Did the ECB Save COMEX from Gold Default? 123 comments
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On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000 + contracts, representing about 15% of the April COMEX gold futures contracts remained open. Technically, short sellers are required to give “notice” of delivery to long buyers. However, in reality, buyers are the ones who control the amount of gold to be delivered. They “demand” delivery of physical gold by holding futures contracts past the expiration date. This time, long buyers were demanding in droves.
In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper. It was amazing, therefore, when March 30, 2009 came and passed, and so many people stood for delivery, refusing to part with their long gold futures positions.
On Tuesday, March 31st, Deutsche Bank (DB) amazed everyone even more, by delivering a massive 850,000 ounces, or 8500 contracts worth of the yellow metal. By the close of business, even after this massive delivery, about 15,050 April contracts, or 1.5 million ounces, still remained to be delivered. Most of these, of course, are unlikely to be the obligations of Deutsche Bank. But, the fact that this particular bank turned out to be one of the biggest short sellers of gold, is a surprise. Most people presumed that the big COMEX gold short sellers are HSBC (HBC) and/or JP Morgan Chase (JPM). That may be true. However, it is abundantly clear that they are not the only game in town.
Closely connected institutions, it seems, do not have to worry about acting irresponsibly, in taking on more obligations than they can fulfill. Mysteriously, on the very same day that gold was due to be delivered to COMEX long buyers, at almost the very same moment that Deutsche Bank was giving notice of its deliveries, the ECB happened to have “sold” 35.5 tons, or a total of 1,141,351 ounces of gold, on March 31, 2009. Convenient, isn’t it? Deutsche Bank had to deliver 850,000 ounces of physical gold on that day, and miraculously, the gold appeared out of nowhere.
The announcement of the ECB sale was made, as usual, dryly, without further comment. There was little more than a notation of a sale, as if it were a meaningless blip in the daily activity of the central bank. But, it was anything but meaningless. It may have saved a major clearing member of the COMEX futures exchange from defaulting on a huge derivatives position. We don’t know who the buyer(s) was, but we don’t leave our common sense at home. The ECB simply states that 35.5 tons were sold, and doesn’t name any names. Common sense, logic and reason tells us that the buyer was Deutsche Bank, and that the European Central Bank probably saved the bank and COMEX from a huge problem. What about the balance, above 850,000 ounces? What will happen to that? I am willing to bet that Deutsche Bank will use it, in June, to close out remaining short positions, or that it will be sold into the market, at an opportune time, if it hasn’t already been sold on Tuesday, to try to control the inevitable rise of the price of gold.
Circumstantial evidence has always been a powerful force in the law. It allows police, investigators, lawyers and judges to ferret out the truth. Circumstantial evidence is admissible in any court of law to prove a fact. It is used all the time, both when we initiate investigations, and once we seek indictments and convictions. We do this because we deal in a corrupt world, filled with suspicious actions and lies, and the circumstances are often suspicious enough to give rise to a strong inference that something is amiss. Most of the time, when the direct evidence is insufficient to prove a case beyond a reasonable doubt, or even by a preponderance of direct evidence, circumstantial evidence fills the void, and gives us the conviction. We even admit evidence of the circumstances to prove murder cases. In light of that, it certainly seems appropriate to use circumstantial evidence in evaluating possible regulatory violations. The size and timing of the delivery of Deutsche Bank’s COMEX obligation is suspicious, to say the least, when taken in conjunction with the size and timing of the ECB’s gold sale. It is circumstantial evidence that the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB.
I’d sure like to know what the ECB’s “alibi” is. If I were an investigator for the Commodities Futures Trading Commission (CFTC), assigned to determine whether or not gold short sellers are knowingly violating the 90% cover rule, I’d be questioning the hell out of the ECB staffers, as well as employees in the futures trading division of Deutsche Bank. There is certainly enough evidence to raise “reasonable suspicion”. Reasonable suspicion is all that one needs to start a criminal investigation. It should be more than sufficient to prompt the CFTC, as well as European market regulators, to start a commercial investigation of the potential violation of regulatory rules by both the ECB and one of the world’s major banking institutions. That is, of course, if and only if, the CFTC staff really wants to regulate, rather than simply position themselves for more lucrative jobs inside the industry they are supposed to be regulating, after they leave government service.
It is quite important to determine whether or not Deutsche Bank was bailed out by the ECB because that will answer a lot of questions about allegations of naked short selling on the COMEX. If the ECB knew that its gold would be used as post ipso facto “cover” for uncovered shorting, staffers at the central bank might be co-conspirators. At any rate, if the German bank did sell short on futures contracts without having enough vaulted gold it sold a naked short. It also means that the ECB has facilitated a major rule violation in a jurisdiction (the USA) with which Europe is supposed to have extensive joint regulatory agreements, any number of which may have been violated by this action of the ECB. At the very least, naked short selling is a blatant violation of CFTC regulations, which require 90% cover of all deliverable metals contracts. If the delivered gold came directly, or indirectly, from the ECB, it means that Deutsche Bank’s gold short contracts were “naked” at the time they were entered into.
The 90% cover rule is very old rule, designed to prevent fraud on the futures markets. Its origin dates back into the 19th century. Farmers, in that simpler age, were complaining that big bank speculators were downwardly manipulating grain prices on the futures exchanges. Nowadays, the CFTC has a predilection toward categorizing banks as so-called “commercials” or “hedgers”, rather than as the speculators that they really are. Traditionally, only miners and gold dealers whose business involves a majority of PHYSICAL trade in gold should qualify as commercials. However, the CFTC has ignored this for a long time, and qualified numerous banks and other financial institutions, whose main gold business is derivatives, as “commercial” entities, immunizing them from position limits and other constraints. As a result, just like the farmers of the 19th century, today’s gold “cartel” conspiracy theorists revolve their theory around an allegation of downward manipulation, and heavy short selling concentration.
Manipulation can only take place when there is a disconnect between supply, demand, and trading activity on the futures exchanges. The 90% cover rule attempts to force a direct tie between the futures market and the availability of particular commodities, so that supply and demand become primary even on paper based futures markets, just as it is in trading the real commodity. Unfortunately, the modern CFTC has ignored or misinterpreted the purpose of the 90% cover rule for a very long time. This regulatory failure has allowed the current free-for-all “casino-like” atmosphere that now prevails at futures exchanges.
It would be helpful if some of my colleagues, within the public prosecutor and securities regulatory offices, in Europe, as well as the CFTC in America, filed complaints for discovery, to ferret out the truth. In the interest of transparent markets, the ECB should be forced to disclose who purchased the gold they sold in the morning of March 31, 2008 and why the sale was timed in a way that corresponded to the exact moment in time that Deutsche Bank had a desperate need for gold bullion.
Was it yet another bank bailout? Has another bank sucked up precious resources belonging, in this case, to the people of Europe? Gold is needed to bring confidence to the Euro currency, as often noted by Germany’s Bundesbank, which seems to be less kind to German banks than the ECB. Why should the ECB be permitted to sell gold to closely connected derivatives dealers, if the primary purpose is to save those dealers from the bad decisions they have made, and the end result is to reinforce moral hazard? Should banks like Deutsche Bank be allowed to take on more derivative risk than they can afford without involving publicly owned assets? Did Deutsche Bank issue naked short positions? Have innocent European citizens now had their currency placed at more risk, and some of their gold stolen from them, simply to enrich private hands? All of these questions are begging for answers.
European regulators are quick to condemn the Federal Reserve for its incestuous relationship to client “primary dealer” banks, special treatment of favored institutions at the expense of other non-favored institutions, propensity toward injecting dollars to artificially stimulate the stock market, seemingly endless bailouts of closely connected banks, and, now, the seemingly unlimited printing of new dollars. I’ll not attempt to excuse the Fed for its failures. Indeed, I believe that it is in the best interest of the American people to close down that malevolent institution, permanently. However, if any of the questions I have posed are answered in the positive, people might begin to understand that special favors, nepotism, corruption, and a failure to properly regulate are not confined to America. The real estate bubble, for example, was allowed to become much bigger in the U.K., Ireland, Spain, and eastern Europe, than it ever was in the USA. The collapse of real estate, in those countries, is going to be more severe, even though it is more recent in origin than the pullback in the USA. America happened to be the first nation affected, but it did not cause the world economic collapse. That was caused by the joint irresponsible policies in almost every major nation in the world.
