Tuesday, August 16, 2011

JP Morgan's Fractional Gold Scheme Is Working

The real reason JP Morgan recently decided to open and operate a Comex gold vault is now in full view. A close friend of mine in the NYC hedge fund community informed me today that hedge funds are now buying gold from JP Morgan, who turns around and "safekeeps" it for them for 15 basis points (that's .15%) on the market value of the gold being stored. My friend referred to this as "allocated" gold. On the surface it looks like the smart money "gold rush" is on.

But, in the wisdom of Shakespeare via Macbeth: "nothing is but what is not." The "what is not" part of the above business transaction is the full, 100% allocation of the gold being purchased. In other words, just as those of us who understand how the game is being played - and have pointed this out explicitly with proof from the GLD prospectus and other examples - JP Morgan is employing the traditional Wall Street/banking business model of fractional gold ownership. This is not new, as Morgan Stanley was successfully prosecuted for this same scheme several years ago when the firm was exposed for selling physical silver to high net worth clients - and "safekeeping" it for a fee.  The scheme was exposed when a few of them demanded delivery and Morgan Stanley was unable to deliver the actual silver on a timely basis.  Please use google to find the case if you are curious about the details. Only those of us intimately involved in the precious metals market at the time even bothered to care about this case.

Here's how it works. JP Morgan sells Comex gold to hedge funds, who then opt to safekeep it at JP Morgan's Comex depository for a 15 basis point fee. It makes the purchase very simple, the "storage" inexpensive and enables the hedge fund to seemingly have possession of physical gold. But in reality all the hedge fund gains is a "security interest" - or paper documentation - in the gold rather than the actual gold. Here's why:  how many of those hedge funds will actually ever ask for delivery of the gold into a private depository or go visit the vault to make sure that the gold it purchased is physically sitting in a separate, allocated bin?  JP Morgan is "banking" on the fact that none of them will. This enables JP Morgan to make an electronic ledger entry and create an account statement showing the market value of the gold purchased, but it never has to actually produce the physical bars and deliver them. This dynamic permits JP Morgan to sell gold that the bank is never held accountable for. This is exactly the scheme Morgan Stanley used with their silver fraud on a much smaller scale, that GLD and SLV use and that the Comex and the LBMA bullion banks use for their futures/forwards business.

The best part of this is that JP Morgan is "storing" the gold for substantially less than the rate charged by the private depositories in Delaware, which generically charge 50 basis points (that's .5%) for the same service. On millions of dollars of market value, this 35 basis point differential is heavy incentive for these hedge funds to take JP Morgan up on this generous storage offer. I say "storing" the gold because really what JP Morgan is doing is creating a 15 basis point income stream for itself and the only risk the bank is taking is the risk that all of the customers don't ask to have the gold delivered off-Comex at the same time.  This is something that has never occurred since the Comex started trading gold futures in the mid-1970's.  But we'll see how "generous" this offer really is when the shit hits the fan and the real scramble to take possession of the physical metal begins.  JP Morgan also gets to use the money that these funds put up to "buy" the gold.

The real beauty of what JP Morgan is doing - from a market manipulation standpoint - is the removal of tens of millions of dollars of demand for real physical metal and diverting it into this fractional gold banking scheme in order to prevent/delay an inevitable market squeeze for physical gold.  GLD serves the same manipulative purpose. It also shields the Comex, and banks like JP Morgan, from facing the potential of defaulting on contract performance, which would likely happen if even less than half of the long side of the gold and silver market demanded the delivery of their gold/silver away from the Comex and into private, independent depositories like the ones in Delaware.  It's a good bet from this perspective because very little gold has actually been demanded to be delivered off-Comex since gold futures started trading in the mid-1970's.

Back when I first started doing this sector in 2001, it was only the hardest of the hard core goldbugs who preached that the only way to truly invest in gold is to buy the actual physical metal and keep it yourself (with all the necessary safeguards, of course). They won't even invest in mining stocks. As I've watched the landscape evolve over the last 10 years with developments like I describe above, I fully understand the significance of keeping your own metal.

Most of you probably don't remember, or even know at all, that David Einhorn, the proprietor of one of the bigger NYC hedge funds, had announced in July 2009 that his fund had sold all of its GLD stock and replaced it with physical gold that the fund was taking delivery of and was safekeeping in a private storage facility. At the time Einhorn's fund was the largest holder of GLD. It was clear to me at the time that Einhorn had finally read the GLD prospectus from front to back and probably nearly shit his pants when he realized the Ponzi scheme potential created by the SEC-approved document. I doubt any of the funds buying gold from JP Morgan will be as diligent...

My fund partner actually travelled to Delaware a couple of months ago to take inventory of the gold and silver owned by our fund and safekept with a private depository in Delaware. We know where our gold is - how about you?


  1. Dear Dave,

    I use GoldMoney.

    I know you appreciate James Turk as one of the most competent specialists in PM-

    I think GoldMoney is as safe as keeping the physical in my hands.

    .... I hope so...



  2. Any comments on BullionVault? GoldMoney?
    Amongst funds, you like Sprott Physical. Any thoughts on the Central Fund of Canada and its gold and silver funds?

