LBMA, LPMCL and the use of fractional banking techniques and derivatives in the gold market.

Cheeky Bastard's picture

During last weeks jobless claims analysis; Joe Kernen decided to throw in couple of his "highly sophisticated" thoughts regarding gold, gold market, structure of GLD SPDR ETF, and the utilization properties of gold. With stupidity oozing out of him, this is what Kernen had to say about gold [make sure not to miss the comparison of buying gold with the practice of sacrificing animals]:



I do not want to spoil such "highly sophisticated" "thoughts" with truth, but I just cant restrain myself. It is well known that most of physical gold is being stored in the vaults of LBMA member banks. The institution which says so is the LPMCL (London Precious Metals Clearing Limited) which is, surprise surprise, owned by those same banks which are members of LBMA. It has been said numerous times in the past, and most recently by GATA board member Adrian Douglas, what is the true structure of gold market and that the contracts being traded are not contracts based on physical gold, but at best primary miner-LBMA forwards [rarely futures], and most often bars with multiple CUSIPs assigned to them. Basically most of the daily volume and value being traded on the gold market compromises of derivatives and second derivatives [second derivative being either put or call on a forward contract or futures contract on a forward]. It is also worth mentioning GOFO rates which are rates that LBMA charges on gold loans. Notice the surge in GOFO coinciding with gold market interest going from net long to net short:


What is even more believable when we are talking about the manipulation in the gold market is that the same treatment which is being applied to physical bullion [assigning multiple CUSIPs to same gold bars [by LPMCL]] is also applied towards primary miner-LBMA forward contracts. If we use a conservative estimate of minimal reserves and say it is 10% that would mean that one primary miner-LBMA forward for 1000 ounces, can create, out of thin air, 100 000 ounces of new gold, without any physical gold actually being mined or traded in the market.Think about what 100 000 ounces of new gold hitting the market would do to its price. Something like this maybe [actually i dont believe such a large quantity ever hit the market in just one infusion]:



Here is the BIS statistics on OTC Gold derivatives:



Adrian Douglas; GATA board member writes the following:

By Adrian Douglas
Monday, January 18, 2010


Here are some Trivial Pursuit questions for you:


1) What is the biggest market in the world for a physical commodity?

2) Is the gold market one of the smallest markets in the world for a physical commodity?


I would guess that you answered:


1) Crude oil.

2) Yes. Gold is one of the smallest commodity markets in the world.


If those were your answers, you are wrong. What everybody believes to be the "tiny gold market" is in fact the world's biggest physically traded commodity market.
Let's have a look at some facts.
The London Bullion Market Association (LBMA) "over-the-counter" (OTC) gold market trades approximately 90 percent of the world's physical gold trade. The amount of gold sold each day is given at the LBMA's Internet site here:
The LBMA reports the net gold traded, which is termed "ounces transferred." This is not the gross trading volume. For example, if an investor were to sell 1 million ounces in the day and then buy 1.1 million ounces, the trade would be counted as 0.1 million ounces, the net difference between the purchase and the sale and the amount of gold "transferred" to the investor's account.


Therefore the numbers are the amount of gold that changes ownership each day.
The value of the daily trading for November 2009 is given as $22 billion.
From looking at the data you might think that the trade amounts are for the entire month. But they are actually average daily figures for the month. This is clear from another page of the LBMA Internet site, which states:
"Gold ounces transferred rose from a daily average of 20.6 million in September to 20.8 million, an increase of 1.2%. There was a 4.7% increase in the average price to $1,043.16, resulting in a 6.0% rise in value to a daily average of $21.8 billion. The number of transfers dropped by 0.8% to a daily average of 1,908."
The world consumes 82 million barrels of crude oil each day.


At $77 per barrel the physical trade of crude oil is worth $6.3 billion each day. This means that the amount of gold that changes ownership each day is, in dollar terms, 3.5 times the dollar value of crude oil that is consumed each day.
In a GATA dispatch in October 2009 the market analyst Paul Mylchreest estimated that the gross volume of gold traded on the LBMA each day was about 2,100 metric tonnes:
That equates to $77 billion each day at 1,150 per ounce. The NYMEX WTI crude oil contract trades 400,000 contracts each day, which is 400 million barrels. At $77 per barrel, the gross value traded is $30.8 billion, which is only 40 percent of the value of the gross trade in gold.


There is a myth among even knowledgeable gold investors and analysts that the gold market is tiny, but in reality it is the biggest physically traded commodity market in the world. The perception of gold being a tiny market comes from the tiny annual production of gold. Global gold production is only 2,200 metric tonnes per year, which is equivalent to the gross trade in gold on the LBMA in just one day.
In a previous article I analyzed the LBMA market numbers and deduced that it was impossible for the LBMA to have enough gold in its vaults to trade such large daily volumes.


The inescapable inference is that the LBMA is operating a fractional reserve system and has sold much more gold than it has or could ever have. The amount of gold that has been sold is estimated to be around 65,000 metric tonnes, while the maximum amount of London Good Delivery bars that exist in the world is around 15,000 metric tonnes. So even if the LBMA possesses the world's entire stock of LGD bars there are 50,000 metric tonnes of obligations that cannot be met if the owners ask for delivery.
To put that quantity of gold into perspective, it is equal to all the gold reserves that remain to be mined in the earth.
Gold is unique among all commodities because its very nature and function enable such a fraud to be perpetrated. Gold has very few uses that consume gold. Its main function is to store wealth, and gold can perform that function while in your house, in your vault, or even on the other side of the world in someone else's vault. When it is acting as a store of wealth in someone else's vault, you have to trust that someone else that there is any gold at all in his vault.
Many wealthy individuals, institutions, and sovereign states buy gold through the LBMA in unallocated accounts and leave the gold they supposedly own in the custody of the LBMA.


That people are buying and selling gold without ever taking delivery means that there is the opportunity for the bullion houses to sell gold that doesn't exist. The bullion houses probably don't view this as illegal or dishonest, because they will operate a fractional reserve type of system just as the banks do with fiat currency and will make sure that they have enough gold on hand for what would be the maximum estimated volume of gold that could be called for delivery at any one time.
For this fraud to continue without being exposed, no requested delivery of gold by an LBMA customer must ever be defaulted upon or else a massive "run on the bank" would be triggered.