Those who rely on the good faith of Angela Merkel, to keep the Euro inviolate, certainly have a right to get answers from the ECB and from Deutsche Bank. The answers will tell us a lot about the real proclivities of the ECB. As the U.S. dollar is progressively debased, in coming years, will the Euro be any better? Is the ECB merely a European copy of the Federal Reserve “slush fund”, utilized by well connected European banks, for the purpose of private financial gain, much as the Federal Reserve’s assets are utilized by its primary dealers? If the ECB is willing to bail out a major trading institution from the mismanagement of its derivatives operations, who could honestly claim that it would hesitate to competitively debase the Euro against the dollar? Having the answers to the questions I have posed would give everyone the knowledge needed to make important decisions. That is exactly the reason that, in all likelihood, we will never get these answers. Maybe, Europeans and others ought to be dumping Euros just as fast as they are now dumping dollars, and buy gold and silver, instead.
Aside from the regulatory issues, if we did discover that Deutsche Bank got its gold from the ECB, one glaringly strong inference arises. When a major derivatives dealer goes begging for gold, to the ECB, it is very strong circumstantial evidence that not enough physical gold is available for purchase on the OTC wholesale market. Up until now, bearish gold commentators have steadfastly denied that wholesale gold shortages exist. Instead, they have insisted that all shortages are confined to retail forms of gold. Now, when combined with the circumstantial evidence, however, common sense tells us that they are wrong.
Decision: There is sufficient evidence for this case to go to a full scale investigation. The CFTC and similar securities regulators in Europe need to properly investigate the gold conspiracy allegations. That has never been done to date. They must determine who is buying central bank gold and whether or not it is simply being sold into the open market, or channeled into the hands of favored financial institutions who then use it to cover naked short selling. The investigation must include detailed vault audits and explore all paper trails.
Disclosure: Long on gold.
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This article has 123 comments:
Those shorties better settle soon in cheap fiat.
To the author--An excellently written, meaningful and accurate article. Good Job! Going in watchlist.
The inevitable investigation will only come after the house of cards collapses. Then we will see "outrage" from the political class. Probably show trials and public executions.
Kind of like Russia about 100 years ago.
When you add the 3, US Bank short positions of 109,091 contracts, the evidence of price manipulation downward is apparently clear to everyone but the CFTC.
CFTC numbers show that these 24 total banks, control 46 percent of the short contracts in CMX Gold and only offset this position with just over 10 percent long positions. Anyone think that net shorting 130 million ounces of gold you don't have is a good thing?
One stiff month of delivery demand is going to bring this house of cards tumbling in on itself.
buy physical Gold and don't play their games. The sooner people realize the importance of the age old wisdom "5-10% of savings should be in precious metals" the sooner the CB's and governments will be forced to admit that paper is only paper.
And here are other age old wisdoms that people seem to have forgotten "A bird in the hand is worth 2 in the bush" and "Don't count your chickens before they hatch". These old truths came about for a reason. It would be in everyone's best interest to consider those reasons and evaluate the situation they, and we, are in.
But fear and conspiracy makes for a better article, right??
Obviously, you have no knowledge, whatsoever, of the rules that govern the markets in the United States, or anywhere else. Before we get more deeply into that, let me point out what 17 CFR 31.8 says, and leave it at that.
"...(a)(1) Each leverage transaction merchant must at all times maintain cover of at least 90 percent of the amount of physical commodities subject to open long leverage contracts entered into with leverage customers, and must at all times also maintain cover of at least 90 percent of the amount of physical commodities subject to open short leverage contracts entered into with leverage customers..."
Vault audits would tell us whether the alleged paper "cover" that is presented to the CFTC, and which is never questioned by them, to my knowledge, is actually valid. Most COMEX dealers are probably presenting OTC derivatives contracts to claim that they have the required "cover", and are not naked shorts.
However, the veracity of those paper OTC contracts are in question, if big banks like Deutsche Bank, are forced to go "hat in hand" to a sovereign gold vault, like the ECB, to get enough gold (8500 contracts worth) to deliver on their obligations at COMEX.
Vault audits are necessary, at this point, in order to determine the truth or falsity of the claim to possession of real metal. If OTC contracts are just supported by other OTC contracts, which, in turn, are supported by yet other paper contracts, and so on and so forth, ad infinitum, then the whole game is a fraud. In that event, the gold conspiracy theorists, from Ted Butler to Jim Sinclair, are telling us the truth. On the other hand, if the underlying metal really does exist, the conspiracy theorists are wrong, and everyone can feel much more comfortable in the quiet knowledge that our markets are honest and true.
Keep in mind that it is not the individual investor who sells a "naked" short. It is his broker/dealer, and his broker/dealer's clearing broker, who end up doing that. Many of the broker/dealers and certainly the people on the bottom of the totem poll, like you, me, the line brokers and so on, are simply honestly relying upon paper promises. But, if the underlying metal doesn't exist, then, someone, probably the biggest players, at the highest levels, are committing fraud.
The recent sale of such a suspicious amount of gold into the market, just at the moment of Deutsche Bank's need, justifies a full investigation of the gold market, either to help assure us that it is clean or to help start the cleansing process.
Cesato, I like your explanation. As I understand it, everyone wants gold but the trends make it go down.
Ah, the "magic hand" of the market once again appears. The trend will make gold more affordable so we shouldn't surprised if the IMF decides to sell a little in the future.
======================...
On Apr 02 09:45 AM Cesato wrote:
>>> Nobody saved anything, it is how the markets works. As soon as you understand market cycles you will be buying at the right time, selling timely and buying back near bottoms.<<<
Some people honestly believe that one day.....soon, they will walk into a supermarket and pay for their food with gold as everyone else on the street starves, because they are not smart like them because they bought gold with all their money!
If i read another story of $5,000 gold coming very very soon im going to laugh my head off.
One more thing...the gold market is NOT sufficiently liquid to absorb the sudden liquidation of 8500 gold contracts, representing almost a billion dollars worth of gold. A few months ago, a few large long players liquidated about 10,500 contracts, over a period of a week. That liquidation temporarily dropped gold by $120 per ounce. In the inverse, a short side liquidation of 8500 contracts would probably cause the price of gold to go from $920 to $1,020 or something in that vicinity.
See 17 CFR 31.22.
I don't think Deutsche Bank is a "leverage transaction merchant".
Thank you. You may be correct. Technically speaking, Deutsche Bank is probably not acting as a "registered leveraged transactions merchant" per se, with respect to these particular transactions. It seems to me that you have hit on the reason that CFTC has managed to look the other way. But, "nab" them the authorities should, nonetheless.
The fact that they may not be covered under this explicit rule, requiring 90% cover, does not diminish, but, rather, amplifies the need to do vault audits. The potential for wrongdoing is far greater if the majority of the big dealers on COMEX are not covered by the rule. No wonder silver has been selling in backwardation for so long. Many people justifiably do not trust the futures markets, and must want their silver immediately.
This makes me more concerned, not less. It is further circumstantial evidence that most of the alleged "gold" and "silver", supposedly "bought" and "sold" on futures markets "for delivery" may not actually exist. Dealers who allow short selling, without gold to back thousands of contracts, not only court financial disaster for themselves and their customers, but, also, commit fraud upon the market. Selling naked short positions is fraud upon the market because the specifications of the COMEX gold contract specifically state that the seller and the exchange warrant "delivery" of physical metal. If there is really no gold to deliver and the seller is really depending solely upon the transient politics of a central bank, he commits fraud upon the long buyer.
17 CFR § 31.3 states, in pertinent part that:
"...it shall be unlawful for any person...directly or indirectly...(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person...in connection with (1) ...a transaction for the purchase, sale or delivery of silver bullion, gold bullion, bulk silver coins, bulk gold coins...pursuant to a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract..."
One contract usually ressembles 100 ounces, so 850 contracts would be 85,000 ounces
Yours, Ludwig
I agree that it is difficult to fight wrong thinking foolishness inside governments. But, as a lawyer, I have seen that the little guy does often, in fact, win, if he is persistent enough against all odds. I believe that the law can be upheld, and truth and justice CAN prevail in the end. Laws can be flouted, and evil can grow, only in darkness. Bring it all into the light, and, if there ever was any conspiracies, they will end, right there and then.
