Tuesday, October 29, 2013

The Wall Street Journal Published Blatant Lies About The Gold Market

If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State- Joseph Goebbels, Hitler's Minister of Propaganda
Over the past year or so there has been a very aggressive attempt by Wall Street and the financial media to discredit gold as both an investment and a store of value against the intentional devaluation of the U.S. dollar by the Federal Reserve and the Government.

As a perfect example of this, the Wall Street Journal published an article yesterday titled, "Gold Fades From Investment Picture."  You can read the article here, which I've reproduced except for one irrelevant picture of gold bars (you can download this document by clicking on the "Download" button on the top right) :

WSJ_Gold -

Notwithstanding the absurdity of the opening sentence, the next sentence makes the statement that Russia's Central Bank has accounted for 30% of all gold reported to the IMF  since the start of 2010 and that Russia sold gold in September.  First, note that the statement is qualified by making sure that they cite all gold purchases reported to the IMF.  The truth is that the IMF is emphatically not the official Central Bank scoreboard for Central Bank gold purchases.  There is no such thing.  Theoretically it would be the the BIS (Bank for International Settlements) but tell that to China, which hasn't issued an "official" Central Bank gold report since April 2009.

But let's put the WSJ's assertion into the context of the Russian Central Bank's gold activities since 1994:

As you can see, since 2007 Russia has nearly tripled its gold reserves and has been steadily accumulating nearly every month since then.  You can also see that there were two other months, both in 2012, when Russia sold a small amount of gold.  To make the assertion that a relatively small gold sale by the Russian in Central Bank indicates that Russia's appetite for gold is waning is outright incompetent reporting.  It's a borderline fraudulent statement.  In fact, one Russian Government official recently had this to say:  "The more gold a country has, the more sovereignty it will have if there's a cataclysm with the dollar, the euro, the pound or any other reserve currency"  LINK.

For the sake of brevity, I'll skip over the ridiculous comments that are in the article that were made by moronic Wall Street analysts and get to the part in which the article asserts that Central Banks are on track to cut their buying by 34% in 2013.  The truth is that we really don't know exactly how much gold any of the Central Banks are buying other than that nearly all of the Central Bank gold buying is coming from eastern hemisphere Central Banks + several South American CBs.

What we do know is that based on the amount of gold flowing into China through official sources in Honk Kong plus physical gold deliveries reported by the Shanghai Gold Exchange, China alone is on track to import close to entire annual amount of gold that will produced in 2013 by all gold mines.  Here's the net import (imports less re-exports back to Hong Kong) for China through August this year:

I don't know about you but this chart doesn't look to me like the world's largest importer of gold is slowing down its purchases.  Please note that this chart does not include gold that has been delivered year-to-date on the Shanghai Gold Exchange.  When you add those numbers in, China has imported well over 1,000 tonnes of gold so far this year.  In fact, let's take a look at that:

Please note that this total 1,750 tonne number would include gold imported through Hong Kong.  Also note that it is anticipated that estimates for the total amount of gold mined in 2013 are between 2200 and 2230 tonnes.  So you can see that China is sucking down nearly all of the world's gold production on its own.

One more very important point to emphasize.  The gold that may or may not be imported into China that is purchased for the Peoples Bank of China (Central Bank) does not get reported officially.  We have no idea how much gold is being accumulated on an annual basis by the PBC.  We do know that China produces about 400 tonnes of gold per year from its mines and the gold it produces internally is not exported.  But if you net out the gold produced by China from the global total produced, you can see that ex-China the world is going to produce about 1800-1900 tonnes of gold.

There are several other problematic aspects to the Wall Street Journal's article, but they all center around the fact that "sources" cited by the authors of the article are, at best questionable.  I will go out on a limb and state for the record that the article is intentionally or unintentionally fraudulent.

One more aspect to all of this to note.  You might be asking yourself, if China is taking down most if not all of the gold that will produced by mines this year, where is India, Turkey, Russia, Viet Nam, the Middle East and the other gold-buying Central Banks getting their gold and how come the price of gold isn't going higher?

