Transcript for Harvey Organ – Part 1
Transcript for Harvey Organ: Get Physical Gold & Silver!
Chris Martenson: Hello, welcome to another Chris Martenson.com podcast. I am your host, of course, Chris Martenson, and today, we’re speaking with Harvey Organ who runs Harvey Organ’s Daily Gold and Silver Report, at HarveyOrgan.blogspot.com – he’s been following the precious metals very closely. Far longer than I have and I’ve been following them ever since I was a kid picking silver and quarters and dimes out of rolls. You know back in the day when you could still do that! And he’s been doing all of this work around the precious metals despite having a day job, knows all about the inter workings of the COMEX system which I hope we’re going to have an opportunity to hear some of today.
He has testified before Congress on precious metals manipulation. And knows Bart Chilton and the CFTC folks well, we’ll discuss his views on these folks today. And his point of view is there’s much less physical backing the system than folks realize. And that it is the U.S. Government or it’s proxies I guess. We’ll get his views here. Conducting, market influencing – whatever term makes you less mad to keep the lid on things for as long as they can; which he doesn’t think can be much longer.
Harvey Organ: All right, thank you so much for having me.
Chris Martenson: Well fantastic. Let’s just start with right at the outside, with precious metals, very interesting market action today. We’re seeing the Dow roll over a little bit, Europe’s getting killed a little bit, some weakness in the financial shares out there, particularly in Italy. And precious metals have been taking their lumps lately, except maybe gold’s holding firm today. What are your views on where precious metals are today and where they might be headed?
Harvey Organ: Terrific. Gold has today, has really held as you’ve been seeing for probably the last year or so, we’ve been seeing when the DOW gets hit, gold gets hit. And the banking cartel continually does raids on gold, more to contain the price over the long run. But the long run gold and silver will rise. And they’re doing their damnedest to try to keep the lid on these precious metals. Today is very, very unusual in that we are seeing Europe, probably implode. You are seeing the DAX down almost two and a half percent, the CAC down three percent. You are seeing the Spanish yields rise to 5.96% and the Italian ten year bond rise to 5.3%? It is something like that.
And this is getting scary for the world. And I’m just absolutely ecstatic to see that gold has been now holding, as you see it’s not rallying despite the Dow being down. And the reason really is that the open interest on gold has dropped dramatically down to the 399 thousand level, and there’s no more fat for the bankers to skin anymore. They are gone.
The COMEX traders are now in strong hands and probably in silver too and this is what’s giving the support now. So even though the bankers are trying to raid and to fleece as many of the longs of the COMEX that they can, they are just failing today. And gold, even though you are seeing the Down now down 152, gold is basically at par at 1642 now as we speak.
Chris Martenson: Right, so we’re seeing a little bit of that correlation is breaking down potentially today, always a good sign. So let’s talk about how the actual gold market runs, gold and silver markets. So we’ve got a physical market over in London and then there is primarily a paper based market over in the U.S. – although let’s break that down a little bit. How does the U.S. market run – it’s mostly trading in paper but you are mentioning something called open interest and we know also that people can take delivery, so there is a physical backing to this system. Very briefly, how does the U.S. system work and what are the big pieces that we like to keep track of?
Harvey Organ: Yes, you hit it exactly correct. The real physical market is over in London. And you have your Chinese, your Russians and I’m talking strictly in Russian sovereigns, China will always take forward and take delivery over in London. So it is the dominant market whereas over here in New York, it’s a paper market. And when I have an open interest, which means I am a long and I want to stand for delivery, if I really want physical. I wait and I wait for a delivery month and I just wait to and plunk all my money down and take delivery.
