GATA Claims To Have Evidence Of "Massive Physical Short Gold And Silver Positions That Can Not Be Covered"

Tyler Durden's picture

In a letter to the CFTC's Chairman, Gary Gensler, GATA Chairman William Murphy shares the following bombshell:

"GATA has evidence that there are enormous physical short positions
in the gold and silver markets that cannot be covered.
"

Even as the CFTC is meeting later this month to establish position limits in the gold, silver, and other precious metals' markets, it could be none other than the CFTC's core banks, and Mr. Gensler's former Goldman bosses, that form the very core of the biggest market manipulation collusion syndicate in the history of the commodity markets.

Because of the
decades-long interference with the gold market, we estimate that the
free-market price of gold is multiples of the current price. Growing
stress caused by burgeoning physical bullion demand is threatening to
lead to a price explosion, which will restore to the market the balance
that regulation has failed to maintain. In our view, the Comex paper
market will become dysfunctional, with "force majeure" having to be
declared as the concentrated shorts are unable to deliver on their
obligations."

If GATA is not bluffing and indeed has evidence of massively uncoverable physical positions, and should this evidence be made public, the repercussions for the price of gold will be unprecedented.

Full GATA letter to ex-Goldmanite, and Brooklandville, MD resident, Gary Gensler:

March 8, 2010

Gary Gensler, Chairman
U.S. Commodity Futures Trading Commission
3 Lafayette Centre
1155 21st St. NW
Washington, DC 20581

Dear Chairman Gensler:

The Gold Anti-Trust Action Committee (GATA) was formed in January
1999 to expose and oppose the manipulation and suppression of the price
of gold. What we have learned over the past 11 years is of great
importance in regard to the CFTC’s forthcoming hearings regarding
position limits in the precious metals futures markets. Our efforts to
expose manipulation in the gold market parallel those of Harry
Markopolos to expose the Madoff Ponzi scheme to the Securities and
Exchange Commission.

Initially we thought that the manipulation of the gold market was
undertaken as a coordinated profit scheme by certain bullion banks,
like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated
federal and state anti-trust laws. But we soon discerned that the
bullion banks were working closely with the U.S. Treasury Department
and Federal Reserve in a gold cartel, part of a broad scheme of
manipulation of the currency, precious metals, and bond markets.

As an executive at Goldman Sachs in London, Robert Rubin developed
an idea to borrow gold from central banks at minimal interest rates
(around 1 percent), sell the bullion for cash, and use the cash to fund
Goldman Sachs' operations. Rubin was confident that central banks would
control the gold price with ever-more leasing or outright sales of
their gold reserves and that consequently the borrowed gold could be
bought back without difficulty. This was the beginning of the gold
carry trade.

When Rubin became U.S. treasury secretary, he made it government
policy to surreptitiously operate an identical gold carry trade but on
a much larger scale. This became the principal mechanism of what was
called the "strong-dollar policy." Subsequent treasury secretaries have
repeated a commitment to a "strong dollar," suggesting that they were
continuing to feed official gold into the market more or less
clandestinely to support the dollar and suppress interest rates and
precious metals prices.

Lawrence Summers, who followed Rubin as treasury secretary, was an
expert in gold's influence on financial markets. Previously, as a
professor at Harvard University, Summers co-authored an academic study
titled "Gibson's Paradox and the Gold Standard," (see Footnote 1 below)
which concluded that in a free market gold prices move inversely to
real interest rates, and, conversely, if gold prices are "fixed," then
interest rates can be maintained at lower levels than would be the case
in a free market. This was the economic theory behind the "strong
dollar policy."

Federal Reserve Chairman Alan Greenspan understood Summers' research
when he remarked at a 1993 meeting of the Federal Open Market Committee:

"I was raising the question on the side with Governor Mullins of
what would happen if the Treasury sold a little gold in this market.
There's an interesting question here because if the gold price broke in
that context, the thermometer would not be just a measuring tool. It
would basically affect the underlying psychology." (See Footnote 2
below.)

GATA has collected reams of evidence that Western central bank gold
has long been mobilized and surreptitiously dishoarded to rig the gold
market and influence related markets and that this rigging has drawn
upon the U.S. gold reserves.