That is why a full and complete investigation, including extensive vault audits of all paper OTC counter party contracts, used as "cover" by derivatives dealers, by a set of non-conflicted investigators, is critical to resolving the issue of whether the gold and silver markets are honest or corrupted. You can be assured that most Americans, including those in government, are honest hard working folks. The bad apples are just a few, and, if they have concocted a scheme to control precious metals prices, they need to be exposed, and taken out. If there is no such conspiracy, however, we need to get that out in the open, also, and give people the confidence in the markets that is now so lacking.
I see nothing in the COMEX Gold Rules that says that a seller of a futures contract is representing that he owns physical gold against that short position. The COMEX is not structured as a spot market. It is structured as a futures market allowing for price discovery, hedging and speculation. If a buyer wants physical delivery there are certainly better ways for a small buyer to get gold than buying a futures contract and taking delivery.
Selling short is not fraud. It is an important piece of the price discovery mechanism. The section you quote 17CFR 31.3 is for leverage transaction merchants. These are dealers who are selling supposed physical metals and allowing the customer to finance the purchase. These are not transactions on a futures exchange. Again, totally different animals, totally different regulations. If you want to buy physical metals and finance the transactions, yes, you are right, you should expect the dealer to have something "real" backing up the transaction.
But that's not what futures markets are for. As you point out in your article, only 1% of futures result in delivery. It's not as though the other 99% of the market participants are committing fraud.
As someone who has taken and made hundreds of deliveries in the gold, silver, platinum and palladium markets, my transactions are the exception, but they are a part of the futures market.
Your demands for vault audits may make sense for holders of GLD or other exchange traded funds, but a futures contract is just that: a contract for delivery in the future that can be easily offset with the liquidity COMEX offers.
You are asking for COMEX to be something it isnt meant to be. If COMEX doesn't fit your needs, don't trade there, but stop expecting an apple to be a banana.
there is only one way left for anyone who
truly cares to PROTECT the value of their lifetime's savings:
BUY PHYSICAL GOLD/silver and/or gold/silver coins and wait till they (CBs) run out of it.
it is a matter of time: not if BUT when!
after today's 5 TRILLION newly printed money I need say nothing more other than wait for the next few more trillion hits the streets of the world markets (high and with Walls)
If the COMEX futures markets are not intended for delivery, then it should be stated, in the specifications, that the contracts are intended to track the price of gold, and are cash settled. That is not what the contracts state. I am not faulting individuals who happen to sell short. The clearing members of the COMEX, who write the rules and the specifications are to blame.
One cannot do "price discovery" if one can create unlimited fake quantities of an allegedly "deliverable" commodity, at will. If that is being done on the futures markets it must be stopped, because it is corrupt activity. Prices must be based upon real supply and demand, in order to avoid the disruption to our economy which was most evident in the upward manipulation of oil prices only last year.
The only thing that a fake price, created at will by futures dealers, amounts to is a fraud upon the market. It represents nothing. No price discovery at all, because it is not based upon real supply and demand. If the price of gold and silver is simply the creation of clearing members of COMEX, it is a fraudulent price, and constitutes illegal gambling activity that must be limited to jurisdictions in which gambling is allowed, such as Las Vegas, and Atlantic City.
COMEX dealers could easily avoid vault audits simply by changing the specifications of the COMEX gold contract, to make it clear that delivery is not contemplated. They have done that for the miNYs contracts, but still maintain a fiction of delivery capacity for 100 ounce contracts, possibly, now, by using clout with central banks, like the ECB, to bail them out of trouble, when the going gets rough.
Futures markets were intended as places wherein primary producers of volatile commodities could hedge production, purchases, or sales, in order to reduce risk. The fact that so many brokers and traders now view the futures market as a federally sanctioned casino, does not mean we should allow the situation to continue. That viewpoint is endemic of the current problem we face, not only on the futures markets, but in the economy in general.
Beyond the legality or illegality of what they are doing, the CFTC can always bust them for lying. A company in NJ that said they were betting on options spreads and instead was just dealing in naked shorts was fined by the CFTC in 2005 (see link below)
www.cftc.gov/opa/enf05...
Ultimately there has got to be some credibility and transparency here. Maybe it doesn't sound so good for companies to publish that what they are about is lying, cheating and manipulating ...
I didn't say the COMEX wasn't structured as a "delivery market", I said it wasn't structured as a "spot" market. It's the potential delivery aspect of COMEX that makes it as liquid as it is because more participants find it fits their needs.
It's just as easy to create what you call "fake" prices on the upside as on the downside, as you mention the oil market. But is a price "fake" if buyers and sellers are meeting at that number? As we saw with oil, the reality eventually took the price to a level you and I deemed more reasonable. But there were people who thought $145 barrels of crude were a good deal and bought them. I didn't think $145 oil was a buy, but I didn't have the guts to short it either.
Your viewpoint that futures markets exist so producers and users of a commodity can hedge their risk is only part of the equation. Speculators MUST play a part to absorb overproduction of a commodity and encourage a spec to hold it until a users needs the product, or to short oil at $145 if they believe it to be overpriced. That brings markets into balance. Spot markets trade the physical commodity and sometimes spot and forwards get out of line. But that doesn't mean they are "wrong" or "manipulated" or "fraudulent".
Your comments address regulations by way of showing that the regulations have well-crafted holes in them that allow manipulation by deep-pocket inside players, perhaps including players with the implicit backing of central bankers and governments. One might wonder why central banks would back such players. Your comments do not address the fact of manipulation.
"If a buyer wants physical delivery there are certainly better ways for a small buyer to get gold than buying a futures contract and taking delivery."
I disagree, depending on your definition of 'small'. What we are in fact witnessing, for what appears to be the first time in decades, is large money starting to chase gold. The 'goldbugs' showed the way starting years ago, buying one-ounce coins; big money buys bigger denominations. The radical dollar bulls have been bashing gold all along and poo-pooing shortages and manipulation. QE has (finally) convinced big private money to get some gold while they can.
You can stand in front of this train if you wish. I suggest you start taking some deliveries yourself, and may I suggest storing them in the Bank of Gaea?
'Speculators MUST play a part to absorb overproduction of a commodity and encourage a spec to hold it until a users needs the product, or to short oil at $145 if they believe it to be overpriced. That brings markets into balance.'
Only if these 'speculators' and their potential losses are not backed by government and central bank printing presses. You tell only half the story.
Yes, lying is certainly punishable by the CFTC if you misrepresent your reportable positions, but Deutsche Bank didn't lie about anything. They held valid short positions on COMEX and had the option to close the position, deliver against it, or roll them forward. They chose to deliver.
Their actions were totally within the law and the scope of what COMEX is intended to function as.
The big boys do push markets around. We all know that and accept it. But that doesn't mean it's "lying" or "fraud".
Heck, I wish my lousy 10 and 20 lots would "push" the market more than they do!!!
'The big boys do push markets around. We all know that and accept it.'
We do? Is that fact in any market disclosure anywhere? Can someone show me where I 'accepted' that? I'd really like to get a copy of that please.
I am for free markets. Government backed losses and ever rolling printing presses and certainly not to my liking.
I am not intending to stand in front of a freight train. I am long a fair amount of both futures and warehouse receipts in all the precious metals and having taken delivery and removed metal from a warehouse, it is not very cost effective for a small buyer, say under 5 lots. If I needed 5 lots or less I could find it in the spot market easier and cheaper.
I didn't say you had to like the fact that big boys can push markets around, I said we are understanding that it can and does happen.
If you don't think whatever market you trade in gets moved by traders bigger than you, you shouldn't be trading that market.
You are absolutely correct in saying that shorting a commodity, and speculating on it are perfectly legitimate activities. The speculators, including those who may currently be erroneously classified as so-called "commercials", play a very important role. But, it is fraud to say that one has something to sell, commit to a delivery date, and really not have it to sell at all. If the gold is in someone's vault, somewhere, not necessarily inside the COMEX warehouse, but traceable and attachable, if needed, to fulfill contracts, then the quantity of gold being sold on COMEX is not fake. But, if the gold does not exist to cover the contracts, then the clearing members have created fraudulent "gold" to achieve a pricing point, whatever that may be.
