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Up To $80 Billion Gold-Backed Loans Are Falsified, Chinese Auditor Warns
As the probe into alleged fraud at Qingdao continues to escalate (with liquidity needs growing more and more evident as Chinese money-market rates surge), Bloomberg reports that China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, in "the first official confirmation of what many people have suspected for a long time - that gold is widely used in Chinese commodity financing deals." As much as 1,000 tons of gold may have been used in lending and leasing deals in China and Goldman reports that up to $80 billion false-loans may involve gold. As one analyst noted, this was unlikely to have a significant impact on the underlying demand for gold in China and as we have pointed out before, any unwind of the Gold CFDs would lead to buying back of 'paper' gold hedges and implicitly a rise in prices.
China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.
As much as 1,000 tons of gold may have been used in lending and leasing deals in China, where commodities including metals and agricultural products are used to get credit amid lending restrictions, according to World Gold Council estimates.
Of the as much as $160 billion in transactions projected by Goldman, $80 billion may involve gold, $46 billion copper, $13.8 billion iron ore and $10.3 billion soybeans, according to a March 18 report.
Steps by the Chinese government to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion.
The Chinese agency that stockpiles strategic commodities is checking to ensure its copper purchases are free of collateral risks while the customs authorities issued new rules to help prevent goods being pledged multiple times as collateral, people with direct knowledge of these matters said previously.
How the deals worked...
In some commodities financing transactions, owners of raw materials sitting in ports use receipts from warehousing companies to get credit from banks, which they put to work in high-yielding investments before repaying the debt.
Other deals involve a Chinese buyer placing orders for commodities with overseas companies and then applying for a letter of credit from a lender, which they use to import the materials. The buyer can then sell the consignment in the domestic market and use the money onshore at a higher interest rate before repaying the original loan.
But the flow is expected to continue...
“This is the first official confirmation of what many people have suspected for a long time -- that gold is widely used in Chinese commodity financing deals,” said Liu Xu, a senior analyst at Capital Futures Co. in Beijing.
...
Mark To, head of research at Wing Fung Financial Group in Hong Kong, said the audit office’s report was unlikely to have a significant impact on the underlying demand for gold in China.
...
The global flow of bullion from west to east that’s helped to make China the world’s largest user will probably last for as long as two decades as rising incomes spur demand, according to the China Gold Association.
* * *
As we commented previously:
When we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.
In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for. This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.
Here's our previous epxlanation of gold's move... if we are right that somehow China managed to push gold lower via gold CFDs, then the unwind pushes gold higher:
Here's how that might work:
In the gold markets, the paper or synthetic 'demand/supply' dominates pricing as opposed to the non-precious metals which have at least a grain of fundamental sense to them still
Throughout 2012/2013 - as the gold CFDs were booming, Chinese demand for physical gold was soaring as the price plunged (due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing)
As CFD unwinds hit en masse, these flows must unwind (cover hedges and ensure the underlying physical is there... and if not buy it)
This will pressure gold futures prices higher and because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also (as we know the demand for the physical has been high).
So unlike in the industrial commodities - where the CCFD unwind drives prices down as the image above shows, thanks to synthetic manipulation and domination of the paper gold (and silver) market, the opposite occurs in PMs.
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The world has liquor dick. Blow already!
Wooh-wee! This is gonna be the big one! As in a Fred Sanford style big one!
Falsies.
Keep stacking bitchez
This Situation Is TOTALLY FUCKED FUCKED FUCKED FUCKED FUCKED FUCKED FUCKED FUCKED - UP !!!
All GOLD News Indications Are That GOLD Would Be SOARING, Like $50. / $100. Per Day.
YET NOTHING!
The GOLD "SUPER MANIPULATION" Continues ???????????????????
Don't look a gift horse in the mouth!
In the summer of 2013 the LBMA traded 290M oz of gold per day according to Goldcore http://www.zerohedge.com/contributed/2013-08-02/lbma-data-beyond-smoke-and-mirrors
These hedges could be covered in a morning on that pretend exchange.
""These hedges could be covered in a morning on that pretend exchange.""
