Thursday, April 18, 2013

The Law Of Unintended Consequences

Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.  -  Bernard M. Baruch
Something most unusual happened yesterday - in the aftermath of the one of the most brutal one-day price drops in gold that I've ever witnessed  -  a paper/futures driven sell-off, mind you - U.S. retail buyers bought 63,500 ozs of gold American eagles from the U.S. mint.  This is by far a one-day record.   This is nearly 2 tonnes of gold purchased in one day by retail buyers.  A staggering amount.  That's 20% of the amount the falsely-reported gold sale from the Cyprus Central Bank.   What's most stunning about this is that historically, gold/silver buyers have scattered like frightened deer when gold undergoes a big price drop.  But this time was different.

While the widely reported price drop in gold has made great media "shock and awe" headlines, quietly the nationwide coin dealer supply of 1 oz. silver eagles and maple leafs has been rapidly depleted.  Dealers two weeks ago were selling silver eagles for spot +$2.50 +/-.  Yesterday I spoke with a very large owner of silver  eagle mint boxes (500 ozs/box) who was offered (bid) spot +$3.75 by two large coin dealers for everything he owned.

In fact, if you can find dealers with silver eagles to offer, you'll pay spot + $7.50-8.50 plus shipping.  So, in fact, despite the big sell-off in the price silver - again, driven by the paper/futures Comex - the true price of 1 oz. of real, physical silver that gets delivered to your possession has not declined at all (large buyers might be able to find silver eagles in quantity at more like spot +$4.50-5.00). 

If you see offers from your bank or insurance company-employed financial advisor to invest in an account that has gold/silver in it, run the other way.  ABN/Amro - the large Dutch bank - recently defaulted on investors who invested in a gold "account" and who wanted delivery of that gold:   LINK  If you had invested in that account and called to have the account liquidated and the gold sent to you, you got a letter back with a check in it.  This is exactly what gold market professionals have been warning about for years.  Coming soon to a fractional, paper precious metals account near you.

And don't think that can't happen in this country - like many Americans are delusionally wont to believe.  But it already has.  Morgan Stanley settled a big lawsuit several years ago because it defaulted on a silver investment account product.  When enough investors went to redeem their account and have the silver delivered, Morgan Stanley didn't have the silver.  The account was a Ponzi scheme:
The lawsuit, filed in August 2005, alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security, according to the complaint.  LINK
The unintended consequence of all this banking system and corporate fraud that is going unprosecuted by the Obama Administration - contrary to what he promised to do in 2008 when he was campaigning - is that a larger cross-section of the American public are starting to catch on to the game being played by the banking and political elite.  Yesterday's gold sales by the mint is proof.

A paper currency that has no wealth-backing in the form of real, substantiated economic growth - or stored wealth created in the form of gold and silver (see Bernard Baruch's quote above) - is illegitimate.  Any Government that issues and prints such a currency is illegitimate.  The U.S. Government is illegitimate and the massive and growing amount of unpayable Treasury debt and unpayable future liabilities is the proof.

That more Americans are understanding the necessity of converting illegitimate paper dollars into physical gold and silver - especially when given the gift of a big price correction - is the unintended consequence of the past week's attempt to discredit the legitimacy of gold and silver by the banking/political elite.


  1. Money lies disguise banking truths
    By Lars Schall

    LS: What’s the intention of the World Economics Association, which emerged from the Post-Autistic Economic movement?

    NH: Our ultimate goal is to replace the intellectual mono-culture that currently rules economics by something which we call complementary pluralism. We want different theories to be accepted as different and complementary ways of looking at the social and economic reality. That is where physics has arrived. Think of quantum physics and relativity theory. They are hardly compatible, but they are both respected theories and they explain different aspects of nature very successfully. There is no good reason why economics should not achieve something similar.

    LS: More personally, what drives you in general in your work as a journalist and book author?

    NH: I am a political person and economics is a very important political science. A lot of politics is done by misinforming people about economics and pretending that it is an objective, apolitical science. That bugs me.

    In our book, we deal with the power to abuse informational advantage, the power to charge customers more than it costs you to produce, the power to create money out of nothing, the power to change the institutional setting to your advantage, the power of the corporate elite to set their own pay and the power of rating agencies to issue self-fulfilling prophecies and several more.

    LS: Why is the power factor for the most part in economics completely ignored?

    NH: The powerful need to legitimize their power. If they can’t, the next best thing is to have it become invisible. That is what economists are doing for them. They pretend that workers always have a next best alternative to their current job, which is almost as good. Thus, no power for the employer. They pretend that something close to perfect competition is the norm. Thus, no market-power of companies. They claim that money is not important. They compare it to a veil over what is going on in the real economy. Thus, the institutions that make money and control the flow of money have no power.

