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Former Goldman Commodities Research Analyst Confirms LMBA OTC Gold Market Is "Paper Gold" Ponzi

Tyler Durden's picture


When we put up a link to last week's CFTC hearing webcast little did we know that it would end up being the veritable (physical) gold mine (no pun intended) of information about what really transpires in the commodities market. First, we obtained direct evidence from Andrew Maguire (who may or may not have been the target of an attempt at "bodily harm" as reported yesterday) of extensive manipulation in the silver market. Today, Adrian Douglas, director of GATA, adds to the mountain of evidence that the commodities market, and the CFTC, stand behind what is potentially the biggest market manipulation scheme in the history of capital markets (we are assuming for the time being that all allegations of the Fed manipulating the broader equity and credit markets are completely baseless). Using the testimony of a clueless Jeffrey Christian, formerly a staffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now head and founder of the CPM Group, Douglas confirms that the "LBMA trades over 100 times the amount of gold it actually has to back the trades."

Christian, who describes himself as "one of the world’s foremost authorities on the markets for precious metals" yet, in the words of Gary Gensler, said "that the bullion banks had large shorts to hedge themselves selling elsewhere- how do you short something to cover a sale, I didn’t quite follow that?" and proves that current and former Goldman bankers are some of the most arrogant people alive, assuming that everyone else is an idiot and will buy whatever explanation is presented just because the CV says Goldman Sachs. Yet Christian confirms that the gold market is basically a ponzi: "in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is." And there you have it: as Douglas eloquently summarizes: "the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for REAL physical gold that can not be met from their own stocks" and concludes "Almost every day we hear of a new financial fraud that has been exposed. The gold and silver market fraud is likely to be bigger than all of them. Investors in their droves, who have purchased gold in good faith in “unallocated accounts”, are going to demand delivery of their metal. They will then discover that there is only one ounce for every one hundred ounces claimed. They will find out they are “unsecured creditors”.

For those of you who missed the CFTC hearing, here are two of the must-watch clips. In the first one, Adrian Douglas introduces the underlying concerns about the Ponzi nature of the LBMA hedging situation, in which a wholesale rush to "physical delivery" would result in a one hundred fold dilution of gold holdings, and a 99% result of unsecured creditor claims (good luck collecting on that particular bankruptcy). We also meet Jeffrey Christian, formerly of Goldman and currently of CPM, in which not only does the "expert" state that a bullion bank short is hedged by further shorting, but confirms Douglas' and GATA's previous claims that the "physical" market, as defined, is a joke, as the OTC market treats gold purely as a financial asset, essentially conforming to the precepts of fractional reserve banking. As Douglas notes "He confirms that the LBMA trades hundreds of times the real underlying physical. This is even a higher estimate than I have previously made! It is, as I asserted before the Commission, a giant Ponzi Scheme."


Here is running commentary from Douglas based on a transcript of this part of the hearing:

S. O’MALIA: Both Mr. Organ and Mr. Epstein in the second panel, raised the concerns that short positions exceed the physical supply. The second panel kind of argued that that wasn’t a concern. Are you concerned that the shorts will not be able to deliver if called upon?

J. CHRISTIAN: No. I am not at all concerned. For one thing it has been persistently that way for decades. Another thing is that there are any number of mechanisms allowing for cash settlements and problems and a third thing is as many people who are actually knowledgeable about the silver market and the gold market have testified today that almost all of those short positions are in fact hedges, the short futures positions are hedges, offsetting long positions in the OTC market. So I don’t really see a concern there.

[Note: It is interesting that Mr. Christian is not concerned about the ability of the shorts to deliver because they can cash settle! He clearly has no understanding that when someone wants to buy precious metals giving them cash  instead is a failure to deliver. It is a default! But he is not concerned! He says that the short position is actually hedged by a long position on the OTC but we will see later in this testimony how he describes the “OTC Physical Market” and we will see that the long position is not bullion but is in fact an unbacked (or only partially backed) I.O.U. bullion.]

S. O’MALIA: Mr Organ would you like to respond?

H. Organ: I do see a risk on this, and I think it is a risk that we have to be very, very careful of. As countries like China, South Korea and Russia start demanding and taking physical delivery of their gold and moving it offshore to their shores and putting pressure on the Comex, and we will probably come to a point in time where we will have a failure to deliver.

A DOUGLAS: Mr. Chairman, could I make a comment?

CHAIRMAN GENSLER: No! Who are you?

A DOUGLAS: I would…


A DOUGLAS: Oh! You said “No”?

CHAIRMAN GENSLER: I don’t know who is this?

A DOUGLAS: I am Adrian Douglas; I am assisting Harvey.

CHAIRMAN GENSLER: Alright, Sir. Yes.

A DOUGLAS: I would just like to make a comment. We are talking about the futures market hedging the physical market. But if we look at the physical market,the LBMA, it trades 20 million ozs of gold per day on a net basis which is 22 billion dollars. That’s 5.4 Trillion dollars per year. That is half the size of the US economy. If you take the gross amount it is about one and a half times the US economy; that is not trading 100% backed metal; it’s trading on a fractional reserve basis. And you can tell that from the LBMA’s website because they trade in “unallocated” accounts. And if you look at their definition of an “unallocated account” they say that you are an “unsecured creditor”. Well, if it’s “unallocated” and you buy one hundred tonnes of gold even if you don’t have the serial numbers you should still have one hundred tonnes of gold, so how can you be an unsecured creditor? Well, that’s because its fractional reserve  accounting, and you can’t trade that much gold, it doesn’t exist in the world. So the people who are hedging these positions on the LBMA, it’s essentially paper hedging paper. Bart Chilton uses the expression “Stop the Ponzimonium” and this is a Ponzi Scheme. Because gold is a unique commodity and people have mentioned this, it is left in the vaults and it is not consumed. So this means that most people trust the bullion banks to hold their gold and they trade it on a ledger entry. So one of the issues we have got to address here is the size of the LBMA and the OTC markets because of the positions which are supposedly backing these positions which are hedges, but it is essentially paper backing paper.

[8 seconds of silence]

CHAIRMAN GENSLER: Oh! I guess I get time. Errr…Umm. I don’t have any other questions. Commissioner Dunn.

M. DUNN: I appreciate the difficulty of trying to do this by remote but at the end of your testimony you start talking about bona fide hedge exemptions for commercial traders and must be part of position limits and not to grant hedge exemptions to swap dealers would be devastating for liquidity of exchanges and the price discovery capacity, and we got into who determines what is legitimate, but could you amplify on that a bit and what you see as a danger there?

J. CHRISTIAN: Yes I can amplify on it; but amplify on it a bit is more difficult because it is a very big subject. The first thing is that precious metals, copper, other metals, energy these are all traded internationally and are fungible commodities by and large. There are a lot of strange things that have been misspoken about the difference between the wholesale and the retail market and we don’t really have the time to go over those, I think. But the fact of the   latter is…

[The lights go off]

J. CHRISTIAN: Oh excuse me. I am in a building with motion sensitive lighting and it doesn’t recognize what I do as human activity.

CHAIRMAN GENSLER: Those were your words not anybody’s here.

J. CHRISTIAN: No, they were my wife’s! If you start putting position limits on bona fide hedgers for example, the bullion banks, and the previous fellow was talking about hedges of paper on paper and that is exactly right. Precious metals are financial assets like currencies, T-Bills and T-bonds they trade in the multiples of a hundred times the underlying physical and so people buying them are voting and giving an economic view of the world or a view of the economic world and so when you start saying to a bank I have a number of people… [

Note: This is mind blowing. He openly admits that the LBMA OTC market is not trading in physical gold or silver; it is trading in paper promises. Gold is not intended to be a “financial asset” like T-Bills and currencies. That is the whole point of owning it. Actual physical bullion is a tangible asset with intrinsic value that doesn’t have counterparty risk. He believes the purpose of trading paper promises in gold is for investors to “vote” on their view of the economic world! He confirms that the LBMA trades hundreds of times the real underlying physical. This is even a higher estimate than I have previously made! It is, as I asserted before the Commission, a giant Ponzi Scheme.]