This happens very infrequently in this part of the world, so in other words if anybody really wants metal, they would go to over in London or probably Singapore or Hong Kong. However the bankers know this, and they manipulate the paper business, which is over on this side of the pond, and actually influence the price. Which is what you are seeing which they tried to do today and of course failed. So they will whack and certainly us the help of their friends, the high frequency traders who have built their fast-speed computers and then they can manipulate prices. They collusively do this, bankers will withhold all their bids for gold, tell their friends, “Wait a minute, we’re going to whack today or tomorrow morning, so we’re going to hold our bids and I promise you your gold will be cheaper in the next two days or so.” And this is how these guys do it collusively, they will do it both in silver and in gold.
And it kind of hurts guys who are trying to play the COMEX and you just can’t play against these crooks because they will fleece you. The only way to play in the COMEX, which I tell people not to but is “Just put your money down, don’t leverage and just stand there and take delivery.” Which is what I did at the COMEX, a few years ago. And don’t pay any attention to price, if you are impervious to price, trust me – the price of gold in the next few years will be much higher than what it is now.
Chris Martenson: So I was talking with Paul Tustain recently of BullionVault. And he was saying that the reason that the big banks tend to stand on the short side is that’s the side you stand on if you want to have the best chance of earning money at anything. Because as the short – you have an option, which is you can always just slide the metal across the desk if that’s what it comes to. On the long, you don’t have that option so if you are going to be somebody who is going to collusively manipulate a market for financial gain, you really are going to be playing on the short side of that market in this particular example. Because of how the futures market works because of that asymmetry where you have option of just sliding the metal as it happens. I’ve also noticed something, this is my own anecdote, I don’t have a lot of data but there were… the moments when like silver got killed for 25% that one night? Right? It started somewhere in Asia…
Harvey Organ: I remember that, February 29th?
Chris Martenson: Yes, and there are other moments. I will notice particularly as soon as the New York market is closed and the Globex market opens, the thinly traded one. I will see sometimes thousands of sell orders just crowd the tape..
Harvey Organ: Oh – 100%. You are trading with nobody, you have no counter-party. So when you have a seller who has no interest in profit, okay? This is what these guys do constantly. There’s no profit motive for them and then they will manipulate using their friends. So in other words, they can stuff the channel with these phony bids and asks and that will immediately drive in so they utilize very little of their ammunition and let the high frequency traders carry this down.
There are so many stupid games that they played and I certainly have voiced my concern to the CFTC, constantly on this. I’ve …on the raid on February 29th – I was actually on the computer, and I saw it drop three or four dollars and I wrote to Bart Chilton at that instant and said “We’re going to have a massive raid.” And I was right and he commented that I was able to tell that a raid was on and there’s other ways you can tell by, gold would be rising and silver will be languishing. That’s one – that will tell you that they’re manipulating. The second is that gold will be up ten to fifteen dollars and then gold shares, equity shares will be in the toilet. That’s a sure sign that a raid is being orchestrated.
And these bankers make money, there’s no question – you are 100% right. They make a lot of money on the short side because they don’t utilize that much ammunition and to prove it, always on a down day, it’s the bankers that come in to cover their shorts. Always, 100% of the time. So, the COMEX is supposed to be a price discovery mechanism. Not the price and we keep telling that to the Commission and this is their mantra, and they are violating their own rules.
And I’ve got to tell you another thing which I told the CFTC, in front of me, Commissioner O’Malia, goes and says that when they are trying to do position limit’s, he stated to me, “Well maybe we’re worried about business leaving.” So I wrote to all the Commissioners and said “Well if that was then, why are you not concerned? You are seeing the open interest drop dramatically in the comex because people are now leaving the business because you can’t play against this casino and you are not concerned now?”
So in other words, they are talking on both sides of their mouths. But there is no question and trust me when I tell you, gold and silver are manipulated 100% of the time. They are manipulating every second.
Chris Martenson: So this is something I’ve observed for a long time. I did trade gold and silver futures for a number of years. And I’ve been out of the business for a while because it was just too frustrating, I would watch these raids come in and my fingers were too slow. And I found that if I ever set limit’s – that was a sure way to get my pocket picked.
