Thursday, June 6, 2013

The Comex Warehouse Stock Report Fraud Clarified

I realized after assessing some comments posted on my Tuesday blog post about the fraud going on at the Comex that I did not articulate a key point about the credibility of bank financial reporting.  It seems that there is still a contingency of people who are willing to believe that if a bank issues an accounting report, it must be valid.

Let me preface this clarification post by saying that given the long laundry list of charged and prosecuted high profile fraud cases against all of the big banks, I just assumed that everyone understood that banks can not be trusted at all.  Here's my Golden Rule:  banks can not be trusted at all.  Fool me once, shame on you;  fool me twice, shame on me; fool me three times, I'm a moron.  Got it?

With that in mind let me clarify how the Comex warehouse gold and silver stock reports are produced.  Each bank that operates a Comex vault is responsible for keeping and maintaining all accounting records in connection with operating their vault.  This means that all of the reports and data that the CME uses to produce its warehouse stock reports come from the banks themselves.  They are paper accounting records the bank produces and sends to the bean counters at the CME.  There is no actual independent audit of the reports OR of the bars themselves that are reported to be held in each bank vault.  Everything the CME publishes is based on what is reported from the banks.  Do you still trust these reports?  If you do, re-read my Golden Rule.

Please DO NOT CONFUSE the reliability of paper records and the reliability of any bank not acting fraudulently with regard to those paper claims with actual physical gold that is sitting in an allocated account and bars for which the rightful owner has legal entitlement. Paper is NOT to be trusted - in any form.

A large portion of the gold that is being reported by the Comex vault operators is likely not really there to be reported. Now, "not being there" could well mean that there is a lease-claim attached to it or some other form of hypothecation. Just because bars are sitting physically in "registered" or "eligible" accounts does not mean that the  intended owner of that bar has a legal entitlement to that bar.

Review the laws connected with short-selling and hypothecation. When an asset is sold short or  hypothecated, the original holder of that asset unknowingly loses legal title to it.  The fact that the legal department at the CME now requires a disclaimer about the bank reports that are used to produce the Comex warehouse gold and silver stock should tell us all we need to know about the nature of those bank reports, especially when considered in the context of all of the other fraud that banks have been involved in over the last couple decades. 

Now, I also believe - per the recent 35% drain of gold inventory from the Comex - that a lot of the bars have been physically removed upon demand by entitled owners. By "entitled," I mean the party who possess the legal title to the bars. The disclaimer was added to the inventory report as an attempt to exonerate the CME from the legal liability of fraudulent reporting by the vault operators, who are responsible for the record-keeping and accounting and reporting of the bar inventory that is supposed to be in their vaults.  Moreover, a high percentage of the gold that remains in the Comex vaults has likely been leased out or hypothecated.  In other words, the financial reports from the banks do not legally present the actual amount of gold or silver in Comex vaults that can be immediately removed upon demand by the original intended owner.  Think this is far-fetched?  Explain why the Bundesbank demanded some of Germany's gold to be shipped back to Germany and the Fed requires 7 years to ship back just 300 tonnes of Germany's 1800 tonnes supposedly sitting in the Fed's NY vault? (Please note that Venezuela was able to have 200 tonnes of its gold shipped back to Venezuela within about 4 months).

This is the same kind of situation with GLD. Same wine, different bottle.

Now as far as Comex bar quality standards, not only am I well aware of the criterion and rules, but we have taken delivery of both gold and silver bars FROM the Comex. I am experienced in the entire process from start to finish.

This is also why I DO NOT trust the Comex reports. Back in April 2010, we took delivery and were given notice by HSBC for several silver bars. BY THE RULES, HSBC was required to deliver the bars to our possession by April 30, the last delivery day. They are given 3 days of leeway. Not only did we NOT receive the bars within the legal time frame, it took 7 full weeks for HSBC to make good on the delivery.  If our fund was a lot bigger and we could have reasonably afforded the litigation, we would have gone after HSBC for breach and damages.

Moreover, during 2010, HSBC changed its delivery policy for off-Comex deliveries, making it more cumbersome and more expensive to get bars delivered to your possession from their vault.

Need I remind you that HSBC has recently been charged in several fraudulent banking activities AND convicted on a couple. They are connected to the recent HKMex gold scandal in Honk Kong, as well.

This clarification is to explain exactly why bank-produced paper reports at the Comex are more than likely riddled with fraud and it clarifies the difference between owning physical gold in your own possession vs. owning a paper claim on gold sitting somewhere else and a claim which can be hypothecated such that you actually lose legal entitlement to that underlying asset. The Comex is just as fraudulent as Enron, Refco, Amaranth, AIG, etc.  Capito?