J. CHRISTIAN: well, actually let’s go back to a concrete example of Mr. Organ when he was talking about August of 2008 when there was an explosion in the short positions in gold and silver held by the bullion banks on the futures market and he seemed to imply that that was somehow driving the price down. If you understand how those bullion banks run their books the reason they had an explosion in their short positions was because they were selling bullion hand over fist in the forward market, in the physical market, and in the OTC options market. Everyone was buying gold everywhere in the world so the bullion banks who stand as market makers were selling or making commitments to sell them material and so they had to hedge themselves and they were using the futures market to do that. So if you place position limits on the futures market they will have to find some other mechanism to hedge themselves …and they will. And someone else will provide that market…

M. DUNN: Jeffery, I am going to cut you off because I want to ask another question of Mr. Organ.

[It is hard to imagine more inane drivel than this. He conjures up the image of bullion bankers selling bullion like crazy to the general public who are in a feeding frenzy and the bullion bankers are “hedging themselves” by selling gold short on the COMEX!!! Did he get that idea from a blonde? A little while later Chairman Gensler also realized that this was the biggest baloney ever concocted as a cover for massive gold market manipulation by JPMorgan and HSBC in 2008 and so poses a follow up question]……

And here is the second must watch clip:

CHAIRMAN GENSLER: I would like to follow up on Commissioner Dunn’s question for Mr. Christian, if I might, because I didn’t quite follow your answer on the bullion banks. You said that the bullion banks had large shorts to hedge themselves selling elsewhere, and I didn’t understand; I might just not have followed it and you’re closer to the metals markets than me on this, but how do you short something to cover a sale, I didn’t quite follow that?

J. CHRISTIAN: Well, actually I misspoke. Basically what you were seeing in August of 2008 was the liquidation of leveraged precious metals positions from a number of places and the bullion banks were coming back to buy it, and they were hedging those positions by going short on the COMEX and that is really what it was.

[Even on a second attempt Mr. Christian invents the most ridiculous poppycock to explain away the blatant manipulation of the precious metals in 2008. If, in his own words, investors were buying gold hand over fist everywhere in the world why would leveraged long holders dump all their long holdings? They would have ordinarily been making a fortune. The bank participation report of August 2008 shows that 2 or 3 bullion banks sold short the equivalent of 25% of world annual silver production in 4 weeks and the equivalent of 10% of world annual gold production. There was simultaneously a decrease in their long positions, which were almost non-existent anyway, which is incoherent with a notion the bullion banks were mopping up dumped leveraged investments. For an intelligent and coherent explanation of what happened in August 2008 read my CFTC written testimony here]

CHAIRMAN GENSLER: So I am glad I asked because I really didn’t follow that. But if I think of the earlier charts of the positions of the bullion banks that Mr. Sherrod had these concentrated shorts have been, well you know, reasonably consistent, they are not exactly the same on every day, but his charts showed a similarity across a couple of years. So what are bullion banks, I mean I am just trying to understand, what are bullion banks hedging on the other side, we heard from other panels, but you seem to be familiar, is it warehouse receipts, what is it?

J. CHRISTIAN: Well it’s a tremendous number of things. You were at Goldman shortly after me and we had an MIS system that kicked out a daily gold book.

CHAIRMAN GENSLER: That’s really remarkable because we don’t seem to have a lot of similar views, but you know, a lot of people were at Goldman Sachs.

J. CHRISTIAN: Well I didn’t like the trends at Goldman so I left in 1986. But honestly, and bad jokes aside, if you look at a bullion bank’s book, its gold book for example, you will see an enormous number of things; there will be gold forward purchases from mining companies, there will be forward purchases from refineries, there will be gold that has been leased out to electronics manufacturers, component manufacturers, and countless manufacturers and jewelers. As gold flows through the beneficiation process and again these are all long complex issues that are hard to reduce, but you know, a lot of producers will sell their gold the moment it leaves their possession at the mine. It might be in concentrate form or it might be in dore form. It then goes to a smelter or a refinery. The bullion bank buys that and it agrees a price at the time it is buying it but it won’t be allowed to sell that metal until the refinery outturn which maybe two weeks but it could be six months. So they will go into the market and short the market in order to cover the commitment they have made to buy at that price and then when they get the metal in the physical market then they can either sell that metal in the physical market and unwind the hedge in the futures market or the forward market or do something else. There are all sorts of other derivative contracts that investment banks and bullion banks will sell to investors, to other banks, pension funds, to insurance companies and each of those will often have a long exposure in gold which will be  hedged with an offsetting short position [note: There he goes again with that blonde idea that when you sell gold to someone you hedge that with a short position!]. So if you look at a bullion bank’s gold book or silver book you would find a large range of topics. One of the things that the people who criticize the bullion banks and talk about this undue large position don’t understand what is the nature of the long positions of the physical market and we don’t help it; the CFTC when it did its most recent report on silver used the term that we use “the physical market”. We use that term as did the CFTC in that report to talk about the OTC market in other words forwards, OTC options, physical metal and everything else. People say, and you heard it today, there is not that much physical metal out there, and there isn’t. But in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is. If I look at the large short positions on the COMEX my question is where are the other shorts being hedged? because the short position, that I believe the bullion banks use to hedge their physicals, is larger than their short position on the COMEX and the answer is that they hedge it in the OTC market in London.

CHAIRMAN GENSLER: I thank you for that detailed discussion


The CFTC position limits hearing was supposed to usher in a new era of transparency and honesty into the dealings of the gold market. In a very ironic way, it did just that.

Here is Douglas' must read conclusion - and a warning for anyone who believes that following a wholesale run on commodities, investors will be able to have access to what is contractually theirs.

This is a stunning revelation. Mr. Christian confirms that the “physical market” is not in fact a physical market at all. It is a loose description of all the paper trading and ledger entries and some physical metal movements that occur each day  on behalf of people who believe they own bullion in LBMA vaults but in fact they don’t. They are told they have “unallocated gold” or “unallocated silver” but that does not mean the LBMA has physical metal set aside for those customers and has just not given specific bar numbers to the customers. No, it is the most cynical and corrupt definition of “unallocated”…the customer has NO bullion allocated to him. NONE! The LBMA defines the owners of “unallocated accounts” quite clearly as “unsecured creditors”. That means they have NO collateral. NONE. Can it be any clearer? It is a giant Ponzi scheme.

Mr. Christian confirms what many analysts and GATA have been alleging that there is not much REAL physical metal, but testifies that there is actually one hundred times the REAL Physical metal being sold based on the much more “loose” definition of what “physical” means to the bullion banks.

The last sentence of his statement is mind-blowing. He says the “physical” positions of the bullion banks are so huge that they are much bigger than the COMEX short position. He says the “physicals” are hedged on the OTC market in London! Did you get that? Let me walk you through it. The bullion banks are selling what is supposed to be vault gold but it is just a ledger entry if the customer never asks for delivery. They must balance their exposure with a ledger deposit entry. This has to be some paper promise of gold from a third party, or some derivative, or even some real gold bullion. If all the ledger entries balance out then the bullion bank has no net exposure in exactly the same way the futures market works with a short offsetting a long. A futures market can never default if no one asks for delivery as only paper contracts are traded. The loosely defined “physical” London market is an identical scheme. As long as everyone is prepared to buy and sell “ledger entries” for imaginary gold in the vault no one will ever discover the fraud.

The LBMA does, however, buy and sell some real physical metal as well. But we now know form Mr. Christian’s testimony that this is one one-hundredth the size of the paper gold trading. The LBMA states on its website that it trades 20 million ozs of gold each day on a net basis. We can calculate the net trade of REAL physical gold should be about 200,000 ozs each day; that is 6.25 tonnes per day or 1625 tonnes per year. This is very much in line with the size of total global mining output of approximately 2200 tonnes per year.

So the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for REAL physical gold that can not be met from their own stocks.

Almost every day we hear of a new financial fraud that has been exposed. The gold and silver market fraud is likely to be bigger than all of them. Investors in their droves, who have purchased gold in good faith in “unallocated accounts”, are going to demand delivery of their metal. They will then discover that there is only one ounce for every one hundred ounces claimed. They will find out they are “unsecured creditors”.

GATA has long advocated the ownership of real physical bullion. The “bombshells” dropped in the CFTC Public Hearing have only served to reinforce that view. We believe we have made significant new inroads into exposing the fraud, and the suppression of precious metals prices and it is documented in the CFTC’s own hearing.

March 27, 2010
Adrian Douglas
Director of GATA
Proprietor of Market Force Analysis

h/t MarketForceAnalysis


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Sun, 03/28/2010 - 14:11 | 278795 cymro33
cymro33's picture

Roeuters: President O announced details of his new initative to pass the “Retirement Annuity Act “(RAA). The president said the taxpayer does not have the necessary sophisticated financial knowledge (no inside information, no lobbyists to ensure laws are written in their favor, etc.) to compete against banks and hedge funds. Mutual Funds have failed miserably.

1.    All workers will contribute 10% of their after tax salary to their RAA account. Employers will match with 15%.
2.    Funds will be invested in 10, 20, and 30 year TIPS. (Govt will continue to calculate the inflation rate so that it will never exceed 2.25%)
3.    The worker on retirement at age 72 ½ will draw an annuity until death.