Harvey Organ: That’s correct.
Chris Martenson: You know I had the distinction of one day having the absolute lowest limit that was touched for just a microsecond, long enough to sweep it, you know so silver would like literally, like plummeted 5% and gained most of that back but that 5% was plenty to go grab my future from me. And so I’ve seen this happen over and over and over again. So I came to the conclusion that there’s an asymmetry going on here – there are players who either see more of the book than I do, they have more firepower, they may be operating non-economically. Because here’s the thing, whenever I would see a big dump in gold, of course the Wall Street Journal or some other organization of similar repute will come along and say “Oh it must have been a hedge fund liquidating.” And it always confused me because I would say, “Listen, hedge funds – these are smart guys. Who tries to liquidate their portfolio position in a single one minute candle by selling everything they’ve got all at once?” Nobody does that. Nobody.
Harvey Organ: You hit it right on. That is exactly correct. These bankers are not for profit when they sell. Okay? So in other words they whack and whack continually down, in order to knock the price down. But remember, the demand is so high, for gold and silver by sovereigns, this is their Achilles heel. And you are going to see it today. Today what happened is the physical demand was outstripped the huge supply of un-backed metal today. So all of a sudden now you are seeing gold rise because the physical overpowered them today. Despite the Dow being down 144 points – this is an unusual day today.
Chris Martenson: So in many respects I’ve been watching this for a long time, so let’s – ten years for me. Not nearly as long as you.
Harvey Organ: Okay.
Chris Martenson: But over those ten years, I noticed.. this is starting back when gold was in the low 300’s.
Harvey Organ: Yes. I remember that time.. I can remember when it was 250…
Chris Martenson: Yes, you were here for ’98 right? So..
Harvey Organ: I was there in ’98 yes.
Chris Martenson: I wasn’t quite to the game yet and silver was about $4.50 when I started watching all of this…
Harvey Organ: That is exactly correct.
Chris Martenson: So once upon a time, I was excited when silver would rise a nickel. You know? Things like that – that was a big day. For at any rate, as I watched this though, back then I would have to characterize gold and silver demand as relative moribund. You know wasn’t really on anybody’s radar screen yet, it really wasn’t being held by all that many participants, you didn’t read stories about how all the safe deposit boxes in Germany were crammed full. You know all of that, it was a much more sedate market at that point in time, you know it was at the tail end of the 20 year bear market obviously.
Harvey Organ: That’s correct.
Chris Martenson: That gain that you are describing where the Bullion Banks have found a way to sort of.. I believe that they, how would I put this? I think what they did, they developed a way of operating in the silver and gold markets that applied back then.
And what I’m confused by is how they can still run that same game in the face of rising physical demand? I can’t square those two pieces. Help me out.
Harvey Organ: I’ll try to do the best I can for you. The real suppression of the metals started probably 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 and you just pay me as you bring it out.” So that was kind of cheap financing to the miners and of course Barrick, the biggest mining company of them all, went in on this. And it financed a lot of Nevada projects and everything. Once the leasing game came, the actual selling, the extra selling, suppressed the price. Okay? And it started getting the first five years of maybe three hundred tons, four hundred tons, it doesn’t start to get really bad until probably ’97, ’98 with the long-term capital affair. And that’s when the leasing started around maybe 1,000 tons of gold. And it hasn’t stopped. And silver is the same – the leasing of silver suppressed, the original supply I guess came from Buffett, but the banks would borrow silver by leasing it and that would go into the market.
And for many years, that’s why you had a long-term, 20 years of suppression of the metal. Now the problem now is that the physical is now gone. Where is going? It’s gone from West to East. So the gold that’s in probably Fort Knox is gone, and our friends over in China who learned from us very well, have said “I’m just loading up the boat.” They are loading their boat in oil, you can see that..