  3. (Quinn)

    Great work Dave.

  4. (Dave)

    Thanks Quinn. Appreciate the feedback.

    Re bullion vault: I don't know enough about it to know how it works or what prospectus terms are.

    Re Goldmoney: I trust Turk 100%. What I don't like would be having my gold not at arms-length or at least stored somewhere trustworthy in this country. If the U.S. decides to seize gold then likely most Governments will and you have a better chance of getting ahold it the closer to home it is. I don't want' paper settlement. I want my metal.

    I don't care for CEF other than to "index" the returns on a short term basis because even though it might actually have the metal, you can't get your hands on your share. That's key.

    PHYS is a much better legal structure than CEF, but you need to own enough shares to take delivery of a 400 oz. bar in order to get your hands on that gold.

    Every time you put yourself and some sort of agreement between you and your gold, you create risk.

  5. "We know where our gold is - how about you? "

    I sure do - and it isn't in any vault or fund!

    Considering the ongoing manipulation being played all around the world, I cannot understand why anyone would want to keep their gold anywhere but close to hand.

    When TSHTF, you could wind up being at the tail end of a long line of creditors no matter how confident you are of the fund or ETF that purports to hold your gold.

    Thanks for another great report, Dave.

  6. I have studied with Dave since 1998. I am a registered securities principle who takes his fiduciary responsibilities seriously. When the time comes, and when I read THEgoldenTRUTH post like this, that time may be near...

    if we need to

    I will be available to support Dave and testify to his honesty and the veracity of his research. As I have been "top broker" and "president's club" level salesman at several well known national and international firms, my post here affirms both David and his research.

    We are way past the point of pretending that the CFTC, SEC, FDIC, self-regulating trading communities like FINRA or our esteemed Federal Reserve DO ANYTHING BUT SERVE THE INTEREST OF CASINOS with HFT machines POSING AS BANKS.

    Bankrupt, insidious, traitorous INSTITUTIONS AND persons, AS THE ESTEEMED GOVERNOR FROM TEXAS HAS IMPLIED...


  7. Dave I find it incredible that after all that has been revealed and reported in the past few years about physical vs paper gold that these hedge funds still remain ignorant of the difference. Why in your opinion do you think this is so? Thanks.

  8. Opens Safe slips on very cool sun glasses, yup my metal is right here.

    My own personal sun :)

  9. (Dave)

    Dunno anonymous. Probably lazy and refusal to make the effort to follow-up on "conspiracy" theories and do proper research. Hell, there's plenty of people/investors out there who refuse to believe the Fed manipulates the stock and bond markets.

    Then again, why does John Paulson increase his stake in Wells Fargo after getting his balls blow off in BAC and C? I'm beginning to think he wasn't the real brains behind his funds decision to short the mortgage market back in 2006. He's going to get his ass kicked in WFC too.

    Then again, why does John Paulson own a big chunk of GLD even after knowing that Einhorn dumped his for physical.

    Lot of retards out there.

  10. SHTF when the exchange opens up Hunan. Either that or fund managers will have to become accustomed to the cognitive disonance of a real price for gold 30-70% higher than the LBMA price. The jewellers won't like that they can't get their biscuits at the LBMA price maybe there will be a little window onto stores for them. But what do you do about silver? The supply is virtually consumed each year?

  11. goldmoney is good, they deliver the gold on demand and keep it outside the US. ETFs are a scam. Any place that won't give me my metal, but try to settle in cash, can go to hell.

  12. Looks like the possession thing is starting to set in?

    Venezuela may try to get its gold back

    CARACAS -- Venezuela may transfer billions of dollars in cash and gold reserves held in U.S. and European banks to financial institutions in "allied" countries, opposition lawmaker Julio Montoya said today.

    Montoya, speaking on the Globovision network from the National Assembly, said the Finance Ministry wants to transfer more than $6 billion of cash reserves to countries including China, Russia, and Brazil. Of Venezuela's $18 billion in gold reserves, $11 billion is held abroad and could be transported back to Venezuela, Montoya said, citing a document he said he obtained from the ministry.

    "We think that China, Russia, and Brazil have asked Venezuela to transfer the reserves to guarantee the loans that the government has received in recent years," Montoya said. "President Hugo Chavez has not yet approved the plan."


  13. Maybe he should focus on the bubble mark to make believe assets on his company's balance sheet?...hint: see level 3 assets

    Gold Market Is a ‘Bubble Poised to Burst,’ Wells Fargo Says

    Speculative demand from investors has pushed the gold market into a “bubble that is poised to burst” after prices surged to a record this year, Wells Fargo & Co. said.

    “We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts led by Dean Junkans said in a report dated yesterday and e-mailed today.


  14. "...If the U.S. decides to seize gold then likely most Governments will..."

    Dave, I think the Swiss will not buckle; there are too many well-heeled investors from around the world who keep their investments and gold and silver there. Swiss cooperation with a U.S. confiscation drive would result in a run on, and closing of, private banks, which provide a large number of stable, well-paying jobs.

    And, Swiss banks did manage to keep their gold and silver safe from the Nazis, who were next door. I feel comfortable that the Swiss will manage to keep entrusted gold and silver safe from the reach of the U.S. Treasury.

