shorts. The number of longs standing for delivery is determined only after the contract's deadline for cash settlement. Mr. Organ's statment is so completely far out of touch with reality that one must question what motivated it. Talking about longs standing for delivery triggers unconscious beliefs and fears about whether the system can deliver against those who stand for delivery. And that plays perfectly into Hoffer's theory that this is all about playing to the self-esteem and insecurities of the audience. It has nothing to do with the reality of how precious metals markets function! The definition of "Open Interest" is well known, Commodities 101 level stuff. This kind of statement reveals an agenda to mislead the listener into emotional territory.

    [quote=Harvey]The [bullion banks] manipulate and actually influence the price collusively!

    ...

    And it kinda hurts guys.... And you can't beat these guys...[/quote]

    Ok, so we have an allegation that bullion banks manipulate the price of the metals. We further have an emphatic allegation that this manipulation is collusive. Is there a single shred of evidence to support these allegations? No. Is there any discussion of the mechanism or technique of manipulation? No. Is there any logical argument whatsoever even explaining what their motive might be? No. But we can't leave it there. We have to add "You can't beat these guys", which appeals to the emotional need of Hoffer's True Believer to feel in-the-know about what the evil banking cartel is up to. Sans evidence or even logical explanation.

    [quote=Harvey][referring to the Feb 29 selloff] These are sellers who have absolutely no interest in profit!

    ... then just a few minutes later...

    These guys make a lot of money![/quote]

    Ok, which is it? Are they truly sellers who have no interest in profit, and if so, why is that? And if that is the case, why are they making so much money on these non-profit-motivated trades? Again, we have commentary that is categorically lacking in logic, reason, and common sense. But boy does it feel good to the True Believer to feel they have the inside scoop on the evil cartel's operations!

    [quote=Harvey]Then they just let the HFTs take [the market] down!"[/quote]

    Wait a minute here. HFTs mostly exploit liquidity inefficiencies, and profit from scalping bid-ask spreads. So how does an HFT algo "take down" a market to do the bidding of an evil bullion bank? If there is a rationale for how this would actually work, why didn't Mr. Organ state that rationale in the interview? Or could it be that this is really about the fact that HFTs have been widely publicized as a major mechanism by which Wall Street rips off retail investors (that part is true by the way), and that appeals to the emotional needs of the True Believer? 

    [quote=Harvey][Paraphrased - I couldn't write fast enough] Feb. 29 was a raid. I knew it when I saw it because of the price action[/quote]

    Harvey, ever heard of fundamentals? The whole reason Gold has performed so well over the last few years is central bank money printing. Feb. 29th was a day when FOMC minutes were released revealing that much-anticipated QE3 wasn't going to happen when everyone thought. The big sell-off makes perfect sense, and is supported by fundamentals. But a logical, rational, and coherent explanation based on reality doesn't appeal to the emotional needs of Hoffer's True Believer. Harvey's comments do.

    [quote=Harvey]The COMEX is supposed to be about price discovery, not the price!"[/quote]

    This is a long-standing Ted Butler argument, and so far as I can tell, it derives from a basic lack of understanding of economic terminology. I believe what Mr. Organ means here is that he believes (as does Mr. Butler) that the futures market is not supposed to set the price of precious metals, and that by law it is prohibited from doing so. Rather (according to Butler), the futures market is only supposed to discover the price. This sounds good to a person who is unfamilliar with the phrase price discovery, and it definitely appeals to Hoffer's True Believer, who wants to feel he knows the inside scoop on some sort of dastardly injustice.

    But returning to reality, the price of gold and silver is in fact set by trading in the futures market. The way the price is determined is through a free-market bid and ask system, where a stack of bids are matched by computers against a stack of offers, and trades clear immediately when buyers and sellers have compatible prices. The market "clears" when the outstanding bids are all lower than the outstanding offers. The result is that a price is determined - the bid is the price a seller can get immediately, and the ask is the price a buyer can get immediately. In Economics, this function of setting the price by clearing bids and offers is known as price discovery. Here's the Wikipedia entry:

    [quote=Wikipedia]

    The price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers [1].

    Price discovery is different from valuation. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following: [2]

    • Buyers and seller (number, size, location, and valuation perceptions)
    • Market mechanism (bidding and settlement process, liquidity)
    • Available information (amount, timeliness, significance and reliability) including
      • futures and other related markets
    • Risk management choices.

    In a dynamic market, the price discovery takes place continuously. The price will sometimes fall below the duration average and sometimes exceed the average as a result of the noise due to uncertainties.

    Usually, price discovery helps find the exact price for a commodity or a share of a company. The price discovery is used in speculative markets which affects traders, manufacturers, exporters, farmers, oil well owners, refineries, governments, consumers, and speculators.[/quote]

    So what's going on here? Both Butler and Organ are going way out of their way to make a big deal about the travesty of justice (in their eyes) that the futures market is never (according to them) supposed to set the price - it's only supposed to discover the price. Butler went so far as to claim in a CM.com podcast that this was "illegal, according to commodity law". Of course he didn't cite a reference to the law he was referring to. Yet the definition of "price discovery" that is well known and accepted in economics is that price discovery is the process by which a price is set!

    Are Butler and Organ intentionally and maliciously trying to appeal to the True Believer by trying to make a distinction that makes absolutely no sense? I suppose that's possible, but I don't think so. My guess is that these two men are just so profoundly ignorant as not to comprehend the meaning of the terminology they use so frequently and so authoritatively. But that's only a guess. In any case, the argument is specious and without merit.

    [quote=Harvey]Trust me when I tell you... Gold and SIlver are manipulated 100% of the time!"[/quote]

    This says a lot to me. At this point we're well in to the interview, and Mr. Organ has yet to back a single argument with a single fact or logical or ratioal argument. Now he wants us to trust him. Why would we trust him? Answer: Because he's a master when it comes to appealing to the emotional needs of theTrue Believer. Should we trust him? Of course not - he's a complete charlatan.

    [quote=Harvery]All the gold in Ft. Knox is gone!"[/quote]

    Now that's a hell of an allegation! You'd think someone making it would at least have a rationale to assert - even if a bogus one. But no, there was no discussion of reason, cause, or evidence. Just a statement that implied that the government is evil and up to no good. Calling all True Believers...

    [quote=Harvey]The big problem in London, as per Jeff Christian, is that there is 50 or 100 to one, and if I take just 1 oz out of London, the bubble around the derivatives grows[/quote]

    I probably got the exact wording wrong - I had literally run out of Post-it notes! But this is a recycled argument that was originally put forth by Andrew Maguire, another precious metals charlatan. They are trying to imply (or say directly in Maguire's case) that the physical metal in London is somehow serving as collateral to back the cash-settled forwards market, which is pure and unadulterated nonsense. When an ounce of gold leaves London for the East, there are good reasons to be concerned - the East is getting all the real wealth! But the business about this de-collateralizing cash-settled forwards markets is plain nonsense, and everyone who understands how these markets function (that rules out GATA and Butler immediately) knows that.

    Summary:

    Ok, that's as far as I got before exhausting my Post-It pad. The bottom line here is that there was not one shred of credible, knowledgable commentary on precious metals in this interview. Not one bit. This was nothing more than yet another charlatan appealing to the emotional sensitivities of Hoffer's True Believer.

    I'm certain I'll be flamed relentlessly for this post by the many true believers on this site. That's ok. I hope to offer those few who are here to actually learn about how markets truly function some insight, and I hope this post has helped at least a few people differentiate between the cogent and well-reasoned arguments of Mr. Tustain and the nonsensical ramblings of Mr. Organ. That's what investing is all about - learning that both the real players and the charlatans can talk a good story, and learning to tell the difference.

    All the best,

    Erik

    p.s. To Adam and Chris, I openly challenge Mr. Organ, Mr. Butler, or both to a debate on these topics in a future podcast on this site.

    [Moderator's note: All readers please be sure to read Erik's post here, clarifying his use of the word "charlatan."  Left by itself, that word implies intentional deception for personal profit, and we have no reason to think that Mr. Organ is anything but honest in his intentions.]

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  • Sat, Apr 21, 2012 - 12:10pm

    Greg Henderson

    Greg Henderson

    Status: Member

    Joined: Mar 13 2011

    Posts: 3

     ErikWhat a LONG reply ...

     Erik
    What a LONG reply ... you put a lot  of effort into this  ... just to be noticed ... BTW -- do you offer a daily blog like Harvey where you have to get the page out for the eager readers ....every day ?  And is your blog free?
     
    Perhaps before you can openly challenge and get the media attention for that '5 minutes' you need to show us your stuff ...  I for one cut Harvey more slack as someone who is passionate onthe subject like Harvey will slip up on a phrase here and there - it is the overal intent that counts for me.   The effort that Harvey & Ed Steers ( another free blog posted daily ) put into this effort is amazing, IMHO
    Greg

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  • Sat, Apr 21, 2012 - 12:20pm

    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814

    Fatal Models.

    Whooee! Them thars fighting words, Partner.I think that your Believers book would be a precurser to Iain McGilchrist's "The Master and his Emmisary." It is a Left brain Thing. The silly thing makes up a model of how the world works and then holds onto it as though it's existance depends on the model being true. With fatal results in Hitler's case.
    I am going to take a chance on Brillouin Energy. I shall convert my silver into shares. Huge Risk, Huge reward.

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  • Sat, Apr 21, 2012 - 12:40pm

    Greg Henderson

    Greg Henderson

    Status: Member

    Joined: Mar 13 2011

    Posts: 3

     One more point, if I may

     One more point, if I may .... when someone is so eagar to 'debate' ....http://www.youtube.com/watch?feature=player_embedded&v=7hnIqE1_ZGU
    the above link is Jeffery Christian ( no side ) to Bill Murphy of GATA ( yes side ) to the 'debate' ...  I would like to pick my team --- say John Embrey or Rick Rule ( both from Sprott ) ... bring on the sleeze balls for the NO side  ... you can tell Bill is so passionate that it gets in the way for a 'debate' ... 
    History will not be kind to Blythe and the trolls
    Greg
     

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  • Sat, Apr 21, 2012 - 2:03pm

    Denny Johnson

    Denny Johnson

    Status: Bronze Member

    Joined: Aug 14 2008

    Posts: 119

    GregGGH wrote

    [quote=GregGGH]What a LONG reply ... you put a lot  of effort into this  ... just to be noticed ... BTW -- do you offer a daily blog like Harvey where you have to get the page out for the eager readers ....every day ?  And is your blog free?
    Perhaps before you can openly challenge and get the media attention for that '5 minutes' you need to show us your stuff ...  I for one cut Harvey more slack as someone who is passionate onthe subject like Harvey will slip up on a phrase here and there - it is the overal intent that counts for me.   The effort that Harvey & Ed Steers ( another free blog posted daily ) put into this effort is amazing, IMHO
    Greg
    [/quote]
    I don't have a dog in this fight and am happy to not feel a need to have an opinion on manipulation...........but for the sake of objectivity..............having a free blog, passion, and putting a lot of effort into something have little to do with seeing things clearly. There are many deluded free blogs, many deluded passions, and much deluded effort in this world.
    I doubt you know any of these folks well enuf to know what their intentions are.

    bring on the sleeze balls for the NO side

    Emotionally charged words like this don't do much for your argument either.

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  • Sat, Apr 21, 2012 - 2:30pm

    #6
    Denny Johnson

    Denny Johnson

    Status: Bronze Member

    Joined: Aug 14 2008

    Posts: 119

    Jim Rickards

    I haven't listened yet, but always find Jim Rickards worth the time:

    http://jessescrossroadscafe.blogspot.com/2012/04/jim-rickards-is-interviewed-by.html

    Part 1 is focused on Gold manipulation and why gold plays such an important role in the world, even if conventional wisdom doesn't believe so, gold is not only being watched by central bankers, as Mr. Rickards put, "the gold price is being managed."

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  • Sat, Apr 21, 2012 - 3:27pm

    #7

    JAG

    Status: Gold Member

    Joined: Oct 26 2008

    Posts: 439

    More Gold Manipulation?

    Another podcast/post about gold manipulation, and to think that gold is just in consolidation period. I can't imagine the whining and rationalizations when there is a significant decline in gold.

    Am I the only one who recognizes the hypocrisy in all this? A person buys physical gold to get out of the manipulated markets, but then they spend all their energy complaining about gold being manipulated. 

    This psychological pattern is guaranteed to end with empty pockets....

     

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  • Sat, Apr 21, 2012 - 5:54pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    GregGGH wrote:the above

    [quote=GregGGH]
    the above link is Jeffery Christian ( no side ) to Bill Murphy of GATA ( yes side ) to the 'debate' ...  I would like to pick my team --- say John Embrey or Rick Rule ( both from Sprott ) ... bring on the sleeze balls for the NO side  ... you can tell Bill is so passionate that it gets in the way for a 'debate' ... 
    [/quote]
    The one part of this I agree with is that Chris M. should interview Jeff Christian in a future podcast. He would do a better job than I can of debunking all this nonsense, and that would be of great value to the minority here who are interested in reality.
    As for all the "passion" stuff, we all have our own passions. The Organs, GATA, and Ted Butler's passion is to fill retail investors heads full of lies and propaganda. My passionate hobby is debunking this BS. Diff'rent strokes...
    Best,
    Erik
     

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  • Sun, Apr 22, 2012 - 12:48am

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Currency Wars

    Erik,    Tell me, have you read Jim Rickards' book,  "Currency Wars"? If so, what are your thoughts about what he says? If not, you might want to consider it.

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  • Sun, Apr 22, 2012 - 2:21am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    shudock wrote:Erik,    

    [quote=shudock]
    Erik,
        Tell me, have you read Jim Rickards' book,  "Currency Wars"? If so, what are your thoughts about what he says? If not, you might want to consider it.
    [/quote]
    Hi shudock,
    I haven't read it, but expect it's quite good. I've heard Rickards interviewed several times about it, and it sounds like he's basically making an argument I very much agree with, but am already well versed in. He's a smart guy and I'm sure I'd learn something, but I'm also sure most of it would be old news, so I haven't made time to read it. Not saying I won't - just haven't yet.
    Best,
    Erik
     

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  • Sun, Apr 22, 2012 - 4:31am

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Critical thinking

    Erik,   I have amended my point of view on the topic you wrote about many, many  times over the years, as more pieces of the puzzle come my way. I am still amending it, almost every day. Certitude makes for a compelling argument in a debate, and will win many uncritical people over while barely trying, but I prefer being open to new possibilities, even when I think I've got the picture already, and even when it appears to others that I don't have any answers. I prefer a bit more agnosticism demonstrated in folks who are trying to persuade me of something. (Incidentally, my book recommendation was not made as an illustration of "what I believe" - simply another perspective on the topic. )
       To me, if a person wants to go about "debunking" concepts and philosophies on the Internet, and also cares whether people take their arguments seriously, it might be better to for them to check their approach to doing so, to truly investigate all corners, even if they think they already know what will be said. I am neither agreeing nor disagreeing with your arguments right now, because I can easily decide for myself what I think about those. Nor am I trying to convince you of anyone's particular stance on the topic. But your easy dismissal of something that you haven't read is telling. It makes me think that you have simply arrived at a point where you think you have it "all" figured out, stopped there, and dug in. What troubles me, and casts a shadow over your words for me, is your attitude toward others out there who are seeing the situation differently than you. While you may "know" that you are right, a loud, accusing condemnation of people who are clearly on the same path of discovery that you are on, makes it difficult for an observer to hear your argument. Half of your argument appears to be: "these people are crazy/greedy/nefarious and just want to fool you guys out there." But attacking messengers won't help the fact that some people will think critically, and others will not, no matter who is speaking.
       Peace, and thanks.

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  • Sun, Apr 22, 2012 - 4:37am

    peteewing

    peteewing

    Status: Member

    Joined: Feb 05 2011

    Posts: 0

    Gold Manipulation ?

    Erik,Thanks for you detailed and thoughtful reply. I would certainly enjoy listening to you debate. There are far too many people who do not realize just how close to impossible it is to pull off a manipulation of the futures market for any extended length of time. I certainly am a gold investor and I am still adding to my physical inventory. However I also believe CEF, SGOL, and GTU actually have the physical metal to back their claims and I have seen no credible evidence to the contrary.  Gold is not the only physical asset that will soar if and or when the paper money systems crack. Perversely the current market rally may be discounting that situation right now and quality stocks with pricing power may be the biggest winners.

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  • Sun, Apr 22, 2012 - 5:18am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    shudock wrote:But your easy

    [quote=shudock]But your easy dismissal of something that you haven't read is telling.[/quote]Wow. I just can't seem to win today.
    So let me see if I got this straight... You asked me what I thought of Rickards' book, and I took the time to reply telling you that I hadn't found time to read it yet because many of the arguments he makes in interviews are familliar territory, but that expected it would be a good read because I think Rickards is a smart guy.
    Based on that, you perceive me as "dismissing" Rickards work? Maybe this Organ guy is contagious or something!
    I wish you all the best, Sir.
    Erik
     

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  • Sun, Apr 22, 2012 - 7:27am

    #14

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

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    Erik, thanks for your comments.

    Erik, I certainly appreciate that you have taken the time to share your knowledge.

    Frankly, I am a bit confused about where I stand.

    While even I could see that open interest statement you quoted is patently false even to someone with as little knowledge as me, and I don't agree with all of the arguments of GATA and others, I have to say that there are certain arguments that I am at least sympathetic to, or certain fishy events that make me suspicious that there might be "massaging" of the gold price.

    For example, I read about the plunge in the gold price moments before the Swiss announced they were going to devalue their currency and not let it cross a certain line in relation to the Euro. The reports of gold in great tonnage being sold in very short time frames, rather than looking for best price over several trades, also makes me suspicous.

    And I don't want you to roll your eyes, but assuming JP Morgan is simply acting on behalf of clients in the silver market, and everything is hedged by forward contracts in the OTC market, why the need for such massive turnover of contracts on the COMEX? I'm not being sarcastic by any stretch, this is genuine question I have and I haven't had a satisfactory explanation to it...

    I do think there is a valid argument that the futures market is not acting well in its function as a price discovery mechanism when the "market value" of a commodity can drop by 15%, or whatever it was, in a matter of minutes on a Sunday evening, when most of the "market" is not even present.

    Having said that, these anecdotal events and evidences don't convince me by any means that price is "manipulated 100% of the time" as you quote some of these guys allege. I think that's absurd. These events just seem fishy to me, but I am confused and frustrated because I feel like we don't have enough information to answer all the questions that need answering...

    PS Erik, I am trying to understand better how where the LBMA stands in all this in contrast to the COMEX. I have read about how the fix is generated on the LBMA and how deals occur privately on the LBMA directly between two participants. How then does price discovery take place on the LBMA? I am fully satisfied that price discovery can occur on a futures exchange but the LBMA is not really an exchange, and certain people emphasize that the COMEX is just a kiddies playground compared to the LBMA because so much physical precious metal is traded on the LBMA compared to COMEX. If you could perhaps kindly give me a quick run down about the LBMA influences COMEX and vice versa and the significance of the LBMA versus COMEX when it comes to price determination and which one matters more for pricing I'd really appreciate it very much. I have tried reading around the LBMA website and elsewhere and I don't understand how a market which acts as a trade association, apparently, and doesn't have a real-time auction process (deals are done privately between participants) can set price. I am quite confused about it and about how it interacts with the futures market.

    PS I enjoyed your peak oil videos, I hope you produce more some time and release video notes of all the countries you are visiting.

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  • Sun, Apr 22, 2012 - 8:18am

    #15

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    @CPTWaffle

    CPTWaffle,

    I'll try to address your most salient points. I'll summarize much of what you said as "But hey, isn't there still good reason to be concerned about monkey business in markets, even if some of what Harvey said is BS?" The answer is a resounding yes. But unfortunately, the people who have self-appointed themselves "expert pundits" on these markets like Harvey, Ted, GATA, etc. haven't the foggiest clue what they are talking about. That doesn't mean there isn't any market manipulation. It just means the amateurs "reporting" on it don't know what they are talking about.

    On LBMA vs. COMEX, I will take a stab at your question, but frankly the best possible way to address it would be if Chris were inspired to interview someone like Jeff Christian. As much as he's been vilified by the PM conspiracy crowd, he's actually one of the smartest guys I know, and his knowledge of the metals market is remarkable.

    LBMA is for the big boys. It's where the physical metal gets traded (worldwide center for that), and also where the biggest forwards market exists. I am pretty sure LBMA forwards are much larger on an annual clearing basis than COMEX, but I could be wrong - I don't deal directly with the big players who operate in LBMA, so I have no first-hand knowledge. Only research I've done for articles debunking the GATA types. Again, Jeff would know the exact numbers off the top of his head.

    Briefly, LBMA is about moving the metal. Technically, these are OTC contracts which means any two parties could set any terms and conditions they want. But most contracts are boilerplate, and roughly approximate the terms of a COMEX futures contract - the contract can be cash-settled up until a specified date, and if not closed by then the parties must deliver (or accept) physical. Even that is not always true - a "delivery fail" is - from what I understand - not really treated like a contract breach where people sue each other. Rather, the contract specifies delivery fail penalties, which are steep. I have the impression that traders view the option to fail and pay the price as a routine matter of business, but it's a big enough penalty that the incentive to avoid it is very strong.

    My understanding is that there is no particular price discovery mechanism on LBMA. The price is determined by the almost-24 hr worldwide futures market - COMEX, GLOBEX, etc. Then there is the London AM/PM fix which Paul Tustain discussed. My understanding is the parties can agree to any price they want, but that the AM or PM fix on a specified date is most often chosen. Again, I am on the edge of my knowledge here, and could be wrong.

    The point of LBMA is that the whole "good delivery" system, bonded warehouse network, etc. is behind it. LBMA is not about setting or negotiating the price so much as it's about making the deal to deliver once the price is agreed. Once two parties have agreed on a price, time of delivery, etc, LBMA provides the whole infrastructure to deliver the metal from one bonded warehouse to the next, etc.

    My image of how this works is that trader A calls trader B on the phone, and says "Ok, Gold is at 1652 on the front month contract. Let's do a deal for XXX ounces at $YYYY, you game?" The other guy agrees, and they ink an OTC contract that gets settled through the LBMA infrastructure.

    I'm not comfortable saying any more because frankly the details of physical transactions on the London market are beyond my knowledge and experience. I'm going to reach out to Jeff Christian and see if he's willing to comment in this thread. I doubt he will - he's a busy guy and gets fed up with conspiracy theory nonsense easily. But I'll give it a shot. He could tell you in excruciating detail how it all works.

    All the best,

    Erik

     

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  • Sun, Apr 22, 2012 - 9:33am

    #16

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    Thanks Eric

    I listened to Jeff Christian's talk on Financial Sense recently and I wish he would do more interviews.

    If you could get him to comment that would be great.

    If Chris could get him to participate in a podcast interview that would be fantastic!

    Thank you for your response, it does actually help my understanding a bit. I think I suspected much of what you say (price is discovered in the futures market but big deliveries are made OTC) but I have been reading some people, and some of them make themselves sound very sophisticated and knowledgeable, who maintain that the LBMA has more price discovery influence than the futures market. So thank you for clearing that up for me; I appreciate taking the time to respond.

     

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  • Sun, Apr 22, 2012 - 7:49pm

    #17

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    @CPTWaffle

    I've exchanged e-mails with Jeff. He said he'd try to find time to reply here, but could make no promises. He's a very busy guy, so we'll see.

    A little background - Jeff is actually one of the most generous people I've ever met in terms of being willing to give his time to help educate anyone who is interested in learning about PM markets. But he's also been vilified by the GATA crowd so badly that as soon as his name is mentioned, some people (who generally have no idea what they're talking about) come out of the woodwork hurling personal insults and baseless allegations. So if you put yourself in his shoes, it's easy to see why participating in open Internet forums is not always fun for him.

    Given the very strict moderation policies on this site dealing with civility toward others, my hope is to persuade Jeff that this is a place where he can share information without being personally attacked by the people who have been brainwashed by GATA. I hope others here will help make him feel welcome if I can persude him to take some time to post a contribution to this thread.

    Jeff also said he would be happy to do an extensive interview with Chris on a future podcast. Just to keep everyone's expectations set, however, I happen to also know that Adam has the podcast schedule booked for months. So don't expect a podcast interview overnight... Also, it's up to Chris and Adam to decide what fits their editorial agenda, so it's really up to them to decide whether to invite Jeff to do an interview.

    All the best,

    Erik

     

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  • Sun, Apr 22, 2012 - 8:42pm

    #18

    idoctor

    Status: Bronze Member

    Joined: Oct 05 2008

    Posts: 33

    Erik great post & thanks for

    Erik great post & thanks for taking the time to do it. IMHO we need more post like this to try to make the best decisions we can about the future that seems so uncertain. I like some of the interviews Eric King does but his style of sounding like a guy at a circus shouting about the greatest snake oil on earth show is a turn off. He never that I am aware of ever interviews someone that has a negative view on gold & silver.....it is always PMs to infinity & beyond LOL.

    Thx again....enjoy your posts & the balance you offer.

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  • Sun, Apr 22, 2012 - 10:14pm

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Erik T. wrote:it sounds like

    [quote=Erik T.]it sounds like he's basically making an argument I very much agree with, but am already well versed in. He's a smart guy and I'm sure I'd learn something, but I'm also sure most of it would be old news, so I haven't made time to read it.  [/quote]
    *shrug* That sure looks dismissive to me, and I was surprised by your answer, as it appears you have already made up your mind about something you haven't read. I think it was a fair point to make.

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  • Sun, Apr 22, 2012 - 10:37pm

    #20
    MetalsFacts

    MetalsFacts

    Status: Member

    Joined: May 17 2010

    Posts: 0

    Metals realities

    Greetings. I usually don't spend time here, but was told about the metals commentaries and that my name was being brought up in both good and bad ways.

    First, I have to say two things about myself, that relate to the interview with Organ. First, I have been a public critic of the enabliing CFTC legislation since it was written in the mid-1970s, while I was still in college, through now. There is a long, well documented history of me calling for better regulation of commodities markets, and OTC derivatives markets, going back to the mid-1980s, as well as of certain banking practices. For goodness sake: I quit Goldman Sachs to start my own research boutique in 1986. I know banking, and its warts, far better than the outsiders who did not even study basic money and banking, it is clear from their comments. BTW, Andrew Maguire is, in fact, a total fraud, having never worked in the bullion banking industry.

    Second, in college I studied journalism and political economics. One of the things I learned in journalism school was to check facts. In fact, most legitimate journalism outlets have fact checkers that will call you and check your quotes and statements before they print it. I bring this up because whoever interviewed Organ clearly is not a journalist, or a professional one. Organ said totally ludicrous stuff like China refines 80% - 85% of the world's silver, and the interviewer neither called him on it nor stopped to think that someone so totally ignorant of the silver market maybe should not be given a public forum to air what clearly are totally ill informed comments.

    Now, to the point. Below is an article we wrote, excerpted from our Gold Yearbook released in late March, about the fallacy of the am/pm london gold trade. I am afraid the super-cool distribution chart will not appear here, but the text and table tell the story. It's one example of what real statistics will tell you that [Admin: redacted per our policy regarding ad hominem comments] Organ will not. I hope you enjoy it, and that it helps you.

    In The Long Run We Are All Dead: Trading London Gold Price Fixes

    Articles have cropped up on the internet and elsewhere over the past few years discussing the perceived phenomenon that the London gold morning fix is higher than the afternoon fix, and that enormous profits could easily be made by buying on the afternoon fix and selling at the morning fix. A new round of such discussions reappeared in late 2011 and early 2012.

    The gist of these comments is that the London afternoon fix on average is below the morning fix, so that one could make a fortune by always buying on the afternoon fix and selling the next morning at the morning fix. Others have tried to paint this as evidence suggesting a conspiracy among gold bullion dealers to game the market. Neither set of conclusions are accurate. All of the articles confused the average with the range of daily results that comprise that average.

    It is true that on average the afternoon fix tends to be lower than the morning fix. However, that average masks an enormous range of results.

    Before analyzing the data, one must realize that there are two ways to make these calculations: The difference between a given day’s morning fix and its afternoon fix, and the difference between a given day’s afternoon fix and the following day’s morning fix. Which of these formulas you use to calculate the differential yields different results.

    The average differential between a given day’s morning fix and afternoon fix was 16 cents per ounce between 1968 and 2012. That average masked an enormous spread, ranging from a morning fix $80.00 higher than the afternoon fix and a morning fix $45.00 below the afternoon fix on the same day. The morning fix was higher than the afternoon fix only 49.2% of the time. Another 45.6% of the time the afternoon fix actually was higher than the morning fix. The remaining 5.2% of the time the fixes were the same in a given day. Nearly half the time this trade would have resulted in losses, up to $45 per ounce.

    Looking at it only on a more recent time period, from 2000 to 2012, as some of the articles do, the average spread was 35 cents: On average the afternoon fix was 35 cents higher than the morning spread, although the range was between $80.00 and -$42.00.

    These data drive home how deceptive averages can be. The accompanying table and chart show that on average the afternoon fix has been 30 cents higher than the next day’s morning fix since 1968 and 79 cents higher since 2000. These averages mask wide ranges, from $81.00 higher than the morning fix to $87.50 lower since 1968.

    The table shows that the morning fix has been higher than the afternoon fix only 49.2% of the time since 1968 and 53.6% of the time since 2000. The afternoon fix has been higher 45.6% of the time since 1968, and 44.7% of the time since 2000. The rest of the time the fixes have been the same.

    This highlights the large risk to this strategy.  On average, one theoretically could make a fortune on this trade. However, fortunes can be lost just as easily, and nearly half of the time someone trying to make this trade will lose money. Anyone committed to this must have incredible staying power. If he or she is part of an organization, using other people’s money, or reporting to a manager, the institution supporting them must be willing to sustain consistent heavy losses in the expectation that in the long run the average difference between the morning and afternoon fixes will yield handsome profits.

    Some institutional investors and others with deep pockets may try this strategy, but it clearly is not the easy money machine that people looking only at the averages suggest it is.

    The distribution chart graphically portrays the risks involved in confusing long-term averages with the individual trading days of our lives.

    Another misconception is that the relationship between the morning and afternoon fixes means that the price is lower all day long after the morning fix. The articles mistook the differentials between two specific points in time — those of the morning and afternoon fixes — with all of the time in between.

    Calculations comparing prices at two specific times of the day in no way provide any insights into how the price changes during the reminder of time between those two points. Prices move up and down continually. That is how markets tend to work when they are free, unimpeded, and relatively efficient.  

    Why

    There are certain reasons why the morning fix tends to be slightly higher than the afternoon fix. The morning fix is a much less liquid, and a much less traded fix. It occurs when Asia and North America are closed. The afternoon fix occurs after the North American markets are open. It is a much more liquid fix. Much more gold trades at the afternoon fix, and, importantly, based on the afternoon fix, than at or based upon the morning fix.

    Much of the gold that trades at the afternoon fix is producer selling. Producers  and refiners tend to sell on the afternoon fix, in part because it occurs during their business hours in North America, because it is a more liquid price, and out of market tradition. The afternoon fix is used in contracts covering the vast majority of gold mine production and refined output. All of that selling tends to lead to the afternoon fix being lower than the morning fix on average over time. It is that simple.

    One could say that if it is so simple and obvious, why do not more producers shift their selling practices to the morning fix, or some other time or price mechanism. That is a very good question for shareholders to ask management at mining companies.

    There are inefficiencies in the bullion market like those in many other markets, which may be large and simple to fix and still remain in the market.

    This article is excerpted from CPM Group’s Gold Yearbook 2012, released 27 March 2012. www.cpmgroup.com. 

     

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  • Mon, Apr 23, 2012 - 12:43am

    #21

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Thanks for participating, Jeff!

    Jeff, not sure if you're reading further replies here, but I just wanted to say thanks for taking the time to post and share some of the content of your Gold Yearbook with us.

    Best,

    Erik

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  • Mon, Apr 23, 2012 - 4:06am

    #22
    Myst88

    Myst88

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    A question for you Erik

    I have not yet had time to listen to either podcast yet, so forgive me if the question is misguided.

    In your first post is your contention solely to debate the fact that Mr. Organ is making claims purely based on emotional opinion while offering no facts to back anything? Or are you against the entire notion of the precious metals market being manipulated.

     

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  • Mon, Apr 23, 2012 - 4:42am

    #23

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Thanks for cross-posting

    Thanks for cross-posting this quote, Jim. By searching out and finding some of the most ignorant commentary on the Internet, you provide the basis for further discussion and debunking of common myths.

    Personally, I have a hard time understanding why any investor would even take seriously a self-appointed pundit who hides behind a pseudonym (Turd Furguson) borrowed from a B Movie script. But since so many of you guys seem so-inclined, let's dig into the commentary and see if we can make sense from nonsense. Yes, I understand this was not "Turd", but rather some other blogger commenting in TurdSpace. You didn't mention his name (or pseudonym), so I'll just call him T2 below.

    [quote=T2]"A key takeaway is that the LBMA cleared $20bn per day in 2009 alone (for sure more than that now) which is because of the massive number of forwards, swaps and general paper crapola that pass for Precious Metals trades and absolutely affect the price discovery mechanism - this is also why the likes of Jeff Christian think its fine to be 100 or 300:1 paper to silver within the price discovery mechanism[/quote]

    Ok, so we have some pretty highly emotionally charged innuendo here from T2. His reference to "forwards, swaps and general paper crapola that pass for Precious Metals trades" implies that cash-settled a/k/a "Paper" trades are somehow bad or inherently wrong. If I understand the innuendo correctly, he is implying that the price discovery mechanism is being corrupted by the presence of cash-settled trades in addition to trades settled by bullion delivery. But he conveniently fails to offer the slightest bit of rationale, explanation, or substatiation. If he really intends to make this point, would it not make sense to explain why he believes cash-settled transactions are corrupting efficient price discovery? Or could it be that he really doesn't know himself, and is just another wanker in the blogosphere mouthing off with soundbites he's heard elsewhere but never quite understood? I have no idea which it is, but I will concede that an intelligent and level-headed conversation about the impact of cash-settled transactions in commodity price discovery might be worthwhile. Since T2 clearly isn't offering the slightest bit of substantiation or discussion of this common fallacy, let's have our own discussion here.

    A hypothesis that has been suggested by some is that having both cash-settled "paper" and bullion-settled "physical" transactions co-existing in the same price discovery mechanism prevents the price from rising to its true natural level. The fallacious rationale for this argument is that if there were only physical transactions, then there is only so much physical bullion, and all the demand would have to be matched against the amount of metal that really exists. But if there is much greater liquidity of "paper sellers", the buyers can buy a lot more gold without pushing the price up very much. Assuming this was the argument T2 was alluding to, he might have done his readers a better service by explaining it as I have here, rather than making an unsubstantiated allegation by inference, and moving on as he did to his next specious argument (to be debunked below). But I suppose you get what you pay for on a free blog.

    Let's now examine why this popular fallacy is just that - a fallacy. First of all, there is nothing unique to precious metals here. The entire commodity complex trades this way - far more cash-settled paper bets than actual deliveries. It has worked for years, and if the presence of the paper transactions really undermined efficient price discovery, the practice would have been stopped decades ago. Crude oil, grains, etc. form a cornerstone of the global economy. If their pricing mechanism were being corrupted by the presence of paper transactions, we'd know about it by now.

    But at first glance, it does appear that the paper transactions increase the size of the pool, so further explanation is warranted. The fallacy lies in the idea that the paper transactions are diluting the buying influence of buyers of physical bullion. It doesn't work that way. Everyone who wants to buy and take delivery of physical bullion has to buy it from someone who had physical bullion to deliver. And the pricing mechanism reflects this. The fact that traders on both sides of the contract have the option of standing for or accepting assignment for delivery ensures that the paper prices are kept in line with the physical price. For every paper-only buyer, there is a paper-only seller. The increased liquidity argument washes out, because there are paper traders on both sides of the trade.

    [quote=T2] It is also an issue of market depth, big players always want the deepest pond (or Dark Pool!!) to swim about in.  The COMEX futures market is really a speculative market dominated by different forces than the LBMA 'spot' market and generally is a bit more 'whippy' in the way it behaves due to the different kind of investor.[/quote]

    Huh? Bluntly, none of this makes any sense. Of course big buyers want as much liquidity as possible so that their trades don't "move the needle" any more than necessary. But what does that have to do with dark pools, which are privately settled trading systems for equities that allow large transactions to occur without public disclosure? The two concepts are completely different, and I see no direct connection. It appears to me that T2 is just throwing about a phrase, dark pool, that he probably doesn't comprehend, because it sounds good and helps sell the story. Here again, if he believed that dark pools were in play, why doesn't he elaborate and explain what role he thinks they play?

    [quote=T2]'Spot' is where you go for delivery of large amounts (albeit 300:1 leverage inbuilt there)[/quote]

    Ok, now it's clear this guy is just plain clueless. Spot is the physical bullion market. There is quite obviously ZERO leverage there, because if you want to take the metal, you have to pay for it. Sounds to me like T2 has been suckered by Andrew Maguire, who has cleverly (and I am convinced intentionally) encouraged investors to confuse the ratio of cash- to physical-settled transactions as having something (anything) to do with leverage. Leverage is a very precise and well understood term. Speficially, it refers to assets over collateral. If there is 300:1 leverage built into the spot market, that means I can buy $300,000 worth of gold for only $1000 (300:1 leverage), then just take the metal, and (I guess) just owe the seller for the rest? This is absolutely ludicrous, and clearly reveals that T2 doesn't have the foggiest notion what he's talking about.

    [quote=T2]Be clear neither the LBMA nor COMEX have credibility, hence why the upcoming Deliverable and FULLY allocated 'spot' silver receipt exchange in China could be so interesting.  Given the choice between the unregulated joke that is COMEX and the 0.3% backing offered by the LBMA any trader or big physical buyer of Silver would be likely to want to get involved in a new and more transparent entity versus either of the 2 other options. [/quote]

    Well, I do have to credit T2 for efficiency. He packs an amazing amount of nonsense into only a couple of sentences. First he states that neither COMEX or LBMA have credibility. He offers exactly zero explanation or substantiation for these ludicrous statements. He refers to COMEX as un "unregulated joke", an absurdity considering the fact that CFTC's greatest challenge is the criticism that U.S. markets are MORE regulated than others in International jurisdictions. Then we get the 0.3% backing nonsense, confirming that this guy - whoever he is - has clearly been snowed by Andrew Maguire's efforts to mislead investors, and now he's regurgetating and argument he obviously never understood himself. For the record, folks, the 0.3% backing nonsense would be true if the ratio of cash- to bullion-settled transactions on LBMA had something to do with leverage. It doesn't. The bullion in LBMA vaults does not serve as collateral for cash-settled transactions, and has nothing to do with leverage.

    [quote=T2]This could lead to bifurcation in the price discovery mechanism as the new exchange starts to 'make the price' as it could grow exponentially in size by attracting real longs while also forcing the existing shorts elsewhere (ie London and COMEX) to unwind their paper positions."[/quote]

    Huh? This guy is just spewing sound bites that I doubt he understands the first thing about. What are "real longs", and how would this force shorts to unwind their positions? More to the point, why would anyone take seriously an author who makes one assertion after another, without ever backing a single one of them up with a logical argument or evidence to support his contentions?

    Jim, moving on to your own comments now...

    [quote=Jim H]My take is that bankers will be bankers.. they have grabbed hold of the precious metals markets and fractionally reserved them, as they are wont to do.  What the hell do you think "unallocated" is other than a fancy word to mean that a pool of metal has multiple claims against it? [/quote]

    You're mistaken, Jim. Ironically, the shortcomings of unallocated accounts are actually worse than you imply, but your statement clearly evidences to me that you've accepted the nonsensical ramblings of GATA and company as fact, without questioning them. An unallocated account is a credit relationship. It's not backed by ANY bullion. So there is no legitimate issue of "multiple claims against the same bullion". Unallocated account holders don't have any claim against any bullion. They have an unsecured credit receivable only. The multiple claims stuff is just GATA rhetoric that imparts fear and perception of conspiratorial wrongdoing in the minds of investors. It is not part of reality.

    [quote=Jim H]The whole ponzi is held together by the fact that, as pointed out above, "Comex contracts are so rarely delivered".[/quote]

    Now you're following T2's lead, and making significant allegations without a single word of substantiation or logical support. Why do you believe that deliverability of COMEX contracts affects anything, and what "Ponzi" are you referring to? The word Ponzi is universally accepted in finance to refer to a specific characteristic of a fraud committed by Chalres Ponzi many years ago. Specifically, the phrase is now used to refer to a scheme where an investment vehicle does not really own its advertised assets, and incoming investments from new investors are used to pay exiting investors, creating the illusion that investments can and are being redeemed, when in reality insufficient assets exist if all investors were to redeem simultaneously. The reason COMEX contracts are so rarely delivered is that they are principally used by hedgers and speculators who don't need or desire physical settlement. Everybody who wants physical settlement gets physical settlement. The "what-if" scenario often cited by GATA and the like where all the longs stand for delivery at the same time and the system breaks is utter hogwash, and its fallacies lie in the fact that the longs don't have sufficient equity to stand for delivery, plus the fact that the price discovery mechanism would automatically elevate the price to a market-clearing level if such a run on physical delivery ever began. Jim, you're allowing GATA's ignorance of how commodity markets function to come into your mind as if it were reality. It isn't. It's pure, unadulterated nonsense, and I sincerely wish I could get through to you on this.

    [quote=Jim H]This is where our friend Harvey Organ comes in... he may not have the credentials of a Jeffrey Christian, or even of Erik... but he is an everyman investor who has watched the Comex trading like a hawk for years and I would submit to you that he has a strong intuitive grasp of what goes on there..[/quote]

    First, I never represented myself to have any formal credentials. But I do think rationally and objectively, and I fact-check things that I read and hear. Jim, if you did the same I think you'd quickly realize that people like Harvey are charlatans who don't have the foggiest clue what they are talking and writing about. Please ask yourself why you feel inclined to think Harvey has "an intuitive grasp" of the market or anything else. His style is very clearly revealed in this interview - he's a guy who make a LOT of really BIG allegations, frequently cites the existence of corruption and conspiracy, but never backs his allegations and innuendo with verifiable, factual arguments. Ever. Jim, I really mean this - please stop and take a moment to ask yourself why you take this guy seriously. He certainly talks a very alluring story - corrupt markets, evil conspirators, and poor innocent investors like you are made out to be the victims. But he could just as easily be writing about how millions of humans have been livingin colonies on Mars for 20 years! That sounds exciting too, and if you have an audience that never expects you to back anything you say with fact or even logical rationale, why not!

    [quote=Jim H]It is Harvey that writes everyday to tell us about the deliveries, and how often the lack of real Silver and Gold availability leads to probable cash settlements... even though only a tiny fraction of contracts ever go to settlement.[/quote]

    The  only verifiable fact here is that Harvey writes every day. The rest is innuendo that lacks factual support, and reveals to me that Harvey's understanding of how commodities markets funtion is possibly even less complete than the other charlatans at GATA. Jim, you have credited Harvey for writing every day, and I do not question his work ethic. But you've yet to explain to us - or more importantly, to yourself - why you believe one word of the nonsense he writes.

    [quote=Jim H]Since when do credentials = truth?  Bernanke has a PhD you know.. so he must be right?  [/quote]

    Nobody here has said or implied that credentials=truth, and FWIW I'm a strong believer in the idea that formal credentials have almost nothing to do with truth. That's why I never take them seriously.

    [quote=Jim H apparently quoting Harvey again]From Saturday's report, "  The total comex open interest rose by 339 contracts from 399,314 to 399,653.  Gold gained marginally on Thursday, so we gained a few longs. The front delivery month of April saw its OI fall from 501 to 329 for a loss of 172 contracts.  We had 142 delivery notices on Thursday so we probably lost another 30 contracts to cash settlements.  Nobody in their right frame of mind would put up 100% of the cash, hold that position for almost the entire month and then roll without any compensation."[/quote]

    These statements don't make any sense, and further reveal to me that Harvey is lost in outer space. First, most futures transactions are cash-settled. He's not making any sense here. He seems to be saying that the decline in OI should be matched by delivery notices, but it isn't because there are 30 less delivery notices than the decline in OI. That makes no sense, and I have no idea what point he's even attempting to make here, so it's hard to refute it. This further reveals to me that Harvey, despite probably meaning well, is completely clueless as to how futures markets function, and is performing an amateur analysis on data he doesn't understand.

    As to the innuendo that "nobody in their right mind" would put up 100% then roll anyway, the answer to that one is that daring traders on the short side sometimes hold their positions beyond the cash settlement deadline, knowing that they are risking assignment for delivery, but also knowing they stand a good chance of not being noticed, allowing them a staying power advantage over the corresponding long traders. It's a daring game of chicken to play if you don't have the metal to deliver, but some do and that easily explains why some traders could be short beyond the cash settlement date and still roll the contract, after risking having to pay the delivery fail penalty if they got assigned. Even so, Harvey's description of the interplay between OI and cash settlement just plain doesn't make sense.

    Jim, you seem like such a nice guy. It really pains me to see you falling for all this crap. I sincerely wish you well, and hope you'll eventually recognize that you are falling for the work of charlatans.

    All the best,

    Erik

     

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  • Mon, Apr 23, 2012 - 5:15am

    #24

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Thank you Erik..

    For the very detailed reply... I will reread and digest.  My point about Harvey is that, when you spend so much time analyzing vault movements, COT reports, delivery reports, etc... you get an intuitive feel for that which you are observiing.  A simple example is the fact that Harvey knows that Good delivery bars have exact weights... that are not fixed.. they vary... so when he sees a transfer of 6500 oz (just to make up an example)... then he observes that is probably some kind of paper transfer.. vs. real bars moving. 

     

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  • Mon, Apr 23, 2012 - 6:33am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    Thanks !!!

    Dear Erik T,thanks - I agree with most of what you wrote. I think one of the causes of the misunderstanding by Ted Butler and others is that gold and silver are traded over the counter (OTC) between the banks and bullion traders. This is commonly referred to as the 'London gold market', and many of these institutions are members of the London Bullion Market Association (LBMA). What is traded is actually not physical gold and physical silver, but rather two currencies. Each has cash (=allocated gold), credit money (=unallocated gold), swaps and forwards. The OTC market is many times bigger than COMEX, and so price discovery mainly happens in the OTC market, and the price is transmitted to the COMEX by arbitrage.
    People whose background is commodities futures trading see the funny behaviour of the gold and silver COMEX and cry manpulation. What they complain about, however, is not manipulation but rather the arbitrage that transmits the OTC price to the COMEX. Note that gold and silver are the only underlyings of COMEX/NYMEX/CME futures that are traded as currencies OTC, and so, of course, corn or soybeans don't behave like that.
    I am also a bit frustrated by the abundance of misinformation in the goldbug internet and ofen comment about it.  See the comments on
    http://screwtapefiles.blogspot.com/2012/04/hard-rains-gonna-fall.html
    and
    http://www.tfmetalsreport.com/comment/156655#comment-156655
    Sincerely,
    Victor
     

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  • Mon, Apr 23, 2012 - 6:46am

    #26

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    Jim Rickards

     

    Further, on the book by Rickards. I give him a lot of credit for getting the role of gold in the monetary system across to a huge audience and for pointing out the achilles heel of the dollar. I also have some criticism about his idea to return to a gold standard (i.e. an institutionalized undervaluation of gold). This won't work, and it is the Europeans who have made sure the U.S. cannot do this. Perhaps you are interested in the argument:

    Currency Wars: Why The United States Cannot Return To A Gold Standard

    Sincerey,

    Victor

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  • Mon, Apr 23, 2012 - 6:56am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Thanks, Victor!

    Hi Victor,Thanks for the support. It's immediately obvious that you're a professional in this space, and know more than I do about these markets.
    I was aware of the role of LBMA, and the fact that its nickname "The Physical Market" is a misnomer because far more cash-settled forwards are traded there than actual bullion deliveries. I was also aware that LBMA is much bigger in volume than COMEX, and so therefore it is logically implied that LBMA should set the price, which as you describe is then transmitted via the arbs to the COMEX.
    But I was not aware of the existence of a real-time electronic quotation system for LBMA's OTC market. I therefore came to the inferred conclusion that LBMA traders used the global futures market (which is really not just COMEX but also GLOBEX when you think about it) as their price discovery mechanism. As noted in an earlier reply, my guess was that LBMA traders were using the futures market to set the basis for their quotes, negotiating OTC contracts priced at some margin to the futures front month. In a sense, the LBMA traders, being the big players, are still transmitting price into the futures via arbitrage, but they are doing so thru their reliance on the futures price as their pricing mechanism, and presumably gaming the futures market to their perception of fair value.
    But your post implies that LBMA has its own price discovery mechanism, and that it is the LBMA price that is transmitted to COMEX thru the arbs. That actually makes more sense, but I was unaware that LBMA had a real-time electronic price discovery mechanism. Sounds like you are saying they do. I'd love to learn more. Is this mechanism electronic? Is it quoted on Bloomberg (I don't have one, sadly)? Is it 24/7, or only London trading hours? Do you have to be an LBMA clearing member to participate, or can non-member banks and dealers bid in this LBMA price discovery mechanism? Enquiring minds want to know...
    To Jim H and others following this thread: Did you notice how I was able to instantly recognize Victor as being legit, while I was equally instantly able to recognize Harvey as a charlatan? That's the skill you need to hone if you want to be successful investing. That probably sounds arrogant as hell, but it's the best investment advice you'll ever get from anyone.
    Best,
    Erik

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  • Mon, Apr 23, 2012 - 7:37am

    #28

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    Yes

    Erik T,

    yes, that sounds arrogant as hell indeed. As for electronic trading, this FT Alphaville article

    http://ftalphaville.ft.com/blog/2011/08/10/649746/theres-a-new-gofo-table-in-which/

    has a screenshot of how GOFO (the gold forward offered rate) looks on a Reuters screen. I guess when you want to trade with them OTC, your company should be a member of the ISDA. I remember some individual investors wanted to short mortgage bonds in 2006-2008, and this usually failed because they didn't have enough capital and not the lawyers to get all the paperwork done. But as far as I remember, there was a real estate guy in California who managed to trade OTC as a private investor. But then, at that time, Wall Street didn't care about counterparties at all.

    Sincerely,

    Victor

    PS: Not a professional.

     

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  • Mon, Apr 23, 2012 - 8:12am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Thanks Victor, that's very

    Thanks Victor, that's very helpful. I wasn't aware of the GOFO quote, which makes perfect sense. I can't trade it anyway.I actually looked into trading CDS directly on the OTC market myself as a private investor back in 2008. I was able to find desks in NYC willing to deal with me, but it was instantly clear that they smelled blood. I don't think it's possible for a private investor (unless you're retired from serious wall street experience) to deal with those guys directly without being taken to the cleaners. I opted not to proceed, and instead invested in a hedge fund that was long CDS against subprime CDOs - the 2&20 was cheaper than what I could tell the sharks on the OTC desks had in mind for me.
    On the non-professional thing, you had me fooled. You clearly know what you are talking about, and that led me to an errant assumption.
    [quote=victorthecleaner]yes, that sounds arrogant as hell indeed.[/quote]
    Indeed it does. Not to mention pompous. But it's still the best investment advice these guys will ever receive. Do you concur? 🙂
    Erik
     

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  • Mon, Apr 23, 2012 - 9:30am

    #30

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    CPTWaffle,You wonder how a

    CPTWaffle,

    You wonder how a market which doesn't have a real-time auction process or exchange can set prices. Let me answer by saying it is the same way the price of cheese or second-hand car prices are "set". The funny thing is, with all this talk of manipulation, the operation of the over-the-counter (OTC) spot physical market is one which is very much free market and unregulated and thus close to the capitalistic ideal.

    Note I prefer to use OTC rather than LBMA, which are often used interchangabily. References to LBMA are better understood as "OTC trades which will be settled in London via http://www.lpmcl.com/". OTC is wider and refers generally to trades negotiated and settled counterparty to counterparty instead of on an exchange. The majority OTC gold trades are settled in London but OTC trading can occur outside the LBMA/LPMCL system.

    The best way I can explain it is by discussing how we "trade" gold at the Perth Mint, as that's what I have first hand experience with. Before I start, I'd just like to clarify that the Perth Mint has never traded on any futures market, nor GLOBEX or any other exchange. We refine around 10% of the world's new mine and scrap supply. That is about 7 tonnes, or $370 million, a week of physical we sell/supply. So this is not a theoretical exposition below.