When the bullion banks get into trouble and don't have enough gold on hand to meet delivery demands, central banks lease or sell them gold to cover the shortfall. The central banks are willing to aid and abet the crime because the selling of "paper gold" has the same suppressive effect on the gold price as selling real gold. Suppressing the gold price accommodates the central banks in masking their promiscuous fiat currency creation. In this way the traditional inflation "canary in the coal mine" is muted.
This is the basis of the "strong dollar policy" that allows interest rates to be lower than they should be, and in turn it lowers the price of commodities and imports as it artificially enhances the dollar's buying power. Further, the central banks are able to earn a lease rate on their gold hoards.


If commission fees are 3 percent, then the annual commission earned by the LBMA is approximately $585 billion on only $500 billion of assets. A 100 percent return on investment is certainly a handsome profit.
The much-heralded public auction by the Bank of England of half of its gold stock was open only to members of the LBMA.
From the thesis presented here it can be seen that the suppression of the gold price suits the central banks and that running a fractional reserve gold inventory is extremely lucrative for the LBMA, especially when it is backstopped by the central banks.

Mobilizing central bank gold to maintain liquidity in the market is essential. Maintaining secrecy of such gold activities is equally essential. Over the last 10 years GATA has amassed a large amount of evidence that more than half of central bank gold has been sold, leased, or swapped into the market. This is what lies at the core of the federal Freedom of Information Act lawsuit GATA has filed against the Federal Reserve. The Fed is denying access to hundreds of pages of documents pertaining to the U.S. gold reserves because they are deemed to be exempt from disclosure as "trade secrets." GATA believes that the Fed is trying to cover up its involvement in the suppression of the gold price as part of the implementation of the "strong dollar policy," which necessarily involved mobilizing or encumbering the U.S. gold reserve in some way. GATA intends to find the truth.
Investors in precious metals should take delivery of their bullion.


No matter what the outcome of GATA's lawsuit, the fraud will be exposed by customers of the LBMA asking for their gold. When it becomes clear that there isn't enough gold to meet demanded delivery, the gold price must rise in accordance with the new market reality of a much smaller supply than previously was apparent. If you don't take delivery of your bullion, you might discover that investments you thought you had in gold are just promissory notes.



There you go ladies and gentleman; the undeniable truth about the suppression of gold price using the same methods and instruments that are being used when it comes to banking, currency and OTC derivatives market. I will follow this with a more detailed expose on LBMA, LPMCL, GLD SPDR ETF, derivatives and structure of the market. Since this topic abounds with vast pool of information; each of the aforementioned structures will be introduced separately in the upcoming posts about the world of Gold. Trade safely and always demand delivery.

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mkkby's picture

Before I invest in gold I need to understand 2 things.

1.  I understand the PAST function of gold in the money system.  But how is it money related NOW?

2.  How do you address liquidity of physical gold?  Eventually all bull markets end.  How do I stop out when this one does.  I don't want to lose 3/4 of my money if it decides to go back to $300 some day.

Between The Lines's picture

Good article CB. People around the world need to demand delivery of their PMs. It may take some time, but eventually the jig will be up.

mandalisj's picture

Despite all the good reasons for owning precious metals, misinformation agents like GATA keep bringing discredit with wild and baseless theories.

First of all, when myself and others have said that gold is a tiny market, by tiny we mean thin, which it is - ESPEICALLY COMPARED TO FINANCIAL MARKETS.  Compared to the bond market, gold is very tiny.  It is easy to dump a few billion dollars worth of bonds or even stocks on a given trading day.  It is next to impossible to liquidate a few billion dollars worth of gold without pitching the market significantly. 

Additionally, the storage and insurance on gold is astronomical, mostly around $0.25 per ounce per month.  On one metric ton of gold (a mere ~$40 million, less than the price of a decent commercial property) at 32,151 ounces is close to six figures per year.  This is why most gold investors hold unallocated storage.  Due to these high storage and insurance costs, gold is not a popular investment for billion dollar investors.  Therefore, despite the newfound popularity with small investors, there are still no large bids for gold on open markets.

Precious metals are worth buying, based upon the fiscal policies of various governments debasing their currencies.  Precious metals are not worth buying based upon erroneous conspiracy theories of precious metals gurus whom interpret every small price iteration down as 'manipulation' by evil bankers.  The truth is that BECAUSE governments want to debase their way out of debt, GOLD IN PARTICULAR IS BEING MANIPULATED UP and not down.  This has been one of the primary goals of central banks since before WW2.  Central banks have been the largest hoarders of gold since then.  Inflation is easy for monetary authorities to deal with, they just raise interest rates.  The deflationary forces created by the taxation burdens necessary to cover huge government debts are much harder to deal with, because while central banks can force the money supply to contract, they can only PERMIT it to expand.  It will not necessarily do so no matter how much governments want to borrow against future tax revenues.  If you are investing in gold, you are WITH the governments and not AGAINST them.  The last thing any government wants to do is repay more expensive currency than was borrowed.  If Greece could devalue the drachma they would not have the current problems that they do.

The major point that GATA and the rest don't seem to understand is that THE LONGS DON'T HAVE THE MONEY TO TAKE DELIVERY OF ALL THEIR PRECIOUS METALS POSITIONS.  It's called leverage.  Why put up 100% of the money when you can put up less?  Do you think large investors want to pay all that storage?  Organizations like the COMEX and even OTC providers of leverage in the gold market are very good at MARKING POSITIONS TO MARKET DAILY.  The reason why it was easy for a substantially larger derivatives market such as the markets based on mortgage bonds to collapse was because THEY ARE HARDER TO PRICE THAN GOLD.  There really is no market for many of the exotic asset backed securities, and the marked valuations are ficticious, especially when on the books of central banks.  GOLD IS PROBABLY THE EASIEST MARKET TO PRICE, hence the COMEX has no problems marking BOTH LONG AND SHORT positions to market on a daily basis.