    I keep my gold and silver at Dreyfus in Basel: one branch, in business 200 years, no trading for its own account. I went through https://www.safewealthadvisory.com/ to open my account (I tried going to private Swiss banks on my own, but they want nothing to do with Americans anymore).

    Just food for thought!

  15. Gold bad..fraud good?

    Rolling Stone Alleges Official Corruption?

    Matt goes on to detail actual cases - including Lehman and Madoff - where allegations were made, investigated and then the records intentionally destroyed in apparent contravention of the law.

    Our government wants us to "invest"? To believe in the markets? To believe that there's a cop, and that when someone does a bad thing they will be punished? When, as alleged....

    In at least one case, according to Flynn, investigators at the SEC found their desire to investigate an influential bank thwarted by senior officials in the enforcement division – whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating.

    Really? You want me to invest eh? To trust the "system", the "government" and "the rules."


  16. ...and if correct wasn't he (Levitt) a member of the Carlyle Group?
    Does GATA have a chance with this kind of corruption...?

    Wednesday, August 17, 2011
    Taibbi on SEC’s Records Destruction Reveals How Deeply Entrenched Official Corrpution Is

    Levitt was from Wall Street, he had been the chairman of the American Stock Exchange. But he has tried to wrap himself in the mantle of being the friend of the small investor and blamed the erosion of the SEC on regular threats by Congressmen like Joe Lieberman, the Senator from Hedgistan,


  17. As Chavez Pulls Venezuela's Gold From JP Morgan, Is The Great Scramble For Physical Starting?

    "The Bank of England recently received a request from the Venezuelan government about transferring the 99 tons of gold Venezuela holds in the bank back to Venezuela, said a person familiar with the matter. A spokesman from the Bank of England declined to comment whether Venezuela had any gold on deposit at the bank." That's great, but not really a gamechanger. After all the BOE should have said gold. What could well be a gamechanger is that according to an update from Bloomberg, Venezuela has gold with, you guessed it, JP Morgan, Barclays, and Bank Of Nova Scotia. As most know, JPM is one of the 5 vault banks. The fun begins if Chavez demands physical delivery of more than 10.6 tons of physical because as today's CME update of metal depository statistics, JPM only has 338,303 ounces of registered gold in storage.


  18. I know uxg holds some of their treasury in silver and gold plus I've seen this idea floated on jesse's site and by Sinclair..its a kick ass idea.

    Miner Gold Resource Corp. starts treating gold and silver as money

    Mineweb's Lawrence Williams reports today that miner Gold Resource Corp. has begun minting its own gold and silver coins, is holding some of its cash balance in metal, and aims to pay dividends in metal as well. (There's another name to scratch off the Fed's Christmas party list.) Williams' story is headlined "Gold Miner Minting Its Own Gold and Silver Coins, Looking to Pay Dividends in Kind" and you can find it at Mineweb here:

    As production increases, the idea is to hold an increasing portion of its assets in physical gold and silver and possibly offer shareholders holding certain minimum positions the ability to someday receive their dividends in-kind.

    Commenting on this move, the company's President, Jason Reid, said "Holding physical gold and silver in our treasury provides an excellent means of diversification in light of today's world economic conditions and not only provides that diversification to shareholders but underscores Gold Resource Corporation's commitment to precious metals.. Minting Gold Resource Corporation's Double Eagle precious metal coins, currently underway, not only marks the next Company milestone but takes a large step towards potentially offering our shareholders a future in-kind dividend. With the unprecedented printing of fiat currencies around the world and the potential negative impact of governmental policies of various nations around the globe,

    http://gata.org/node/10285 plus I was reading an email off another site and thought this would help people understand why $ does not flow into gold/-miner's the way you would think...it's because people have their anti-gold pro-establishment software allocate money for them...

    "Got a friend in France who is a financial advisor. It told me today: "Gold is not considered as an asset class..." The software he uses to achieve a good balanced portfolio tells him to buy bonds delivering at best sub inflation yield before taxes."

    ...garbage in, garbage out!

  19. Either with Goldmoney or Bullion vault you don't have full ownership, it's fractionnal ownership unless you buy a big gold or silver bar. So basically you don't own it"s not 100% ownership which is a big problem in my view

    Same for delivery, unless you have a big bar (i believe something close to 12,5kg) you can't take delivery or you can but have to pay an extra commission

    Both are more appropriated for trading (based on physical stocks) in my view, than for 100% security in case of economic collapse

    Better check solutions like www.goldswitzerland.com or www.goldbroker.com depending on the size you want to invest

  20. Bullion Vault is owned by the ROTHCHILDS. Under NO circumstances should allow them to hold anything!

  21. its the only gold which will save our economy and crisis

  22. I enjoy reading your post. Though for me, it's better if you have your gold physically.

    sell silver

  23. This article is great, and so informative. My husband has some precious metal coins that we have been thinking about selling. However, we'd like to get the best amount for them possible. We've had them stored away for a really long time, but we're just really sick of having them in the house and would like them to go.

  24. This article is great, and so informative..

    US Gold Bureau