And silver and gold.. a lot of people don’t know that China used to refine probably close to 80% of the world’s supplies of silver, because it’s very toxic and you get this silver oxide and it’s very… so up until probably 1980, ’85, these guys –the Chinese were 80-82% of the world’s refining of silver. Now that they are down to 40% but that’s still a major part of China’s industry is silver and they are just not.. they are keeping every single silver ounce they refine, and gold. They are keeping it for themselves, their reserves are rising, they don’t tell exactly. Two years ago they went up to what – 1054 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 and they know what the game is and they are slowly taking all their U.S. dollars that’s on their shelf, and converting that to gold, oil, copper – whatever anything that’s real.
And the game ends when the last ounce of gold has left London. Not COMEX because once, in a nanosecond it will come back to here.
The big problem in London as Jeff Christian kind of said at the hearings, was that their derivatives on gold is about 50 to 100 to one. And he’s right, that’s the amount of derivatives. So if I take out that one 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, and I’m telling you, 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 1670 and then you wake up the next day and it’s going to be a banking holiday and gold will be 3000 bid no offer. No offer and it will be a banking holiday. Because there will be a failure to deliver.
Chris Martenson: Well my experience with say the Hunt Brothers or MF Global recently, there’s a thread here I can tie together which is that, when things get really bad, they just change the rules or they ignore the rules. They changed them on the Hunt Brothers and they ignored them in the case of MF Global. I mean, there are rules and laws against doing what they did right? But none of those seem to have been enforced, yet and maybe never will. So one of my views has been that I really advise people if you have physical gold, you’ve got something. Everything else is a proxy on it.
Harvey Organ: 100%! You can’t have anything paper because you’ve got nothing.
Chris Martenson: Right.
Harvey Organ: You’ve got to have a physical coin or a bar or you know, you have to have that piece of paper.. that’s all it is! It will just blow up in smoke.
Chris Martenson: Yes.
Harvey Organ: You see you can’t have it. By the way, in the Hunt Brother’s situation, it’s interesting. There was above ground two billion ounces of silver at the time in 1980. A lot of people don’t know that. And the Hunt Brothers kind of thought that the United States would not utilize that. In essence they did and now that’s two billion above ground ounces of silver is gone – there is none left and I think that’s where the problem is. I think there’s more of a shortage of silver than there is of gold. Gold is, every single ounce has been produced, is still on the surface of the earth. Somebody has it. Silver is consumed and there isn’t any.
Chris Martenson: Excellent point, you know I try to make this point often and I don’t know if we can make it often enough is, that I don’t talk about gold and silver as if that’s one word – they are two separate, very substances to me. And gold is a monetary metal and I love it because I think there’s a chance that at some point we may have to go back to a gold standard when we discover that the floating exchange rate system just really doesn’t work.
Harvey Organ: Oh Chris, it’s has to happen..
Chris Martenson: If that happens, if gold gets re-monetized, you know you mentioned 3000, well I could pick all sorts of silly numbers, what would be silly today but in truth, if we had to go back to a monetary backing by gold in any sense, it would have to be extraordinarily higher than it is today.
Harvey Organ: For sure. You got trillions and trillions.. the United States has got a total of what? A hundred trillion dollars of obligations plus debt? And they are 25% of the world? My goodness, it’s so huge.. that you pick a number. And that’s the only way they are going to restart the world is to revalue gold and start again, you default and start again. I mean that’s the only way that they can and history will tell you.
Chris Martenson: You know there is one other option, which is to bite the bullet, admit that you overspent and go through austerity but you know we are going to see what that really means because Greece is playing out austerity right now and you discover that austerity doesn’t end or fix anything until you hit your true bottom. And it’s a lot lower than we currently we are so I don’t think the stomach exists out there in the political landscape to truly bite that bullet, I think a default of a different form which would be to basically just reset everything against a new proxy of some kind which should be gold.
Harvey Organ: I think that you guys should kind of watch dramatically – Spain, that seems to be the focal point now. Greece was just a warm-up.
Chris Martenson: Yes.