    Because there is no LBMA real-time electronic quotation system/trading platform for spot unallocated or spot physical prices, professional bullion market counterparties need an indicator of where the market is. We use Reuters, others Bloomberg. However the price displayed on these information services is just an indicator. It is updated by the bullion desks of the big banks and is in effect, a bulletin board or forum where banks can publish their prices in the hope other dealers will call them up to do a trade. Sort of like an advertisement. Unlike a stock market, it is not a commitment to deal at those prices, but most times you can. However there are many times, especially when the market is moving quickly, when the dealers don’t have time to update their quotes on Reuters and so when you ring them up, they say "Sorry, Reuters off the market, my current price is $5 below the screen".

    Many trades are done over the phone, but some bullion banks also have trading platforms for use by their clients which provide price quotes - often used for small trades (a few thousand ounces or less).

    How does a bullion bank set their prices on Reuters or their trading platform? Well consider a bank's bullion desk as a little stock exchange except they are the only ones quoting a bid and ask price. They get a constant stream of calls from buyers (eg jewellers) or sellers (eg mines). If they are lucky, the buying and selling will match but this is unlikely, so if they find they are selling more than they are buying from their clients, they will have to go and find another counterparty to buy from. This other counterparty is often another bullion bank, but could also be another market like COMEX.

    So a bullion desk keeps an eye on what prices are being quoted on Reuters, on COMEX etc and what sort of deal flow they are getting (how many ounces and whether it is net buying or selling) and, since Reuters is just an indicator, what actual prices previous deals have been executed at in the past to set their price and bid/ask spread.

    So while none of these bullion banks or their systems are interlinked computer wise to a central exchange, they are interlinked informationally. Consider the case of the Mint where we call a bullion bank and ask for a price. We'll compare it to say the price on Deutsche's Autoban trading platform and Retures before deciding if we'll take it. Say the Autoban price was better and the bullion bank's dealer wasn't willing to match it. Well they have just got information on where the "real" physical spot market is from our refusal to deal with them. If they are consistently over quoting compared to their competitors they won't get business.

    It is this interaction between bullion banks and bullion banks and their clients that is the spot price. Dealers are in constant contact with each other, doing deals, talking and exchanging information on what they are seeing in the market, watching the Reuter’s and COMEX price movements. They use all this information to set their prices.

    The OTC market is therefore best thought of like a network of free agents. But as described, because of no central exchange, you can't put your finger on exactly what the spot price was at any point in time.

    But then you can't put your finger on exactly what the price of cheese is either at any point in time because supermarkets and independent grocers and farmers markets all quote different cheese prices and do physical cheese deals at these various prices and don't report them on any central exchange nor settle them through centralised clearing houses.

    Yet you don't see anyone worrying about the lack of a reference spot cheese price and what the premium of physical cheese is to the cheese spot. It is a case of the shopkeeper saying "you don't like my cheese price, then buy from someone else". Somehow this system works. I think it is called a free market (which doesn't imply it isn't manipulated, BTW). Precious metals works the same in the OTC market.

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  • Mon, Apr 23, 2012 - 11:27am

    50sQuiff

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    bronsuchecki wrote:Yet you

    [quote=bronsuchecki]
    Yet you don't see anyone worrying about the lack of a reference spot cheese price and what the premium of physical cheese is to the cheese spot. It is a case of the shopkeeper saying "you don't like my cheese price, then buy from someone else". Somehow this system works. I think it is called a free market (which doesn't imply it isn't manipulated, BTW). Precious metals works the same in the OTC market.[/quote]
    Cute metaphor, but physical cheese won't be called upon to perform its hedging role in extremis. Unallocated gold holders may understand physical price discovery when cash settlement in hyperinflating dollars isn't a palatable option.
    It's fine to demolish a fraudulent argument, but not at the expense of the bigger picture. Even though unallocated holders have no claim on physical, do fiduciaries believe their holding hedges them against a government money crisis? If they do, then fractionally-reserved bullion banking is effectively diluting real physical demand, and GATA's argument rings true.

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  • Mon, Apr 23, 2012 - 12:27pm

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Arrogance

    [quote=Erik T.][quote=victorthecleaner]yes, that sounds arrogant as hell indeed.[/quote]
    Indeed it does. Not to mention pompous. But it's still the best investment advice these guys will ever receive. Do you concur? 🙂
    Erik
    [/quote]
    Erik,
    I somehow have doubts that your overbearing words will be the "best investment advice I will ever receive." You need to understand, the problem I have with your words has nothing to do with your argument, and has everything to do with your delivery. You claim to desire an "intelligent and level-headed conversation" and yet you are the only person I see calling names: "self-appointed pundit" (aren't you, too?),"wanker...mouthing off," "charlatans," etc., and generally ascribing various nefarious motivations to others. Makes it difficult to hear your argument Erik, when you spend so much time denigrating those you disagree with. We little peons here at CM may be "falling for crap" as you say, but your tone doesn't help anyone understand the facts as you present them. And generally slamming people for ignorance doesn't encourage anyone listening to you, to learn.
    An obsession with being "right" isn't always the best way to teach.

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  • Mon, Apr 23, 2012 - 4:47pm

    #33

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Just a BTW....

    Jim Sinclair knows a thing or two about Gold.. and he kinda runs a Gold exploration company (TRX) (see his name here:  http://finance.yahoo.com/q/pr?s=TRX+Profile) ... and he does not think Harvey is full of it;

    In The News Today

    Am I to discount Jim Sinclair's opinion of Harvey?  Is Jim a charlatan?  Or is he just another really dumb rich guy like Eric Sprott?  Or a misguided ( but well meaning) semi-solvent guy like Jim H?    

    Jim Sinclair’s Commentary

    This is a scenario that you need to know about because it cannot be wholly discounted as a possibility.

    Harvey Organ: Get Physical Gold & Silver!
    Friday, April 20, 2012, 6:10 pm, by Adam Taggart

    Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to have earned him an invitation to testify before the CFTC on position limits for precious metals back in 2010.

    And he minces no words: Gold and silver prices are suppressed. With extreme prejudice............

      

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  • Mon, Apr 23, 2012 - 5:48pm

    #34
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Questions for Erik T.

    Erik,

    I have read your commentary and agree with you in some respects and respectfully disagree in others.  I have some questions/observations that I am hopeful that you can address for me.

    1. Bart Chilton - Commissioner with the CFTC says that the silver market is manipulated frequently (paraphrased) and that the perpetrators (unnamed) should be prosecuted under existing commodity laws. The assumption I draw is that he is in a position to know.
    2. One of Ted Butler's core themes is the level of concentration in the silver shorts - i.e. that a small group of entities holds a very high percentage of the overall shorts in silver.  He posits that it is inherently manipulative for this to occur and that in its absence that the price of silver would be far higher (of course it would be impossible to provide a specific $$ amount of how much higher).
    3. You have Blythe Masters recently appearing on CNBC essentially stating that JPM doesnt have any naked shorts - they are all "hedges" put on for their "clients".  Considering the size of those "hedges" it stands to reason that their "clients" could easily hedge their own positions (they dont need JPM to be the intermediary) and secondly - if their clients are hedging their own positions - JPM doesnt have any risk anyways since they are simply acting as the agent.  Finally - if the client has physical positions (stored by JPM) and are hedging (courtesy of JPM) and if JPM wanted to hedge that - wouldnt JPM be long as a hedge against the short instituted on behalf of their "cleints"?
    4. There have been numerous statements by various central banking folks over the years about how gold can and will be leased (in increasing quantities - if needed) in order to control the price of gold.  Volcker admitted that their failure to do so during the 70's was a mistake.
    5. You had the Gordon Brown sell 1/2 of Englands gold reserves - he even announced this intention in advance which practically guarantees the price will be less - something that anyone trying to sell for "best value" would be an complete moron to do - unless the motive was something other than "best value".
    6. There are frequently MASSIVE sales of gold/silver in very, very short timeframes (dumping of contracts - hitting all bids) which is something that someone selling for profit would be stupid for doing.
    7. You have the cap on gold typicall at 1% but RARELY (if at all) in excess of 2% in a day.  No other commodity has this upside limitation in price movement.  This has been consistent over the entire duration of this gold bull market.

    Now - I am not providing references or a bibliography with this post so I am hopeful that you wont put me in the same category as Harvey Organ, Andrew MacGuire, GATA, et al... I trust that you are sufficiently cognizent of the "goings on" in this market that what I am referencing is factual and without hyperbole.

    I would be interested in your analysis/conclusions based on the above data points and any speculation/theories you have that fit the facts as described above.

    Very Respectfully,

    Steve

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  • Mon, Apr 23, 2012 - 7:23pm

    #35

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    your questions for Erik T

    Dear Steve,

    I know you asked Erik T., but perhaps I may jump the line. Many of your questions are commented on or even answered in the comments section to

    http://screwtapefiles.blogspot.ca/2012/04/hard-rains-gonna-fall.html

    Sincerely,

    Victor

     

     

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  • Mon, Apr 23, 2012 - 8:12pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    @Strawboss

     Excellent questions, Steve. I'll take a stab at them below.
    [quote=Strawboss]Bart Chilton - Commissioner with the CFTC says that the silver market is manipulated frequently (paraphrased) and that the perpetrators (unnamed) should be prosecuted under existing commodity laws. The assumption I draw is that he is in a position to know.[/quote]
    I have to confess to a bit of dismay on this one myself. To be frank, Chilton strikes me as a bit of a quack in the interviews I've heard. He has clearly bought into the GATA argument. I concur that he's in a senior position where he should know better, but he doesn't seem to. I don't know anything more than that.
    [quote=Strawboss]One of Ted Butler's core themes is the level of concentration in the silver shorts - i.e. that a small group of entities holds a very high percentage of the overall shorts in silver.  He posits that it is inherently manipulative for this to occur and that in its absence that the price of silver would be far higher (of course it would be impossible to provide a specific $$ amount of how much higher).[/quote]
    This is always Ted's central argument, but he NEVER offers any explanation as to WHY he thinks the PRESENCE of a large short interest would hold the price down, or why this is "inherently manipulative". It's certainly true that one very large player can corner a thinly traded market, because that player is in a position to BUY or SELL in size to bump the price back where they want it, without changing their own holding's size on a percentage basis nearly as much as a small player would have to. But just keeping a constant large short position open without doing any more selling does nothing to suppress the price. In short, Ted has never fleshed his argument out to a logical conclusion so far as I am aware, and as he states it (i.e. just the existence of a large position is inherently manipulative) the argument lacks merit so far as I'm concerned.
    [quote=Strawman]You have Blythe Masters recently appearing on CNBC essentially stating that JPM doesnt have any naked shorts - they are all "hedges" put on for their "clients".  Considering the size of those "hedges" it stands to reason that their "clients" could easily hedge their own positions (they dont need JPM to be the intermediary) and secondly - if their clients are hedging their own positions - JPM doesnt have any risk anyways since they are simply acting as the agent.  Finally - if the client has physical positions (stored by JPM) and are hedging (courtesy of JPM) and if JPM wanted to hedge that - wouldnt JPM be long as a hedge against the short instituted on behalf of their "cleints"?[/quote]
    No, that doesn't stand to reason. That's what the bullion banking business is - big banks making a big markup to provide their "skill" to do something you could have done yourself, but might not have known how to. Remember that mining companies' management are not finance gurus. Hedging forward and rolling positions every month is not totally obvious - you have to understand end-of-month effects on price as contracts near expiry, etc. The banks sell their clients on the idea that this is such special work that they should trust the bank to do it. My understanding is that a big part of Jeff Christian's business at CPM Group is teaching mining companies exactly what you said - that they don't need the big bullion bank middlemen and their fees, and can learn to do this themselves, with his help. To your last point, no, if clients have physical in JPM's vault (a long), and are hedging that position forward with JPM, the client is short the hedge, and JPM is long, as the counterparty. To neutralize that long exposure, JPM goes short in the open futures market to delta hedge their long against their client's short.
    [quote=Strawman]There have been numerous statements by various central banking folks over the years about how gold can and will be leased (in increasing quantities - if needed) in order to control the price of gold.  Volcker admitted that their failure to do so during the 70's was a mistake.
    You had the Gordon Brown sell 1/2 of Englands gold reserves - he even announced this intention in advance which practically guarantees the price will be less - something that anyone trying to sell for "best value" would be an complete moron to do - unless the motive was something other than "best value".[/quote]
    Good points, and the reason why I never say manipulation fears are completely misplaced. I'm simply pointing out that people like Ted and Harvey don't know what they are talking about. There is still good reason to be concerned about the actions of central banks, and not just the more obvious ones like these examples!
    [quote=Strawboss]There are frequently MASSIVE sales of gold/silver in very, very short timeframes (dumping of contracts - hitting all bids) which is something that someone selling for profit would be stupid for doing.[/quote]
    Not necessarily. First, one possible explanation is an actual short-term manipulative "stop clearing run" intended to fleece the weak hands out of their positions. This kind of short-term manipulation happens all the time in all thinly traded markets, not just PMs. Another possibility is that a natural move in the market (no manipulation) triggers a big cluster of stops during thin liquidity hours. But your statement that someone selling for profit would "be stupid doing" this is not correct. If someone wants to sell a lot but has no reason to expect others to be selling a lot, it's in their interest to slowly and carefully make their sales with little fanfare, to avoid moving the market. But if a big seller has reason (as was the case on Feb 29) to expect OTHER big sellers to also be selling in size, the whole move in reaction to news can happen in seconds, because it becomes a race for the door scenario.
    [quote=Strawboss]You have the cap on gold typicall at 1% but RARELY (if at all) in excess of 2% in a day.  No other commodity has this upside limitation in price movement.  This has been consistent over the entire duration of this gold bull market.[/quote]
    I'm not clear on whether you are referring to an actual cap (i.e. daily price limits in futures trading), or observed max moves over time (not really a cap). In any case, I'm not clear what point you are arguing here. I would think extreme manipulations would yield higher volatility, not lower. In short, I don't understand your point.
    [quote=Strawboss]Now - I am not providing references or a bibliography with this post so I am hopeful that you wont put me in the same category as Harvey Organ, Andrew MacGuire, GATA, et al... I trust that you are sufficiently cognizent of the "goings on" in this market that what I am referencing is factual and without hyperbole.[/quote]
    Of course I don't put you in the category of Maguire, Organ et al. You are asking intelligent questions based on logical deduction, and seeking explanations for things that don't add up, using logic and reason to form your views. Contrast with someone like Ted who is constantly posing idiotic rhetorical questions like "If a small number of banks have most of the short interest, how can it be anything other than a manipulation?"
    @shudock
    Sir, if you really can't see the tongue-in-cheek humor intended when I crack a joke about my own post as being "arrogant and pompous", and you still feel inclined to interpret my endorsement of Rickards work despite not yet having had time to read his book  as "dismissive", then I'm afraid I can't help you. I do admit that my tone becomes quite intense when I discuss this subject, because I find the perponderance of charlatans to be so overwhelming, and frankly the harm they do to retail investors financial wellbeing makes me angry. If you find my comments so offensive, there's always the "Ignore User" button to save you from ever seeing them again.
    Best,
    Erik

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  • Mon, Apr 23, 2012 - 8:25pm

    #37
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Price cap on gold

    Erik - let me try again on my price cap on gold statement.

    During the course of the bull market in gold (nominally speaking in USD) you can count on 1 hand the number of times that gold has been allowed to increase in price by an amount greater than 2% using the London PM fix from one trading day to the next.  And - you probably wouldnt have to use all the digits on that one hand either.  The vast, vast majority of the time the price rise in gold is limited to 1%.

    There is no other commodity market that trades like this - with those observed price rise caps.

    Of course the same doesnt hold true on the downside losses in gold when price is falling - there is no 2% "rule" when price is falling.  (Use of the term "rule" is derisive).

    Pertaining to your comments on concentrated positions not inherently being manipulative - I would differ in this respect.  When an entity the size of JPM is allowed to sell x number of contracts anytime they want to - irrespective of what their current position sizing is - that is manipulative.  The analogy I would use is the casino and blackjack.  The reason that casinos have limits on bet sizes at the blackjack table is to prevent someone from continually doubling down their bets every time they lose.  The casinos know that eventually - the person that is able to double down with no limitation will eventually earn back their losses.

    By not having position limits - an entity with essentially unlimited resources to draw upon (JPM) can push down the price of silver whenever it suits them by selling however many contracts are necessary to start triggering stops - which then take over and further push price down.  Of course JPM does periodically cover some of their shorts from time to time to keep things manageable - but, they never have the impetus to completely cover their shorts because they dont have to.  If there were position limits - they wouldnt be able to do this and your statements regarding this point would make more sense to me.

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  • Mon, Apr 23, 2012 - 8:59pm

    #38

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    short position

    Steve,

    please see the link I included above.

    I think the "big short position" is grossly misunderstood by Ted Butler & Co. The issue with gold and silver is that the banks and bullion dealers trade them as currencies over the counter, i.e. with cash (=allocated), credit money (=unaloocated), swaps and forwards. This market is about 8-10 times bigger than COMEX. So you would expect that the OTC market is where the price discovery happens, and then this is transmitted to the COMEX by arbitrage. So the large short positions that Ted Butler and friends complain about is one side of the arbitrage position. The other half is invisible to the public because it happens in the OTC market.

    When GATA & Co talk about  "the central banks", I also think they get the teams wrong as well as the timing. Right now, all those central banks who can only use the OTC market in order to accumulate gold (BRICs, developing countries), must be interested in a low price because then they get more physical for their dollars. On the other hand, the U.S. may hate an uncontrolled rise of the gold price, but eventually they may want to take the paper price higher because this provides life support for the bullion banking system that might lose too much physical reserve if the price is too low. Finally, there are those central banks such as the ECB (and several oil states) who already own a huge amount of gold and who would love its price to rise. All this was different ten years ago before the introduction of the Euro. You have to be very careful when you take these Greenspan quotes out of their context.

    Victor

     

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  • Mon, Apr 23, 2012 - 9:16pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Strawboss wrote:Pertaining

    [quote=Strawboss]Pertaining to your comments on concentrated positions not inherently being manipulative - I would differ in this respect.  When an entity the size of JPM is allowed to sell x number of contracts anytime they want to - irrespective of what their current position sizing is - that is manipulative.  The analogy I would use is the casino and blackjack.  The reason that casinos have limits on bet sizes at the blackjack table is to prevent someone from continually doubling down their bets every time they lose.  The casinos know that eventually - the person that is able to double down with no limitation will eventually earn back their losses.By not having position limits - an entity with essentially unlimited resources to draw upon (JPM) can push down the price of silver whenever it suits them by selling however many contracts are necessary to start triggering stops - which then take over and further push price down.  Of course JPM does periodically cover some of their shorts from time to time to keep things manageable - but, they never have the impetus to completely cover their shorts because they dont have to.  If there were position limits - they wouldnt be able to do this and your statements regarding this point would make more sense to me.[/quote]
    I'm not so sure we differ, but I do get the sense you didn't understand my intended point in the last post.
    As I said in my earlier post, we agree that big players who have the ability to sell more metal in size whenever they want to move the price can manipulate a market. But it is their buying and selling that moves the market. Ted has repeatedly asserted that the very presence of a large short position - without any further buying or selling - is inherently manipulative. It is that contention that I reject as bogus.
    If your hypothesis is that JPM is manipulating markets, it is their buying and selling activity - not the size of a constantly maintained short position - that you would look at to prove the thesis.
    You also have to go back to the question of motive. All of Ted's ramblings are based on his central contention that JPM has this huge short on as a directional bet, or that they are secretly doing the non-economically motivated trading work of the NY Fed. If you examine how banks have historically made their money for the last several hundred years, you realize it's very unlikely that JPM would make a directional (prop) bet themselves, especially in the current "Volcker Rule" political climate. If you instead conclude, as I have, that Blythe was telling the truth on TV, and that the large shorts on the COMEX are just delta-neutral hedges, you realize that JPM has no motive to manipulate the market.
    Best,
    Erik
     

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  • Mon, Apr 23, 2012 - 10:00pm

    #40

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    Bronsucheki, Victor the Cleaner and Erik

    Ah, guys, what a pleasure to finally understand more about OTC trading, the existence of electronic quotes and prices being transmitted via arbitrage. Thank you.

    Things make more sense to me now.

    This is one of the most informative comment threads I've read in quite some time, especially after reading some of the links in various posts.

    I am repeating myself a bit, but I still have questions and I am very suspicious of the many fishy events that occur, for example counterintuitive waterfall price drops before major CB announcements of more printing and/or devaluations. I do wonder whether central banks are entering the markets and trying to use the gold price as a signal at times like those. Comments from central bankers like the one that Volker made about his mistake in not containing gold during the 70's are not reassuring, plus other comments that have been made by important figures at various times. And one reads of other anecdotes such as Morgan Stanley (I think) having been sued, successfully, for charging customers storage fees on bullion that wasn't even in the custody of Morgan Stanley, if I remember correctly. It's the sum total of many little details like those that give people their doubts about the integrity of what goes in the gold and silver markets.

    I have to say, one of "gut feel" problems with the idea of central banks relentlessly leasing more and more gold and shorting gold via intermediaries on exchanges to supress the price or JPM mercilessly dumping silver is that if you are going to short something to overwhelm the market with the intention of buying back your shorts at lower prices, why haven't enough futures market participants cottoned on to this? I don't believe markets are totally efficient, but surely they should be efficient enough that people would try to antipate these moves, making it more difficult for JPM to get away with it? That mechanism, which I think Ted Butler has written about, relies on the theory that longs, in the aggregate, get "flushed" out repeatedly and without learning from their mistakes and always eventually buy back at higher levels than they sold, does it not? I'm not a futures trader, but it just seems odd to me that they would be able to continually get away with this activity year after year. Also, it means the HFT algorithms are never improved upon. Maybe lots of traders are that stupid though, what do I know.

    If JPM does have an advantage would it not stem largely from the fact that they bird's eye view of the OTC markets and the COMEX, and know exactly how much is really hedged, how much physical bullion is being delivered, what levels speculative interest are at, etc. etc, i.e. they have an asymetrical information advantage and are in a unique position to profit from it? Whether they are going long or short? I dunno. Maybe they would say that's unethical and they don't engage in that but who trusts what Wall Street bankers say these days. 

    PS Victor, correct me if I am wrong, but gold and silver are the only futures traded commodities whose price is determined by arbitrage on the OTC market, and is dependent on what happens in the OTC market, then doesn't this make the COMEX gold and silver COT reports totally meaningless? So what if speculators are flushed out of COMEX, and so what if "commercials" are going increasingly net short or not? Without knowing what is happening in the (bigger) OTC market, it's totally impossible for us puny mortals to see the bigger picture, right? I guess all that the COT can tell you are things like the general level of speculative hedge fund interest in precious metals?

     

    Erik, please send thanks to Jeff Christian for taking the time to give an explanation. And thanks for your excellent set of replies.

    Hey, I'm a small investor (really, really small) and I'm trying to learn as best as I can.

     

     

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  • Mon, Apr 23, 2012 - 10:06pm

    #41

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    My pleasure.

    Hi CPTWaffle,

    Glad you've enjoyed the exchange, and yes I must say myself that I've been amazed at the life this thread has taken on. FIrst Jeff Christian and then Bron Sucheki personally participating in an online discussion forum is rather unprecedented, IMHO. For anyone who doesn't recognize Bron's name, he's one of the head honchos at Perth Mint, and definitely knows the market well.

    I'm quite curious to see what Victor's thoughts are on your excellent question here:

    [quote=CPTWaffle]PS Victor, correct me if I am wrong, but gold and silver are the only futures traded commodities whose price is determined by arbitrage on the OTC market, and is dependent on what happens in the OTC market, then doesn't this make the COMEX gold and silver COT reports totally meaningless?[/quote]

    I hadn't thought about this aspect before, but it's an excellent point. I could argue it either way myself, and don't really have enough knowledge to have any conviction on the matter. On one hand, you're right that if the market price is primarily determined in the London market and transmitted via arbitrage to the COMEX, then COT reports have far less meaning. I wonder if anyone has ever pointed this out to Ted?

    But the counter-argument is that COMEX has a life of its own, and a lot of traders operate there. The arbs keep the price in line with the London market, but one could easily argue that the arbs can only do what trades are necessary to close any gap between markets. I can't see how they could game the COTs to their liking. So the COTs should be a natural and reasonably accurate reflection of the sentiment of that minority of PM traders who operate primarily on the COMEX. I need to think more about this to decide if there is any way to game the COTs to deliver a false signal, if that were someone's objective.

    I'll let Jeff know his participation was appreciated. Thanks also to Bron for chiming in as well. This thread is suddenly becoming a who's who of the PM business!

    All the best,

    Erik

     

     

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  • Mon, Apr 23, 2012 - 11:16pm

    #42

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    OTC market

    CPTWaffle,

    just to make sure there is no misunderstanding. The banks trade gold and silver as currencies. In addition, by some coincidence, the CME also has some futures contracts on gold and silver similar to those contracts on commodities. Since the metals are the same, of course, the two markets are linked by arbitrage. Now it turns out that the OTC market is about 8-10 times bigger (both in terms of paper volume and in terms of physical volume), and so I find it very plausible that the major action is in the OTC market and then this is transmitted by arbitrage to the COMEX.

    So, yes, the COT reports tell you a lot about COMEX (10% of the market) and nothing about OTC (90% of the market). Does this mean they are useless? Perhaps not enirely. Firstly, they do tell you the position of the arbitrageurs. Secondly, it sounds plausible that many leveraged speculators at the COMEX and OTC behave in a similar way.

    Let me add another warning. I have a rough estimate (measuring the velocity at the COMEX, i.e. daily volume per open interest and then extrapolating this to the OTC market), that suggests that about 95% of all gold trading is paper and about 5% is physical. So it is plausible to think that the paper gold investors are leveraged and trade on margin, and so if there is a liquidity crisis and the prime brokers cut the credit lines of the hedge funds, then the price of gold would drop because the leveraged longs have to liquidate. Of course, physical gold is the ultimate hedge against systemic issues in the financial system, but the price action may be dominated by the leveraged longs rather than by the physical buyers. This is basically what happened in 2008. Everyone was scared and this is why they dropped paper gold. That a smaller number of other people bought physical gold is also true, but did not prevent the gold price from crashing.

    I would always keep this in mind. Physical gold is the hedge. But the paper price can behave in a counter-intuitive fashion in the short run. In fact, this makes the gold market highly unstable because there are some who are trying to change their dollars for gold, and if the price drops, they take away more physical gold and drain reserves from the banks. So the gold market may well blow up because of a low price rather than because of a high price.

    I wonder whether the U.S. would buy paper gold in this situation, just in order to stabilize the market.

    I know that GATA and friends always tell you that "the central banks" want to suppress gold. I know that the U.S. have a serious difficulty with a high gold price because it undermines the role of the dollar as an international reserve, but many foreign central banks (the ECB for example) have no problem at all with a high gold price. In fact, the rest of the world has done a lot of planning in order to smoothly replace the dying dollar with gold as the major international reserve.

    Sincerely,

    Victor

     

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  • Mon, Apr 23, 2012 - 11:43pm

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Excellent post Victor.. and great thread...

    Victor said (highlight mine),

    I would always keep this in mind. Physical gold is the hedge. But the paper price can behave in a counter-intuitive fashion in the short run. In fact, this makes the gold market highly unstable because there are some who are trying to change their dollars for gold, and if the price drops, they take away more physical gold and drain reserves from the banks. So the gold market may well blow up because of a low price rather than because of a high price.
    I wonder whether the U.S. would buy paper gold in this situation, just in order to stabilize the market.
    I know that GATA and friends always tell you that "the central banks" want to suppress gold. I know that the U.S. have a serious difficulty with a high gold price because it undermines the role of the dollar as an international reserve, but many foreign central banks (the ECB for example) have no problem at all with a high gold price. In fact, the rest of the world has done a lot of planning in order to smoothly replace the dying dollar with gold as the major international reserve.

    This goes to the fundamentals of Gold (and Silver).  Much of what we have been talking about.. whether or not manipulation is happening ...  really addresses another aspect of the investment argument - call it the "manipulation arb".  The idea is that if/when the manipulation schemes break down due to overwhelming physical demand, there will be a big jump in price just due to this breakdown.  I do believe there is manipulation...I think Gold and Silver are being (tape) painted as risk assets, rather than the ultimate safe havens that they are. To be honest though, I have no idea how large I would estimate the manipulation arb differential to be.. and I don't really care to argue about it anymore.  I think we all agree in principle that Gold is a reasonable play for long term wealth preservation.. and that is enough for me.  
    To Victor's point above;

    Warren Buffet and the New Calculus of Gold


    "What we are witnessing is a sea change in which market forces are driving a de facto return to the gold standard. All that is missing for this to be a de jure gold standard is some regulatory and legal recognition and one has been proposed. The Basel Committee for Bank Supervision, the maker of global capital requirements is studying making gold a bank capital Tier 1 asset.
    This implies banks would be regulatory blessed to operate with less equity capital than is normally required of banks if they held more gold as an asset. Basically,  regulators would allow banks to be more leveraged, meaning the banks would not suffer as much equity dilution to recapitalize after sovereign and mortgage write downs. Not only would gold then be backstopping debt and currency but also be backstopping bank equity capital.  So the realm of gold is expanding to fill the void of other “money good” assets and elevating its demand.
    The world has gravitated from one gold-backed paper currency to another before, and it likely is happening again. It would depend on whether investors in liquid, default-free, inflation-free paper prefer gold-backed Chinese Yuan to Swiss warehouse receipts or deposits from large international banks with large gold positions that operate with lots of leverage. This is a market choice that will determine the gold linked paper store of value, but the point is that all the paper contenders derive value from the gold backing, and thereby expands the demand for the shiny metal. This is the new calculus of gold. This state of affairs is likely to remain until developed world governments no longer reach for the unreachable and pressure their central banks to finance it."
             

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  • Tue, Apr 24, 2012 - 12:40am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Cute metaphor, but physical

    Cute metaphor, but physical cheese won't be called upon to perform its hedging role in extremis. ... Even though unallocated holders have no claim on physical, do fiduciaries believe their holding hedges them against a government money crisis? If they do, then fractionally-reserved bullion banking is effectively diluting real physical demand, and GATA's argument rings true.

    50sQuiff, Victor makes the point about physical gold being the only real hedge and this is correct. However I find it hard to believe that the holders of unallocated accounts with bullion banks do not know exactly what they hold. An unallocated account with a bullion bank is not available to "retail" investors and is only held by large corporate or what many jursidictions call "sophisticated investors". The contractual terms of a metals account agreement with a bullion bank are very clear as to the status of unallocated and it is my view that the holders of these accounts are smart enough to read the fine print and know:
    1. Unallocated is a mere liability of the bank
    2. Bullion banks do not maintain 100% physical reserves
    3. Bullion banks thus lend or use some faction of the unallocated
    4. They (the client) is thus taking a credit exposure to the bullion bank
    5. Conversion to allocated is normally possible but the bullion bank is not contractually obligated to do so
    I would suggest therefore that many of the holders of bullion bank unallocated accounts are just interested in cash gains/losses. They are like the futures holders Erik mentioned - paper shorts AND paper longs. They are playing a paper game and they know this.
    If this is correct, then fractionally-reserved bullion banking is not diluting real physical demand.
    Regarding point 2, the 100:1 ratio that is often mentioned (and I don't know where that 300:1 came from), this is misunderstood as the physical fractional reserve ratio for unallocated accounts. As discussed in this personal blog post, the 100:1 comment by Mr Christian was a reference to the volume of trading of paper gold versus how much is physical delivery versus cash settled. In that post I have sourced references where Mr Christian reveals that the bullion banks operate at around 10:1.
    My view is that a 100:1 physical fractional is ridiculous considering the crucial role London plays in the physical market. London unallocated simply could not function on a 100:1 ratio in my view. Those who accept this number do not appreciate to amount of physical delivery made ex-unallocated accounts by the trade.

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  • Tue, Apr 24, 2012 - 12:52am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Erik T. wrote:My

    [quote=Erik T.]My understanding is that a big part of Jeff Christian's business at CPM Group is teaching mining companies exactly what you said - that they don't need the big bullion bank middlemen and their fees, and can learn to do this themselves, with his help.[/quote]The funny thing about how Mr Christian has been painted by many as one of "them" on the side of evildoers is that actually his business is in opposition against the bullion banks. Consider this statement by Mr Christian in a presentation to the International Cotton Advisory Council in October 2002:

    A producer should use an advisor such as CPM Group, which is not trading against the producer. Banks and dealers have a conflict of interest between their own trading positions and the hedges they advise their clients to take.

    Or maybe Recent Lessons Learned About Hedging (January 2000):

    Hedgers should not rely on their trading counterparts for hedging strategies. These entities take the opposite side of the hedge transactions, have inherent conflicts of interest, and always keep their own best interests in mind, even if these are the short-term best interests and arguably not in the banks’ own long term best interests.
    These statements don't square with one working for the interests of bullion banks. Goldbugs should consider that Mr Christian is more closely aligned with their interest than those of bullion banks.

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  • Tue, Apr 24, 2012 - 2:21am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Accredited does not mean Sophisticated!

    [quote=bronsuchecki]I find it hard to believe that the holders of unallocated accounts with bullion banks do not know exactly what they hold. An unallocated account with a bullion bank is not available to "retail" investors and is only held by large corporate or what many jursidictions call "sophisticated investors". The contractual terms of a metals account agreement with a bullion bank are very clear as to the status of unallocated and it is my view that the holders of these accounts are smart enough to read the fine print and know:1. Unallocated is a mere liability of the bank
    2. Bullion banks do not maintain 100% physical reserves
    3. Bullion banks thus lend or use some faction of the unallocated
    4. They (the client) is thus taking a credit exposure to the bullion bank

    5. Conversion to allocated is normally possible but the bullion bank is not contractually obligated to do so
    I would suggest therefore that many of the holders of bullion bank unallocated accounts are just interested in cash gains/losses. They are like the futures holders Erik mentioned - paper shorts AND paper longs. They are playing a paper game and they know this.[/quote]
    Bron,
    I concede that you know the PM market far better than I do, but I have to strongly disagree with you here, particularly on the points emphasized in bold. As you know, unallocated bullion accounts are available to both corporate accounts and accredited investors. But in the Private Banking biz, those accredited investors are more often referred to as easy targets than "sophisticated". I have personally met several HNWIs whose investment goal is to hedge systemic financial collapse risk, and who are proud of themselves for having negotiated zero storage fees in what are actually unallocated accounts. When I have tried to explain to them that they do not own bullion and are actually unsecured creditors in a fractionally reserved system, they not only refuse to believe me, but in some cases have been insulted and become indignant.
    I have also been to professional-only conferences, and met licensed wealth management professionals who are completely confused about how allocated and unallocated metals accounts work. I concur with your view that it is their job to read the fine print and know what they are talking about, but that doesn't mean they do.
    I've also had an HSBC Private Banker try to sell me an unallocated account, swearing up and down that the no-fee thing was a "courtesy", to the bank's "most valued" customers, but that the bullion was definitely mine, titled in my name, and free of any credit risk! When I told him he had a deal as soon as he provided me with the bar serial numbers I would be buying, somebody on his metals desk finally explained to him what I already knew. And he was the guy selling this service! FWIW, the guy in question was probably not sleazy but just plain stupid, which is usually the case with "Wealth Management Professionals", more commonly known by their clientele as predatory morons.
    When I had to put up a sizable investment in Hong Kong to qualify for an investor resident visa, I told them to put it all in the HSI Tracker ETF (2800.HK). The same guy told me that was a big mistake and I needed to diversify the investment. I told him I didn't need to diversify because I intended to delta-hedge to flat net notional in my futures account anyway. Put your seatbelt on for his response... He said that was a poor strategy because Airline stocks are not a good hedge for a broader index like the HSI! When I used the phrase "Delta-Hedge", the guy actually assumed I meant I was going to short Delta Airlines stock to hedge the exposure! This was an HSBC Private Banking "Relationship Executive", a/k/a Predatory Moron.
    That's a representative sample of the "professionals" of whom you speak, Bron. When you say these are big boys who are supposed to read the fine print and know their game, you're absolutely right. But that doesn't mean they do. They're mostly financially clueless salesmen who know how to wine and dine their clients, and little else. I know you and your team in Perth are top notch, but you're the exception, not the norm.
    All the best,
    Erik

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  • Tue, Apr 24, 2012 - 2:23am

    #47

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Bron....

    Really a pleasure to have you posting here.  Not to butter you up even more... but one of my favorite possessions is my 1 Kg Lunar Dragon....

     

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  • Tue, Apr 24, 2012 - 3:23am

    #48

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    unallocated

    Bron and Erik,

    I agree with Bron that many holders of unallocated gold are probably the same sort of people who would buy a futures contract on margin. This is why I said that once there is a liquidity crunch, it is understandable that a lot of (paper) gold is sold. This explains the price drop in 2008 without invoking the manipulation meme. In fact, in spring 2008, a fashionable trade was long commodities, gold, oil and short financial sector stocks. When short sales were forbidden later that year and when the prime brokers cut credit lines, the speculators had to sell their (paper) gold.

    But I have further comments, too.

    Even if, as Bron says, the unallocated does not divert physical demand, it does influence the price. This works as in every currency. If the banking system creates credit, more of this credit can bid for other stuff and thereby causes inflation if the other stuff is mesured in the currency in which we create credit. In our case, the currency is gold, and if you create credit (=unallocated), this credit can bid for other stuff (dollars) as well as physical gold can. This reduces the gold price in dollars.

    It seems most people understand the following analogy best. If everyone has to pay cash for their house, the house prices are low. Now the banks create credit. Suddenly, some people who were not able to buy a house with cash, can take out a loan and join the bidding. The result is that house prices go up. In our case, the mortgage is unallocated gold and the house is a dollar.

    Apart from the presence of unallocated gold which has an effect on the gold price, the unallocated contracts were used politically in the late 1980s and in the 1990s. Firstly, some oil countries were offered to buy unallocated gold (on the other side was a forward sale by a mining company) so that they were able to purchase gold in size without running the price. At the same time, many wealthy investors were talked out of holding physical gold and were talked into holding gold-like contracts.

    There were a few estimates that around 1999-2001, there were more than 10000 tons of gold that had been leased or forward-sold, and so I would expect that a corresponding amount of holders of unallocated were in unallocated for political reasons, i.e. were not speculators. We have no idea how long it took to work this off - perhaps the last bit of these positions is still open.

    BTW, I don't think any country will go back to a gold standard in the sense that their currency unit is backed by a weight of gold. Since the Euro zone is a major trade hub and since the ECB values gold at its market price, nobody would be able to fix the gold price in the long run. Whenever this results in an undervaluation of gold in that currency, this would basically just drain gold to Europe.

    Sincerely,

    Victor

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  • Tue, Apr 24, 2012 - 4:03am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Giants

    [quote=Erik T.]When you say these are big boys who are supposed to read the fine print and know their game, you're absolutely right. But that doesn't mean they do. They're mostly financially clueless salesmen who know how to wine and dine their clients, and little else.[/quote]That's good first hand feedback Erik and I won't disagree. The question then becomes what percentage (by ounces) of unallocated account holders are aware and which aren't. Any industry players/commercials would be and maybe some hedge funds who only care for their (as Victor says, leveraged) cash returns, those who blogger FOFOA calls the Giants. You feedback would indicate a fair if not all of the HNWI are not. They may be less industry ones than HNWI, but industry would hold some big balances relative to HNWI. We have no way of knowing but I'd guess that it isn't a case that 95% (by ounces) don't know, which is what most people think I bet and the basis on which they believe a "run" for physical will bust the system.
    I'd just say the percentage who know full well what unallocated is and thus who don't care about physical delivery and happy to take cash settlement is much higher than many believe. If true, this means the system has more robustness or less risk of a run for physical and thus the game can continue for longer than many think.

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  • Tue, Apr 24, 2012 - 4:14am

    #50

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    unallocated fools

    Erik T,

    I like the anecdotes. I wonder how many investors have unallocated gold or some credit notes that relate to the gold price, but who don't actually own this gold and who don't know that they have credit risk. I suppose it will be less than 10 years, and we will know. Perhaps less than 5.

    FOFOA reported there was a wealthy family who wanted to put some $10mm in allocated gold (details from memory). They approached their adviser Mongan Stanley. It turned out that MS don't offer allocated, and so MS went to Scotia Mocatta in order to get allocated gold. The problem was that MS drafted the paperwork so that MS owned the allocated at Scotia Mocatta, and the client just had a paper claim on MS.

    Now that I think about this story again, perhaps I can propose the following hypothesis. Everyone in North America who thinks they own gold and who has a contract with a financial institution that is not Scotia, JP Morgan or HSBC, probably does now own the gold (assuming that only these proper bullion banks offer allocated).

    Victor

     

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  • Tue, Apr 24, 2012 - 4:59am

    #51

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    What purpose do unallocated serve in this day and age anyway?

    @Bron & Victor

    Let's look at this from another angle. Consider this question: With the advent of the GLD ETF, do unallocated bullion accounts still serve any useful purpose, or are they an obsolete relic of a bygone era?

    I would opine that with very, very few exceptions, unallocated accounts serve no useful purpose. You can buy GLD and there is 100% physical bullion backing your claim. Forget the nonsense Harvey was spewing in the 2nd interview about there being no gold there. If you actually read the GLD Custodial Agreement (I think it's sec. 15 or 16, but that's from memory), you see that GLD has all the gold, and it's 100% unencumbered physical bullion. No leases, double-counting, or other games permitted, and it's audited every year. You don't actually OWN the bullion, so in a systemic collapse you could easily be victimized like the MF Global clients were, and the government could change the rules on you "for the greater good". But short of that, the bullion is there and the custodial fee is too small for the zero-fee aspect of some unallocated bullion accounts to be a meaningful advantage.

    Now consider the unallocated account. You own nothing but an unsecured credit receivable from a big bank. So far as I can see, any intelligent investor should choose GLD shares over an unallocated account. The only exceptions I can think of involve broader relationships between the bank and client, as might be the case with a small sovereign account.

    I welcome critique if I've missed something obvious here. But it appears to me that GLD is always better than an unallocated account for almost all investors. Unallocated accounts don't offer leverage or 24-hr trading, so they appear to me to be just plain inferior to ETF shares.

    With that in mind, we should ask ourselves, why would anyone want to own an unallocated bullion account, then? The only answer I can think of is that they don't fully understand what it really is, and what its limitations are.

    I suppose there's an argument for redeemable unallocated accounts, like Perth Mint Certificates. But if that's your argument, PHYS, if bought when the premium is low, offers redeemability too, and it has real bullion behind it. Also, Perth Mint certificates aren't really the same thing is an unallocated bullion account. The gold is indeed hypothecated, but only to Perth Mint's own retail operation, so it's really a different animal than a bullion bank's unallocated account. But if we go back to unallocated accounts with HSBC, Scotia Mocatta, etc. I can't think of a sane reason for anyone to want one, given the ETFs offer a better deal. I therefore conclude that either I've missed something, or everyone who has one doesn't realize its shortcomings.

    Am I missing something?

    Erik

     

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  • Tue, Apr 24, 2012 - 5:00am

    #52

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Unallocated Gold discussion from BullionVault.com - explains all

    Link:  http://gold.bullionvault.com/How/UnallocatedGold

    Unallocated Gold

    Take care when buying gold from a bank, or in a pool account, or even from some major gold certificate providers

    Bank Gold Is Usually Unallocated

    As you set out to buy gold the first thing you need to know is that 95% of the world's gold businesses - especially banks - will automatically sell you the wrong type.

    Unallocated gold is the most widely traded form of gold in the world. It hides a way of advantaging the provider - usually a bank - by subjecting buyers to a risk they will frequently remain unaware of until it is too late. The widely quoted 'spot price' refers to this unallocated gold, and this is how it works:-

    1. When a bank sells you gold it is almost always 'unallocated'. You become a creditor - i.e. the bank owes you gold which you do not own. The bank is taking advantage of the fact that you are not quite sure what to do with any gold you buy, and it feels logical - to most gold buyers - to put the gold safely in the bank. When you do this you sign a document and become, in law, a depositor of gold. Most people now relax in the belief that they own gold completely securely, and they do not pay the little extra - above the spot - to have their trade formally 'allocated'.
    2. A bank is required by its regulator to hold a proportion of its liabilities as certain types of assets capable of being turned into cash quickly during times of crisis. It is a liquid reserve and it's there to protect the bank from a common type of problem - a liquidity crisis - which occurs when a bank has short term deposits, long term loans, and insufficient cash to meet the immediate demand for withdrawals. Physical gold bars are accepted as a very good form of liquidity reserve because they can be turned quickly into cash.
    3. If a bank has physical possession of some gold which it owes you as its creditor the bank itself is the current owner of the gold. While this gold remains unallocated to you the regulator considers it part of a bank's liquid reserve. This makes unallocated gold an attractive way for the bank to maintain its regulated liquidity, because you have paid for your gold, and the bank is free to use your money, while it is also able to add your unallocated gold holding to its own reserve.
    4. Unfortunately your unallocated gold would be ditched if the bank were in need of cash. It has no choice in the matter because liquid reserves are there to be sold at short notice to protect the bank's general creditors - all of whom, including you, must receive a proportionate share of whatever is raised from the sale of assets should the crisis deepen and the bank become insolvent.
    5. If that did happen you would be in a bad position. Your relationship is with the banks overall pile of assets, not with any specific pile of gold. The bank's small gold reserve would be diluted by non-performing bond portfolios and other assets which don't sell well in a crisis. The last line of defence for bank depositors is deposit protection, which is a state underwritten mainstay of banking confidence in the West. But it does not apply on bullion debts like yours. Deposit protection is there as a confidence-builder for the national currency only, which means unallocated gold actually offers less protection from bank failure than a cash deposit. So having been the provider of the bank's liquidity reserve you will then be in the minority of those offered no protection by the state's guarantee.
    6. So it is important not to be impressed by unallocated gold, or by it being physically stored in a bank's vault, or by it being checked daily by bank regulators. Regulators are checking it to make sure the bank maintains a liquid reserve, and they are not interested in your entitlement as a bullion creditor.

     

    Allocated gold is different because you become the outright owner of gold and you are no longer a creditor. Your allocated gold is your property and it cannot be used as the bank's reserve, so with allocated gold you get proper protection from systemic failure.

    Unfortunately with allocated gold your money does the bank no good. And since modern banks reckon to earn 20% each year on capital employed, their loss of use of your allocated gold is disappointing for them. This is why banks usually charge nothing for unallocated storage and at least 1.5% per annum for allocated storage, with the result that professionals in the bullion market reckon that less than 1% of gold traded within financial markets is allocated.

    It is not only banks which provide unallocated gold. So do fabrication businesses and pool account providers. In fact anyone who can find another use for your gold is motivated to provide you gold on an unallocated basis. Coin manufacturers - for example - might find it a very convenient way of financing their gold stock (their working capital) on what amounts to an interest free gold deposit from you, because their entire gold inventory can be paid for in this way with your money. Financiers of gold mines have a similar motivation, as they can lend your gold to miners to be repaid out of later production - assuming the mine is successful - though of course this is a relatively high risk way of financing mines.

    This is how the huge majority of the world's owners of bank held gold are, probably unwittingly, storing their personal reserve in a way which fails to meet the most common objective of gold buyers - the security of owned bullion.

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  • Tue, Apr 24, 2012 - 5:53am

    #53

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    unallocated and GLD

    Jim,

    as far as I understand, if a bank operates in an official currency such as dollars or Euros, they are subject to their regulatory reserve requirements. If they lend gold, however, they are toally unregulated. I.e. if they sell 10 tons of unallocated gold to their clients, they are free to hedge this exposure as they like. There is no requirement to hold a however small reserve of physical gold against these unallocated accounts.

    Erik,

    firstly, you can even redeem GLD. Well, not everyone can, but every authorized participant can take out multiples of baskets (100000 shares = about 10000 ounces = about 310kg). I suppose this is why large investors such as Soros or Paulson chose GLD. They could just ask Black Rock to take their baskets out of the trust.

    Secondly, I guess the difference between GLD and OTC unallocated is that the stock market is regulated whereas over-the-counter deals are in the dark. I like exchange traded contracts, but I suppose the fees would be higher. GLD pays storage and admin fees. Also, with stocks, there are specific margin requirements, and so you cannot trade GLD with arbitrary leverage. OTC all this need not apply.  If you trade two different things with the same counterparty OTC, you can certainly offset the collateral. Finally, if you buy unallocated from A and later sell it to B, you need not hold any capital against this position (if both are OTC). For hedge funds, this might be a big point.

    You might ask what proportion of unallocated gold holders are clueless private investors who don't know they have credit risk, and what proportion are speculators who chose to trade on margin.This is a bit circular though. Imagine you are a bank and you offer unallocated gold (some certificates) to your customers. Now you have price exposure. How do you hedge? Don't you hedge this by buying unallocated OTC from a bullion bank? So all the unallocated of the clueless private investors is part of the aggregate unallocated long position in the OTC market.

    Apparently, there are still enough leveraged speculators around who sell their paper gold whenever liquidity gets scarce.

    Sincerely,

    Victor

     

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  • Tue, Apr 24, 2012 - 12:13pm

    50sQuiff

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    bronsuchecki wrote:Erik T.

    [quote=bronsuchecki]
    [quote=Erik T.]When you say these are big boys who are supposed to read the fine print and know their game, you're absolutely right. But that doesn't mean they do. They're mostly financially clueless salesmen who know how to wine and dine their clients, and little else.[/quote]
    That's good first hand feedback Erik and I won't disagree. The question then becomes what percentage (by ounces) of unallocated account holders are aware and which aren't. Any industry players/commercials would be and maybe some hedge funds who only care for their (as Victor says, leveraged) cash returns, those who blogger FOFOA calls the Giants. You feedback would indicate a fair if not all of the HNWI are not. They may be less industry ones than HNWI, but industry would hold some big balances relative to HNWI. We have no way of knowing but I'd guess that it isn't a case that 95% (by ounces) don't know, which is what most people think I bet and the basis on which they believe a "run" for physical will bust the system.
    I'd just say the percentage who know full well what unallocated is and thus who don't care about physical delivery and happy to take cash settlement is much higher than many believe. If true, this means the system has more robustness or less risk of a run for physical and thus the game can continue for longer than many think.
    [/quote]
    Given the performance of fiduciaries prior to 2008 and their legendary failure to do due diligence, I suspect Erik T's anecdotes paint an accurate picture. But the more relevant question is, do they even care? Do they understand gold? Is their paradigm one of the physical plane and the gold market of the future or the monetary plane and the $IMFS? I expect the vast majority of fiduciaries have no qualms about unallocated gold, hence the bullion bank paper:physical ratio of circa 18-20:1 (per ANOTHER).
     
     

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  • Tue, Apr 24, 2012 - 1:16pm

    #55
    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    Congratulations!

    Erik T,

    The final result of your intial broadside is one of the best series of comments I have read in a long time. Many thanks to Bron and to Victor, (Victor, I responded to your request on another site for information about trading on Feb 5 2010), as well as to all the others.

    However, I found Jeff Christian's gratuitous attack on Andrew Maguire extraordinary. Mr Christian, I would suggest that you inform your confusing and contradictory commentary about the so called "overnight gold trade" by referring to the people who sparked the debate http://www.skoptionstrading.com/updates/2012/1/14/revisiting-our-proposal-for-an-overnight-gold-fund.html and not Dimitri Speck, who you appear to be addressing. Your final point, that miners sell on the PM Fixing, is a good one and indeed may explain the trade, which at first you appeared to deny. If that is the explanation it would be ironic, placing them on a par with with the HNWI holding unallocated gold. Golden Bookends. 

    Erik, your comments improved greatly when you moved back to presenting positive facts from your own experience instead of the ad hominem attack. To help you get off your high horse I will point out that your Feb 29 2012 reference to the release of the FOMC Minutes is wrong (1) and your other comment in regard to price manipulation on that day is uninformed conjecture presented as reasoned analysis. I was trading Feb 29 and anticipated that beat down with the clear signals being sent, I believe, to counter the announcement of the LTRO 2 on that day. I would be happy to share supporting evidence of this with you if you contact me through this site.

    These are really minor quibbles in the overall advancement this thread has provided to the amateur PM community.

    Thank you

    (1) FOMC minutes were released Feb 15 http://www.federalreserve.gov/newsevents/press/monetary/2012monetary.htm . On Feb 29 Bernanke addressed congress and, contrary to all commentary, did not mention QE3 http://www.federalreserve.gov/newsevents/testimony/bernanke20120229a.htm but did mention accommodative monetary policy, an uncertain employment outlook etc. A Q & A followed, for which I cannot find the transcript, but in any event the selling had started well before then.  