President Obama has called for greater transparency in both the
federal government and the financial markets. In pursuit of such
transparency GATA has made Freedom of Information Act requests to the
Federal Reserve and Treasury Department for a candid accounting of
their involvement in the gold market, particularly in regard to gold
swaps. In a reply to GATA's lawyers dated September 17, 2009, Fed
Governor Kevin M. Warsh acknowledged that the Federal Reserve has gold
swap agreements with foreign banks but insisted that such documents
remain secret. (See Footnote 3 below.)

As a result, last December GATA sued the Federal Reserve in U.S.
District Court for the District of Columbia, seeking access to the
Federal Reserve's withheld records of gold swaps.

Understanding that the manipulation of the price of gold is
profoundly important to all markets and the American public, on January
31, 2008, GATA placed a full-page color advertisement in The Wall
Street Journal at a cost of $264,000. (See Footnote 4 below.) GATA's ad
warned, "This manipulation has been a primary cause of the catastrophic
excesses in the markets that now threaten the whole world." What GATA
warned against has come to pass.

GATA has long implicated the New York Commodities Exchange (Comex)
as being a mechanism by which gold and silver price suppression is
implemented. The smoking gun is the excessive concentration of bullion
bank positions in the gold and silver futures markets. This
concentration enables market manipulation -- just as market
concentration was the justification offered by the CFTC in 1980 when it
acted against the Hunt Brothers in the silver market.

The weekly commitment of traders report documents the total net
short position of commercial traders in the commodity markets. The
monthly bank participation reports disclose the holdings of U.S. banks
in various markets. In a letter to GATA dated February 19, 2009, Laura
Gardy, a CFTC legal assistant, wrote, "The commission determined that
where the number of banks in each reporting category is particularly
small, fewer than four banks, there exists the potential to extrapolate
both the identity of individual banks and the banks' positions. As a
result, as of December 2009 the CFTC no longer names the number of
banks when it is less than four."

The CFTC has been investigating possible manipulation of the silver
market for more than a year, so this reporting change is disturbing to
us, as it reduces transparency and the ability to uncover market
manipulation.

The CFTC's own reports of November 2009 show that just two U.S.
banks held 43 percent of the commercial net short position in gold and
68 percent of the commercial net short position in silver. In gold,
these two banks were short 123,331 contracts but long only 523
contracts, and in silver they were short 41,318 contracts and long only
1,426 contracts. How improbable is it that these two banks attract most
of the investors who want only to sell short? (See Footnote 5 below.)

It has been possible to extrapolate that the two banks that hold
these large manipulative short positions on the Comex are JPMorgan
Chase and HSBC because of their huge positions in the OTC derivatives
market, whose regulator, the U.S. Office of the Comptroller of the
Currency, does not provide anonymity when it publishes market data. 6
In the first quarter 2009 OCC derivatives report, JPMorgan Chase and
HSBC held more than 95 percent of the gold and precious metals
derivatives of all U.S. banks, with a combined notional value of $120
billion. This concentration dwarfs the concentration in the gold and
silver futures markets and should raise great concern about the lack of
position limits on the Comex.

It is also disturbing to us that HSBC is the custodian for the major
gold exchange-traded fund, GLD, and that JPMorgan Chase is the
custodian for the major silver exchange-traded fund, SLV. It is a
significant material omission to fail to disclose to GLD and SLV
investors that the custodian banks of the two exchange-traded funds
have an interest in falling prices in the futures and derivatives
markets.

Detailed daily monitoring of gold trading reveals these patterns:

1. In recent years gold price suppression has been apparent from the
near-complete failure of the gold price to rise more than 2 percent per
day on the Comex (what GATA calls the 2 Percent Rule) while there is no
corresponding restriction on days when the gold price is falling.

2. At option expiry gold almost always falls to a point where a
large number of call options have been written, nullifying the value of
the options. Typically, the price rallies immediately after option
expiration.

3. The gold price consistently falls at 3 a.m. New York time when
the gold cartel’s traders report to work in London, and again following
the PM gold price fix, when physical market pricing has concluded for
the day, and in the access market following the Comex close.

No other market trades so repetitively.