The President said this is a win - win for taxpayers and Govt. The cash collected weekly will pay for Govt liabilities (similar to Social Security) and the taxpayer will have their investment in rock solid backed Govt TIPS.

Sun, 03/28/2010 - 14:16 | 278801 Bob
Bob's picture

Just to clarify: So these new "benefits" will run parallel to the Social Security program investments I've been making for my whole life?

Or will they transfer the present value of my SS "contributions" into the RAA?

This has gotta be voluntary, right?

Sun, 03/28/2010 - 15:15 | 278821 cymro33
cymro33's picture

This will be in addition to SS. Govt data found that 31% of workers have saved nothing for retirment. The program will be mandatory.

Sun, 03/28/2010 - 14:55 | 278819 Dantzler
Dantzler's picture


Sun, 03/28/2010 - 16:10 | 278887 cymro33
cymro33's picture

Just in from Tyler Durden   “ It's Official - America Now Enforces Capital Controls”

'And so the noose on capital mobility tightens, as very soon the only option US citizens have when it comes to investing their money, will be in government mandated retirement annuities, which will likely be the next step in the capital control escalation, which will culminate with every single free dollar required to be reinvested into the US, likely in the form of purchasing US Treasury emissions such as Treasuries, TIPS and other worthless pieces of paper.'

Sun, 03/28/2010 - 16:10 | 278885 bc0203
bc0203's picture


The only mention of a "Retirement Annuity Act" when I google it is HR 828, which was introduced on Feb 3, 2009.  According to Washington Watch, the purpose of that bill was the following:

"H.R. 828 would amend chapter 84 of title 5, United States Code, to allow individuals who return to Government service after receiving a refund of retirement contributions to recapture credit for the service covered by that refund by repaying the amount that was so received, with interest."

The actual text of the bill is less than a page long, and pretty much says the same thing.

What are you referring to?




Sun, 03/28/2010 - 16:13 | 278889 cymro33
cymro33's picture

See note #278887.

Sun, 03/28/2010 - 16:22 | 278898 bc0203
bc0203's picture

Oh I get it.  Your post was satire.  Next time start with, "I can see it now," and use a date in the future, so you don't make those of use of us who might be affected have a mild coronary.

Sun, 03/28/2010 - 19:44 | 279110 Double down
Double down's picture

Mild!  I have to clean my chair!

Sun, 03/28/2010 - 14:12 | 278797 Segestan
Segestan's picture

Adrian Douglas for President.

Sun, 03/28/2010 - 14:13 | 278798 Bob
Bob's picture

Jeeze, should we be looking behind this Gold Curtain?

Sun, 03/28/2010 - 14:15 | 278800 PaperWillBurn
PaperWillBurn's picture

$1,100 X 100 =

Sun, 03/28/2010 - 14:34 | 278808 boricuadigm-shift
boricuadigm-shift's picture

I was just thinking about that.  Gold/Silver is cheap beyond our wildest dreams!  When all this shit is really exposed we would have wish they kept the game going for at least another 1-2 years.

Too much exposure in the last couple of weeks.  I'm wondering if the Elite already have all physical gold/silver they need and they are ready for the countdown.

"Houston, we are ready for the countdown"

"Up up and away"


Sun, 03/28/2010 - 17:44 | 278959 DoChenRollingBearing
DoChenRollingBearing's picture

-- Maguire.

-- New ZH thread on reporting American accounts overseas.

-- Now London apparently outed as a Ponzi / gold scheme.

As bugs said on the other thread, it's almost midnight.  Funny how fast things are happening now.

Sun, 03/28/2010 - 20:33 | 279161 delacroix
delacroix's picture

labor and energy to mine and refine 1 oz of silver $6  labor and energy to mine and refine 1 oz gold $635  silver is an insanely cheap bargain right now, and we use it up faster and faster. pretty soon it will be a rare earth element.

Mon, 03/29/2010 - 00:27 | 279365 Cookie
Cookie's picture

Rare earths are not 'rare', just extremely difficult to refine

Mon, 03/29/2010 - 01:03 | 279395 DoChenRollingBearing
DoChenRollingBearing's picture

delacroix and Cookie, I am interested in rare earth metals as a possible investment opportunity (esp. if I am wrong about TSHTF...!)

Apparently the US does not have adequate capacity to refine the various metals in that group.

I am considering actually buying Europium and Terbium as a medium term investment if our economies get back in order.  Maybe a miner or two of the same.

ANYBODY who knows something about rare-earth metals, please chime in!

Sun, 03/28/2010 - 14:48 | 278814 SWRichmond
SWRichmond's picture

...bread at $150 a loaf.

Sun, 03/28/2010 - 14:55 | 278818 A Nanny Moose
A Nanny Moose's picture

Pitchforks and torches....priceless

Sun, 03/28/2010 - 15:02 | 278826 simonyadig
simonyadig's picture

$1,100 X 100 = $1,100........ apparently.

Sun, 03/28/2010 - 14:32 | 278807 BrianOFlanagan
BrianOFlanagan's picture

GLD investors must be sweating.

If it's not in your hand, you don't own it!

Sun, 03/28/2010 - 14:34 | 278809 Harbourcity
Harbourcity's picture

Arrogance is a common defense of elitists.  Look at Geithner and Bernanke.  They behave as if they are the only ones who knows what's going on and so we should listen to them even if we believe they're wrong.  It's exhausting because there is nothing at this time to hold these peoples feet to the fire.  They do what they do with impunity.

Sun, 03/28/2010 - 15:37 | 278855 DaveyJones
DaveyJones's picture

Arrogance is also a defense of white collar criminals to get you to back off

Sun, 03/28/2010 - 14:39 | 278810 DosZap
DosZap's picture

This has been my contention all along..........ETF's in PM's should not be allowed to operate, unless they have the reserves to back them.

It's a SCAM...............just like fractional reserve banking, you deposit a $1,000, they loan out $10,000,,,,,,,,,,,,,

Except this is worse, they have NOTHING , no reserves (physical of any kind).

Should be shut down, Gold & Slvr, would skyrocket.

NO PHYSICAL STOCK, NO ETF's...........period.

Now, control THAT!

Sun, 03/28/2010 - 15:45 | 278861 Hulk
Hulk's picture

seems to me that a Soros type could make a big enough delivery demand to trigger a delivery stampede and collapse the paper market. This is going to be interesting...

Sun, 03/28/2010 - 17:47 | 278962 DoChenRollingBearing
DoChenRollingBearing's picture

THAT would make it 11:59. 

Or 11:59:55.

Sun, 03/28/2010 - 18:19 | 279004 jedwards
jedwards's picture

I agree with you that a gold run will turn the paper gold instruments such as gold contracts and GLD into completely worthless items, however, I believe that this type of event will will take down physical gold as well.

If global confidence in anything gold-related falters, then I think people en masse will abandon gold completely because they won't know what is fake and what is real.  If this happens, I think the entire gold market could be wiped out.

Look at the auction rate securities market.  All it took was for a couple of failed auctions, and as far as I can tell, it's dead in the water, even though the concept is sound.  If people can't trust paper contracts for gold delivery, without the liquidity that electronic trading provides, I just can't see how people will be able to run to it as a store of value.

Sun, 03/28/2010 - 18:35 | 279030 Shameful
Shameful's picture

If you are correct it would be the buying opportunity of the millennium.  Or do you also think that people will cling to currencies while the central banks are desperate race to debase and devalue to 0?  I do think paper gold will go down but for some reason I don't understand why if there is demand for something then it turns out the supply is 1/100 of the expect supply it would crash in value.  That is like if I bought a Rolls Royce and then all the other Rolls Royces in the world disappeared, would mine get more or less value?

Mon, 03/29/2010 - 00:24 | 279363 jedwards
jedwards's picture

But your example doesn't match the situation.

What if you want to buy a used Rolls Royce, but there are fake Rolls Royces being sold at the exact same price as real ones, and you won't be able to tell the difference unless you bring it in to a Rolls Royce dealership (after buying it).

Now, let's say it's not just fake, but they explode.  Are you still interested in buying Rolls Royces?  If you have no confidence whether or not what you're buying is real, would you really want to bother buying it, or would you switch to Bentley because you know there are less fake Bentleys on the market?

If the problem of fake exploding Rolls Royces becomes rampant, the pool of potential buyers now decreases, and they'll all move to buying Bentleys.  Now, with the demand of Rolls Royces dropping, the value of your Rolls Royce diminishes.

If this becomes a global trend, and people move away from gold or Rolls Royces as a store of value, then it becomes a real problem.