Harvey Organ: It was small, it was 2 to 2 ½% of GDP over in Europe but the real problem is Spain. They are sitting.. and the problem now is this year, in 2012, they’ve got about 186 billion euros coming due. And you can imagine that they had problems with funding Greece with 14 billion euros, look what they have – they are going to have a problem. So like Spain actually is – it’s 124 billion euros coming due but they are going to need to print 186 billion to pay for that plus the deficit’s which are 5% – 2 to 5% , whatever it comes out at for this year. Spain is going to be a real problem and you cannot firewall, there’s just not enough money – euros floating in the system. So they are actually trying to call the United States, the IMF. And the United States – they’ve got their own problems with their debt ceiling and everything like that in Europe and Japan’s got it’s problems, they are all printing. So I think that you all have to really watch Italy, Spain for sure. And then Italy but Spain could be enough. Where it can drive the complete failures of the sovereign debt, which would cause the banking to fail and the reason is, the banks are three hundred percent of debt to GDP. Which is their leverage is unbelievable there.
Chris Martenson: Yes.
Harvey Organ: So you will have just a massive printing of money, and if you are a citizen of let’s say, Italy or Spain, you are not going to keep your monies in euro, you are going to run over to Switzerland and convert to gold. And you are seeing a massive run on the banks and that’s what’s exactly going on.
Chris Martenson: Yes.
Harvey Organ: And so I would really, and I write constantly on those issues. Like Spain I knew was a big problem. Italy is too big to fail. And it.. I guess another way of looking at it is it’s a Lehman times 10 so you can imagine the mess that Lehman did – this thing will just be dramatic. And don’t think the United States can be left out of this. It’s 70% of the entire reserves of the world so if Europe fails, so does the United States. And it will be a catastrophe.
Chris Martenson: You know that’s why I was watching.. I think it was last week, Spain had a bond auction that caught my attention. They wanted to sell three and a half and they sold 2.6 or something.
Harvey Organ: At a high yield.
Chris Martenson: At a high yield.
Harvey Organ: And it failed, that’s the first. Remember that these guys got in February 29, they did a LTRO, which is a long term – it’s a three-year refunding. And one trillion euros, was now given to the banks of Europe of which Spain and Italy got 14% of that fund and now that money has run out. Why? Because the yield is now back up to where they were before so that’s the signal that there is trouble. There’s trouble in Europe, that’s why you are seeing how France, down 3% today and the DAX down 2 ½% because Europe realizes that the LTRO funding has now failed. And if Europe fails, the euro will crash and if the … the only way out of this, would be probably for Spain to leave the euro. That’s the only way. It has to do that. Or, or Germany leaves because they are going to have to massively print euros to save it – which is very, very good for gold and silver.
Chris Martenson: Well I’m record for years and years and years now that printing is what we are going to do because the alternative is just too painful. And history, you read Rogoff (sp) and Reinhart’s work – this time it’s different. You discover that this has always been true and so I’m a betting man that I kind of believe that humans have not fundamentally evolved in our core wiring. So I think that what’s going to happen is what’s always happened, we’ll print and it’s kicking the can down the road. Your position is that maybe we can see the end of the road? There are certainly some very big stresses. I noted that – in 2008 we had this crisis right?
And that’s our moment, shot across the bow, and what’s happened since then if we take our three and a half leader score card is we say oh, well derivatives are not 100 trillion higher than they were, at the moment of the crisis. It looks like the bank balance sheets have been repaired somewhat but they are probably not back to their pre-2008 health by any stretch. Sovereign entities now have extra debt because they’ve been over here trying to lever everything back on the public side of the balance sheet because the private side has stepped away. And..
Harvey Organ: That’s correct, you got it.
Chris Martenson: We have unemployment that’s surged past I think recoverable levels, it’s specifically when you look at it on that generational scale, you know Spain – 50% of their 24 and under crowd out of work. That’s..