First, the GLD gold trust has had over 500 tonnes removed from it since mid-December 2012.  Accounting for the gold that has been removed from all of the physical gold ETFs plus the Comex in New York, roughly 700 tonnes of gold being stored by various institutional custodians has literally disappeared from sight.  We have no idea where this gold has ended up, but it's safe to say that most, if not all, of it has ended up in private vaults of Central Banks and investors in all of the gold major gold importing countries.

One more point about that.  The LBMA (London Bullion Market Association) does not report the amount of gold held by the Association so we have no idea how much gold has been drained from it.  We do know that the Bank of England released 1300 tonnes of gold from its vault sometime this past summer.  We also know that gold swap rates on the LBMA were negative for a significant amount of time this summer and have been over the past several days.  This is indicative of a very tight supply vs. demand for physical market in London.

So there you have the facts about global demand and supply.  The truth is that China, and other countries, are buying gold hand-over-fist and there's not really much that western Governments can do to stop it.  The price of gold has been contained by the U.S. Fed, the Bank of England and ECB through the use of paper derivative gold contracts - futures and forwards.  It is also highly suspected that the Bank of England released 1300 tonnes of physical gold from its vaults as described above to help keep a lid on the price of gold.

I think it's now becoming somewhat generally accepted that western banks and Central Banks are actively manipulating the price of gold and silver via the paper derivatives markets.  At some point, and I have no idea when but I suspect the time is not far off, these entities are going to lose control of their ability to keep the price of down.  Although this will be a huge gain for those of us who are positioned to take advantage of what we see coming, I truly fear the ramifications of this event for the U.S. dollar and U.S. economic/political system.


  1. Ignored Reality Is Going To Wipe Out the Human Race — Paul Craig Roberts

    The only advice I can give is that when you hear the presstitute media smear a concern or explanation as “conspiracy theory,” have a closer look. The divergence between what is happening and what you are told is so vast that it pays to be suspicious, cynical even, of what “your” government and “your” presstitute media tell you. The chances are high that it is a lie.


    good advice...

  2. Michael SchumacherTuesday, 29 October, 2013

    The real problem is you, along with others, fail to realize that our system is set up so that the COMEX is the only true price discovery mechanism. In order for the fundamental argument to occur, and believe me I realize it and have for some time, that mechanism has to either reflect reality or be removed. I do not see that happening at all. There is a reason why we get paper dumps on all facets of the PM market. It's called capture... No disagreement about fundy's but clinging to the thought that it HAS to happen simply because the dots or ducks are lined up, and have been for over twenty years, is not going to make it so.
    This is where most pm investors get it wrong...the belief that the control will simply vanish because it has to.

    I wish it was not this way but it is and has been demonstrated time and again , usually around the same time of day too. Only a few places in the world have the financial capability to just invent 5000 contracts in a delivery month and then cascade the bid stack because that was the intention all along. I've said this before....anyone selling anything in that way would be fired for stupidity unless the sole intention was to crush price discovery....they have mastered it and no one in position to enforce does a thing about it....right Bart Chilton and Gary Gensler?

    1. Rabobank Rate Riggers See Bigger Crooks Than Themselves

      Internal Rabobank Groep e-mails cited in the U.S. Justice Department’s case against the bank show a culture where fixing benchmark interest rates had become an easy-going routine, one in which employees joked about rate rigging while telling each other they weren’t really that bad.

      Exchanges between traders, rate submitters and a money manager in London were laced with jokes and requests to raise or lower rates depending upon the traders’s position, according to a statement of facts the U.S. said will be filed today in federal court in Hartford, Connecticut, as part of a deferred prosecution deal reached with Rabobank.

      “Don’t worry mate - there’s bigger crooks in the market than us guys!” the Rabobank yen Libor submitter, identified as Submitter-4 in the filing, said in the Sept. 21, 2007 e-mail, after agreeing to increase the daily Yen rate by a percentage point. Another mid-level manager joked to a colleague seeking help rigging rates: “I am fast turning into your Libor bitch!!!”


      I think they mean central bankers:)

  3. WSJ is ridiculous. CB's just openly said there bullish on gold.


  4. I agree the WSJ is reporting on figures that are incomplete as not all Central Banks regularly update their official Gold holdings. Perhaps that is worthy of a foot note, but that doesn't make the IMF figures a "blatant lie".