I don't think this would occur until there's a gold run.  And I think the probability of a gold run is very small.  But if there ever a gold run, it could be the case that global interest for gold as a store of value could potentially be irrevocably damaged.  Maybe it might move to USD again like it did in 2008, or maybe the yuan, oil, platinum, etc.

Mon, 03/29/2010 - 00:53 | 279387 Shameful
Shameful's picture

If you are referring to the paper market, then I take possession of my Rolls and let other people play with paper Rolls.  The paper ones explode and my real one remains.  In this case there would be a clear distinction, as one exists the other one does not.

Now if there was fake physicals Rolls then yes you would be correct.  However it is difficult to fack 1 ounce coins.  Not impossible to be sure but any real counterfeiting would be at the hirer end of the market because harder to sound test and more opportunity for profit.  Now I'm not convinced of the whole tungsten bar scandal is gospel.  If that happen that could hurt the market, but again the small coins are still safe.  But those trying to sell large bars would find confidence at a premium.

But counterfeiting happens.  It happens a great deal with paper money after all.  I suppose one could even try to counterfeit oil (addatives) if we have to haul drums of it around as currency.  Counterfeiting has always been a problem, at least with counterfeit gold there is still gold in it otherwise hte fact could never pass.  With counterfeit paper it's all worthless.

Sun, 03/28/2010 - 19:21 | 279091 Gordon_Gekko
Gordon_Gekko's picture

Testing for fake Gold isn't that hard. All you have to do is to melt it. Any kid in Asia knows it.

Sun, 03/28/2010 - 21:32 | 279206 Cognitive Dissonance
Cognitive Dissonance's picture

Which is what makes Gold coins so valuable. They are so small and thin it isn't worth it (yet) or even feasible (yet) to fake them with tungsten, making them good as Gold, pun intended.

Mon, 03/29/2010 - 00:31 | 279366 Cookie
Cookie's picture

+1 GG. I am astounded about the lack of knowledge in the western world about how here in Asia gold, is, was, and will always be money and the ultimate store of wealth. There are as many gold shops as 7-11's for God's sake!!

Sun, 03/28/2010 - 19:46 | 279112 Double down
Double down's picture


Mon, 03/29/2010 - 18:27 | 280033 Renfield
Renfield's picture


That was a fine summary of recent key events in this paper-gold fiasco. Very clear for those of us less versed in goldbug-lore. I hope you will continue to write more in this vein - I need more stuff like this, condensed down, especially when showing family & friends who are even less money-minded than I am, and who are continually confused by the paper 'gold' price.

Khrysos bless you - and Adrian Douglas and Harvey Organ too!

Sun, 03/28/2010 - 14:42 | 278813 Gold...Bitches
Gold...Bitches's picture

and thats why you need to own some physical before this thing blows up

Sun, 03/28/2010 - 14:51 | 278817 cognitis
cognitis's picture

So many posters here divulge themselves to be dolts and gullible. Everthing provided by Blogger are nothing more than hearsay, fabrications, fallacies; as I observed in a prior post, the gullible rustic Andrew Maguire never provided "direct evidence" of anything but rather hearsay from anonymous sources; trading volumes of any derivative in excess of known inventories is common and necessary for liquidity, and only someone who has never traded any futures contracts at all should be ignorant of this commonly known fact; different prices between fungible markets at different times is also common and never indicates "market manipulation", since--golly gee Gomer--JPM could pump the gold market in Hong Kong as easily as in NYC or London. To the dolts and gullible who credit futures markets to owe them free money and a living: continue buying the headlines and conspiracy rants, since someone has to lose and get blown out at short-term bottoms.

Sun, 03/28/2010 - 15:12 | 278835 Quintus
Quintus's picture

You go your way brother, and we'll go ours.  One side will be right and one side will be wrong, only time will tell.

Now, those of us taking the Precious Metals side of the debate have heard arguments, if that is not to overly elevate the status of your little rant, like yours several thousand times before.  It always amazes me that you paperbugs devote so much time and effort to Gold-related discussions.  Any discussion of Gold or Silver seems to possess an irresistible attraction to paperbugs; pulling them in like bees to an open jam jar.  On the other hand, Precious Metals investors do not, to my knowledge, generally troll paperbug blogs and websites attempting to convince those who believe that their life savings are best stored in paper that they are wrong.  

Please feel free to curb your missionary zeal to bring enlightenment to the poor benighted savages (or 'Gullible Dolts' as you charmingly put it) in the Precious Metals markets.  We're fine as we are thanks.

Sun, 03/28/2010 - 16:43 | 278923 SWRichmond
SWRichmond's picture

Any discussion of Gold or Silver seems to possess an irresistible attraction to paperbugs; pulling them in like bees to an open jam jar. 

What a gem that is!  Isn't it amazing how the radical paperbugs always show up to cajole, threaten, debase?  Well, debasing is what they are best at, isn't it?

Sun, 03/28/2010 - 18:05 | 278989 Gunther
Gunther's picture

the trading volume can be higher then the physical supply if the same stuff gets traded back and forth during the day. With the two daily sessions of the LBMA I do not see multiple trades happen but it might be possible.
The big issue is if more metal sold then really available. That is the equivalent of naked shorting stocks with the difference that is possible to ask for delivery of the metal. Nobody claimed that the bullion banks sell only metal short that they own thus they are in trouble if delivery is called. That is the point.

Sun, 03/28/2010 - 20:21 | 279147 TheGoodDoctor
TheGoodDoctor's picture

I thought every trade needed to have a unique serial number that was tied to the bar. So, are they doing multiple trades from the same bar? Or are there multiple serial numbers per bar? How are they doing it to get away with it if there is a 100x multiple in the paper markets?

Mon, 03/29/2010 - 02:12 | 279424 A_MacLaren
A_MacLaren's picture

So, are they doing multiple trades from the same bar?

Yes.  Unallocated accounts.  Pools of ledger entries. There is no bar in their warehouse with your serial number on it.


Sun, 03/28/2010 - 14:56 | 278820 Lionhead
Lionhead's picture

The coy smile & pauses of Gensler after Adrian Douglas drops his bomb is priceless. The CFTC's paper scam game with the collusion of the bullion banks has just been officially exposed at their own hearing. As for Christian, his terms of obfuscation, e.g., beneficiation process & the physical market just add to the confusion to muddy the waters to the public investor. Oh, yes he admits, "Well actually, I misspoke." No doubt he did on his earlier comments.

If the CFTC allows business as usual in the futures/OTC markets, then the bifurcation between the real physical market & the paper market will continue with a premium on the physical market prices. Since they cannot fix that, they eventually loose control over price discovery. Game up boyz...

Sun, 03/28/2010 - 14:58 | 278822 b_thunder
b_thunder's picture

"how do you short somethign to cover a sale"  -- no, it's not a hedge. it's doubling down, the favorite recommendation of so-called financial advisors whose previous recommended investments are under water.  "You liked it at 10?  You sure will like it at 5!"


" Mr. Christian is not concerned about the ability of the shorts to deliver because they can cash settle! He clearly has no understanding that when someone wants to buy precious metals giving them cash  instead is a failure to deliver. It is a default!"   --   it may technically be a default, but if the government declares a "gold holiday" and says you have 2 choices:  take cash (perhaps at fixed exchange rate, so not to overload printers in the Fed) or do 15 to 20 without possibility of parole, you'll gladly take that cash.


Sun, 03/28/2010 - 15:35 | 278853 Waterfallsparkles
Waterfallsparkles's picture

Yes, they can cash settle because "Owners" do not Own the physical Gold they just have a Ledger entry in their name not an account backed by the Physical Gold.

Based on the Fiat Money system.  No one will ask for their Gold so sell 1,000.times what you actually have in your vaults.

Clever and misleading.  But, hey, anyone who deals in the commodity Markets should be smart enough to know.

Sun, 03/28/2010 - 15:53 | 278872 Crime of the Century
Crime of the Century's picture

Many people in GLD think they will be able to collect "their" gold should they desire. Despite the blinding legalese in the prospectus, it was sold to them as buying gold. Real gold.

Sun, 03/28/2010 - 15:53 | 278870 fightthepower
fightthepower's picture

I am not sure why you would sell something to hedge a sale. 

The actual transaction should go like this:  A mining company wants to sell 10,000 ounces of gold, they call up Goldman Sachs and sell the gold.  Goldman Sachs buys the gold from the mining company, then sells a gold futures contract to hedge the purchase.  Is that what he was talking about?

Mon, 03/29/2010 - 08:01 | 279501 saulysw
saulysw's picture

Ah, but when I too k delivery of my ounces, I decided to rid myself of worldly goods and threw them into the ocean. So sorry!