Gold will most probably still go up until governments balance their budgets and pay down their debts.  However, compared to the people that were fully invested before 2003 the party is over.  It now takes more than ten barrels of petroleum to purchase an ounce of gold.  Silver is probably a better play than gold right now for most people.  As gold appreciates, expect non-core price inflation to keep pace.  So if your gold goes to ten thousand dollars per ounce, expect the price of food and energy to keep pace, unless you are trading gold on a leveraged basis in the futures markets.

Hephasteus's picture

You are so past junk. You need a flag as clueless.

zhandax's picture

A young lad named Kenny sets out to seek his fortune in the markets.  He pays a farmer $10 for a prize cow.
When Kenny arrives to pick up the cow the next day, the farmer hands him his $10 back explaining that the cow died overnight.
Kenny insists on completing the transaction and the incredulous farmer helps Kenny load the dead cow.
A week later the farmer encounters Kenny and asks what he did with the dead cow.
Kenny explains that he sold 100 raffle tickets on the prize cow for $5 each.
The farmer asks what happened when the winner found out the cow was dead.
Kenny explains that he gave the winner his $5 back. 
Kenny grew up to become the Chairman of Enron.

The reference to selling futures on a garage full of cows triggered the memory, but it sounds fairly close to what is happening here.

Hephasteus's picture

Great article cheeky. GOFO sends signals encoded within it numbers as to how much it's fractioned and it's "signals" are used to create LIBOR. I have not been keeping an eye on it but DAMN did they carve that thing up like a christmas GOOSE in freaking janurary.

If they have to hatchet gold up that bad to get it from 1225 to 1100 it isn't going to last. Watch the steepner. If the price steepens towards vertical they hatchet up GOFO.

Problem Is's picture

" Joe Kernen decided to throw in couple of his "highly sophisticated" thoughts regarding gold..."

"With stupidity oozing out of him..."

Mr. C Bastard Wins the ZH "Bitch Slap of the Week" Award
Nice work Mr. Bastard. Now tell our viewers how you became so talented at that sarcastic backhand...

Innocent Bystander's picture

Good work and Thank you -IB

hooligan2009's picture

I may be part of the jack ass herd, but I can't help but thinking that gold is not the substitute currency for solving the upcoming problems. I think that food stamps will become worth more than treasuries, provided they are not a fiat system. There are around 40 million americans on food stamps and whilst I can agree that having precious metal is a rational store of wealth, I can't agree that is solves any macro problems.

I am not a lasped or current catholic.

My guess is that we are yet to evolve to having a guarantor that will provide for utilities food and health. It is not the debt maket, though it may be the listed equity market. The idea being that since money is no longer a store of value, then you need to own sufficient quantities of inflation proofed dividend streams from companies that will provide you with a life style/store of value. Having gold rather than cash as you build such a portfolio makes good sense.

harveywalbinger's picture

So you think gubmint should provide you with:

Foodstamps?  Utilities?  Food?  Healthcare?   

Poor misguided socialist lemming, The gubmint ain't gonna take care of you.  They just want to obligate you & your offspring to perpetual debt enslavement.   

Hyperinflation will come like gangbusters as investors lose confidence in the system due to the gubmint's willingness to print money to pay for all that shit.  You can count on your food stamps losing value right alongside with and in proportion to the dollar.  

If we were truly evolved, we'd all exist as beams of light and trade purely in beauty & love... or something like that, right?  Perhaps the Fed intends for more Americans to become "evolved" by seeing to it that we escalate the wars in Afghanistan & Iraq, and perhaps even start a new one in Iran...  

hooligan2009's picture

i think if you read what i said...the government has failed because of its fa(r)cist policies, leaving food stamps as the emerging currency, not the solution (food is a necessity currently paid for with soon to be worthless money). I was making a comparison about what will be a store of value over the long term. The solutions to hyper inflation you correctly highlight as an issue are the prices of shares providing replacement cash flows for what would otherwise be cash flows subject to hyper inflation. I'm talking about the upcoming real world of homelessnes, starvation and disease that are the corrollary of gold being part of the rigged fa(r)cist mantra of today. I think that your personal attack makes your points obscure and you are lowering your credibility.

harveywalbinger's picture

Must've read through your post too fast.  I've got this hopey/changey chip on my shoulder & sometimes go off half-cocked.  My apologies.    

hooligan2009's picture

no problem. i struggle sometimes with scanning everything.

Gully Foyle's picture

Gold 911 conspiracy

Missing Gold A King's Ransom in Precious Metals Seems to Have Disappeared This image is found on the website companion for the television documentary America Rebuilds under the section Uncovering Property. The page, entitled A Treasure in Silver and Gold, describes the vault as two levels of 3,000 square feet each. See the source for the full-sized image. The page credits images to Leslie E. Robertson and Associates.

The basement of 4 World Trade Center housed vaults used to store gold and silver bullion. Published articles about precious metals recovered from the World Trade Center ruins in the aftermath of the attack mention less than $300 million worth of gold. All such reports appear to refer to a removal operation conducted in late October of 2001. On Nov. 1, Mayor Rudolph Giuliani announced that "more than $230 million" worth of gold and silver bars that had been stored in a bomb-proof vault had been recovered. A New York Times article contained:

Two Brinks trucks were at ground zero on Wednesday to start hauling away the $200 million in gold and silver that the Bank of Nova Scotia had stored in a vault under the trade center ... A team of 30 firefighters and police officers are helping to move the metals, a task that can be measured practically down to the flake but that has been rounded off at 379,036 ounces of gold and 29,942,619 ounces of silver .. 1  

Reports describing the contents of the vaults before the attack suggest that nearly $1 billion in precious metals was stored in the vaults. A figure of $650 million in a National Real Estate Investor article published after the attack is apparently based on pre-attack reports.

Unknown to most people at the time, $650 million in gold and silver was being kept in a special vault four floors beneath Four World Trade Center. 2  

An article in the TimesOnline gives the following rundown of precious metals that were being stored in the WTC vault belonging to Comex. 3  

  • Comex metals trading - 3,800 gold bars weighing 12 tonnes and worth more than $100 million
  • Comex clients - 800,000 ounces of gold with a value of about $220 million
  • Comex clients - 102 million ounces of silver, worth $430 million
  • Bank of Nova Scotia - $200 million of gold

The TimesOnline article is not clear as to whether the $200 million in gold reported by the Bank of Nova Scotia was part of the $220 million in gold held by Comex for clients. If so, the total is $750 million; otherwise $950 million.