    LS: It is noticeable that you have no problems to identify yourself in public as a "conspiracy theorist''. Is it sometimes inevitable to be a "conspiracy theorist" when it comes to the analysis of power in the world?

    NH: I have to admit that I enjoy flirting with the term because it is one of these taboos used to shut critics down. In truth of the fact, there are no conspiracy theories in our book Economists and the Powerful. The Bilderberg group is not even mentioned. It is all about incentives for economists to conform with the interests of the elites, which do not need active conspiracies do their trick over time.

    1. Jeff Sachs: The Pathological Environment on Wall Street (and in Washington, London, and Berlin)

      "But there is a sort of 'Ok guys, you're mad, but how are you going to stop me' mentality at the top."

      Robert Johnson, Audacious Oligarchy

      Thanks to Bill Still for making this available on the web, and thanks to several people who sent it to me.

      It is remarkably similar to something I wrote earlier today, but I am certainly not the only one. Reform and the lack thereof is the 800 pound gorilla in the room.

      Sachs certainly livened up a clubby conference of complacent financerati in the Pennsylvania Room at the Federal Reserve Bank of Philadelphia. The topic is "Fixing the Banking System for Good." It is not so much what Jeff Sachs said alone, but also how out of touch with reality that group of people may be.
      There is a strong push for change, and an even greater resistance from those whose paychecks and allegiances require them to oppose it. This generally makes for an interesting episode in history.

      Listen to this carefully.

  2. It's good to have so many recognize, we have moved away from technical trading to more of a physical market, less determined by algos and charts and formulas.
    Supply, demand, tradition and geopolitics constitute today's gold barometer as enhanced fundamentals outshine any other asset and reflect a better future. What better time to have mine supply eroded, repressed and stereotyped? When has there ever been unleashed so much global government largesse and debauchery? How often through history have populations been so distracted and inured to systemic decay and procrastination?
    Human culture, economies and rebuilding opportunities, all hang in the balance, and as gold balances exchanges after defining on WHAT basis by it's benchmark, reference standarding, the natural progression of events unfolds.

  3. Dave,

    do you think the paper price will have to go up to match the physical market or will it just decouple.. i hold some certs at TD canada should i redeem for the physical?

    1. paper market will go up and eventually default. redeem for physical asap. you can never know when TD pulls and ABM/Amro. I bet they don't have physical to cover all the certs. Redeem before a lot more people figure out the fraud

  4. Those 2 tons purchased were just from the US Mint. I wonder how many tons were purchased worldwide.

  5. The possible failure to deliver because of an Act of God explains everything. Really, it is quite ruthless and brilliant. They dumped the price to squeeze every physical ounce they could get and lower the payoff.

    I have often wondered, how will they get out of these short obligations? With the Act of God excuse, they will have the legal right to settle all futures with Paper. And so they will print those dollars right up and hand them over. It's will be like an all you can eat pancake deal. We can always make more! That will completely remove the short obligation to produce the physical because the Act of God will obviously cause the price to go up, which they absolutely can not be held responsible. And surely they had nothing to do with it.

    Hyper Inflation. Here we come.

  6. Precious Metals Update with Eric Sprott

    “I’ve always imagined that gold would hit a new high by the end of this year, over $1,900, so that is what I think…I think [gold] will end up for the year, just like in 2008 … because in a financial crisis, you don’t want your money in a bank.”

  7. Dave,

    You may be misinterpreting yesterday's large gold eagle sale a bit. Usually when we see a big jump in gold eagle sales it's a good probability that it was caused by the Permanent Fund (PRPFX) in there buying. The $17 billion fund holds 20% of their assets in gold and unlike most institutional funds they don't put all their golden eggs in one basket (IE: the basket belonging to Bankster Easter Bunny on the Comex). Two thirds of their gold is in the form of one ounce coins, supposedly 50/50 Eagles/Maples. Apparently the Permanent Fund management is a believer in the saying: "If you don't hold it, you don't own it". They currently hold what has got to be the world's largest hoard of one ounce gold coins with 1.33 million coins -- 2,660 gold monster boxes! At times in the past they've pick up as many as 100,000 ounces in a quarter. Generally that's to re-balance the portfolio, and after the recent price smash that portfolio is probably way out of balance.

    Their silver allocation is 5% and unfortunately it's basically all stored in Comex vaults (27 million oz), although they do have 379 $1000 bags of 90% junk coins.