    The 34% cut to Central Bank Gold buying is from Thomson Reuters GFMS and I agree is not the full picture, but then is it any more questionable than your implication in the article above that all Chinese imports are being soaked up for official reserves?

    Fighting incomplete figures with your own incomplete figures and then calling out the other side for their "blatant lies" doesn't seem very fair to me.

    1. Yes, BB, to cite the IMF as an official source is a blatant lie and/or blatant ignorance. The IMF numbers are so deficient that it's absurd to cite it as a source at all.

      Dunno how long you've been researching this sector but in the 13+ plus years I've spent doing this for a living, I have found that there is no official source for true Central Bank accumulation and holdings. China's CB doesnt even report what they are doing. Neither does the Fed. In terms of "selling" up until 2009, it was primarily the ECB that was selling. Other CB's were not selling. Wester CB's were leasing their gold.

    2. Dave, FYI. There is an entity in Russia called The Russian State Precious Metals and Gems Repository Gokhran. It also has the official mandate to buy and sell gold for the Russian government.

    3. Yes you are right. I forgot about that. I've actually researched that whole in situation many moons ago. The point is that the WSJ piece was full of shit in saying that Russia's Sept sales were a sign they were slowing down their purchases. Look at the two small outflows in 2012. Same deal there...

  5. "In the case of QE, we can see now that Bernanke forged ahead without developing a coherent exit strategy. That’s a big no-no; you never want to paint yourself into a corner especially when trillions of dollars and the stability of the financial system are at stake. But that’s where Bernanke finds himself today four years after embarking on a policy path that has boosted corporate profits to all-time highs, widened income inequality to levels not seen since the Gilded Age, and pushed Dow Jones Industrial Average up by 146% since its March 2009 low.

    And that’s what made QE such an irresistible policy, because the upside rewards were so great. QE created a vehicle for transferring incalculable wealth to the investor class while concealing its real purpose behind public relations blather about lowering unemployment and strengthening the recovery.

    As we have pointed out before in this column, QE has no effect on unemployment. The swapping of Treasuries for bank reserves does not create a transmission mechanism for increasing demand that leads to additional hiring. As Lee Adler of the Wall Street Examiner says:

    “Job growth has not accelerated as a response to the flood of money printing…The growth rates were actually stronger before the Fed started pumping money into the economy in November when it settled its first MBS purchases in QE3…Money printing works to inflate asset prices, but it does nothing to stimulate job growth…

    House prices and stock prices have inflated, thanks to too many dollars chasing too few assets. But job growth has been slow–steady, but slow, growing at slightly above the rate of population growth…..” (“Here’s How BLS Data Proves QE Has Had Zero Effect As Jobs Growth Plods Along”, Wall Street Examiner)"


  6. Off the topic. Dave, do you know Andrew Maguire well? If so, why don't you make some comments on the recent AM vs JC battle?

    1. If you go to Turd Ferguson's site - here's the link: http://www.tfmetalsreport.com/blog/5198/formal-response-andrew-maguire

      That explains it all. JC is one of the most disingenuous, corrupt people out there. He's the one who said that the London gold market is 100:1 paper gold to gold. He subsequently denied it. Guess what, it turns out that a study that was done by the Indian Central Bank on how to slow down gold imports had data and charts from CPM Group. Guess what, remember when that Indian official said the gold market was leveraged 93:1? That number came from a CPM Group report done for the Indian Central Bank. JC is a complete piece of shit.

    2. The attack on AM by JC was designed to try and deflect interest and attention from the fact that LBMA is teetering on default.

      Go to King World News blog and read the lastest interviews with William Kaye and James Turk. Those will explain a lot.

  7. What may happen is that a crisis situation will take place (like Syria but different this time) and Russia, China, and other countries will have the economic strength to flex and send ripples thru the US, causing us to step down. Didn't the US do this with England and France during 1956 and the Suez War? China could easily do this using our debts. Economics rules more than military might - that will be focus more on the citizens of the US as its influence and power wanes in this world (and its happening very rapidly) and those contractors have to stay in business somehow. Time to buy some stocks in "drone manufacturing".