There appear to be no reports of precious metals discovered between November of 2001 and the completion of excavation several months later. Assuming that the above reports described the value of precious metals in the vaulst before the attack, and that the $230 million mentioned by Giuliani represented the approxmiate value of metals recovered, it would seem that at least the better part of a billion dollars worth of precious metals went missing. (It is not plausible, of course, that whatever destroyed the towers vaporized gold and silver, which are dense, inert metals that are extremely unlikely to participate in chemical reactions with other materials.)

An article in The Sierra Times suggests that gold was recovered from two trucks in a tunnel under 5 World Trade Center, giving rise to suspicions that the trucks were being used to remove the gold from the vaults before the South Tower fell. 4   However, this report may have been based on an erroneous reading of other reports that describe the removal of crushed vehicles from a tunnel under 5 WTC in order to gain access to the vaults under 4 WTC to remove their contents. 5  

Why is there this huge discrepancy between the value of gold and silver reported recovered, and the value reported to have been stored in the vaults? There are a number of possible explanations, from outright theft using the attack as cover, to insurance fraud. Until there is a genuine investigation that probes all the relevant facts and circumstances surrounding the attack, we can only speculate.


Gold Humor

From the classic I'm Gonna Get You Sucka

Cheryl: Well, after you left, he started getting into drugs and stuff. Things got really bad when he...
Jack Spade: Well, what? Cheryl, come on!
Cheryl: He started wearing gold chains, Jack.
Jack Spade: Oh, God, no!


Everyday, I see kids walking around, killing and stealing for gold chains. I see kids with medallions so big they can hardly stand up, all stooped over and sh**, trying to carry that stuff. But, what's really awful, man, is you see a young brother with this cheap imitation electroplated gold crap around their necks. And, it breaks out in this funky green rash, with these bumps and sh**; it just makes you wanna puke.


I wonda how he went to the bathroom with all this stuff on?

O.G. buy o.g. mugs, tshirts and magnets adjective meaning "Over Gold" Taken from the movie "I'm Gonna Git You Sucka" - a 1988 film spoof by (and starring) Keenen Ivory Wayans. Jack Spade (Keenen) returns from the Army to his old neighborhood following the death of his brother, Junebug. The police determine Junebug's death to be the result of an "O.G.", or "Over Gold" — the victim has overdosed on gold chains. (excerpt from the movie - set at a crime scene)

Lieutenant: "So, what do you got for me?"

Officer: "John Doe, between 25 and 30 years of age, cause of death looks like "O.G.""

Lieutenant: "Over Gold!"

Officer: "Yep"

Lieutenant: "Any signs of foul play around here?"

Officer: "No sir, looks like a case of just too many gold chains"

DoChenRollingBearing's picture

Thank you Cheeky for the great summary of all the stink we smell in the macro-gold markets.

Since the Fed, Treasury, etc. do not want to let us in to SEE our gold, I can only conclude that YES, there is big-time monkey business going on.

A long time ago I worked for one of the "3 letters".  One thing I learned there that if there are ANY real "sexy" secrets that more than 5 or so people know, the information will get out at some point.

For gold to have been manipulated so brazenly and on such a large scale, I can only presume that we will learn more relatively soon.

I cannot see why the gold bears who stomp through some of the ZH gold articles cannot understand that having 5% - 10% in gold is not only OK, but actually very important in securing one's future.

Got gold?

sleestak's picture

Being fairly heavily invested in gold I often worry that the "gold is in a bubble" crowd is right.  But then I think about how few people around me (or on CNBC!) actually know about it or understand its function in the world's money system (past and present). It is when "they" realize the paper they hold in their wallets is valueless that they will come screaming into the gold/silver market and create a bubble (much as Europeans are doing now; Austrian mint inventories are under siege).  Till then, I'm a buyer. 

ranrun's picture

i'm speaking about the long term.  as we see here, anything is possible is the short term.

ranrun's picture

i always like to remind myself this is the first time in the history of the world that basically every country is operating on fiat currency.  if gold was a bubble then everyone would own it.  how many gold dealers do you know?  how many real estate brokers do you know? how many people STILL have it drilled into their heads that real estate is a good investment (when there 13mil empty homes, subsides, and a shadow market!)? when the last guy you'd think would buy gold on your block buys, then there is a bubble.  my friends make fun of me for being a gold bug.  i'm the crazy one.  "where's ranrun? probably digging a hole in his yard."

dumpster's picture

any one trying to make a case against gold at this time .

is a clueless blind person.. walking along with a zit faced grin lol

Gully Foyle's picture

Make what you will


I took special note of how 2,920 metric tonnes of “Gold Compounds” had been exported from the U.S. in 2008. This number seemed BIGGER than BIG – because the U.S is only alleged to have stockpiles of sovereign gold of 8,100 metric tonnes while annual U.S. mine production of gold is roughly 228 metric tonnes. This figure of 2,920 metric tonnes is equal to 36 % of all alleged sovereign U.S. gold stocks or more than 14 times annual U.S. gold mine production. So, I was left wondering, “just what is/are ‘gold compounds’?

I contacted the USGS and queried a qualified individual [who had working knowledge of this data stream] about the definition of “Gold Compounds”. I was told that, according to the U.S. Census Bureau – who supplies not only the definition but the actual reported numbers, gold compounds were typified by industrial type products containing low percentages/amounts of actual gold content – like gold paint.

I then reasoned with the USGS person, if such were the case, why would U.S. exports have increased in 2008 to nearly 3,000 metric tonnes [when the Global Economy was slowing and the U.S. Dollar was strong] from 2007, when U.S. exports totaled approximately 2,000 metric tonnes [when the U.S. Dollar was weaker and the Global Economy was booming]? I noted that this was counter-intuitive and made no fundamental economic sense:

When confronted with reason, the individual for the USGS agreed that the data, as published, did not make logical sense and explained that the U.S. Census Bureau was questioned as to the veracity of this particular line item in their data.

I asked the USGS employee if the gross weight or the gross value [not shown in the table but known to the USGS] of the “Gold Compounds” was queried.

The individual confirmed that their query to the U.S. Census Bureau dealt with the gross value being assigned to these exported goods.

