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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
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.

Popo's picture

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





SWRichmond's picture

Those who run first will survive.

If you're going to panic, panic first.

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.

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.

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.

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.

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.

SWRichmond's picture

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

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?

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.

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.

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.


Cookie's picture

Read some history to find out how it works

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.

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.

Barmaher's picture

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

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 ;-)). 


merehuman's picture

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

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! 

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?



taraxias's picture

"Gold is Money and Nothing Else"

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...

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"?

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.

merehuman's picture

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

Deflation cometh to us all, egos included.

delacroix's picture

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

Popo's picture

Actually, leverage compounded is a factorial not a multiplier.

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.

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.

Gordon_Gekko's picture

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

Shameful's picture

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

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.

theworldisnotenough's picture

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

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?

Internet Tough Guy's picture

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

cognitis's picture

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

Gordon_Gekko's picture

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

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.

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.

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.

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.


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.

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.