Tuesday, May 25, 2010

Quote Of The Year And Must-Read Analysis From Reg Howe

You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

George Bernard Shaw, 1928

Linked below is among the most well-written and brilliant analysis of how the Central Banks conspire to suppress the price of gold and how they are using GLD for this purpose. Reports about the fraudulent business structure of GLD have been published ad nauseum, including one by me, but this forensic accounting anlysis by Reg Howe is nothing short of remarkable and he clearly lays out the argument, supported by data taken directly from BIS (Bank for International Settlements - the global Central Bank of Central Banks) quarterly documents.  Here is one of the salient quotes, to wet your appetite and stroke your curiosity: 
In recent months, while GLD has generally sold at a slight discount to net asset value, other bullion funds with more transparent and credible custodial and auditing procedures have commanded significant premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also continues to surface of premiums for spot delivery of physical metal or cash settlement in lieu of physical.

Gold forward rates as reported by the London Bullion Market Association (www.lbma.org.uk) have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.

It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.
Here is the link to the full report - please take the time read it thoroughly:  LINK

For the record, until GLD can prove that its Custodian AND the subcustodians possess every single bar of gold listed on GLD's website - that these bars are not just paper swap transactions with U.S. and European Central Banks, GLD shareholders are highly exposed to an Enron/Refco/Bear Stearns type of price collapse.  The instant a big holder of GLD tries to exchange its shares for a couple hundered tonnes of GLD's gold -and GLD blinks and hesitates on the delivery - the price of spot gold will shoot to the moon and the price of GLD will have an "air pocket" plummet. 

A long-time investment advisor colleague of mine remarked that he had put his clients in GLD today.  I replied, I hope you are not holding GLD when it's exposed.  He replied that he needed the relative liquidity of GLD for the size he was buying.  I replied that the second GLD is exposed, GLD will go "no bid" and the only thing liquid will be the brown substance in your boxer shorts. Not only that, your phone will start ringing off the hook from lawyers who are filing "breach of fiduciary duty" lawsuits.

For all you GLD loyalists, I have just one question:  "Do you feel lucky, punk?"


  1. "I replied that the second GLD is exposed, GLD will go "no bid" and the only thing liquid will be the brown substance in your boxer shorts."


    The only "safe" gold is physical gold in your possession. Period.

  2. Rodd, my goal in life is to make you chuckle!

    I saw clusterstock had a thing yesterday featuring the 20 best job markets. Honolulu was mentioned - was wondering what your take on that was...

  3. Playing Devil's advocate for a moment: If the market is so rigged, why would someone put their hard earned money into it and if the fraud is so easily exposed, why are "they" still getting away with it?

    The only way for a small investor to make a buck in this is to have physical bullion and sell at a nice spot price plus any premiums at the time.

  4. Ugly Dollar Day, Barfed Up Huge Gains.

  5. If you ever want to see your Congressman turn seven shades of vague, ask him, "Is it true that
    the Treasury Department- "the people" owns no gold bullion whatsoever, but it is owned by the Fed?(which has no obligation to share with anyone)

  6. In a market collapse, how will small cap gold stocks do?

    Also, I own 2 long contracts of gold on the nymex, how will they do if GLD is exposed?


  7. Best job market? For what? Meth dealers and marijuana farmers?

    I don't know who wrote that piece of garbage, but the most popular jobs in Hawaii are public service related. That's why we're a broke ass state, and always will be.

    (FWIW, I work in the private sector. Ha!)

  8. LOL Rodd. In Colorado the marijuana grower supply the "caregivers" with medical marijuana - it's the fastest growing source of tax revenue on the planet.

    Bronto: make sure you have plenty of margin and keep rolling those babies. If GLD gets exposed those things will double in less than a week, although you might have to take cash settlement. At least it will index gold. GLD will be Enron-ized...

    Anonymous re: congressman - oh man that's a funny visual - so true too.

    touche J Mac

  9. Sprott to buy 6 tons of gold for PHYS? WOW!

  10. The real play here would be to take delivery of as much non-tungsten infused comex gold as you can before they shut it down, short an equal amount of GLD. Wait about 6-12 months. You might have the lowest risk, highest return real gold trade on.

    As to your investment buddy, points to true size of real gold market. Try running 20,000 shares through GTU...