I responded rhetorically, “being an issue of gross value – then let me guess that the U.S. Census Bureau is assigning an astronomically high value to these goods. Such a high value would be COMPLETELY INCONSISTENT with what the U.S. Census Bureau claims these items are- namely, industrial goods. The values being reported would be more in line with these goods being gold bullion or equivalents.

The individual from the USGS confirmed my reasoning when he responded, “that would be CORRECT”.


My reaction: US has exported 5000 metric tonnes of "gold compounds" over the last two years

1) 2,920 metric tonnes of "Gold Compounds" had been exported from the U.S. in 2008.

2) The U.S is only alleged to have stockpiles of sovereign gold of 8,100 metric tonnes while annual U.S. mine production of gold is roughly 228 metric tonnes.

3) 2,920 metric tonnes is equal to 36% of all alleged sovereign U.S. gold stocks or more than 14 times annual U.S. gold mine production.

4) An individual for the USGS agreed that the data, as published, did not make logical sense and explained that the U.S. Census Bureau was questioned as to the veracity of this particular line item in their data.

5) The U.S. Census Bureau is assigning an astronomically high value to these goods.

6) The values being reported would be more in line with these goods being gold bullion or equivalents.

7) foregoing data and discussion with the USGS individual is proof that the United States of America has surreptitiously exported physical gold - and continues to do so.

8) Public acknowledgement of these gold exports would scream like a siren call that the global financial community has totally lost faith in American financial stewardship

9) Over the course of 2007 / 2008 - more than 5,000 metric tonnes of "Gold Compounds" have been exported from the United States of America representing more than 62 % of reported sovereign U.S. gold reserves or about 24 times annual U.S. mine production.

10) No credible audit of the Sovereign U.S. Gold Reserve will EVER be allowed - because the gold is simply not there.

U.S. Trade Data Is Bogus

1) The value of these bullion exports significantly "skew" the doctored U.S. Trade numbers

2) When gold exports are backed-out, the U.S. Trade picture is decidedly worse.

Conclusion: Until someone explains to me what these “gold compounds” were, I am going to assume that they were half the US gold reserves leaving the country.

Gold, manipulation and domination
By Henry C K Liu


Overseas drain of gold from the US
By 1971, the US gold stock had declined by $10 billion, a 50% drop. At the same time, foreign banks held $80 billion, eight times the amount of gold remaining in US possession. A growing US balance-of-payments deficit meant that foreign governments were accumulating large amounts of dollars - in aggregate volume far exceeding the US government's stock of gold. The central banks of these governments could show up at any time at the gold window of the US Treasury and insist on trading in their dollars for gold, which would precipitate a run on the US gold reserve.


Investors emptying COMEX warehouses

In order to secure gold at the lowest possible price, US investors are turning to the complex, lengthy process of taking delivery of gold futures contracts. By buying gold contracts in deliverable months and wait for them to expire, sophisticated investors are emptying COMEX warehouses. The incredible hassle of trying to pry gold out of Comex warehouses appeals to investors because no other place in the US offers a price equal to the Comex exchange. Nothing even comes close.

Guiding investors through the delivery process are gold and silver brokers like JB Slear who specialize in helping high net worth clients take delivery of gold and silver futures contracts. These advisors are necessary because, as investors are discovering, that there is trouble at Comex warehouses:

1) Delays and complications in the delivery process have become increasingly commonplace. It is taking weeks and possibly even months, and sometimes dozen of inquiries, for investors to get the gold they already own out of the warehouse.

2) More restrictions are being applied to overseas buyers requesting delivery.

3) Some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.

4) The cost in just about everything "Comex" is increasing

5) Investors withdrawing their 100oz. bars from the Comex depositories are being given bars with incorrect serial numbers or weight.

With the difficulties and irregularities in the COMEX delivery process, many, including gold brokers like JB Slear, have doubts as to whether there is gold in inventory to match existing warehouse receipts.

It is absurd that, as gold pours out of the Comex, warehouse stock data shows nothing.

The sad part is that, even if Comex warehouse data is to be believed, there is only 66 tons of registered gold backing 1465 tons of gold promised for future delivery. So according to official data, there only enough gold to cover 4.5% of outstanding Comex gold futures contracts.

London Vaults also being emptied

Like Comex warehouses, London gold vaults are being emptied. Hong Kong is pulling all its physical gold holdings from depositories in the UK and moving their US$63 million worth of gold home to newly built vaults near the city's airport. Dubai is also planning to withdraw its gold from London. Meanwhile, private investors and Swiss ETFs continue to move gold out of London.

On top of investor demand prying gold out London and COMEX vaults, Germany and Switzerland are reportedly demanding the return of their custodial gold from the US. In the face of this onslaught of demand, the US/UK gold markets are crumbling

Widespread Abnormalities Across Gold Market

The strange activity in gold markets isn't limited to out of control open interest on gold futures or fictitious Comex warehouse data. Things are going wrong across the gold market.

1) Early this year, The NYSE-Liffe futures exchange ran out of 1 kg bars of gold. Instead of receiving 1 kg bars as per mini-gold futures contracts, clearing members are now being allowed to hand out little slips of paper, called "warehouse depository receipts" (WDR), which gives the holder 1/3rd interest in a 100 ounce bar. Customers are not being allowed to take delivery, unless they can accumulate 3 WDRs. The NYSE effectively substituted the supply of 100 ounce bars for the supply of 1kg bars, which has run out. NYSE-Liffe mini-gold (YG) contract specifications were altered some time after December 31, 2008 to hide this default.

2) On March 19, the Fed announced its plan to purchase US$300 billion long-term Treasuries, US$750 billion (toxic) mortgage-backed securities, and $100 billion (toxic) debt issued by Fannie and Freddie. This announcement was INCREADIBLY BEARISH for the dollar and bullish for gold. In the following two days, someone increased open interest in gold futures by shorting 34 tons (1,209,600 ounces) of gold. Who in their right mind would short gold following the fed's plan to go on a buying binge and load up its balance sheet with toxic debt?

3) Two major events happened in the gold market at the end of March this year:

A) On March 31st, Deutsche Bank delivered 850,000 ounces of gold to Comex contract holders.
B) On March 31st, ECB announced it had "sold" 35.5 tons of gold (1,141,351 ounces).