Sun, 03/28/2010 - 14:59 | 278823 digalert
digalert's picture

I don't have the education or salary of these clowns in suits, so forgive me when I stumble on this,

"there is a hundred times what there is" statement. So to make it simple for me. I would be better off trading all my physical Gold for that there ledger Gold, then I'd be full of it.

Sun, 03/28/2010 - 17:09 | 278946 Gunther
Gunther's picture


another way to put it is: "LBMA trades over 100 times the amount of gold it actually has to back the trades." Or in plain English there is one ounce of gold to back onehunderd ounces of paper promises to deliver gold.

Sun, 03/28/2010 - 15:04 | 278828 Popo
Popo's picture

The theatre is burning.  Smoke is filling the room.  Those who run first will survive.  Those who wait are toast.





Sun, 03/28/2010 - 16:45 | 278925 SWRichmond
SWRichmond's picture

Those who run first will survive.

If you're going to panic, panic first.

Sun, 03/28/2010 - 17:51 | 278969 DoChenRollingBearing
DoChenRollingBearing's picture

+ FOFOA's $55,000!

Sun, 03/28/2010 - 17:57 | 278976 Shameful
Shameful's picture

I read that call on that price and thought it was pure if this 100 to 1 leverage is true, and the dollar pops...I don't know.  I think that number is still high but God, what if it does hit that.  It will be like Judgement Day.

Sun, 03/28/2010 - 18:54 | 279055 DoChenRollingBearing
DoChenRollingBearing's picture

Again, I typically like reading the extreme positions.  Although FOFOA really seems to know what he is talking about.

Shameful, I hope you are still thinking over other places to go and check out (if you exfiltrate).  Let us know how your thinking evolves.

Sun, 03/28/2010 - 19:12 | 279079 Shameful
Shameful's picture

His position is interesting, but I think the state will not agree with freegold.  It's to much power in the hands of the individual.

Yeah talked about it again today with my mom actually.  I have to go to DC this summer for a school event (and they have not posted the time, just that they will pay for me to go) so I have not nailed it down for time.  Right now this summer looks like Asia.  Current plan is to check out Singapore for me and then go with my folks to Thailand and check out Chiang Mai and a few other places for them.  So I might be a true oddity, a young computer nerd going to Thailand with his parents...maybe I will have to bust out with my programming joke shirts to show how cool I am :)

If things get really crazy before then  might have to look at safety deposit boxes in Singapore.  I like the idea of having assets away from Uncle Sugar.

The only problem I see myself having is I picked a weird degree selection (Accounting and Law, yes silly calls since I'm working as a programmer).  My current employment is rock solid, and they will pay for further education, so part of me is tempted to ride another year of school after my law degree to get my BS Computer Science to make myself more marketable.  But if I do that will feel better if my folks are holding most of my assets overseas.  Figure if I have some gold then I probably can get my happy ass out unless things go really crazy overnight.  Though I'm in the camp where I think it will be a slide into oblivion instead of an overnight crash.

Sun, 03/28/2010 - 18:17 | 279000 Gordon_Gekko
Gordon_Gekko's picture

More like $100k+

Sun, 03/28/2010 - 18:18 | 279003 Gordon_Gekko
Gordon_Gekko's picture


Sun, 03/28/2010 - 19:01 | 279068 SWRichmond
SWRichmond's picture


All we have to do is keep taking delivery, no matter how many radical paper bugs descend upon us.  And, while you have said you're already "all-in", I have dry powder and can help accelerate the process when the time comes.  It's like fighting without fighting.

Sun, 03/28/2010 - 20:23 | 279152 Gordon_Gekko
Gordon_Gekko's picture

Yeah because when it comes it will happen very fast and I don't want to take the risk of being left holding the bag.

Sun, 03/28/2010 - 20:39 | 279168 SWRichmond
SWRichmond's picture

I am nearly adequately "in".  I just wanna be able to say "I helped".

Sun, 03/28/2010 - 19:22 | 279094 Stumeister
Stumeister's picture


Take me to a paperless economy.  I have a bunch of gold sitting in my basement.  I need to eat.  Do I take a gold bar and drive to the grocery store and buy a head of lettuce?  What does he give me in change?  Who sets a price?

So if commerce ends, how important is the gold in my basement?

Sun, 03/28/2010 - 20:14 | 279142 Gordon_Gekko
Gordon_Gekko's picture

Whoever said anything about commerce ending? It will just a good old fashioned looting of the masses via a massive devaluation of the currency, as has happened countless times throughout history in countless countries. Does the world "wealth preservation" mean anything to you? Of course, you will only understand it if you have any.

Sun, 03/28/2010 - 21:36 | 279209 Cognitive Dissonance
Cognitive Dissonance's picture

Silver for the small stuff (and as small change for large purchases made with Gold) and Gold for the big purchases.

I've see a lot of comments about how this or that place/person/clerk won't understand the value of Gold or Silver. Trust me on one thing. If a collapse happens, people will quickly come up to speed on what is valuable and what is not.

Sun, 03/28/2010 - 23:02 | 279288 Gordon_Gekko
Gordon_Gekko's picture

Trust me on one thing. If a collapse happens, people will quickly come up to speed on what is valuable and what is not.


Mon, 03/29/2010 - 00:34 | 279370 Cookie
Cookie's picture

Read some history to find out how it works

Sun, 03/28/2010 - 15:05 | 278831 Gordon_Gekko
Gordon_Gekko's picture

By now it is clear even to my 1 year old nephew that the US Government is corrupt beyond belief. Absolute power has corrupted them absolutely.

Sun, 03/28/2010 - 15:15 | 278840 Dark Helmet
Dark Helmet's picture

It's not just the U.S. government. It's a problem across our whole society.

It sort of pisses me off how all the conservatives whine about a "moral crisis" and cite things like gay people getting married, etc. There is a *real* moral crisis, but "the ghey" is not it. The real moral crisis is systematic and widespread *lying*, fraud, and con artistry in both government and the private sector.

Sun, 03/28/2010 - 17:46 | 278960 Barmaher
Barmaher's picture

Well, yeah, "the ghey" IS part of it. 

Sun, 03/28/2010 - 17:55 | 278973 Gordon_Gekko
Gordon_Gekko's picture

I think I know why "it's a problem across our whole society."


"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.'


"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world? You are."


This explains it quite well, doesn't it? So as not to bias your view, I'll leave it for you to figure out who said it (if you can't tell already ;-)). 


Sun, 03/28/2010 - 19:47 | 279113 merehuman
merehuman's picture

i believe it was in Ayn Rands book , Atlas shrugged?

Sun, 03/28/2010 - 15:13 | 278832 cognitis
cognitis's picture

For the dolts who clearly know nothing about futures markets try crude oil: crude oil trades more volume everyday than crude in SPRo; but wait! there's more! Crude also trades on ICE, TOCOM and various other smaller exchanges! Golly gee Gomer, get all your fellow rustics together in a mob and...JUST TAKE DELIVERY! But wait! There's even more! More corn trades on CBOT every day than corn in all the silos in BOTH Illinois and Iowa. Gomer! We could...START A FOOD SHORTAGE! 

Sun, 03/28/2010 - 15:25 | 278845 Popo
Popo's picture

Well, saying that all commodities markets are based on paper promises that exceed physical supply does not make any one pyramid scheme safer than the next.


But there *is* a major difference with gold:  Globally, fiat currencies are in serious trouble.   Sovereign governments seeking to shore up strength in their respective currencies *are* demanding delivery.  As the beta in the FX market increases, so will large-scale demand for delivery.  And this is where things get dicey. 


China alone can not only destabilize the gold market -- but jeopardize American and European banks through the simple process of buying physical.


Golly gee Gomer?



Sun, 03/28/2010 - 15:28 | 278849 taraxias
taraxias's picture

"Gold is Money and Nothing Else"

Sun, 03/28/2010 - 17:55 | 278975 Gordon_Gekko
Gordon_Gekko's picture


Sun, 03/28/2010 - 20:41 | 279169 delacroix
delacroix's picture

taraxias, don't be dissin silver

Sun, 03/28/2010 - 15:50 | 278866 Reese Bobby
Reese Bobby's picture

Whoa.  You sound like the dim-wit in the video who can’t explain the market he has operated in his whole life.  ANYBODY who thinks they have the derivatives market all figured out thinks very highly of themselves indeed, IMO.

“The gold carry trade works as follows. A central bank loans a bank (sometimes called a bullion bank) some gold. The gold lease rate is usually very low. The bullion bank immediately sells the gold and invests in securities with a higher rate of return, such as government long-term bonds. The carry return is the return on the bonds minus the gold lease rate. However, this trade is risky on two dimensions. First, if the bullion bank invested in long-term bonds and the interest rate goes up, the trade could be unprofitable. More seriously, the bullion bank has effectively sold the gold short. If the loan is called by the Central bank and if gold has risen in value, the bullion bank will have to go into the market and purchase higher priced gold. Indeed, if many banks are short, the unwinding of the gold carry trade could drive the gold price even higher.”