GATA has evidence that there are enormous physical short positions
in the gold and silver markets that cannot be covered. Because of the
decades-long interference with the gold market, we estimate that the
free-market price of gold is multiples of the current price. Growing
stress caused by burgeoning physical bullion demand is threatening to
lead to a price explosion, which will restore to the market the balance
that regulation has failed to maintain. In our view, the Comex paper
market will become dysfunctional, with "force majeure" having to be
declared as the concentrated shorts are unable to deliver on their
obligations.

We urge the CFTC to report fully and candidly on these markets and take appropriate action.

Sincerely,

WILLIAM J. MUPRHY III, Chairman
Gold Anti-Trust Action Committee Inc.

... Footnotes:

1. "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices" by Reginald H. Howe. http://www.goldensextant.com/

2. http://www.federalreserve.gov/monetarypolicy/files/FOMC19930518meeting.p...

3. http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

4. http://www.gata.org/node/wallstreetjournal

5. http://www.cftc.gov/dea/bank/deanov09f.htm

6. http://www.gata.org/node/7307

 

h/t Jeff

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Harbourcity's picture

The question is always: what is going to be done about it?

 

ReallySparky's picture

I'm with you Harbourcity, game on, show us the cards, we want the evidence.

chet's picture

Even if it's true, if we assume that tons of people aren't going to simultaneously want physical delivery, such deception could go on indefinitely.

Shameful's picture

IIRC the Comex rules allows it to settle in shares of GLD.  Then you can try to get physical from GLD, and good luck with that.

I'm not sure how much manipulation may or may not be happening but I know some writers have talked about having a separate physical spot price and paper spot price sometime in the future.

35Pete's picture

OUCH!!!! 

 

Janet Tavakoli: Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold

 

http://www.marketoracle.co.uk/Article17744.html

Bob's picture

Thanks for this link.  As with everything that has come before, once again it appears there are plenty of people "in the know."{

SWRichmond's picture

I guess this means gold really IS money after all.  Do the radical dollar bugs have a reply?

A Nanny Moose's picture

Not a $ bug per se but, he who makes the "gold", makes the rules.

Anonymous's picture

IIRC there was a change very recently that allows GLD to pay out in cash if they can't deliver, thus no one will get physical. Here's your little bits of green paper! Those in the know have been harping for years about this scenario. Physical is the only way to own. If this goes viral then coin shops will be over run (read: empty) in the near term. I know what I'm doing tomorrow...

swamp's picture

Physical from the ETF GLD? Yes, good luck with that. Is it tungsten or gold? How many "investors" share the same serial numbered bar? 

MarketTruth's picture

GLD is an 'unallocated' type paper gold, as such no one gets and solid declaration to claims on a certain bar SN#.

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 www.spdrgoldshares.com/media/GLD/file/10k_Sept08.pdf 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 months 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.

Lux Fiat's picture

Can someone please point me to a concrete link that shows that Comex can deliver GLD instead of a good delivery bar?  I have nosed around the CME website and others looking at delivery requirements documents, etc. and can find no mention of this. 

Riley Wilde's picture

I too am looking for a concrete link. I did come across this:

http://jessescrossroadscafe.blogspot.com/2009/12/gold-comex-and-exchange...

where they show "Delivery Cash Settled". But I still have not found whether or not the buyer can require physical settlement or what options the seller has.

Hansel's picture

http://www.cmegroup.com/clearing/trading-practices/efp-ebf-efr-trades.html

Generally acceptable related position instruments EFRPs include, but are not limited to, the following:

Metals Contracts: For metals contracts, the acceptable related position component for an EFP is limited to the specific underlying commodity ( e.g. Gold for Gold Futures); although the related position need not be deliverable grade of the particular commodity, there must be a reasonable level of correlation with the associated futures. The related position in an EFR or EOO may be a swap or OTC swap/option instrument. Exchange Traded Funds ("ETFs") are acceptable provided that the ETF mirrors the relevant Exchange metal product.

Lux Fiat's picture

I am not very knowledgeable about futures, but it appears that these types of trading instruments (ERFPs) are different from the regular futures contracts.  " All these transactions are privately negotiated trades transacted outside of the competitive marketplace but submitted for clearing through the CME Clearing House."  If some folks in negotiating privately with others opt to consider delivery of GLD as a substitute, that is quite different from the exchange giving itself GLD as a delivery option for a regular gold futures contract. 

This doesn't seem like a smoking gun from my perspective, but then again, futures aren't my bailiwick.