     

     

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  • Tue, Apr 24, 2012 - 2:41pm

    #56
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Erik T comments on GLD

    Erik,

    I would vehemently disagree with you regards to recommending buying GLD.  The way the fund is structured, the sub custodians are the ones actually in possession of the gold, and the custodian distances itself from any liability for any shenigans by explicitly stating that they do NOT audit the sub-custodians and are NOT liable in the event that a sub-custodian doesnt perform.

    Instead of GLD, I would recommend PHYS for gold and PSLV for silver.  Both of these are iron clad investment vehicles for the ownership of gold and silver, are audited on a yearly basis and the physical metal is stored with the Royal Bank of Canada. 

    GLD is a scam of the highest order - as is SLV.

    Just one example is when CNBC was invited to their vault.  One of the bars that was videotaped where the serial number was visible wasnt even listed on their reports.

    The prospectus makes clear that they dont assay the gold, they dont guarantee its fineness - it could be gold plated tungsten for all they care.  They are not responsible for any screwups/shenanigans - you, the investor are.

    Sprott's PHYS and PSLV are closed end funds that actually allow you to convert your shares into the physical metal.  For gold you would need to have sufficient shares to trade for a LGD bar.

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  • Tue, Apr 24, 2012 - 4:33pm

    #57

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    am/pm trade

    Dear S Roche,

    yes, I saw your reply - I just didn't have much to add, and so I left it there.

    Concerning the am/pm "trade". This idea was brought up by Adrian Douglas in 2010 (!) It seems that SK Options Trading (whoever that is) just failed to give credit to him. When I saw the original analysis, I checked the data. Yes, the effect is there. It is statistically significant over long periods. The effect is present in gold since about 2000 and in platinum since about 2000 with the exception of 2008. It is missing in palladium. Although the effect is statistically siginificant over longer periods, I concluded it was not tradeable (after fees). This is because on any one day, the effect is statistically not siginificant. It is an order of magnitude smaller than the average daily fluctuations. Jeff Christian's idea that it might be due to producers selling into the PM fixing was new to me. I had always suspected it was because of trading in Asia, but then both fixes are for gold loco London, and so this was never resolved.

    Finally, concerning Jeff Christian's comment on Andrew Maguire. I can understand this comment very well, and I have repeatedly compained at other sites (including TF) that I found Maguire's claims fishy. If at all, he is probably a COMEX trader who didn't know much about the OTC market until a few months ago. He is definitely not an LBMA insider.

    I think I was the one who brought up Dimitri Speck who is, in my opinion, the only one who understands enough statistics and whose analysis I find reliable.

    Yes, I agree that the gold miners are one of the major groups who get fleeced in the present system. You need to understand that they behave like companies who sell a product. As long as they make enough profit in terms of US$, they are happy. They are not the right ones in order to speculate on an end of the dollar dominated financial system, but rather part of that system. Also keep in mind that most mines cannot operate without substantial loans from (bullion) banks.

     
    you seem not to like GLD because of the fine print. Fair enough. But then, please take a look at the fine print of the Sprott Trusts, too, which is not that different. In particular, Sprott can wind down the trusts at any time he choses. This means that if the gold market 'breaks' because there is a price crash and then the banks lose too much physical and run out of reserves, Sprott can easily wind down the trust when the price of gold is low, say below $1000. His investors then get cash, and he can sell the bullion to anyone he choses, for example to himself or to one of his hedge funds. Given that he has a track record of trading against his own retail investors in his PLSV, I would not rule out this possibility.
    If you want to have gold because you think one day, there might be a premium for physical gold, you have to avoid **all** the ETFs.
     
    Sincerely,
     
    Victor
     
     

     

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  • Tue, Apr 24, 2012 - 6:23pm

    #58
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Victor

    I agree with your comments regarding Sprott - PSLV, et al...

    My preferred recommendation is that people buy physical and hold it in their physical possession (if you dont hold it - you dont own it).  I understand however that some people are investing using retirement funds/accounts and as such are forced to use certain vehicles such as Sprotts.

    Another vehicle I trust with a good track record is CEF, but, that is a hybrid of gold/silver (roughly 50/50 ratio).

    Another question for the more educated gold gang (I like the conversation on this thread).

    Is it possible that the mining sector is leading the metals in a long term downtrend - i.e. that gold/silver are headed for a SIGNIFICANT loss of value?  There is the adage that the mining shares lead the metals... Of course the fundamentals would seem to suggest otherwise, but, its hard to discount the 13 year bear market in the miners as a group...

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  • Tue, Apr 24, 2012 - 7:49pm

    #59

    RJE

    Status: Bronze Member

    Joined: Aug 31 2008

    Posts: 868

    This is incredible folks

    You gents have gone where no site has gone before. It has been a joy reading everyone,.The energy has been just great, and the knowledge base just remarkable. It has been a pleasure. Thank you

    BOB

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  • Tue, Apr 24, 2012 - 8:37pm

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    am/pm Trade

     Dear Victor,The SK Options link I provided above was their 2012 update of their Aug 27 2010 article (1) wherein they do acknowledge Adrian Douglas's work published on August 14/15...it was this update by SK Options that provoked all the recent attention. But in the intrerest of accuracy, you are correct and lest I stand accused alongside SK Options of failing to update acknowledgements you did provide me the link to Dimitri Speck's work which I referred to above, and for which I thanked you at the time. SK Options suggested refinements which have made this a viable trading concept and Mr Christian's reference to averages comes across as double-speak in the context of SK Options work.
    As to this feud with Andrew Maguire, I thought I effectively refuted your doubts about the Feb 5 2010 trade, but possibly they remain though I cannot see how that could still be the case. Claims of "fishy" claims is one thing, but accusations of "total fraud' as made by Jeff Christian is another entirely. I note the admin redacted some of Mr Christian's words which presumably went beyond the pale of "total fraud"...the mind boggles. I may have missed earlier tit-for-tat tirades that have drawn this ire but my own experience of dealing with Andrew Maguire through Coghlan Captial reveals him to be everything he claims. I admire the fact he provided information to the CFTC that sparked the ongoing enquiry into silver manipulation. 
    I note an earlier comment expressing bewilderment that Mr Christian is regularly attacked whenever he appears in print and though I have attacked him here I think I have done so in a civil way and with cause in regard to his comments on this thread. The referred comment also noted that Mr Christian is a competitor of the Bullion Banks and so should be regarded as an ally of the aggrieved small precious metals investor. As with schisms within faiths, the fiercest enmity is often reserved for those closest, seemingly in broad agreement but caught up in detail.
    And so, not wanting to fall foul of Sayre's Law myself, best wishes to all.
    SR
    (1) http://www.skoptionstrading.com/updates/2010/8/27/proposing-an-overnight-gold-fund.html

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  • Tue, Apr 24, 2012 - 8:49pm

    #61

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    miners and paper gold

    Strawboss,

    if you like CEF, you might want to take a look at GTU-UN.TO (Central Gold Trust) and SBT-UN.TO (Silver Bullion Trust) [Yahoo! tickers] which are part of the same family of funds, just gold and silver separately. Only listed at the TSX though.

    Is it possible that the mining sector is leading the metals in a long term downtrend

    I don't think anyone can give you a precise prediction on this. I have two thoughts. Firstly, it is possible that paper gold goes down substantially if liquidity becomes scarce, for example, because the U.S. goes back into recession or there is more trouble in the banking sector. Down by how much?

    No idea, but if the price of gold is too low, a lot of physical gold will disappear into strong hands. I read this morning that Russia and Mexico just reported to the IMF that their central banks had bought some 16 tonnes each in March alone (numbers from memory). There must be plenty of others who don't report, including China. So I guess 2012 will be another year of record purchases by the official sector (contrary to what GFMF have claimed), and the trouble with the dollar has not even started yet. So if the paper price drops too much, the market is at high risk and may easily run out of reserves.

    How about the mines? Perhaps the mines will continue to lag although gold itself performs rather well. Why? We are in a situation in which physical gold is used as a hedge against a major breakdown of the financial system or against a dollar crisis. If the situation gets really bad, the mines won't help. Just think about where many of the mines and the head offices of these companies are located: Australia, Canada, Britain - all countries whose central banks sold most of their gold long ago. So if there is a dollar crisis, I wouldn't be surprised if there are import/export restrictions or outright nationalization of the mines. Sure, you will be compensated: in cash and after the stock market has crashed. Note that when Australia sold their gold reserve, it was explicitly stated that they need not worry because they had so much gold in the ground.

    Think about it from the point of the government. Your central bank sold their gold a decade ago. Suddenly, the US dollar crashes, and they need to stabilize your own currency. You need a lot of gold immediately. The London gold market will fail within the first few days. Then what? Which gold would you take? I think it is a good guess that the mines and the major ETFs are the obvious targets for nationalization and seizure. In contrast, it is rather unlikely that they will send the military with metal detectors from door to door in order to confiscate the private gold.

    So the mines might be lagging because this time, the threat is a dollar crisis, and the mines don't offer protection in this case.

    Sincerely,

    Victor

     

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  • Tue, Apr 24, 2012 - 9:31pm

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    Gold ETFs & Stress...

     Lance Lewis has given us a potential short term signal mechanism for lows in the gold price apallingly but wonderfully named the "GLD Puke".  He has observed that there has been a noticeable reduction in GLD holdings towards the end of past corrections.I have no evidence, however it makes sense to me that any large trader who could induce cascade selling in the metals would then take delivery of baskets of physical from the ETF at their desired price, thus leaving the impression of capitulation selling, aka The GLD Puke.
    I would welcome any comments on this theory as I have taken it into account when considering the effects of systemic stress.

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  • Tue, Apr 24, 2012 - 9:39pm

    #63

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    The thread that never dies...

    @S Roche

    You are absolutely correct that I was mistaken about Feb. 29th. The event that precipitated the decline in metals was not an FOMC Minutes release, but rather what Mr. Bernanke didn't say in a speech. My error there, but honestly I don't see that it makes much difference. My POINT was that the sell-off was in reaction to news, and basically made sense. I stand by that analysis.

    Please do not falsely accuse me of making ad hominem attacks on Mr. Organ or anyone else, as I have done no such thing! Ad Hominem means attacking a person's character, as opposed to the substance of what they say, e.g. calling a person a "Fat, ugly retard" or somesuch. I've done no such thing. I have characterized these men as charlatans, and I stand by that characterization. A charlatan is a person who represents themself to be an expert or authority on some subject, when in reality they are not. I have more than adequately substantiated this allegation by debunking the factual inaccuracies in their substative statements and writings. That's not ad hominem.

    @General discussion

    I've debunked the whole "PHYS has the gold but GLD doesn't" myth elsewhere, and don't have time to repeat my case here. Frankly, the distinction was off topic to start with. My point was that given there are plenty of easy ways to make investments that really are backed by bullion (choose PHYS over GLD if you must), I can see no intelligent reason for anyone to want a fractionalized unallocated bullion account. While we may disagree on the extent to which there is real cause for concern about GLD, one thing we should all be able to agree upon is that unallocated accounts definitely do NOT have bullion backing, and are only receivable credit interests. A couple of people have alluded here to leverage - I was not aware of leverage being a feature of unallocated bullion accounts.

    So I'll restate the question, because I think it's worth discussing: Can anyone think of a GOOD reason to prefer an unallocated account over owning shares in (insert whichever bullion-backed ETF or closed-end fund you prefer)? The ONLY advantage I can see is that the funds all have very small custodial fees, whereas some unallocated accounts do not charge any custodial fee. Of course they don't own any metal either, so there's nothing to be custodian of! So can anyone think of a reason where opening an unallocated bullion account would be a SMART move? I can't.

    I pity anyone who takes Andrew Maguire seriously. He continues to do his best to perpetuate the myth that the ratio of cash-settled (paper) to bullion-settled (physical) transactions has something to do with leverage, an utterly ridiculous contention that has been widely debunked. He also continues to imply that the bullion in LBMA valuts collateralizes cash-settled "paper" forwards, another ridiculous falsehood. Anyone listening to his recent "Special Announcement" podcast announcing his "Army" should have instantly recognized all the ingredients of a con job. It was instantly obvious to me that Maguire is setting himself up to be able to frontrun and exploit his new "army" of fools. To me, Maguire appears to be as phony as they come.

    One place where I disagree strongly with Jeff Christian is the question of the charlatans' intent. I do not represent Jeff, but it appears to me that he has become convinced that GATA, Ted Butler, etc. are consciously and intentionally lying with the malicious intent of deception. I believe he bases these views on the fact that some of these guys have been around this market for 30+ years, and have obviously had more than ample opportunity to learn the basics about how the markets work. Jeff appears [to me] to be deducing from this that since they clearly have had the opportunity to "know better", they must "know better", and therefore he believes them to be disingenuous and intentionally misleading people.

    I couldn't disagree more. I think these guys are just as dumb as they seem, and I don't think there's anything more to it than that. I am particularly impressed (favorably) with Ted Butler's character. I've never met Ted personally, but we've exchanged several e-mails, and the guy comes across to me as a perfect gentleman. I have no doubt that Ted means well and sincerely believes every single word of the utter nonsense he writes in his newsletter. He just doesn't seem to grasp that the facts refuting all of his theories are right in front of him. Or so it seems to me, anyway.

    All the best,

    Erik

     

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  • Tue, Apr 24, 2012 - 9:46pm

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    Feb 29

     Well, I can't win this one...the whole world reports that Bernanke hosed down QE3 in his Congressional testimony when he didn't mention it but repeated all his dovish proclivities (and I provide the transcript). Then , the gold price action was because Bernanke did NOT mention QE3.The selling action started Feb 29 well before Bernanke spoke. Lazy journalists saw the gold price drop, knowing Bernanke had spoken they assumed it must have been something he said, or when confronted with the transcript, didn't say. The fact the LTRO 2 was being announced, and a la SF Peg Day, gold was pummelled, the more likely explanation just gets lost in the noise. If she floats she is a witch. Some analysis.
    Apart from that, wonderful thread and thank you. I woud be happy to share with you what I believe is convincing evidence of price signalling on Feb 29 if you would like to contact me via this site.
    Regards,
    SR

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  • Tue, Apr 24, 2012 - 10:42pm

    #65

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    GLD puke indicator

    Here is why the GLD puke indicator is plausible. Recall how GLD acquires the gold. It does not work like a unit trust or an investment fund in which you pay in, and then they purchase bullion for the additional cash. It rather gets the gold by arbitrage. This works as follows. There are a number of institutions (about 15) called "Authorized Participant" (AP). They can add or remove bullion from the trust in multiples of a basket (100000 shares) as follows:

    1) Give the trust the gold that corresponds to 100000 shares and receive 100000 new shares (creation) in turn

    2) Give the trustee 100000 shares (redemption) and receive the corresponding gold. There shares are then cancelled.

    This way, every outstanding share is always backed by the required amount of gold (contrary to one of Ted Butler's favourite false claims by the way). The maximum amount of unallocated gold in GLD is less than one LGD bar, i.e. the last fraction that is too small for one bar.

    The arbitrage works as follows: If investors buy GLD shares (but nothing else happens in the market), GLD will trade at a premium over the gold price. Now an AP can buy a basket worth of gold in the market (allocated) and sell the new shares at the premium, earning an arbitrage profit. Conversely, if investors sell GLD (but nothing else happens in the market), GLD will trade at a discount. Now an AP can buy a basket of GLD shares at a discount to the gold price, take the bullion out of the trust and sell the bullion, again earning a small profit from the arbitrage.

    The arbitrage in and out of GLD is very interesting for the following reason. It may be that the main price action is not in GLD shares, but in physical gold in the OTC market (which you might not see by looking at the paper price alone). For example, if there is strong buying of physical gold OTC. In this case, an AP can buy GLD shares in the market, redeem the shares and get the bullion.

    So a GLD puke (i.e. GLD loses a lot of inventory by arbitrage - Lance Lewis uses a 1% threshold) indicates that one of the following two happens:

    a) there is more buying pressure in the physical OTC market than buying pressure in GLD shares

    b) there is more selling pressure in GLD shares than in the physical OTC market

    Conversely, if the GLD inventory increases by arbitrage, this is because

    c) there is more buying pressure in GLD shares than in the physical OTC market

    d) there is more selling pressure in the physical OTC market than selling pressure in GLD shares

    And so the GLD arbitrage is a probe by which you can see something about the flow of physical gold in the OTC market that you cannot otherwise see. The spot price, for example, is a mixture of allocated and unallocated, and may not show this.

    Now Lance Lewis says that GLD pukes (i.e. loss of more than 1% of inventory) precede a price rise. This suggests case (a) above. This has indeed worked in 2008-2010. But since September 2011, there were a number of false signals (that would have destroyed the performance by the way). So why does this not work?

    An anecdotal explanation might be that John Paulson's fund was selling GLD, and so what happened was (b) above which is not bullish at all. Finally, you can try to find a correlation between GLD inventory changes and future price behaviour. The challenge is open. I haven't found any yet by the way. If you can do better, please tell me. (One reason this dooes not work may be that the spot price is a mixture of paper and physical, and even if GLD inventory changes indicate the flow of physical, this might not result in changes of the paper price). Perhaps GLD inventory changes correlate with changes in the lease rate? Not yet verified.

    Sincerely,

    Victor

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  • Tue, Apr 24, 2012 - 11:17pm

    joesxm2011

    joesxm2011

    Status: Silver Member

    Joined: Mar 17 2011

    Posts: 149

    Erik - comments on recent posts

    Erik,I have been behind on reading posts and articles and listening to podcasts (Chris, Adam - I guess that means you are doing a good job providing content - like drinking from a fire hose) and just managed to read your initial post on this thread.
    I want to say that both this post and the other post you made regarding resource shortages and the likely strong handed reaction powerful countries will take to ensure that they get more than their fair share of the pie when push comes to shove were among the best that I have seen in my nearly one year of CM membership.
    While I appreciate most of the content on the sit and I have to say that the Crash Course went a long way toward helping me clarify a lot of my thinking (I have given DVD's to many friends) I think that your two recent posts are a good dose of reality and a good counter towards a possible trend towards over-optimism or of blindly taking what is said or written as handed down truth without thinking for one's self.
    When I compared the two metals podcast as you suggested I did see a big difference.  While I am no expert it did seem like Harvey Organ was making a lot of unsubstantiated opinions sound like facts.
    I also listed to the McAlvany Weekly Commentary and they routinely present people with opinions different from theirs so their listeners can absorb competing viewpoints and amalgamate from many points of view.  The Harvey Organ interview was interesting, but I agree with you that people need to keep in mind any potential bias or agenda when listening to speakers.
    Thanks for your involvement with the CM site.  I appreciate you taking the time to do it.
    Joe

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  • Wed, Apr 25, 2012 - 12:46am

    #67

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Puke indicator...

    The puke indicator is discussed more here;

    Link:  http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html

    FOFOA presents his own theory as to what might be going on... and surprise..!! it involves unallocated Gold accounts;

    "What we appear to have here is a severely tight noose around the supply of Bullion Bank deliverable physical gold at a time when the Giants are chomping it up! Bullion Banks have many means at their disposal to shuffle around a globally limited quantity of gold reserves and get it to where it needs to go. Especially when "important clients," like those in the East or Middle East, come calling for physical delivery or allocation.

    Upon getting requests from unallocated depositors for either outright withdrawal, or more simply for transfer into allocated accounts, any Bullion Bank has options. Yes, it can seek to acquire (through borrowing or purchase) the requisite ETF shares for redemption of a "basket" in its special capacity as an Authorized Participant of GLD, or it can pursue alternate avenues such as buying gold on the open market or, better still, borrowing it from either its own unallocated pool of deposits or turning to other members in the BB fraternity to borrow the adequate quantity to cover the immediate needs. Whatever combo is deemed most efficient or cost-effective is what the bank will do.

    But what if those other options are disappearing faster than a sack of currency left on the COMEX trading floor? If gold (in size) on the open market is scarce, the unallocated pool is spoken for (in other words, undergoing allocation) and the fraternity brothers are all suffering the same noose, what do you think becomes the most efficient and cost-effective option? Raiding the GLD reservoir perhaps?"
     

    Victor,  You said,  

    "Think about it from the point of the government. Your central bank sold their gold a decade ago. Suddenly, the US dollar crashes, and they need to stabilize your own currency. You need a lot of gold immediately. The London gold market will fail within the first few days. Then what? Which gold would you take? I think it is a good guess that the mines and the major ETFs are the obvious targets for nationalization and seizure. In contrast, it is rather unlikely that they will send the military with metal detectors from door to door in order to confiscate the private gold.

    So the mines might be lagging because this time, the threat is a dollar crisis, and the mines don't offer protection in this case."

    While I don't disregard the threat of nationalization... at some point during the impending crisis... I don't ascribe to the market the same forward looking intelligence that you suggest here... ESPECIALLY when it comes to anything related to hard asset investing.  I have to say that I am starting to lean more toward Erik T's contention that some players are just dumb... and I often think of the stock market as a big dumb dog.. running wherever it thinks the stick has been thrown.  A big dumb dog named Momo Algo.  My opinion is that the miners are still acting like levered Gold and Silver (if you don't believe me.. just watch.. Silver miners will often move harder than AGQ up or down).  PM's are in the doldrums... and so, in a magnified sense, are miners.  Just give them a reason... like a hint at QE3 tomorrow.. not that I am making any predictions.. and they will explode back up.    

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  • Wed, Apr 25, 2012 - 1:35am

    #68
    MetalsFacts

    MetalsFacts

    Status: Member

    Joined: May 17 2010

    Posts: 0

    Wow. Great Job

     

    Folks,

    I just plugged back in. As Erik T. mentioned on the weekend, I tend not to hang out in sites. I came in tonight (to avoid work?) to see what had been said since Sunday. Quite a bit, and quite a bit of good stuff. I feel it all should be printed and edited into a handbook of metals trading.

    I saw some comments I would like to respond to, but did not keep notes. I will make a few points, however.

    1. Someone alluded to the class action lawsuit against Morgan Stanley several years ago. I was the expert witness for the plaintiffs on that. Oh, the stories I could tell!

    2. Someone expressed surprise about my comments toward Andrew Maguire. Here are some notes on him. Sorry about the ugly type, but it's from a presentation about silver conspiracy theories. The point is, he does not seem to ever have worked in the metals markets, and has refused to qualify himself to every legitimate news outlet that has tried to write about his incredible claims.

    In March 2010 Andrew Maguire approached conspiracy theory marketing groups. He said he had worked at Goldman Sachs in metals trading, and had first-hand knowledge on how JP Morgan manipulated silver prices on a short-term basis. He also said that he had sent an e-mail to the CFTC in February 2010 saying that JP Morgan was about to ‘slam’ the silver market.

    •  GATA, King World News, and Eric Sprott did nothing to verify his story, but began promoting it.
    •  The CFTC never acknowledged receiving any e-mail from Andrew Maguire.

    More important:

    •  No one in the market has ever heard of Andrew Maguire or knows him. Goldman says he never worked for them. His story of his background keeps changing, as to when he worked for them, etc.
    •  When legitimate journalistic outlets have approached him for interviews, they have asked him to verify his background. He has refused to do so. The Economist, the Financial Times, The New York Times, The Wall Street Journal, CNBC, and others all have been so rebuffed.

    The conclusion is that he is an attention seeker who has never worked in the metals market.

     

    3. It gets better. Here are some notes on Ted Butler. Bet you did not know these things. In 2008 a 'student' (reminiscnet of the Iranian students we knew in the late 1970s) pretended to be asking me questions out of honest intent. In fact, he fed my responses to Butler. Butler threatened to sue me, until I sent him one of his letters, a copy of which he had sent to me in the 1980s, to the attorney general at the time. Butler never got back to me. See, when Butler first started making his allegations, we were paid by some mining companies to work with him, to see what he knew and to help him understand the market. it was clear he did not have any real information, and he seemed resistant to learning about how markets work. In that regard, perhaps Erik T. is right, and these guys are just too stupid to learn. I give them the benefit of the doubt, however: I think they are nasty evil liars, not stupidos de primo clase, as my Italian mother used to say. So here are some notes on Butler.

    Ted Butler was a broker in southern Florida for Drexel Burnham Lambert in the 1980s. He put together an illegal commodities pool of his clients segregated accounts and attempted to use that pool to manipulate frozen and concentrated orange juice futures illegally circa 1984.

    The CFTC noticed the irregular trading patterns in FCOJ and investigated.

    Drexel fired Butler, paid a fine for insufficiently supervising him, and let the CFTC deal with him.

    He offered to show the CFTC how Drexel was manipulating silver prices in exchange for a more lenient penalty. What he showed the CFTC led to Drexel being fined for one or two rather small pre-arranged trades, apparently made with a bullion dealer after market hours in order to allow the dealer to have a squared, fully hedged book.

    Barred from the commodities markets by the CFTC, Butler began sending letters to politicians and mining company executives talking about Drexel’s silver market behavior. After Drexel went bankrupt in early 1990, Butler said it was Merrill Lynch manipulating silver prices. After Merrill exited the silver bullion business in the middle of the 1990s, he said it was JP Morgan.

    Butler earns his income selling his views to silver conspiracy believers.

     

    Again, sorry for the type face.

    But, also, thanks for the compliments here and there, and congratulations on putting a lot of pieces of the puzzle together. This is an enormous complex market. Gold and silver trade all over the world, in ways that most people would never guess.

    Jeff Christian

     

     

     

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  • Wed, Apr 25, 2012 - 3:06am

    #69

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Food for thought on Butler

    Jeff,

    Thanks for your continuing participation here. It's unusual to have someone of your prominence in the industry participating in the discussion threads, and you add a lot of value.

    I wasn't aware of the details of the FCOJ thing, but I do know that Ted acknowledged to his readers at the time of the recent (like 2 years ago recent) CFTC hearings that the reason he was not invited to testify was that he had a history with CFTC. He didn't elaborate, but he made it clear he had been in hot water before, and I give him credit for his honesty there. I'm not suggesting his actions were excusable - but frankly this is a business full of criminal activity, and Ted is not the only got who got barred from the industry and took up writing newsletters instead - that's where ZeroHedge came from, afterall. Again, I am not trying to excuse his conduct - just saying that among people who have been barred from the industry, he's been more honest than most about his past.

    To your theory that he knows better and is being disingenuous, I want to point out that in one of his newsletters, Ted shared with his readers the story of how when he was starting out in the industry, he spent a whole MONTH (his words) in his office, poring over and over books trying to get his head around how it could be possible to sell something you don't actually own (i.e. a basic short-sale transaction). To my eye, Ted was being totally honest, and shockingly candid in telling his readers the story of what a hard time he had coming to terms with the concepts behind the mechanism of borrowing to sell short, then repaying the loan of shares after covering.

    To me, that story says a whole lot, and the fact he chose to openly share it with his readers says even more. I remember my Dad explaining the mechanics of a short-sale transaction to me as a teenager. It took less than 60 seconds before I "got it", and that was at age 15. By Ted's own description, the same exercize in learning a concept took a full month of study, and that was after he had begun working in the industry.

    The above plus the story you shared with us paints a very clear picture to me. This is a not-particularly-smart man, who got in some trouble, and got barred from the industry. He had to pick up his life somehow, and like a lot of other guys barred from working in finance, he chose newsletter writing. I have no doubt whatsoever that he believes sincerely that he was fired to distract attention from what he perceived as greater crimes his employer was guilty of, and he underestandably chose that topic to start writing about. Since then, I think he's been feeding his own imagination. He comes up with these theories of how manipulation is occurring, and convinces himself they are real. He no longer works in the business, so he's not routinely in the company of smarter, more experienced professionals who might set him straight.

    Ted DOES get a lot of interest in his letters, and I think we agree that this further bias him. But you (Jeff) seem to think he is intentionally fabricating lies so he can sell newsletters. I think it more likely that the fact that his newsletters sell well and well-respected professionals like Eric Sprott have bought into his BS serves as positive reinforcement, making him feel that his work is legitimate and that he's not really crazy afterall. Given all the kudos Sprott has given Ted publicly in the last few years, he probably FEELS vindicated.

    I don't doubt a single word of the history you shared, Jeff, but it just further cements my own image of Ted as a REALLY nice guy who doesn't happen to be particularly bright, and who is trying to make the best of his life after being fired and barred from the only industry he knows. I remain convinced that Ted believes every word of the nonsense he writes, and frankly it's easy to see how endorsements from people of Eric Sprott's stature could help reinforce his own false sense of self-credibility.

    Bottom line, despite never having met him personally, I like Ted as a person and feel sorry for him. I don't take his ideas seriously any more, but I see no reason to accuse him of malicious deception. He's just doing his own personal best in life, and it is what it is. That's how I see it anyway.

    Best,

    Erik

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  • Wed, Apr 25, 2012 - 4:15am

    #70

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    Zero-Hedge?

    Dear Jeff and Erik,

    now that this thread is really getting hot and the cool stories are coming up, perhaps someone can explain the origin of Zero-Hedge to me. Honestly, I don't know.

    Another remark on the mining companies. Jim, you are probably right that the market is rather stupid than politically sophisticated. So my comment probably tells you why I would be careful with mining companies rather than why all the others don't buy them.

    Finally, the major operating expense of the mines is energy, more precisely diesel fuel and electricity. While electricity prices are probably quite stable, the oil price isn't. But what is remarkably stable though is the gold-oil-ratio.

    (I just googled and took the first chart I found)

    This means that if the gold price rises, it is likely that the oil price follows which means that the profit margin of the mines remains a fixed proprtion of their sales rather than exploding with the gold price.

    There are several indications that the gold/oil ratio is political and is managed indeed. If true, this rules out any huge spike in profits for the mines simply because their energy expenditures (oil) will follow the gold price. The following is the political story about oil and gold as told by Another/FOA/FOFOA:

    You should think about the role of the dollar in this game. As long as the U.S. can make sure that the oil countries require payment in dollars, one might think that they overpay for this privilege if measured in gold, i.e. oil in dollars is too expensive and gold in dollars is too cheap. (It is known that certain oil countries require payment of some portion of their exports in gold. If they receive dollars and have to get their gold somewhere else, you have to provide them with some incentive. This incentive is cheap gold in terms of dollars.)

    Without the US dollar in the world reserve currency function, gold would be more expensive and oil cheaper (say if measured in Euros), i.e. the gold/oil ratio should be higher, say 100..1000 rather than 10..20. But then, once the US dollar loses its reserve role, the mines will be in difficulties for political reasons.

    Sincerey,

    Victor

     

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  • Wed, Apr 25, 2012 - 4:27am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    victorthecleaner wrote:Dear

    [quote=victorthecleaner]
    Dear Jeff and Erik,
    now that this thread is really getting hot and the cool stories are coming up, perhaps someone can explain the origin of Zero-Hedge to me. Honestly, I don't know.[/quote]
    I'm not sure anyone but the founders know for sure what the whole story is, but the basics are that "Tyler Durden" is really somewhere between 4 and 40 real people writing anonymously. Dan Ivandjiiski, a former hedge fund trader barred from the industry for insider trading, was widely believed to be the founder, although he has apparently taken to denying that he is the founder.
    The Wikipedia entry on Zerohedge tells the story pretty well.
    Best,
    Erik
     

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  • Wed, Apr 25, 2012 - 1:12pm

    #72
    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    On stupidity...

     There are lots of studies but the one I like is where 94% of college professors rated their own work as above average. One general trait of stupidity, apparently, is an inability to recognise it. A chastening thought. 

    Jeff Christian, thank you for putting some meat on your criticism of Andrew Maguire, I can only reiterate that in my past dealings with him and Paul Coghlan everything was 100%.

    Excellent point Victor. I used to work for an owner of mines, oil & gas producers and pipelines, in his day he was a big cheese. He always referred to his ventures as having the alternative of mining the market, which he did, often.

    Erik T, in case you missed this http://screwtapefiles.blogspot.com.au/2012/04/james-turk-learn-from-master-of-chart.html , it is a rapier sharp piece disguised with humor. I recommend it to you.

    All the best,

    SR 

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  • Wed, Apr 25, 2012 - 1:17pm

    #73
    Doug

    Doug

    Status: Platinum Member

    Joined: Oct 01 2008

    Posts: 1412

    Remarkable thread

     This is the kind of info that made me a CM subscriber.  This thread is quite disillusioning as sources that are frequently cited here are being properly thrashed.  Erik T is quickly making me a convert, not that I dismissed him before, but he has in many instances been a single voice against the chorus of conspiracy theory promoters.  

    For me the question now becomes where do I go for authoritative info on markets, particularly PM markets?  Could someone cite some sites (pun unintended) where such info is available to the uninitiated?

    Thanks

    Doug

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  • Wed, Apr 25, 2012 - 1:49pm

    Serge Janson

    Status: Member

    Joined: Oct 13 2010

    Posts: 4

    Im exhausted just from

    Im exhausted just from  reading all  this.Thank you all for  your input

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  • Wed, Apr 25, 2012 - 2:07pm

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    @ Doug

     Others may chime in but I believe you will find a well-grounded view at  http://screwtapefiles.blogspot.com.au/ and for an in depth introduction and understanding Victor has his own site  http://victorthecleaner.wordpress.com/ . From there are very good links as well.Erik T makes the very valid point that we must train ourselves to discern nonsense, which I try to do, with that in mind I find the contributions by commentators on the sites of what might be describe as "the usual suspects" usually have some gems of information, often in the links provided.
    Cheers,
    SR

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  • Wed, Apr 25, 2012 - 2:19pm

    #76
    Doug

    Doug

    Status: Platinum Member

    Joined: Oct 01 2008

    Posts: 1412

    SR

     Thanks, I already have screwtapefiles bookmarked.

    Doug

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  • Wed, Apr 25, 2012 - 6:54pm

    #77

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Headed for a record!

    My goodness. I just woke up to another half dozen new posts here, and again as many in the Part II thread. At the rate we're going, we may be headed for an all-time record number of comments on a PeakProsperity.com podcast comment thread!

    I happen to know that comment count is one of the key metrics used to rate the quality and popularity of the podcast guest. I can't help but see irony in that - in this case, anyway.

    I wonder why Harvey hasn't joined the conversation here in the comments? With people like Jeff Christian and Bron Suchecki taking the time to participate personally, it's hard to argue there is a very astute audience assembled here, and an excellent environment for polite, reasoned intellectual discourse. I would think Harvey would want to join the conversation and perhaps substantiate some of the claims he made in the interview, but so far all silent on that front. Interesting.

    All the best,

    Erik

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  • Wed, Apr 25, 2012 - 7:50pm

    #78

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    Erik

    The reason this thread is so popular is that we have learned more from this thread than just about any we've read anywhere in ages.

    This thread ties in the COMEX, OTC market and input from highly experienced insiders such as Bron Suchkeki and Jeff Christian, and the insights of a clever, well studied guy like Victor. No idea what Victor does for a living.

    This probably belongs in a separate thread, but one thing that I alwasy try to consider when trying to follow the markets is how peak oil plays into gold in all of this. My memory could be serving me hopelessly wrong, and I might be making a food of myself, but I regularly listen to Jim Puplava and I believe Jeff Christian recently suggested that all-in mining costs of gold average around $1200 per ounce extracted now. Forgive me if I have misquoted, but I think that's what was said.

    How do you, Erik (or Victor or anyone else), see the decline in availability of cheap energy affecting the supply of precious metals and it's affect on gold prices and how this ties into a prolonged liquidity starved event as Victor was talking about, where even as more physical is being demanded the gold price declines because more speculators bought fractionalized unallocated gold (even on margin) or I suppose simply because the most liquid assets (gold) gets sold first by those who are desperate for funding. This would be quite a strange confluence of events: physical gold is in demand at lower prices; unwind of leveraged unallocated gold accounts would depress gold price due to problems in banking system but then the declining gold price confronts the rising cost of mining gold...The rising costs should act to steady the gold price as long as physical is being bought, but a liquidity event could cut through that theoretical support like a warm knife through butter over very short time horizons...then maybe some great oppportunities lie there, if you can sidestep political risk.

    Look at Silver Wheaton, they recently removed something like 100 million ounces of silver from their reserves because they are no longer economic to mine at today's high costs and lower silver prices.

    I'm not sure I'm making sense, my brain is tired after a long day and I've had a glass of very nice wine.

    What I'd like to know, in a nutshell, is how the gold price (and silver) will hold up under a declining EROI world and in a "peak-oil" shoc in a tug-of-war between deleverageing OTC unallocated gold and greatly increased mining costs.

    And when it costs $1500 to mine an ounce of gold (proabably not that far off) then where will the gold price be?

    Is one to be overall positive on bullion prices over the next 2 - 5 years? Do mining costs, seeminly increased readiness of CB printing in an liquidity event, provide a relatively stable floor under their prices?

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  • Wed, Apr 25, 2012 - 8:43pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    CPTWaffle wrote:The reason

    [quote=CPTWaffle]The reason this thread is so popular is that we have learned more from this thread than just about any we've read anywhere in ages.
    This thread ties in the COMEX, OTC market and input from highly experienced insiders such as Bron Suchkeki and Jeff Christian, and the insights of a clever, well studied guy like Victor. No idea what Victor does for a living.[/quote]
    I'm delighted to hear you're getting so much from the discussion. I have a passion for trying to help people see reality in the face of a lot of BS coming from biased interests with an agenda to push. I know that Jeff shares that passion, but it's quite difficult for both us (particularly Jeff given his schedule) to make time to participate in these discussions when it feels like nobody is willing to listen to reason. It's quite rewarding to me to hear that at least one person here is learning something of substance and appreciates the effort we're putting forth.
    My earlier comment was admittedly somewhat rhetorical. This is clearly a very informed, knowledgeable group we have assembled here. And we have experts with opposing viewpoints - always a key ingredient for worthwhile intellectual discourse. Meanwhile, the moderators are doing their usual outstanding job of making sure we all maintain our civility, and not stoop to making ad hominem insults at others we may disagree with.
    In short, this is a really ripe opportunity for anyone with a strong view on the PM markets to chime in, make their views known, and have the opportunity to test their knowledge against the peer-review of several very well informed participants. Some here have gone to some length to bring charts, data, etc. into the discussion to substantiate their views. Seems to me that anyone with a bona fide, defensible viewpoint should be anxious to jump into this conversation, make their case, and prove their points. How odd it is, then, that neither Harvey nor Ted seem interested in participating, especially considering it was Harvey's podcast with Chris that started this discussion! When I once suggested to Ted that he should debate Jeff, Ted's reply (via e-mail) was that he views Jeff as a "lightweight", implying it would not be worth Ted's time to debate a little fish like Jeff. I humbly contend that the group now assembled here represents a formidable base of PM knowledge, so this would seem to be Ted's chance to have that debate not directly with Jeff (the "lightweight"), but with a heavier-weight group of knowledgeable professionals. I'll leave it as an exercise for the reader to speculate as to why those gentlemen have chosen not to participate thus far.
    [quote=CPTWaffle]I alwasy try to consider when trying to follow the markets is how peak oil plays into gold in all of this. My memory could be serving me hopelessly wrong, and I might be making a food of myself, but I regularly listen to Jim Puplava and I believe Jeff Christian recently suggested that all-in mining costs of gold average around $1200 per ounce extracted now. Forgive me if I have misquoted, but I think that's what was said.
    How do you, Erik (or Victor or anyone else), see the decline in availability of cheap energy affecting the supply of precious metals and it's affect on gold prices and how this ties into a prolonged liquidity starved event as Victor was talking about, where even as more physical is being demanded the gold price declines because more speculators bought fractionalized unallocated gold (even on margin) or I suppose simply because the most liquid assets (gold) gets sold first by those who are desperate for funding. This would be quite a strange confluence of events: physical gold is in demand at lower prices; unwind of leveraged unallocated gold accounts would depress gold price due to problems in banking system but then the declining gold price confronts the rising cost of mining gold...The rising costs should act to steady the gold price as long as physical is being bought, but a liquidity event could cut through that theoretical support like a warm knife through butter over very short time horizons...then maybe some great oppportunities lie there, if you can sidestep political risk.[/quote]
    Jeff is FAR better qualified to answer this than I am. If I felt confident he'd have time to do so, I'd shut up and let him address your question, because his data is far better than my own. If Jeff does answer, please assume he knows better than I do.
    First, I don't remember exactly what was said in that interview, but my own sources (from a couple years ago) said the cost of extraction was running around $800. That was with $65 crude oil, so it's certainly gone up. But I strongly doubt it's gone up to $1200. So I think a good first step would be to go back to that FSN interview and validate the $1200 number. But setting that aside, the cost of energy will eventually go way up, and your scenario will come into play.
    I see it as a race between two separate processes. The oil price right now (short term effects) is mostly about Iran geopolitical risk and to a much lesser extent, inflation due to monetary policy. But over the long run, Peak Oil will be the major price driver. We just don't know when Peak Oil production declines will "hit the tape", dramatically increasing energy costs. Think of this whole thing as Process #1.
    Meanwhile, in parallel, we have Process #2, which is entirely about monetary policy, QE, and the absolute value of the USD. That's the primary driver over the long run for the gold price.
    For the moment, we have a gold price (due to process #2) which is well ahead of cost-of-production. Sure, some very ambitious silver projects might not be economic given the pullback, but for the most part there's plenty of gold and silver to be produced at extraction cost well below market price. So the increasing oil prices will eat away at miners' profits, but that's about it.
    The trouble comes if Process #1 accelerates ahead of process #2, such that extraction cost rises above market price. In that case, projects get shut down, supply decreases, and the normal supply/demand feedback loop forces prices back up to extraction cost. I don't see this scenario as likely, however, unless a major monetary regime change occurs and Mr. Bernanke's printing press is taken away from him. Market is already way above production cost, so there's a buffer. Peak Oil may be delayed by demand destruction from a weak global economy, but money printing will continue unabated. So I think the most likely answer is that monetary policy drives gold prices well above extraction cost, which also means mining shares should do very well.
    Hope this helps, and thanks again for your kind words.
    All the best,
    Erik
     

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  • Wed, Apr 25, 2012 - 8:58pm

    #80
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Erik - good analysis.  I

    Erik - good analysis.  I disagree somewhat with Process #2 in that gold is not necessarily beholden to the US dollar for its value.  I realize its correlation is high, but, it doesnt always move in lockstep.  The USD peaked in 1985 and then declined substantially with the Plaza accords (working from memory here so forgive if the details are a bit off) yet gold remained mired in a bear market for another 15 years.

    I more agree with Armstrong in that gold is better viewed as a hedge against geopolitical instability instead of being viewed strictly as an inflation hedge.  We might be splitting hairs in the current environment because we have plenty of both occurring presently (instability and inflation).

    Also - as it relates to the relation between energy costs and mining - I think that natural gas be a viable alternative to diesel.  As an example, Caterpiller recently bought out Bucyrus International, Inc. specifically for their natural gas engine expertise.  As more and more machinery is converted to natural gas (especially in North America) I would expect EROI to improve substantially.  That would also have an impact on the quantity of reserves as the total production costs would decrease per ton of rock processed.

    Peak Oil is a very interesting subject - no question.  The exponential growth function in a variety of areas - population, wealth, standards of living, etc...) have all been possible because of oil.  As I am sure all of us know - what can no longer rise - doesnt. 

    Finally - in defense of Harvey Organ... the man is a vocal supporter of buying and holding physical metal in ones own possession to protect against the various risks involved in paper assets.  Anyone that is an advocate of physical possession of their precious metals is not a charlatan in my book - irrespective of whatever other shortcomings they may have.

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  • Wed, Apr 25, 2012 - 10:13pm

    #81

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    Peak oil and mines

    CPTWaffle,

    How do you, Erik (or Victor or anyone else), see the decline in availability of cheap energy affecting the supply of precious metals and it's affect on gold prices

    I don't think it matters. The reason is that the new supply of about 2600 tons/year is rather small compared to the above-ground stock of more than 100000 tons. Even if there were no paper gold and what's traded were all physical, the price would not depend on mine supply and jewellery demand, but rather on the trading of the above-ground stock.

    Does the price of MSFT shares depend on whether they expand the number of outstanding shares by 2% per year (management compensation) or not? No, this is not what the share price depends on. Same with gold. On top of that, you have the fact that about 95% of all gold trading is contract gold (paper) and only 5% physical (my estimate from above).

    Here are some numbers: Mine supply of 2600 tons/year is about 10 tons per trading day. LBMA institutions loco London alone clear about 600 tons per trading day, and the old rule of thumb says that the global OTC market is about 3-4 times bigger than that, say, 2000 tons per day (my estimate of above says that of this, about 100 tons is physical). Forget about mine supply. It simply does not matter.

    This argument highlights a basic fallacy that is quite widespread in 'the market', namely to view gold as a commodity. Compare this with zinc. You have mine supply plus scrap on the supply side, and you have industrial demand. The dealers store perhaps 6 months worth of mine supply (my guess). There is no other tradeable zinc above-ground. There are no unallocated zinc accounts (there are some futures though).

    Of the more than 100000 tons of gold above-ground, there are easily some 60000 tons in bars and coins, i.e. ready to trade. This is about 25 times the annual mine supply. You should even include jewellery in Asia in the investment stock of gold because that's why they have it: it's their savings (note that they sell gold jewellery by weight!). Someone at FOFOA's called it 'wearable bullion'.

    So viewing gold as a commodity gets you on the totally wrong track because it tempts you to take mine supply, scrap, and jewellery demand seriously. You shouldn't.

    I'd even go as far and accuse people of deliberately advertising this misleading picture of the gold market. (Jeff Christian if he still reads this, might correct some of my numbers above - I have written it from memory - but I am quite confident I have the order of magnitude right).

    Sincerely,

    Victor

     

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  • Thu, Apr 26, 2012 - 2:10am

    #82

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    I retract my $1200 comment

    Thanks for responses, gentlemen. 

    You are right, Victor, people do speak about gold as a commodity in contexts where they should know better ( eg when Ron Paul questioned Bernanke on whether the Fed watched the gold price he said they do, 'just as we watch a basket of all kinds of commodities.'

    I listened to the podcast again and he said all in costs are $800-$850, about 11 minutes in.

    So maybe mining isn't as relevant to price due to above ground stocks but incidentally, isn't that a plus for silver if we have far fewer stocks of silver? know you aren't such a silver fan, But I as a side note I am interested insilver as a 20 year rip-van winlke investment. Chris Martenson used that term somewhere.

    In Jeff Christian's interview he thinks a high gold price, such as we have, will support silver prices because of relative affordability. Since we have far less silver around to trade I imagine silver mine costs and thier influence on supply would have more of an at-the-margin effect on the price of silver. Of course, Process#2, global QE, would still probably be the dominant effect...

    I'm going to listen to the rest of the interview again, I recommend it http://www.netcastdaily.com/broadcast/fsn2012-0411-1.mp3

     

     

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  • Thu, Apr 26, 2012 - 2:55am

    #83
    ao

    ao

    Status: Platinum Member

    Joined: Feb 04 2009

    Posts: 1244

    spidey sense on full alert

    Am I the only one here whose intuition is going off like a blaring klaxon horn regarding the bonafides of some commenter(s) on this thread.  Very interesting information but a little voice in the back of my head keeps saying:

    http://www.youtube.com/watch?v=RG0ochx16Dg

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  • Thu, Apr 26, 2012 - 3:07am

    #84
    MetalsFacts

    MetalsFacts

    Status: Member

    Joined: May 17 2010

    Posts: 0

    production costs and energy

    Gentlemen,

    There is a lot to respond here. I will only touch on a couple of points, and leave many of the more interesting, more important topics alone.  

    The average operating cost of production for gold in the world at present is around $670 per ounce. Full in costs, including discovery, finance, corporate overhead, interest rates, depreciation, etc., are around $800, maybe $850 per ounce. So, gold mining on average at present is returning about a 100% profit. There's a long way to go from current prices before production would be constrained. Our view is that gold may not fall that low for more than a decade, and maybe longer. That is based on our views about the long-term outlook for the world's economy, financial systems and markets, politics, and how investors will buy above-trend amounts of gold for a long time because of problems in these areas.

    Also, as someone said, there is around 1.2 billion ounces of gold, physical, in bullion and coin form, held by investors. Central banks hold another 1.0 billion ounces, mostly in bullion. Governments hold some more, in the tens of millions of ounces perhaps, in non-monetary gold reserves that are unreported. Another 2.3 billion ounces of gold is held in the form of jewelry, decorative objects, statues, and religious items, some of which will be sold for their gold content at any given price.

    Mine production is around 80 MM oz per year. Another 40 MM oz per year comes from scrap refining. These are important sources of metal -- markets are made at the margin, and these are, in a way, marginal supply. Also, investors, jewelry holders, and central banks are not necessarily willing sellers of gold. So while they hold a lot of gold, it does not necessarily have a negative or limiting impact on gold prices. That happens only when they sell. 

    Energy is an interesting area to discuss. I happen to not be a 'peak oil' believer. Yes, we will hit oil output limits, and annual output will decline globally at some point, but the major constraints on production at present are political, not geological. Russia, Venezuela, Mexico, Nigeria, and some other major producers have seen sharp declines in their oil output over the past decade. In each case, the declines reflected human actions, political or otherwise, and not geological constraints on production. We also have reasons to believe that Saudi Arabia has vastly more oil resources than is commonly believed and assumed.

    Our major energy outlook at CPM Group has been that energy supplies would remain constrained relative to growing global demand for decades to come, and this would push energy prices higher. Over the past year or so we have been focusing on an alternative energy scenario, in which oil production rises over the next decade or so, natural gas production rises, natural gas takes market share, clean(er) coal technologies come into play, LED lighting and flat screens cut energy consumption in half for many lighting and screen applications, other energy conservation efforts reduce the growth rate in energy consumption, and nuclear power increases its share of energy supplies... and all of these things lead to a period of three to 10 years of lower oil and energy prices. Sort of what we saw in the 1980s, 1990s, and into the 2000s. There's a lot more behind that headline conclusion, but we have begun paying more attention to an energy scenario that does not have oil prices rising more than 50% in the next five years, as our main scenario projects. Interestingly, we are finding more and more energy industry professionals that nod their heads knowingly when we discuss such an outcome. I gave a speech outlining this possibility in Abu Dhabi in February. i thought that might have proven unwise. The overriding reaction was that 'yes, we have been thinking about these same possibilities.' So, the future for energy prices may not be as dire and certain as we all have been thinking, and its effects on gold and energy may not be as we have been expecting.... Just something to keep in mind.

    Jeff

     

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  • Thu, Apr 26, 2012 - 3:30am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    ao wrote:Am I the only one

    [quote=ao]Am I the only one here whose intuition is going off like a blaring klaxon horn regarding the bonafides of some commenter(s) on this thread.  Very interesting information but a little voice in the back of my head keeps saying:
    http://www.youtube.com/watch?v=RG0ochx16Dg
    [/quote]
    Hi AO,
    Glad to see you on this thread, but a little confused by your comment. (Though I quite enjoyed the Lost in Space clip - brought back childhood memories!).
    So what exactly do you mean "regarding the bonafides of some of the commenters"? Are you questioning whether they really are who they say they are, or are you questioning the veracity of their statements? I can attest based on backchannel e-mail verification that both Jeff Christian of CPM Group and Bron Suchecki of Perth Mint are indeed participating in this discussion.
    If you're questioning veracity of identity, please elaborate on which commenters you're suspicious of. If you meant something else, please clarify.
    Thanks,
    Erik
     

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  • Thu, Apr 26, 2012 - 3:45am

    #86

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Various

    [quote=Erik T.]I would opine that with very, very few exceptions, unallocated accounts serve no useful purpose. You can buy GLD and there is 100% physical bullion backing your claim. … Now consider the unallocated account. You own nothing but an unsecured credit receivable from a big bank. So far as I can see, any intelligent investor should choose GLD shares over an unallocated account. The only exceptions I can think of involve broader relationships between the bank and client, as might be the case with a small sovereign account. [/quote]

    Victor touched on some of the advantages of unallocated, being private, lower costs, ability to use as collateral and customisable leverage. To that I would add that trading OTC is far more flexible. You are not stuck with set futures expiry dates or option strikes etc, when dealing OTC you can do a forward to a specific date or choose a specific option strike price and date and the bullion bank will price that custom trade. For a seriously large trader this is better than dealing with the (necessarily standardised) exchanged traded contracts. Any bullion bank will have desks across the globe, so 24hr trading is possible.

    For the industry, unallocated accounts are necessary for settlement of transactions which facilitate the operation of the value chain. For example, for a client looking to move some physical metal from a Swiss depository to Perth, we could arrange for the Swiss to give the Perth Mint unallocated into our London metals account (and they take possession/title to the physical) and we then give the client physical in Perth. This avoids the cost of shipment.