It would be easy to say that we can simply buy and sell somewhere else. But, every American and, indeed, every citizen of the world is deeply affected by the prices that prevail, fraudulently or not, on the futures markets, whether COMEX, CME, etc. The CFTC exists to insure a clean market, and, if must be spurred on, by their own volition, or, if necessary, by legal action by prosecutors friendly to the public, in order to clean things up.
I am a big believer in honest short selling, when covered, and when appropriate. But, when I short sell something, I expect the dealer I use to insure that I am covered, whether by borrowing the stock, or vaulting the gold.
"Dear Mr. Trader, we're sorry we cannot fulfill your short order, today, as we do not have enough real metal to cover it. Try again tomorrow."
If that policy were required, I can assure you that COMEX would quickly evolve into a market for real price discovery, instead of an exchange that is perpetually accused of allowing fraud by its clearing members. Indeed, the appearance of impropriety, even if the gold manipulation theory crowd is merely whistling Dixie, is very damaging to the reputation of the United States, and of American markets, in general. We need to get to the bottom of this, once and for all.
But the flip side to that is, as you pointed out, 99% of the longs never take delivery of their metal. Are their representations to buy metal for delivery at a future date also fraudulent, because they don't take it and pay for it in full??
On Apr 02 02:30 PM kohalakid wrote:
> Avery,
>
> But the flip side to that is, as you pointed out, 99% of the longs
> never take delivery of their metal. Are their representations to
> buy metal for delivery at a future date also fraudulent, because
> they don't take it and pay for it in full??
Is it possible for two banks to collaborate on a "short sale" so that one is short, the other long--- and then the one that is long never requests delivery?
In this way, one bank would develop many Gold short positions (JPMorgan)
which are never a liability because they will never be required to meet a request to produce the Gold. In this conspiracy scenario, COMEX might facilitate this by "matching" the specific short-long transactions--- which would account for the rapid drops in price at the time of the transaction.
Thanks---
Sure...you can keep an open long or short position for as long a time as you want by just not being in the front (delivery) month. If you short
COMEX doesn't allow you to specify your counterparty. It gets randomly assigned thru the clearing division.
Intention to make or take delivery doesnt affect things.
why kitco.com plots have such rapid descents in Gold prices on days that LeMetropole claims are manipulated by the "Cartel". So, if one bank can accumulate many short positions in some sort of transaction that is not "dangerous", then the price could be manipulated. So I tried to devise such a strategy--- where there is collusion and hidden dealings. So basically I think Avery's 2:45 PM comment is the best statement. Is this feasible, or not?--
But for every long, there is a short. If it's a fabricated long, then the short isnt real either. Zero effect on the market.
Certainly big boys push markets, run stops, squeeze shorts etc etc.
That shouldn't scare those of us who buy the metals for the protection it offers. We shouldn't care if gold is up $20 today or down $20 even if it means someone just made a bundle on their million oz short position. They still have to buy it back to "ring the register".
However, theoretically, clearing members of COMEX could, potentially, take large long positions in the OTC forwards market, at times when they are selling short positions on the smaller COMEX market.
The COMEX price deeply affects the spot price, because the fiction of "delivery" gives it "moral authority" (at least in the past) as to price discovery. It was previously assumed to be legitimate and still is considered legitimate by many traders, including, I suspect, kohalakid, for example.
Potentially, one could accept losses by manipulating the smaller publicly reported market (COMEX), while seeking much larger gains on the unreported non-public OTC markets.
I would point out to you, that a parallel fraud and manipulation has been and is going on in the securities markets. That the same type of fraud is going on in another segment of our financial markets, is evidence for the fraud in the gold and silver markets, especially when you realize that the same parties are committing the fraud in both markets.
I am referring to the "naked shorting" manipulations that are rampant in US stock trading, which are manifest as ongoing, never cleared fails to deliver shares, the net effect of which is to suppress the price of targeted securities by flooding the market with fake shares. This is the same mechanism used to manipulate and suppress the prices of gold and silver.
In the case of the securities fail-to-deliver fraud, the core institution in which the fraud is committed, is the Depository Trust and Clearing Corporation (DTCC). The DTCC is the private corporation (just like the Federal Reserve is a privately held cartel of banks) which clears more than 99% of all stock and bond trades placed in American financial markets. The shareholders of the DTCC are the same large banks which own the Fed. As with the Fed and the US Treasury's supposed gold reserve in Ft Knox, the books of the DTCC, which record the ownership positions of virtually all of the publicly traded corporations in the US, are never allowed to be audited by independent third parties.
See the Deep Capture blog: www.deepcapture.com
In all three cases (the backing of the US dollar by gold, the ownership of gold and silver bought on the futures exchanges, and the ownership of stocks and bonds bought on the stock exchanges), the promise to deliver the actual things bought and paid for, is broken when the seller defaults, and such defaults are allowed to continue by the regulatory authorities.
The seller defaults because he never actually possessed the thing he sold, and never actually intended to deliver it, intending to deliver instead, more paper promises to pay, perhaps at a later date.
That these systemic frauds have been allowed to continue and grow for decades, indicates that the market regulators who are charged with enforcing the rules which create and maintain our markets and which link our market activities to the real world of share certificates and physical commodities, have been bought and paid for ("captured") by the financial entities which are committing the fraud. This is entirely to be expected, given that the Fed and its owners have been given the power to literally make, in unlimited quantities, the very money that can be used to bribe those same elected and appointed officials. (The bribes are most often called "campaign contributions.")
The financial entities which are committing the fraud, and which apparently hold the real decision making power in US and European societies, are the same large banks which are receiving the trillions of dollars in bailouts and loan guarantees.
It is the existence of this systemic, ongoing fraud and corruption, at the very heart of our markets, and the total capture of our political system by the perpetrators, which has me convinced that we are headed for total collapse of our currency and our financial system. That is why holding physical gold and silver, with the expectation that these metals will need to be used to buy the necessities of life, is no longer an outlandish position to take.
On Apr 02 12:45 PM Avery Goodman wrote:
> Kohalakid,
>
> Thank you. You may be correct. Technically speaking, Deutsche Bank
> is probably not acting as a "registered leveraged transactions merchant"
> per se, with respect to these particular transactions. It seems
> to me that you have hit on the reason that CFTC has managed to look
> the other way. But, "nab" them the authorities should, nonetheless.
>
>
> The fact that they may not be covered under this explicit rule, requiring
> 90% cover, does not diminish, but, rather, amplifies the need to
> do vault audits. The potential for wrongdoing is far greater if
> the majority of the big dealers on COMEX are not covered by the rule.
> No wonder silver has been selling in backwardation for so long.
> Many people justifiably do not trust the futures markets, and must
> want their silver immediately.
>
> This makes me more concerned, not less. It is further circumstantial
> evidence that most of the alleged "gold" and "silver", supposedly
> "bought" and "sold" on futures markets "for delivery" may not actually
> exist. Dealers who allow short selling, without gold to back thousands
> of contracts, not only court financial disaster for themselves and
> their customers, but, also, commit fraud upon the market. Selling
> naked short positions is fraud upon the market because the specifications
> of the COMEX gold contract specifically state that the seller and
> the exchange warrant "delivery" of physical metal. If there is
> really no gold to deliver and the seller is really depending solely
> upon the transient politics of a central bank, he commits fraud upon
> the long buyer.
>
> 17 CFR § 31.3 states, in pertinent part that:
>
> "...it shall be unlawful for any person...directly or indirectly...(c)
> To engage in any act, practice, or course of business which operates
> or would operate as a fraud or deceit upon any person...in connection
> with (1) ...a transaction for the purchase, sale or delivery of silver
> bullion, gold bullion, bulk silver coins, bulk gold coins...pursuant
> to a standardized contract commonly known to the trade as a margin
> account, margin contract, leverage account, or leverage contract..."
Yes, what you say is certainly possible in theory, but to what gain??
