When it becomes widely known that all of the people who think they own gold in fact don’t own gold, that it’s been hypothecated and re-hypothecated so many times that there are 100 claims for every single ounce of physical gold, that is when the prices of gold and silver will really go berserk to the upside, and at that point the shorts will have serious problems - John Embry on King World NewsThe press pounced all over the massive smack down on gold/silver last week. Headlines were thrust in everyone's face. Gold dropped $200 dollars in two days and the media wanted to make sure everyone knew about it. Well, guess what? As I write this, gold has gained back over $100 that drop. But is this being broadcast in flashing marquee lights the way the sell-off was? Of course not.
In the aftermath of that sell down, a lot of facts have come to light. But first, the bounce we're seeing is illustrative of the fact that you need to hold on tight in this sector in order to truly benefit from the wealth benefits of investing in physical gold/silver and good mining stocks. As an example, since late 1999, the mining stocks have suffered two periods in which the mining stocks had severe sell-offs of this magnitude - late 1999 to early 2001 and mid-2008 - Oct 2008 - in response to large manipulated drops in the metals. But after the sell-off ended, it literally took less than 3 months for the HUI/XAU indexes to double from their bottom and then head to new all-time highs a few years after that. I feel bad for anyone who was shaken out this time around, but I guarantee you that Wall Street does not harbor the same sympathies...
At any rate, what's been exposed from this market price correction is the fact that 1) more people now understand why it is important to own physical gold and silver, as evidenced by the fact that the U.S. mint quickly sold out of silver eagles and is on a track to sell a record monthly amount of gold eagles; and 2) there is a serious problem globally with the amount of gold that is available for physical delivery to the buyers who are demanding actual delivery.
I thought I would go over some statistics from the Comex to illustrate why we know this is the case. The total gold held on the Comex is 8.5mm ozs, of which 6.3mm is not available for delivery - i.e. it's investor gold being held in Comex vaults. Stunningly, over 2 million ounces of gold - roughly 60 tonnes - has been removed from the Comex vaults in the last three months. Most of it has come from investor accounts. You have to wonder why all of a sudden big investors have removed their gold from the Comex.
Investor gold is not "eligible" for delivery on futures contracts. The gold that can be delivered is sitting in "registered"accounts. The amount of registered gold currently is 2.28 million ozs. The total open interest in futures contracts for gold is 416k contracts, or contracts representing 41.6 million ozs. Essentially there's 18x more paper gold in the form of futures open interest than there is gold that can be delivered. The June front month for gold has 255k open contracts, or 25.5mm ozs open. That's 11x the amount of gold available for delivery. If even 10% of June gold contract longs held for delivery, the Comex would be completely wiped out of its gold and would have to default on the delivery of some. But the Comex has a "force majeur" clause in its contract that allows cash settlement. We won't see that happen in the near future most likely, but it will eventually happen.
In silver the total open interest represents 786.3 million ozs. That's about 3/4 of global annual production, which includes 257mm ozs of recycled silver. So, the total open interest on the Comex is about equal the total annual amount of silver mined globally. There's 39mm ozs of silver available for delivery. In other words the amount of paper silver on the Comex is 20x the amount of silver the Comex has for delivery.
I think that explains why big investors are removing their gold from the Comex. The Comex is one giant Ponzi scheme. Anyone who is going to rely on the Comex as a source of silver, either industrial or investment, is going to be left holding a giant, empty paper bag. That explains why we are seeing a such frenetic activity - not just in this country but globally - by investors looking to get their hands on gold/silver that can be physically delivered into their possession. A long-time colleague of mine prepared this caption, which sums up the situation perfectly:
As the severity of the physical gold/silver shortage vs. the paper claims issued (futures, LBMA forwards, OTC derivatives and Central Bank leases and swaps) against that actual amount physically available - as demonstrated by my Comex example, which is only part of the global problem - the price of gold and silver is going to start to go parabolic. Although most of you are not aware, but from 1974-1976, the price of gold dropped 47%. But from 1976 to 1980 the price of gold went up 800%. Given what we know about the massive, unsolvable global financial problems, and the enormous amount of money that will have to be printed to keep the system from collapsing outright, it's a good bet the next extended move in the metals will dwarf the move gold made in the late 1970's.
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I'm curious. Has COMEX ever defaulted? Corn? Soybeans?
ReplyDeleteSure, they technically defaulted in 1980 when they feared that the Hunts were going to demand delivery of silver. You can use google to learn the history of that situation.
DeleteThey wouldn't have a force majeur clause in the contracts if the risk of default was zero. A few years ago they added the ability to settle contracts in GLD/SLV shares as well.
It's one giant Ponzi Scheme
Once physical is totally unavailable to the average investor, do they then FINALLY turn to investing in the miners?
ReplyDeleteYep. but they will be nationalised.