Multiply that problem by 100 Skippy…for starters...

Sun, 03/28/2010 - 16:01 | 278876 cognitis
cognitis's picture

Evidently you didn't comprehend your own excerpt: the Leverage is the Central Bank lending gold to the Bullion Bank, so why should I "multiply that problem [sic] by 100"?

Sun, 03/28/2010 - 18:48 | 279045 Reese Bobby
Reese Bobby's picture

Because it sounds like gold sales are ten times the physical supply.  I'll help you along here.  Everything will be o.k.

Sun, 03/28/2010 - 19:51 | 279119 merehuman
merehuman's picture

while i am an admitted know nothing. you sir trade your self quite highly.

Deflation cometh to us all, egos included.

Sun, 03/28/2010 - 20:43 | 279171 delacroix
delacroix's picture

I can't really afford a big ego anymore, alas my humble station will have to suffice

Mon, 03/29/2010 - 07:22 | 279496 Popo
Popo's picture

Actually, leverage compounded is a factorial not a multiplier.

Sun, 03/28/2010 - 16:54 | 278932 Al Gorerhythm
Al Gorerhythm's picture

Perhaps my understanding of Christian's revelations and Douglas' interpretation of them is shallow or misplaced, but isn't the "MESSAGE" one that London Bullion Market is supposed to be a "physical" trading centre. If so, isn't the interpretation by Christian (whereby he explains that the bullion banks trading there, have developed their own interpretation of "physical", to be 100 times more than actually exists), correct? (If so, I'm going to use that stratagem with my bank manager when I ask him for a loan to buy gold tomorrow.) I think that if you check the figures, as released by the BIS, of their OTC gold and other (PM's) derivatives, Christian is right. They have sold more than 100 times more than exists. Unless of course there is another explanation for those derivs.

Sun, 03/28/2010 - 18:04 | 278987 Kayman
Kayman's picture

Dear Mr. Cognitis:


I gotcha. But ... the trading is entirely about the skim.  Gold is a special case in that it is the only yardstick to measure fiat currency.

And in theory one could take delivery of anything. Joe Public might just ask for real physical delivery of gold.  Not many people could park a shipload of crude oil in the basement.

I own no gold, physical, paper, or otherwise... sorry- teeth.

Sun, 03/28/2010 - 20:15 | 279144 Gordon_Gekko
Gordon_Gekko's picture

Looks like Larry Summers has started posting on ZH...

Sun, 03/28/2010 - 20:18 | 279145 Shameful
Shameful's picture

I doubt it.  That would imply he could stay awake long enough to type out a post.

Sun, 03/28/2010 - 15:08 | 278833 Dark Helmet
Dark Helmet's picture

We're all in Missouri now. New rule: "show me" or it's a scam. Or in Internet cliche language: "pic or it didn't happen."

That applies to all kinds of things: claims of "revolutionary" new technologies, all kinds of papers assets, investment schemes, promises of future benefits, etc.

We have allowed our civilization to slouch toward a state where fraud and con-artistry have become socially normalized.

Sun, 03/28/2010 - 15:10 | 278836 theworldisnotenough
theworldisnotenough's picture

My day traders friends are going to be sick if gold goes to $5000/oz.

Sun, 03/28/2010 - 15:11 | 278837 gringo28
gringo28's picture

isn't the real beneficiary of this spot price melt up the miners themselves? FCX for example trades at 1x its proven gold reserves, so all the non-gold production is gravy. why wouldn't a spike in the spot just expand the multiples on the companies in the extraction pipeline? the notion that gov'ts would let the spot dictate financial markets is silly.  it's not like we haven't had periods of rationing before. why not spot gold and silver?

Sun, 03/28/2010 - 15:12 | 278838 Internet Tough Guy
Internet Tough Guy's picture

Finally a conspiracy I can sink my teeth into. Because there is, ya know, evidence.

Sun, 03/28/2010 - 15:17 | 278842 cognitis
cognitis's picture

This blog does provide evidence of Mackay's famous subject: the madness and delusion of crowds.

Sun, 03/28/2010 - 18:15 | 278997 Gordon_Gekko
Gordon_Gekko's picture

Which is what the US Dollar is - an entity COMPLETELY based upon the "madness and delusion of crowds".

Sun, 03/28/2010 - 23:34 | 279017 Al Gorerhythm
Al Gorerhythm's picture

And no surer evidence comes than from your own thinking. We are on the outer here. You're in the crowd. Sleep little one, go back to sleep.

Sun, 03/28/2010 - 18:29 | 279022 Kayman
Kayman's picture

Well, yes sir, Mr. Cognitis, your brilliance is hard on the eyes.

The point is that the trades are highly (and it appears to be unrestrictedly) leveraged and physical delivery of the contracted Gold is not possible- regardless of the likelihood of it being demanded.

As a physical buyer of commodities in the cash market, I can assure, should I contract for physical delivery, I get it.

When and if the day comes when there is a failure of  physical delivery of contracted Gold purchases, all your leveraged paper will not save your butt.

Sun, 03/28/2010 - 15:17 | 278841 RobotTrader
RobotTrader's picture

Looks prime for a gap up and breakaway....

Hey, if LULU can breakaway with a 12% move, why can't GLD do the same?


Same setup here.  As is typical during gold market consolidations, sentiment and price action in the XAU usually "overreacts" with a bias towards the downside.

The over reaction is usually reversed unexpectedly, at the worst possible time for the short sellers.

Note how Seabridge Gold already telegraphed the move by moving up sharply the last couple of days.

Sun, 03/28/2010 - 15:26 | 278846 MarketTruth
MarketTruth's picture

Why can't GLD you ask?

Because it may be another paper fraud, that is why. Ok, just ONE more time for those less familiar:


ASK YOURSELF: do you really trust that these ETFs have the gold they claim and GLD's counterparties that store said gold are not leasing it out or creating/forming/leveraging some other paper gold on top of their paper gold. As an example, GLD can hold NOT GOOD bars for proper delivery to the market and they do not insure their gold holding. Add to that, there are many other serious situations one should consider before choosing GLD or other ETFs.

Read GLD's 10-k filing at and pay special attention to pages 54 to 62.

Bottom line, if you want to invest in gold i would do as GLD's largest shareholder did about a year ago.... they sold their GLD holdings and purchased physical metal and took delivery. In this day and age counterparty risk is to be avoided imho.


Sun, 03/28/2010 - 18:02 | 278983 DoChenRollingBearing
DoChenRollingBearing's picture

My Fellow Little Angels: you should consider skipping work tomorrow and buying physical gold and guns & ammo.

Gold is a GIFT even up to $1500.

As MarketT, GordonG, Chumba and many others are now saying the game is up.

My guess is that if you have not already started preparing for the worst, the game is pretty much over for you.  Anyone reading here at ZH for more than a month should have acted by now.

And if I (and others) are wrong, well so what!  We at least got ready.

Sun, 03/28/2010 - 18:30 | 279024 Al Gorerhythm
Al Gorerhythm's picture


Sun, 03/28/2010 - 20:46 | 279173 perchprism
perchprism's picture


Yeah, I'm done now.  I'm not willing to take on any more credit card debt at this time.  Of course, if everything started to go to hell, I'd whip it out.  I'm building a greenhouse, very cheap as it turns out.  I'll have brocolli and spinach in the winter.

Sun, 03/28/2010 - 21:41 | 279210 DoChenRollingBearing
DoChenRollingBearing's picture

Banzai to you!

Mon, 03/29/2010 - 07:25 | 279497 Popo
Popo's picture

Well, if you believe in inflation you should take on a whole lot more credit card debt.



Sun, 03/28/2010 - 16:29 | 278909 Al Huxley
Al Huxley's picture

I agree with the setup, although I do think the first move here will be a fake-out, followed by one more leg down to support to shake-out and demoralize the gold community (yet again!), maybe in conjunction with the long-overdue correction in the general markets.  Then, counter to everybodys' expectations for seasonal weakness the market will take off. 

The Canadian gold juniors market (smaller-to-midsize players on the TSX, not the Venture exchange) have had a really solid run and probably need a little shakeout before they really explode again.


Sun, 03/28/2010 - 18:10 | 278992 Hulk
Hulk's picture

Up 5 bucks @ 3:05. A buck a minute, thats all I ask!

Sun, 03/28/2010 - 18:14 | 278996 Shameful
Shameful's picture

Whoa there Hulk!  Some of us are trying to figure out how to scrap together enough Fun Bux for another order.  The price is totally moving in the wrong direction for me!