    Regardless of media bits, the US Gov and the Elites know all about this buying up of precious metals and I would assume that they are even "helping along the way". It can't be for more paper - even they know its worthless but it makes a great curtain to hide behind (for now).

    Great article, Dave!

  8. Two sayings come to mind.
    # 1. Follow the money. Who does the WSJ answer to for the bucks > WallStreet , Central Banks , and Big Business.

    Who are beginning to see scary times - all the above which leads into saying #2.,
    Desperate Men Do Desperate Things...like write erroneous articles about precious metals.

  9. "Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, is struggling to survive as it seeks to repay a second bailout or face nationalization. Its downfall proved a boon to global investment banks. They offered merger and investment advice to executives beholden to politicians that helped wipe out 93 percent of Monte Paschi’s value. Then they sold it complex derivatives that hid, even worsened the losses.

    Efforts to rescue the 541-year-old lender have cost Italian taxpayers 4.1 billion euros ($5.6 billion). The investment banks, including Merrill Lynch & Co., JPMorgan Chase & Co. (JPM) and Deutsche Bank AG (DBK), earned more than $200 million in fees from 2008 through 2011, filings and deal memos show.

    “These international banks come to exploit, and Italy is vulnerable,” said former Senator Elio Lannutti, who heads Adusbef, a consumer group for Italian bank customers. “On one side, there’s the local incompetence, and on the other side the bad faith of the international investment banks.”


  10. "IT WILL not be long till Congress and the White House start squabbling again about the budget in Washington, DC. But before they create another artificial debt crisis, Barack Obama and his Republican opponents ought to pay some attention to a real one 1,500 miles to their south-east.

    Puerto Rico, an American territory, risks a Greek-style bust. With $70 billion of debt outstanding, the equivalent of 70% of its GDP, it is more indebted than any of America’s 50 states. (Puerto Rico is not technically a state, but its bonds are treated as if it were.) Yields on its bonds have soared as high as 10%, as investors fret it may be heading for a default."


  11. Silver Expert Jeffrey Christian Proves Illegal COMEX Price Setting

    Re: Illegal COMEX Price Setting

    Christian’s assertion was that the wild swings in the price of silver were not being caused by rogue market riggers but by multiple computer algorithms and High Frequency Trading programs firing at the same time in the COMEX silver exchange based on the same program triggers. Christian claims that the simultaneous nature of these trades spring from all trading houses using the same algorithms they learned in the same colleges. Trading volumes on the COMEX supports this assertion as the COMEX is on track to trade over 80B equivalent ounces of silver derivatives in 2013 which is 1,800x the amount of Registered Physical Silver in the COMEX inventories(44M oz).

    Unfortunately for Christian and the CME, what he describes is an artificial price setting mechanism for silver in an exchange that is specifically regulated such that it does not “set” silver prices but rather is a “price discovery” exchange. What Christian describes is ILLEGAL and the CME Group who owns the COMEX should immediately shut down all HFT’s and computer trading programs stopping this continued distortion of silver prices.

    Jeffrey Christian is the leading authority on commodity derivatives with experience in advising the largest players in the paper/electronic silver space such as the IMF, World Gold Council, Central Banks, Bullion Banks and Global Mining Companies. Before CPM Group spun off from Goldman Sachs in the 1980′s, Christian worked with Robert Rubin who advocated and developed Gold Leasing Programs for Central Banks and National Treasuries(although Germany is still trying to unwind their leased gold). In the 1990′s Christian advised companies on how to properly hedge their gold production(although massive Billion dollar write downs were taken as the price of gold rose in the 2000′s). Christian is currently leading the charge to restart miner hedging programs as he advocates hedging once again to offset the price volatility on the COMEX…

    WAIT! This silver price volatility is caused, according to Christian, by multiple computer algorithms and High Frequency Trading programs firing at the same time and is NOT a freely traded price of silver!

    Any hedging on false COMEX price discovery is an accident waiting to happen…AGAIN!