    But for the small to large investor who is more of a buy and hold and not interested in fancy trading, the unallocated probably is inferior.

    [quote=Erik T.]I suppose there's an argument for redeemable unallocated accounts, like Perth Mint Certificates. … Perth Mint certificates aren't really the same thing is an unallocated bullion account. The gold is indeed hypothecated, but only to Perth Mint's own retail operation, so it's really a different animal than a bullion bank's unallocated account.[/quote]

    There is a material difference between unallocated held with a bank and unallocated (or pooled allocated) held with a non-bank. If you’re not comfortable with ETFs there are so many options on the second front – Perth Mint, GoldMoney and Bullion Vault for example – that I don’t think there is really any reason for the conservative investor to hold unallocated with a bank who cannot guarantee physical backing and redeemability.

    [quote=victorthecleaner]And so the GLD arbitrage is a probe by which you can see something about the flow of physical gold in the OTC market that you cannot otherwise see. … Finally, you can try to find a correlation between GLD inventory changes and future price behaviour. The challenge is open. I haven't found any yet by the way.[/quote]

    Just something to add to the arbitrage mechanism you described. Note that there is a cost to the AP for creation/redemption. Therefore there is some incentive to “build up” stocks of either OTC metal or ETF metal and only create/redeem when absolutely necessary. This means that ETF inventory changes have some lag in them, upsetting any correlation/relationship to prices in the short term.

    For example, if an AP sees a general trend of net buying of an ETF but encounters a sequence of days with net selling, they may buy the ETF shares and not take delivery but in the OTC market lease gold and then sell it. They are long ETF but short OTC unallocated – no net position. They would accumulate ETF shares with the intent of selling them later into any return of net buying of the ETF (at which point they would sell the ETF, they then buy OTC unallocated and use this unallocated to repay the lease).

    The above trade (which is another example of how unallocated is used) saves the AP the ETF redemption and subsequent creation costs but they have a lease costs. With lease costs so low, it may make sense to hold ETF shares in the face of selling for a number of days, which means we don’t see the actual investor selling reflected in ETF redemptions.

    If the AP is wrong and the selling of the ETF continues, then they may make one large redemption request and use that to repay the OTC lease. When micro analysing ETF inventory movements the approach above does need to be considered.

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  • Thu, Apr 26, 2012 - 3:53am

    #87

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    commodity and silver

    CPTWaffle,

    people do speak about gold as a commodity in contexts where they should know better ( eg when Ron Paul questioned Bernanke on whether the Fed watched the gold price he said they do, 'just as we watch a basket of all kinds of commodities.'

    This is not what I meant by the way. Poor Ben. What can he say? I suppose he gets an extra beer from his colleagues whenever he has endured one of these horrible sessions with Ron Paul without blinking. You see, no U.S. official is allowed to mention the word 'gold' in the context of the monetary system. According to international law still in effect today, the international holders of dollars can claim the U.S. gold at $42.22 per ounce. Even at today's market price, there is no way the U.S. can possibly defend the dollar. They just inflated the dollar too much. Already during the late 1980s it must have been beyond the point of no return.

    So the best they can do is call it 'deep storage' and try not to mention the word. As soon as the the U.S. would put the gold back on the negotiating table, there would be long line-ups of foreigners who present them some $3000bn to $8000bn for redemption in gold. This won't happen. This is also the reason why the U.S. have never again sold part of their own gold - the last sale was during the late 1970s. There was a rumour that the Bundesbank told the Carter administration that if the U.S. offered to sell more of their gold in order to stabilize the dollar (rather than stopping the excessive creation of credit money), the Bundesbank would buy all of it and then some. No, I suppose the dollar will first go down substantially in real terms before the U.S. gold will come back into play. And then, they may even prefer to sell it domestically - if I remember correctly, this is a way of avoiding the international claims at $42.22/ounce (but I should say I am not an expert on the legal stuff). Even if you don't care about the old agreements, this is a way of keeping it out of the international cross fire. By the way, if this idea is right, this also tells you that the U.S. will neither confiscate the private gold nor tax it excessively because then they need a liquid market of private gold in order to cover the necessary imports.

    What I meant was all these official looking studies by GFMS or CPM (with all respect, Jeff, I do mean it) and what the media usually extract from them. Gold is officially presented as a commodity, and the media parrot this skewed view. I actually have further comments which I am not going to spell out here.

    but incidentally, isn't that a plus for silver if we have far fewer stocks of silver?

    No, I don't think so. Scarcity doesn't necessarily imply value. Gold is good as a store of value because the available above-ground stock does not change much from mining or industrial consumption. So it is very stable. Silver is not that good as a store of value because fluctuations in mining and consumption have a much bigger effect on the available stock. So silver is less stable. Presumably for this reason, governments and central banks own gold, but not silver. And they have been planning for the time after the U.S. dollar, when it will have lost its reserve function, and they have chosen gold as the future reserve. That's actually the main argument against silver - the decision has already been made. Silver will not be an international reserve.

    In Jeff Christian's interview he thinks a high gold price, such as we have, will support silver prices because of relative affordability.

    This is a fallacy in my view. If I don't have $1650 today for an ounce of gold, but if I want to get out of credit money, I can buy a one gram bar of gold for $53 (plus spread). This is even better than one or two ounces of silver, for several reasons: Firstly, it doesn't oxidize and become ugly. Secondly, it is much smaller and lighter and easier to hide. Even at today's price, I can carry one million dollars worth of gold in a backpack. Try this with silver. Do you own a forklift? Can you cross the border at night and in the forest with that forklift?

    With increasing gold price, they will offer smaller and smaller coins. It won't be long, and they will offer some 1-cent size alloy coins that contain 1/10 gram of fine gold. No need for silver. Affordability is merely a psychological factor, not to say a marketing slogan. This is not to say that the leveraged speculators will not drive paper silver beyond $50 once more should there ever again be enough excess liquidity.

    Sincerely,

    Victor

     

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  • Thu, Apr 26, 2012 - 4:19am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    victorthecleaner

    [quote=victorthecleaner]According to international law still in effect today, the international holders of dollars can claim the U.S. gold at $42.22 per ounce.[/quote]Victor, please clarify what you're talking about. I think everyone here understands the basic history - that foreign holders of USD were able to redeem gold (although I thought it was at $35/oz) through 8/14/71. But all that ended when Tricky Dick declared force majeure and unilaterally ended that convertibility on 8/15/71. Actually, Nixon's exact words were "...to suspend temporarily the convertability to gold..." I guess 41 years still falls within a politician's definition of temporarily.
    So when you say "still in effect today", do you mean some other law or treaty came into play after '71, or are you just saying that's what the Bretton Woods agreements called for before Nixon effectively defaulted on them? If the latter, I really don't see your point - regardless of the dubious ethics of unilaterally changing the rules, it's clear and universally accepted that the USA's policy for over 40 years has been not to honor redeemability.
    And where does the $42.22 number come from? I could easily be mistaken, but I thought the number was still $35 right up to '71. No?
    Finally, I just can't resist:
    [quote=Victor]Do you own a forklift?[/quote]
    Yes, actually. A Clark 12,000# model with 48" forks. Thanks for asking.
    [quote=Victor]Can you cross the border at night and in the forest with that forklift?[/quote]
    No. I frequently get it stuck in my own driveway, and it's a bitch to dig out.
    Best,
    Erik

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  • Thu, Apr 26, 2012 - 6:09am

    Grover

    Grover

    Status: Gold Member

    Joined: Feb 15 2011

    Posts: 748

    Peak oil and gold

    [quote=MetalsFacts]Energy is an interesting area to discuss. I happen to not be a 'peak oil' believer. Yes, we will hit oil output limits, and annual output will decline globally at some point, but the major constraints on production at present are political, not geological. Russia, Venezuela, Mexico, Nigeria, and some other major producers have seen sharp declines in their oil output over the past decade. In each case, the declines reflected human actions, political or otherwise, and not geological constraints on production. We also have reasons to believe that Saudi Arabia has vastly more oil resources than is commonly believed and assumed.
    Our major energy outlook at CPM Group has been that energy supplies would remain constrained relative to growing global demand for decades to come, and this would push energy prices higher. Over the past year or so we have been focusing on an alternative energy scenario, in which oil production rises over the next decade or so, natural gas production rises, natural gas takes market share, clean(er) coal technologies come into play, LED lighting and flat screens cut energy consumption in half for many lighting and screen applications, other energy conservation efforts reduce the growth rate in energy consumption, and nuclear power increases its share of energy supplies... and all of these things lead to a period of three to 10 years of lower oil and energy prices. Sort of what we saw in the 1980s, 1990s, and into the 2000s. There's a lot more behind that headline conclusion, but we have begun paying more attention to an energy scenario that does not have oil prices rising more than 50% in the next five years, as our main scenario projects. Interestingly, we are finding more and more energy industry professionals that nod their heads knowingly when we discuss such an outcome. I gave a speech outlining this possibility in Abu Dhabi in February. i thought that might have proven unwise. The overriding reaction was that 'yes, we have been thinking about these same possibilities.' So, the future for energy prices may not be as dire and certain as we all have been thinking, and its effects on gold and energy may not be as we have been expecting.... Just something to keep in mind.
    Jeff[/quote]
    Jeff,
    I've been following this thread with great interest. I'm glad that you, Erik, and Victor have shed light on the arcane underworld of gold. Gold is a worthless, shiny metal that is hard to bring to market. It has little utility other than jewelry and some minor industrial applications. It's biggest asset is its rarity. The amount of additional supply that is brought to market is on the order ot 2--3% per year. If it were much higher, the price it commands would be lower. Conversely, if the cost of extraction increases to the point that mines announce that it is no longer profitable to produce at expected levels, the price should increase.
    I am convinced that peak oil is upon us. Although the other energy sources are currently available, the current infrastructure needs oil to power the machines that do our bidding. It will take a considerable amount of time to convert to natural gas. Even then, natural gas will eventually reach its own peak and we're in the same boat. The free lunch doesn't exist.
    Market prices are driven at the margin. If the cost of extracting gold (or silver) increases due to energy costs, the price of PMs should respond positively. If you look at a balance sheet of gold without a small, but predictable increase in supply, you could conclude that the increase is irrelevant. Wouldn't speculators (such as me) read much more into the decreased production and then bid the existing stock higher?
    I agree that the price of oil won't rise much more than 50% in the next five years. There is considerable demand destruction as the price rises beyond an affordable price. Even at $4.00 +/- per gallon in the US, demand has dropped 10%+ in the past 4 years. It will drop considerably more if the price were $6.00 per gallon. At the same time, mines will find that less productive ore bodies are no longer profitable at these prices ... unless the price of gold increases enough to justify the expense of procuring it.
    As a result, I have a difficult time seeing that gold prices aren't intimately tied to oil prices and should follow the general price increases. I'd appreciate your comments for "buy and hold" guys like me who are looking at gold as a store of value. I'm not particularly interested in the daily fluctuations, but rather the intermediate and long term outlook. Eventually, I want to convert my hoard into something more worthwhile.
    Any and all insight from anyone is greatly appreciated,
    Grover

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  • Thu, Apr 26, 2012 - 8:06am

    #90

    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814

    If you live.

    How long do you intend to live?

    Silver is at $1000/kg at the Perth Mint today. Stoneleigh says that silver should go to $2/oz as things go pearshaped. That is about $60/kg. That is a buyers market.

    And then wait for the rebound.

    If you live.

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  • Thu, Apr 26, 2012 - 8:07am

    #91

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    GLD puke, official gold price, oil

    Bron,

    thanks for the remark on the GLD arbitrage. It makes sense that the APs are temporarily hedged in paper, and this may explain why the GLD puke indicator does not work as advertised. Nice explanation. I feel better now (having wasted a few evenings on trying to confirm the indicator).

    Erik,

    The official U.S. gold price was adjusted to $42.22/ounce once more in March (?) 1973, i.e. well after Nixon had suspended convertibility. Yes, the international agreements were never amended. The U.S. owes foreign governments and central banks 1/42.22 ounce of gold per U.S. dollar presented to them.

    Yes, of course, everyone has noticed that the U.S. do not intend to honour the agreements. But note that starting with the early 1970s, the majority of the world's inflation originated from the U.S. The others, i.e. at that time Europe and Japan, tried their best to keep their currencies at least a little bit stable but were always frustrated because whenever the oil price increased, the U.S. just created more dollars, pocketed the oil and left the rest of the world alone with the inflation.

    Old bankers never forget. Now imagine what would happen if the U.S. would ever start trading their gold reserve. If I was China, I would try to cash in. This would create a huge run on the gold. There are just too many dollars abroad.

    Jeffrey,

    We also have reasons to believe that Saudi Arabia has vastly more oil resources than is commonly believed and assumed.

    This is in fact an important comment on the gold market. I have seen such a statement only from one other source so far (guess whom?). The official view pushed by the media and not objected to by U.S. officials is rather the opposite, that Saudi Arabia has no further excess capacity (well that may even still be accurate) and that they overstate their reserves for political reasons, for example, because of the way OPEC quotas are determined. Now this is the opposite of what Jeffrey alludes to.

    Before I explain why I wrote gold market above, let me finally comment that somebody has worked hard in order to keep oil supply off the market. Right now, it is happening again to a certain country. Also, a certain neighbouring country got involved in three full-scale wars within 25 years and is probably chronically under-developed and under-explored. Cui bono?

    And the U.S. have a track record for driving the oil price up. I owe the following to FOFOA. Here is the transcript of a CNN interview with Sheikh Ahmed Zaki Yamani, Saudi Oil Minister during the 1970s:

    http://www.bi-me.com/main.php?c=3&cg=4&t=1&id=48966

    He basically said the same thing a few years earlier in the Guardian:

    http://www.guardian.co.uk/business/2001/jan/14/globalrecession.oilandpetrol

    Apparently, even the U.S. ambassador to Saudi Arabia at that time, James Akins, figured it out one day (and was then promptly fired by his boss, Secretary of State Henry Kissinger). Here is Akins' obituary in the NYT:

    Now back to gold. It is mentioned in Akin's obituary, but many must have thought about this independently. Once the dollar was not longer backed by gold, what does an oil exporter do with the dollar revenues? They will certainly want to import some goods, for example, technical equipment (and arms) for which they need dollars. So they will export some oil for dollars in order to be able to afford these imports. But does it make sense for them to export more oil, just in order to accumulate dollars? These dollars represent debt after all. Why give up your oil reserves in the ground (which can last an eternity) if the only thing you get is debt (which will eventually default or be debased, at least in the medium to long run).

    Oil in the ground is as good as gold in the vault. So exporting more oil than is needed in order to pay for the desired imports, makes sense only if these dollars buy something that is for eternity as well. Gold. In fact, what they have probably done with their oil revenues is this:

    a) use it to buy all sorts of technical equipment and gadgets, from refineries to tanks and fighter planes

    b) use it to buy some portion of gold

    c) but they also accumulated a lot of dollars

    So how could the U.S. convince them to accumulate dollars (c) if it was clear that the dollars would not last forever? The answer must be that either the Saudis are stupid or the price that was paid for the oil, if measured in gold, was too high.

    In my view, this is the key to the future oil market. So far, i.e. under the U.S. dollar standard, oil is too expensive in dollars and gold is too cheap in dollars. Once the dollar is out of the picture, oil should become a lot cheaper if measured in gold. Notice how it was Europe that opted out of the dollar scheme first. And notice that they set up their gold as a floating reserve. As I said in my article about Rickards's book, this prevents the U.S. from suppressing the gold price in the long run. If you think about the oil, this suddenly makes twice as much sense.

    Also, if oil countries are reluctant to pump more oil although they have both the required capacity and the reserves, then this does tell you something about the payment they receive for their oil these days, doesn't it? They may just keep pumping in order to avoid a serious recession (which would be bad for everyone), but not because they are happy with the form of their revenues.

    Sincerely,

    Victor

     

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  • Thu, Apr 26, 2012 - 3:23pm

    #92

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    I guess some of us will have

    I guess some of us will have to agree to disagree.

    Victor, Jeff, Erik and others here are smarter and more knowledgeable than me. Nevertheless, I still don't see enough out there, when I try to weigh the evidence, that undeveloped oil in Iraq, as Victor was alluding to, or the fact that human actions and not geology have held back oil production in places like Nigeria and Russia, or new technologies to extract hard oil and gas will compensate for declining oil production going forward.

    I highly recommend Jeff, Bron and Erik read some of Victor's articles on his site. Would be great to see some interaction from you guys on Victor's analysis of how the Euro setup actually prevents the dollar from returning to a gold standard as Jim Rickards suggests.

    We need more smart discussion and debate of what happens in the precious metals market, and what happens in the markets in general. From reading Zero hedge, one would think the world is going to blow up tomorrow; reading KWN is like the MTV of gold and silver. It seems Chris Martenson and select friends (I count you here Erik) are some of the only people who have a sophisticated understanding of BOTH energy and markets (and precious metals). So it's no wonder other plebs like me get taken in by all the nonsense out there!

     

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  • Thu, Apr 26, 2012 - 7:44pm

    #93

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Ted Butler has decided not to join us, unfortunately

    I felt it was wrong to be openly questioning the credibility of others behind their backs, and accordingly e-mailed both Ted Butler and Harvey Organ to make sure they were aware of this thread, and had the opportunity to defend their views if they felt so inclined. My note to Ted and his reply are reproduced below:

    My note to ted:

    [quote=ErikT]

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    From: Erik T
    To: fasttedb
    Sent: Wed, Apr 25, 2012 11:13 pm
    Subject: Calling your attention to you and your work being discussed very actively online

    Hi Ted,

    I hope this finds you well. As you may recall from our e-mail exchanges a couple of years ago, although I am outspoken in criticizing viewpoints I disagree with, I also feel an obligation of fair play and personal respect. I therefore try hard to make sure I never criticize people behind their backs.

    Accordingly, I’m writing to make sure you are aware of the very lively conversation in the comment thread in reaction to Harvey Organ’s recent interview with Chris Martenson. Quite a few notable personalities from the precious metals industry including Bron Suchecki and Jeff Christian are personally participating in the discussion, which is rather unprecedented for an open internet discussion forum. There are also a couple of notable bloggers there.

    I felt obliged to make sure that you’re aware of the conversation, because frankly your credibility is being challenged by several people, including myself. While I make no apology for criticizing what I see as bogus commentary, I also feel it’s wrong to talk about people behind their backs, so I wanted to make sure you were aware of the discussion. I’ve also gone out of my way to publically challenge Jeff Christian’s view that you are disingenuous and engage in intentional deception of your readers. I think Jeff is badly mistaken on that point; my view is that you’re a very nice guy with sincere intentions who just happens to be wrong. I tried to come to your defense in a limited way, although you should know that I too have been extremely critical of your views on PM market manipulation.

    I hope that you’ll feel inclined to come join the discussion and defend your views. Given that you choose to be a public figure on this topic, I feel that critical analysis of your views is entirely appropriate, but I don’t think it’s fair to have a one-sided conversation. If you’d like to join the conversation, rebuff the criticisms of myself and others, etc. the link is https://www.peakprosperity.com/blog/harvey-organ-get-physical-gold-silver/73933?page=0#comments. Please come join the conversation!

    All the best,

    Erik[/quote]

    And Ted's reply:

    [quote=Ted Butler]

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    From: fasttedb
    Sent: Thursday, April 26, 2012 11:47 AM
    To: ErikT
    Subject: Re: Calling your attention to you and your work being discussed very actively online

    Erik,

    I vaguely remember exchanging emails with you in the past. I did read your thread and I’m taken back by your personal insults (but not by Jeff Christian’s lies). I don’t think you realize how insulting your words are. You listened to an interview with Harvey Organ that you disagreed with and used it to label me as either a charlatan or incredibly stupid. That’s a fine damn choice. Then you invite me to participate in a warped debate with that same theme. Marvelous.

    While my time is occupied with my private research, there are enough of my articles in the public domain that you are free to disagree with, if you are able to do so objectively. I find it fascinating that, in the thread that you sent me, it all seems to be centered on personal attacks. If you can’t attack the message, attack the messenger, so it would seem. You guys should be ashamed of yourselves.

    I’ve made the case for a silver manipulation in the most convincing manner possible and at the highest levels I could reach, including the CFTC, CME and JPMorgan.  Many thousands of market participants and observers have concluded that I have it right. I’m not running for public office and I don’t need everyone’s vote. You are free to disagree with me, but I know you are wrong. But if you hope to convince others (or yourself) that I am wrong, you should leave out the personal insults and try to stick to the facts.

    Ted

    [/quote]

     

    I find it interesting that both Ted and several commenters here have taken such offense to my characterization of Ted and others who promote similar ideas as charlatans. (The only other "name" I've called him is "a nice guy").

    [quote=Dictionary.com]

    char·la·tan

    [shahr-luh-tn] Show IPA

    noun

    / a person who pretends or claims to have more knowledge or skill than he or she possesses; quack.[/quote]
     
    To be clear, I do not intend to insult anyone's character or persona in any way. These men clearly represent themselves to be experts in precious metals markets, but an objective review of their arguments reveals to me that their knowledge is closer to novice than expert. I have cited several objective examples of their flawed arguments, but perhaps the most glaring is this price discovery business.
     
     
    Both Ted Butler and Harvey Organ have made a really big deal about their belief that [paraphrased from both of their interviews] The futures market is not supposed to set the price - it's only supposed to discover the price! In Ted Butler's case, he has expressly said that this is a matter of "commodity law", but he has failed to offer any citation to a specific statute or doctrine of law.
     
     
    I maintain that this allegation is specious, and the only explanation I can fathom for why these men seem to think this is an issue is that they must somehow be unaware that price discovery is nothing more than a fancy economic term for setting the price of something through a system of matching buyers' bids to sellers' offers. Again, the definition from Wikipedia:
     
    [quote=Wikipedia]

    The price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.[1]

    Price discovery is different from valuation. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following: [2]

    • Buyers and seller (number, size, location, and valuation perceptions)
    • Market mechanism (bidding and settlement process, liquidity)
    • Available information (amount, timeliness, significance and reliability) including
      • futures and other related markets
    • Risk management choices.

    In a dynamic market, the price discovery takes place continuously. The price will sometimes fall below the duration average and sometimes exceed the average as a result of the noise due to uncertainties.

    Usually, price discovery helps find the exact price for a commodity or a share of a company. The price discovery is used in speculative markets which affects traders, manufacturers, exporters, farmers, oil well owners, refineries, governments, consumers, and speculators.[/quote]

    I don't know how to make my argument and more clear, any more objective, or any less personal. I have no axe to grind with these men personally. My contention is simply that this price discovery thing and numerous other objective arguments I have set forth both here and elsewhere clearly evidence that these men are not the subject matter experts they profess to be. To the contrary, it is obvious to me that their comprehension of markets is poor at best, and I base that observation on the many logical inconsistencies in their arguments, which I have objectively challenged both within this thread and elsewhere.

    This seems very much the norm for the PM manipulation "community". For example, when I published an article debunking GATA and KWN a couple of years ago, I received an angry e-mail from Bill Murphy telling me I was about to get egg on my face because Adrian Douglass had just uncovered something "new" that was so damning that it would end any question of whether the banksters were up to evil no-good for once and for all. What did this "new" bit of damning evidence turn out to be? The fact that unallocated bullion accounts can be and routinely are hypothecated and fractionalized! That's very basic information, but it apparently took the GATA guys 30 years in the business to figure it out. This exemplifies why I feel the word charlatan perfectly describes them. As I've said repeatedly, I strongly disagree with Jeff Christian's view that the dissemination of obviously wrong mis-information from these people is intentional. I am convinced that they believe every word of it themselves, and they they truly believe they are doing the world a great service. I just hate to see so many people being duped into thinking they actually know what they're talking about, as it's very clear to me that they don't.

    I reiterate my invitation to Ted and Harvey: If you guys think I'm the jerk here and that my characterization of you as charlatans is unjustified, why don't you come join the thread and explain to us what you mean when you say that as a matter of "commodity law", the futures market is prohibited from setting the price of metals. It sounds like you have a definition of price discovery that differs from the one that is commonly accepted in economics. Why don't you share it with us, and show me up? 

    All the best,

    Erik

    p.s. I thought there was a way to edit the HTML directly to get rid of those tags at the top of the e-mails, but I couldn't find it. Sorry for the clutter.

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  • Thu, Apr 26, 2012 - 8:35pm

    #94

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Strawboss..

    You said, "Finally - in defense of Harvey Organ... the man is a vocal supporter of buying and holding physical metal in ones own possession to protect against the various risks involved in paper assets.  Anyone that is an advocate of physical possession of their precious metals is not a charlatan in my book - irrespective of whatever other shortcomings they may have."

    I feel very much the same.  Although I see Erik's technical definition of the word... I think Charlatan has stronger negative connotations than the technical denotation would suggest.  Harvey is a Pharmacist who provides a free blog... you can take it or leave it.  If you listen carefully to the CM interview, you can pick up one quick exchange that is a perfect example of the kind of useful observation that somebody like Harvey can make.. due to his closeness to the Comex, and long history of watching it.  He says, and I am paraphrasing here.. .that "deliveries used to occur in the first two days of the delivery month.. and now they spread them out all month".  The implication is that Silver for physical delivery is hand-to-mouth.  If you take a long term view of the decline of inventories of deliverable Silver, then his observation fits with these other facts in painting a picture.  Eric Sprott made the same comment last year when he made one of his (infamous) additions to PSLV.. how long it took to get the bars.. and the fact that they were freshly poured (date stamped).  

    All of you may work differently in building a worldview.. but I gather lots of information from different sources in order to assemble a picture of what is happening.  Some of Harvey's information has been helpful to me... and even after following this entire thread.. I still believe that to be the case.    

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  • Thu, Apr 26, 2012 - 9:08pm

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    It's not offense, Erik.

    [quote=Erik T.]I find it interesting that both Ted and several commenters here have taken such offense to my characterization of Ted and others who promote similar ideas as charlatans.
    [/quote]
    It's not offense, Erik. It's an observation that your tone seriously gets in the way of your message. Seeing as several people here have now tried to make you aware of it, one would think you might entertain the possibility that they are making a valid observation. I don't need to be an expert in financial or monetary markets to see when someone is behaving arrogantly and calling names. And I do believe we are all intelligent enough here to understand both the definitions and the common usage of words. Again, nobody is freaking out here, and I really don't care if you personally are seen as an expert. If you refuse to listen to impartial feedback, it's your loss.
    And since you apparently aren't aware, the readers here aren't all "gentlemen" either.
    I am very glad for the links to Victor's blog however - a very clear thinker without a whisper of scorn for the lowly folk out there.

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  • Thu, Apr 26, 2012 - 9:13pm

    #96
    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Question for Erik T

    Harvey Organ has been smart enough to figure out that the BEST option for a "average Joe" investor is physical metal held in their personal possession.  I would consider that judgment to be very, very wise and definitely not something that a "novice" would arrive at.  In fact - most novices would follow a recommendation to buy GLD - even though it is fraught with danger and counterparty risk.

    Ted Butler has probably forgotten more about the machinations in the silver market than I have ever learned.  I have studied the market more than I would care to admit and I am convinced that it doesnt function like a free market.  I am appreciative of his efforts and insights and have great respect for the mature respectful manner in which he addresses the issue.  He has never, in my experience lowered himself to address anyone in a condescending fashion.  The man has conducted himself with elegance and class.

    I noticed that you havent yet addressed my previous observation that gold rarely - if ever - is allowed to rise in price more than 2%.  In a bull market more than 11 years in the making, dont you find it curious that you can count on 1 hand the number of times that gold has risen more than 2%?  I would really like to hear your commentary on that.

    For anyone and everyone else that happens to read this - BUY PHYSICAL metal and insist on holding it in your possession - OUTSIDE of the "system".  That is the ONLY avenue that will allow you to sidestep all the machinations and deceit that is systemic in todays monetary world.

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  • Thu, Apr 26, 2012 - 10:56pm

    #97

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Clarification

    I'll address several common issues rather than quoting and responding to Jim H, shudock, and Strawboss directly.

    Use of "Charlatan":

    I don't know how to respond to Jim's view which is apparently shared by others here, i.e. that the word charlatan carries connotations beyond its meaning as defined in the dictionary. But I want to be emphatically clear that my gripe is that these individuals represent themselves as experts with great knowledge of the PM business, when in fact they are not experts of any kind, and critical review of their work clearly shows that they suffer numerous misconceptions about how these markets function. I further allege that a whole lot of very smart people who truly are experts have tried to help these people to see that their analysis is completely flawed, but they have steadfastly refused to accept that assistance, instead insisting that those who have tried to help them have ulterior motives.

    That's it - no offense or criticism of anyone's individual personality or character was intended, although I would say I am very disappointed that these people get so caught up in their theories that they refuse to listen to reason when bona fide experts try to help them see the fallacy of their theories.

    If others here feel that I have personally sleighted the character of these men or personally insulted them in any way, please know that was never my intention. If you feel that my choice of the word charlatan makes me guilty of personally insulting anyone, I think you're wrong to think that, but it's your prerogative to feel however you like. I humbly observe that the dictionary appears to be on my side on this one.

    Who's an "expert" and who's not:

    A few comments seem to imply that I have represented myself to be an expert on these markets. Nothing could be farther from the truth, and I have said no such thing. I am a private investor with a cursory knowledge of precious metals markets, and very definitely not an expert. What I have pointed out is that even as a person with only limited knowledge of these markets, it is resoundingly clear to me that the people I've referred to as charlatans are not experts of any kind, and I have expressed the opinion that they do a great disservice to the investment community when they publicize viewpoints that are easily debunked as nonsense, representing themselves as experts when in fact that are not.

    My tone:

    I confess that this is a topic that infuriates me, and I apologize if my frustration comes across as arrogance. I acknowledge that I do sometimes allow my passion for truth to charge my words with emotion, and I concede there is plenty of room for me to improve in that regard.

    Having said that, my tone pales in contrast to the absurd allegations these people have made, publically characterizing JP Morgan and others as evil enemies of the people, when in fact those allegations are based on absolutely nothing substantive. So while I do admit (and apologize to this community for) my own tendency toward strongly stated language, it is in response to far more damning and completely baseless criticisms those same people (particularly GATA) have made of others.

    Good Advice derived from Faulty Logic:

    Several people have pointed out that, at the end of the day, the core message from Harvey and GATA is that you should buy physical bullion and take delivery. I think everyone here agrees that's excellent advice, even if it's given for bogus reasons. It is precisely because of this that I stopped writing articles debunking these guys - their theories are absolute nonsense, but at the end of the day, they still give what amounts to good advice.

    But there is very real and serious damage being done here, too. A perfect example is the disinformation that has circulated relative to PSLV. When the premium was 30% over spot, articles were being posted with headlines like "Phyysical Silver Surges to 30% premium over spot", when in reality the truth was exactly opposite the headline. PSLV, a paper silver product, had surged to a completely unjustified 30% premium over physical a/k/a spot. The commentary from the people I've referred to as charlatans was geared mostly toward making the utterly ridiculous arguments that "paper was decoupling from physical" and that the 30% premium "proved" that investors were willing to pay more to get physical instead of paper. The irrefutable reality of that situation was that investors were paying 30% more for paper with a "P" in its ticker symbol than they would have paid for real, actual physical metal (spot price). The only reason it occurred is that the same cast of characters had successfully disseminated so much false information that a very large number of retail investors were making foolish investments in something they clearly didn't understand.

    This is why I feel so strongly about this. When I see good, hard-working people duped into believing this nonsense and investing their life's savings in PSLV at a 30% premium, I knew in that moment they would lose that premium when reality sank in, which it did as soon as Sprott launched his shelf registration offering. Good people are getting screwed out of a lot of money because other people who don't know what the hell they are talking about are filling their heads with utter nonsense. That's the problem, it's a big problem, and the people I've labeled as charlatans are responsible for causing it, regardless of whether they did no maliciously or not.

    Critical Thinking:

    I started this discussion by trying to point out that the most important thing an investor can learn (in my opinion) is that the world is full of self-described "experts", and that some of them truly are experts, while some are not. In the latter group, some are malicious, and some mean well but just don't know what the hell they are talking about. Learning to think critically, check facts, and figure out which group is which is the most important skill for investors. Or that's my opinion, anyway. Organ vs. Tustain offered a perfect opportunity to illustrate that point.

    Jim H has said clearly that he forms his worldview by listening to lots of views, and finds them all helpful. Even after he has seen that much of what some of these people say can be easily disproven. Jim, that's certainly your prerogative, and I wish you well with that strategy. What has worked best for me is to evaluate people with an open mind, check their story, and decide if they are credible. For example, I bought Ted Butler's story at first, and subscribed to his newsletter. After a few weeks, it had become clear to me that Ted had no idea what he was talking about in several areas. When I observe that a person professing to be an expert confidently makes several assertions that can easily be dubunked as factually inaccurate, I stop listening to anything else that person says, because I know their credibility is dubious. That's my strategy for this investing game, and it's worked well for me, but if you guys prefer to continue to listen to the writings of people even after many of their views have been clearly disproven, that's up to you.

    Bottom Line:

    Respectful intellectual discourse between interested parties is the best way I know to get to the bottom of anything, and that's why I participate in these discussions. I sincerely apologize to anyone who has been offended by my admittedly impassioned views about how much damage GATA and others have done to the investment community. I admit, publically, that this pisses me off so much that I sometimes start to lose my cool. But I still stand by my primary argument: These guys are anything but experts, and most of what they say is factually inaccurate nonsense that misleads the good people who have placed faith in them. Unlike Jeff, I don't think they do it maliciously - I think they are well meaning people who are out of touch with reality and don't realize how much damage they are doing.

    It's certainly true that their primary advice (buy physical) is excellent advice, albeit for different reasons than they state. But it's also true that the misinformation they promulgate is responsible for encouraging some very, very damaging decisons, such as paying a 30% premium for paper from Sprott because you thought it was somehow more valuable when it wasn't.

    All the best,

    Erik

    [Moderator's note: This thread is fruitful and fact-rich.  This discussion was made possible in large part by Erik, who makes clear above that his intention was not to question anybody's character.  Nevertheless, this is an appropriate opportunity to remind everybody about the importance of words. 

    The word "charlatan" often refers to a person who claims knowledge or ability which they do not possess, knowingly and intentionally, for the purposes of dishonest personal gain.  The word is synonymous with "fraud," "cheat," "swindler," or shyster," and carries the strong implication of a morally deficient character who would knowingly defraud another person.

    We are quite certain that Mr. Organ, our guest, is earnest in his views.  We have no reason to believe that he intends to mislead or defraud anybody.  To suggest otherwise is to impugn his personal character in a way that would not be appropriate.  Our guests are to receive the same politeness and courtesy which is due to any regular member of the community.  Going after the message is fine, but not the messenger.

    For the benefit of all, we will say clearly and emphatically that using the word "charlatan" to describe a guest, left uncorrected, would be inappropriate.  Thank you, Erik, for clarifying.]

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  • Fri, Apr 27, 2012 - 1:09am

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Thanks anyway

    Thanks anyway Erik, but I don't need you to teach me how to think. 

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  • Fri, Apr 27, 2012 - 2:37am

    #99

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Erik T..

    You did save me quite a bit of money with your persistence in pointing out the irrationality of the PSLV premium at times... I think without your contributions here.. I would probably not have sold it when the premium was ~ 35%.. which allowed me to buy back in at < 5%.  I, like many others.. still find plenty of evidence to suggest that there is a more direct link between the shares I own, and serialized Silver bars in a vault, in the case of PSLV, vs. SLV.  I will not say PSLV is completely devoid of counterparty risk... just that in the case of SLV... good luck even figuring out who the counterparty that holds the Silver actually is.  For me, outside of a SHTF situation.. I would not want to hold PSLV much above the historical norm 12 - 15% premium if other funds like CEF are still available at lower premiums. 

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  • Fri, Apr 27, 2012 - 7:50am

    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814

    Thinking about Thinking.

    Plenty of evidence in this thread that strengthens Iain McGilchrist's thesis about the Left Brain's dogmatic model making.

    If your model is wrong, ditch it.

    You will survive the trauma.

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  • Fri, Apr 27, 2012 - 8:42am

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    Yip, I used to believe the

    Yip, I used to believe the Ted Butler and GATA stuff. I used to believe the KWN posts from the "London Trader" but when I recently listened to an interview with Andrew Maguire at TFmetals I became convinced the "London Trader" is actually Andrew Maguire. They sound awfully similar, even using the same figures of speech. What set alarm bells off in my head is when he started suggesting that people who sign up for his services make sure they take a portion of their profits and buy physical silver, because only by taking physical delivery would they bring the Cartel to their knees! The emotive rhetoric, the talk of taking bringing down an Evil Cartel and the idea that a handful of mickey mouse retail futures traders would save the day made me realize I had heretofore been duped.

    I bought into arguments like the allegation that JP Morgan was short a gazillion ounces of silver, when there is no way they could reasonably deliver a fraction of it, painted them into a corner where they were forced to manipulate the prices lower. Two main problems I had were a) are the guys at JP Morgan really that stupid, to get into a postion like that in the first place? and b) if they fight rises in the price of silver by constantly "adding new shorts" and capping the price, why don't some other big players just keep adding longs and overwhelm them?

    A while ago I read of a wealthy guy who speculated on an oil exploration stock, exploring for oil somewhere in cental africa. He had let it be known that he not only owned a lot of shares, but also had a large long single-stock futures position on the stock. Well, as soon as it was known, traders smelled blood and he was given a hiding. I read the interview with him where he admitted losing a fortune and regretted taking on such large leverage. Why wouldn't something similar happen to JP Morgan? How do they get away with it for so long?

    Also, I found it hard to imagine that central banks would blindly continue to dispose of their physical gold reserves year after year (as GATA alleges) just to make the dollar look strong because surely they'd reach a point where they'd hold back and realize it was a losing proposition? But in these pages or links provided I've read about the effect of a mass of fractionalized unnallocated gold accounts, and just how many thousands of tonnes of gold are held in this way. This is not the kind of analysis I ever read from GATA articles.

    Finally, how did these guys manage to profit (as is alleged) on such a lop-sided short position when the prices of gold and silver have gone through the roof over the past ten years? Is the Fed printing money directly to provide them with margin?

    Even though I scratched my head over some of these things I figured the main story, as promulgated by GATA, Butler et al, was essentially true. The thing that has opened my eyes is the discussion of the LBMA and the OTC market. This gives a whole new perspective to what is going on.

    Whether central banks are involved in deliberately pushing around the gold price to a small or great extent is still an interesting question, in my opinion. I still think it's plausible that some central banks have an interest in seeing that the gold price behaves a certain way at certain times. If they do, to what extent it happens, I am not sure, but GATA, Jim Sinclair, Ted Butler, the "London Trader", Harvery Organ don't have the answers. 

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  • Fri, Apr 27, 2012 - 8:58am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    ETFs have the physical

    [quote=Jim H]I, like many others.. still find plenty of evidence to suggest that there is a more direct link between the shares I own, and serialized Silver bars in a vault, in the case of PSLV, vs. SLV.  I will not say PSLV is completely devoid of counterparty risk... just that in the case of SLV... good luck even figuring out who the counterparty that holds the Silver actually is.[/quote]
    Warren at screwtapefiles has been downloading the various ETF bar lists on a regular basis for some time now and has a substaintial database. He is working on a very serious analysis of it to see if there is any proof the bar lists are faked. Preliminary discussions I've had with him says it is legit. When that analysis comes out it will bust the "ETFs don't have the metal" meme.
    This was always a bit of a distraction anyway, as the real issue is the legals as discussed here http://goldchat.blogspot.com.au/2008/12/warning-on-existing-au-and-new-ag-pt-pd.html
    PSLV may be better, but I certainly wouldn't be paying any premium for any ETF. You did well to get out. I actually struggle to understand why Sprott decided on a closed-end fund structure rather than an open-ended one due to the potential for premiums AND discounts (maybe tax advantages). On discounts, one day when the bull market is over and everyone is exiting, I will not be surprised to see closed-end gold and silver funds trading at a discount - investors are reliant to some extent that the operators will step into the market to buy the shares to ensure a fair price.

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  • Fri, Apr 27, 2012 - 11:05am

    Strawboss

    Strawboss

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    Joined: Apr 23 2012

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    Erik - can I safely assume

    Erik - can I safely assume you are ignoring my query about why gold never rises above 2%?  I have asked you for commentary on it 2 perhaps 3 times now and....silence.  If you are unable to respond, I can respect that.  Simply defer to one of the other "experts" - such as Bron or Jeffrey.

    As it relates to credibility, lets put the same scrutiny on Jeffrey Christian as you put on Ted, Harvey and others.  As an example - immediately after the debate at GATAs conference between Jeff and Bill.  Jeff did an interview with Kitco TV and stated that Andrew Macguire cant be trusted because the CFTC never acknowledged receiving any emails from him which was blatantly inaccurate as there were 2 exchanges between Andrew and the CFTC regarding that matter.

    I have yet to this day heard any kind of retraction from Jeffrey regarding this.  Jeffrey was wrong - he made a blatantly inaccurate statement which was intended to suborn the credibility of an opposing point of view. 

    By your standards - Jeffrey Christian belongs in the same category as Ted and Harvey and others.

    Jeffrey Christians interview -  http://www.youtube.com/watch?v=TUu7MNw7fF8&feature=player_embedded#!

     

     Bart Chilton (CFTC Commissioner) even thanked Andrew Macguire for bringing the matter to his attention and has publicly stated that the silver market is actively manipulated and that the perpetrators should be prosecuted.

     http://www.kingworldnews.com/kingworldnews/G+_Articles/Entries/2010/3/30_A_LONDON_TRADER_WALKS_THE_CFTC_THROUGH_A_SILVER_MANIPULATION_IN_ADVANCEBy_Andrew_Maguire.html 

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  • Fri, Apr 27, 2012 - 11:13am

    Strawboss

    Strawboss

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    Joined: Apr 23 2012

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    bronsuchecki wrote:Jim H

    [quote=bronsuchecki]
    [quote=Jim H]
    I, like many others.. still find plenty of evidence to suggest that there is a more direct link between the shares I own, and serialized Silver bars in a vault, in the case of PSLV, vs. SLV.  I will not say PSLV is completely devoid of counterparty risk... just that in the case of SLV... good luck even figuring out who the counterparty that holds the Silver actually is.[/quote]
    Warren at screwtapefiles has been downloading the various ETF bar lists on a regular basis for some time now and has a substaintial database. He is working on a very serious analysis of it to see if there is any proof the bar lists are faked. Preliminary discussions I've had with him says it is legit. When that analysis comes out it will bust the "ETFs don't have the metal" meme.
    This was always a bit of a distraction anyway, as the real issue is the legals as discussed here http://goldchat.blogspot.com.au/2008/12/warning-on-existing-au-and-new-ag-pt-pd.html
    PSLV may be better, but I certainly wouldn't be paying any premium for any ETF. You did well to get out. I actually struggle to understand why Sprott decided on a closed-end fund structure rather than an open-ended one due to the potential for premiums AND discounts (maybe tax advantages). On discounts, one day when the bull market is over and everyone is exiting, I will not be surprised to see closed-end gold and silver funds trading at a discount - investors are reliant to some extent that the operators will step into the market to buy the shares to ensure a fair price.
    [/quote]
    Bron - as you are no doubt aware, there was an issue with CNBCs work in trying to "prove" that GLD actually has the gold they purport to have.  In fact, during the video the only bar they showed where you could see the serial number clearly was NOT a bar in GLDs inventory.  Screwtape did some analysis of this (along with ZeroHedge and others) and here is a link to Screwtapes findings...
    http://screwtapefiles.blogspot.com/2011/09/zero-hedge-zj6752.html
    Couple conclusions I come to.  Firstly - they are purported in a GLD vault, but, the bar they show belongs to another fund?  Who's vault were they really in?  Secondly, that bar that Pisani holds up and twirls around is 400 ounces - supposedly.  That seemed kind of light - a point that even Screwtape brings up.

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  • Fri, Apr 27, 2012 - 2:23pm

    MetalsFacts

    MetalsFacts

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    Joined: May 17 2010

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    False, false, false

    I guess three comments deserve some responses here.

    1.      Jim H wrote….

    ”If you listen carefully to the CM interview, you can pick up one quick exchange that is a perfect example of the kind of useful observation that somebody like Harvey can make.. due to his closeness to the Comex, and long history of watching it.  He says, and I am paraphrasing here... that "deliveries used to occur in the first two days of the delivery month.. and now they spread them out all month".  The implication is that Silver for physical delivery is hand-to-mouth.  If you take a long term view of the decline of inventories of deliverable Silver, then his observation fits with these other facts in painting a picture.  Eric Sprott made the same comment last year when he made one of his (infamous) additions to PSLV.. how long it took to get the bars.. and the fact that they were freshly poured (date stamped).”  

    Over the past few years shorts began delaying delivery into their Comex futures contracts into the end of the delivery month because they could earn nearly an extra month’s interest by leasing the metal out with no price risks. As lease rates fell they tried to squeeze every extra cent out of their leases. As prices rose, they were earning a lot more on the leases.

    As I explained at the Silver Summit last year, assume that one is leasing silver out to fabricators at 3.0% per annum. In the first quarter 2010 silver was at $16.92 average price, and 3.0% interest meant $0.51/oz lease income per year, 4.25 cents per month. By the third quarter 2011 silver was at $38.86 average price, and 3.0% interest was $1.17/oz per year, 9.75 cents per month. (So much for pushing JP Morgan into bankruptcy by pushing silver prices up: Instead, they recorded record profits on their silver book in 2011. 

    Since their short is a hedge of an offsetting hedge, they are price insensitive on when they deliver it. It was more profitable for shorts to wait until the end of the month to deliver into their short futures contracts. (Bankers earn more than conspiracy theorists because bankers seem to be more intelligent, and to think about the financial consequences of actions, seeking to maximize their revenue.)  

    We explained all of this in our reports over the past two years ago, and to the investors who retain us as advisors and wondered why they were getting deliveries late in the month rather than early in the month.

    Regarding Sprott: They got hosed. We spoke with Sprott people about their delivery problems, as well as with bankers. They handled it dreadfully, and did not require the banks to behave in standard market operating procedures. Why, we don’t know, but they did everything wrong the way many rank amateurs do. Sprott is an eminent salesman, however: He turned lemons to lemonade, saying not that he was an amateur in buying all that silver, over-paid, and was messed over in delivery. Instead, he said it was because there was a problem getting the physical silver. There was no problem with the silver; he just did not negotiate and handle the bank properly. No surprise there to anyone who has watched his funds over the years.

    2.      Strawboss asked for an apology from me for saying the CFTC never acknowledged Andrew Maguire’s emails.

    I don’t have to apologize for saying the CFTC never acknowledged receiving any Andrew Maguire emails because it has not. You have never seen any communication directly from the CFTC acknowledging that they received the purported emails in January and early February 2010.

    What you have seen was Andrew Maguire or someone saying he was Andrew Maguire giving KWN, a known disreputable source of information, what that person said was a string of emails between Andrew Maguire and a person at the CFTC.

    That person does not work at the CFTC as of now, April 2012, and the CFTC declined to verify he had been an employee in January and February 2010. So, he may never have actually worked there. (Science is based on reproducible results; I can call someone up and verify that he sent the emails. Frauds are perpetrated on the assumption that people will not try to reproduce the results, call to verify a person even exists.) Furthermore, look at the alleged responses: They are totally noncommittal. Mr. Maguire is saying he has all sorts of inside information. He is screaming the house is on fire, and that he has concrete evidence about something the CFTC has investigated rigorously for more than 20 years, and has published two unprecedented public reports about the matter. The CFTC’s response, according to Maguire’s papers is, “Thanks, sir.” One could say it is typical bureaucratic ineptitude, the sort that let Bernie Madoff get away with his Ponzi scheme for so long. It could be. One could say it’s because the entire staff of the CFTC is part of a cabal seeking to suppress silver prices. That seems unlikely. One can say it’s not even a real response from the CFTC. That seems reasonably likely. Or, one can say that it is a real response, and they have heard such BS before from what Erik T. accurately describes as charlatans, and said, thanks but no thanks. If the latter, it is strange that the CFTC never acknowledged that.

    You probably have heard that sometimes disreputable people make up communications to try to prove a point. You read someone saying he was Andrew Maguire saying the CFTC had responded.

    Turning to Chilton’s comments: If you listen carefully to Bart Chilton, as you must given the political nature of that person, you will see he did not thank Maguire for any emails, but for bringing the matter to the attention of the CFTC, which easily could have been a reference to the media circus perpetrated on the silver market by GATA after the CFTC travesty hearings on open interest limits. Chilton’s famous comment that he believes the silver market is manipulated often has the very important qualifying statement he made cut off by the charlatans: He said, based on information he had received from people outside of the CFTC (GATA and their ilk) that he thought the silver market was manipulated, adding that his view was not predicated on any information he had received from investigators inside the CFTC. (Anyone on a jury would want to know about those qualifying characteristics. Any ‘reasonable person’ as defined by law. Anyone trying to bamboozle his readers would want to drop those qualifiers off in the ‘editing’ process.)

    So, it’s not time for me to apologize, because all of the evidence presented by the Maguires, Butlers, GATAs, Organs, and others has been inadmissible into any court of law, and would not pass the legal guidelines for a reasonable person to believe any of it. Which takes us back to where Erik Townsend started all of this: You are not dealing with reasonable people, you are dealing with True Believers of the first degree, and the propagandists who feed off of them.

    One final point: To say that Organ is a good dude because he has told people to own physical gold and silver rings completely hollow. I have advocated holding gold and silver since the 1970s. I’m a good dude. Many others have too, including people like International Gold Bullion Exchange that offered to buy and hold it for you, only to prove to be thieves, back in the 1980s. I think we need a higher standard to measure whether someone is a good dude. It like: When did sliced bread become a measure of technological innovation? Can’t we do better than that?

    Excuse me, but the markets beckon.

    Jeff

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  • Fri, Apr 27, 2012 - 3:29pm

    jonesb.mta

    Status: Member

    Joined: Jun 11 2008

    Posts: 77

    Manipulation of the PM Market

    I'm just an old computer tech who operates on logic. It's logical to me that after MF Global, Goldman Sachs shafting their clients, robo-signing scandal, etc, etc, and all they any of them have gotten is a slap on the wrist fine that is a very small percentage of the amount they "stole". The PM and securities markets are being manipulated and the government won't do anything to stop it because it's being done by Wall Street banks that own our politicians and regulators. That being said I enjoyed the comments and learned a bit from them.

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  • Fri, Apr 27, 2012 - 4:01pm

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Answers regarding Comex deliveries...

    Jeffrey,  Thank you very much for taking the time here to describe an alternate explanation for Harvey's observation about delayed deliveries... the devil is in the details as they say.   

    Although we (the CM.com community, with some help from me) ran an MMT true believer out of here about a month ago... I am really glad that we have been able to host this very touchy discussion in a constructive way... this would not be able to happen on the boards at TFMetalsreport, nor most other places where PM discussion happens.  By saying this, I am not saying that I am now convinced manipulation does not happen... I have yet to see any reasonable explanation for the non-economic dumping of contracts that result in waterfall declines that happen so often in the PM markets, not seemingly tied to any news...    I am though saying that my eyes have been opened to some of the complexities of these markets.. and for that I am appreciative.     

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  • Fri, Apr 27, 2012 - 4:42pm

    CPTWaffle

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    Joined: Dec 27 2011

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    In fairness

    I must retract including Jim Sinclair in the list with Harvey Organ, GATA etc.

    I know he does interviews with KWN, but I read this interview of him about gold and currency and in skimming eight pages he seems to give a lot of sensible answers without mentioning manipulation once. http://www.futuresmag.com/2012/05/01/jim-sinclair-has-something-to-say?page=4

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  • Fri, Apr 27, 2012 - 4:50pm

    hucklejohn

    hucklejohn

    Status: Bronze Member

    Joined: Dec 13 2008

    Posts: 64

    Question

    Jim H:  What's MMT?

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  • Fri, Apr 27, 2012 - 5:06pm

    e_r

    e_r

    Status: Member

    Joined: Apr 27 2012

    Posts: 2

    Thanks all

    [quote=hucklejohn]Jim H:  What's MMT?
    [/quote]
    MMT = Modern Monetary Theory.
    For a proper debunking of MMT, Please consider:
    http://fofoa.blogspot.com/2011/11/moneyness.html
    to all participating in the discussion - excellent thread, quite an eye opener to the metals markets.