I can't see that anyone seeking a longer term investment in gold would agree to delivery of GLD in a private arrangement, as the prospectus clearly states that much of the gold that they hold is not subject to audit - normally a big red flag for someone who wants to invest in a hard asset with some reasonable degree of security. So I am assuming that the ERFP parties are shorter term traders.

Lux Fiat's picture

Interesting article with much of the same material as some of the Rob Kirby articles, but this time with references to the source of the claims.

This part really stood out:

"Such gives the bullion depositor ("Authorized Participant") the ability to make profit at a "Commodity" taxable rate rather than a higher "collectible" tax rate, which was adjudged to be applicable to GLD. The Prospectus specifically acknowledges that the Authorized Participants may be engaged in bullion trade and have trading desks."

I'm not saying there isn't manipulation in the gold market, but these vehicles appear to be a different animal than the regular futures contracts, and it looks like they may be operating more as a legal tax dodge for profits from trading short-term movements in gold prices.

I certainly understand that if a number of countries have unsustainable fiscal policies (OECD front and center), and yet don't do anything to rectify those policies, their currencies most likely will be poor choices as a store of wealth.  But stories such as the one referenced don't seem to support the broad-based claims made.  I just want the facts, and it's amazing how hard they are to find sometimes.

Anonymous's picture

The gold merchants in Florence in the Middle Ages invented fractional reserve lending when they realized that only a fraction of the gold they stored for others was ever needed for physical delivery.Fast forward to the present day and you can see why CBs manipulate the price of gold to prop up their fiat currencies.No secret here but how long can they keep it up?

Anonymous's picture

.

Deception cannot go on indefinitely. Entropy is the law of Darwin, and the law of physics. Some forms of "money" are a few hundred years old, and some are several thousand. On a long enough time line -hedge your bets boys.

This one is for you Deadhead....

http://www.youtube.com/watch?v=sVsSKuxyaro&feature=related

Please don't dominate the rap, jack, if you've got nothing new to say
If you please, don't back up the track, this train's got to run today
I spent a little time on the mountain, I spent a little time on the hill
I saw things gettin outta hand, I guess they always will

I don't know, but I was told, it's hard to run with the weight of gold
On the other hand I've done heard it said, it's just as hard with the weight of lead

...

One way or another, one way or another,
One way or another, this darkness got to give

.

swamp's picture

And some currencies are only about 40 years old, like the current one we are using in the States.

The Federal Reserve Note is only about 40 years old. It replaced the Silver Certificate.

Anonymous's picture

.

Deception cannot go on indefinitely. Entropy is the law of Darwin, and the law of physics. Some forms of "money" are a few hundred years old, and some are several thousand. On a long enough time line -hedge your bets boys.

This one is for you Deadhead....

http://www.youtube.com/watch?v=sVsSKuxyaro&feature=related

Please don't dominate the rap, jack, if you've got nothing new to say
If you please, don't back up the track, this train's got to run today
I spent a little time on the mountain, I spent a little time on the hill
I saw things gettin outta hand, I guess they always will

I don't know, but I was told, it's hard to run with the weight of gold
On the other hand I've done heard it said, it's just as hard with the weight of lead

...

One way or another, one way or another,
One way or another, this darkness got to give

.

Anonymous's picture

Seriously---Have you ever seen a more open and shut case of collusion and FRAUD?

This goes beyond incompetence, this is GO TO JAIL straight up CRIME by the CFTC and the banking cartels they are trying to protect.

This cover up must end!

Thank you for reporting on this most-important story Zero Hedge!

whacked's picture

crap

 

i remember when the physical AU could not be delivered and they then changed the rules that USD would suffice. this was a long time ago and GATA tried the same speil.

 

wakey wakey, the markets are made of paper as is the USD .. like for like

 

feel as though history is repeating itself and nothing will change!

 

Anonymous's picture

There was a default in the Nickel contract at the LME in 2007, when the shorts (read: City bankers and traders) couldn't deliver physical metal to the real consumers running real factories. Result: the LME suspended physical settlements. In other words, the exchange engineered a default in its own contract. Foxes...henhouses...

whacked's picture

Similar situation in 2008 on COMEX on gold.

 

I took a bath.

 

Needless to say once bitten twice shy!

SWRichmond's picture

The question is always: what is going to be done about it?