That OTC forward long position you talked about will likely get hedged off the same way the short COMEX position will probably get hedged too. The market will find the most available liquidity and COMEX, with its 10 to 30 cent spreads, is going to get a lot of business from the hedgers of those OTC forwards. The liquidity in the forwards and spot and futures make arb very difficult. Try to push one up or down and the others will follow..and FAST!!
On Apr 02 04:09 PM kohalakid wrote:
> Avery,
>
> Yes, what you say is certainly possible in theory, but to what gain??
>
> That OTC forward long position you talked about will likely get hedged
> off the same way the short COMEX position will probably get hedged
> too. The market will find the most available liquidity and COMEX,
> with its 10 to 30 cent spreads, is going to get a lot of business
> from the hedgers of those OTC forwards. The liquidity in the forwards
> and spot and futures make arb very difficult. Try to push one up
> or down and the others will follow..and FAST!!
disclosure: i'm long on gold too.
If the structure of your trade was so easy to pull off, it would be happening all the time. But for it to happen on a large scale continuing basis would require the OTC marketmakers who sell the gold at the "artificially low" price to be getting their nuts handed to them on trade after trade after trade. They realise that they can't base a 50 cent spread quote for 200,000 oz of gold on what the COMEX has done for the last 30 seconds. They'd get picked off all day long and soon be out of business!
OK, so the manipulators buy smaller lots..10,000 oz at a time. But after the first couple of asks get lifted, those sellers are out trying to hedge on COMEX or with forwards or with other spot dealers.
Your trade sounds nice in theory, but the market has too many participants providing too much liquidity to let it happen often.
It really is a fair game. It doesn't mean I have always won, but once the mechanics are know, it's easier to avoid the landmines and grind out decent gains.
I agree that the Federal Reserve System is a "malevolent institution" which should be closed down. In 2003 all 12 Federal Reserve banks closed their public windows and they now refuse to redeem Federal Reserve Notes on demand, as required by Section 411 of Title 12 of the Untied States Code. And they are now issuing Federal Reserve Notes that they have no intention of redeeming. They have thereby turned the U.S. Dollar into the biggest fraud in world history.
The Government of the United States of America stands behind this fraud and will not stop it. The Government closed the U.S. Treasury Department's public window in 2000 and now refuses to honor its statutory obligation to redeem Federal Reserve Notes (see Section 411, Title 12). The Federal Reserve Banks and the U.S. Government are co-conspirators.
www.law.cornell.edu/us...
> "Naked shorting" is a violation of absolutely no regulation in the
> commodity market. What is this knucklehead talking about? If Deutsche
> Bank needed to get out of this position because they didn't have
> physical gold to deliver, they could have bought back the amount
> they were short or simply done a Apr/June switch to roll the position
> forward. The market certainly had the liquidity before first notice
> day to accomodate either move.
> But fear and conspiracy makes for a better article, right??
That's exactly what happened. Read the article. If this wasn't covered the naked short would have defaulted. If they had to go to the market to get the gold to cover this it would have rose enormously as every long position taking delivery or not would have sold for tons more than they bought because a short would have to be covered in a couple days.
You are correct !
There was no default possible on that day because it was first notice day, not last trading day. April was the delivery month and Deutsche Bank was short. They had all of April to deliver!! They wouldn't be in "default" until Apr 30. I've been long before in a front month futures and not gotten delivery until the absolute last trading day. Instead of being a problem, I got to use my money for an extra 4 weeks, rather than paying for the receipts!!
There is another potential "COMEX-related" fraud not discussed or hinted by anybody except mv1001. I used to buy contracts and take delivery. On occasion when the gains were too large I opted for delivery for tax reasons. Last year that strategy failed. I took delivery of some gold contracts and my commodity account was credited with what was represented to be several warehouse receipts. I asked my brokerage for the receipts and he indicated that they could not send me these receipts. I asked why not and was told they were being "converted" to electronic receipts and electronic receipts had to remain on their system. I was furious, but could do nothing. This is now a rigged game which can only be played only with cash. So I got out while I could. I sold these virtualized "warehouse receipts" to the next unfortunate sucker, took the cash and obtained physical at a higher price. This was EFP outside the brokerage system. My broker also indicated that they were having problems with the paper warrants. I suspect there is probably a fair amount of counterfeit warrants circulating around, my brokerage discovered the fraud but refused to "own up" to it.
It appears there is a black hole in physical commodities. Maybe not as big as the Financials. There's hundreds of millions of stock fails (IOUs) known to be floating around the brokerage system and DTCC, and the courts have sealed all the cases at the demand of Treasury on the grounds of National Security. With good reason. Now virtual commodity receipts are a great way to keep the equivalent commodity fraud covered up - there's no physical evidence. There are going to be people and companies who paid for goods who will not get them as contracted - the rules will be bent and the promises broken - big time. All that has to happen is for enough counterfeits to be held by the "suckers". The suckers are either the longs who actually need delivery or the shorts who must make delivery and find they can only deliver "counterfeit paper" or an "electronic receipt for nothing". Don't even mention chain of custody - documents or goods - that was broken long ago.
In my case, because the contract for physical delivery was ultimately not honored, the word "contract" has lost its meaning in connection with the futures market. Now if they do this with soybeans or corn, what will we eat when we demand the physical grains? Will we starve for months until we have a chance to fight each other over the next harvest? Can you cash settle hunger? Good grief!
They bought contracts to buy gold at a price. They executed the contract, and took delivery. Delivery was made. There is no evidence otherwise, is there.
They seem perturbed that they weren't able to engineer a short squeeze of Deutsche Bank, because they couldn't bust the ECB too.
Now, who is the manipulator in this scenario?
"But for it to happen on a large scale continuing basis would require the OTC marketmakers who sell the gold at the "artificially low" price to be getting their nuts handed to them on trade after trade after trade. They realise that they can't base a 50 cent spread quote for 200,000 oz of gold on what the COMEX has done for the last 30 seconds. They'd get picked off all day long and soon be out of business!"
Why do you think there's been no audit of TARP, the Fed, etc? Manipulating the tiny gold market is child's play to someone with a printing press.
If this is a very unusual event, as is implied by the article, who is taking that much physical gold? Why? Does the same buyer hold other contract for future delivery?
Will demand for delivery happen again at the next futures contract maturity date?
If it does, what will that mean for the price of gold?
If the ECB did bail out the bank by selling them gold, what does that say about the availability of gold other than from central banks?
This could be the result of many things. It could simply be a location swap of physical metal. Maybe someone wants NY gold 100 oz bars vs London pool gold. It could be someone moving gold into a certified depository so it can be used in an ETF. It could be a loan for a government, secured by metal. Also, taking delivery doesn't necessarily mean moving it out of a warehouse, it may just mean it's passing from a buyer to a seller and staying in the same physical location and "taking delivery" doesn't necessarily have bullish implications, because someone also "made delivery".
There sure is no shortage of gold right now. The refineries are working overtime to process scrap coming in from Asia and India has gone from importing 60 tons a month to importing zero, because of the high price. There IS a shortage of investor coins and small bars, but no shortage of 100 and 400 oz bars.
www.notzeiten.de/?p=230
And all the goldbug readers should learn to read looking for facts before jumping on others misunderstandings & praising them as gospel.
So many numbers here are simply wrong & the speculation is rampant.
Now how many ounces in a gold contract?
And who can spot the other mistakes that just blow this author back to the kindergarten.
Most reporting of this uses the word "on" but drop the "completed" but this report (www.monstersandcritics...) says "up to end of March", which would make more sense to me as generally you feed deals in instead of doing them in one lump.
In any case, as someone who works in the physical markets, 35.5t is not "massive" as Avery thinks. DB doesn't need to beg the ECB for gold, it can just acquire it from the spot market. I mean, little old AGR Matthey refinery in Perth produces 6t a week. If DB knew it needed physical it could easily find 35t over a month.
In the end, whatever happens, there is no doubt holders of Gold will survive. Of course, I can be wrong...but in this case, they'll have to rewrite all history books.
In the end, whatever happens, there is no doubt holders of Gold will survive. Of course, I can be wrong...but in this case, they'll have to rewrite all history books.
On Apr 02 02:15 PM kohalakid wrote:
> SW Richmond
>
> I didn't say you had to like the fact that big boys can push markets
> around, I said we are understanding that it can and does happen.