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  • Fri, Apr 27, 2012 - 5:14pm

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

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    PSLV

    Bron,

    I actually struggle to understand why Sprott decided on a closed-end fund structure rather than an open-ended one due to the potential for premiums AND discounts

    I think the answer is that he is the shark in the goldbug pond. He uses physical silver in his hdege fund in order to scalp the PSLV premium (in effect trading against the retail investors in PSLV):

    PSLV – Sprott Registers to Sell – Sold To You Sucka

    Sincerely,

    Victor

     

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  • Fri, Apr 27, 2012 - 5:54pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    CPTWaffle wrote:Yip, I used

    [quote=CPTWaffle]
    Yip, I used to believe the Ted Butler and GATA stuff. I used to believe the KWN posts from the "London Trader" but when I recently listened to an interview with Andrew Maguire at TFmetals I became convinced the "London Trader" is actually Andrew Maguire. They sound awfully similar, even using the same figures of speech. What set alarm bells off in my head is when he started suggesting that people who sign up for his services make sure they take a portion of their profits and buy physical silver, because only by taking physical delivery would they bring the Cartel to their knees! The emotive rhetoric, the talk of taking bringing down an Evil Cartel and the idea that a handful of mickey mouse retail futures traders would save the day made me realize I had heretofore been duped.
    ...
    I still think it's plausible that some central banks have an interest in seeing that the gold price behaves a certain way at certain times. If they do, to what extent it happens, I am not sure, but GATA, Jim Sinclair, Ted Butler, the "London Trader", Harvery Organ don't have the answers. [/quote]
    Excellent post, CPTWaffle. I want to first emphasize my own fallibility as I learned a little about the metals markets, and then see if I can persuade this group to revisit the discussion of Hoffer's true believer.
    To be clear, when I first started following metals markets a few years ago, I was just as convinced as some of you are by the Ted Butler, GATA, etc. story. It seemed to make logical sense to me, and boy was I ready to believe that the banksters were up to no good. The manipulation story seemed to make perfect sense, and when I first heard about GATA, my initial conclusion was that these were really fantastic people who were doing a good thing by standing up for justice and truth. It wasn't until I really started to do my homework that I realized that all of GATA's allegations were specious and that the GATA principals' knowledge of the markets was actually shocklingly limited given their self-professed tenure in the business.
    When I brought up Hoffer's True Believer, it probably came across as "Hey, you guys are all a bunch of true believers but I know better! Neener neener neener!" That was absolutely not my intent. The reason that I think Hoffer's true believer concept is so important is that it's what helped me figure out how I was falling victim to my own fallibility. It taught me that because we live in a time when there is good reason to question whether governments and bankers are perpetrating crimes, many of us have become so disenchanted that we are hungry for an alternate explanation that makes sense.
    We all saw what happened with the subprime fiasco, including the fact that nobody to this day has been investigated never mind prosecuted. The MF Global fiasco has proven to me that we no longer live under the rule of law. We live in a society where a privileged few - like Jon Corzine - are literally above the law. These people have literally bought the right to do as they please, and regulators and politicians are scared to mess with them. It's a sad time in America, that's for darned sure. What I realized is that this makes us feel so frustrated - so helpless as we witness crime after crime going unpunished - that we develop a very strong emotional reaction. As Hoffer described, feeling like we are part of something - a movement that is about truth and justice - satisfies our emotional need to cope with the very obvious decay in the moral fabric of our society and the rule of law. The reasons to be disenchanted are very, very real. Unfortunately, that makes us more susceptible to believing a story that resonates with our feelings of frustration, and makes us less likely to scrutinize the evidence.
    As I've said all along, I continue to look for signs of manipulation, because I remain absolutely convinced that we live in a society where some people are able to purchase immunity from the law. The harder I look, the less certain I am about whether there is or isn't manipulation going on in these markets. All I know for certain is that GATA, Butler, Organ, etc are peddling nonsense. That doesn't mean there is no manipulation; it only means that the people who are making noise about it don't know what they're talking about.
    All the best,
    Erik

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  • Fri, Apr 27, 2012 - 6:00pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    bronsuchecki wrote:On

    [quote=bronsuchecki]On discounts, one day when the bull market is over and everyone is exiting, I will not be surprised to see closed-end gold and silver funds trading at a discount - investors are reliant to some extent that the operators will step into the market to buy the shares to ensure a fair price.[/quote]Bron,
    Given the redeemability clause and the law of efficient arbitrage, I don't believe it's possible for PSLV to trade at anything more than a very, very small discount to NAV (equivalent to the cost of arbitrage).
    Am I missing something?
    Thanks,
    Erik
     

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  • Fri, Apr 27, 2012 - 6:28pm

    MetalsFacts

    MetalsFacts

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    Joined: May 17 2010

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     A couple of points.This

     A couple of points.

    This first one may sound strange to those of you who don't know me. You should not assume that 'the banksters' are not up to tricks. They are. That's what bankers, and others, do. It's just not the tricks that GATA and those guys say they are. In that way, they are much more penny ante that the GATA boys would have you believe. In reality, they are much more smooth and successful, expressly because they do not go in for such large, unwieldy super manipulations. Bankers make their profits a penny or so at a time. They do so by overcharging half a percent or so on each of many trades. Don't assume that because bankers do not engage in giant conspiracies they are angels.

    Remember: I quit Goldman Sachs in 1986, in part because I did not like the way they treated clients, employees, and others. I think Bron pointed out last weekend that there is a rich published record of me being a critic, a vocal critic, of banks and banking regulators. I have been an outspoken advocate of proper regulation of OTC derivatives since I left Goldman, in June 1986.

    Seond, Victor, I must get to know you better. You have said many spot on things. I happen to believe that the Sprott silver investments may prove to be the downfall of silver. Remember: I am long silver, in contrast to all those inaccurate disparagements of me that have me an enemy of the metal. In fact, I was telling our clients back in the early 1990s that silver would rise sharply at some point in the distant future. But back to Sprott: Look at what his molybdenum specialty fund did to the molybdenum price, the equity prices of moly producers, and the investors in that fund, in 2008 and 2009. I think that is indicative of what could happen in silver. Sprott has amassed an enormous position in physical silver and in most Canadian listed silver mining companies. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation.

    By the way, today is the 25th anniversay of a tremendous rout in silver. On 27 April 1987 silver started the day around $9. It had been $5.25 - $5.50 in December 1986, when we issued a buy recommendation on silver. On 27 April it went from around $9 at the opening in Europe to around $11.25, and then down to $7.20, all in a day. The trading was so fierce that Comex had to close for a few days to match and settle all of the trades.

     

     

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  • Fri, Apr 27, 2012 - 6:28pm

    MetalsFacts

    MetalsFacts

    Status: Member

    Joined: May 17 2010

    Posts: 0

     A couple of points.This

     A couple of points.

    This first one may sound strange to those of you who don't know me. You should not assume that 'the banksters' are not up to tricks. They are. That's what bankers, and others, do. It's just not the tricks that GATA and those guys say they are. In that way, they are much more penny ante that the GATA boys would have you believe. In reality, they are much more smooth and successful, expressly because they do not go in for such large, unwieldy super manipulations. Bankers make their profits a penny or so at a time. They do so by overcharging half a percent or so on each of many trades. Don't assume that because bankers do not engage in giant conspiracies they are angels.

    Remember: I quit Goldman Sachs in 1986, in part because I did not like the way they treated clients, employees, and others. I think Bron pointed out last weekend that there is a rich published record of me being a critic, a vocal critic, of banks and banking regulators. I have been an outspoken advocate of proper regulation of OTC derivatives since I left Goldman, in June 1986.

    Seond, Victor, I must get to know you better. You have said many spot on things. I happen to believe that the Sprott silver investments may prove to be the downfall of silver. Remember: I am long silver, in contrast to all those inaccurate disparagements of me that have me an enemy of the metal. In fact, I was telling our clients back in the early 1990s that silver would rise sharply at some point in the distant future. But back to Sprott: Look at what his molybdenum specialty fund did to the molybdenum price, the equity prices of moly producers, and the investors in that fund, in 2008 and 2009. I think that is indicative of what could happen in silver. Sprott has amassed an enormous position in physical silver and in most Canadian listed silver mining companies. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation.

    By the way, today is the 25th anniversay of a tremendous rout in silver. On 27 April 1987 silver started the day around $9. It had been $5.25 - $5.50 in December 1986, when we issued a buy recommendation on silver. On 27 April it went from around $9 at the opening in Europe to around $11.25, and then down to $7.20, all in a day. The trading was so fierce that Comex had to close for a few days to match and settle all of the trades.

     

     

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  • Fri, Apr 27, 2012 - 6:40pm

    e_r

    e_r

    Status: Member

    Joined: Apr 27 2012

    Posts: 2

    well said

    [quote=Erik T.]We all saw what happened with the subprime fiasco, including the fact that nobody to this day has been investigated never mind prosecuted. The MF Global fiasco has proven to me that we no longer live under the rule of law. We live in a society where a privileged few - like Jon Corzine - are literally above the law. These people have literally bought the right to do as they please, and regulators and politicians are scared to mess with them. It's a sad time in America, that's for darned sure. What I realized is that this makes us feel so frustrated - so helpless as we witness crime after crime going unpunished - that we develop a very strong emotional reaction. As Hoffer described, feeling like we are part of something - a movement that is about truth and justice - satisfies our emotional need to cope with the very obvious decay in the moral fabric of our society and the rule of law. The reasons to be disenchanted are very, very real. Unfortunately, that makes us more susceptible to believing a story that resonates with our feelings of frustration, and makes us less likely to scrutinize the evidence.
    [/quote]
    Erik T,
    Excellent points. Daniel Kahneman talks about this fallibility in his recent book, Thinking fast and slow.
    We're all composed of 2 systems.
    System 1 - fast, intuitive, and emotional
    System 2 - slower, more deliberative, and more logical
    Most of the time, these 2 systems work in harmony so things are okay. But there are times when a person can utterly surrender to System 1, therefore failing to apply logical coherence to their thoughts.

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  • Fri, Apr 27, 2012 - 6:53pm

    e_r

    e_r

    Status: Member

    Joined: Apr 27 2012

    Posts: 2

    MetalsFacts

    [quote=MetalsFacts] 
    Second, Victor, I must get to know you better. You have said many spot on things. I happen to believe that the Sprott silver investments mayprove to be the downfall of silver. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation.
    [/quote]
    Jeff,
    You may have read this already, but in case you haven't: Antal Fekete wrote a nice article on Sprott's funds and silver volatility.
    http://professorfekete.com/articles/AEF140YearsOfSilverVolatility.pdf
    I quote from his article:
    Beware of the fund manager, crying from his rooftop that the paper silver market is a joke, while down there under the roof he is selling paper silver at a 25% mark-up.
    Victor is quite the cleaner 😉
    His write-up on Why Credit suppresses the gold price is spot-on. 

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  • Sat, Apr 28, 2012 - 12:28am

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Jeffrey's comments on Sprott...

    Jeffrey,  I have to question a few points you made regarding Sprott funds..  first, the existence of Sprott funds in Moly... why would you attribute causality to the existence of these funds at a time when markets of all kinds were dumping left and right?  Secondly, I don't understand your point,

    Sprott has amassed an enormous position in physical silver and in most Canadian listed silver mining companies. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation.

    Sprott Silver holds ~ 33M ounces... roughly the same ballpark as the deliverable portion of the Comex inventory.... which Gold and Silver bugs almost universally agree would be wiped out in a flash if/when the monetary SHTF... since it is only $1B worth of stuff.  That is a pittance these days.  I almost have $1B myself.. but I am saving it for some home improvements  : )   Also for context, remember that total yearly Silver mining brings 750 - 800M new ounces out of the ground... so to my mind... your point about the possible effect of 33M ounces on the markets is overblown.. and I don't even understand why the existence of the Sprott fund would drive liquidation, any more than any other holders of Silver.. I certainly understand how lots of people who own PSLV could lose money in a diving Silver market.. but you seem to be suggesting that PSLV could go somehow bidless in a way that would drive liduidation.. .what are you talking about?  Thanks, Jim       

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  • Sat, Apr 28, 2012 - 1:02am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    More food for thought...

    I'd like to offer a few more observations, in hopes they might shed more light on why I am so convinced this is a psychological phenomenon.

    Most humans develop an emotional connection to people they respect and whose actions seem to be aligned with the public good. We're also prone to becoming defensive and emotional if our "heroes" are tainted by others. When I first learned of the existence of GATA, I most definitely considered the principals to be heroes. Hard-working guys volunteering their time to work tirelessly to expose the evil-doing banksters - who could argue with that! And when I did more research and started to uncover overwhelming evidence rebuffing all their arguments, I was slow to believe it because doing so interfered with my emotional desire to keep my heroes up on a pedastal. Eventually, fact overcame rhetoric, and I figured it out.

    Now consider this discussion thread. It began when I observed that Harvey didn't back any of his arguments with factual substantiation or even logical argument, and I debunked some eggregious factual inaccuracies in what he said, such as the nonsense about it being illegal for the futures market to set metal prices because they are only supposed to "discover" the price.

    Now consider the response. Did anyone call foul on my reasoning, and say "Hey, this price discovery thing (or anything else I brought up) really is an issue and here's why..."? No. Over 120 posts and so far nobody has offered any logical argument to rebuff the substance of what I said. One poster instantly came to Harvey's defense, citing Harvey's passion, dedication, and work ethic. But nobody was questioning Harvery's passion or dedication - the point was that everything he says is nonsense. The barrage of posts coming to Harvey, Ted and GATA's defense was overwhelming. I was immediately accused of making ad hominem attacks on the personalities involved, when I had done no such thing. Even after I quoted the Dictionary.com definition of the word charlatan, several people said they didn't care what the word actually means - they still find it insulting and rude that I have (correctly, I would point out) labeled these people with that term. The minor detail that I backed my statement with facts and well-reasoned arguments didn't matter.

    We've had quite a bit of very informed technical discussion in this thread. I learned how the real-time quote system for the OTC market works, and we discussed the GLD Puke theory, as well as several other very fascinating technical discussions. Victor not only impressed most of us site regulars with his knowledge, but even impressed Jeff Christian to the point he said so publically. Yet so far, 120 posts later, nobody has even tried to argue that Harvey/Ted's price discovery argument makes sense, or that the ratio of paper to physical transactions has anything to do with leverage, or anything else related to the actual debunking of the arguments posed by Harvey, Ted, and GATA.

    And let's face it: I've offended several people here by being so outspoken with my own viewpoint. One would think that everyone who took offesne would be just itching to put me in my place by posting a well-reasoned argument for why the price discovery or leverage arguments really are legit, and why I'm wrong. But nobody has even tried to do so, 120 posts pater. One would think that Ted and Harvey (both aware of this thread because I e-mailed them the link) would be anxious to rip me to shreds by posting a well-reasoned argument defending their views, and showing me up as the Charlatan. Yet neither are willing to participate in the thread! In Ted's case, he sent me an angry reply telling me I should attack the message, not the messenger. In reality I had attacked his message (example: price discovery), and had not attacked the messenger in any way, other than correctly using the word charlatan to describe him. I even came to his defense in a very small way, by telling Jeff Christian that I think he's wrong to question Ted's sincerity, and saying emphatically that I'm convinced Ted believes every word he writes. Why would Ted ignore the substantive argument (about the message), and perceive nothing but a personal attack on himself?

    I ask everyone to pretend you are looking in on this situation from outside, and have to choose from two possible explanations. One possibility is that I'm wrong and Harvey and Ted and GATA are right, but for some strange reason, despite the number of people who took offense at my argument, nobody has offered a retort of any kind against the substantive arguments I made. The other possibility is that a lot of people here have come to see these people as heroes who are working tirelessly to combat the evil fraud we all know exists. When our heroes are attacked, we tend to react from the strong emotion of loyalty, defending the people we look up to, by citing their legitimate merits (such as Harvey's indisputable passion and work ethic), while somehow ignoring the well-reasond, factual arguments proving that our heroes really are charlatans afterall.

    One poster felt the need to go out of their way to emphasize that they didn't need me to teach them how to think critically. Was it really the case (as it appeared on the surface) that they found my passionate focus on the facts, logic, and reason, admittedly tainted with an aggressive tone, to be so horribly offensive that they felt it worth posting a reply just to make it clear they didn't want my help seeing the truly pertinent facts? Or is it possible that because I was aggressively discrediting someone they viewed as  a hero, an unconscious emotional reaction was triggered, causing them to need to find a rationalization to justify not listening to anything further from me, because I am the person who is threatening a well-entrenched wordview they have strong emotional investment in? Which explanation seems to make more sense?

    Bottom line, there are still several people here who think I'm the big jerk on this thread. What I don't understand is, why don't you guys just put me in my place by explaining why Ted and Harvey's price discovery argument really does make sense, or why the ratio of paper to physical transactions on LBMA has anything to do with leverage? I mean, if you did that, I'd really look like an idiot and we could all move on. But not only has nobody offered a persuasive argument proving I'm wrong - nobody has even tried.

    I submit that what's really going on here is that a whole lot of you are rightfully outraged at the corruption, cronyism, and fraud that has taken over the financial system. You can't do anything to fix it personally, and that really stinks. But you have mentally associated certain names and organizations with "the good fight" to expose fraud and injustice, which seems like about the most noble thing anyone could do. Then some guy (me) comes along and rains on the parade, pointing out that the people you've been viewing as heroes of the good fight don't actually know what they are talking about, and supporting those contentions with irrefutable facts and well-reasoned logical argument. But I've offended your heroes, and have therefore offended you. I contend that's why you guys are all so quick to come to Harvey and Ted's defense by attesting to their character, passion, etc. without even attempting to rebuff the substantive arguments I've made showing them up as charlatans.

    I too wish that we had people doing what GATA, Ted and Harvey falsely believe themselves to be doing. But unfortunately, the evidence overwhelmingly suggests that these guys, while perhaps well-meaning, are just talking nonsense.

    All the best,

    Erik

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  • Sat, Apr 28, 2012 - 5:17am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    oil again

    Hi again,

    this discussion was so productive that I decided to try my luck with another question. On March 28, there was an open letter by Ali Naimi, Saudi oil minister, in the Financial Times. The following link should take you there even if you dont't have the subscription:

    http://is.gd/8yLc20

    He says about five times that the oil price is too high for **Europe** and that it is inflationary, and that Saudi Arabia has enough excess capacity, and that he wants the price down.

    Several sources ridiculed this letter, saying that twenty years ago when Saudi Arabia wanted the price down, they pumped more, but now they are just writing an op-ed for the FT. But it seems to me that the matter is not that trivial.

    A few weeks earlier (March 16), we had this:

    http://af.reuters.com/article/energyOilNews/idAFL2E8EG73P20120316

    http://ftalphaville.ft.com/blog/2012/03/19/928521/the-saudi-oil-sales-enigma/

    Apparently there is an unusually large number of super tankers ready to leave the Persian Gulf for the U.S., but people say this sale has not yet been affecting the price. So are they delivering on a forward?? (about 18 months worth of oil in one go?)

    Here is finally one of the articles that ridicules Ali Naimi's letter:

    http://ftalphaville.ft.com/blog/2012/03/29/942361/saudi-arabia-resorts-to-jedi-mindtricks/

    Take a look at the comments section and what Chris Cook writes:

    "Furthermore, my take is that the Saudis and J P Morgan Chase have for three years been using Enron-style Prepay contracts to maintain what was essentially an oil peg against the dollar using distinctly un-open market operations via oil repos.

    The problem with this central oil bank strategy is that it requires a continuing flow of funds from muppets into the market as the producers take excess profits out. It is also susceptible to shocks. The Libya spike/shock last year was weathered.

    But the inflation hedging muppet money has been pulling out; inventory financing is sparse to absorb excess oil, and once these fleets of tankers - which are IMHO carrying oil of which Saudis are only the nominal owner - reach the US and title is eventually transferred, then things should get interesting.

    Marshall Auerback recently made the point that quite a bit of the oil which has already flowed to the US in Q1 has not showed up as US inventory. My explanation for that is that this is because the Saudis nominally still own it.

    I have been forecasting a market collapse before the end of Q2 2012, and I stand by that forecast in the absence of a major shock."

    My question: Is Ali Naimi perhaps signalling **THE** shift in Saudi oil policy away from US$ pricing (and from supporting high US$ oil price)? I remember when I mentioned the nine extra super tankers to FOFOA, he said this looked precisely as he was expecting the agreement to end. In a situation in which the U.S. will accept the Saudi decision out of neccessity. Now the following is Chris Cook again:

    "My take - I know for a fact that Marc Rich was in Tehran a few weeks ago, and it wasn't to take the air or go clubbing - is that Obama and Khamenei (who is now firmly back in control) have come to an understanding. Marc Rich is one of the few people trusted by Khamenei: don't forget that he was happily flogging Iranian oil to Israel for six years under the Shah, and another 14 years for his friend Khomenei.

    That could be why Iran wrote within a couple of days of the election (which gave Khamenei political legitimacy over the Ahmadinejad oligarchic faction) to the 5 + 1 meeting to get the ball rolling again; why Obama suddenly became so clear that Iran were not going to have nukes; and why Khamenei was making comprehensive condemnations of nukes as a sin.

    My scenario is that we will soon see Iran backing off - with as little loss of face as possible - to the very same concessions Cheney turned down in 2003 (when Khamenei called the shots) with the difference being that Obama will not insist upon regime change"

    Which is consistent with FOFOA's idea. The 5+1 talks just resumed the other day and the message was that Iran may back off and not insist on doing the enrichment themselves. (We also know that Switzerland will not enforce the embargo as it was not a UN decision - remember Switzerland is a virtual oil hub, Glencore, etc).

    I know this is 90% speculation, but what is the opinion on the oil market? Does this mean we won't get a war in the Middle East, that oil in US$ will substantially go down and the gold-oil ratio up and the U.S. will accept it? Then we should pay attention to the next OPEC meeting (in June?)

    Sincerely,

    Victor

     

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  • Sat, Apr 28, 2012 - 11:19am

    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Erik - all you commentary

    Erik - all you commentary and silence on the 2% issue...very telling.

    You state that "everything that Harvey Organ says is nonsense".  He says to buy physical metal.  Is that nonsense?  Or are you engaging in an ad hominem attack on Harvey?

    You are a proponent of people buying GLD.  You seem to be a proponent of the school of thought that what appears to be manipulation can simply be explained away as arbitrage - or if there is manipulation - its relatively minor - i.e. a few cents here and there - because after all - thats how banks work.

    I like to keep things simple.  My "worldview" is that the US is the dying empire that forces the rest of the world to exchanges its goods and services in exchange for pretty green pieces of paper.  If they dont - we deliver democracy (ala Iraq, Libya, etc...)

    Gold is the antithesis of the US dollar and its valuation is a report card on the US.  When gold rises - it signals a bad grade.  Of course everyone understands this - even the people on the street know that gold rising means bad juju.

    So - gold must be managed at all costs.  A thorny problem in the side of the power elite is silver.  Gold and silver always trade in tandem to each other over any reasonable timeframe.  They rise together  - they fall together.  Of course silver is far more volatile in its moves.

    From their way of thinking - if they can get silver to fall - gold will follow.  Its a very small market and should be susceptible to their machinations.  Or so the thinking goes.  Its far easier to manipulate the price of silver than it is the price of gold (smaller market).

    Switching gears...

    It is said by some that interest rates swaps are the tool that is used to keep interest rates low.  Without them, rates would be far higher than they are and that would be an untenable situation considering the level of indebtedness the US carries.  So, essentially the thinking goes that these IRS's are the manipulative tool used to suppress things so the show can go on.

    Taking the same thinking into the silver market - I wonder if the same strategy is in play, i.e. using derivatives as a means of suppressing the price. 

    http://www.bis.org/publ/qtrpdf/r_qa1012.pdf  (bottom of page 124). 

    Jason Hommel has done some work with this line of thought and I would be interested in yours (and others) comments on this.

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  • Sat, Apr 28, 2012 - 2:36pm

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    Dear Strawboss

    I don't know why Erik isn't replying to you (maybe he isn't interested in the the issue) but since you keep asking I'll give you my two cents.

    The fact that gold rarely rises above 2% in a day speaks to its stability. Currencies also tend not to trade with the kind volatility that commodities experience.

    Also, if the COMEX were the main venue for source of funds into the gold market then maybe you would experience price swings no different than corn or soybeans. For what it's worth, I don't have a clue what the volatitity of corn or soy beans is like and I'm not going to look now, I'm just going to go out on a limb and assume: greater than gold.

    The difference between other commodities and gold is that gold (and silver, but I think mainly gold) are traded in the OTC market, deposited into unallocated accounts and fractionalized and all in all there are many greater quantities of gold trading OTC than on the comex. Any big price divergences on the COMEX are arbitraged away. And since there is therefore such greater quantities available for trading on LBMA and in the OTC market, well, smaller investors won't move the price of gold so much as other exchange traded commodities. Basically, bigger market than other commodities = less volatile.

    My question is: why would you expect it to trade at a volatility of greater than 2%? What requires it to behave so?

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  • Sat, Apr 28, 2012 - 2:41pm

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    Enough, Erik.

    [Hi Christopher.  This comment is hidden.  Why do these things come up when I have a final examination in 45 min?  I'll handle the issue further later this afternoon. - Jason ] 
    Jesus Christ, Erik. Can't you just stick to the topic instead of relentlessly whining? All it takes apparently, for you to run off making accusations about someone is for them to tell you not to. What are you looking for, adulation and a ticker tape parade before you feel validated here?

    Speaking for myself, I am not "offended" by you. I am simply tired of your running on and ON with the pretentious, armchair psycho-analyzing of other people, both here and elsewhere. Enough already. You don't know me, not one bit. Nor do you have any idea what I think about anyone's argument here. Just because people might object to your relentless bellyaching doesn't indicate whether they agree or disagree with you.
    Get over yourself already.

     

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  • Sat, Apr 28, 2012 - 3:52pm

    Johnny Oxygen

    Status: Gold Member

    Joined: Sep 09 2009

    Posts: 454

    Erik Wrote:And let's face

    Erik Wrote:

    And let's face it: I've offended several people here by being so outspoken with my own viewpoint. One would think that everyone who took offesne would be just itching to put me in my place by posting a well-reasoned argument for why the price discovery or leverage arguments really are legit, and why I'm wrong. But nobody has even tried to do so, 120 posts pater. One would think that Ted and Harvey (both aware of this thread because I e-mailed them the link) would be anxious to rip me to shreds by posting a well-reasoned argument defending their views, and showing me up as the Charlatan.

    I'm not offended and I'm sure Harvey and Ted aren't either. They just don't care. Everyone is entitled to an opinion. You are just coming off as arrogant and rude so why bother.

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  • Sat, Apr 28, 2012 - 4:18pm

    shudock

    shudock

    Status: Member

    Joined: Mar 15 2010

    Posts: 0

    And apparently it is fine

    And apparently it is fine with the moderators that Erik write reams of diatribe about the other commenters here, including myself, and I am not allowed to answer back.  

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  • Sat, Apr 28, 2012 - 4:38pm

    MetalsFacts

    MetalsFacts

    Status: Member

    Joined: May 17 2010

    Posts: 0

    Jim H

     

    Jim H,

    You asked about my comments on Sprott's fund being a hole in the armor of the silver market. I may be over-emphasizing his fund's size. I thought he had more metal. Regardless, he has other funds with too large of positions in silver mining shares to be easily liquidated, and Sprott as a company has shown itself to be like a rat on a sinking ship in other markets (and silver): They dump as soon as things look ugly.

    Actually, the issue is more ETFs. I am on record for years as warning that the mechanical nature of physical metal ETFs management is a big risk to these markets. In fact, there was a commentary that we wrote presumably confidentially to the SEC when it was first considering permitting silver ETFs that somehow became public about some of the risks we saw. One was this.

    Hedge funds, in contrast to public ETFs, have an orderly liquidation process. You have to signal your intention of redeeming shares typically 60 to 90 days in advance, to give the manager the opportunity to liquidate positions in an orderly fashion to match the upcoming redemptions. Physical ETFs do not have such management discretion. Investors go only and sell shares. If the sale is not met by ready purchase orders in the market, the market makers have to buy and hold them in the market. The market makers generally will redeem heavy sales flows (see what happened in the first half of May last year, and, on a smaller level, what happened in April last year). If investors say sell, or click the sell button on their computers, the managers of the ETFs have to sell at that time regardless of the price. So, prices could cascade downward in such an event. Obviously the SLV is the biggest worry, with 312MM oz, but the others could be worse, insofar as they may be sold in less liquid markets. PSLV has only 32 MM oz, so it is somewhat less worrisome, but I also am focusing on the silver mining shares held by other Sprott funds.

    Jeff

     

     

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  • Sat, Apr 28, 2012 - 5:57pm

    CPTWaffle

    Status: Member

    Joined: Dec 27 2011

    Posts: 0

    PS Strawboss I'm just trying

    PS Strawboss I'm just trying to offer a sensible answer and apply what I've been learning here. Maybe my answer is off and someone should correct me.

    My understanding that much greater traded amount of stores of a partiulcar commodity and volumes traded of a commodity seems to me would mean it should be less volatile than one with smaller stores and lower volumes. I think this applies to gold, certainly based on what has been revealed about the OTC market.

    Cheers

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  • Sat, Apr 28, 2012 - 9:48pm

    Travlin

    Status: Gold Member

    Joined: Apr 15 2010

    Posts: 524

    I not persuaded

    Reading this thread leaves me shaking my head in disbelief. All that sound and fury about how there really isn’t any manipulation of precious metals. Meanwhile people dance around the elephant in the room and dare not look his way. What is the name of this site? Who hosts this thread? Who invited Harvey Organ here and respectfully interviewed him? Does he think metals are manipulated? Why look what we have here. This is just the most recent example of many. https://www.peakprosperity.com/blog/gold-manipulated-thats-okay/72892

    Now Chris does not work as a professional in the metals markets. However he does have an MBA, majoring in finance, from an Ivy League university. He has extensive experience as a sophisticated investor in multiple markets, with 10 years in gold and silver specifically. He is confident enough in his knowledge to hold 75% of his assets in this sector. He has watched the daily action long enough to spot anomalies. As the creator of the Crash Course he has demonstrated his ability to draw sound conclusions from confusing data.

    How does Chris’ knowledge compare to the “experts” who work in these markets? Well you can’t beat an expert at his own game. They can argue you to death with the intricate details that can only be know by insiders. I know from experience as I’ve been on both sides of that proposition. However, the “experts” will usually be the last to admit, even to themselves,  that they make their living from a rigged system, because it makes them look bad, and scares away customers.

    If you are inclined to bash Harvey Organ for what he said in the interview, you might want to listen to it again. You may notice that much of what Harvey said was a confirmation or elaboration of things Chris said he had noticed from his own experience. People who profess admiration of Chris and his work, and may pay a sizable subscription fee for it, have some explaining to do when they assert that people who think precious metals are manipulated are either, dumb, naive, or misguided.

    Those of us who are not “insiders” can’t answer the manipulation question conclusively. I think it is incorrect to ascribe every market action to manipulation. I also think it is wrong to say serious manipulation doesn’t exist. I have to reconcile what more knowledgeable people say against my own observations as an investor. On that basis Chris’ views are much more credible, and have not been refuted by what I have seen in this thread. If he changes his mind I will listen closely. And no I don’t have an emotional attachment to Chris as a “hero”. But I do consider him the most trustworthy source.

    The name calling and personal attacks seen in this thread, however they are rationalized, greatly detract from the credibility of some of the arguments presented. Effective debate is based on persuasion not denigration.

    Travlin

     

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  • Sun, Apr 29, 2012 - 3:45am

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    False Mr Christian?

     Regarding your Point No. 2 presented under the heading False, False, False, re Andrew Maguire and the CFTC never acknowledging receipt of his emails: 

    CFTC commissioner Bart Chilton said, "I'm appreciative of the information Mr. Maguire provided and I'm glad it was introduced into the investigation."

    Read more: http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O#ixzz1tOh6LuzO

    Based on some of your comments here I do think you get a bad press in the metals blogs, and possibly unfairly so, but this sort of thing could partially explain that.

    SR

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  • Sun, Apr 29, 2012 - 4:21am

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    Mr Christian, maybe not false?

     The Maguire emails were purportedly sent to Eliud Ramirez.

    Your comment: "That person does not work at the CFTC as of now, April 2012, and the CFTC declined to verify he had been an employee in January and February 2010. So, he may never have actually worked there".

    Well, a moment's analysis of that statement turned up this: http://www.cftc.gov/PressRoom/PressReleases/pr5873-10

    You, and readers, will note that Mr Ramirez gets second billing in this CFTC press release of August 2010 detailing the success of an investigation (based on traders being overheard boasting of manipulation, no less), whcih started in January of 2008.

    You would also be aware that the emails were cc'd to Mr Bart Chilton. Did he ever, or does he still, work at the CFTC?

    After you have apologised for repeatedly attempting to mislead people, elsewhere and in this commentary, would you please address yourself to a matter on which you could truly assist, rather than distract, this audience: is silver manipulated?

    SR 

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  • Sun, Apr 29, 2012 - 4:45am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    more input

    Somebody I know on another discussion forum, commented this which I quote literally:

    [1] Ignoring capital costs, diesel fuel is actually the vast bulk of the running costs of a mine as most often the required electricity is generated by on-site diesel generators. This is simply due to the fact that mines tend to be in remote places.

    [2] Strawboss wrote that with a switch to NatGas, the mining industry's EROI will change for the better. Maybe until the gas gets out of the ground. It is much more expensive to transport to the minesite (per joule) than diesel. In any case, NatGas infrastructure is simply non-existent in many parts of the world.

    [3] I have a close friend who is a high level player (partner) in XXXX Non-Ferrous Metals Group (one of China's largest non-Fe metal miner/processors) with resources and processing all over the world. They won't touch gold anywhere but in China due to "political risk". He says quite openly that Gold mines will be nationalized, and not just in Australia & Canada. Only a question of when.

    Victor

     

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  • Sun, Apr 29, 2012 - 8:40am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    It seems Mr. Organ refuses to participate as well

    Sigh...

    [quote=Harvey Organ]

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    From: Harvey Organ
    Sent: Saturday, April 28, 2012 5:34 PM
    To: Erik T
    Subject: Re: Disappointed you haven't participated in your own comment thread

     

    I will not participate if Jeff Christian is participating.

     

     

    On Wed, Apr 25, 2012 at 10:51 PM, Erik T wrote:

    Hi Harvey,

     

    I hope this finds you well. I’m writing to make sure you are aware of the very lively conversation in the comment thread in reaction to your recent interview with Chris Martenson. Quite a few notable personalities from the precious metals industry including Bron Suchecki and Jeff Christian are personally participating in the discussion, which is rather unprecedented for an open internet discussion forum.

     

    I have to wonder whether you’re aware of the conversation, because frankly your credibility is being challenged by several people, including myself. While I make no apology for criticizing what I see as bogus commentary, I also feel it’s wrong to talk about people behind their backs, so I wanted to make sure you were aware of the discussion.

     

    When I was recently interviewed by Dr. Martenson myself, I felt obliged to keep an eye on the comment thread, and to answer any questions that came up there. It’s disappointing that you have so far chosen not to participate, and I hope that you’ll feel inclined to come join the discussion and defend your contentions from the interview. The link is https://www.peakprosperity.com/blog/harvey-organ-get-physical-gold-silver/73933?page=0#comments. Please come join the conversation!

     

    All the best,

    Erik[/quote]

    Could it be that Harvey and Ted are afraid of a debate where someone knowledgable is participating? Naw, Jeff Christian is a "lightweight" - I know, Ted Butler told me so...

    Erik

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  • Sun, Apr 29, 2012 - 9:01am

    Troy Ounce

    Troy Ounce

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    It is all about "trust"

    So there are about >170 currencies in the world and we all agree that CB manipulate these currencies to weaken or strengthen them for whatever reason? Front page news as Swiss banks sell CH-Francs & nobody cares.

    Only gold (being a currency as it is traded on currency desks of the big banks, not the commodity desk) is apparently not being manipulated? Am I missing something?

    A low gold price means everything to CB; a high gold price means "mistrust" and the beginning of the end of the system. CB knows this very well, you know this and of course people "eating from the system" will vehemently deny this. There is a very strong reason for this denial because even writing about it might give credibility to the initial statement.

    Therefore, gold price manipulation is the raison d'etre of CB, next to controlling inflation or price stability. And of course CB’s are not going to admit this aided by their True Believers.

    The discussion on this post has to do a lot with "trust". Eric T pulls his hair out reading about John Corzine, etc. but cannot or does not want to make the link to a the bigger system based on fraud, racketeering and manipulation to serve the few. Is it because he is a "True Believer"?

    His statement that the gold price went up because of Central Bank printing (only) is also difficult to understand. He forgets (?) totally the historic fundamental of gold for the last 2000 years which is that gold is used as a shelter against corrupt financial and political leaders. Does a higher demand also have something to do with a higher gold price, perhaps?

    Again, the "trust" story. Who do you think has your best interest at heart: the possession of physical gold or your present political & financial leader?

    The big question is: who do you trust? Not “who do you believe”. Trust is earned. Make you pick.

     

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  • Sun, Apr 29, 2012 - 9:22am

    S Roche

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    @ Troy Ounce

     Simple. Concise. Correct.btw, interesting that CBs are generally regarded domestically as benign forces. Until they are not.
    http://www.lietaer.com/2010/01/complementary-currencies-in-japan-today/ ...600+ currencies in Japan alone. As the CBs lose control, local currencies re-emerge.

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  • Sun, Apr 29, 2012 - 10:34am

    S Roche

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    Dear Mr Christian

     While waiting to hear back from you on whether you would apologize for your attempt to discredit Andrew Maguire by claiming in regard to Eliud Ramirez, (to whom Andrew sent his emails*), "he may never have actually worked there"(CFTC)...

    http://www.cftc.gov/Search/search?client=cftc_V01R01&output=xml_no_dtd&proxystylesheet=cftc_V01R01&sort=date%3AD%3AL%3Ad1&entqr=3&oe=UTF-8&ie=UTF-8&ud=1&filter=0&site=pressrel&q=Eliud+Ramirez&search-press-submit.x=14&search-press-submit.y=9

    Which records several pages of press releases detailing Mr Ramirez's work for the CFTC including January 28 2010. The emails started on January 26. You introduced this topic, apropos of nothing anyone else had said, so I think you should respond in order not to be judged along with Harvey Organ, who apparently is refusing to defend his integrity.

    SR

     * some were copied to a B Chilton and a G Gensler...who do work at the CFTC, that was a trick question in my last comment to you on this subject.

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  • Sun, Apr 29, 2012 - 12:15pm

    CPTWaffle

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    Still no apology necessary

     Hi S Roche

     

    I think Jeff Christian covered his bases  in his reply and unless new evidence comes to light, he is justified in holding back his apology.

    He admitted that it's possible that CFTC did receive the emails, but essentially said "thanks, but no thanks."

    It seems we're conflating issues here: Andrew Maguire's trustworthiness (and Jeff Christians's responsibility to apologize) does not hinge on whether the CFTC did or did not receive his email. It hinges on the validity of his allegations. 

    Why can nobody verfiy that this guy used to work for Goldman Sachs? Here you have a guy who claims to have worked for one of the most prominent investment banks but nobody remembers him? If he did work for Goldman Sachs, nobody would be question it. Some colleagues would remember him, there would be records they could publish, something.

    Doesn't his war cry to 'form an army' and take down the Cartel make the hair on your neck stand up a little?

    He is doing very well for himslef, charging $500 a month per client. I wonder how many new clients signed up because of his recent call to form an army? 

    Troy Ounce: you say this is all about trust. Exactly. I don't trust people who give investment advice but make factually incorrect statemets (Harvey Organ) or who people who have such a murky history that I cannot actually verify their personal details, let alone track records (Andrew Maguire).

    With regards to Jeff Christian, everyone can verify his employment history, his comments on gold and silver going back for many years, his warnings, his eplanantionsof complex things like lease rates and deliveries etc etc. What useful, enlightening insight Andrew Maguire provided us with for free? Besides repeating what Ted Butler, Harvey Organ et al have been saying for years?

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  • Sun, Apr 29, 2012 - 3:00pm

    bowskill

    bowskill

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    re Production Costs and Energy

     Several pages back, MetalsFacts wrote:

    The average operating cost of production for gold in the world at present is around $670 per ounce. Full in costs, including discovery, finance, corporate overhead, interest rates, depreciation, etc., are around $800, maybe $850 per ounce. So, gold mining on average at present is returning about a 100% profit. There's a long way to go from current prices before production would be constrained. 

    I have a close friend who was a senior geologist and moved up to managing gold mines in Australia, South America, North America and Africa. He told me that costs are divided into cash expenses and capital expenses. He more or less concurs that operating cash expenses are around the US$600 mark pretty much in any mine. However the "capital expenses" are usually understated and the actual total costs per ounce comes in between $1000 and $1300. The real bottom line profit margin is more like 15% than 100% in many cases. He says a sustained drop in gold price much below US$1500 per ounce will start to see mines mothballed and production cease. For that reason, miners believe there is a higher floor to gold prices than many think.

    Energy costs are about 30% of cash expenses or around $180/ounce currently.

    The reason that "capital expenses" are understated is the way miners go looking for capital investment to open new mines. They write a prospectus to financiers hilighting the cash expenses and hiding the real capital costs in the fine print, thereby giving the impression that the investment is safe.

    This information was given to me over a beer, but it was from the horses mouth.

    John

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  • Sun, Apr 29, 2012 - 4:36pm

    S Roche

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    @ CPTWaffle

     1. I cannot find one instance where AM claimed to work for GS. Others say this, please show me where he says it.

    2. The CFTC responses in the emails read to me as a standard acknowledgement by a bureaucrat, neutral. I supplied evidence of press commentary by CFTC Commissioner Bart Chilton acknowledging and thanking AM for his information so I cannot see at all where the "no thanks" you suggest comes from. 

    3. JC said in this commentary that one of the reasons that AM is not to be trusted is that Eliud Ramirez may never have even worked for CFTC...I have supplied sufficient evidence that this new claim, made here, is nonsense and brings JC's credibility into doubt, not AM's. Hence my support for the calls for an apology.

    4. The point about the allegations is the key, JC ignores this and attempts to distract from the real issue with non-sensical questions raising false doubts about AM's back-ground. You make my point (previously made) for me.

    5. I sense this renewed gratuitous attack by JC on AM may be more an attempt to harm this latest trading venture, which is not for me but I happen to be familiar with the trading style AM uses. It is a comparitively low-risk trading style in that market which has a track record of profitability. My knowledge colors my perception of this venture.

    As a professional in the industry I think it is appropriate to hold Jeff Christian to a higher standard than the normal blogger and request an apology. Any blogger who had made the indefensible claims made by Mr Christian here in respect to Andrew Maguire would be subjected to villification.

    Thank you for your commentary on my commentary directed to Mr Christian.

    SR

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  • Sun, Apr 29, 2012 - 4:53pm

    Celestino

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    A Few Observations

    1) Erik Townsend has now ignored 4 times Strawboss's question regarding gold not going more than 2% on any given day (except for a meager amount of times which you can probably count on one hand) during an 11 years bull market in contrast to crashing many times 3-5%. I'm asking Erik as well as Jeff Christian (who has also ignored this issue): Is this a normal behavior for such a powerful bull market and if so, can you please provide historical references (i.e. other bull markets in history which behaved in the same way).
    2) Emotional Arguments: Mr. Townsend has claimed that his bashing-targets have been using arguments which appeal to the emotional needs of their followers rather than logic and reason. Yet from his very 1st comment he has been engaging in blatant name calling (please go back to that 1st comment and count how many times he has used the word "charlatan") which by design are intended to rile everyone's emotions. If your arguments really stand alone on the basis of reason and logic than why even go there? Why the need for personal attacks and to rile your readers emotionally?

    3) Both of you (Eric Townsend as well as Jeff Christian) have singled out certain individuals yet have refrained from attacking others who are also proponents of the idea of market manipulation. Why the double standards? Would any of you dare calling David Morgan a Charlatan? How about Jim Sinclair? Eric Sprott? James Turk? Keith Neumayer, the CEO of First Majestic or (hmm) Chris Martenson whose website you're currently using? Btw, another question for Erik and Jeff: How 'bout John Nadler? and Dennis Gartman? Are they real experts or charlatans? Please comment regarding each of the individuals above.

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  • Sun, Apr 29, 2012 - 6:51pm

    Troy Ounce

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    Do not hold your breath.

     While there may be "true believers" in the gold bug fraternity, there are many, many more "true believers" in a fraudulent system set up to service the chosen few and very happy to look the other way because they are munching from the trough of unlimited money.
    Don't hold you breath.

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  • Sun, Apr 29, 2012 - 7:34pm

    ivars

    ivars

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    Silver prediction chart:manipulation has not changed for 10years

    Excellent discussion, very informative and full of learning (except of few personal attacks/fights).

    Here is a silver price  prediction chart I made on March 13, 2011 (red line) and after predicting correctly crash in May 2011 and September 2011 corrected a bit its time scale in October 2011 (green line, or line that does not shoot up in April 2012): (use right click-view image to see the numbers):

    i will explain how I made the chart that proved quite succesful so far - actual prices in blue-everyone knows where they are at the end of April):

    As I made my silver chart as a copy/paste from about 10 years past silver action at some point which before that point matched in pattern the pattern before March 13, 2011, and the silver bubble in May I saw coming, just changing time/value scales to match the current scales, and PROJECTED forward i.e. copy pasted its part that went beyond the matching part, i can say that due to the charts accuracy so far:

    The markets at that point of time and in that time and value scale were manipulated almost EXACTLY in the same way as TODAY.

    Does not say much for increased manipulation argument. In fact, the pattern I took from past was in much smaller time/value scale, almost unnoticeable.

    What was common , though, both before current (after 2008) and then market action there was a shock event that brought EXTREME cooperation (groupthink, herding) in all markets that later , in silver market, deco operated (individual participants looking after their interests in more and more divergent ways)  in the same way, producing the same pattern.

    What my idea was, each market as a system has its distinctive way to decooperate ( seen in price over time chart pattern) after shock events, which should more or less repeat itself every time these shock events lead to ultimate freezing, or herding, of market at question.

    Similar to an eg analog electronic circuit: by putting a delta impulse at the input, the circuit based on its internal "black box" structure will give similar output every time, on any scale as long as it stays linear ( i.e. input amplitude is not too big/small). The black box action on delta impulse or sharp loss/gain in value= Heaviside step function ( shock event) will then be described by a single analog parameter =chart =so called  transient response function.

    If the system ( market) internal structure (and that includes everything)  does not  change much during time, it will always respond the same way. Well , of course, real shocks differ very much, but some of them are so strong that action on market can be considered similar.

    Ivars

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  • Sun, Apr 29, 2012 - 11:36pm

    Strawboss

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    Is Jeffrey Christian really an "expert"?

    If Jeff Christian is such an expert that mining companies pay for his expertise, I would be interested in knowing precisely which mining companies he is consulting with and what their results are in contrast to their peers.  I would assume that if Mr. Christian is the expert that Erik makes him out to be, he should have multiple examples (or at least 1 or 2) of companies he has strategically consulted with which has allowed them to optimize their profitability on behalf of their shareholders.  These results should be demonstrably better than other comparable miners and we would likely be familiar with the performance of said miners - and if not - would like to.

    If Mr. Christian isnt able to provide that information - I would challenge the veracity of the label of "expert".  That seems reasonable to me as it is analogous to demanding that Andrew Macguire provide certain information to demonstate his bonafides.

    Switching gears...

    I very often hear talk about a persons reputation, background, who they have worked for, etc... as a way of vetting them (are they credible, are they an expert, etc...)  My own personal experience is there are many people that are incompetent, lazy, or just plain stupid.  But, if you look at their resume or view their profile on LinkedIn - you would think they were great.

    It makes more sense to me to evaluate what a person says in the context of my own understanding about the subject matter.  Then - to seek out other viewpoints so that I can compare and contrast.  That process serves me much better than relying upon a "groupthink" opinion that so and so is an expert or because someone went to a certain school or worked at a certain company somehow makes them credible.

     Strawboss

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  • Mon, Apr 30, 2012 - 1:30am

    MetalsFacts

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    29 April 2012

     

    First let me apologize for what I actually have done wrong. I apologize for not stopping all of my important work on Friday and undertaking a thorough investigation as to whether Eliud Ramirez had worked at the CFTC in 2010. Instead I only reported what the CFTC had told me when I called them to verify his past or present employment there. As someone who was an investigative reporter briefly in the middle of the 1970s, and as someone who has made his life’s work and fortune out of making sure that the information, data, statistics, and knowledge on which I base my conclusions were the best possible set of information, I was wrong to rush to tell you what the CFTC had said without squandering another five minutes of my time on checking out that he did in fact work there. That’s the price I pay for allowing myself to be distracted by such, well, distractions, sideshows to the real gold and silver markets.

    I will not apologize for questioning the authenticity of Andrew Maguire’s bona fides. He owes the world credentials, and has gone out of his way to not provide them. What is he hiding?

    Second, to the person who pointed out that he had not heard Andrew Maguire represent himself as having worked for GS, only his handlers: So what? I see that happen all the time, in politics. Ron Paul is very careful about not saying certain things, but rather having people aligned with him say them. Plausible deniability. One is measured, in part, by the company one keeps. I have not heard Andrew Maguire say anything, as I try to avoid the carnival sideshows while I focus on the real markets. (You will sense a theme here, if you have not done so already.)

     

    Now, to the important point: The key point is that you have seen nor heard NOTHING from the CFTC verifying the communications Andrew Maguire says he had with them in January and February 2010. You ONLY have seen his representation of that. Do you not realize that? It’s a classic practice of scam artists. The information you, the world, has received about this would be inadmissible as evidence in a court of law. Why would you settle for a lower standard?

     

    S Roche wrote: “3. JC said in this commentary that one of the reasons that AM is not to be trusted is that Eliud Ramirez may never have even worked for CFTC...I have supplied sufficient evidence that this new claim, made here, is nonsense and brings JC's credibility into doubt, not AM's. Hence my support for the calls for an apology.” The comment that the CFTC would not verify that Eliud Ramirez worked there is the absolutely least significant argument I supplied. For you to say that I based my assertions that Maguire is a fraud on that is to either ignore what I said or display a massive problem with reading comprehension. Sorry if that’s too blunt, but I have never understood what that saying means about suffering fools lightly. I don’t suffer fools lightly, especially when it comes to casting aspersions on the markets in which I make my living.

     

    All of this is a giant distraction from what is really happening in the global economy and markets.

     

    Someone said he had not seen any discussion about the actual substantive issues here: Is the silver market manipulated. I assume he was referring to this set of comments, because there are enormous bodies of evidence that suggests there is no massive ongoing suppression of silver prices. There were the 2004 and 2008 CFTC investigations. There has been others stuff.

     

    I do not know if that breaks the apropos of blogs, but let me suggest people go to CPM Group’s website. You will find massive amounts of free research and analysis on issues that really are important to the gold and silver markets. You also will find a section in our Free Library that provides some documents about silver conspiracies. Summary reports on those two CFTC investigations are available there, along with other documents related to silver conspiracy theories, a presentation I gave on them in 2008, and a copy of a letter Ted Butler wrote to Richard Thornburgh, then Attorney General, in 1989.

     

    Perhaps of greater interest is a link there to a video CPM made about Silver Conspiracy Theories in September 2008.  CPM had made a presentation in June 2008 to an industry group on the topic of Silver Conspiracy Theories. Several people expressed the view that it should have been videotaped and posted on the internet. As a result of these suggestions, CPM Group made a video related to these topics, which was posted at the Kitco website in September 2008. That video is available at the Kitco archives.

     

    CPM Group’s website address for Counter-Arguments to Silver Conspiracy Theories

     

    http://www.cpmgroup.com/category.php?ID=8

     

    Note: CPM is preparing to launch a re-designed in May 2012, and the address to this page will change. The page and related documents will be available at CPM Group’s website, but at a new address.

     

    The Kitco video link:

     

    http://www.kitco.com/ind/jeffreychristian/jeffreychristian2008-09-17.html

     

     

    A couple of other points:

     

    Someone mentioned capital costs, saying a geologist told him there were high, around $1,000. They are that high at a few poorly run mines. The average globally last year was around $150 per ounce. That’s not a guess over beers. That is the calculation derived from a thorough quantitative analysis of mines that account for something like 80% of global mine production. That’s the average. If there are a couple of companies with non-cash costs around $1,000, and there are, that average means there are a lot of mines with far lower capital and overhead expenses. Actually, the average is close to typical. The number of mines with $1,000 or so in capital costs are very few with relatively low production: The low production levels in terms of gold being produced at a given mine is what gives them a high per-ounce cost. If they were larger mines, the capital costs would be spread over more ounces and would be commensurately lower.