  12. Gillian Tett has a talk with Alan Greenspan

    The ‘Maestro’ admits he didn’t understand derivatives he touted; calls for bank breakups

    The Financial Times’s Gillian Tett sits down with Alan Greenspan for a two-hour interview and gets some eye-opening admissions from the fallen “Maestro”:

    What also worries Greenspan is that this swelling size has gone hand in hand with rising complexity - and opacity. He now admits that even (or especially) when he was Fed chairman, he struggled to track the development of complex instruments during the credit bubble. “I am not a neophyte - I have been trading derivatives and things and I am a fairly good mathematician,” he observes. “But when I was sitting there at the Fed, I would say, ‘Does anyone know what is going on?’ And the answer was, ‘Only in part’. I would ask someone about synthetic derivatives, say, and I would get detailed analysis. But I couldn’t tell what was really happening.”

    This is simply outrageous. As Tett notes, Greenspan, who we now know didn’t understand them at all, touted the risk-dispersing benefits of derivatives as Fed chairman and fought those who would regulate them.


    This is or was the most powerful representation of the "money masters".

    He's a cancer.

  13. Jim Sinclair, who has just accepted the position as Chairman of the Advisory Board for the establishment of the Singapore Gold Exchange, says, “The exchange will trade physical gold only and not future gold. . . . You have to make delivery.”


  14. Dave,

    Great interview with Sinclair by Greg Hunter on Usawatchdog, too much info to list here. It's ironic listenting to this interview after reading this WSJ trash.



  15. This may be an oversimplification but it seems to me that it is impossible to discuss "the gold market" without placing the word "physical" (or paper) in front. As MS commented above price discovery in it's current form has nothing to do with physical flows and everything to do with paper traders. To expect the ignorant media to understand this is asking too much. As mentioned GLD has had over 500T of PHYSICAL gold delivered in less than a year. The media says "gold is losing it's lustre!!!" What is happening is paper claims on gold are losing appeal while physical gold moves to stronger hands. Maybe the clowns who wrote the article are on to something. Maybe gold purchases by CB's will diminish as mining becomes unprofitable (due to low paper POG) and physical gold sitting in strong hands. Perhaps we are finally reaching a chokepoint where physical gold requires a much higher price to flow.


  16. Elliott's Paul Singer Warns "Something Is Wrong And Dangerous"


    The really bad news is that the “hair-trigger” aspect of modern global trading markets is just getting more intense. Market action from earlier this year is a harbinger of how modern markets will react to a real change in perceptions. In this past spring’s episode, a sign from the Fed that it might gently begin scaling back the pace of its bond-buying caused medium- and long-term bonds to be abruptly repriced, which removed just about all of the price elevation caused by four years of Fed purchases. The lesson of the crash of 2008 was that it is essential to act immediately to save your assets from an uncertain counterparty or clearing firm.

    On Yellen and The Fed admitting its wrong:

    it is unlikely that her reign will be characterized by any more courage or deep understanding than that of her predecessor, “Helicopter Ben” Bernanke.


    The problem is that they all, including Yellen, are looking in the wrong direction. Similar to Bernanke (and arguably more so), Yellen places a heavy reliance on the Fed’s data-driven financial models to draw conclusions and make predictions. Sadly, she also seems to share Bernanke’s lack of humility regarding the inescapable fact that the Fed’s models and predictions were catastrophically wrong about the financial system, financial institutions and risks in the period leading up to and during the financial crisis.

    For the Fed’s governors to admit that they got it profoundly and tragically (for the millions of people who are unemployed, underemployed or now deeply steeped in the brine of dependency) wrong, and that their role needs to be more modest than holding up the entire world on their shoulders, would also take courage.

    On ZIRP and QE's lack of societal benefit:

    In the absence of that courage, which could only be exhibited by the Fed (or perhaps by Congress if it legislated an end to the “dual mandate”), it is not easy to see where current Fed policy leads the country. We believe that continued QE will not accelerate the economic recovery. We also believe that the recovery and the economy are distorted and unfair to ordinary citizens who do not own stocks or high-end real estate, which are priced at their highs. ZIRP and QE, therefore, are placing the economy at severe risk of another financial crisis and possibly a spike in inflation for no societal benefit.