>
> If you don't think whatever market you trade in gets moved by traders
> bigger than you, you shouldn't be trading that market.
Thx for the comments. Food for thought.
As you offered in the examples, it could be an explainable event that is necessary for certain transactions. It would be interesting to see a data set showing how the physical deliveries have changed over time compared to cash settled contracts. Perhaps that data exists but I have not come across it.
By plotting cash settled vs physical delivery settlement, any recent spike in deliveries might be explainable, if correlated to ETFs for example. But unexplainable anomalies in the data could be revealing. Time will tell. If this sort of event, some short seller needing to find the gold to fulfill their contracts happens on a more frequent basis, then one might have to consider that something may have changed.
The rather large net short positions that very few banks have in gold (and silver) according to CFTC reports and cited in Avery Goodman’s article, are a data set that attracts attention. From what I’ve read, (and plotted myself in Excel) the data suggests that the net shorts increase and decrease with some correlation to price, which leads to the idea that the shorting is done in order to affect the price. I have not read any plausible reasoning that explains the data, or that explains why very few banks engage in this activity. If it were a normal bank function, I would expect the large net short positions to be distributed among numerous banks. This leads to the question: what is unique about the few banks that are net short large positions, compared to banks engaged in similar business dealings?
agree with whom? Keynes? if not for governments enforcing legal tender laws, gold would be our money.
no-one in his right mind would accept unbacked pieces of paper with ink slapped on them in payment. it only 'works' because it is enforced at gunpoint, basically.
due to the fact that taxes can be paid with fiat money there exists a demand for it, failing that there would be no such demand - and of course, taxes are anything but voluntary contributions.
On Apr 02 10:05 PM Francis Schutte wrote:
> What ever is written or said about Gold, history will judge like
> it did many times in the past. Yes, I agree that gold is Barbaric.
> However, each time the authorities did what is done today, people
> with Gold came out a lot better than people holding Fiat paper money
> and Govenment bonds. I still hold a lot of Reichsmarks, and even
> Gold guanranteed government bonds. An heritage of my grand father.
> I advice all wise noses to READ some history books. The Age of uncertainty
> by Galbraith is one I would advice for it explaines why we have the
> same cycles over and over again.
> In the end, whatever happens, there is no doubt holders of Gold will
> survive. Of course, I can be wrong...but in this case, they'll have
> to rewrite all history books.
If you sell shorta couple gold futures or wheat futures or oil futures, I am 100% certain that you do NOT own the wheat, oil or gold that would be required to get delivered. So you are naked short the physical, make no mistake about that. Or, did you arrange for borrowing the stuff before? Sure you did, eh?
Instead, you most probably close the position before physical settlement of the contracts or roll the position into future months. problem is, if many want to do this they might find not enough willing sellers of the stuff - at least not at the prices they had in mind. And 850 contracts in comex gold is a lot. I would suspect that they may have rolled them many times but finally had to give in
thanks to the author for spotting these highly interesting developments that otherwise would have escaped me. keep it up!
On Apr 03 02:15 AM User 387972 wrote:
> There is no such thing as 'naked short' in the futures market ! You
> get it! I am a futures trader. This guy is just blowing hot air.
Got'ta be a realistic people. Hedge against inflation by all means. And using commodities by all means. But don't do it using a luxury commodity item I'd say - Choose something of some very real and practical use in our world.
At the end of the day, If someone actually wants to buy the physical (REAL DEMAND), it has to be delivered. If fulfilling this obligation raises the price then this is normal market supply and demand behavior. I think you are missing the point that the majority of the COMEX market does not want to take delivery. This is not real demand and should not heavily influence prices. Such contracts are bought as pure speculation to try and profit from the actual physical transactions that do occur (as these have a far greater impact on price). These contracts are not intended to move prices but to profit from price moves. This is exactly what one wants, for speculation to NOT affect pricing as the majority of these contracts are bought on margin and do not represent REAL interest.
What you are a pit trader? or a just a guy flipping a couple of contracts on his brokerage account? "Naked short" in this sense means that a commercial has no commodity to deliver, that's what the article is about. Speculators are a recognized category of trader who will not be participating in the physical market. They are of course naked, but they are supposed to be providing liquidity, not delivering the goods.
Anyways, I've read many of the comments and seen much of the usual indifference and ignorance of our predicament. Whether you are savvy or not in flipping fututres contracts up and down and trading volatility and whether you believe in manipulation or not - gold has been and always will be an integral part the market. If you accept the idea promoted by power that gold is just a metal then you turn your back on essential monetary history. More importantly you accept the excesses of government fiat whatever, you turn your back on the one thing which guarantees liberty - honest money and fair weights and measures. The power to create money by fiat is a terrible power, it is the very stuff of perpetual war and the dangerous militarism which is now apparent in America. But hey... if you can be a savvy trader, you needn't trouble yourself with these issues. Is the government owned by banking corporations? Who cares, as long as you can make a buck. Whilst my country is cleaned out by oligarchs, who cares? I'm alright Jack! What's a few hundred thousand ounces between friends. It's only a little bit of fascism, all good and healthy in a free society.
Welcome to SA!
Could you check your math, in the above passage?
Thankyou
If there were no verification of shorts, and no verification of assets,
it would be possible to create both sides of a transaction and manipulate the market by two people sitting at two computers in the same room with different trading accounts.....
similar to Credit Default Swaps.....
jay
OK, you want to try it??? With April gold now right at 900, why dont you go out and bid 910 and I'll offer at 910 and let's see what happens.
The market is so liquid that you won't get filled at 910, you'll get filled at 900.40 and my offer will just sit there. There are so many participants willing to call your bluff that the risk/reward just isnt there.
And while there is no "verification of assets", you would have to put up margin on each side and you would have to comply with COMEX reporting rules on large positions if you got your manipulation big enough. I think reporting is 200 lots.
I spent six years managing the International Petroleum Exchange (now ICE) cash-settled Brent market, and in particular the deliverable Gas Oil contract.
You've seen no trading games 'til you've seen oil market games....
Gold is a cinch by comparison.
And I have never seen so much rubbish talked in relation to the role of futures markets as was coming out of the US last year when the oil price "spiked".
Thanks for the nice words.
Yes, I'd agree that the games played in the oil markets make the gold market look like a nuns' picnic.
Whenever I need a good chuckle I check out the daily movements of the various oil switches. Someone makes a ton of money and I'd guess it the guy with a couple million barrels of storage capacity.
j
On Apr 03 12:33 PM kohalakid wrote:
> JJD,
>
> OK, you want to try it??? With April gold now right at 900, why dont
> you go out and bid 910 and I'll offer at 910 and let's see what happens.
>
> The market is so liquid that you won't get filled at 910, you'll
> get filled at 900.40 and my offer will just sit there. There are
> so many participants willing to call your bluff that the risk/reward
> just isnt there.
> And while there is no "verification of assets", you would have to
> put up margin on each side and you would have to comply with COMEX
> reporting rules on large positions if you got your manipulation big
> enough. I think reporting is 200 lots.
You reference to 17 CFR 31.8 to explain the "90% cover rule." This section, it should be noted applied to LEVERAGE TRANSACTION MERCHANTS (LTMs), a now-defunct CFTC registration category.
The "rule" is not as ancient you assert. The LTM category was created in the 1980's. An LTM essentially sold off-exchange metals delivery contracts to retail customers. Modest down payments (typically 10%) were put up and the balance was financed, at interest, by the LTM.
Leverage contracts differed from futures in many important ways, not the least of which include: (1) investors were permitted to establish only long positions; there was no shorting by retail customers -- ergo the need for the cover rule cited; without an offsetting physical or forward/futures position, dealers would be necessarily short; (2) there was no centralized clearing; customers had no recourse in the event of default except to the dealer that granted the contract.
There are no LTMs currently registered by the CFTC and there haven't been for years. The category was riddled with fraud, misrepresentation and finally died through attrition and declining demand.
Banks and other entities now broking metals futures are registered as FUTURES COMMISSION MERCHANTS (FCMs) or INTRODUCING BROKERS (IBs) of FCMs and are subject to a wholly different rules of conduct.