     

    Someone keeps referring to some comment about how gold prices never rise more than 2% in a day. I will be honest here: I have only paid cursory notice to much of the commentary here and, knowing Harvey Organ as a source of unreliable hearsay, I paid no attention to his interview. So, I don’t know what price bases he was using or what calculation, but I took a very quick glance at the nearby active Comex gold futures settlement prices since 2009, and the day-to-day change in the settlement price was more than 2%, plus or minus, around 30 times, or something like 3.6% of the days since the start of 2009,

     

    Finally, someone just posted something saying that Erik T. and I seemed to be selective in our criticisms of various people. They listed several people and asked what we think about them. Jim Sinclair has been my friend since the 1970s; when I was trying to decide whether to go somewhere else after watching the 911 attacks four blocks from my office, Jim was the only person in the metals business who was able to talk me off the ledge and bring me around. Dave Morgan I count as a friend, and have been at times befuddled by his willingness in public to try to straddle the conspiracy topic, saying sometimes he thinks there is manipulation and sometimes there is not. He does say much of what I say: Yes, traders come in a slam the market at times, trade in ways aimed to gun stops, etc. These are short-term, immediate strategies. I think he would agree with the two CFTC studies, me, and others that there is no basis to believe there has been a massive on-going effort to suppress silver prices. In fact, it was interesting that in 2008 even Butler was backpedaling that view, saying instead that there was just too much concentration of shorts among a handful of banks. It was only in October 2010, when Sprott was preparing his PSLV launch, that the conspiracy re-discovered the argument that there was a massive effort to suppress silver prices. BTW, does anyone believe it was a coincidence that the complaint alleging JP Morgan was suppressing silver prices was filed in US courts the day before the Sprott PSLV was launched. If so, you are not much for believing in conspiracy theories, are you. 😉

     

    I save my criticism for those who seek to distract investors from what really is going on in the market, and seek to defraud them by perpetrating lies, in my view knowingly.

     

    Good night. Monday will be busy, and Asia already is open for trading.

     

    Jeff

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  • Mon, Apr 30, 2012 - 1:44am

    MetalsFacts

    MetalsFacts

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    Follow Up

     

    After I posted this last note, I noticed that Strawboss had asked me to verify my qualifications.

    Strawboss, go to cpmgroup's website. You will see a lot of material about us.

    To your specific question: CPM Group's client list is confidential. Several companies allow us to use them as references, and we are seen in the market as experts. If you look at our annual Gold Silver or Platinum Group Metals Yearbooks you will see various companies as sponsors. Obviously, these are companies that use us. If you review the list of corporate sponsors of our annual Silver Reception and Specialty Metals Receptions at PDAC, you will see other major corporations.

    Around 70% of world gold production, 85% of silver, and most of the platinum group metals comes from companies that take some level of research or consulting from us.

    You probably would find the Yearbooks incredibly informative. Also, I wrote a book, Commodities Rising, in 2005, released in 2006. You probably would find that very interesting and insightful. It is a very chatty book, full of anecdotes, so you can learn a lot more about my background there, while also learning all sorts of things about commodities markets.

    In the 1990s we had advertisements that used three references. One was Sir James Goldsmith, one of the best gold investors of all times, and one of the most amazing people I have had the pleasure to work with. Another was Stanley Druckenmiller, who was in charge of the Quantum Fund for Soros Investments at the time. The third was Mark Lettes, who ran the gold hedge book at Amax Gold. At the time the market was valuing gold at around $340. Mark's team was trading around the market and earning around $500 per ounce for the gold it sold from the mining operations. His performance speaks volumes. In fact, one anti-hedging advocate in a debate with me in London said that if every gold mining company could have a CFO or Treasurer like Mark Lettes, he would not be against hedging.

    There are many others.

    Read the books. That's the best way to get to know me.

    Oh, there is another way. In the early 2000s GATA tried to get attention for itself by challenging the World Gold Council, GFMS, or Jessica Jacks/Cross to a debate. None of them would respond. One of the world's largest gold mining companeis said to GATA that it would finance and arrange a global, via the internet debate for GATA, but with me on the other side. GATA stopped making that challenge, until 2009. It made that challenge in 2009, and Bernard Lo of Bloomberg TV (at that time) said they would arrange it. GATA backed off. We dragged them to a debate at Jim Puplava's Financial Sense in May 2010, after they lied about my CFTC testimony. That debate is still available on the internet, as is the second one we dragged them into in October 2011 at the Silver Summit, also available on the internet. I thought their refusal to debate me was a compliment. So, too, was the fact that another ersatz competitor of ours used to refuse to be at the same conferences as us, much less on the same panel as us. So, too, it seems, Ted Butler's and Harvey Organ's unwillingness to engage in any debate with me. Scam artists don't like facts and figures, and sober analytics.

    I hope that helps point you to ways to qualify me.

    Again, good night.

     

     

     

     

     

     

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  • Mon, Apr 30, 2012 - 1:54am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    2% cap

    I remember that 2% cap claim be made, but can't remember where. Can someone provide the link to the source. Questions I have are over what time period was the analysis done and the exact claim.

    In the meantime I had a look at % price moves from AM Fix to AM Fix the next day since Jan 1 2000. I picked the London Fix as I have the data to hand in a spreadsheet and could knock this up quickly.

    Over that time period we have 3029 data points and the summary frequencies are:

    Greater than -2% - 118
    From -2% to 0% - 1337
    From 0% to 2% - 1427
    Greater than 2% - 147

    Looks pretty balanced to me with a skew to the positive, which we should expect during a bull market. I have a chart but can't upload at this point. Anyway, need the source link so I can replicate the analysis.

     

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  • Mon, Apr 30, 2012 - 3:35am

    S Roche

    S Roche

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    Mr Christian

     Thank you.

    I note that it was not particularly gracious but I accept it. I am sure we all await the umpire's verdict with interest.

    SR

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  • Mon, Apr 30, 2012 - 3:44am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    PSLV discount

    [quote=Erik T.]Given the redeemability clause and the law of efficient arbitrage, I don't believe it's possible for PSLV to trade at anything more than a very, very small discount to NAV (equivalent to the cost of arbitrage).[/quote]You are correct, the ability for the big boys to redeem should mean not too much discount will occur. However I seem to remember PSLV had a different tax treatment and something about tax liabilities but can't find it. I think it was that redeemers don't have any tax liability (which is good for no discounted buyback prices) but that the tax liability is left with the remaining holders (not good), but not sure about that.

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  • Mon, Apr 30, 2012 - 4:07am

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    2% Cap

     @ Bron,Good input, thanks. The 2% cap claim was made in this thread several times with the time frame being from 2000 as you have covered.
    I have a spreadsheet for the AM & PM Fixings and I will run it later several ways to see whether we are dealing with statistics or damn statistics as I suspect...the SK Options work* (updated Jan 2012**) was based on Adrian Douglas article from August 2010 (based on Dimitri Speck's research...everyone covered?) was referenced on this site by Chris Martenson and is referred to as "The Overnight Trade"
    https://www.peakprosperity.com/blog/gold-manipulated-thats-okay/72892 .
    SR
    http://www.skoptionstrading.com/updates/2010/8/27/proposing-an-overnight-gold-fund.html
    ** http://www.skoptionstrading.com/updates/2012/1/14/revisiting-our-proposal-for-an-overnight-gold-fund.html

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  • Mon, Apr 30, 2012 - 4:10am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    GLD bars

    [quote=Strawboss]Firstly - they are purported in a GLD vault, but, the bar they show belongs to another fund?  Who's vault were they really in?[/quote] 
    They were in HSBC's vault, which happens to store metal for various clients and various ETFs. They just didn't check to make sure the pallet Pisani picks up the bar from was one with GLD bars, not ETF Securities bars.
    [quote=Strawboss]Secondly, that bar that Pisani holds up and twirls around is 400 ounces - supposedly.  That seemed kind of light - a point that even Screwtape brings up.[/quote]
    No they aren't light, but nor are they impossible to lift. I can't get access to the video so can't give it a good look. However, that bar will probably resurface on another bar list at some point, hopefully GoldMoney's, and they check all their bars. What is interesting about Warren's bar list database is the movement of bars between clients. Anyway, I think your "twirl" argument is scraping the bottom of the barrel as proof the ETFs don't have the metal.
     

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  • Mon, Apr 30, 2012 - 4:27am

    S Roche

    S Roche

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    Joined: Apr 24 2012

    Posts: 0

    Comex Bars

    Kyle Bass explains why they took delivery and at 1.35 gives an insight into how seriously some warehouses take the concept of segregation, which may have a bearing on the GLD bar discussion.

    http://www.youtube.com/watch?v=UQTa66gCggY (2.08 total)

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  • Mon, Apr 30, 2012 - 4:50am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    couple of comments

    Hi,

    I have various comments.

    1) First a few links:

    Kid Dynamite on Eric Sprott just buying the silver at spot without any problem:

    Paper and Physical Silver Prices Are Not Decoupling Yet

    Warren James at Screwtape on the Sprott delivery:

    http://screwtapefiles.blogspot.com.au/2011/08/erics-delivery.html

    Kid Dynamite on Sprott scalping the PSLV premium:

    Sprott Physical Silver Trust’s Premium is Lower Than You Think

    2) On the issue of 'manipulation'. Several people who sell financial products or newletters (Butler, Maguire, Embry, TF) have claimed that JP Morgan and HSBC were naked short silver at the COMEX, they would fear a rising silver price, and they would therefore manipulate the COMEX silver price down. That's utter nonsense, and I thought we had established this fact earlier during this thread (when we compared the size of the OTC market with the COMEX, highlighting that what they observe and call 'manipulation' is in fact probably arbitrage).

    For me, the conclusion is that these people have zero credibility. Period.

    If someone (Maguire) forms an 'army' of inexperienced retail investors in order to 'bring down the cartel', using just this very COMEX nonsense as the major advert, and then charges $500 per month for this 'service', this is quite obviously an investment scam of the very common sort.

    Now if you read my previous postings, you should have noticed that I think that gold is a very political currency. Yes, I wrote that I think the gold-oil ratio was managed. But certainly not by some banks going naked short. The gold price is probably mainly managed by controlling the credit volume in the OTC market - just as increasing the money supply of the US$ creates some price inflation, increasing the amount of credit gold lowers the gold price relative to other assets. But, hey, the people I was complaining about, seem not even to know that there is an OTC market, and so how can you expect them to grasp such a subtle concept as credit creation in the OTC market for unallocated gold.

    Finally, there is some very good statistical analysis in the book by Dimitri Speck (unfortunately only in German). Some charts are available with comments in English:

    http://www.geheime-goldpolitik.de/english/

    He knows his statistics, he does not tell you any nonsense, and yes, he has some evidence that the market is not trading freely.

    3) Troy Ounce,

    A low gold price means everything to CB; a high gold price means "mistrust" and the beginning of the end of the system. CB knows this very well

    I am not sure you are getting the teams right. There are basically two bloks in the world. The dollar block consists of the U.S. and its very close allies (Britain, Japan, Australia, Canada). And the gold block which is basically the rest of the world (Euro countries, oil  countries ex Canada and Mexico, China, Russia).

    If you take a look at the balance sheet of the Eurosystem (ECB plus national central banks), you see that they like a high gold price. In fact, should they ever have to defend the Euro (so far only some governments are in financial trouble which does not affect the currency), they will buy gold and sell Euros. This increases the gold backing of the Euro because of the additional gold, and it revalues the existing reserve upwards. If you think about how the Euro has been set up, it is engineered for a world in which the dollar is replaced by gold as the major international reserve.

    The followers of the usual precious metals blogs and websites are in for a huge surprice when they realize how the world outside the U.S. works.

    Sincerely,

    Victor

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  • Mon, Apr 30, 2012 - 6:40am

    Celestino

    Celestino

    Status: Member

    Joined: Apr 29 2012

    Posts: 0

    Jeff Christian

    I did not ask you whether David Morgan or Jim Sinclaire were your friends. This is completely irrelevant! Instead, I gave you a list of people who claim to be PM experts and I requested you to comment on each one of them whether you think that they are real expert (hence the public could trust them) or charlatans (i.e. the public should not trust them). Since you do not strike me as unintelligent, I would have to assume that you have intentionally avoided responding to my question yet you've misled your readers by pretending to actually respond. So I am asking you again: David Mogran is an expert or charlatan?
    Jim Sinclaire - Expert or charlatan?
    Eric Sprott - Expert or charlatan?
    The same question regarding James Turk, Keith Neumayer and Chris Martenson. Also the same question regarding 2 people that are on your side of the argument:
    Jon Nadler - Expert or Charlatan?
    Dennis Gartman - Expert or charlatan?

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  • Mon, Apr 30, 2012 - 6:50am

    Celestino

    Celestino

    Status: Member

    Joined: Apr 29 2012

    Posts: 0

    bronsuchecki Re. 2% data

    a) Thank you for this data.b) Would you mind providing the same data, but instead of 2%, use 2.30%, 3% and 4 percent.
    c) Assuming that your data is correct, another thing which I find interesting is an almost equal amount of down and up days during an 11 year bull market (52% up, 48% down). Could you (or anyone else) please provide some historical references and compare to other secular bull markets in history? Thank you.

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  • Mon, Apr 30, 2012 - 7:15am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Celestino wrote:a) Thank you

    [quote=Celestino]a) Thank you for this data. b) Would you mind providing the same data, but instead of 2%, use 2.30%, 3% and 4 percent. c) Assuming that your data is correct, another thing which I find interesting is an almost equal amount of down and up days during an 11 year bull market (52% up, 48% down). Could you (or anyone else) please provide some historical references and compare to other secular bull markets in history? Thank you.[/quote]Below are the raw frequencies in 0.25% bands for the period 1 Jan 2000 to 31 Mar 2012:

    < -5.00%
    8

    -5.00% to -4.75%
    0

    -4.75% to -4.50%
    4

    -4.50% to -4.25%
    2

    -4.25% to -4.00%
    4

    -4.00% to -3.75%
    5

    -3.75% to -3.50%
    7

    -3.50% to -3.25%
    7

    -3.25% to -3.00%
    7

    -3.00% to -2.75%
    11

    -2.75% to -2.50%
    12

    -2.50% to -2.25%
    19

    -2.25% to -2.00%
    32

    -2.00% to -1.75%
    44

    -1.75% to -1.50%
    68

    -1.50% to -1.25%
    80

    -1.25% to -1.00%
    99

    -1.00% to -0.75%
    158

    -0.75% to -0.50%
    219

    -0.50% to -0.25%
    315

    -0.25% to 0.00%
    354

    0.00% to 0.25%
    331

    0.25% to 0.50%
    301

    0.50% to 0.75%
    220

    0.75% to 1.00%
    218

    1.00% to 1.25%
    146

    1.25% to 1.50%
    91

    1.50% to 1.75%
    66

    1.75% to 2.00%
    54

    2.00% to 2.25%
    43

    2.25% to 2.50%
    24

    2.50% to 2.75%
    26

    2.75% to 3.00%
    15

    3.00% to 3.25%
    13

    3.25% to 3.50%
    7

    3.50% to 3.75%
    5

    3.75% to 4.00%
    2

    4.00% to 4.25%
    3

    4.25% to 4.50%
    1

    4.50% to 4.75%
    2

    4.75% to 5.00%
    0

    > 5.00%
    6

     
    Below are the frequencies from 1 Jan 1972 to 1 Feb 1980 (total of 2301 occurances)

    < -5.00%
    27

    -5.00% to -4.75%
    5

    -4.75% to -4.50%
    6

    -4.50% to -4.25%
    7

    -4.25% to -4.00%
    8

    -4.00% to -3.75%
    6

    -3.75% to -3.50%
    8

    -3.50% to -3.25%
    10

    -3.25% to -3.00%
    12

    -3.00% to -2.75%
    8

    -2.75% to -2.50%
    20

    -2.50% to -2.25%
    21

    -2.25% to -2.00%
    23

    -2.00% to -1.75%
    36

    -1.75% to -1.50%
    54

    -1.50% to -1.25%
    70

    -1.25% to -1.00%
    86

    -1.00% to -0.75%
    114

    -0.75% to -0.50%
    139

    -0.50% to -0.25%
    210

    -0.25% to 0.00%
    294

    0.00% to 0.25%
    196

    0.25% to 0.50%
    179

    0.50% to 0.75%
    141

    0.75% to 1.00%
    111

    1.00% to 1.25%
    107

    1.25% to 1.50%
    62

    1.50% to 1.75%
    65

    1.75% to 2.00%
    50

    2.00% to 2.25%
    40

    2.25% to 2.50%
    26

    2.50% to 2.75%
    22

    2.75% to 3.00%
    16

    3.00% to 3.25%
    17

    3.25% to 3.50%
    17

    3.50% to 3.75%
    12

    3.75% to 4.00%
    11

    4.00% to 4.25%
    7

    4.25% to 4.50%
    6

    4.50% to 4.75%
    6

    4.75% to 5.00%
    6

    > 5.00%
    40

     
    Knock yourself out.

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  • Mon, Apr 30, 2012 - 8:20am

    Celestino

    Celestino

    Status: Member

    Joined: Apr 29 2012

    Posts: 0

    victorthecleaner

    On p.13 of this thread (comment 130) you wrote:
    "[3] I have a close friend who is a high level player (partner) in XXXX Non-Ferrous Metals Group (one of China's largest non-Fe metal miner/processors) with resources and processing all over the world. They won't touch gold anywhere but in China due to "political risk". He says quite openly that Gold mines will be nationalized, and not just in Australia & Canada. Only a question of when.

    Victor,

    Did you (and your "close friend") see this?

    "China's largest private gold producer, Zijin Mining Group is all set to acquire Norton Gold Fields for $230 million."
    http://www.bullionstreet.com/news/norton-shares-up-on--takeover-offer-by-chinas-zijin/1494

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  • Mon, Apr 30, 2012 - 8:42am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    This is getting plain silly now...

    All,

    Apologies for my silence last 36 hrs - I've been traveling and it was a hell of a trip. Given all the comments and challenges that have been directed at me during that time, I feel somewhat obliged to respond, and will do so below in detail.

    But before going on, I want to be clear that I think this thread has devolved to the point of sheer silliness. So before responding to all marginally relevant comments directed at me, I'm going to start by talking about what I think is actually important. Then I'll oblige those here who have asked for my response on specific points.

    The central point I was trying to make when I started this discussion can be simplified to five key bullets:

    1. We live in a world where massive corruption and fraud has become rampant, particularly within the financial system.
    2. Point #1 gives us all very good reason to be skeptical of big banks and their ethical standards.
    3. Because of #2, we are vulnerable to true believer syndrome, where we want so badly to know what the banksters are up to that we easily "believe" stories that seem to confirm our convictions about the fraud and corruption we know exists, but we often fail to check the facts. In my own case, I viewed people like GATA and Ted Butler as heroes... Until I did my homework and realized their arguments are bogus.
    4. Because of the vulnerability described in #3, several people (GATA, Ted Butler, Harvey Organ, Andrew Maguire, others) have emerged and receive great accolades for their heroic work to expose the frauds and evil-doings of the banksters. Just one problem: Their arguments are bogus and their "facts" don't check out.
    5. Jeff Christian contends that because these people have had ample opportunity to learn how the markets work, the only plausible explanation is that they are intentionally deceptive and seek maliciously to mislead their readers. I strongly disagree, and am convinced these people mean well, and simply believe their own BS. But either way, they do the investment community a great disservice, and I think the greater good is served by calling them out. While there may very well be manipulation in the markets, the fact remains that these people simply don't know what they are talking about. In some cases, it's benign. In others, it leads people to make foolish decisions, such as buying PSLV at a 30%+ premium to NAV.

    Let's again review how this thread has evolved. I started with a blow-by-blow debunking of Harvey's first interview here.  I pointed out several examples where he makes very strong allegations. In some cases, Harvey fails completely to back his assertions up with any sort of factual evidence or logical argument. In those cases where he does make an argument, I've shown that it can easily be debunked as specious. I gave numerous examples - e.g. Harvey's claims of the banking "cartel" using HFTs to "take down" the market, without any explanation of how that might work, or what the motive would be. In other cases, notably the "set the price vs. discover the price" argument and the ridiculous assertion that the paper-to-physical ratio has anything to do with leverage, I directly debunked Harvey's claims, showing clearly that they are bogus and without merit.

    But after more than 150 replies, nobody has even addressed the substantive issues I brought up in the first post, i.e. that every single thing Harvey said is either easily disproven, or amounts to a baseless emotional allegation with zero factual or logical backing. Nobody. We've had several people accuse me of "attacking the person not the argument", despite the fact that I have done no such thing. Nobody has offered a single word of rebuttal to what I actually said in the first post - that Harvey, well meaning as he may be, obviously doesn't know what he's talking about and shouldn't be viewed as an "expert" by anyone. I gave lots and lots of specific examples, and nobody has responded directly to any of those .

    Again, I submit that this has more to do with psychology than anything else. A whole bunch of people here continue to accuse me of "name calling", when the only names I've used are "really nice guy" (referring to Ted), and "charlatan". In the latter case, I've shown by quoting the dictionary that I used that word correctly, and proved my assertion that it described these people accurately. There seems to be so much emotion in this thread that some people actually said outright that they don't care what the word actually means - they just don't like me using it to describe one or more of the people they look up to as experts, whether I was using it correctly or not!

    The bottom line here is that despite what are probably the best of intentions, GATA, Ted Butler, Harvey Organ, Andrew Maguire, and others in the blogosphere simply don't know what they are talking about, and the specific allegations they have made are easily and conclusively disproven with only a modest investigation of the facts. These people do a horrible disservice to the investment community by spreading nonsensical beliefs which many accept as gospel, and which cause some poor souls to make very fool-hardy investment decisions, particularly in the case of arguments that circulated in early January of this year, implying that the absurd 30%+ PSLV premium was actually an indication of "paper decoupling from physical", an argument presented by ZeroHedge in a way that made some think it confirmed "value" in the premium, causing them to foolishly buy more.

    So far as I'm concerned, that's what this thread should be about: discussing the specific manipulation theories promulgated by GATA, Butler, Organ, Maguire, etc., and debating them on their factual merits. But nobody seems willing to do that. Instead we're having an arguably off-topic argument about what the word charlatan means! I don't mean to condemn the whole thread - Victor and Jeff Christian have both contributed a lot of technical material that is of high value, and much appreciated. But so far, none of the people who seem passionately inclined to come to the defense of Harvey, Ted, GATA, or Maguire have been able to offer a single iota of conter-argument refuting what I've said proving that these people simply don't know what they are talking about. Despite my repeated encouragement that they do so!

    To me, that says it all. The rest of this post will address the far less important issues that have been brought up in recent posts.

    Avoiding Steve (Strawboss)'s 2% argument:

    Wow - the rhetoric is getting strong. Some say it's "telling" that I am "avoiding" answering Steve's question about what he describes as a "2% cap". From the commentary, you'd almost think yet another conspiracy was in the works - Townsend and Christian suspiciously dodge the key question, no matter how many times they are reminded... Or something like that.

    [quote=Strawboss]Erik - all you commentary and silence on the 2% issue...very telling.[/quote]

    [quote=Celestino]1) Erik Townsend has now ignored 4 times Strawboss's question regarding gold not going more than 2% on any given day  [/quote]

    Sorry to rain on that parade, folks, but the reason I haven't commented again is that I already did answer this question, quite promptly after Steve asked it, way back in post #37. Here's what I said:

    [quote=Erik T.][quote=Strawboss]You have the cap on gold typicall at 1% but RARELY (if at all) in excess of 2% in a day.  No other commodity has this upside limitation in price movement.  This has been consistent over the entire duration of this gold bull market.[/quote]

    I'm not clear on whether you are referring to an actual cap (i.e. daily price limits in futures trading), or observed max moves over time (not really a cap). In any case, I'm not clear what point you are arguing here. I would think extreme manipulations would yield higher volatility, not lower. In short, I don't understand your point.[/quote]

    The reason that I haven't said anything more about the 2% thing is simply that I don't have anything more to say about it. As I alluded in the quote above, I don't think the argument particularly interesting and don't see it as particularly meaningful or telling. But on the other hand, I haven't thought much about it. I quite enjoyed reading Victor, Jeff and Bron's comments on it, as it is an interesting observation.

    Yes, Steve, I was intentionally ignoring your repeated demands for an answer. The reason is that I found them to be in poor taste and completely inappropriate. I do not answer to you, and I do not owe you anything. When you asked the first time, your question was posed politely, as a question, and I answered this and your other six questions in post #37. And I responded to all 7 of your questions within 2.5 hours after you posed them. But as I already indicated in the above quote, I really don't have anything more to offer on the subject myself. When you began posting demands that I answer your question, I started ignoring you.

    Him H's Excellent (still partly unanswered) challenge to Jeff:

    [quote=Jim H]

    Sprott has amassed an enormous position in physical silver and in most Canadian listed silver mining companies. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation.

    Sprott Silver holds ~ 33M ounces... roughly the same ballpark as the deliverable portion of the Comex inventory.... which Gold and Silver bugs almost universally agree would be wiped out in a flash if/when the monetary SHTF... since it is only $1B worth of stuff.  That is a pittance these days.  I almost have $1B myself.. but I am saving it for some home improvements  : )   Also for context, remember that total yearly Silver mining brings 750 - 800M new ounces out of the ground... so to my mind... your point about the possible effect of 33M ounces on the markets is overblown.. and I don't even understand why the existence of the Sprott fund would drive liquidation, any more than any other holders of Silver.. I certainly understand how lots of people who own PSLV could lose money in a diving Silver market.. but you seem to be suggesting that PSLV could go somehow bidless in a way that would drive liduidation.. .what are you talking about?  Thanks, Jim       

    [/quote]

    Jim, that's some damn fine commentary and I think you pose some excellent questions. Jeff answered part of this, but to my reading, you are making a couple of really excellent points that have not yet been answered. Specifically, if retail owners (direct or indirect) of silver stocks bail out, silver stocks are going to be annihilated when "waterfall selling" develops after weak hands are stopped out. On that I think we all agree. But Jeff seems to be saying that the existence of Sprott's funds somehow amplify this effect. I don't see why that would be true - whether the weak hands are being stopped out of Sprott shares or silver mining shares they own directly shouldn't matter. Jeff: If we are missing something, I hope you'll enlighten us.

    But more to my point, Jim is responding to the substance of something Jeff said, and challenging it on its technical merits. And Jim makes a damn fine argument, by my reckoning. That's what I wish we had more of in this thread - more debate about the substantive merits of what GATA, Butlers, Maguire, etc. claim, as opposed to useless arguments about who is or isn't calling who "names". Ironically, there has been a lot of sentiment expressed about frustration about all the "name calling", yet there hasn't really been any name calling. Meanwhile, the substantive critique of Harvey and others' arguments has gone without response. Hello?

    Jim, bravo for this excellent post. I hope you'll continue in that same vein, and challenge me by contesting my substantive arguments debunking Harvey et al, as you have done with Jeff in this post.

    @Travlin:

    [quote=Travlin]

    Reading this thread leaves me shaking my head in disbelief. All that sound and fury about how there really isn’t any manipulation of precious metals. [/quote]

    Trav, what are you smoking? Nobody here has said anything to the effect that there is no manipulation of PM's. Forget "sound and fury" - there hasn't been so much as a whimper! All that's been said is that Harvey, Ted, et al don't know what they are talking about, and that the substantive arguments they make are easily disproven.

    [quote=Travlin]How does Chris’ knowledge compare to the “experts” who work in these markets? Well you can’t beat an expert at his own game. They can argue you to death with the intricate details that can only be know by insiders. I know from experience as I’ve been on both sides of that proposition. However, the “experts” will usually be the last to admit, even to themselves,  that they make their living from a rigged system, because it makes them look bad, and scares away customers.[/quote]

    I don't think you're making any sense here. I'm certainly not an expert myself, and I have been following PM markets for far fewer years than Chris and Harvey have. But I can see that Harvey and Ted don't know what they are talking about by applying simple techniques of fact-checking and deductive reasoning. No expert credentials required. I'm disappointed that so far Chris seems to have been snowed by these people, and for the record, that's my opinion: that Chris would do well to apply some critical analysis to these claims, and verify them for himself. If he took a critical view toward them, I think he'd quickly satisfy himself that for the most part, what these people say is without merit.

    [quote=Travlin]If you are inclined to bash Harvey Organ for what he said in the interview, you might want to listen to it again. You may notice that much of what Harvey said was a confirmation or elaboration of things Chris said he had noticed from his own experience. People who profess admiration of Chris and his work, and may pay a sizable subscription fee for it, have some explaining to do when they assert that people who think precious metals are manipulated are either, dumb, naive, or misguided.[/quote]

    Yes, I'm (obviously) inclined to call Harvey out, and no, I really don't need to listen again. I already quoted enough tidbits to make my point. Chris has been vocal in inviting others to challenge and critique all of his work (as all true scientists always do), and I continue to have nothing but the utmost respect for Chris and his work. But that doesn't make it any less obvious to me that these people are full of crap. That Chris appears to have fallen for it doesn't change the facts.

    Perhaps I'm all wet, and am not seeing the merits of some of these arguments. If that is that case, I hope (as I've repeatedly begged for elsehwere and at the beginning of this post), that we could start talking intelligently about the substance of this topic, rather than wasting time arguing about whether or not the dictionary definition of charlatan accurately describing the people in question justifies its use in describing them with that term. I welcome critical feedback from Chris or anyone else telling me what I'm missing. But if what you are suggesting, Trav, is that "anyone who respects Chris should never challenge him on his own website, even when he's obviously wrong", I'm sorry, but I don't agree with you, and I respectfully remind you that Chris' own public statements have affirmed that he welcomes critical feedback.

    [quote=Travlin]Those of us who are not “insiders” can’t answer the manipulation question conclusively.[/quote]

    No, we cannot. But what we can do is to evaluate specific theories about how manipulation may be occurring, and weigh the facts to see if those specific theories have merit. That's what I've tried to do with the first post here, and I contend that it's very easily demonstrated that almost none of the manipulation theories promulgated by GATA, Butler, Harvey, or Maguire have any merit whatsoever. To be certain, a few do - we all know about stop-clearing runs and futures ramps designed to push the closing price above or below some key technical level. But it's common knowledge that these things happen in most markets - nothing about those tactics is unique to PMs. The other stuff - like equating paper-to-physical ratio as being a matter of leverage or the set vs. discover the price argument very clearly demonstrates to me that the people putting forth these arguments suffer a very deep, fundamental lack of comprehension about the basics of how these markets function. In Andrew Maguire's case, I have to agree with Jeff Christian that it's very hard to see how anyone could say the things Maguire says unless there is a conscious and intentional intent for deception. In the case of the other people I've mentioned, my belief is that they mean well and simply don't recognize the glaring holes in their own logical arguments.

    [quote=Travlin]The name calling and personal attacks seen in this thread, however they are rationalized, greatly detract from the credibility of some of the arguments presented. Effective debate is based on persuasion not denigration.[/quote]

    I plead guilty to calling Ted a name. Specifically, that "name" was "a very nice guy". Aside from that, I don't know what you're talking about, Trav. There has been LOTS of discussion ABOUT name-calling, but no name-calling per se, so far as I can see. If you really think this is an issue, please elaborate on what you mean. Who has called whom what name, in which post(s)? Is charlatan, a "name", and if so, can you explain why? Seems to me that I was not using it to attack anyone, but rather to indicate my opinion that these are people who represent themselves to have expert knowledge when they obviously do not. I'm sorry if my choice of vocabulary offended you and others, as it clearly has. But again, the dictionary is on my side here.

    As to effective debate, even more important than the persuasion vs. denigration issue is that it should be based on substantive factual or logical arguments. I've offered plenty of subject matter to debate on its merits (No gold in Ft. Knox, Paper-to-Physical=Leverage, ETFs don't have any gold, etc) in the first post, but so far nobody seems interested in discussing those arguments on their substantive merits. Why is that?

    Andrew Maguire, CFTC, @S Roche, Eliud Ramirez, etc.:

    I appreciate Jeff taking the time to answer S Roche's challenges, but honestly I find all this to be relatively unimportant. It feels to me like a few people here would love to catch Jeff in a mistake and show him up, but I have a hard time understanding what it has to do with the substantive discussion about veracity of PM manipulation theories.

    For example, what matters is Andrew Maguire's substantive allegations about market manipulation, and whether those arguments stand up to critical scrutiny.  Whether and to whom he sent e-mails professing these theories, or whether they were acknolwedged as received by CFTC, either publically or otherwise, seems irrelevant to me.

    All you have to do is listen to Maguire's earliest KWN interviews where he makes absurd allegations about Jeff Christian's "shocking admission" of "100:1 leverage on the LBMA". Jeff's statement was about paper to physical clearing volume ratio, and had nothing to do with leverage. But Maguire, Eric King, and GATA were all over it, making a huge big deal about leverage. Some have tried to dismiss this, saying "oh, so what - they just slipped and used one word wrong - so what?" That misses the point. They didn't just call this leverage - they made a huge deal about the implications of having such extreme leverage. The fact that Maguire, King, and GATA's Douglas made this unbelievably naive mistake is strong cause to question whether Maguire ever worked in the metals business on a professional level, and clearly demonstrates that none of these guys posess a basic working knowledge of how these markets function. Regardless of how many decades they may have spent not learning about that subject. Maguire's refusal to authenticate his credentials appears to confirm the suspicion that he never worked in the PM business in any professional-level capacity. The fact that he continues to make this absurd assertion to this very day - despite that it has been widely debunked - should bring rise to the question of whether it was really naive mistake afterall, or if Maguire is intentionally and deceptively using promoting this "belief", which has no basis in fact, as a tool to manipulate people.

    My point is, if we're going to argue about Maguire, I request that we set aside the relatively unimportant detail of whether his e-mails to CFTC were acknowledged or by whom, and return to the much more important issue, i.e. that almost everything he says is nonsense that is easily shown to be factual misrepresentation. So far nobody has offered a counter-argument on that one, but plenty of people have chimed in with accolades and attestment to Mr. Maguire's character. I don't get it.

    @Troy Ounce:

    [quote=Troy Ounce] Eric T pulls his hair out reading about John Corzine, etc. but cannot or does not want to make the link to a the bigger system based on fraud, racketeering and manipulation to serve the few. Is it because he is a "True Believer"?[/quote]

    Really, sir, you need to read the posts more carefully. What I actually said is that these things clearly do suggest great suspicion toward the greater system. To say that I cannot or do not want to make the connection is absurd. What I've said is that by making this connection, we also make ourselves vulnerable to succumbing to the natural desire to believe the next thing we hear that confirms this connection, perhaps without doing our homework first. I remain convinced that this is the psychological phenomenon that makes it possible for otherwise extremely rational, fact-and-logic-driven people including Chris Martenson to suffer temporary lapses of due dilligence, instead believing in what seems to make sense and fit into a bigger picture that already made sense, without taking the time to stop and fact-check the hypotheses being posited. When you take that step, it becomes clear that while massive manipulations may very well be occurring, they are most definitely not occurring the way GATA, Ted, Harvey et al have described.

    [quote=Troy Ounce]His statement that the gold price went up because of Central Bank printing (only) is also difficult to understand.[/quote]

    I never made that statement (the "only" part), and don't think that. My opinion is that central bank balance sheet expansion, and to a greater extent, widespread expectation of further expansion, is the biggest single factor driving the Gold bull market, but there are many others.

    In Closing:

    Victor and Bron have added a huge amount to this thread, and I'm even starting to get interested in Steve's 2% observation, now that I see the data being discussed. But the original substantive assertions from my first post, which amount to saying that Harvey doesn't know what he's talking about, remain unchallenged. That's very telling.

    Meanwhile, quite a few people seem to be pre-occupied with the idea that "name calling" and "personal attacks" have been the focus of this thread, when no such thing has occurred. It appears that my choice of the word charlatan has triggered these reactions. I think that very unfortunate, as I had no intention of denigrating anyone or calling them names. But I won't apologize, because as I've said, all that I meant by the word charlatan was that these are people who represent themselves as being experts with great knowledge of these markets, when in reality only the smallest amount of scrutiny reveals that they simply are not. I regret that so many people took the word charlatan to mean something other than what I meant it to mean, and what the Dictionary confirms it to mean. But the fact remains that these guys make a lot of bogus arguments, which can be and have been debunked as specious and meritless. I continue to await someone to come along to refute that central contention of my argument.

    All the best,

    Erik

     

     

     

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  • Mon, Apr 30, 2012 - 11:04am

    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Bron - 2% fix

    Bron,

    Thank you for providing the data.  If my understanding is correct, what you are providing is the AM fix.  Can you provide the same data for the PM fix as that was my initial observation (PM fix to PM fix)?  Much appreciated.

    Jeffrey - I am very much aware of CPM group, its clientele, etc...  I was hoping for something more substantive - i.e. where your efforts have helped a mining company to optimize its profitablity thereby enabling it to stand head and shoulders above its peers.  Your statements would seem to lead one to believe that CPM groups is "THE" consulting firm for mining companies with an impressive list of "sponsors".  Erik made a statement earlier in the thread that a service you provide is to give companies (who are not experts on the market) the strategic consulting that banks offer - but, at a substantially friendlier price.  Same expertise - less cost; if I am understanding Erik correctly.

    Where I get confused is when looking at the miners performance as a group.  When I look at the HUI or GDX or any number of PM indexs priced in gold - they have been in a bear market for many, many years.

    How is it that a mining company that relies on you for your strategic expertise underperform gold year after year after year?  Shouldnt a mining company provide outsized returns to the predominant metal they produce - especially when that metal is averaging over 20% gains YoY  (nominally in USD)?

    Forget all the claptrap.  Speaking for myself - the above point goes to the heart of my cynicism of yourself and those you represent/associate with.  I welcome any commentary on the above point as an opportunity to put my cynicism to rest.

    Erik - Bart Chilton said the silver markets are manipulated and that the perpetrators should be prosecuted (paraphrased).  There are only 3 logical conclusions I can come to.  He knows of what he speaks and was speaking the truth; or, he is a moron that is unfit for his office; or, he was doing the bidding of a monied interest such as Sprott to fan the flames within the community.

    There seems to be some agreement amongst the camps here that gold/silver IS manipulated in some fashion by some entit(ies)y.  If the theories put forward by Butler, Organ, et al are scientifically not acceptable as they are unable to withstand a rigorous cross examination - can we attempt to craft a theory that fits the facts that we have access to that can better explain the price action we see?

    Very much enjoying this thread.  Iron sharpens iron.  Steel comes out of fire.  Purity is a result of refining and refining uses fire (oftentimes).

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  • Mon, Apr 30, 2012 - 5:56pm

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    mining companies

    [quote=Celestino]Did you (and your "close friend") see this? "China's largest private gold producer, Zijin Mining Group is all set to acquire Norton Gold Fields for $230 million." http://www.bullionstreet.com/news/norton-shares-up-on--takeover-offer-by-chinas-zijin/1494[/quote]I know that there are still people who invest in mining companies. You just need to keep in mind the political risk involved in this. Let me repeat: Canada and Australia sold their gold reserve long ago. Especially in the case of Australia, it was mentioned this was no problem because they could always take the gold in the ground. Many other countries' central banks are also underweight gold relative to the US$.
    Do you realize that the following strategy is inconsistent: They tell you that the 'fiat ponzi scheme' is about to end. Then, at the same time, they advertize the shares of mining companies to you. Now if you really believe the system is going to end, you are basically guaranteed to lose your mining shares, either because they are nationalized outright or because they are forced to sell their gold to the government at a regulated price (which will turn the mine into the equivalent of a telephone or water company, i.e. bascially into a utility company). On that comparison, however, most of the mining stocks are grossly overvalued.
    The mining companies as an investment make sense only if we get higher inflation and a lot of financial liquidy, but the financial system survives unchanged. Sure, you are free to bet on this outcome. But you should understand what scenario it is you are betting on when you buy mining stocks.
    Sincerely,
    Victor
     

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  • Mon, Apr 30, 2012 - 11:17pm

    Strawboss

    Strawboss

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    Joined: Apr 23 2012

    Posts: 0

    Fat finger or manipulation?...

    http://www.zerohedge.com/news/todays-124-billion-targeted-gold-slam-down-makes-mainstream-press

    7500 gold contracts sold into thin liquidity within 1 minute.

    No rational trader would do that - especially on a day where Asia is on holiday and Europe is getting ready to go on holiday.

    If one was conspiracy minded, one would think it was a deliberate smack down.  But, I am sure there is a rational explanation - arbitrage or some such thing...

    Its getting pretty blatant when even the dullard WSJ is writing stories about it...

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  • Mon, Apr 30, 2012 - 11:49pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Strawboss

    [quote=Strawboss]http://www.zerohedge.com/news/todays-124-billion-targeted-gold-slam-down-makes-mainstream-press
    7500 gold contracts sold into thin liquidity within 1 minute.
    No rational trader would do that - especially on a day where Asia is on holiday and Europe is getting ready to go on holiday.
    If one was conspiracy minded, one would think it was a deliberate smack down.  But, I am sure there is a rational explanation - arbitrage or some such thing...
    Its getting pretty blatant when even the dullard WSJ is writing stories about it...
    [/quote]
    Just to keep the message clear... Nobody here has denied that "stop-clearing runs" - where someone sells "sloppy" into thin liquidity - are a very real part of the business. In fact, both Jeff Christian and I have acknowledged this reality earlier in this thread. The point is not to confuse the very real manipulations that do occur with bogus, logically incoherent theories about other mechanisms of manipulation that exist only in the minds of GATA et al.
    I just woke up here in Hong Kong, and haven't yet had a chance to research what happened early this morning. So it's entirely plausible that this big sale was triggered by news, although frankly I doubt it - the holiday here in Asia is definitely a bit of circumstantial evidence by itself, and my guess is that this was a manipulative action.
    The key is not allowing isolated examples of bona-fide manipulation to bias one's judgment to accept all the silly manipulation theories, which really don't hold up to even the smallest bit of scrutiny.
    All the best,
    Erik
     

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  • Tue, May 01, 2012 - 12:32am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    victorthecleaner wrote:Let

    [quote=victorthecleaner]Let me repeat: Canada and Australia sold their gold reserve long ago. Especially in the case of Australia, it was mentioned this was no problem because they could always take the gold in the ground. ... Now if you really believe the system is going to end, you are basically guaranteed to lose your mining shares, either because they are nationalized outright or because they are forced to sell their gold to the government at a regulated price (which will turn the mine into the equivalent of a telephone or water company, i.e. bascially into a utility company).[/quote]Australia sold 160t and retains 80t. I don't think "take the gold in the ground" is the correct way to represent the Reserve Bank of Australia's (RBA) views. If you look at this FOI of an internal advice to RBA Board on gold sales done in late 1996 http://www.rba.gov.au/foi/disclosure-log/rbafoi-101110.html you will see the following quote:
    "As noted, Australia's gold holdings in terms of GDP are towards the top end of the range for countries outside Europe. If anything, Australia, as a large gold producer, should be at the bottom of this range - ie, as a nation, we have very large reserves of gold in the ground and the question arises as to why we would want to hold much in central bank vaults.
    You may interpret this statement as them thinking they will nationalise, but it can also be interpreted as reactivating existing dormant legislation (see here http://goldchat.blogspot.com/2008/11/australian-gold-confiscation.html) that requires gold to be sold to the RBA at (non-fixed) market prices.

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  • Tue, May 01, 2012 - 1:37am

    Strawboss

    Strawboss

    Status: Member

    Joined: Apr 23 2012

    Posts: 0

    Erik T. wrote:Strawboss

    [quote=Erik T.]
    [quote=Strawboss]
    http://www.zerohedge.com/news/todays-124-billion-targeted-gold-slam-down-makes-mainstream-press
    7500 gold contracts sold into thin liquidity within 1 minute.
    No rational trader would do that - especially on a day where Asia is on holiday and Europe is getting ready to go on holiday.
    If one was conspiracy minded, one would think it was a deliberate smack down.  But, I am sure there is a rational explanation - arbitrage or some such thing...
    Its getting pretty blatant when even the dullard WSJ is writing stories about it...
    [/quote]
    Just to keep the message clear... Nobody here has denied that "stop-clearing runs" - where someone sells "sloppy" into thin liquidity - are a very real part of the business. In fact, both Jeff Christian and I have acknowledged this reality earlier in this thread. The point is not to confuse the very real manipulations that do occur with bogus, logically incoherent theories about other mechanisms of manipulation that exist only in the minds of GATA et al.
    I just woke up here in Hong Kong, and haven't yet had a chance to research what happened early this morning. So it's entirely plausible that this big sale was triggered by news, although frankly I doubt it - the holiday here in Asia is definitely a bit of circumstantial evidence by itself, and my guess is that this was a manipulative action.
    The key is not allowing isolated examples of bona-fide manipulation to bias one's judgment to accept all the silly manipulation theories, which really don't hold up to even the smallest bit of scrutiny.
    All the best,
    Erik 
    [/quote]
    Now what if - we are only speculating here so bear with me...what if these supposedly isolated acts of manipulation arent isolated/individual incidents but instead are a coordinated plan and practice with a deliberate motive of price suppression to support the various fiat currencies in use around the globe.
    Advanced countries are capable of planning and implementing complex military battle plans involving various elements and extensive coordination and planning.  Why is it such a stretch to imagine that the most powerful financial interests in the world are capable of collaboratively planning and executing with a similar level of expertise and precision?
    Taking that thought process a step further - what would their footprints so to speak look like?  What kind of evidence would we seek out to see if we can detect their presence?
     

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  • Tue, May 01, 2012 - 1:40am

    S Roche

    S Roche

    Status: Member

    Joined: Apr 24 2012

    Posts: 0

    Re: 7,500 GC Sold & A Parting Shot!

     Erik,

    I am doing research on volume and would like to request that anyone who is able to post a screenshot of the volume price action today do so, it would be much appreciated and I will share the results if they are meaningful.

    On a personal note, I am pleased to see that the discussion regarding Andrew Maguire has moved away from the distractions of whether or not he ever worked for Goldman Sachs, and whether or not he doctored emails to Eliud Ramirez at the CFTC, as was implied here.

    I got involved in this thread because I agree with you that the issue is: "Andrew Maguire's substantive allegations about market manipulation" which I see is supported by your statement "Nobody here has denied that "stop-clearing runs" - where someone sells "sloppy" into thin liquidity - are a very real part of the business. In fact, both Jeff Christian and I have acknowledged this reality earlier in this thread" ...However, I must say that the acknowledgement you refer to was very subtly expressed. My comprehension has been attacked in this thread, so you might forgive me if I did not pick that up previously. Stop clearing runs is exactly the activity that is the subject of Andrew Maguire's complaint to the CFTC.

    Readers will be pleased to note that I have today received written confirmation from Bart Chilton that Eliud Ramirez is an employee of the CFTC.... and no, I am not a leading metals analyst with a background in investigative journalism. 

    SR

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  • Tue, May 01, 2012 - 3:03am

    Grover

    Grover

    Status: Gold Member

    Joined: Feb 15 2011

    Posts: 748

    Total costs

    [quote=MetalsFacts]Someone mentioned capital costs, saying a geologist told him there were high, around $1,000. They are that high at a few poorly run mines. The average globally last year was around $150 per ounce. That’s not a guess over beers. That is the calculation derived from a thorough quantitative analysis of mines that account for something like 80% of global mine production. That’s the average. If there are a couple of companies with non-cash costs around $1,000, and there are, that average means there are a lot of mines with far lower capital and overhead expenses. Actually, the average is close to typical. The number of mines with $1,000 or so in capital costs are very few with relatively low production: The low production levels in terms of gold being produced at a given mine is what gives them a high per-ounce cost. If they were larger mines, the capital costs would be spread over more ounces and would be commensurately lower.
    [/quote]
    Jeff,
    Counting all the costs - capital, fuel, labor, regulations, etc. - what would you estimate the cost for a typical, well run gold mining operation to produce an ounce of gold? I understand that most mines produce other metals in the process and it would be very difficult to separate the costs for gold only. If the cost is $150 or $1,000, they would still make a reasonable to an enormous profit at current prices. Why wouldn't they want to produce all they could at these prices?
    Perhaps they are producing all they can. Increasing mine capacity involves extracting lower grade ore or venturing out into other areas. It takes time to overcome the regulatory hurdles, appropriate necessary funding, and proceed. I've read elsewhere that it takes approximately 10 years to site and build a mining venture. Are the current well run mining companies expanding their domains? If not, why not? If so, when can we expect supply on the market to increase markedly (and by what approximate percentage)? Buying another company with reserves only transfers production rather than increasing it. I'm talking about expansion in current areas or expanding into virgin territory.
    Erik,
    I wish I could debate you on any of your points. I'm just a small speculator who tries to divine the future from reading flickering shadows of tea leaves. As a result of this thread, I'll be more critical when reading opinions that aren't substantiated. I'm more interested in what to expect than who states it.
    Grover

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  • Tue, May 01, 2012 - 8:40am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    PM Fix to PM Fix Next Day

    As requested:

    PM to PM next day % move
    2000-2012
    1972-1980

    < -5.00%
    8
    17

    -5.00% to -4.75%
    2
    2

    -4.75% to -4.50%
    2
    1

    -4.50% to -4.25%
    5
    5

    -4.25% to -4.00%
    3
    3

    -4.00% to -3.75%
    4
    4

    -3.75% to -3.50%
    4
    7

    -3.50% to -3.25%
    6
    13

    -3.25% to -3.00%
    13
    13

    -3.00% to -2.75%
    10
    7

    -2.75% to -2.50%
    14
    10

    -2.50% to -2.25%
    21
    18

    -2.25% to -2.00%
    31
    25

    -2.00% to -1.75%
    34
    30

    -1.75% to -1.50%
    54
    40

    -1.50% to -1.25%
    84
    73

    -1.25% to -1.00%
    107
    71

    -1.00% to -0.75%
    133
    97

    -0.75% to -0.50%
    214
    146

    -0.50% to -0.25%
    265
    196

    -0.25% to 0.00%
    402
    240

    0.00% to 0.25%
    368
    184

    0.25% to 0.50%
    285
    146

    0.50% to 0.75%
    256
    142

    0.75% to 1.00%
    181
    115

    1.00% to 1.25%
    144
    88

    1.25% to 1.50%
    93
    61

    1.50% to 1.75%
    75
    61

    1.75% to 2.00%
    43
    39

    2.00% to 2.25%
    34
    29

    2.25% to 2.50%
    27
    27

    2.50% to 2.75%
    18
    16

    2.75% to 3.00%
    6
    17

    3.00% to 3.25%
    8
    16

    3.25% to 3.50%
    7
    13

    3.50% to 3.75%
    2
    11

    3.75% to 4.00%
    3
    7

    4.00% to 4.25%
    3
    6

    4.25% to 4.50%
    2
    4

    4.50% to 4.75%
    1
    2

    4.75% to 5.00%
    1
    7

    > 5.00%
    9
    27

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  • Tue, May 01, 2012 - 8:48am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Charlatan

    [quote=Erik T.]It appears that my choice of the word charlatan has triggered these reactions. ... I regret that so many people took the word charlatan to mean something other than what I meant it to mean, and what the Dictionary confirms it to mean.[/quote]May I suggest in the future instead of charlatan use the word ultracrepidarian. No chance anyone projecting their own understandings of what it means.