Harvey Organ: 53% yeah.
Chris Martenson: Oh my gosh, that’s..
Harvey Organ: And 26% overall.
Chris Martenson: That’s a lost generation we are talking about there..
Harvey Organ: Look, you can’t have the youth not having jobs, I mean you are going to have rioting on the streets, I mean. You are not protected, you have no economy. And you are going to do austere measures? In this nation? How can it possibly.. your GDP will drop even more? Rajoy, the Prime Minister he knows you can’t do that – it just won’t work!
Chris Martenson: Yes, Rajoy’s been on record recently saying that things are pretty dire over there. And so..
Harvey Organ: I’m just telling you, Spain is a crisis point. It really is and I think you should concentrate a lot on Spain for sure, Italy – another one is Belgium, their big Dexia Bank is in mess and it’s somewhere, it’s debts, the GDP and the bank is somewhere around 300% over it’s GDP so they have to absorb the costs. And of course Belgium can fail and then you have Austria supporting Hungary, so the banking system there, so Austria can fail if Hungary defaults. So you can have contagion just in a nanosecond spread all through Europe.
Chris Martenson: Well now, if the euro does fail because one or more of these entities we’ve been talking about fails, in some way, shape or form. There’s a point of view that says then the dollar will benefit because there will be all this money that has to leave the euro suddenly, where will it go? It will go into U.S. assets; it will be sort of at that final plunge towards the center. Isn’t there a chance that that rapidly rising dollar – if that comes to pass as the outcome of this? That would actually really trounce both equities and commodity markets?
Harvey Organ: It could. But what I really think… well remember the United States also has it’s problems too. It’s not great, it’s got it’s ceiling. Starting in September they are already going to hit their debt ceiling. The Republicans are not going to let get away with the social programs of Obama, so I don’t think it’s going to happen that way. That’s my opinion, it could. In other words, Europe faltering badly which causes the dollar to rise dramatically, which in term will hit the commodities. But I really think they are all, the entire globe is in trouble collectively. And it will all go down and people will realize that “Wait a minute? We can’t fund pensions, all the pension funds. And we can’t fund everyone’s assets in the bank.” When you have.. all of a sudden it was so much run on the banks, “How am I going to pay depositors?” Everywhere? You know and look at the life insurance companies, they cannot make money anymore and they’ve got to payout. Everybody has to payout and there is just not enough money, the collateral is disappearing. That’s another issue, collateral which in that part of the pond in Europe. It’s.. this is the markets that funds the money markets. And collateral is disappearing and their money markets are disappearing. Which is why Europe is collapsing, you know it’s everywhere, it’s just not.. it’s everywhere.. You’ve got Japan..
Chris Martenson: Oh yes.
Harvey Organ: Japan has a debt to GDP of over 250% and it’s been saved by it’s citizens being old or older but they’ve been funding. All of a sudden they are drawing now because they are old and they’ve got to live so they are drawing their pensions. And now they have an energy crisis now because all their nuclear plants are not off-line. All of them so now they have to import liquid nitrogen gas, LNG and it’s very costly and they’ve got brownouts there. So all of a sudden the economy over there in Japan is trouble, okay. And now that leads to the United States, listen. The United States has about $3.8 trillion dollars worth of expenditures. It has $2.2 trillion dollars of tax receipts and they call the difference “the jaws of death.” Which is $1.6 trillion – who’s going to fund that? So the United States, so Bernanke goes and states, “Wait a second, we can … we are not going to monetize anymore.” Well nobody’s asking the question “Well who is going to fund the $1.6 trillion? Europe isn’t! Europe is in a mess. England is still monetizing because they are in a mess.” There’s nobody there to buy it. So in essence the United States is actually printing and monetizing their own debt and they are doing it through swaps and that’s how they are doing it. So really, they are all printing massively and that’s why you guys should all not just pay attention to the background noise – just go buy your physical and be thankful that you are getting it a cheaper price today.