Keep taking delivery.

mynhair's picture

Tungsten is looking better and better.

GoldmanSux's picture

Good call. The demand for Tungsten is about to skyrocket.

Anonymous's picture

China are you LISTENING ?

Russia are you LISTENING ?

Anonymous's picture

uh, considering that these two countries have both invited GATA (China more than once) to present their findings to them and as they have both indicated publicly their desire to increase gold reserves going forward I think it can be said that they dont need to be 'listening' - they already did and have been acting on it.

Anonymous's picture

Gensler is a HEADFAKE !

Take physical delivery and let them run against the wall.

NRGTDR's picture

Why complain to one syndicate boss about another when you don't sit at the table? Only solution is have a global coordinated scheme motivating everyone to convert all their paper assets into gold and silver at roughly around the same time period. That will expose and ultimately fix a lot of problems quickly.

Postal's picture

No personal experience, but I understand that criticizing syndicate bosses is a most unhealthy activity.

SWRichmond's picture

This is a side benefit of my keeping some of my assets in dollars and dollar-denominated crap: it gives me the ability to, in my own miniscule way, contribute to the run on the dollar when it occurs in earnest.  I am also going through the motions of the IRA withdrawal process so that I understand how it works and can make it work for me at the apprpopriate time.

Anytime a bank pisses me off, I take some money out of the banking system.  It's fun!

MsCreant's picture

Now that's what I call voting.

Rick64's picture

 Because of the decades-long interference with the gold market, we estimate that the free-market price of gold is multiples of the current price.

I have waited so long to hear this. I would think that this is a good time to buy gold. Oh boy this is going to be good. Time to pass some legislation in the interest of National Financial Security. Better get that tungsten out.

Anonymous's picture

And incandescent light bulbs, the biggest user of tungsten, are bing phased out by force of law... coincidence?

Anonymous's picture

What are these GATA guys complaining about? It sounds like the banekrs are willing to sell them all the gold they want at a fraction of honest market prices.

Why dont they just load up the truck and revel in their shiny hoards of coins?

Oh wait, you mean they want FRNs? I'm so confused....

cirrus's picture

I think along the same lines.  If prices are manipulated lower (and the physical IS available)....then BUY IT!  I happen to believer there is too much smoke here and there is a "gold cartel" attempting to keep PM prices low. 

Why not simply take advantage and accumulate the physical?

Anonymous's picture

They have been. why do you think they took out a $250K+ ad in the national rag? Their boat is FULL. Now it is time to get those nervous paper holders to seek delivery. GAME OVER.

A Nanny Moose's picture

Bingo. If you truly believe, then this is a gift. There is so much cloak and dagger, that I have trouble figuring out who is trying to sell what to whom.

nuinut's picture

These guys have been 'all in' for years.

Lionhead's picture

No manipulation scheme can go on forever; none ever has. When this one blows up, the principals in the scheme will be exposed including the FED, the US Treasury, & other central bankers. Treason perhaps after it is all laid out or was it done for the common good?

gmrpeabody's picture

When this one blows up, it will only be AFTER our caring and concerned government has, once again, made holding of gold an illegal act. Once it has the gold collected up, I will guess that we have another  reset in the $ valuation, subsequently an enormous increase in gold valuation. Timing is everything.

perchprism's picture

 

The dollar is no longer backed by gold, so there is really no legal point in outlawing the hoarding of gold.  When we came off the gold standard, then it became lawful once again to hoard gold, because there was no good reason not to allow hoarding.  That there still exists a notional/emotional

tie between the two is to the consternation of bankers, who see a self-interest in keeping the supposed value of fiat paper high.  So it gets manipulated, when in theory there should be no good reason for it.

  

Anonymous's picture

.

No good reason except ~ 6,000 years of history

.

Rusty_Shackleford's picture

I think his point was that as soon as the US stated openly it actually NEEDED it's citizen's gold, it would instantly be GAME OVER for the dollar.  The whole point of the USD is that it requires (and explicitly has) NO BACKING other than faith in the good old US of A.

The only reason our government would ever need gold would be if it was forced to make payment in it

That would therefore mean that the US dollar would have to already be dead

If the US dollar is dead, the USA is dead.

If the USA is dead, who is going to pay the cops or soldiers to put their lives on the line trying to steal your gold?