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  • Tue, May 01, 2012 - 9:08am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Strawboss wrote:Now what if

    [quote=Strawboss]
    Now what if - we are only speculating here so bear with me...what if these supposedly isolated acts of manipulation arent isolated/individual incidents but instead are a coordinated plan and practice with a deliberate motive of price suppression to support the various fiat currencies in use around the globe.[/quote]
    That's always plausible, but I think quite unlikely. First, the goal of central banks seems to be quite clear: to weaken, not strengthen the fiat currencies of the world. I concede that they have good reason to want to avoid an unorderly depreciation (meaning appreciation of Gold), but it's hard for me to see why this sort of tactic would help achieve that goal. In short, I think the first question has to be: what is the exact motive, who has it, and do the observed phenomena seem to jibe with the intent. In this case, I don't see the argument. Meanwhile, the observed fluctuation is perfectly explained by the much simpler and more obvious explanation that a sleazy banker saw the opportunity to take out everyone's stops in a time of thin liquidity, then close their position in the ensuing several hours when the U.S. session was open. I'm not saying that central bank collusion is completely impossible, but in this case I see no reason to suspect it.
    [quote=Strawboss]Advanced countries are capable of planning and implementing complex military battle plans involving various elements and extensive coordination and planning.  Why is it such a stretch to imagine that the most powerful financial interests in the world are capable of collaboratively planning and executing with a similar level of expertise and precision?[/quote]
    Yes, that's plausible. My contention is that it's very much worthwhile to keep a skeptical eye on the markets for this very reason. And this is an example of where in my opinion, GATA et al seriously hurt investors' interests. By making such a fuss over nonsensical theories, they distract attention from any bona fide effort to uncover collusive manipulation.
    [quote=Strawboss]Taking that thought process a step further - what would their footprints so to speak look like?  What kind of evidence would we seek out to see if we can detect their presence?[/quote]
    That's the key point: The "footprints" observed yesterday point to someone gaming liquidity differences between market sessions to make a quick buck. The full recovery of the price during the ensuing US cash session is very much supportive of a hypothesis that someone spiked the market to take out the stops - it's easy to see how that could be occurring. I'm not able to perceive how it would fit a central bank collusion scenario, however.
    Also, I observe that the U.S. Fed seems very, very comfortable with the idea that what we call "market manipulation" or "interference" is the core of their job, and they show no signs of trying to hide their intentions. In short, the explanation that a bank or online broker perpetrated a stop clearing run to make a short-term buck is orders of magnitude more credible than the theory that this was part of a collusive central bank manipulation theory.
    What I think most relevant is the regulatory condition that is allowed to continue to exist. My understanding (could be wrong - experts feel free to correct me) is that when an online broker uses the information in their computer system to intentionally perpetrate a "stop clearing run" designed to fleece their own clients' pocketbooks, there is nothing illegal about that! When you open the account you agree to let them not only use data they have about your orders against you, but also to sell it to 3rd parties! I have not verified this information, but if true, it seems to me GATA's efforts would be far better spent lobbying to close really obvious regulatory loopholes, rather than inventing outrageous theories that lack logical substance.
    Another aspect of this is that a lot of institutional traders have learned that if they are trying to "buy support", they do better selling it "sloppy" first to trigger the inevitable stops set just below resistance, allowing them to turn around and buy back what they sold and more, to achieve a lower average cost of shares purchased. These traders are not evil perpetrators of "manipulation conspiracies" - they are just people with the mindset that anything that is not actually illegal is perfectly OK, and who have learned that they can get a better price for their clients by triggering an avalanche of sales just before they start buying. Again, I could be mistaken, but my understanding is that this is not illegal.
    Seems to me that a very worthwhile lobbying effort would be to push for a "no sloppy trading" rule that makes it a crime to buy or sell anything with a motive of moving the price as opposed to an "economic trade" intended to buy something you actually want or sell something you really don't want. Making it illegal wouldn't stop everyone, but it would cause a whole lot of institutional guys who do this as a routine part of their jobs to stop the practice. Wouldn't lobbying for that rule be a better use of resources than whining about completely unproven central bank collusion theories?
    [quote=S Roche]I am doing research on volume and would like to request that anyone who is able to post a screenshot of the volume price action today do so, it would be much appreciated and I will share the results if they are meaningful.[/quote]
    The challenge there is, a volume chart of what? The COMEX front-month contract? Spot transactions in London? Both? Assuming you want COMEX futures volumes, I suggest opening a free account with thinkorswim.com or interactivebrokers.com. Both offer charting of price and volume on various time scales, and would facilitate the research you describe. You don't need any money - just open a "paper trading" account and you can use the charting tools. You'll get delayed data, but for your purposes it won't matter.
    [quote=S Roche]I got involved in this thread because I agree with you that the issue is: "Andrew Maguire's substantive allegations about market manipulation" which I see is supported by your statement "Nobody here has denied that "stop-clearing runs" - where someone sells "sloppy" into thin liquidity - are a very real part of the business. In fact, both Jeff Christian and I have acknowledged this reality earlier in this thread" ...However, I must say that the acknowledgement you refer to was very subtly expressed. My comprehension has been attacked in this thread, so you might forgive me if I did not pick that up previously. Stop clearing runs is exactly the activity that is the subject of Andrew Maguire's complaint to the CFTC.[/quote]
    Everyone agrees stop-clearing runs are a real problem. Maguire and Butler include them in their list of gripes, obviously, because they are well known. My biggest problem with Maguire is his insistence on pretending there is enormous leverage on the LBMA, a thesis which rests on Maguire distorting facts (paper vs. physical clearing volume) so badly that it's hard to believe it could be an honest mistake. Especially when he continues to insist this leverage exists two years after his early claims were widely debunked. In Maguire's case (only), I am inclined to side with Jeff Christian, in that I just don't see how anyone with the experience Maguire claims to have could possibly make such an eggregious error. Jeff's explanation that Maguire knows perfectly well that he's full of it and keeps selling his story anyway because so many people continue to buy it seems far more plausible.
    Erik

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  • Tue, May 01, 2012 - 9:13am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    bronsuchecki wrote:Erik T.

    [quote=bronsuchecki]
    [quote=Erik T.]It appears that my choice of the word charlatan has triggered these reactions. ... I regret that so many people took the word charlatan to mean something other than what I meant it to mean, and what the Dictionary confirms it to mean.[/quote]
    May I suggest in the future instead of charlatan use the word ultracrepidarian. No chance anyone projecting their own understandings of what it means.
    [/quote]
    Bron,
    Thanks so much for joining this thread! You bring not only market knowledge, but now sesquipedalianism as well! Bravo!
    -Erik
     

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  • Tue, May 01, 2012 - 10:25am

    S Roche

    S Roche

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    @ Erik T re Leverage

     I would be interested to follow up any links to you might have in relation to Maguire's claims regarding LBMA leverage and the resultant debunking of them.

    In regard to London's appeal as the home of rehypothecation, (Lehman, AIG, MF Global), I would be astonished if the LBM were not subjected to the same sort of excessive leverage, but, I am prepared to be astonished. If you can provide guidance I would appreciate it.

    I have been provided with several 1 minute charts of the price/volume action today in gold yesterday morning on Comex and thank you for your suggestions. I think the information revealed will be of interest.  

    SR

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  • Tue, May 01, 2012 - 10:42am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    S Roche wrote: I would be

    [quote=S Roche]
     I would be interested to follow up any links to you might have in relation to Maguire's claims regarding LBMA leverage and the resultant debunking of them.[/quote]
    Maguire, GATA, Eric King, et al made a huge big deal over Jeff Christian's "shocking admission of 100:1 leverage on the LBMA" when he had said no such thing. The KWN interviews with GATA and Maguire from just after the CFTC hearing would be the best place to start. I don't have a link, but would guess you can still find them at the KWN site.
    Some have suggested that they just used a word ("leverage") incorrectly, but that the essence of their arguments still holds. That's nonsense - note particularly Maguire's "leverage works both ways" comments in the KWN interview, and his repeated assertions that each time a single ounce of gold leaves LBMA vaults, one hundred more ounces suddenly have to be "accounted for" - a completely illogical assertion that seems to be based on the fallacious idea that gold in LBMA valuts somehow collateralizes cash-settled forwards. Jeff Christian's argument (and in Maguire's case I must agree) has been that there is simply no way that a person with the knowledge and experience Maguire claims to have could possibly say something so stupid, unless their intent was deception and they knew perfectly well what they were saying was nonsense. I won't agree completely with Jeff, however: One possibility is that Maguire is lying ONLY about his experience, and his true lack of any such experience would explain how he might actually believe this nonsense himself.
    Several people including myself (here) debunked the absurdity of the notion that the ratio of cash-settled paper transactions to bullion-settled physical transactions (what Jeff was actually referring to in his testimony) had anything to do with leverage. GATA and company stopped making such a big deal over this after they were debunked, but Maguire continues to this day.
    On a separate topic, SR, if you feel inclined toward forensic volume analysis, I encourage you to dig into the data from Jan. 6 thru 18th. The Jan 6 ZeroHedge article with the backward headline ("Physical surges to 30% premium over Spot, in Backwardation" when in reality it was paper that was trading 30% over physical!) is suspicious as hell. Makes me wonder if someone who knew the date of the coming shelf registration (which collapsed the premium to near zero) planted that article to pump the premium just before they started going short PSLV as one leg of a spread compression trade. Looking at the short interest to see if the selling that began around Jan 10th confirms this thesis would be an interesting exercise.
    Best,
    Erik
     

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  • Tue, May 01, 2012 - 11:30am

    S Roche

    S Roche

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    Thank you

     Thanks Erik,

    Yes I followed that ZH premium assertion. One of the Tylers is highly suspect and I have clashed with him/her over a story I know was wrong, as I know the person and the circumstances they wrote about. That Tyler showed zero interest in correcting the record. I will start where you suggest.

    For those interested in the whole do they/don't they debate about gold leverage here is Kyle Bass's first hand account of his Comex audit experience: http://www.youtube.com/watch?v=UQTa66gCggY (2.08).

    SR

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  • Tue, May 01, 2012 - 1:40pm

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Forgot to post the link...

    [quote=Erik T.]Several people including myself (here) debunked the absurdity of the notion that the ratio of cash-settled paper transactions to bullion-settled physical transactions (what Jeff was actually referring to in his testimony) had anything to do with leverage.[/quote]
    Oops, I meant to say here.
    It would be so much better if the Tylers would separate themselves, i.e. post under "Tyler14" so that each person is recognizable. Yes, I understand these guys are annonymity buffs, but readers tend to develop a credibility index associated with each author over time. If the various Tylers were separately identified, even if still under pseudonym, it would be a heck of a lot easier to separate the ZeroHedge brilliance from the ZeroHedge Bullsh*t.
    Erik
     

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  • Tue, May 01, 2012 - 2:06pm

    Xty

    Xty

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    manipulation

     Jumping in a little late, but what is this other than an acknowledgement of manipulation:

    "Just to keep the message clear... Nobody here has denied that "stop-clearing runs" - where someone sells "sloppy" into thin liquidity - are a very real part of the business. In fact, both Jeff Christian and I have acknowledged this reality earlier in this thread. The point is not to confuse the very real manipulations that do occur with bogus, logically incoherent theories about other mechanisms of manipulation that exist only in the minds of GATA et al."

    Why would selling 'sloppy' into thin liquidity be a 'very real part of the business'?  It could only serve to drive the price of an asset down, which would only seem to benefit someone who didn't actually own the asset.  There is no need to confuse real manipulation with bogus when they are one and the same.

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  • Tue, May 01, 2012 - 5:40pm

    Doug

    Doug

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    fwiw

     I just returned from a conference put on by Sprott.  I had a couple opportunities to speak to Rick Rule, founder of Global Resource Investments which was recently bought by Sprott.  He utterly rejects the notion of JPM manipulating the silver market, a point upon which he acknowledged differing with his "boss."  In fact, he is generally skeptical of conspiracy theories at least partially because alleged conspirators are too incompetent to keep the conspiracies going over the course of years.  That's a theory I have difficulty punching holes in.

    I had a number of conversations with other attendees during which the JPM conspiracy came up.  If it's any comfort, no one I spoke to had ever heard of Harvey Organ, including Rule.

    Oh yeh, Rule said even if it were true, he's thankful because he continues to accumulate.

    BTW, I was reminded how much I love the city of Toronto.  If you've never been there, find an opportunity to go.

    Doug

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  • Tue, May 01, 2012 - 8:29pm

    Duclan

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    Doug

    It sounds from what you're saying that he has not put any time and effort into investigating this (if he did, can you point me to such research?) Therefore, his opinion doesn't matter (even if he's RR). He has explicitly told you that "he is generally skeptical of conspiracy theories at least partially because alleged conspirators are too incompetent to keep the conspiracies going over the course of years.". This statement seems to be based on a preconceived belief system (as is your affirmation that "That's a *theory* I have difficulty punching holes in.") not based on research and logic. Basically what you're saying is that YOUR (and RR's) theory is better than the opposing theory and therefore need not be examined.

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  • Tue, May 01, 2012 - 8:47pm

    Doug

    Doug

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    Duclan

    [quote=Duclan]It sounds from what you're saying that he has not put any time and effort into investigating this (if he did, can you point me to such research?) Therefore, his opinion doesn't matter (even if he's RR). He has explicitly told you that "he is generally skeptical of conspiracy theories at least partially because alleged conspirators are too incompetent to keep the conspiracies going over the course of years.". This statement seems to be based on a preconceived belief system (as is your affirmation that "That's a *theory* I have difficulty punching holes in.") not based on research and logic. Basically what you're saying is that YOUR (and RR's) theory is better than the opposing theory and therefore need not be examined.[/quote]My impression of Rick is that he has a wealth of knowledge about PMs from extraction, to smelting, to accumulation, to where most of the above ground metal is.  Trying to follow a presentation by him this morning was like taking sips from a firehose.  The presentation was on miners, private placements and where he sees the industry currently in terms of cycles and timing.  Afterward I asked him for sources I could read to begin understanding the fundamentals and, as he put it, he gave me about 40 days of reading to get a handle on how it all works, and then said when I'm done he can point me to more.  After 40 years of experience in the field, he knows more about it than I ever will.  Now, would I trust the opinion of someone like that, particularly when he has no idea whether he'll ever make any money off me, over some guy who has a blog and claims to have all kinds of insider info?  Yeh, I think so.
    BTW, welcome to the forum.  There is a lot to learn here.
    Doug

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  • Tue, May 01, 2012 - 9:49pm

    Duclan

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    Doug

    I am not challenging Rick Rule's expertise. I am only challenging his stated belief regarding manipulation and I have not seen any research done and published by him which aims to prove or disprove the manipulation. Eric sprott, on the other hand (to whom I heard Rick Rule refering as "not just my boss but also my mentor") has done and published plenty of analytical research on the topic, he has met with Andrew Maguire and believes him to be authentic. I don't know how RR can reconcile between his stated belief and his mentor's hard research. I think it has something to do with his general attitude which I perceive to be something like: "I am too cool and important for this manipulation stuff." Perhaps this is just my perception and I could be wrong, but this is what I perceive.

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  • Wed, May 02, 2012 - 2:22pm

    Xty

    Xty

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    heresay

     heresay.  Let's stick to what we can verify.

     

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  • Wed, May 02, 2012 - 4:04pm

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Turd weighs in....

    In case you have not seen it, Turd Ferguson weighed in today and gives a clear nod to this momentous thread.  He pretends to give up all his previously held beliefs...  I have to say, reading the post gave me a much needed gut laugh... see if you can read it and not start laughing yourself...such a crazy world we live in - we have to make sure we don't lose our perspective here and let debates around manipulation divide us ...;

    http://www.tfmetalsreport.com/blog/3749/succumbing-trolls

    And my favorite line from the tongue-in-cheek rant, showing that our own Erik T has now singlehandedly reinvigorated the use of the word, "charlatan" and created an internet meme of his own, is highlighted in the excerpt below;

    The Federal Reserve never has, and never will, intervene in the equity, treasury and/or currency markets.

    Ben Bernanke is an Einstein-level genius. We are very fortunate to have him as Fed Chairman at this critical point in history.

    Silver is simply an industrial metal. Always has been, always will be.

    As a byproduct of mining for other base metals, the amount of silver is infinite.

    Those hoarding silver are mindless robots, fooled by internet charlatans.

    Jim Sinclair is a disinformation double-agent of the Rothschild family.

    Trader Dan is a mindless pumper whose sole motive is personal gain.

    Andrew Maguire is a figment of Bill Murphy's overactive imagination.

    Ted Butler, Jim Willie and John Williams are scam artists who dupe the easily-frightened into paying for their over-priced and worthless analysis.

    FOFOA, Keiser, VonGreyerz, Hoffman, Krieger, Embry, Russell, Pento, Schiff, Rickards, Celente, Rule, Fleckenstein, Faber, Quinn, Nielson, Naylor-Leyland, Turk, Martenson, Lira. All of them are nothing but 21st century snake-oil salesmen.

    GLD is 100% backed by gold and it's custodian has no conflicts of interest.

    SLV is 100% backed by silver and it's custodian has no conflicts of interest.

    In closing.. I appreciate a good laugh more than ever... a necessary mini-catharsis as the level of cognitive dissonance rises to levels I never would have imagined.  Hugh Hendy sums it up well in this piece referenced on ZH today,

     
     

    We have reached a profound point in economic history where the truth is unpalatable to the political class - and that truth is that the scale and magnitude of the problem is larger than their ability to respond - and it terrifies them.

    "we are single-digit years away from the most profound market clearing moment"

    Link:  http://www.zerohedge.com/news/hugh-hendry-europe-you-cant-make-how-bad-it

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  • Wed, May 02, 2012 - 7:13pm

    Johnny Oxygen

    Status: Gold Member

    Joined: Sep 09 2009

    Posts: 454

    Thanks Jim H

    That WAS a good laugh.

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  • Thu, May 03, 2012 - 1:38am

    Strawboss

    Strawboss

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    Erik - Exeter's pyramid

    I am only speculating here as I have no first hand information on the intended meaning trying to be conveyed by McGuire, GATA, etc... regarding the 100:1 "leverage" on the LBMA (London market).

    The way I received that information is through the lens of my understanding of Exeter's pyramid - an inverted pyramid showing the various classes of "assets" with gold at the bottom of the pyramid and each successive level above gold being less secure and "leveraged" upon the "base" - i.e. gold.  The thinking being that in a flight to safety - the asset classes at the top of the pyramid are liquidated as people rush to the lower lying levels of asset - and ultimately gold at the bottom.

    Taking that thought further, if and when the music stops and there is a rush for chairs (safety) all those paper based positions might sell their paper holdings and try to convert their assets into physical.  So - in that perspective, the 100:1 "leverage" would imply that for every 100 ounces of paper gold, there was only 1 physical ounce available at the then current prices and if/when the other 99 decided they want physical - they would all have to try to run through the door at the same time.

    I cant say definitely that my explanation is an accurate depiction of the concept they were trying to convey - I can only say that what I have written above is how I interpreted their comments then and now.

    When the music really stops - and all hell breaks loose, what I am describing above may very well be exactly what happens - i.e. a mad rush into physical where untold numbers of people are desperating trying to convert literally trillions and trillions of paper dollar (digital) assets into physical gold.

    PS - I sent an email to Ranting Andy Hoffman from Miles Franklin inviting him to join in the discussion here.  I am particularly interested in his comments related to the numbers that Bron has provided showing the distribution of outcomes of price increases/decreases since the inception of this bull market.  I thoroughly enjoy reading his daily rants although I do so with the full understanding that he is employed by a company that makes its revenue through the sale of physical metal - i.e. I have no doubt he is "talking his book".  Hopefully he jumps in and joins the discussion.

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  • Thu, May 03, 2012 - 4:52am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

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    100:1

    Strawboss,

    the ratio you should be looking at is the (inverse) reserve ratio of the bullion market, i.e. the total ounces of gold credit created (unallocated balances) divided by the physical gold reserve held by the banks.

    Perhaps Jeff Chritian is still reading here and can tell us his estimate. Before he corrects me, let me put out my estimate: it is 20:1 and I get a total credit volume (aggregate unallocated balance) of 1500..5000 metric tons (very rough estimate) which implies a physical reserve of the banks of 75...275 tons. I am posting these guesstimates here, hoping that Jeff Christian is going to jump in with better figures.

    FOFOA has argued that one problem with the gold market is that it is dominated by 'paper gold'. Although there are strong hands who accumulate physical gold or even still holders of unallocated balances for political reasons (the oil states in the 1990s), most of the trading may be by speculators who are in it for a quick gain and perhaps even on margin.

    If there is another credit crunch and stock market crash, these people may just sell all assets for cash, or even have to because their bank or broker cuts the credit lines. This may cause the gold price to drop just as in 2008 because the longs are selling. Yes! Because the longs are selling!

    Then the problem is that

    1) the strong hands who exchange their dollars for gold, get more weight per dollar which drains reserves from the market

    2) if at the same time nominal interest rates turn negative (because everyone wants out of risky assets and into T-bills, bidding up their price beyond par), gold would be in backwardation. As a consequence, it is no longer profitable to lend your gold for dollars which you can invest, and this might remove further supply from the market.

    I don't know how close the market got to failure in 2008. It was probably a lot less severe than in September 1999.

    There are some further remarks in the comments at

    http://screwtapefiles.blogspot.ca/2012/05/study-in-gold.html

    Victor

     

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  • Thu, May 03, 2012 - 7:40am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Strawboss wrote:I sent  an

    [quote=Strawboss]I sent  an email to Ranting Andy Hoffman from Miles Franklin inviting him to join in the discussion here.[/quote]Thanks for doing that, Steve. I encourage you and others to invite Turd, GATA, or anyone else to come join this discussion. I've made some pretty strong accusations that these people's primary arguments are nonsense, yet nobody seems willing to come defend their position. I find that rather telling. Ted Butler's stated excuse is that he doesn't have time, and Harvey Organ's excuse is that if Jeff Christian is here, he refuses to participate on that basis. In deference to site policy, I won't elaborate on my opinion as to what that says about Harvey.
    Consider that this thread is approaching 20,000 reads and 200 comments, and has attracted interest from serious professionals like Bron and Jeff. Considering that the gold bugs depend on newsletter subscriptions and donations for their existence and need to market themselves... and that a huge audience is now following this thread, it's hard to give much credibility to the "I don't have time" excuse. One would think that GATA, Turd, Ted, Harvey, Andrew, etc. would be chomping at the bit to come put me to shame by explaining why their "set vs. discover the price" or "100:1 leverage" arguments really do make sense, and why I am mistaken in my conclusion that they are apparently so naive as not to comprehend what leverage really is or to be familliar with basic Econ 101 vocabulary (i.e. price discovery). Yet so far, they seem afraid to participate. I agree that Turd's piece (linked by Jim H) was quite humorous, but if this guy were serious I would expect him to respond not only with comedic sarcasm, but by coming and being the expert he perports himself to be, by showing me up in this thread for why I'm wrong. But so far it would seem that all the most prominent gold bugs are each making up their own respective excuses for not participating. Telling to say the very least.
    [quote=Victor]the ratio you should be looking at is the (inverse) reserve ratio of the bullion market, i.e. the total ounces of gold credit created (unallocated balances) divided by the physical gold reserve held by the banks.[/quote]
    Victor, please elaborate on why you think that ratio is relevant. Most of the notional exposure in the futures market is heavily leveraged, and the people holding both sides of most of those contracts don't have anything close to sufficient capital to stand for or make delivery. So the gold bugs' argument that some day all the longs will recognize the system is broken and demand physical delivery is just plain silly. Also, by calling this the reserve ratio of the bullion market, you seem to be implying that the physical metal that is there somehow collateralizes the paper transactions, which simply isn't the case. Did you intend to say that the physical bullion in the system serves as a reserve to secure or collateralize paper transactions? If so, please explain.
    Thanks,
    Erik
     

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  • Thu, May 03, 2012 - 11:56am

    Humble_Investor

    Humble_Investor

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    Joined: May 03 2012

    Posts: 1

    Thanks for the great discussion

    Dear Jeff, Bron, Erik, Victor,

    Thanks very much guys for this rich thread. Special thanks to you Jeff, as your commentary is hard to come by. The only place where the average guy can receive your great insight is Jim Puplava's Financial Sense, and I always love to hear what you have to say. I'm fairly new to precious metals, however, my bullsh*t detector is quite well developed,  also being skilled in sifting facts from emotional outbursts, and its clear that yourself and Bron, are to be counted amongst the very few in the world, who are rational voices in the precious metals sector. Erik, I've thought of more an an oil guy, and Victor, a smart enigmatic fellow.

    PS: Jeff, some of the things you've said, I have had Bron clarify for me, in questions on his blog. So I guess I'm a fan.

    Thanks again guys.

    From an average guy.

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  • Thu, May 03, 2012 - 12:19pm

    Celestino

    Celestino

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    Eric Townsend

    There's no need for them to come over here. Yes, you've made some accusations but provided very little evidence in support... You also disqualified yourself by admitting that you were not an expert. You're claiming that this thread "has attracted interest from serious professionals like Bron and Jeff." Yet Jeff (Christian) has not reappeared since he was challenged by Strawboss (see post # 156 on page 16 of this thread) to present some credible evidence that his business was actually adding some value to his clients (Mining Companies Shareholders) something which certainly doesn't appear to be reflected in current Miner-valuations. Once again you're calling certain individuals by name "GATA, Turd, Ted, Harvey, Andrew, etc." yet when I challenged you to call other individuals who are proponents of the same ideas (David Morgan, Jim Sinclair, Eric Sprott, James Turk, Keith Neumayer and Chris Martenson) the same way, you have ignored my request at least on 2 occasions... So if you have any intellectual honesty, this is what you should do: (a) You should tell everybody here that the above are all a bunch of charlatans (your chosen word) for promoting the same ideas as the other individuals whom you've labeled this way. (b) You should write each one of them an email, telling them to come over here immediately to defend your public accusations against them. Once you do that and Jeff reappears with some credible evidence of success stories that he has created in the mining industry there might be a point in continuing this thread... Otherwise, I think it speaks for itself.

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  • Thu, May 03, 2012 - 1:52pm

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Physical reserve

    [quote=victorthecleaner]Perhaps Jeff Chritian is still reading here and can tell us his estimate. Before he corrects me, let me put out my estimate: it is 20:1 and I get a total credit volume (aggregate unallocated balance) of 1500..5000 metric tons (very rough estimate) which implies a physical reserve of the banks of 75...275 tons. I am posting these guesstimates here, hoping that Jeff Christian is going to jump in with better figures.[/quote]Victor, you are way off. It is more like 1500...5000 tonnes of physical. With 33,000t estimated as investor stocks (http://www.gold.org/investment/why_how_and_where/why_invest/demand_and_supply/) you'd have to think a fair bit of that was held by the bullion banks. I don't know what they have but 275t of physical is just crazy, I mean if that was the case why have they been opening new vaults all round the world?
    As to the fractional ratio, Jeff said in an interview it was circa 8:1 to 12:1 (http://goldchat.blogspot.com.au/2010/04/london-unallocated-fractional-fubar-or.html).

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  • Thu, May 03, 2012 - 2:59pm

    jonesb.mta

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    Posts: 77

    Jim H is always worth a read

    Thanks Jim.

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  • Thu, May 03, 2012 - 6:24pm

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    bronsuchecki

    [quote=bronsuchecki][quote=victorthecleaner]Perhaps Jeff Chritian is still reading here and can tell us his estimate. Before he corrects me, let me put out my estimate: it is 20:1 and I get a total credit volume (aggregate unallocated balance) of 1500..5000 metric tons (very rough estimate) which implies a physical reserve of the banks of 75...275 tons. I am posting these guesstimates here, hoping that Jeff Christian is going to jump in with better figures.[/quote]
    Victor, you are way off. It is more like 1500...5000 tonnes of physical. With 33,000t estimated as investor stocks (http://www.gold.org/investment/why_how_and_where/why_invest/demand_and_supply/) you'd have to think a fair bit of that was held by the bullion banks. I don't know what they have but 275t of physical is just crazy, I mean if that was the case why have they been opening new vaults all round the world?
    As to the fractional ratio, Jeff said in an interview it was circa 8:1 to 12:1 (http://goldchat.blogspot.com.au/2010/04/london-unallocated-fractional-fubar-or.html).[/quote]
    Bron, are you saying that the bullion banks hold 1500...5000 tonnes as custodian for their customers? This I find entirely plausible. Or are you saying they own that much and have it on their own balance sheet? That would be $80bn...$265bn in bank assets that is sitting in the vault as physical gold. Doesn't this sound way too high? Where are you getting the range 1500...5000 tonnes from?
    Finally on the question of 10:1 or 20:1, the page you have linked cites Jeff, "meaning that they will loan or sell 5 to 10 times as much metal as they have either purchased or committed to buy.".  I wonder whether the 'committed to buy' still leaves the possibility that the reserve ratio can be higher than 10:1 if you count only the physical gold actually in the vault at that moment.
    The way I am getting the 20:1 is by looking at the COMEX data and by rewriting all the open futures positions synthetically as gold credit or debt (part of a swap), and a spot transaction. This way, I view the COMEX as a fractionally reserved gold bank. If you are long the future on margin, this is equivalent to buying at spot and then lending the gold to the bank and borrowing dollars until you close the futiure or take delievery. Taking delivery is withdrawing cash. Closing the futures contract is a foreign exchange. If you are short the future, it is the opposite. So the total open interest tells you something about the credit volume in this market relative to the reserve held by the market maker which is represented by the registered inventory. This yields an estimate of 19:1 as of earlier this year.
    Erik,
    So the gold bugs' argument that some day all the longs will recognize the system is broken and demand physical delivery is just plain silly.
    Yes. This is why I said I can imagine the price to crash as the longs sell. But then, with a much lower gold price, you also need to think what happens to the physical reserve of the bullion banks if some players (perhaps a minority of today's long position) keep accumulating physical gold. So the question of how big the reserve is, is not entirely pointless. You can plot GOFO if you want to see when the banks were running out of reserve and had to borrow gold in the market in order to satisfy the allocation requests.
    Victor
     

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  • Thu, May 03, 2012 - 6:25pm

    victorthecleaner

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    one more

    Bron,

    I don't know what they have but 275t of physical is just crazy, I mean if that was the case why have they been opening new vaults all round the world?

    How about for the gold that they are custodian of rather than the gold that they own themselves?

    Victor

     

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  • Thu, May 03, 2012 - 8:33pm

    Xty

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    it doesn't matter if they have the gold

     if the currecncy issued is un-backed and unredeemable.

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  • Thu, May 03, 2012 - 9:39pm

    bbacq

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    @Erik: Here from tfmetals...

    Hi.  Erik you wrote:: "Telling to say the very least... [that no-one from tfmetals was here]".I'm happy to spend some time here, having just discovered the conversation through a link there, though I represent no-one but myself.
    I think you are right to ask for elaboration from Victor, I found his arguments on Turd's site to be quite hard to follow.  You could follow links here if you wanted to see my thoughts. But I think you might miss a subtle point when you write: "So the gold bugs' argument that some day all the longs will recognize the system is broken and demand physical delivery is just plain silly."  I don't know who exactly proposed this argument, but I do think it is worth pointing out that it does not require "all the longs" to stand for delivery in a leveraged market to cause disruption.
    Is it not the case that in an N:1 leveraged market, whether through derivatives or fractional reserve, that any concerted action by greater than 1/Nth the market is sufficient to cause disruption?  A 10:1 fractional reserve bank can't suffer more than 10% of its deposits being withdrawn else it must begin to call loans.  The LBMA or COMEX (if they actually enforced delivery, that is) are in a similar situation, though likely leveraged more highly than 10:1, should that small fraction of longs choose in concert to stand.  I believe the COMEX has fiat-settlement provisions, not sure about details at LBMA, I'd be happy to get informed here, but if so, it makes the point somewhat moot, though market disruption is certainly possible.
    I'll go catch up on the argument here.  Thanks for something interesting to read.
    bbacq

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  • Thu, May 03, 2012 - 11:04pm

    S Roche

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    Allocated/Unallocated & Erik T Link

    Erik, thank you for updating the link. It is a reasoned analysis and makes worthwhile points. I think we can now accept the Maguire emails are authentic (in that they were presented to the CFTC) and we all await the CFTC report.

    With respect to leverage in the OTC/LBMA my interest is unallocated accounts and I thank Victor for addressing this.

    According to the London Precious Metals Clearing Ltd website " Unallocated accounts are the most convenient and commonly used method of holding gold and silver"....

    The ratio I am seeking to establish is the ratio of latent claims on unallocated accounts. Given the LPMC Ltd statement above, and London's reputation for re-hypothecation, I feel the answer would be similar to Tim Geithner's response when pressed to put a number on how high the US debt ceiling would have to be raised if he could only raise it one more time..."It would be a lot, it would make you uncomfortable", he answered after much prevarication.

     

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  • Fri, May 04, 2012 - 12:04am

    bbacq

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    Dueling web-threads, apologies, and PM-frac-banking

    First I'd like to make a public apology here for words used elsewhere, as here and at screwtape I see a bunch of facts and sense from Victor.  I'd still like to get to the bottom of USD vs Euro vs gold valuation-under-stress discussions, Victor.

    Has anyone taken the time to focus this thread with a summary of what the board-borg has determined are the points at issue?

    On the name-calling and my-resume/credibility/hero-is-bigger-than-yours I have no opinion.  But I read above:

    "So the gold bugs' argument that some day all the longs will recognize the system is broken and demand physical delivery is just plain silly.

    Yes. This is why I said I can imagine the price to crash as the longs sell."

    I first ask if the conversants agree on the scenario that precipitates the longs' decision, and therefore also what happens next.  I think it matters.  A credit lock-up, some straw on a hyperinflationary camel, a cascade of derivative-default-induced bankrupticies, some international currency or bond-market event, war...?

    But I also ask Victor, especially since we both used the frac-banking analogy, do you not agree that "all the longs" is not the correct measure, as the bank's solvency limit is hit at 1/Nth customer asset withdrawl for a leverage ratio of N?

     

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  • Fri, May 04, 2012 - 12:10am

    victorthecleaner

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    short squeeze?

    S Roche,

    I think it is much easier to agree on the estimate for the technical numbers such as the ratio of unallocated balances divided by physical gold owned by the banks, rather than on the interpretation of what this means for the future.

    Many of the usual goldbug sources from Turk, Butler to Embry, Sprott claim there will be a big short squeeze that will drive the price up because one day the longs would overwhelm the shorts. I urge you to be very careful with such a statement.

    The vast majority of the longs seem to operate on margin and not to be interested in allocation. Under normal conditions, most of them don't have the cash in order to stand for delivery on their futures contract (COMEX), they are a hedge fund trading unallocated on margin (OTC), or they are in a product (some commercial bank issued gold savings scheme for retail customers) in which they cannot request allocation at all. The experience of 2008 and of several occasions since then shows that many of these longs are either forced to sell when liquidity gets scarce and banks and brokers cut credit lines, or they dump their paper gold because they prefer cash in such a situation, or they operate with a stop/loss and get out as soon as the price drops.

    This explains why the paper gold price often drops when there is a crisis or some panic. I know this is counterintuitive unless you think about who the typical longs are, but it may explain a good part of the price action without invoking the manipulation meme.

    In turn this tells you what's the real danger for the bullion market. It is not a short squeeze because the longs overwhelm the market. No, the majority of the longs don't have the cash for this. The danger is rather that the paper price collapses in a crisis and then, at the lower price, the banks lose too much physical to the minority of strong hands. But without the price rising.

    So I am generally open to the idea that the present bullion market will collapse one day, simply because of the change in the role of the dollar. But I don't think you are guaranteed a short squeeze with a steep price rise. What's more likely is that the paper price collapses, and the market runs out of reserves when the price is low, i.e. that the market dies when it is down.

    The real disappointment will be that several of the ETF may wind down and pay out cash just in this moment, i.e. when the paper price has crashed and you don't get much cash for your 'gold investment', but only some weeks before trading resumes physical-only at a price that will even blow Jim Sinclair out of his socks.

    Sincerely,

    Victor

     

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  • Fri, May 04, 2012 - 12:23am

    victorthecleaner

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    1/N

    Yes, bbacq, that's right, in order to make the market run out of reserves, only 5% (my estimate) or 10% (Bron's estimate) of the longs need to request allocation. But even then, the market would run out of reserves without a price increase. And on top of this, I think, experience tells you that so many of the longs will sell in this situation that the price actually collapses.

    In spite of the risk of confusing people now, let me repeat that I can imagine that the U.S. might buy paper gold in such a crash situation, just in order to protect the market and make the physical reserves last longer (the higher the price the less weight the strong hands can take out).

    Victor

     

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  • Fri, May 04, 2012 - 12:28am

    Erik T.

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    Posts: 213

    Ok, now I understand the "reserve" argument...

    Victor, S Roche, bbaq

    At first I thought you were suggesting/implying something very different about this "reserve" concept, but I think I see your point now. This deserves clarification, however, so I'm going to take a moment to elaborate in detail to make sure we are on the same page.

    The idea some people have (and I now realize Victor was not one of them) is that the physical bullion in COMEX and LBMA vaults somehow collateralizes all the cash-settled paper contracts. This was GATA and Andrew Maguire's very vocal misinterpretation of Jeff Christian's 100:1 testimony. In reality, the cash-settled futures and forwards are collateralized by the "margin" (performance bond) required by the COMEX, or by whatever terms are set forth in an OTC contract. In the case of a "run on the bullion bank", the price goes up and the shorts are required to either post more collateral or close their positions (i.e. a short squeeze). If everyone suddenly wants physical, the system will automatically resolve the conflict by increasing the price until fewer people are willing to pay it or some new sellers are willing to take it. So in this matter of what happens if a whole bunch of paper longs stand for delivery and there isn't enough metal to go around, the simple answer is the price goes up until there is enough metal to go around.

    I was initially resisting Victor's use of the term reserves because the bullion owned by the banks really has nothing to do with serving as a reserve against which the paper futures and forwards get settled.

    What I now realize is that Victor wasn't talking about the paper longs - he was talking specifically about banks that offer unallocated bullion accounts on a fractional reserve basis. Yes, you are absolutely correct that these banks have some total amount of gold credit exposure (liabilities payable in gold), and some smaller amount of bullion they actually own as fractional reserve against those liabilities. As I go back and re-read Victor's post I realize he was actually quite clear about what he meant. I read it wrong because I am so used to (and sick of) the popular but fallacious argument that the gold in the banks' vaults collateralizes the forwards and futures. My bad for jumping to the wrong conclusion.

    I agree that this is a very interesting question, but I fear that answering it in a meaningful way is quite difficult, because we have no way of knowing all the aspects of what is probably a very complex hedging equation. I'll throw out a few examples to illustrate what I mean.

    Let's say for sake of argument that the reserve bullion to gold-denominated liability ratio is very low. But the banks have several ways to hedge that risk, and almost certainly employ them. Problem is that some of them break down in an all-out derivative system collapse.

    For example, if total gold liability exposure is X tons of gold, the bank might hold 1/20th or 1/50th of X in physical bullion, but might also be long a sufficient number of futures and forwards to hedge price risk. So if the price spikes out of control, on paper the bank is covered because they already locked in their price for enough bullion to cover all their obligations if they ever had to. If we apply accepted accounting practices, this scenario makes the bank look squaky-clean: They are fully hedged and have no price risk whatsoever. Unless, that is, the system melts down and the counterparty to their hedge trasaction doesn't deliver, in which case you get the domino-effect that was feared if AIG had defaulted in 2008.

    The situation gets even more complex if the bank is netting its exposure to include receivables denominated in gold as contingent reserve assets, or using calls to hedge risk of extreme price flutctuation. The big problem I see there is that bankers tend to think in terms of what allows them to manage perceived risk according to the accounting rules imposed on them, not true risk if the system melted down. I doubt they have any credible plan whatsoever for what they would do if the derivative system melted down. But that's also why I always emphasize to people that when you have an unallocated account, you don't own any gold. You are owed gold by a bank that might or might not be good for it if you ever needed it, and almost certainly won't be good for it if you ever really needed it.

    Prior to MF Global, I might have said "At least allocated account holders can rest easy knowing they have legal title to their bullion, and that it can never be expropriated to cover a bank's fractional lending dilemma, no matter what". But we now know that the rule of law can and will be abrogated when the people who would otherwise be on the losing side of the transaction have the right political connections. The only mitigation I know for that problem is jurisdiction diversification.

    It appears that Jeff is no longer following this discussion. I'll ping him and see if he's interested in commenting on this topic. My sense is that he's happy to offer help on substantive questions like this, but just doesn't have time to waste on the people here who are demanding that he justify his company's value in the industry, etc. I'll see if he can be persauded back to comment on the general issue of unallocated bullion bank account fractional reserve ratios, and also if he has any insight on how bullion banks hedge mass redemption risk in unallocated accounts, if they do at all.

    Sorry for the confusion, Victor - at first I thought you were saying something else.

    Erik

    p.s. bbaq, thanks for joining us and welcome to the conversation!

     

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  • Fri, May 04, 2012 - 12:41am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Victor,I just want to

    Victor,
    I just want to clarify what I think you meant - I see this as important because your comments could be misinterpreted as supporting some very popular misconceptions in the market. I have edited your post for clarity - please confirm you meant the following:
    [quote=victorthecleaner, editied for clarity by ErikT]
    Yes, bbacq, that's right, in order to make the fractionally reserved unallocated bullion bank account system run out of reserves, only 5% (my estimate) or 10% (Bron's estimate) of the longs who hold unallocated bullion bank accounts (but futures and forwards don't count here) need to request allocation. But even then, the market would run out of reserves without a price increase. And on top of this, I think, experience tells you that so many of the longs will sell in this situation that the price actually collapses.[/quote]
    Victor, was that your intended meaning, or am I reading more into your statement than you intended?
    Thanks,
    Erik
     

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  • Fri, May 04, 2012 - 1:01am

    RLP

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    Hi Eric

    You said:

    The big problem I see there is that bankers tend to think in terms of what allows them to manage perceived risk according to the accounting rules imposed on them, not true risk if the system melted down. I doubt they have any credible plan whatsoever for what they would do if the derivative system melted down.

    The credible plan is called freegold and is what ANOTHER started writing about 15 years ago.

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  • Fri, May 04, 2012 - 2:27am

    MetalsFacts

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    Reserve coverage of unallocate metals

    All,

    Sorry for the radio silence, but I was busy  in the real, analog precious metals world.

    Erik T. pinged me about the reserve issue.

    The answer is that it depend on who you are and where you are. I actually touched on this in my 2010 CFTC testimony, but the gold conspiracy folk did not pick up on it. If I remember correctly, it was in a response to a question from Gensller.

    Start with the US. If you are a bank in the US the OCC says you have to have a certain percentage of your cash deposits in reserves. I think it's 12% or so. If you are a bank in the US and you have metals deposits, unallocated, the OCC regulation says that you have to maintain a prudent level of metals on deposit, and that you the bank gets to decide what prudent means. Most banks that take unallocated deposits seem to use reserve levels of 8% - 10%, I think.

    Here is where it gets interesting: If you are not a bank, OCC rules do not apply to you. So, if you are a broker (like Bear Stearns or Lehman), or an insurance company (like AIG), or another non-bank financial institution that offers to hold gold and silver on an unallocated basis, you are not legally required by the OCC to even manage your metal reserves in a prudent fashion.

    Let me stop here for a second to point out something about the mortgage debacle, and the savings and loan debacle in the late 1980s and early 1990s before it: One of the reasons the system got so screwed up and broke was that non-banking financial institutions were allowed to do things that regulated banks were not permitted. Back in the day, banks behaved more ethically and prudently in handing out home mortgages. One the home mortgage market was deregulated to allow mortgage intermediary companies to compete with banks, the system started to go haywire. The same thing happened with leveraged lending in the late 1980s when savings and loans regulations were changed in a way that allowed these institutions to behave in less prudent fashion in terms of lending out their assets.

    Back to metals. Outside of the US, different rules apply to banks. And, many non-banking financial institutions skirt or are not covered by the rules by which banks live.

    I hope that helps.

    Jeff

     

     

     

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  • Fri, May 04, 2012 - 2:38am

    Erik T.

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    Joined: Aug 05 2008

    Posts: 213

    Jeff Christian will respond to Victor's reserve ratio question..

    Hi Guys,

    Just wanted to share with everyone that I've been in touch with Jeff Christian via e-mail. He doesn't have time or interest to follow every nuance of this thread, and I don't blame him for that. However, he agrees that Victor's question is an excellent one, and he has agreed to write a response here when his schedule permits.

    My impression is that Jeff is pretty busy this week. My best guess is that we can expect his reply on this topic sometime this coming weekend. EDIT: He responded only an hour after I posted this. See below.

    All the best,

    Erik

     

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  • Fri, May 04, 2012 - 3:38am

    victorthecleaner

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    no, the price won't do it!!!

    Erik,

    you write

    he simple answer is the price goes up until there is enough metal to go around.

    I think this is not true.

    First, think about gold banking. This is completely analogous to banking with dollars. Here is a simplified picture: The assets of the bank are outstanding loans and cash in the vault. The liabilities are the account balances of the customers and the bank's equity and capital reserve. The cash in the vault is called "reserve". The "reserve ratio" is the amount of cash in the vault divided by the amount of loans outstanding.

    The problem with banking is that you can have a run on the bank in which the account holders no longer trust the bank to be able to let them withdraw cash (because they suspect that loans went bad or because they suspect the bank cannot call in some long-term loans quickly enough). In this case, the customers line up at the teller window and withdraw cash from their accounts until the bank runs out of reserves and has to close.

    Important: Even if the cutomers are lining up to withdraw cash, this does not mean that cash rises in price, and it does not mean that cash commands a premium over an account balance.

    This goes on until the bank is out of reserves and has to close. At that moment, cash still has its usual value, but all remaining account balances are worth zero. Note that the bank is never short dollars and never long dollars.

    Bullion banking is exactly analogous. Allocated gold is cash. Unallocated gold is an account balance. A gold loan is a loan. The reserve of the bank is physical gold in the vault.

    If you get a run on a bullion bank, this proceeds entirely analogous to a run on the bank. The holders of unallocated gold request allocation and drain reserves (physical bullion) from the bank. At no point in time is there a premium on allocated gold over unallocated gold. At no point in time is there a reason for the gold price to rise. This goes on until the bullion bank is out of reserves and has to close. At that point, physical gold is worth the same as before, but all remaining unallocated balances are worth zero. Not that the bullion bank is never short gold nor long gold.

    Important: There is no reason to expect a short squeeze. There is no reason to expect the gold price to rise when that happens.

    Now on the futures market, say COMEX. For simplicity, let's assume that there is exactly one market maker. The speculators are either long or short the future, and in order to keep the example simple, let's assume that each speculator has the market maker as a specified counterparty of their contract.

    This is equivalent to gold banking plus dollar banking as follows:

    If a speculator goes long the future, this is the same as

    1) buying physical gold at spot, and

    2) lending the gold to the market maker and borrowing dollars (a swap) until maturity of the future

    If a speculator goes short the future, this is the same as

    1) selling physical gold at spot, and

    2) borrowing phsical gold from the market maker and lending him dollars (a swap) until matirity of the future

    You see that the market maker can view the futures market as gold banking. The market maker lends and borrows gold, and he lends and borrows dollars, always for a fixed term.

    This tells me that a run on the COMEX would work exactly in the same way as a run on a bullion bank. In particular, this means that there is no reason to expect a price rise and no reason to expect a premium on physical gold over paper gold.

    Should this ever happen, the market maker would probably try to borrow gold from someone else in order to compensate for the maturity mismatch. This is why you see the lease rate increase whenever the banks are running short of physical gold reserve. Well, the lease rate is not what is usually quoted. What's quoted is GOFO, the swap rate.

    Sincerely,

    Victor

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  • Fri, May 04, 2012 - 5:00am

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1173

    Victor... it's late.. but I have to call BS on you...

    You said,

    "If you get a run on a bullion bank, this proceeds entirely analogous to a run on the bank. The holders of unallocated gold request allocation and drain reserves (physical bullion) from the bank. At no point in time is there a premium on allocated gold over unallocated gold. At no point in time is there a reason for the gold price to rise."

    Victor.. I have been nice throughout this thread.. but what you say here is utter, unadulterated Bullshit.  When there is a run on the (nonbullion) bank... The FED can run a truckload of freshly printed money out to the bank post haste... but when there is a run on the physical metal of the few bullion banks.. .there IS NO PRINTING PRESS to refresh it.. only the slow and steady pulse of freshly mined metal... which does NOT BELONG TO THE BANK at that point in time.. but could.. if the bullion bank could come up with the $$ to pay the (now rising) price for more.  

    You forgot that one little point. 

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  • Fri, May 04, 2012 - 5:21am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Victor,I apparently did a

    Victor,
    I apparently did a poor job of deliniating my views vis a vis the futures market vs. unallocated bullion accounts. We are closer to agreement than you think! Specifically:
    [quote=victorthecleaner]
    Erik,
    you write
    he simple answer is the price goes up until there is enough metal to go around.
    I think this is not true.
    First, think about gold banking. This is completely analogous to banking with dollars. Here is a simplified picture: The assets of the bank are outstanding loans and cash in the vault. The liabilities are the account balances of the customers and the bank's equity and capital reserve. The cash in the vault is called "reserve". The "reserve ratio" is the amount of cash in the vault divided by the amount of loans outstanding.
    The problem with banking is that you can have a run on the bank in which the account holders no longer trust the bank to be able to let them withdraw cash (because they suspect that loans went bad or because they suspect the bank cannot call in some long-term loans quickly enough). In this case, the customers line up at the teller window and withdraw cash from their accounts until the bank runs out of reserves and has to close.
    Important: Even if the cutomers are lining up to withdraw cash, this does not mean that cash rises in price, and it does not mean that cash commands a premium over an account balance.
    This goes on until the bank is out of reserves and has to close. At that moment, cash still has its usual value, but all remaining account balances are worth zero. Note that the bank is never short dollars and never long dollars.
    Bullion banking is exactly analogous. Allocated gold is cash. Unallocated gold is an account balance. A gold loan is a loan. The reserve of the bank is physical gold in the vault.
    If you get a run on a bullion bank, this proceeds entirely analogous to a run on the bank. The holders of unallocated gold request allocation and drain reserves (physical bullion) from the bank. At no point in time is there a premium on allocated gold over unallocated gold. At no point in time is there a reason for the gold price to rise. This goes on until the bullion bank is out of reserves and has to close. At that point, physical gold is worth the same as before, but all remaining unallocated balances are worth zero. Not that the bullion bank is never short gold nor long gold.[/quote]
    I agree with you in the case of unleveraged, fully paid-up fractionalized unallocated bullion bank accounts. In that case, it works exactly as you describe, although I suspect that long before "the bank is out of reserves", they would make a phone call to regulators and ask for and receive government intervention, e.g. a bullion banking holiday, if you will.
    The place where we may still disagree, and the origin of my statement "if there is not enough bullion to go around, the price goes up until there is" statement, is the leveraged futures market. One of the favorite goldbug memes is "Some day all the longs in the futures market will stand for delivery, the COMEX will default, and physical prices will decouple from paper". There are many reasons this is a silly argument, starting with the fact that only a very small percentage of the futures longs have the capital to stand for delivery in the first place. But if they did, what would happen is shorts would be assigned for delivery, and if the shorts who got assigned didn't have the metal to deliver, they would have to buy it on the spot market, causing the spot price to rise. That rise in price would be transmitted via arbitrage to the futures market, until either the shorts had enough metal to deliver, or the longs saw high enough prices to make them want to cash-settle, or some combination of the two. That's why I said the outcome when there is not enough physical to go around would be that prices rise until there is enough to go around.
    [quote=Victor]Important: There is no reason to expect a short squeeze. There is no reason to expect the gold price to rise when that happens.[/quote]
    The reason I disagree is that if a run on bullion accounts begins, at least initially the bullion banks would need to start buying physical on the spot market to cover their obligations. That's where the price rise comes from - bullion banks that are operating at 8 - 10% reserve ratio might estimate, for sake of example, that the formative run is going to draw physical out of 20% of their accounts. In an attempt to shore up confidence, the bank would in that situation use other assets to double their reserves (buying on the spot), hoping to avert a full-on bank run. That's where the price rise comes from. When the run gets fully established and it becomes clear that delivering to the first few guys who ask for allocation isn't going to shore up confidence, the bullion banks probably stop buying at that point and ask for a holiday from regulators while they try to figure out what to do next.
    [quote=Victor]Now on the futures market, say COMEX. For simplicity, let's assume that there is exactly one market maker. The speculators are either long or short the future, and in order to keep the example simple, let's assume that each speculator has the market maker as a specified counterparty of their contract.
    This is equivalent to gold banking plus dollar banking as follows:
    If a speculator goes long the future, this is the same as
    1) buying physical gold at spot, and
    2) lending the gold to the market maker and borrowing dollars (a swap) until maturity of the future
    If a speculator goes short the future, this is the same as
    1) selling physical gold at spot, and
    2) borrowing phsical gold from the market maker and lending him dollars (a swap) until matirity of the future
    You see that the market maker can view the futures market as gold banking. The market maker lends and borrows gold, and he lends and borrows dollars, always for a fixed term.
    This tells me that a run on the COMEX would work exactly in the same way as a run on a bullion bank. In particular, this means that there is no reason to expect a price rise and no reason to expect a premium on physical gold over paper gold.[/quote]
    I disagree. In the run-on-the-COMEX scenario, the commercial shorts have some bullion (that's why they have the luxury of being able to keep the contract open past the first notice date), but they don't have enough to cover ALL their short contracts. We know all the longs can never stand for delivery because they don't have the money, but let's assume as many as possible do stand for delivery, and that results in the commercial shorts getting more delivery assignments than they have bullion to settle with. Now they either need to buy back the contracts as fast as they can to avoid more delivery notices (upward price pressure on the futures themselves), or they have to buy bullion on the spot to cover the huge delivery demand (upward pressure on the spot price). Either way, the price pressure is to the upside.
    Perhaps this is the crux of why we seem to disagree: On the other hand, if the commercial shorts really do have enough bullion to satisfy all the delivery notices they receive, without having to go get more bullion to meet that obligation, then in that (unrealistic?) case, I would agree with you: The shorts deliver from their bullion stock and there's no upward price pressure. I just don't see that scenario as realistic.
    All the best,
    Erik
     

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  • Fri, May 04, 2012 - 6:40am

    victorthecleaner

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    Joined: Nov 20 2010

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    short squeeze?