Circumstantial evidence and common sense suggest that the European Central Bank sold its gold to Deutsche Bank and saved the bank and the Comex from default.

4) In the last three weeks, significant irregularities significant irregularities have appeared in the gold bar registry of GLD, with the length of the published GLD bar list going from 1,381 pages on September 25, to 208 pages on October 2, then back to 855 pages on October 14.

5) GFMS data on the volume of gold traded on the London market (about 90% of gold traded worldwide) does not tally with the estimated amount of gold bars which conform to "London Good Delivery" standard.

6) On October 29, 2008, the TOCOM added a 'physically backed commodity ETF' as a possible physical for EFP (Exchange of Futures for Physicals) transactions at the exchange. An exchange for physicals (EFP) transaction is when a client gives an IOU for a physical commodity to a broker and that broker opens a short position on the futures exchange in that commodity. Normally, Exchange for physicals is the legitimate process used by producers to sell futures against their future production. However, if the IOU portion of the EFP is not from a commodity producer (ie: borrowed a GLD Ishares), then you have a problem.]

In summary, New York and Tokyo commodity exchanges are now permitting their gold futures contracts to be settled not in real metal but in shares of gold exchange-traded funds (ETFs). This essentially allows those short gold (and the exchanges themselves, which guarantee futures contracts) the ability to transfer their obligations to third parties (commodity ETFs) that may not have the metal they claim to have.

7) Half a ton of gold has disappeared from the Royal Canadian Mint. An independent audit released on July 3rd found no accounting, bookkeeping, or other internal errors could account for about 17,500 troy ounces of gold missing from the mints inventory. Fearing a "run" on its gold, Royal Canadian Mint is reassuring customers their deposits are fully accounted for and in secure vaults. A RCMP investigation into the $15.3 million missing gold is "ongoing." (If half a ton of gold could disappear from one of the most secure buildings in Canada, then Isn't it about time for US gold reserves to be audited?)

8) Rob Kirby is reporting some VERY SERIOUS developments in the gold market, which, although I have no way to verify them, seem creditable in light of everything else that I KNOW is going):

A) During the week of October 5, some large allocated physical transactions that were settled in London under VERY strange circumstances. Banks like JPMorgan and Deutsche Bank (who sold endless amounts of gold futures at prices of 950 to 1025) and then tried to make “side deals” with the folks they sold the futures to – offering them spot + 25 % (around 1,275 per ounce) to settle in fiat – after their counter parties demanded substantial tonnage of physical gold bullion.

B) A number of large interests have demanded audits of gold stored in London.

C) In an Asian depository, they've found "Good Delivery" bricks that had been gutted and filled with tungsten.

9) US-based clearing house CME Group Inc. is allowing physical gold to be used as collateral for margin requirements on all exchange products. This new CME policy is an act of desperation. The decision to “allow physical gold to be used as collateral for margin requirements on all exchange products”, against a backdrop of record prices and widespread abnormalities in gold markets, screams that something is wrong. The policy would never have been proposed unless JPMorgan really, really needed gold.

10) Statistics from United States Geological Survey show that the united states has exported 5000 metric tons of "Gold compounds" in last two years, and the US Census Bureau has assigned an astronomically high value to these exports. Until someone explains to me what these “gold compounds” are, I am going to assume that they were half the US gold reserves leaving the country.

The gold market is an accident waiting to happen

Basically, the gold market operates on a fractional reserve basis. On average there are several claims of ownership on each gold bar conforming to London Good Delivery (LGD) standard on the "pool" of gold which acts as liquidity for the massive OTC gold trade based in London.

Similarly, there are several claims of ownership on the gold bars in Comex wherehouses. If a sufficient number of market participants become concerned about this (which is happening) and there is a stampede to take delivery of physical bullion, the entire gold market will come crashing down, taking most of the global financial system with it.

Market failure isn't a risk, it is a certainty. The unregulated gold market is an accident waiting to happen.


You see it was oil in the ground that was used to secure gold in the ground through the paper gold market of the 90's. But those "gold in the ground contracts" would ultimately be backed by above-ground gold from the central bank vaults, at least to oil they would, or else oil agreements would be similarly discarded. This was the message Another brought. His insider knowledge that explained not only the volume explosion on the LBMA, but also the low ($300) price of gold happening at the same time as physical was drying up to the point that central banks had to provide supply.

People wondered how the physical gold market could be "cornered" when its currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up.

 ( Not Gold but I assume the strategy applies)

According to Davis, the scam starts in 2000 with the formation of the ICE - the Intercontinental Exchange. The ICE - founded by Goldman Sachs, Morgan Stanley, BP, Total, Shell, Deutsche Bank and Societe Generale - is an online commodities and futures marketplace that exists outside the US and operates free from the constraints of US laws.

After a Congressional investigation into energy trading in 2003, the ICE was found to be facilitating "round-trip" trades. This is where one firm sells energy to another, and then the second firm sells the same amount of energy back to the first company, at the same time and at the exact same price, as told by Davis.

No commodity ever changes hands

Quite shockingly no commodity ever changes hands, but the transactions still send a signal to the market, artificially boosting company revenue. Angry yet? There's more.

Because the trading is unregulated by Washington, its difficult to gauge the scale on which "round-trip" trading takes place.

But when DMS Energy were investigated by Congress, the company admitted that 80 percent of its trades in 2001 were round-trip trades. This means 80 percent of all trades in that year were false trades. Not a drop of oil changed hands, but the balance sheets showed increased revenue.

The idea is to hike up commodity prices. For example, according to Davis, after the ICE turned commodity trading into a "speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn't need the things that were not produced", Goldman Sachs were able to triple the price of commodities in just five years.

ICE can create artificial shortages and drive speculative demand

The beauty (or rather the horror) of the scam outlined by Davis is that because they control the oil markets, the ICE can create artificial shortages and drive speculative demand in order to charge consumers an extra dollar per gallon of gas. And whereas this may not seem like much, this $1 soon becomes $50 billion A MONTH as global drivers consume 1.7 billion gallons of gas every single day.