There's no "90 percent rule" for FCMs or IBs because these entities act as agents, not principals, to customer trades.
On Apr 02 10:57 AM Avery Goodman wrote:
> Kohalakid,
>
> Obviously, you have no knowledge, whatsoever, of the rules that govern
> the markets in the United States, or anywhere else. Before we get
> more deeply into that, let me point out what 17 CFR 31.8 says, and
> leave it at that.
>
> "...(a)(1) Each leverage transaction merchant must at all times maintain
> cover of at least 90 percent of the amount of physical commodities
> subject to open long leverage contracts entered into with leverage
> customers, and must at all times also maintain cover of at least
> 90 percent of the amount of physical commodities subject to open
> short leverage contracts entered into with leverage customers..."
>
>
> Vault audits would tell us whether the alleged paper "cover" that
> is presented to the CFTC, and which is never questioned by them,
> to my knowledge, is actually valid. Most COMEX dealers are probably
> presenting OTC derivatives contracts to claim that they have the
> required "cover", and are not naked shorts.
>
> However, the veracity of those paper OTC contracts are in question,
> if big banks like Deutsche Bank, are forced to go "hat in hand" to
> a sovereign gold vault, like the ECB, to get enough gold (8500 contracts
> worth) to deliver on their obligations at COMEX.
>
> Vault audits are necessary, at this point, in order to determine
> the truth or falsity of the claim to possession of real metal. If
> OTC contracts are just supported by other OTC contracts, which, in
> turn, are supported by yet other paper contracts, and so on and so
> forth, ad infinitum, then the whole game is a fraud. In that event,
> the gold conspiracy theorists, from Ted Butler to Jim Sinclair, are
> telling us the truth. On the other hand, if the underlying metal
> really does exist, the conspiracy theorists are wrong, and everyone
> can feel much more comfortable in the quiet knowledge that our markets
> are honest and true.
>
> Keep in mind that it is not the individual investor who sells a "naked"
> short. It is his broker/dealer, and his broker/dealer's clearing
> broker, who end up doing that. Many of the broker/dealers and certainly
> the people on the bottom of the totem poll, like you, me, the line
> brokers and so on, are simply honestly relying upon paper promises.
> But, if the underlying metal doesn't exist, then, someone, probably
> the biggest players, at the highest levels, are committing fraud.
>
>
> The recent sale of such a suspicious amount of gold into the market,
> just at the moment of Deutsche Bank's need, justifies a full investigation
> of the gold market, either to help assure us that it is clean or
> to help start the cleansing process.
It's for the same reason that the Federal Reserve deems a small coterie of banks to be "primary dealers" for auctions and open market operations. The're the bigger banks with the power to retail government paper to secondary banks.
Central banks deal metals, too, to the most creditworthy and well-connected financial insitutions, mostly in leasing transactions.
On Apr 02 11:34 PM Au long wrote:
> kohalakid,
>
> Thx for the comments. Food for thought.
> As you offered in the examples, it could be an explainable event
> that is necessary for certain transactions. It would be interesting
> to see a data set showing how the physical deliveries have changed
> over time compared to cash settled contracts. Perhaps that data exists
> but I have not come across it.
>
> By plotting cash settled vs physical delivery settlement, any recent
> spike in deliveries might be explainable, if correlated to ETFs for
> example. But unexplainable anomalies in the data could be revealing.
> Time will tell. If this sort of event, some short seller needing
> to find the gold to fulfill their contracts happens on a more frequent
> basis, then one might have to consider that something may have changed.
>
>
> The rather large net short positions that very few banks have in
> gold (and silver) according to CFTC reports and cited in Avery Goodman’s
> article, are a data set that attracts attention. From what I’ve read,
> (and plotted myself in Excel) the data suggests that the net shorts
> increase and decrease with some correlation to price, which leads
> to the idea that the shorting is done in order to affect the price.
> I have not read any plausible reasoning that explains the data, or
> that explains why very few banks engage in this activity. If it were
> a normal bank function, I would expect the large net short positions
> to be distributed among numerous banks. This leads to the question:
> what is unique about the few banks that are net short large positions,
> compared to banks engaged in similar business dealings?
A friend of mine pointed out that unacceptable market manipulation is a felony in the US, which implied that there is such a thing as acceptable market manipulation.
And that, I told him is the definition of "trading".....
A bit of transparency would help, as I said here...
www.theherald.co.uk/bu...
On Apr 03 01:34 PM kohalakid wrote:
> ChrisJCook,
>
> Thanks for the nice words.
>
> Yes, I'd agree that the games played in the oil markets make the
> gold market look like a nuns' picnic.
>
> Whenever I need a good chuckle I check out the daily movements of
> the various oil switches. Someone makes a ton of money and I'd guess
> it the guy with a couple million barrels of storage capacity.
Trace: your quote "These vampires operate in the shadows..." what Vampires, pray tell, operate in the Sun?
Obviously, you did not read Mr. Zigler's comments, he has actual "credentials". Or did the last Billionaire friend of yours inform you about vampires that operate in the Sun?
for instance they said go into the market last friday?
I know they said buy Euro bonds at the euro's peak in Jan.
nothing else comes to mind right now.
On Apr 02 02:52 PM kohalakid wrote:
> All price bids and asks, with the exception of EFP transactions,
> must be presented to the open market. That's what makes the electronic
> system so nice. If someone wants to try to "bull" the market up,
> they may get swatted by someone other than their intended counterparty.
>
> Intention to make or take delivery doesnt affect things.
Of course since they are computers it could never be manipulated through programming. Doesn't JP Morgan enjoy national security computer protection? Of course this can all be done, we see it with gold and we saw it with oil. Using it to bear gold and then using it to bull oil up was the biggest mistake. Enron's accounting fraud wasn't discovered until it collapsed and public accounting was brought in. Comex won't stop rigging things until people all over the world suck all the gold out of it and public accounting has to come in.
This could happen just through connection speed but that wouldn't be reliable enough. Since so many of the players have national security computer privelages their routers, gateways, firewalls everything could be tuned to profile and pass the data any way they want it passed making any shorter or longer processed any way they wanted it. Computers give you so many new ways to rip people off and scams that would never work with voices and play acting are suddenly completely hidden in their inner workings. If you try to packet sniff these companies and reverse engineer what they are doing you get visited by the FBI. So the lies are protected completely until russia or china or someone decides to stuff hackers up their pipes while telling the other governments involved to get stuffed when they start threatening.
On Apr 03 07:13 AM debt donkey wrote:
> "You get it! I am a futures trader. This guy is just blowing hot
> air. "
>
> What you are a pit trader? or a just a guy flipping a couple of contracts
> on his brokerage account? "Naked short" in this sense means that
> a commercial has no commodity to deliver, that's what the article
> is about. Speculators are a recognized category of trader who will
> not be participating in the physical market. They are of course naked,
> but they are supposed to be providing liquidity, not delivering the
> goods.
>
> Anyways, I've read many of the comments and seen much of the usual
> indifference and ignorance of our predicament. Whether you are savvy
> or not in flipping fututres contracts up and down and trading volatility
> and whether you believe in manipulation or not - gold has been and
> always will be an integral part the market. If you accept the idea
> promoted by power that gold is just a metal then you turn your back
> on essential monetary history. More importantly you accept the excesses
> of government fiat whatever, you turn your back on the one thing
> which guarantees liberty - honest money and fair weights and measures.
> The power to create money by fiat is a terrible power, it is the
> very stuff of perpetual war and the dangerous militarism which is
> now apparent in America. But hey... if you can be a savvy trader,
> you needn't trouble yourself with these issues. Is the government
> owned by banking corporations? Who cares, as long as you can make
> a buck. Whilst my country is cleaned out by oligarchs, who cares?
> I'm alright Jack! What's a few hundred thousand ounces between friends.
> It's only a little bit of fascism, all good and healthy in a free
> society.
1. Bank A bids to buy a short at a price lower than the present market.
2. At the same time Bank B agrees to the lower price.
3. A COMEX software "back door" puts the two parties together, without exposure to anyone else in the market, and records the transaction.
4. Bank A pays Bank B through COMEX.
5. Bank B later returns the money to Bank A by some OTC arrangement.
The agreement between the two banks is that Bank A will NEVER ask Bank B to provide the Gold.
