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

Tyler Durden's picture

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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.