Whereas, at this stage, it would not be accurate or indeed wise to suggest what Philip Davis claims is either true or false, one cannot ignore the issue. There have been concerns for many years that global markets are controlled by a monopoly of mega-organizations, but there could be a strong case for suggesting the ICE is close to becoming just that - a super-organization with the power to push oil prices up or down.

Barrick shuts hedge book as world gold supply runs out Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold. You've heard of peak oil. How about peak gold?

Output hit a record in 2001 and has since been in decline

Peak Gold, Easier to Model than Peak Oil? - Part I


The site GoldSheetLinks provides gold production data since 1970 (though the data for Russia is wrong for the Soviet period) showing the main producers, which were in 2000 South Africa followed by US, and Australia in third place. But by 2008, the main producer was China with rising production, while South Africa, US and Australia are at the same level or declining.

RockyRacoon's picture

Here is the main symptom:

Who in their right mind would short gold following the Fed's plan to go on a buying binge and load up its balance sheet with toxic debt?

Who, indeed?  If we knew the parties involved most of the problem would be fixed.  There is no transparency in the PM markets.  Why can we not have a source for knowing who sold what to whom and when?  If it's all that honest a market then the data would be public.

Also, a "gold compound" can be gold and silver bullion produced by the U. S. Mint since all (exept the Buffalo gold coin) is less than .9999.  There is no doubt that a portion of the coinage is being shipped to foreign entities.

ranrun's picture

gold represents physical work that someone did.  work to find.  work to dig up. and until someone has a great argument to discredit the last 6k years of history, (more than trying to eat it...jackass) my bet is on gold.

Gully Foyle's picture


I think this applies to Gold as well as the Oil in the original article.

According to Davis, the scam starts in 2000 with the formation of the ICE - the Intercontinental Exchange. The ICE - founded by Goldman Sachs, Morgan Stanley, BP, Total, Shell, Deutsche Bank and Societe Generale - is an online commodities and futures marketplace that exists outside the US and operates free from the constraints of US laws.

After a Congressional investigation into energy trading in 2003, the ICE was found to be facilitating "round-trip" trades. This is where one firm sells energy to another, and then the second firm sells the same amount of energy back to the first company, at the same time and at the exact same price, as told by Davis.

No commodity ever changes hands

Quite shockingly no commodity ever changes hands, but the transactions still send a signal to the market, artificially boosting company revenue. Angry yet? There's more.

Because the trading is unregulated by Washington, its difficult to gauge the scale on which "round-trip" trading takes place.

seabiscuit's picture

Thank you CB, well, all except the CNBC. I still cannot make myself watch it. May your health be restored.

LeBalance's picture

CB, this "realisation" of the fractional reserve nature of the gold market *was* the *revelation* of the whole Andrew MacGuire thing several weeks ago.  This is an incredibly important finding and certainly deserves to be shouted from the rooftops, like every fifteen seconds.  But since it is a matter of recorded CFTC testimony from (if forgot their expert), why is this not referenced in your article?

What am I missing here, this seems to basic?

It was admitted that all commodity markets are treated as financial instruments, ALL of them, oil too.  Its basically a virtual American Idol popularity contest and never a real pork belly or anything market.

Johnny Bravo's picture

Gold is in a bubble, and that is why it will decline.

Goldbugs have been lucky so far only because they've converted enough Chicken Littles via the Glenn Becks of the world, who have an economic interest in promoting the "safety" of gold. 
Zerohedge and Glenn Beck are like newscasters that take advertising dollars from Toyota, and then pimp the Camry every day on their programs.
Gold is no different.

When you are left holding the bag, you'll see just how foolish you were to make irrational claims about the future of the economy.

Vendetta's picture

if that was true wouldn't the central banks be unloading their gold on the market to make fantastic profits instead of their selling drying up like a desert?

RockyRacoon's picture

Yeah, I junked ya, pea-brain.  There was not a coherent argument anywhere in your comment.  Come back when you can contribute to the topic at hand in a constructive manner.

Which of the many JBs are you today?  Your spelling and general sentence construction is better than some of the other JBs who have posted.

Hulk's picture

This video sums up the situation in europe quite nicely and very entertaining!

Got Gold?

harveywalbinger's picture

Funny shit.  Like a Monty Python bit...

DoChenRollingBearing's picture

dumpster, Rocky, Hulk.

Not one of these guys (haters) has said that holding gold as 5% - 10% of one's wealth is OK.

And even when I was a youngster like JB is now, even the most conventional money managers said 5% - 10% in gold was OK.

I do not understand how those guys cannot see wisdom in holding at least a little of probably the greatest asset that exists.

dumpster's picture

this person is an obnoxious zit head ,, with two pots and only one pizzer , DCRB

he owns nothing , has nothing , and is an obvious troll ,, with his grime pulling from underneath a bridge of slime ,

his replies are the same , just cut and pasted ,

his elck are found in cesspools ,, jumping at the meat someone throws on the floor for pimping views. tearing from the bones his character and paid for soul  


worth 2 cents and a penny change

Hulk's picture

You would absolutely have to be friggin insane to not hold gold or silver at this point in time. Where we are going now couldn't be more obvious... The entire western world is bankrupt and the entire system unraveling before our very eyes. I don't know what the hell these guys are looking at, but i wish them the best of luck...

Rebel's picture

I bet if/when things do go South, they will blame those with gold . . . hoarders, speculators, and gold bugs caused a panic that shook confidence in global currencies, leading to the mess we are in. Whoever is left standing, will be blamed.

RockyRacoon's picture

"Silver hoarders" were blamed for the move to clad coinage in 1965.

It was we felonious gold bugs who caused the shortage in 90% silver coinage.

Right.  I think Rome must have blamed the iron coins on some such construct.

Rebel's picture

When I was a little boy, my dad would go to the bank, bring home $ 1000 bags of quarters, and have me sit and sort out the silver ones. He would replace silver ones with clad, and then return bag to redeem at the bank. In 1965, still most were silver. Each year, bags would contain less silver quarters. By late 60's most of the silver had been filtered out of the circulating coins. It was sort of clever, in that if silver crashed, the quarters were still worth a quarter, and if silver went up, you had bought it at face value of the quarter.