DeleteHarvey, you keep saying:
ReplyDelete"The following is very scary!!!.... The comex is slowly losing all of its gold."
First of all, I have a problem with adults saying things are "scary," but beyond that, it's not really scary, it's actually exciting, and in fact, what has been predicted for years. So could you stop calling it "very scary?"
Dave, I always wonder why gold and silver suffered a long bear market in the 1980s and 1990s. We also had surging national debt and inflation, especially in the 1980s. But gold and silver just couldn't go up. Is it because of the manipulation of Gold Pool No.2 or something else?
ReplyDeleteReal interest rates were positive, probably until the late 1990's, U.S. had that strong dollar policy, even though debt and M3 were growing, the affect of money printing and debt issuance was positive on nominal GDP and it reinforced "confidence" in the dollar, faith in the Fed was probably at an all-time high AND...first and foremost...
DeleteEvery Central Bank was selling/leasing their gold, especially the European banks ahead of the intro of the euro and the Federal Reserve had an implicit policy of keeping a lid on the price of gold (see Greenspan's testimony to Congress in which he stated: "the Fed stands ready to lease gold in any quantity necessary to contain the price of gold" - you find it on youtube).
The European banks had been dumping so much gold that the Washington Agreement was enacted in order to slow down their sales. Remember the BOE dumped 1/2 its gold in 2000 but announced the dumpage in 1999. Finally, big mining companies like Barrick were forward selling their production in VAST quantities.
Dave,
ReplyDeleteGood laydown. Thanks! This is good too:
Keiser Report: Stalinism of NYSE (E436)
Published on Apr 25, 2013
In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the season for CRASH as algos reading Twitter cause a hack crash in New York; ghost traders in the shadow banking system cause gold 'slaughters' in the precious metals markets and Joe Weisenthal seeks smoke signals from the Pope of Fraud, Ben Bernanke. In the second half of the show Max talks to Andrew Maguire about precious metals markets, manipulation and failures to deliver.
https://www.youtube.com/watch?v=VVdHsAWDrAk&feature=youtube_gdata_player
Likely if it ever happens it'll be a non-event, since they just pay out cash anyway.
ReplyDeleteMost don't know of the 2006 LME nickel contract default:
http://silverdoctors.blogspot.ca/2011/06/2006-nickel-lme-default-compared-to.html
This guy says market will bifurcate, with the paper contracts actually collapsing to near zero in a default.
http://www.youtube.com/watch?v=v4P9FsprG1k
CEO of Barrick is from Goldman Sachs. The ponzi is so much more intense than your wildest dreams. Stack and stack and then stack and the DUCK!!!
ReplyDeleteEverything Is Rigged: The Biggest Price-Fixing Scandal Ever
ReplyDeleteThe Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.
"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."
Read more: http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425#ixzz2RZTGBVbu
ERIC SPROTT on Gold
ReplyDeletehttp://www.johnbudden.com/the-latest/audio/eric-sprott-2.html
While Wronged Homeowners Got $300 Apiece in Foreclosure Settlement, Consultants Who Helped Protect Banks Got $2 Billion
ReplyDeleteThe obscene greed-and-arrogance stories emanating from Wall Street are piling up so fast, it's getting hard to keep up. This one is from last week, but I missed it – it's about the foreclosure/robo-signing settlement that was concluded earlier this year.
The upshot of this story is that in advance of that notorious settlement, the government ordered banks to hire "independent" consultants to examine their loan files to see just exactly how corrupt they were.
While Wronged Homeowners Got $300 Apiece in Foreclosure Settlement, Consultants Who Helped Protect Banks Got $2 Billion
Now it comes out that not only were these consultants not so independent, not only did they very likely skew the numbers seriously in favor of the banks, and not only were these few consultants paid over $2 billion (over 20 percent of the entire settlement amount) while the average homeowner only received $300 in the deal – in addition to all of that, it appears that federal regulators will not turn over the evidence of impropriety they discovered during these reviews to homeowners who may want to sue the banks.
In other words, the government not only ordered the banks to hire consultants who may have gamed the foreclosure settlement in favor of the banks, but the regulators themselves are hiding the information from the public in order to shield the banks from further lawsuits.
So how did Chase come out so squeaky clean? Well, it seems they developed quite a rapport with the government-mandated consultants who were hired to review their loan files. This is from that WSJ report:
Two Deloitte employees who performed the review for J.P. Morgan in a Brooklyn office building said workers were encouraged by supervisors to examine pools of loans they knew would be less time-consuming or error-prone as they tried to hit loan quotas.
One of these employees said that at an event last year known in the Brooklyn office as "March Madness," Deloitte officials encouraged reviewers to avoid problematic loans originated by EMC Mortgage, a troubled mortgage lender J.P. Morgan acquired in 2008.