Sun, 03/28/2010 - 18:27 | 279008 Hulk
Hulk's picture

Relax Shameful, the fact that I own it implies you have nothing to worry about!

Sun, 03/28/2010 - 18:38 | 279033 Shameful
Shameful's picture

Just messin with you.  I'm in the goldbug camp that prays for lower prices.  I need this to stay under control till Jan when my parents are looking at retiring and liquidating their 401ks.  My mom of all people wants to go 70% into gold.  So I cheer-lead for low prices even though I know it does nothing, just sending out the vibe for it :)

Sun, 03/28/2010 - 15:21 | 278843 Waterfallsparkles
Waterfallsparkles's picture

Government would probably confiscate all private Gold to make up the Deficit.  Just like they did before.

Gold is a part of the Fractional Reserve system anyway.  Get rid of Fractional Reserve and Gold will be worth nothing.

What Country is it that People are buying Garlic as an Inflation hedge?

Sun, 03/28/2010 - 15:33 | 278851 theworldisnotenough
theworldisnotenough's picture

Wasn't there an exemption of foreign gold coins? Wait I'll not be lazy and look it up. <a href="">Here</a>.


Section 2

(c) Gold coin and bullion earmarked or held in trust for a recognized foreign Government or foreign central bank or the Bank for International Settlements.

It does not exactly provide an exemption for say owning Maple Leafs or Philharmonics.



Sun, 03/28/2010 - 16:34 | 278916 Rusty_Shackleford
Rusty_Shackleford's picture

"Gold is a part of the Fractional Reserve system anyway."


Please explain.


Because, as far as I can tell, Gold plays NO role in our current Fractional reserve monetary system whatsoever.

The ONLY thing that would force the FedGov to try and "seize" the citizen's gold would be if they (FedGov) were required to make payments in gold to it's creditors. 


Now think about that for a minute.  If the FedGov was being forced to make payment in gold, that would, of course, mean that the US DOLLAR was no longer being accepted.


If the US dollar was no longer being accepted, THERE IS NO FEDERAL GOVERNMENT ANYMORE.


If anyone would like to argue with that, answer me this; "What would the FedGov be using to pay all of the policemen and soldiers who will risk their lives to try and "seize" other citizen's gold.


If the day ever comes that the US FedGov is planning to "seize" gold again, you will know we are at the very end of things.


In 1933, the US seized gold because gold was money, and it needed more of it.

If the US does it now, it is an admission that the US Dollar is not money.

Sun, 03/28/2010 - 15:25 | 278844 Carl Marks
Carl Marks's picture

The goldsmiths in Florence invented fractional reserve banking in the middle ages when they realized that most of the gold they stored for others could be leased (loaned) out because most deposits of gold just sat in the vaults. GLD and SLV are running the same game. Everything is just peachy as long as they never have to deliver all the gold and silver they've promised. Try CEF and SGOL. They take delivery of gold and silver in allocated accounts.

Sun, 03/28/2010 - 15:28 | 278847 Belrev
Belrev's picture

My take on this is that Gold is overvalued. The only way to prop up the prices is to spread rumors that there is a price suppression going on. Whenever gold price dips there is not shortage of fools rushing to "buy on the dips". When gold prices plunge whether in a deflationary bust or due to some news items, the fools will be left holding their high priced gold. After it stays low for a few years if not decades, the fools will capitulate or sell because they need cash. The big boys will pick up the metal on the cheap again. This is a perpetual cycle.


Now, does anyone think that this GATA organization is really just set up by some enthusiats and is allowed to attend hearings and ask questions? I bet the Rothchild's will get back into the market when all this shit blows over and times are quiet again. Do you think that you are smarter than the big R's. This whole spectacle has been allowed to run with the approval of the same people trying to "mainpulate" the market.



Sun, 03/28/2010 - 15:41 | 278859 theworldisnotenough
theworldisnotenough's picture

Wouldn't ETFs have the opposite effect? Increasing or at least satisfying demand for gold and silver without having the actual gold and silver?

Sun, 03/28/2010 - 17:57 | 278978 Barmaher
Barmaher's picture

Bingo.  GLD and SLV if you think about it are the most brilliant inventions of the metals manipulators.  If everybody who thought they'd bought gold or silver with those ETF's actually bought physical or allocated gold or silver where do you think the prices would be today?

Sun, 03/28/2010 - 18:48 | 279046 Al Gorerhythm
Al Gorerhythm's picture

Agreed. ETFs should read, WTF!

Sun, 03/28/2010 - 15:50 | 278865 cognitis
cognitis's picture

Eric Sprott seemed shrill in the video posted here recently, and his anxiety should be expected: GC Open Interest has been flat for over four months and it only closes over $1120 on short-covering rallies. As I posted recently, would any of the widely-known Whales sell even just a minute part of their unimaginably great gold holdings, imprudent and stupid guys like Sprott should be wiped out almost overnight.

Sun, 03/28/2010 - 16:09 | 278884 Yardfarmer
Yardfarmer's picture

are these some of the other stupid and imprudent guys you're exposing here

.Two big name hedge funds have recently set their sights on the same investment. John Paulson's firm Paulson & Co and George Soros' hedge fund firm Soros Fund Management are set to purchase shares of NovaGold Resources (NG) in separate offerings by the company.

This morning (March 8th), NovaGold announced that it is proposing to issue 16,636,364 shares at a price of $5.50 to Quantum Partners, Ltd., an investment fund ran by Soros Fund Management. This comes at a substantial discount to current prices as NG currently trades around $6.48. The purchase would mean Soros' hedge fund is buying $75 million worth of NG shares. The company said they planned to use the net proceeds to fund exploration and development and for general corporate purposes (including possible future acquisitions). This offering is expected to close on March 11th. In addition to this position, we recently took a look at the rest of Soros' equity portfolio.

Prior to Soros' offering, NovaGold announced on March 4th that it is proposing to issue 18,181,818 shares priced at $5.50 to John Paulson's hedge funds. This means Paulson would have nearly a $100 million stake in the company. NovaGold's offering for Paulson is expected to close on March 9th. The press release noted that Paulson acquired shares for several investment funds. We would assume that the majority of these shares though would go into his new gold fund as the strategy for that venture has been to acquire equity stakes in gold miners. We've previously taken a look at Paulson's equity portfolio as well for those interested.

Read more:

Sun, 03/28/2010 - 16:21 | 278897 cognitis
cognitis's picture

Rustic, learn to read: Paulson is The Whale to which I referred in this post and the same I named in a prior post. If Paulson start to sell even just .1% of his singularly great gold hoard, imprudent and stupid guys who allocate over 75% of their fund to a single asset class would get erased. Get it yet? Paulson hasn't added a single ETF share for over a full year and gold hasn't held a rally over 1120 for over four months. If Sprott isn't anxious about his imprudently great gold holdings, then he is an idiot.

Sun, 03/28/2010 - 17:41 | 278957 pidge
pidge's picture

gold is a game of chess, not checkers.  understand?

Sun, 03/28/2010 - 22:14 | 279237 harveywalbinger
harveywalbinger's picture

Fantastic analogy!  

Sun, 03/28/2010 - 18:03 | 278963 Yardfarmer
Yardfarmer's picture

what d'ya have agin' us plebeeuns com' in from tha cuntry. souns like ya bitter clamp on thet ole blood presshur cuff, take a cuple deep breths and double up on yer warfarin afore ya bust a vessel wide open! speakin' a blud, ya might wanna stock up on plasma too cuz Paulson and Soros and thems bankin' friens have a mind to bleed youse an the rest of the syphylised Westarn wurld dry, one drap at a time. an the way theys gonna do it is with gold. yup, gold. why d'ya think theys all a pilin' inta gold like a herd a hawgs at the sloppin' trough!? jus that matter of them OTC d'rivaitves or what'er ya call 'em. gold is the gowin' be th'only way theys gonna cullect on them thar trillions 'pon trillions a bets comin' ta them. y'all might c'nsider thet ya might jes well be ontha wrong side o' this hear trade e'en tho yer quite smart otherwise. us cuntry folk may be nun too book lurned but we  know a pig in a poke when weez see 'un. b'the way i am lurnin readin' an sum writin' too!

Sun, 03/28/2010 - 22:15 | 279238 mrgneiss
mrgneiss's picture

Cognitits, why are you, someone who had been a member for less than twenty days, insulting other members and spreading obvious disinformation about Paulson's dedication to gold?  Why did you omit to mention that in addition to his questionable GLD holdings, Paulson is also the number one shareholder in one of the biggest gold companies in the world, Anglo Ashanti at 12%.  Does that sound like a weak comittment to gold?