RockyRacoon's picture

It is now illegal to melt down nickels and cents.  The metal is worth more than the face value of the coinage.  That's one thing that the anti-gold folks don't understand as well.  They say there is not enough gold to fuel a gold-backed economy.  Is there enough copper and nickel and silver?  Of course!  Coin up whatever small change you need to buy that loaf of bread.

dumpster's picture

J B  why the heck don't you read the stuff and reply to the ongoing problem .

how does it feel to be a lackey for some central bank drivel

rather than your always the same text about gold

your in my opinion the worst of the worst in your dredging up old out worn cliche' about gold

the information about gold and empirical evidence slams in the face your repeated no-nothing staged replies .

what you going to say at 1500 gold .. probably the same mush for brains stuff .

time is your worst enemy ,  as it will come .. in the short run provide classless clue less commentary .


in the mean time take care of the zits and the next time you need to tie your shoes ,, some here on zero hedge can clue you in



Gully Foyle's picture

Johnny Bravo

Gold is being manipulated just like stocks. Once the price is high enough the big players will sell. The price drops, the marks start selling. It bottoms out then the big players buy and hold. Eventually it gains a tad more in value with the rich getting richer and the poor getting poorer.

Even if that doesn't happen, at some point Gold hoarders will need to trade their shiny shiny metal for paper to use in their daily lives. If they do not do they plan to be burried with their Gold?


Father Coughlin ran the same scam with Silver.

In Shrine of the Silver Dollar (1940), Spivak said Coughlin "cynically used the prestige of a priest and the heart-tug of Christian charity as a cloak for a fast deal." Spivak showed that Coughlin was playing the stock market while denouncing this on air as "shooting craps with other people's money." Coughlin, secretly one of the America's largest silver owners, urged his followers to lobby for silver as the money standard. Coughlin's "monetary formsare of great help to the Rockefeller interests, [Henry] Ford and [William Randolph] Hearst" (Spivak, New Masses, Feb.5, 1935).
Rebel's picture

Yes, we will be left holding the bag. A nice little pouch filled with golden coins.

Many who buy physical gold have a different mindset. Our assets are tabulated in Oz's, not $$$, and that does not go down, no matter what $/Oz does. PM is like insurance. If I get a statement from state farm, and my premiums are lower one month, I am happy, because I either can spend less on insurance, or buy more insurance for the same $$. Same for physical gold. We are purchasing it as insurance. If we are wrong, and never need the insurance, fine, we continue working, getting a pay check and buying things we need. Insurance is something you do not need, until you do need it, and then it is too late if you do not already have it.

hognutz's picture

Truer words have not been spoken!   Just why I have it!

LeBalance's picture

As was admitted in CFTC sworn testimony: for every 100 paper trades in gold there is only 1 real ounce behind it.  When paper burns and the ashes clear those with physical gold will have sustained their wealth and those with *nothing* will not.


Seal's picture

USA monetary base as of 2010-05-19 = 2050.641 billion ; supposed US gold supply = 8300 tons ; == $7721/oz. I estimate the DOW and the POG will come to parity around here

Oracle of Kypseli's picture

I want to see him eat a dollar

steve from virginia's picture



Therefore the numbers are the amount of gold that changes ownership each day. The value of the daily trading for November 2009 is given as $22 billion. From looking at the data you might think that the trade amounts are for the entire month. But they are actually average daily figures for the month


There you go ladies and gentleman; the undeniable truth about the suppression of gold price using the same methods and instruments that are being used when it comes to banking, currency and OTC derivatives market.

Your conclusion doesn't reflect velocity on the price of the good traded. The churning of gold derivatives' trades would cause an increase in price by itself.

Also, there are better reasons for central banks and finance firms to elevate the price of gold rather than reasons to suppress it. Currency hardness is relational; exchange on demand for a valuable physical good at a reasonably stable rate of exchange. This describes the ongoing relationship of dollars to crude oil, which makes the US dollar a defacto hard currency. The effects of dollar hardness are being felt in China, Europe and in the US markets since the oil price stabilized beginning last November.

As more traders recognize the hard dollar they abandon trades that short the dollar. Since each is worth something valuable - a half- gallon of crude - the dollar is becoming much harder to short. This short- circuits the strategies of central banks that desire a revival of commerce which deprecates currency value as part of the process. The central banks are engaging in reverse- engineering: trying to push currency values down so as to generate commerce as an alternative to holding cash.

Unfortunately, the same real increase in crude value that supercharges the dollar makes commerce too expensive to be profitable!

If you think the dollar is hard now, check back next year.

The idea is that gold is an alternative to emasculated currencies which is a distraction from gold's true nature.

For all of the trading in the metals' markets, gold is not a currency, it is simply too valuable to circulate. Gold is more like a company's stock; it is an investment vehicle, another short- dollar trade.

Gold's value is why the massive expansion of derivatives. These are means to market the illusion of 'safety' to the unwise and innumerate.

Any 'fiat' currency/money regime built upon a gold platform would be no different from any other fiat regime. A gold specie system as existed in the US and in the early 1930's would be impossible as the gold would vanish from circulation overnight.

I think people should sit back and enjoy the current hard- currency regime superimposed upon our economies by our indiscipline and tendency to waste/destroy for no good reason. Our new hard currency will completely destroy the world's industrial economies and there is absolutely nothing that anyone can do about it.

Except go 'off oil'. Good luck onya for that one, Mate!

trav7777's picture

The USD cannot be a hard currency at these deficit rates.

Oil is also in supply decline- THAT is what will destroy ponzi economies.

All_In's picture

Thank CB for the information.

So, it is all well and good to understand the fraud in the gold market (which I agree it is crystal clear), but this old saying comes to mind, "you can't fight the FED"...why should we (individual gold buyers) continue to buy gold if it will forever be manipulated and never realize the true value?  Does anyone really believe that the great Oz behind the curtain will ever be exposed?

aurum's picture

Does anyone really believe that the great Oz behind the curtain will ever be exposed?


if we all feel that way we have nothing....take the physical metal off the market continously...educate others....we are near maximum entropy within this system and exposure will come in due time


breezer1's picture

the great oz is exposed and his system is in the process of collapse. don't be left holding an empty bag . physical gold and silver when the panic hits.