Read more: http://www.rollingstone.com/politics/blogs/taibblog/while-wronged-homeowners-got-300-apiece-in-foreclosure-settlement-consultants-who-helped-protect-banks-got-2-billion-20130426#ixzz2RcH7jZco
They're screwing everyone with impunity.
Sinclair and others are continually talking about holding gold in private vaults, etc. outside the "banking system". Who's to say that when this whole shit show really starts to come undone that all these vaults won't be seized/appropriated all over the world? The contents of mints (RCM, USM, etc.) will become sole property of government over night. I wonder if Sprott and people like him have thought of that or if he even gives a toss?
ReplyDeleteA little late in answering, however, Sprott and like minded might ad Tight "Armed Security" to keep those Private "Vaults" in the hands of the private, rather than allowing more Crooked Government/Bankster Mafia Criminals to loot it, by bandits or written BS! Do as they do--Ad Armed Security 24/7 and move it should word come the Shit Mafia Gov and Banksters intend to loot it, again, by their hired guns or Written Thievery. I think this time a round, the people will NOT stand for Any Government/Banker looting of their private Vaults. Not this time--they KNOW too much these days...in fact, when the whole house of cards come tumbling down--I seriously doubt banksters will even be found for the people to tar and feather! lol
DeleteFor everyone think its not possible to stock gold, i know there is in paris a provider buy allot of me (im am gold refiner in north germany with around 250 kilo a month quite big as well) im not remembering the name at the moment since im not in the billing section of my company. what i expect is a low for at least a year now while then problems will incrase.......all depend on the world situation as well. another war could twist the paper, if its in a oil rich area even more. privatly im holding 50% and sold 50% early in this negative trent in expectation to re-buy lower than i buyed that bars of last 1.5 years .
ReplyDeleteNext, recall how Mr. Zames recently rose to prominence at another venue: JPMorgan itself. He took over for former CIO head Ina Drew in the aftermath of the biggest government backstopped prop-trading desk implosion in history. That's ok though, Matt was well-versed in spectacular blow ups. After all he worked at LTCM previously.
ReplyDeleteAs reported yesterday, here it is officially:
JPMORGAN SAYS INA DREW TO RETIRE; MATT ZAMES NAMED NEW CIO
JPMORGAN SAYS DANIEL TO STAY CEO OF EUROPE/MIDEAST/AFRICA
JPMORGAN SAYS CAVANAGH TO LEAD TEAM OVERSEEING RESPONSE TO LOSS
JPMORGAN CHASE SAYS ZAMES NAMED NEW CIO
Good bye Ina: we are sure that you will voluntarily claw back your $15 million bonus from 2011 one day ahead of the JPM shareholder meeting.
Now... Matt Zames... Matt Zames... where have we heard that name before... OH YES: he just happens to be the Chairman of the Treasury Borrowing Advisory Committee, aka the TBAC, aka the Superommittee that Really Runs America. The Matt Zames who... "previously worked at hedge fund Long-Term Capital Management LP, may have benefited as the collapse of Lehman Brothers Holdings Inc. and JPMorgan’s takeover of Bear Stearns Cos. left companies and hedge funds with fewer trading partners in the private derivatives markets."
Finally, recall from one of our FleeceBook entries, that Mr. Zames, who subsequently was promoted to co-COO at JP Morgan, is quite fascinating in every possible way.
In other words, it is Mr. Zames whose dual role of continuing to be on the TBAC on one hand, and indirectly determining how many excess reserves will be created by the Fed as a result of excess Treasury monetization - an issue he has direct input on in his capacity as quasi public servant, to then flip, and on the other hand, use said reserves, transformed via repo or (ab)used directly, as prop trading dry powder in his private sector capacity as CIO head, and proceed to invest as he sees fit. All of this, of course, will be done with absolute stealth: after all has JPM released anything more than broad strokes details of what precisely went so wrong at the JPM CIO aside from a $200 billion notional CDS position going horribly wrong? Because, naturally, the regulators are complicit on this scheme too.
It is precisely his role at the proverbial core of the US ponzi scheme, where he takes public funds, indirectly, with one hand, and proceeds to invest it for private benefit, with the other, that is what makes Mr. Zames quite so fascinating.
http://www.zerohedge.com/news/2013-04-28/chief-advisor-us-treasury-set-become-jpmorgans-second-most-important-man
Neil Macdonald: The 'monarchs of money' and the war on savers
ReplyDeletePower Shift: First in a series on the rise of the central bankers and the global imposition of cheap credit
Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.
These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.
They are the world's central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert.
The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.
In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.
The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air.
There is an economic term for this: quantitative easing. More colloquially, it's called printing money.
http://www.cbc.ca/news/world/story/2013/04/26/f-rfa-macdonald-power-shift-savers.html