    1. Can you verify that. Either way it's indicative of individual retail cash for gold demand.

    2. I have no idea if the Permanent Fund was actually buying, just that it is a good probability with these kind of sales numbers. Over the last two quarters of 2012, for the first time I'd seen, they'd actually sold 70,000 coins back into the market, thus in effect depressing at times the sales from the mint. Between June and October of 2012 the price of gold was rising and without a lot of new money coming into the fund, they re-balanced by selling some gold. They are definitely a big enough player to have an effect on the gold eagle market. It's just something to keep in the back of your mind. See page 6.

  8. Depending on how you read it some years ago now the BIS reported between 5-12% of the previously reported $1.4 quadrillion derivatives had a silver leg. Silver could blow up the world's banking system several times over. SLV is no longer being depleted during these take downs so that means their is nothing in it. They should default silver now to clear out the rainbows and cash out the SLV holders. If they can get it down below $20 so much the better. I had a discussion in 2008 with a very senior retiring UBS risk management guy and he said they should have ringed out then. There are two elements to this one political and the other managing the rubes. By mixing them up they risk the whole system.

    To deal with rubes the Bingham Canyon mine has already called a force majeure in copper which could easily expand that to the whole silver market. This would allow them to cash out the SLV and the rainbow legs. There is no political element to silver.

    As far as gold is concerned this would require a war as the BIS must authorise the seizing and cashing out of sovereign accounts.

    This is why I think Silverdoctors is right and default in silver is close. It makes sense to do it now and do gold later as building a war takes time.

  9. The C.B.C special will open the pandorian box of Banksters manipulation a little further.

  10. ABN Amro did not default. They stopped offering gold and silver accounts.
    The people holding the account were given about three weeks time to either close their account, including the option to take delivery, or maintain the accounts and have them transferred to an ETF like construction with a third party.

    1. You better check your facts. They defaulted. They changed the rules on the account. That's a default. The copy of the letter I ran through google translates stated, to paraphrase, as of April 1 we no longer give you gold when you cash out.

      Who cares if they transfer your account to an ETF? ETF's mostly don't let you redeem your shares for gold unless you own a minimum amount.

      Bottom line: they closed down the physical delivery of the account because 1) it was most likely fractional in nature 2) they feared an unusually high amount of physical conversion requests 3) because they knew the take-down was coming and would stimulate physical delivery purchases and shortages globally.

      Wake up and tune in to reality, Rien.

    2. The Fed is diving from the frying pan into the fire.

    3. People WERE NOT given the option to take delivery of physical. Wake TF up Rien.

  11. Dave,
    How close do you think we are to a spot bottom for buying more physical
    Thanks for all you do,

    1. Don't try to buy at the bottom and sell at the top. It can't be done except by liars.

      Bernard Baruch

      Wish I knew - If I could pick and time bottoms accurately, I would be trading just my own account and not talk to anyone about my strategy from the Caribbean.

      All indications seem to indicate we are bottoming.

  12. Dave,
    What is your take on Monex?

    1. Crooks
      Don't want to go into how I know, but they are sleazy and not to be trusted

    2. Help, Dave.
      Re Monex, is there anyway I can privately talk/communicate with you re advice as to my present situation/exposure with Monex?
      Please advise.

    3. You can contact me at

      Regardless of your situation, my advice is to close out whatever business you do with Monex and move on. They are total scum.

  13. Dave, how long do you think the divergence between physical demand and artificially low price can last? Since the beginning of the year, GLD has lost 200 tonnes of gold. At this rate, the GLD inventory may touch 0 next year.

  14. "After the deadline for this GEAB number last Saturday evening, our team has closely watched the unusual coincidence of all the market indicators’ collapsing: European, American and Asian stock exchanges, raw materials… and even and especially gold. Unfortunately we don’t have time to expand on this event but, anyway, we interpret it in line with everything we have written in this number. But where this number describes things still rather calmly, as still to come, we wonder whether these premises are not those of the collapse which we anticipated for the March to June 2013 period. Western austerity (American sequestration + the treatment of European austerity) which Chinese growth has ended up feeling with these poor numbers announced today has caused price collapse in raw materials and stock exchanges which involves a fall in banking assets, obliging the banks to close out their positions urgently to gain liquidity. There is a clearance sale of paper gold which is leading the dance. The phenomenon is all the more remarkable as, if it were a normal speculative process, falls in one market would benefit another. We are probably at the beginning of a panic in which all speculative positions are sold off. If a 2008 style collapse is really taking place, the question is: where will the trillions which were caught up in-extremis in the financial system in 2009 come from?"

  15. If anyone has the time and cares to as a personal psychological self-study exercise of sorts, watch the film The Cabin In the Woods from the perspective of it being a metaphor for the current governmental/societal/financial/monetary matrix of control we live under. As with the film The Matrix, this one is extremely relevant in my humble opinion.