What happens? Bank B gets bigger and bigger listing of Gold derivatives.
(JPMorgan increases its holdings by 10 billion dollars in a Quarter 2008.)
COMEX gets a larger and larger list of unfilled shorts. The price of Gold shoots down in a series of steps, associated with repeated transactions.
It doesn't cost the banks ANYTHING to suppress the futures prices.
AND the solution can't be defeated by the method proposed by Avery =
"Indeed, the only way that the proposed trade could be defeated is if people at the public exchanges continue to demand delivery in huge quantities."
since Bank A will never demand delivery, so there will always be unfilled shorts.
ANYTHING that won't work about this fraud? Assume that you have enough clout to hide the software bug--- or have your CEO go to Treasury multiple times?
If this fraud could work, then the important consequence is that the price suppression can go on INDEFINITELY--- COMEX can't be bankrupted by calling shorts, and there is no Gold lost in the fraud <<--- so you can't assume that this fraud will "run out of gold". If so, then when will it fail
(if ever)?
On Apr 04 03:25 PM Hephasteus wrote:
> * Hephasteus Of course since they are computers it could never be manipulated through programming.{joke} Doesn't JP Morgan enjoy national security computer protection? Of course this can all be done. . .
North
I blew the whistle in 2000 about the systemic (unfortunately I said "systematic" at the time) manipulation of IPE Brent settlement prices by the big boys, and I got buried by the UK Establishment. My reputation was trashed, I lost livelihood, home, marriage, the lot and it's taken a few years to pick up the pieces.
I think the truth of it is just beginning to come out, but plenty more to come. IMHO the current market architecture is a black box for intermediaries to siphon out profits. It's Galbraith's "bezzle". The losers don't even know they are losing.
You cite IPE, but I'll believe NYMEX are serious about cleaning up their act when they start video recording the floor - which I introduced (alongside mandatory phone taping) on the IPE in 1990.
This was the single most effective regulatory action taken on any floor, I think. Interestingly, after a week, the brokers loved it - because it got rid of trading disputes overnight.
Compliance as Quality Control, was my approach.
On Apr 03 04:41 PM Honcho wrote:
> as Chris would I'm sure confirm...the IPE floor was a sham of a market...I
> mean, half the trades were pre-arranged, and the floor officials
> made the SEC look like paragons of competence...in short, they rarely
> stopped anyone doing anything...the "games" that went on during Gulf
> War I were simply beyond imagination..."sell 1 cross 499" eh Chris?
On Apr 04 04:32 PM wobatus wrote:
> Gold is just a metal, isn't it?
I assume if they're long they only need access to credit.
I know if i didn't need margin i would have went long about a hundred contracts as far into the future as possible back in "02". Instead i had to jump in and out with no more then a few contracts.
> When JPMorgan dumps its longs and goes short in earnest gold will
> fall through its 200 day moving average and it will be lights out
> for all of the little speculator longs. Silver is already at this
> death star point on its charts. Until inflation returns gold buyers
> are whistling either Dixie or taking a 12 month or more out view.
When enough of the gold gets into private hands from the price dumping then people will see that yes. Gold is barbaric. It's THE reference frame of wealth. We live in a world where fraudulant paper markets determine the value of real wealth. Gold is the king it won't allow this to continue forever. It'll rip through fiat currencies with barbaric ferocity. Subdueing and diminishing everything in it's path. People will cry out to heaven to send the wizard Jesus to teach forgiveness as Gold lays down it's brutal unrelenting karmic conquering of every fake relativistic valuation system. It'll eat wall street, it'll eat FTSE, it'll eat every market on the planet. Then when central banks are done playing their faith game they'll try to get the gold back to play another round. They'll be shot, stabbed, beaten, butchered and sold to zoo's as meat.
The majority of gold on the market is only allowed on the market for jewelry purposes where it's sold for roughly 3 times its value according to COMEX.
Personally I hope it get's sold down to $760 this month. It'll make for a bigger meaner barbarian. Any chance of survival the dollar had died in 2000 when it went broke and lied about being broke for 8 years.
> If this fraud could work, then the important consequence is that
> the price suppression can go on INDEFINITELY--- COMEX can't be bankrupted
> by calling shorts, and there is no Gold lost in the fraud <<--- so
> you can't assume that this fraud will "run out of gold". If so,
> then when will it fail
> (if ever)?
It will fail the when the same things happen that made it fail during the great depression happen. When the "gentlemans" agreement to not take delivery stops happening. France was the one who did this in 30's. When france started everyone playing in the fraud started getting worried that everyone would start doing it and people would get shafted. China, Russia, and Middle east but maybe Japan will be the ones who set it off this time. Neither of these would make for a less manipulatable market though it's going to be up to europe, america, canada, australia etc to get enough of the stuff into private hands to pull the plug on the perverse arrangement where paper money systems seem to dictate the value of gold instead of the other way around. Because when it works like it's supposed to you can't hide money as easily and do things without having to ask permission from your countries people.
On Apr 02 09:45 AM Cesato wrote:
> Nobody saved anything, it is how the markets works. As soon as you
> understand market cycles you will be buying at the right time, selling
> timely and buying back near bottoms. Big players (real winners, not
> losers like already broken investment Banks) in Gold are diversified
> in their portfolios and constantly keeping a balance between those
> assets. It's been more than a year since the manipulation theory
> (inexistent by the way) has been discussed in order to justify losses
> from uneducated investors who don't realize that following the trend
> and identifying the corrections associated with other assets' moves
> makes you a winner. I really got tired of that manipulation discussion,
> buy low sell high and add to breakouts either if you are long or
> short, it does not get any simpler that that. If you were making
> money you would not waste your time digging into theories but explaining
> why the market does what it does without taking you off-guard. Remember
> that physical Gold can be bought and sold for a profit as well, you
> don't have to keep it under the mattress just for pride, it is a
> way to make money and still have physical on your net worth long
> term, playing paper Gold as a hedge is another means to make some
> money short-term if you are in love with the physical stuff. For
> now the trend in Gold continues and will continue down for a while.
> Can you eat gold?
Not unless you want to.
But you can dig it up and use fractions of a gram to buy food with when there is a famine and currency debasement. See following video and article:
Zimbabwe - gold for bread
MDC activist Sam Chakaipa returns to his village in rural Zimbabwe to find his friends and neighbours starving to death, reduced to panning gold powder from the rivers to exchange for food at an exorbitant rate.
www.guardian.co.uk/wor...
rssnews.wordpress.com/.../
I assume that Globex is manipulated the same way.
On Apr 06 08:28 PM Hephasteus wrote:
depression happen. When the "gentlemans" agreement to not take delivery stops happening.
> On Apr 04 09:31 PM Spectator wrote:
> If this fraud could work, then the important consequence is that
> the price suppression can go on INDEFINITELY--- COMEX can't be bankrupted
> by calling shorts, and there is no Gold lost in the fraud <<--- so
> you can't assume that this fraud will "run out of gold". If so,
> then when will it fail
> (if ever)?
" I recommend strongly this chart to see what is really happening in gold market:"
Comment-- this is an impressive graph. Unfortunately, it only covers a short time window, and does not indicate the volume of the market. If the volume is low, then it doesn't take much absolute numbers of shorts to affect the price.
Question: how does the Central Bank Gold sale affect the paper-Gold price?
So - and here's the rub - you don't eat money you exchange it for food. Nobody ever says you can't eat dollars, do they? Could that be becuse they are integral to their lives and they never thought that one day a dollar could be worthless as money? Anyway - dollars are regularly exchanged for food.
A simple question is this: which is most likely to hold value over time - dollar or gold? So I am personally holding gold in the collapse rather than a paper promise of a corrupted government presiding over an edifice of failed economic mumbojumbo. You pays your money you takes your choice I suppose.
On Apr 04 04:26 PM wobatus wrote:
> Can you eat gold? What good is it, aside from a few uses? It has
When a commodity becomes used as money, the demand for the commodity increases precisely because it is used as money. It's a virtuous circle. People keep it and seek it because it is useful as a money. They also save it for future purchases.
> value because people value it, but why? When the collapse comes,
> what will you do with it?
And that simply makes the case for Gold!