  1. I have total faith in governments around the world. Just look at India imposing tariffs on gold. The finance minister begging the people to stop buying and directing dealers to stop selling gold coins. My faith is that the governments around the world will force the price of gold to rise. When you try to stop demand, the demand becomes greater. Of course greater demand creates price increases. Here is the latest article about India.

    1. It seems pretty clear that the wheels are coming off the gold trade around the world. Will the nominal price of Au "go dark" as Jim Willie and others have suggested when exchanges such as the COMEX and LBMA finally break down and collapse under the weight of a tsunami of lawsuits initiated by defrauded paper investors? Apparently true price discovery could entail such a scenario. As to the Indian fiasco, what is being increasingly obvious is that the respective fiatscos racing pell mell to the bottom in chaotic mutual devaluations is going to eventually crash both bond and "stawks" leaving only real assets standing. In the meantime, it appears that those of us who own gold have become national security risks and/or enemies of the state. With all these cascading revelations in both the political and economic spheres out in front of what is expected to be a dismal NFP tomorrow, it might well nigh be time to buckle up for a real wild ride tomorrow and in the following weeks.Yeehaw!

  2. "When certain countries must protect their economies to survive, going looking for tax revenues in tax havens and, at the same time, paradoxically let their banks use unorthodox methods to avoid bankruptcy, others have chosen to bet on gold.

    Whilst paper gold saw a scary crash in mid-April, the demand for physical gold has never been as high, which confirms the complete decoupling between the paper gold and physical gold markets. What happens when everyone realises that paper gold certificates have no physical counterpart? When the title document to an ingot can’t be honoured? The paper in question has no value. We must therefore expect more volatility in the paper gold price. This is why some brokers won’t allow any leverage on paper gold positions. This decoupling also shows that major problems are ahead because confidence has now been shaken.

    However, physical gold itself has its best days ahead. China has clearly understood this and buys gold en masse."

  3. Well said Dave. You cannot judge a vault by it's polished cover.

    The global gold shell game is moving so fast. I had just finished reading Jim Willie's newest when this popped out at me:

    And between vacations, Oblama just can't catch a break these days. Regarding official correspondence using secret email accounts:

  4. Dr. Paul Craig Roberts on gold and gangster capitalism

    Episode 129: Andy Duncan has the pleasure to interview former Assistant Secretary of the Treasury, Dr. Paul Craig Roberts.

    Andy gets straight to it and asks Dr. Roberts about his view on a manipulated price of gold. Dr. Roberts elaborates on how he sees what has occurred since early April, whom was behind it and the reasons why.

    Dr. Roberts sees inherent problems with the US dollar system and expresses grave concerns about the systematic fragility due to excess money printing around the world.

    Next Andy poses a question as to what could be done to get things back on track utilising the US political system, which allows Dr. Roberts to express his concerns with the current state of the nation before answering an interesting question regarding his recent book "The Failure of Laissez Faire Capitalism and Economic Dissolution of the West".

    Dr. Roberts poses some important questions about libertarian ideals versus human nature before offering some advice for listeners regarding the future.

  5. That would make sense Germany's gold leased out to Deutsche Bank for seven years. So no gold for Germany and because it's Deutsche Bank the German politicians can't squeak out.

    If there is a bail in do the gold leases get bailed in. Interesting the derivatives have priority over everything in the new bail out rules to protect the inner circle everything else must take losses to support the derivative gains. Does this include gold leases?

  6. Oh, shit, Dave. You are scaring me...I've just got married and my wife works for JP Morgan as a secretary. Shall I dump her at once? But she is really pretty.

  7. With the public release of the O'jobs report tomorrow, is there any doubt with what we saw today with the dollar taking a giant crap that there is also an official 'A-List' pre-release for this data too?
    Why should it be any different.
    terminally corrupt bullsh!t kleptocracy.

  8. I realized after assessing some comments posted on my Tuesday blog post about the fraud going on at the Comex that I did not articulate a key point about the credibility of bank financial reporting. It seems that there is still a contingency of people who are willing to believe that if a bank issues an accounting report, it must be valid. survival

  9. Please Dave make them stop. I'm all out of Dramamine.

  10. How long before they start shipping out adulterated bars? Has anybody assayed their metal when they've finally extracted it from a vault?

  11. thanks Dave
    i have learned something from your share