  17. These price suppression schemes involving monetary metals may be annoying to traders, but for working age Americans they should be seen as the most generous 401k plan in existence. All future wealth has been sold forward as debt, which in an era of declining wealth (energy) shall end up worthless. They are desperate to hide this, and the WSJ hit piece just illustrates my point. Do not play their game of confirmation/denial of market manipulation, rather use their efforts to your advantage and accumulate. It works.

    Where will future energy supplies come from to support an expanding economy? Fracking? Nuclear? Please. It's over, save FRBNY balance sheet expansion. Over.

    An ounce of silver a day, keeps hunger at bay.

  18. If gold is not worth having why has every Third World toe rag I can remember, when he has had to face the wrath of his people, has always made off with the peoples gold? The Shah of Iran right up to Ben Ali from Tunisia in 2011 did it. When he flew out of Tehran in his 747 why did the Shah go for the gold and not foreign currency reserves or his modern art collection? The latter weighed less and he could have got more onboard as cargo. Truth be told in times of great stress, like war, states have always done deals in gold, would they settle for anything else and neither should you. Have a read of the curious case of HMS Edinburgh and its "worthless" cargo http://en.wikipedia.org/wiki/HMS_Edinburgh_(16)

  19. Glenn Greenwald rips apart the ‘most radical and criminal conduct’ of Dick Cheney

    “Remember, Dick Cheney is a politician who engaged in some of the worst, most radical and criminal conduct in the last century in the United States and did it all in secret — from lying about the war in Iraq to torturing people, to putting people in cages with no lawyers, to eavesdropping on the American people without the warrants required by law,” he told CNN host Anderson Cooper. “So of course political people like Dick Cheney, people in political power always want to do what they do behind a wall of secrecy because that’s how they abuse power.”


  20. NSEL crisis: E-Gold, E-Silver settlements to get delayed on forensic audit
    The exchange has stopped trading in all contracts following the detection of a scam involving Rs 5600 cr in different commodities.The innovative e-gold, e-silver contracts were becoming a favourite with retail investors as it allowed them to hold precious metals in electronic form which could be converted into physical gold for quantities in dematerialised form above 8 grams and for silver 100 grams.
    MUMBAI (Commodity Online): E-gold, E-silver, e-silver settlements of National Spot Exchange Ltd (NSEL) are likely to get delayed as a Forensic Audit of e-series contracts is to be conducted by the Forward Markets Commission (FMC).

    This is as per a direction of the Bombay High Court based on a petition filed by NSEL investors Tarun Jain and Ketan Shah who want the e-series settlements to be clubbed with other weekly settlements done as per schedule.

    The exchange has stopped trading in all contracts following the detection of a scam involving Rs 5600 cr in different commodities.The innovative e-gold, e-silver contracts were becoming a favourite with retail investors as it allowed them to hold precious metals in electronic form which could be converted into physical gold for quantities in above 8 grams and for silver 100 grams.

    The e-series contracts were suspended from August 6, 2013 and it involved 33000 investors and Rs 525 cr investments. Initially,investors had the option to convert demat gold into physical gold or hold the paper gold to get final settlement.


  21. Its all immaterial - big waste of effort to convince anyone. And the biggest morons are the ones who have been suckered into the QE crap - this will be something which is like a bad tennis match - a lob to the other side and back. Its like a bad game people (gold bulls like yourself) have been suckered into being the opponent. Never forget the moron spectators. How much ink and effort has gone into trying to disprove the other side ; this includes Jim Sinclair.

    When all these alternative media morons take a back step and be done with it then one can do something. Its time for the likes of TFmetalreport and many others to just give up and disappear. It is a waste of time. I have long stopped ready the drivel.

    The paper game and bullshit. Then the only whistleblower in this space is actually not a whistleblower, ie Maguire. Give me the definition of a whistle blower!!!!! He is just as much of the insiders as you are, so would you call yourself a whistle blower. All these people are really just blowers.

    1. Published on Oct 29, 2013

      Bill King: "Buy Real Things"

      This week's show:
      -Fed is causing deflation by killing income
      -Tapering is now off the table