  11. golds-buying-power


  12. That's a great idea Anonymous. We have looked at actually putting that hedged trade on using CEF when it gets to a double-digit premium but you can't get a borrow on CEF. Of course, the instant GLD is exposed, the premium on the bona fide trusts will double.

    I like your strategy on going long comex gold/shorting GLD.

  13. whats the margin req'ment to short GLD? Moreover, if i short one contract GLD and go long one contract comex gold, do they just cancel each other out until GLD gets exposed?

  14. so a question: why did Sprott wait til after expiration to disclose he is adding (apparently in the future) when even he on BNN said the price of gold would go up Tuesday PM.

    Is it simply that he did his buying during the sell off this past week. There is an obvious answer I am missing.

  15. Meanwhile back at the ranch the nobel peace winner has just ratcheted up the terrorist war in Iran.

    US Military Ratchets Up Iran Infiltration to Prepare for War
    Escalated 'Covert Ops' Approved Across Middle East
    by Jason Ditz, May 25, 2010


    This should be in full swing when the GLD vs COMEX gold goes pop providing a nice backdrop for the declaration of martial law. I think you will end up owing on your gld short and having to wait for martial law to end before getting paid on your COMEX long.

    Best of luck.

    Why don't you try to convince your broker to accept a North Korean depositary receipt or even better still a Siberian gold producer forward to support your short.


  16. Bronto, you would be taking delivery each month of one contract of gold and shorting 1000 GLD against the 100 bar of physical. It's a hedge play in 2 respeots: 1) GLD's slowly erodes over time vs. NAV because of the way it accounts for expenses. 2) the day that GLD is exposed, your physical gold will do a moonshot and the price of GLD will be cut in half. it's a great hedge idea and would great a trade to put on on a leveraged basis.

  17. I dunno Hal. Maybe he's more interested in getting longer physical gold than he's worried about paying an extra $20/oz when he knows the price of physical gold has at least a double in it over the next 24 months...you should email him and ask him. I think Jesse said he has to have the cash in hand before he can start buying.

  18. Dave--perhaps the answer lies in when the premiums get too high? However, PHYS premiums have been up there in nosebleed territory (CEF and GTU too which tells you something about the concept of supply and demand) so just to poke this around, why not set the offering for say last Friday knowing a cap is being placed on PM?

    Maybe he does not want to become too hi profile with whoever is farting around with PM?

    And is there anybody here that does not game this cartel action ourselves in some way shape or form even as we are whining?

    I might just e mail Sprott. I had bought some PHYS when it was first issued and like the arbitrage with CEF or GTU the premium had just got too hi. I used to sell CEF and GTU ahead of a perceived new offering and get into GLD and SLV but now just too afraid of that risk.

    I guess GLD is ok if its a small part of ones PM holdings and you know the issues and its just a trade.

  19. It's a good question on the timing of his decision to float stock. Perhaps the answer is part administrative - it's very hard to perfectly time the market with a stock deal given all the bureaucratic hoops you have to jump thru - and part market - rather than worrying about getting long when gold is at $1180, maybe he's worried about not getting long here and gold may move up to $1300 quickly. Certainly it's to the benefit of existing trustholders to sell stock with a double digit premium and buy physical at spot.

    I'm excited to see the response of the premium today. We know CEF's premium tanks down close to zero when it issues more stock. But CEF is different than PHYS because of the delivery feature with PHYS. My bet would be that the PHYS premium holds up better...we'll see...

  20. I see PHYS is down 8% in pre. Let's see what the intra-day premium does - Sprott updates it on its website.

  21. Dddddddd...Dave...wwwwwwwwwhy isn't tttttthhhe USD rrrrrrrolling over????


  22. Anonymous said...

    Dddddddd...Dave...wwwwwwwwwhy isn't tttttthhhe USD rrrrrrrolling over????


    Let revisit this post come July....shall we.

  23. LOL. He reminds of the chararcter Stuttering John from the Howard Stern show in the 1990's. Stuttering John was hilarious. I'll never forget the interview, captured on video, when he asked Ted Williams if he had ever farted in the catcher's face when he was at bat. I thought Ted Williams was going to murder Stuttering John LOL.

    I still am firm on my dollar call. But it doesn't matter if I'm right or wrong, my gold holdings have appreciated nicely vs. the dollar this year...

  24. Ttttttttthe USD is ggggggggggggggggoing ppppppppppparabolic.