    Jim and Erik,

    if you just have a run on the bank, and the bank cannot call in the oustanding loans quickly enough, you would not get a price rise. They would simply run out of reserves and one day stop trading. You get a price rise only if there is some short who had price exposure (i.e. was naked short) and is getting squeezed.

    Now if you have a situation at the COMEX in which the majority of shorts is producers, but the majority of longs is speculators and only 1/10th of the longs are strong hands who go for delivery, the price can even drop if the speculative longs try to liquidate (even though there is the 10th that stands for delivery and that eventually drains off the reserves).

    So again, nobody guarantees you a short squeeze. I do find the standard recommendations by people from Sprott to Turk irresponsible because they make their investors greedy for the big short squeeze. It might never happen. But if the market runs out of reserves and the bullion market is forced to settle in cash at the previous London fixing, all those goldbugs who invested in gold related financial products, will be left in the cold. In this case, only physical gold in your possession will do.

    Finally let's add the next layer to the story. The bullion banks are flat, they are neither short nor long gold. So what can they do if they face a run on their reserve? Purchasing bullion for US$ alone will not work because they are banks and don't want to go long. But they can borrow gold. Technically this would be a swap, i.e. they lend US$ and receive gold as the collateral. For example, they could purchase spot gold and at the same time sell the forward. For the term of this loan, they can use the gold in order to satisfy allocation requests. (And then they need to call in outstanding loans so that they can return the borrowed gold when the swap matures).

    If everyone does this at the same time, this would push gold into backwardation. So, yes, you would see the spot price increase and the futures prices collapse.

    So the only spot price increase you get is because the term structure starts to invert, not because of a short squeeze! Take a look at November 2008. The market went into backwardation on Nov 20 and 21, but the total increase in the spot price was merely some 10% over that month. Well, we know the market survived, but that's still pretty lame for the short squeeze that is announced by the gold bugs. Similarly Sept 29 and 30 in 1999. This was the Washington Agreement and would have probably killed the London market had the BoE not intervened. Again, the price increase was less than 20%.

    Sincerely,

    Victor

     

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  • Fri, May 04, 2012 - 9:51am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    victorthecleaner wrote:Jim

    [quote=victorthecleaner]Jim and Erik,
    if you just have a run on the bank, and the bank cannot call in the oustanding loans quickly enough, you would not get a price rise. They would simply run out of reserves and one day stop trading. You get a price rise only if there is some short who had price exposure (i.e. was naked short) and is getting squeezed.[/quote]
    Victor, you keep saying that they would just run out of reserves and stop. That doesn't make sense to me - if there is a run, the remaining unallocated longs demanding delivery won't go away. In that case the bank needs to either acquire more metal or call in a favor from regulators and ask for a banking holiday. I wouldn't be surprised if there is a clause in some of the unallocated account agreements allowing them to cash-settle with longs requesting delivery at the most recent fix , but that's just a guess on my part. In any case, Victor, your discussion seems to ignore the question of what happens to the remaining unallocated longs when the bank runs out of reserves. Am I missing something?
    [quote=Victor]Now if you have a situation at the COMEX in which the majority of shorts is producers, but the majority of longs is speculators and only 1/10th of the longs are strong hands who go for delivery, the price can even drop if the speculative longs try to liquidate (even though there is the 10th that stands for delivery and that eventually drains off the reserves).[/quote]
    Now this is a really excellent point I hadn't thought of until one of your earlier posts. If the day comes when "all the futures longs decide to stand for delivery", what that will really mean is that they SELL 90% of their long position, so as to be able to stand for delivery of the amount of metal equal to the amount of money they actually have. All the spec longs selling 90% of their holdings all at once so they can stand for delivery of the rest would definitely shock the market to the downside. Or perhaps more likely, would create an unusual moderation of the big upward price move underway that led people to conclude it was time to get out and exchange their profits for physical metal.
    [quote=Victor]So again, nobody guarantees you a short squeeze.[/quote]
    Victor, what's wrong with you? Don't you listen to King World News? The big short squeeze comes when wealthy Asian investors decide to put the squeeze on the evil-doing bankers. Didn't you know? Besides, that's how we do it here in Asia. When we want to orchestrate a short squeeze, we don't employ the element of surprise for maximum effect, the way you would do it in America. No. We tell Andrew Maguire all about it months in advance so that he can telegraph our intentions to retail investors! Didn't you know that?
    Erik
     

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  • Fri, May 04, 2012 - 2:13pm

    Strawboss

    Strawboss

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    Victor - You are living in a dream world

    Victor,

    Your argument about a bullion bank expereincing a run on their fractionally reserved unallocated accounts to the point where they simply run out of physical - close up shop and the price of physical isnt effected is ridiculous.  No offense intended, but, your argument is preposterous.  Here's why...

    Lets pretend that the bullion bank in question is Kitco, and their unallocated accounts are demanding delivery of physical metal which is putting Kitco under great stress.  With each day that goes by, they are losing more and more physical until they simply close their doors (classic bank run scenario).  Your position is that it occurs in a vacuum and the spot/futures markets in gold are unaffected.

    What you are missing is that if that was to occur, you can bet your life that a great percentage of other unallocated account holders in various funds are going to perk up and pay attention and that a sizeable amount of them are going to also take delivery or at the very least, seek to allocate their positions so they at least hold title to their gold.

    News of a run on gold in an unallocated fund would spread like wildfire and would surely trigger a mass exodus from unallocated accounts.

    Your failure to address this obvious ramification is the basis for my calling your argument preposterous.

    Switching gears...

    Yes, I agree that many of the longs dont have the financial wherewithal to demand delivery as they are highly leveraged and only seeking cash settlement anyways - their intent isnt to take delivery.

    However, it stands to reason that at some point in the future (near or far who knows) there are going to be other pension fund managers that are going to arrive at the same conclusions that Kyle Bass has and seek to take physical delivery of gold through the COMEX.  It is even reasonable to assume that a day may come when CFO's at major corporations seek to hedge their cash positions with some physical gold (think what would happen if Apple decided to plow 10% of their cash into physical gold as a hedge).

    COMEX operates on the assumption that very few longs will stand for delivery.  That is a fatally flawed assumption when the likes of Kyle Bass come to play.

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  • Fri, May 04, 2012 - 3:29pm

    bbacq

    bbacq

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    A few points on this discussion...

    I am still not sure that the parties currently discussing hypothetical gold-price scenarios agree on the conditions that "causes all the longs to liquidate" (though I think I have now clarified that only 1/Nth or more need to stand, and others liquidating in the discussed scenario).  There is analysis of what might happen once the process begins, but I think the environment matters, and here is why.The economy and all within it are a complex system in which there are risks that people try to manage.  Provided that that system, including rule of law, contract enforcement, etc remain functional in the current mode of operation, mechanisms that exist within the system for managing risk might well be effective, but should elements of the system stop functioning for some reason, the "rules" no longer apply.  In the scenarios discussed, I am not sure there is agreement on the state of rule of law, solvency of governments and large banks, etc. that precipates a large fraction of gold futures (or option, or unallocated acct) holders to stand for delivery.
    "For example, if total gold liability exposure is X tons of gold, the bank might hold 1/20th or 1/50th of X in physical bullion, but might also be long a sufficient number of futures and forwards to hedge price risk. So if the price spikes out of control, on paper the bank is covered because they already locked in their price for enough bullion to cover all their obligations if they ever had to. If we apply accepted accounting practices, this scenario makes the bank look squaky-clean: They are fully hedged and have no price risk whatsoever. Unless, that is, the system melts down and the counterparty to their hedge trasaction doesn't deliver, in which case you get the domino-effect that was feared if AIG had defaulted in 2008."
    Exactly.  One needs to be explicit about the counter-party risk environment before one can discuss price-discovery mechanisms and pricing.  Given Jeff's comments on the lack of regulation of many players, we have justification for being nervous.
    Victor, I think Jim has a good point about gold vs fiat in your banking analogies, and Erik above points out that we must consider the remaining longs (or bank creditors) beyond the reserve ratio.  Your assertion that pricing does not change in the case of bank runs may be false, and even more so in the case of the gold analogy.  You cannot draw a box around the bank and its creditors and consider it in isolation if you want to have the model reflect reality.  People make the same mistake about the second law of thermodynamics, and use it when inapplicable.
    Since, in our current system (haha), currency is created whenever someone enters into debt with a bank, and destroyed whenever someone retires a loan, when bank runs are occuring (massive withdrawls and either voluntary or involuntary retiring of debt), the money supply is contracting.  If we are to believe the monetarists who subscribe to the quantity theory of money, then that reduction of money supply rapidly has an effect on prices denominated in the currency in question.  This is the deflationary scenario in which prices decline as money supply shrinks.  So prices do change (if we believe the monetarists).  The value of money increases.  If the frac-gold-bank analogy were perfect, then the same would apply there, ie the value of gold would increase under the same conditions.  I believe your example requires that none of the withdrawn assets be used to pay down debt, else money supply changes and thus prices.  The gold-bank equivalent would be that none of the delivered gold would be used to satisfy leasing obligations.  Please correct me if you feel I am wrong in this.
    The analogy is also not perfect, as Jim points out, because of the difference in the nature of the goods in the bank/market.  One good, fiat currency, is created and destroyed at man's whim.  The other, gold, is not.  Both can and have served as place-holders for the money-concept, ie as currency, and co-temporaneously as well.  Both can be hoarded and dis-hoarded to act as demand and supply to the market, but the goods are different in nature, and man, who is the arbiter of value in the market, understands this difference, and, all else equal, will impart greater money-value to the good that is less easily created or destroyed.  Further, in the case of fiat, we operate under a coercive system in which a very small subsegment of society is (madness!) entitled to enter into debt (and expand the supply of fiat currency) on behalf of the rest of society, and there is little feedback-coupling to this segment - negative consequence for bankers in our current limited-liability-and-insured-frac/Fed/BIS central system is almost non-existent, so the net incentive for excess is everywhere.
    "The big problem I see there is that bankers tend to think in terms of what allows them to manage perceived risk according to the accounting rules imposed on them, not true risk if the system melted down."
    Yes.  One needs to differentiate in one's analysis whether one is thinking inside-the-box/system, or outside it, i.e. once natural cause and effect are again free to exert their influence on markets.  There is uncertainty in nature.  For the last hundred years or so we have in our hubris assumed that we were smart enough to create organizations that could reduce net, overall, long-term risk.  We were wrong.  LTCM is a grand example, and Victor may be right that we were closer to a system-reset then than in 2008.  The most effective way to deal with uncertainty is through emergent-self-organized spontaneous order, which requires freedom, not coercion.  I stand with Mandlebrot, Taleb and others in this assertion.
    Erik, I think your final conclusion above is flawed:  "If the day comes when 'all the futures longs decide to stand for delivery' [ed: note it just requires >1/Nth], what that will really mean is that they SELL 90% of their long position, so as to be able to stand for delivery of the amount of metal equal to the amount of money they actually have. All the spec longs selling 90% of their holdings all at once so they can stand for delivery of the rest would definitely shock the market to the downside."
    I think that is a very specific example, and not at all likely, but, again, one must agree on preconditions in hypothetical analysis, and I think you mistake market leverage for account margin requirements in that (unless, by coincidence, you are talking about both 10% physical reserves *and* a 10% fiat-margin requirement imposed by the clearing-house).
    I think the scenario being discussed is "strong longs standing" ie those who have 100% fiat backing for their gold positions, and not the historical situation in which highly-margined speculative long players are forced to liquidate under price-pressure.  Erik I think you were closer to the truth when you suggested prices would move until the market cleared.
    Victor, I think the preconditions you have in mind are some sort of exogenous event in which weak speculative long gold players also have exposure elsewhere, and in some financial crisis seek to liquidate their long gold positions to cover other obligations at the same time as the "strong longs" are standing.  I think you are right that there could be a tug of war going on in that case, but I am not sure we can easily predict who wins, and therefore which way prices move.  It depends on lots of factors, so you'd have to elaborate on assumptions to get agreement here I think.
    Erik, I shouldn't take the sarcasm bait, but I and a large and growing contingent of society believe that the bankers will, ultimately, be meted justice and sanity in our money and our markets will return, and this very blog discussion is evidence of that.  How exactly, and when?  Anyone's guess.
    best regards,
    bbacq

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  • Fri, May 04, 2012 - 4:30pm

    Travlin

    Status: Gold Member

    Joined: Apr 15 2010

    Posts: 524

    Fundamental errors here

    Victor

    I appreciate your contributions, but you have fundamental errors in your description of a bank’s balance sheet, that go beyond keeping it simple. The parts I high-lighted show you do not understand this matter.

    [quote=victorthecleaner, post 200]

    First, think about gold banking. This is completely analogous to banking with dollars. Here is a simplified picture: The assets of the bank are outstanding loans and cash in the vault. The liabilities are the account balances of the customers and the bank's equity and capital reserve. The cash in the vault is called "reserve". The "reserve ratio" is the amount of cash in the vault divided by the amount of loans outstanding.

    [/quote]

    Assets = Loans and cash. However, cash includes accounts with the bank’s own money. Only a minimal fraction is “currency” or “folding money” kept in a vault.

    Liabilities = Deposits owned by the customers.

    Equity = The bank’s capital, plus cash owned by the bank that is specifically allocated by law as a reserve for bad loans, plus retained earnings not yet allocated for expenses, reserves, or capital.

    Wikipedia has an article with a sample balance sheet that explains more.

    http://en.wikipedia.org/wiki/Fractional_reserve_banking#Example_of_a_bank_balance_sheet_and_financial_ratios

    Travlin

     

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  • Fri, May 04, 2012 - 5:09pm

    bbacq

    bbacq

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    @Travlin: Victor's balance sheets, digital money...

    Travlin, though I am sure Victor can defend his own position, I believe it is the case that in the interest of expediency in the analogy he has summarized things so.  We clashed swords on balance-sheet definitions over at tf, and the points were clarified.  I believe Victor will clarify that "cash in the vault" in his example includes bits on balances in certain accounts in computers.  I have posted elsewhere that there is effectively no monetary difference between bits and paper, and why.  I believe the bank analogy stands, and is at least useful for thinking about reserve ratios and the physical call option (though, as I discuss above, we may disagree as to the degree of market-isolation in which can consider the analogy valid, ie I hold that bank runs are deflationary).I'd like to add that if the folks running the board here would rather I did not provide links to other sites, I would be happy to provide quotations here instead.  It is not my intent to coopt this thread, drive trafiic to other sites, or anything else sinister like that.  I have just covered some of this ground before, and simply wish that more people understood the truth about Life, the Universe, and Everything, rest Douglas Adam's soul...
    bbacq

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  • Fri, May 04, 2012 - 5:15pm

    bbacq

    bbacq

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    Joined: May 01 2012

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    Other discussions and sources of info...

    I suggest those interested in the debate on what money is, and what might happen to gold etc to have a read of an article recently published on ZeroHedge by Jeff Snider.

    "If the greatest trick the devil ever pulled was convincing the world he didn’t exist, the greatest trick our central bank ever pulled was convincing the world we couldn’t live without it."  Kudos to Jeff...(with whom I have no affiliation)

    Jeff goes on to explain the nature of the market's systematic ability to limit monetary excess in a private, decentralized banking model, and he echoes thoughts I first read in "Competiton in Currencies", a collection of articles published by the Cato Institute long ago.  His thoughts are not new, but are expressed in a delightfully articulate fashion, with modern references.  Jeff clearly understands the complexity of the problem of what to use to represent the concept of money in our economies, and its simple solution.

    That the best monetary tradeoff lies in maximising freedom and limiting coercion is not obvious to many.  I have been posting links to "I, Pencil" over at tfmetals as a good place to start, as appreciating the message therein requires admitting that we are no longer "in control" of even the most basic means for our sustenance and daily life, and that that is a good thing!  If we were "in control", we would be far fewer, living in squalor and misery in a much simpler world that we could understand.  It is only by abandoning attempts at global control and instead focussing only on our own interests - ie through freedom -  that economic specialization has produced its bounty for mankind.

    All the arguments about specific pricing mechanisms and levels and banks and regulation etc etc in the end come down to one very simple moral dichotomy, as most eloquently expressed by Bastiat in the 1850s when he said: 

    "All that I have aimed at is to put you on the right track, and make you acquainted with the truth that all legitimate interests are in harmony." [emphasis is Bastiat's, though I would have put it in bold 40-point]

    Of the two sides that either agree or disagree with this statement, respectively, he adds:

    "In the one case, we must seek for the solution in Liberty - in the other, in Constraint.  In the one case we have only to be passive - in the other, we must necessarily offer opposition."

    Central banks, sanctioned by our governments, have for a hundred years coercively imposed upon us fiat currency, a regime of spectacular failure-to-deliver of equity to the common man. (I hope y'all catch the DTCC-double-entendre. 😉

    Every individual is on one or the other side of Bastiat's dichotomy.  Either one sides with the central planners and bankers, and thinks it is right and moral and good to coerce others, or one sides with the contingent advocating a return to sound money, ie freedom and competing gold-backed currencies.  I suppose one could try to argue that legitimacy is unknowable, but that is silly and pedantic sophistry in my opinion.

    I know which way this monetary argument will finally swing, that fiat and central banking dies, I just don't know when or how exactly.  I personally would rather it happens sooner, because I understand that the longer a complex system is held against its true nature, the more disruptive will be the return to normalcy and a deeper societal appreciation of Bastiat's simple principle.  I am delighted that sites and discussions like this exist, so that more people can learn the truth about all this stuff.  Bless the internet!

    bbacq

     

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  • Fri, May 04, 2012 - 5:29pm

    Michael H

    Michael H

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    Joined: Nov 09 2009

    Posts: 1

    run on BBs

    Thoughts on why a run on the BBs, and even on the COMEX, may not *necessarily* lead to higher prices:

    Continue victor's analogy of Bullion Banks as fractional-reserved fiat currency banks.

    A run on the BBs is like a run on currency reserves.

    Futures contracts are not like bank accounts. They are like CDs with a defined maturity date, where the holder does not have the option for early termination. So say you have such a CD and you see a line around the block in front of your bank. What do you do? Do you get in line? No, of course not, because even if you made it to the front of the line, your contract stipulates that you will get no cash from the bank that day.

    What you do instead is you sell your CD on the open market, for a loss, because you know that you cannot get your cash today and you fear that the bank may not be there to deliver the cash when the CD expires. This is why futures longs may liquidate and the paper price of gold may collapse even when the physical reserves are being run. Because the ability of the contract to deliver the underlying physical good has been shown suspect, and so the contract itself is worth less / worthless.

    So, Erik T, the paper price would not collapse because leveraged longs will liquidate 90% of their positions so they can take delivery of the final 10%. Rather the paper longs will liquidate 100% of their positions because a) those interested in paper profits will be showing a large paper loss and will want to get out of their positions and b) those interested in procuring physical gold will realize that the futures market is not a viable place to do so.

    Now back to unallocated accounts at the bullion banks, and back to the fiat-bank analogy. The unallocated account holders are like the savings account holders at a currency bank. If you had a savings account at a bank and you saw the line around the block, you would jump in for sure. Because you know that, if you get to the front of the line, you might get your cash out. If you don't make it to the front of the line you will be wiped out!

    At least this was how it worked in the 1930's, when the dollar was pegged to gold and there was no option for running the printing press. You either got your cash or you got nothing.

    Now apply this to a BB. There was a run on the physical reserve and the bank shut its doors (how is that different from a 'bank holiday' anyways?). Do unallocated account holders bid up the price of gold? No, they are wiped out, now at the mercy of the bankruptcy proceedings.

    Does the bank bid up the price of gold? It will probably try to borrow gold, as victor said, but why would it buy gold?

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  • Fri, May 04, 2012 - 5:36pm

    Michael H

    Michael H

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    Joined: Nov 09 2009

    Posts: 1

    Not only 'why would the bank

    Not only 'why would the bank buy gold', but would it even be able to?Picture again the 30's american bank going under due to a run. Why didn't they just buy more currency? 
    Because they don't have the liquidity. The have loans as assets on their books, and if they couldn't call them in or sell them for cash then they had no other recourse to try to raise the cash to stem the run.
    It could very well be likewise with the BBs. When the physical reserves run out, that's it; either the bank sells its loan book, calls in loans, or goes bust. There's no massive currency stockpile waiting to be deployed to aquire more physical reserves.

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  • Fri, May 04, 2012 - 5:50pm

    Michael H

    Michael H

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    Posts: 1

    A couple of more points

    A couple of more points (sorry for the multiple posts). Bullet points only because they lack coherency:- Think about Exter's pyramid. Where do unallocated gold accounts go? USD? COMEX gold futures? Physical gold?
    - The trouble is that right now all different forms and contracts for 'gold' trade at par. Should we see a run on the BBs, this will no longer be the case. The paper price we are used to seeing on kitco will collapse, but when someone calls a bank for an OTC gold order at that price they will be laughed at. It will be terribly confusing!
    - In the 1930's when banks suffered runs, there was price deflation aka appreciation of cash. But CDs from shaky banks still traded on the secondary market at a large discount to the prior value. What we currently think of as the 'price of gold' is not the price of physical gold (analogous to cash) but rather the price of gold contracts (analogous to CDs).
    - This might all seem like semantics and bickering between different gold camps. However, it is an important discussion because physical gold holders who do not understand what may happen face the prospects of selling at exactly the wrong time, because 'gold is crashing, the gold bull market is over, the gold story was completely wrong'.

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  • Fri, May 04, 2012 - 6:56pm

    Strawboss

    Strawboss

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    Joined: Apr 23 2012

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    Physical Gold - Exeter's Pyramid

    Physical gold is at the inverted base of Exeter's pyramid.  All paper products (including paper gold products) are above gold.

    In a desperate rush for the exits - thats an awful lot of physical paper "assets" that will try to run through the door into physical gold.  Unless...the powers that be are able to keep all the dishes juggled in the air without any "accidentally" crashing to the ground.

     

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  • Fri, May 04, 2012 - 7:16pm

    Michael H

    Michael H

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    Joined: Nov 09 2009

    Posts: 1

    Strawboss,So now you see

    Strawboss,

    So now you see the predicament. Our 'price of gold' that we see on kitco etc. is the price of paper assets. As you say, these assets will try to 'run through the door into physical gold' and thus they will need to be liquidated into currency first.

    So 'gold contracts' will crash in currency price, even as physical gold will soar in currency price -- but you won't see the latter, because physical gold is not quoted (in size at least). Our current gold pricing mechanisms are based on the paper gold price and thus they will break down in a period of confusion. Contracts for gold will not perform.

    Physical gold will soar in value but there won't be a market in place to quote a price.

    Again, this might seem like semantics, since both a hypotherical short squeeze and this scenario end with a radically higher physical-only gold price. However, the two situations will look very different as they are happening.

    *EDIT* both scenarios end with higher gold prices, but the short squeeze scenario does not necessariy specify a physical-only price, does it?

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  • Fri, May 04, 2012 - 7:51pm

    Strawboss

    Strawboss

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    Joined: Apr 23 2012

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    Michael H

    [quote=Michael H]Strawboss,
    So now you see the predicament. Our 'price of gold' that we see on kitco etc. is the price of paper assets. As you say, these assets will try to 'run through the door into physical gold' and thus they will need to be liquidated into currency first.
    So 'gold contracts' will crash in currency price, even as physical gold will soar in currency price -- but you won't see the latter, because physical gold is not quoted (in size at least). Our current gold pricing mechanisms are based on the paper gold price and thus they will break down in a period of confusion. Contracts for gold will not perform.
    Physical gold will soar in value but there won't be a market in place to quote a price.
    Again, this might seem like semantics, since both a hypotherical short squeeze and this scenario end with a radically higher physical-only gold price. However, the two situations will look very different as they are happening.
    *EDIT* both scenarios end with higher gold prices, but the short squeeze scenario does not necessariy specify a physical-only price, does it?
    [/quote]
    Michael - expand your mind.  There is only a tiny, tiny fraction of worldwide "wealth" currently invested in "gold" (including the paper derivatives).
    Whatever downward price pressure on the paper market because of paper gold holders converting to physical will be more than compensated for by the "new money" rushing through the door to get their hands on physical.
    As I indicated earlier, can you imagine if Apples board of directors decided to invest 10% in physical gold?  Or what about Calpers?  Or the Norwegian SWF?  Or any of the other hundreds and thousands of other monied interests...not even taking into account all the worlds billionaires and millionaires...
    Thats an awful lot of liquidity that gold is going to have to sop up.  In fact - gold is the only asset that can truly extinguish all the debts and get the system back to a normal state of function.

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  • Fri, May 04, 2012 - 8:03pm

    Michael H

    Michael H

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    Joined: Nov 09 2009

    Posts: 1

    Strawboss,I agree with you;

    Strawboss,
    I agree with you; if tons of new money wants to invest in physical gold, then the price will skyrocket. And I also agree that this is likely in the future.
    Most of this thread's discussion has not been about that end game, however. It has been about how the current market operates, and how the current market may cease to operate.

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  • Fri, May 04, 2012 - 8:28pm

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    paper gold crash

    Michael H,

    nice to see you here. I sign every single one of your statements above.

    Strawboss,

    Whatever downward price pressure on the paper market because of paper gold holders converting to physical will be more than compensated for by the "new money" rushing through the door to get their hands on physical.

    I am not sure this is realistic. They will see the quoted paper price of gold crash, as Michael H says. Why catch a falling knife, as the investment people say? The problem is that the market may die while it is down and before all these potential new longs get in.

    Again, you should think about what this means for the ETFs. If I were Sprott, I would wind down the PHYS at that moment, pay the investors cash and purchase the physical gold myself or for my hedge fund. Adding insult to injury for the holders of Sprott paper.

    Finally, you need to consider the political risk as well. What will the U.S. and UK government do when the bullion banks are running out of reserve?

    There is one precedent. In March 1968 when the London Gold Pool lost a lot of its reserve, the US Treasury phoned the UK prime minister, and on the same evening, he basically woke up the Queen that night and had her sign an order to close the bullion market the next day. Nobody bid up the spot price in order to satisfy the redemptions. They just shut the market down for two weeks. During that period, Congress passed a law that made the US dollar irredeemable for foreign private entities. I would keep this precedent in mind.

    Again, I urge everyone to take this warning seriously. If you just listen to the usual goldbug propaganda and expect a short sequeeze and a rising paper price (in order to make a nice profit in US$), you may be waiting for something that might never happen. Rather, the paper price may crash, most retail investors will be confused and sell or will be forced out of their ETFs. Then they close the market when the price is low, and a couple of weeks later, somebody else (ECB perhaps) starts making a physical-only market that discovers a price that blows even Jim Sinclair out of his socks, perhaps some $30000/ounce or more (payable in Euros, of course). Everyone who sold their physical or got shut out of his ETF, will be furious. Just as in 1968 the international holders of dollars who were a few days too slow.

    And in 1971 the Bank of England herself. On Friday, August 13, 1971, they phoned the U.S. treasury and asked for redemption of $3bn at the then official price of $35/ounce for a total of about 2660 metric tons of gold. The U.S. government then met at Camp David on Saturday and apparently brought forward the plan they already had in the drawer, namely to terminate the gold redemption even for foreign governments and central banks. The BoE didn't get their 2660 metric tons. For some reason, however, this did not diminish their loyalty.

    Victor

     

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  • Sat, May 05, 2012 - 1:31am

    S Roche

    S Roche

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    Joined: Apr 24 2012

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    Allocated/Unallocated, August 2011 & a run on Bullion Banks

     Correlation is not causation and all that...

    The similar time line of Venezuala repatriating gold and the spike in the gold price around August of 2011 is something I am focused on. The devil is in the detail and I have made enquiries. Strange bedfellows indeed.

    In regard to differing opinions as to whether a run on the bullion banks caused by their failure to honour the convention of converting unallocated to allocated would, or would not, cause a spike in the price...I happen to think that those who hold their gold in unallocated accounts, (the most common form surprisingly, according to LPMC Ltd), would learn their lesson and be somewhat anxious to take delivery of their replacement purchases.

    Not to mention those who, in the circumstances, were fearful that their allocated accounts might be Corzined. I think we would see a commercial signal failure as physical gold is removed from the trading system. It would be a brave central bank that, in the circumstances, would "stand ready to lease gold in increasing quantities should the price rise"...or braver still if, as Victor contends, the price remains unchanged or falls.

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  • Sat, May 05, 2012 - 3:16am

    victorthecleaner

    Status: Member

    Joined: Nov 20 2010

    Posts: 0

    S Roche,The similar time

    S Roche,

    The similar time line of Venezuala repatriating gold and the spike in the gold price around August of 2011 is something I am focused on

    In order to verify whether this idea is plausible, we can take a look at GOFO

    http://www.lbma.org.uk/pages/?page_id=55&title=gold_forwards&show=2011

    GOFO is the interest rate on an unsecured US$ loan minus the gold lease rate. If GOFO is positive and grows with the term of the swap, the market is in contango. In general (US$ interest rates being fixed), a large and growing contango indicates that the gold price rise is driven by paper gold buying. A small and shrinking contango or even backwardation indicates a shortage of bank reserves, i.e. that these banks start borrowing gold. During the summer 2011, the market had a healthy contango, and so I don't think Chavez' action made any difference.

    Secondly, I would be surprised if he had unallocated gold with a bullion bank. He most likely held allocated gold with the Bank of England or with the BIS, and this would have always been outside the bullion market.

    I have a second comment on the idea that Chavez' had anything to do with rising prices: "The price action determines the news" rather than "the news determine the price action". By this I mean that depending on the price action, people tend to take those news items more seriously that seem to confirm the price action whereas they tend to ignore or discard other news items that seem to contradict the price action.

    I suppose had Chavez repatriated his gold in December 2011, nobody would have made any big fuzz about it.

    For instance, do you remember the explicit leak that the BIS was buying gold in early March this year? There is hardly anything more bullish for gold (physical that is). But this happened during a phase of declining prices, and so everyone remembers Chavez, but nobody remembers the BIS (although the latter can easily grab several 100 tonnes of physical without blinking).

    I happen to think that those who hold their gold in unallocated accounts, (the most common form surprisingly, according to LPMC Ltd), would learn their lesson and be somewhat anxious to take delivery of their replacement purchases.

    A lot of the unallocated gold has its origin in various gold-related financial products that are offered by all sorts of banks. Rather then buying gold in order to hedge their exposure, they just hold an unallocated balance with one of the bullion banks. Their customers don't even have the option of allocation. If they want to switch to physical gold, they need to sell their financial product first, then take the cash to the coin store and get their physical gold.

    Finally, many who hold unallocated gold OTC do so on margin. So in a liquidity crisis they may have to sell because their bank or broker cuts the credit lines, or they get stopped out when prices decline.

    Again, there are a number of reasons for why the short squeeze that is promised by the gold bugs may never materialize (although the market may well break one day).

    Sincerely,

    Victor

     

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  • Sat, May 05, 2012 - 5:55am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    The end game is impossible to predict

    I think bbacq hit the nail on the head when he observed that it's hard to have a meaningful conversation about how a bullion bank "run" might go down unless you first agree on what preconditions would cause such a run. I would carry that thought a step farther, and opine that predicting how the end game goes down involves so many variables that it's impossible to make meaningful predictions.

    Taken in isolation, the concept of levered futures longs having to SELL a lot of notional value of paper contracts in order to raise cash to BUY a much smaller amount of physical bullion seems to make sense. But it begs the question as to what caused the futures longs to suddenly make this change of strategy, and most of the plausible scenarios I can think of involve a situation where a panic is going on and a whole lot of money not previously in the PM market is buying, causing far more upward pressure than the liquidations of leveraged futures are causing to the downside.

    In theory, the option of standing for delivery and the buffer of inventory held by the exchange guarantees that "the paper price decoupling from the physical price" is impossible. But that theory only holds so long as the system continues to function as designed. In times of great crisis, governments can usually be counted upon to do the stupidest things possible, as with the short selling bans in 2008, which appear to have been imposed by regulators who literally didn't even comprehend their implications on the options market. I would argue that in a crisis so bad that everyone is rushing toward the bottom of Exeter's pyramid, all bets are off. Not only would the enforcibility of paper contracts be up for re-interpretation, but it's entirely possible that governments could simply decree that all the physical metal in all the vaults is "temporarily seized", until the government can figure out how to "serve the common good", which is a euphamism for changing the rules retroactively to serve the interests of the people with the most power and influence.

    The conclusion all this brings me back to is that there literally is no good place to store your gold. I'm dumbfounded to see how many seem to hold the opinion that "Because I paid a big premium to buy PHYS, and it is a PHYSICAL gold trust, I am covered no matter what"! This is ludicrous, because Sprott's vault is just as vulnerable as COMEX or LBMA's vaults to "emergency" government action that changes the rules retroactively.

    I am strongly of the opinion that holding any significant amount of bullion in one's home is very, very foolish. Someone will eventually figure out you have it, and they will come kill you and your family to take your gold. Not worth the risk for any amount of wealth. Most pundits used to opine that allocated bullion bank accounts were the best solution, but I think MF Global makes it clear that the rules can and will be changed retroactively, and that such changes will not necessarily be equitable. Safe deposit boxes and private vaulting facilities are obvious targets for seizure if push ever come to shove. In short, I don't think there is any ideal place to store bullion. Jurisdictional diversification across several allocated accounts seems to be the best option for large holdings, but still doesn't offer a panacea.

    Best,

    Erik

    p.s. bbacq - you have made several references to tfmetals. Are you the same person who writes under the "Turd Furguson" pseudonym there, or are you someone else who frequents that site?

     

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  • Sat, May 05, 2012 - 7:39am

    ivars

    ivars

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    Joined: Apr 29 2012

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    The endgame- there should bebig enough time window still

    But, Victor[quote=victorthecleaner]
    I am not sure this is realistic. They will see the quoted paper price of gold crash, as Michael H says. Why catch a falling knife, as the investment people say? The problem is that the market may die while it is down and before all these potential new longs get in.
    Again, I urge everyone to take this warning seriously. If you just listen to the usual goldbug propaganda and expect a short sequeeze and a rising paper price (in order to make a nice profit in US$), you may be waiting for something that might never happen. Rather, the paper price may crash, most retail investors will be confused and sell or will be forced out of their ETFs.[/quote]
    I do not think that governments will act preemtively and bring down paper markets tomorow. More likely, as is characteristic to this crisis, they will drag it out until the last moment. That, minus Your broker going bust, will allow to take paper profits going long on PMs as of now when next QE's are immininet and actual since  jobs report has set a firm floor for paper PMs in USD,and convert into physical or , pay of debts or spend paper as You wish to purchase assets or whatever  etc for at least 1-2 years , which is better than nothing for many people. The partial default of US debt probably will come first, and that is not far away (2015?) since it grows and wil grow superexponentially with failing economy and growing deficits, and must crash (i.e US debt amount will be reduced in USD by at least 20-30% in very short period of time- <1 year)-which I call partial default, but NOT by debasing currency- by not rolling over, not repaying.
    So in between  government closing PM paper markets and checking on populations physical gold there will be long enough time where they will solve the issue with propaganda, since the event of destroying paper PM markets will mean immedeate panic buying of physical and  can destroy the USD vs other commodities as well in the same day. Which is no in the USA interests, I guess, or , may be I am wrong. Would be interesting to hear Your thoughts about the US elite interests short term and longer term. Short term ( 1-2 years) especially.
    I also doubt the USA will suceed in bringing down USD fast enough to avoid recession and   default. Which means USD as commodity-reserve currency-will enjoy a period of higher value (again 1-2 years)-against other currencies, not PMs-  as those owning USD tries to get rid of it without creating panic and reserve value drop.
    Ivars

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  • Sat, May 05, 2012 - 3:52pm

    Denny Johnson

    Denny Johnson

    Status: Bronze Member

    Joined: Aug 14 2008

    Posts: 119

    Erik T. wrote:This is

    [quote=Erik T.]This is ludicrous, because Sprott's vault is just as vulnerable as COMEX or LBMA's vaults to "emergency" government action that changes the rules retroactively. [/quote]The rebuttable presumption being that that Canada would confiscate gold along w the US and UK. I doubt this is a given, don't think there is any historical precedent. A global agreement to confiscate wouldn't seem to be perceived as being in the best interest of all nations.
    Would like to hear any reasoned opinion on the matter.

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  • Sat, May 05, 2012 - 3:58pm

    ao

    ao

    Status: Platinum Member

    Joined: Feb 04 2009

    Posts: 1244

    request and question

    So rather than further discussions of a theoretical nature, I'd be curious to know how the various parties here (Erik T, victorthecleaner, S Roche, bronsuchecki, etc.) are positioning their personal assets (including but not limited to PMs) to best weather the storm.  This site focuses on practical, actionable information so some commentary from that perspective would be most appreciated. 

    Also, this question has been posed repeatedly previously but has been conspicuously skirted.  Do the more knowledgeable commenters who have decried Harvey Organ, Ted Butler, and others as charlatans also feel that individuals such as Jim Sinclair and David Morgan are charlatans as well?

    Thank you for an interesting and thought provoking discussion..

     

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  • Sun, May 06, 2012 - 1:45am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Bullion bank run

    Now we are starting to get into something interesting. On my to do list is a paper on a bullion bank run or how a paper/physical price divergence would play and this discussion has provided some good material. Problem is that I see that paper being at least 100 pages long, primarily because there are a multitude of actors in the bullion market with different motivations and how each reacts to some trigger event (or no event at all, just a slow melt) and react to each other's actions is complex to say the least.

    I'll provide some more comment later tonight because now I have to spend time with my partner going "shopping" and she doesn't see this as more important (crazy huh) but a few points:

    • standard unallocated agreement with a bullion bank has no obligation for conversion into physical and is thus in push come to shove a cash settlement, with that cash settlement likely to be based on the London Fix
    • in a slow melt (no dramatic trigger event) where it is not clear to pro market participants and central banks that a run is developing, bullion banks will meet physical redemption demands (reserve drain) by leasing from central banks.
    • even in a trigger event/obvious bank run, central banks may still lease their reserves to a bullion bank to avoid a gold run triggered bankrupty of that bank
    • with miner hedge book basically zero there is possibly plenty of central bank metal ready to be leased (very low lease rate tells you that) I think it is foolish to assume that huge amounts of central bank metal is leased and thus no capacity there
    • note also that central banks tend to lease on longer terms while demand (futures & forwards, ie leveraged speculation demand) is shorter term in duration. That is, bullion banking has an inverted maturity transformation compared to normal banking (which is borrow short, lend long). Borrowing long, lending short means bullion banks may not have the same some of pressure in a run as cash banking. However, the at call nature of unallocated does mean a fair bit of short term stuff on the books most likely matched in part by longerish lending (backing forwards and futures).
    • ten years ago unallocated accounts with bullion banks were free of charges. a few years ago they started to charge for them. Rates are very low, but they do result in some cost of holding unallocated. Question is why. Leave you with that to think about.

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  • Sun, May 06, 2012 - 1:50am

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Positioning

    [quote=ao]how the various parties here (Erik T, victorthecleaner, S Roche, bronsuchecki, etc.) are positioning their personal assets (including but not limited to PMs) to best weather the storm.[/quote]Re precious metals my personal position is not of much use because I work for a mint and thus have immediate access to information about physical flows and behaviour of our Depository clients as well as probably potential regulatory changes (or the Govt may not consult us first and just change) which means I can act right at the last minute to protect myself. I think Erik's advice is best, which is to diversify.

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  • Sun, May 06, 2012 - 2:20am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Very interesting!

    [quote=bronsuchecki]Now we are starting to get into something interesting. On my to do list is a paper on a bullion bank run or how a paper/physical price divergence would play and this discussion has provided some good material. Problem is that I see that paper being at least 100 pages long, primarily because there are a multitude of actors in the bullion market with different motivations and how each reacts to some trigger event (or no event at all, just a slow melt) and react to each other's actions is complex to say the least.[/quote]
    Quite interesting indeed, and I strongly encourage you to write that paper, Bron. Something that I'm coming to realize is that "debunking" the people who are promulgating factually inaccurate information and ill-conceived theories does no good - everyone knows that there are very real systemic risks, and the investor appetite for detailed analysis and commentary about them couldn't be stronger. Pointing out that the information now circulating on the net is BS isn't sufficient. Nothing could be better for the PM investment community than for people who are actually qualified to do so to start writing significant papers giving reasoned, well-researched perspectives on the same subject matter about which misinformation is now circulating.
    [quote=Bron]in a slow melt (no dramatic trigger event) where it is not clear to pro market participants and central banks that a run is developing, bullion banks will meet physical redemption demands (reserve drain) by leasing from central banks.[/quote]
    Perhaps you can clear something up for us when you write again later. A very common goldbug argument is that if a bullion bank leases gold from a central bank and then uses that gold to deliver on an obligation to Investor "A", this is a travesty of justice because the same gold is now "owned" (i.e. double-counted) by both the central bank and Investor "A". The goldbugs would have us believe that Investor "A" doesn't really get clear title to that gold, because it is still owned by the central bank that leased it to the bullion bank.
    My guess is that the "lease" agreement between the central bank and the bullion bank relies on the fungibility of gold, and calls for the bullion bank to repay the loan with an equal amount of gold, but not necessarily the same gold. Assuming this is true, it appears at first that the goldbug argument is nonsense - and that the central bank has no ownership claim on the specific bullion Investor "A" received. First, Bron, can you clarify that understanding? It is admittedly a guess on my part.
    But even assuming my guess is correct, there does appear to be an interesting theoretical question of property law here. Presumably, the bullion bank's obligation to Investor "A" is to deliver "unencumbered" bullion - in other words, free and clear title. To my own admittedly limited understanding of property law, you can't convey free and clear title to someone else unless you first own whatever is being conveyed free and clear yourself. If the bullion being delivered to Investor "A" was obtained from a lease, setting aside any fungibility provisions for repayment in that lease, the question remains: where and when did the bullion bank obtain free and clear title to the gold before it was delivered to Investor "A"? Any ideas on this one?
    Erik

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  • Sun, May 06, 2012 - 3:01am

    Erik T.

    Status: Silver Member

    Joined: Aug 05 2008

    Posts: 213

    Off topic IMHO, but I'll answer as a courtesy to ao

    [quote=ao]So rather than further discussions of a theoretical nature... This site focuses on practical, actionable information so some commentary from that perspective would be most appreciated. [/quote]
    Hi ao,
    It's great to see you here. I'm afraid we disagree on the question of what's most interesting and appropriate. This thread began in reaction to an interview with someone who made numerous assertions - many quite damning and controversial - about the bullion markets, but without any factual or logical backup whatsoever to support those assertions. It has evolved into a discussion of the many fallacious manipulation theories (not only from Harvey but also GATA, Ted Butler, Andrew Maguire, etc.), and most importantly, a level-headed conversation about how these markets REALLY work, and thus why some of those theories are nonsense. In other words, I think the discussion is and should be about what the real facts are in cases where others have promulgated factually inaccurate theories. I find this "theoretical" discussion to be entirely appropriate to this thread, and I have particularly enjoyed Bron, Victor and Jeff's detailed technical contributions. There are plenty of other discussion threads on this site about what to invest in, and to be honest I find that aspect of your question to be off topic.
    [quote=ao]Also, this question has been posed repeatedly previously but has been conspicuously skirted.  Do the more knowledgeable commenters who have decried Harvey Organ, Ted Butler, and others as charlatans also feel that individuals such as Jim Sinclair and David Morgan are charlatans as well?[/quote]
    "Conspicuously skirted" is an interesting viewpoint. When it was originally posed, I perceived that question as rhetorical sarcasm, and I ignored it because I thought it was both off-topic and irrelevant to this discussion. Solely out of deference and respect for your tenure and contributions as a veteran member of this site, ao, I'll be happy to answer it for you, despite the fact that I still consider it OT and irrelevant.
    I'm not going to use the "C-word" in this thread any more, because so many people seem inclined to read meaning into it that I never intended. So going back to my original point, it is my personal opinion that GATA, Ted Butler, Andrew Maguire, and Harvey Organ, despite probably having the best of intentions, are people who simply do not posess the expert-level knowledge of these markets that they profess to have. I base that opinion on having reviewed their arguments, and finding that their conclusions appear in many cases to be based on a shockingly poor underestanding of basic concepts. The price discovery thing and the 100:1 "leverage" argument are perfect examples. It is always possible that it is I who have misunderstood their arguments, and I could be wrong in concluding that their writings are nothing more than a case of shocking ignorance of the basics being repackaged and sold as "Expert" commentary. It is for that reason that I have repeatedly invited anyone here to explain what the paper-to-physical ratio has to do with leverage, or how Ted's Price Discovery argument could possibly be anything more than Ted not comprehending the meaning of the phrase price discovery as used in economics. So that's my contention about these people - that they claim to be experts but critical analysis of their work reveals that they simply don't have a clue what they are talking about.
    In the case of Jim Sinclair and Dave Morgan, I am not aware of either of those individuals making any representations of an "expert" nature that were later disproven or shown to evidence that they didn't know what they were talking about. I do think of Jim Sinclair as something of a PM permabull, and I don't always agree with him. But I don't think of him in the same category as the others I've mentioned.
    I feel compelled to emphasize again that I see the question itself as completely irrelevant. What's important here is to understand why a lot of the well-known and widely accepted theories about PM market manipulation are simply not credible.
    [quote=ao]I'd be curious to know how the various parties here (Erik T, victorthecleaner, S Roche, bronsuchecki, etc.) are positioning their personal assets (including but not limited to PMs) to best weather the storm. [/quote]
    Again, I see this as off-topic. My own interest in participating in this thread is to discuss the veracity of various PM manipulation theories, as I feel some passion for debunking the misinformation that exists in the blogosphere. But since you asked, I'll be happy to answer.
    My core positions are gold and crude oil. I often speculate in markets as well, sometimes with leverage, but at the moment I have almost no trades on other than core positions. I think we're in a very hard-to-call phase here because (a) there are HUGE macro risks on the horizon suggesting great caution and downside risk, but (b) it's an election year and the incentive for the Obama administration to do anything possible to keep the economy propped up thru November is enormous. If not for (b) I would be short the SPX as a hedge against an equal or larger notional exposure to gold. I am out of silver for now because I think the "industrial metal" side of silver's dual personality is at risk when we experience the deflationary event I expect will come after the election and the realization of higher tax rates Jan 1st. I'm also working on re-engineering my Peak Oil trading strategy to focus on equities rather than crude oil futures. I continue to believe that the commodity price is the better way to play peak oil, but in the wake of the MF Global debacle I'm losing faith in the futures market rapidly.
    All the best,
    Erik

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  • Sun, May 06, 2012 - 12:32pm

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Encumbrance

    [quote=Erik T.]A very common goldbug argument is that if a bullion bank leases gold from a central bank and then uses that gold to deliver on an obligation to Investor "A", this is a travesty of justice because the same gold is now "owned" (i.e. double-counted) by both the central bank and Investor "A". The goldbugs would have us believe that Investor "A" doesn't really get clear title to that gold, because it is still owned by the central bank that leased it to the bullion bank.My guess is that the "lease" agreement between the central bank and the bullion bank relies on the fungibility of gold, and calls for the bullion bank to repay the loan with an equal amount of gold, but not necessarily the same gold. Assuming this is true, it appears at first that the goldbug argument is nonsense - and that the central bank has no ownership claim on the specific bullion Investor "A" received. First, Bron, can you clarify that understanding? It is admittedly a guess on my part.[/quote]
    I covered this issue in respect of ETFs and claims that the allocated metal they hold could be encumbred in this post over a year and a half ago http://www.goldchat.blogspot.com.au/2010/08/gld-leasing-and-encumbrances.html quote:

    In my experience most lease transactions are done in terms of unallocated account credits. In this case the lender has lent unallocated and if the Authorized Participant subsequently allocates this unallocated metal there is no direct link between the loan and the physical. The lender has an unsecured exposure to the Authorized Participant under the terms of the original lease. There is simply no legal link to what the Authorized Participant did with that leased unallocated gold.
    In the case of lenders supplying actual physical bars (usually only be Central Banks) because it is understood that leased metal will be "used" (be that in a physical operation like a jeweller or mint, or for sale to create a short position), the contract cannot practically require the return of the same physical bars that were lent (ie the same bar numbers). If the lease contract was worded on a secured basis (most likely where the borrower is a jeweller or mint) the security would have to be against the general gold stocks of the borrower rather than the bars originally supplied as it is understood that the original bars are melted or sold.
    Where lease contracts specify the return of physical at the end of the lease, it is acceptable to settle with any LBMA bar at maturity, with any ounce difference (due to the variability of 400oz bars) settled via cash.
    As a result, there is no legal claim by the lender on the original physical bars supplied to the borrower. Therefore if an Authorised Participant borrowed physical and delivered that to GLD, there would be no claim or encumbrance by the lender to the Authorised Participant on those bars held by GLD.

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  • Sun, May 06, 2012 - 12:55pm

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Risk

    [quote=Erik T.]Unless, that is, the system melts down and the counterparty to their hedge trasaction doesn't deliver, in which case you get the domino-effect that was feared if AIG had defaulted in 2008. The situation gets even more complex if the bank is netting its exposure to include receivables denominated in gold as contingent reserve assets, or using calls to hedge risk of extreme price flutctuation. The big problem I see there is that bankers tend to think in terms of what allows them to manage perceived risk according to the accounting rules imposed on them, not true risk if the system melted down. I doubt they have any credible plan whatsoever for what they would do if the derivative system melted down.[/quote]I think 2008 may have shaken up this attitude, but I'd guess it is still dominant and driven by a bit of ego in risk departments who think they can quantify possibility of default etc with all their fancy formulas and VaR blah blah blah. This is why the issue of an unallocated gold run interests me and its dynamics need to be explored. It is also of commercial relevance to the Perth Mint for contingency plans to ensure our operations are robust to such an event occuring in other market players - eg how can we continue to provide liquidity to mining companies we refine gold for and for our customers on the other end.

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  • Sun, May 06, 2012 - 1:19pm

    Bron Suchecki

    Status: Bronze Member

    Joined: Apr 22 2012

    Posts: 40

    Free banking

    [quote=victorthecleaner]Bullion banking is exactly analogous. Allocated gold is cash. Unallocated gold is an account balance. A gold loan is a loan. The reserve of the bank is physical gold in the vault. If you get a run on a bullion bank, this proceeds entirely analogous to a run on the bank. The holders of unallocated gold request allocation and drain reserves (physical bullion) from the bank. At no point in time is there a premium on allocated gold over unallocated gold. At no point in time is there a reason for the gold price to rise. This goes on until the bullion bank is out of reserves and has to close. At that point, physical gold is worth the same as before, but all remaining unallocated balances are worth zero. Not that the bullion bank is never short gold nor long gold.[/quote]Not exactly analogous, because you can't print gold, which a central bank can do for fiat and give this fiat to a bank in exchange for its illiquid longer-term assets. As a bullion banker you know that there is a limit on your ability to access physical gold from a central bank, so we would have to conclude that bullion bankers are more conservative than cash bankers in the amount of reserves they hold (notwithstanding their risk manager's ego I mentioned above).
    I have just finished reading George Selgin's "The Theory of Free Banking: Money Supply under Competitive Note Issue" and I would strongly suggest it is worth your time, all 140 pages. Reason is because I suspect that bullion banking operates very much like the free banking Selgin describes. The key conclusion is that a free banking system is stable and self regulating with regard to the amount of credit vs reserves. This may mean that the bullion banking system is more robust than many think. You will also find it interesting in describing a fiat banking system most likely to be compatible with Free Gold.
    As to your point that the remaining unallocated would be worth zero, I would say it will be worth whatever the bank can sell the gold assets that back it. If it is just a confidence run, then the assets are still good, just they mature later than the at call unallocated. If physical cannot be lent with those assets as collateral, then they may need to be liquidated at a discount, but some price will be obtainable.
    However, if the run is due to the assets having no value due to counterparty failure on whom the bullion bank has an expsoure, then yes the corresponding unallocated liabilities to clients would be worth zero.

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