Who are you anyway?  Are you Jon Nadler naysayer?  Are worried that the hundreds or thousands of clients of Kitco's unallocated gold accounts will demand physical?  Would that be detrimental to Kitco? 

If you own unallocated precious metals you own paper and nothing else.


Sun, 03/28/2010 - 23:38 | 279331 Al Gorerhythm
Al Gorerhythm's picture


Sun, 03/28/2010 - 19:58 | 279125 Sabremesh
Sabremesh's picture

Sprott holds only physical and has nothing to fear from your "paper whales" selling unimaginably large amounts...of paper. A paper avalanche would just usher in the great disconnect between the price of physical gold and its moribund paper cousin. Bring it on.

Sun, 03/28/2010 - 20:39 | 279167 Double down
Double down's picture

This is a simulacra.  The physical market has the same form and substance as the paper market.  The distinguishing attribute is simply a different name.  This is some fine print! 

The assumed connection between the two is being tested for credibility.  This is catastrophic, as the run on inventory does not care about the (paraphrased) Clinton retort "It depends on what you mean by "is"?  With gold it is even more than it is with with money as Being is possession.

If someone "took down" AIG knowing that the Fed would bail them out, why would not someone like to exploit the risk in the gold market?

I do not care where the gold price goes, my physical ownership is a portfolio insurance like none other.  I am sure of this though, that if the gold price goes down in the face of physical delivery difficulties I am changing my tinfoil hat to a crash helmet.             


Sun, 03/28/2010 - 16:27 | 278904 Al Gorerhythm
Al Gorerhythm's picture

Which tin foil hat did you take out of the cupboard today?

Sun, 03/28/2010 - 20:11 | 279139 merehuman
merehuman's picture

you have a wonderful imagination. Write fiction, less need for research.

Belref this comment is for you.

Sun, 03/28/2010 - 15:44 | 278860 7buy7
7buy7's picture

Latest Gata website posting

"It's admitted to the CFTC: London gold market is a Ponzi scheme"

Sun, 03/28/2010 - 16:19 | 278891 boiow
boiow's picture

so what is the real price of gold then. you can't use the comex price.

 what will happen when the comex price crashes. will people panic and sell there physical too.

the mind boggles

Sun, 03/28/2010 - 18:20 | 279006 Johnny Dangereaux
Johnny Dangereaux's picture

They sell their paper gold there, actually.

Sun, 03/28/2010 - 16:19 | 278894 Sudden Debt
Sudden Debt's picture

Actually, the price of gold will crash because of it.

If you bought something that doesn't exist. What do you do? YOU TRY TO SELL IT AS FAST AS YOU CAN!!! DUMP IT!!!


And most investors will do this, putting the gold price in the area of 200$


Sun, 03/28/2010 - 16:31 | 278911 Shameful
Shameful's picture

You are partially correct.  The price of paper gold will plummet as people sell the empty paper promises for metal that cannot be delivered.  The price of actual physical metal will spike assuming that there is any intention of them trying to cover.  Even if there is not the price of physical will spike on fear.

Sun, 03/28/2010 - 16:40 | 278922 Rusty_Shackleford
Rusty_Shackleford's picture



Imagine this:

Price of 1 oz gold on Comex: $.25
Price of 1 oz AE gold coin delivered to you: $12,000.00


Mon, 03/29/2010 - 10:36 | 279604 Jim B
Jim B's picture


Well said

Sun, 03/28/2010 - 18:54 | 279054 Al Gorerhythm
Al Gorerhythm's picture


Gold values currencies, not the other way around.

Sun, 03/28/2010 - 16:22 | 278899 Vendetta
Vendetta's picture I get it.  The paper market for gold is so huge that the paper, if printed out, would weigh as much as the physical gold would weigh if they actually had the physical gold.  Therefore the paper market is a "physical" market.

I have to say Jeff Christian almost seemed human, close but not quite.  I don't think his bosses are going to be particularly pleased with his public explanation.  They can't even bullshit the bullshit very well.

Sun, 03/28/2010 - 16:25 | 278903 Popo
Popo's picture

To play devil's advocate... these games are not new, and the price has not gone exponential. 



Sun, 03/28/2010 - 16:28 | 278906 Shameful
Shameful's picture

Sweet!  Fractional reserves in bullion banking too!  100 to 1 know it doesn't sound like so much anymore.  There was a time that 100 to 1 leverage would have shocked me.  Now it just seems like industry standard.  "For every $1 in assets we loan out $1,000,000" Reserves are for cowards and people without political connections.

Now if this is true and there is a gold run then it will be apocalyptic.  And you will have a host of unsecured creditors turn extra judicial means for payback, after all since unsecured it means no one gets paid except for the big boys.  I got to imagine that if a SA drug lord or Russian oligarch got burn they could call some guys to go talk to some people.  Probably with a pair of pliers and a blowtorch.

Sun, 03/28/2010 - 16:33 | 278914 sharonsj
sharonsj's picture

I don't understand how an investor cannot know that he is buying a piece of paper and not the actual gold.  Even I, who doesn't understand a lot of these market games, know that.  If I want gold and silver, I'll go to a flea market and buy the actual jewelry.  And I'll get gold for a lot less than the going rate.  BTW, how is $1100 an oz. cheap?

Sun, 03/28/2010 - 17:00 | 278939 Vendetta
Vendetta's picture

it is 'cheap' relative to the quantity of dollars printed up.  Like relative to this nice little chart provided courtesy of the fed:


Mon, 03/29/2010 - 00:42 | 278918 carbonmutant
carbonmutant's picture

Well if it's not in the bank then the only place to get it is from the miners...

Placerville sure was crowded this weekend...

Sun, 03/28/2010 - 16:37 | 278919 mbasham
mbasham's picture

well it really all depends, if as this 'gold authority' says, there are holders of gold who purport to lay claim in 100 times how much actual physical gold is known to exist, there are two possibilities. One, many of these demand delivery at nearly the same time and the gold price sky rockets, bankrupting all those who are short including those claimed to be short to hedge selling something else (i agree with TD as to this being unclear). The second possibility is that gold is so 'over owned' that any minor selling by this oversized pool of longs would result in a collapse of the gold price. This would permanently impoverish gold longs, who are legion at the moment, and vastly enrich the shorts. Based on the connections that these shorts have to the regulatory and governing class, it is very likely that the shorts will win based on that, not on free market principles.

Sun, 03/28/2010 - 17:04 | 278940 SWRichmond
SWRichmond's picture

The second possibility is that gold is so 'over owned' that any minor selling by this oversized pool of longs would result in a collapse of the gold price.

Rather, I suspect we would see a complete and dramatic disconnect of the paper and physical gold markets.  Physical gold isn't over owned.  Paper gold undoubtedly is, on a relative basis.

Sun, 03/28/2010 - 19:28 | 279002 Yardfarmer
Yardfarmer's picture

           COT Gold

           long     short

funds-73,785   212,488

swaps-43,894  145,912

commercial -165,927  9,152

Sun, 03/28/2010 - 19:02 | 279066 Al Gorerhythm
Al Gorerhythm's picture

Gold over-owned? By whom? On what basis? What report shows gold over-owned? I'm lost.

Sun, 03/28/2010 - 20:11 | 279136 Sabremesh
Sabremesh's picture

He means that multiple parties have competing (and therefore worthless) paper claims on the same physical gold.

Sun, 03/28/2010 - 21:24 | 279200 Al Gorerhythm
Al Gorerhythm's picture


Sun, 03/28/2010 - 16:38 | 278920 mbasham
mbasham's picture

well it really all depends, if as this 'gold authority' says, there are holders of gold who purport to lay claim to 100 times how much actual physical gold is known to exist, there are two possibilities. One, many of these demand delivery at nearly the same time and the gold price sky rockets, bankrupting all those who are short including those claimed to be short to hedge selling something else (i agree with TD as to this being unclear). The second possibility is that gold is so 'over owned' that any minor selling by this oversized pool of longs would result in a collapse of the gold price. This would permanently impoverish gold longs, who are legion at the moment, and vastly enrich the shorts. Based on the connections that these shorts have to the regulatory and governing class, it is very likely that the shorts will win based on that, not on free market principles.

Sun, 03/28/2010 - 16:57 | 278935 kennard
kennard's picture

net global long gold postions = global gold inventory

like the derivative markets, it all nets to zero

I don't see what the problem is

Sun, 03/28/2010 - 19:10 | 279077 Al Gorerhythm
Al Gorerhythm's picture

What are the derivatives tied to? As Christen says, all sorts of things.


G=G-2QQQ+1IOU/GLD+10 pork belly contracts does not = G.(Au)

Net global long positions = wishful thinking.

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