Your Correct...
China Or Any Other Real Trading Has Little To Do With It...
Yes, if the hedges are on the SGE then that would be interesting.
However, my understanding is that to sell forward on the SGE, you must first deposit a bar in the exchange vault.
The bars are not there so it is likely that the hedges were put on elsewhere.
Gold would rise under these circumstances in an UNRIGGED market
Just wait... and keep stackin'
There is not too much time left.
Financial guru my ass.
and Italian Uncle Warren (1 min 30 sec in)
https://www.youtube.com/watch?v=ff5PLY7Sn0U
"Up to" means "at least". Need to learn governmentese.
I don't bury my Gold. I have "Boating Accidents" and let the fish watch it.
Alas, my boat sank,so now I garden.
Gold is one of the best additions to a garden. It never looked better. Of course security is paramount...
I sold my boat for gold, what to do now?
Hope that KNower was wrong predicting the need for a boat because that metal will just drag you to the bottom.
Personally mine sits at the bottom of my fish tank full of piranahs (which I sadly underfeed due to lack of fiatscos to feed them) becuase of my stacking habit.
The fish tank has a big sign that says "Go ahead...make my day!"
$80 billion. Is that considered to still be a lot of money? That's 2.5 months of Fed electro-cash or a few Chinese empty cities. I'm having a hard time grasping the magnitude of this fraud since so many other frauds of comparable size seem routine now. What's the real cost in human terms ignoring all the junk investing that may be declared a loss?
snowflakes and avalanches
The avalanche is already starting to sweep down. What you can hear is the rumble of it in the distance as it picks up speed and rushes toward us.
This is nothing we have not been warned about. Another conspiracy theory becoming a conspiracy fact.
Logically one would now expect gold to increase in price, because some of it is clearly "missing".
The powers to be will say because somthing is missing, some must be sold to get the money togeter.
So are we going to see gold rise or drop?
Long term no doubt, short term, paper money out of both ears!
I have to agree with the premise of the article; this anouncement will be bullish for gold prices. Both because hedge will be bought back and because of the psychology of the gold market. "uncertainty" and hocus-pocus add weight to the arguments of the pro-gold buyers in wealthy european and Chinese families; who have family histories telling them already, that "currencies don't always work out as planned, or as promised". This information is certainly available to Americans, but it's a matter of first person experience for elder statesmen of European Wealth.
The implosion of the global eCONomy will be awesome, should the shadow banking sector ever be forced out of the shadows. This will only occur when people all over the world stop trading and start starving. Still accepting worthless paper promises in exchange for your labor? Tick tock....
Get long guillotine manufactures, beat the rush.
You mean when the Fed comes out of the shadows.
Please. Look at history, like other central banks/bankers, the Fed will simply cease to exist along with all the real assets that used to be in the treasuries of the government they stole from.
We need to remember the names of these fuckers such that we can hunt them and their children down in the future. I'd argue many are hiding in plain sight already.
Why wait for the future tough guy?
Let us know when and where, many of have already served, have you?
Served?
A head on a silver platter?
Optimist.
"Where there's a steal, there's a way" -Kirk
Same as always. You'd think that people'd learn: Trust if warranted, but verify anyway.
Now do people still expect China and Russia, not even mentioning India, to act differently than WS re gold?
Human nature, biaches.
So what! All that means is that China is the same as the west.
excuse me while I... WHOEHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!
I'm shocked...
Gawd, I hope the lock and hindges on my safe are up to the exponential value explosion this implies.
I hope your hindges don't suddenly become un-hindged!! ;-)
I hope that neither of you enter a spelling bee.
Spelling nazi? Really?
"Verbogeny is one of the many pleasurettes afforded a creatific thinkerizer!"
it's only paper and will be papered over.
$80 billion falsified? They are pikers - the Fed and the BOE have falsified trillions
Don't worry, they are still learning
Don't worry, they are still printing... Fixed it for ya!
But $80 billion falsified gold means almost 2000 mt of physical at highly suppressed price. Nearly one year gold production has been defrauded, and that's something!
And that's just what we know right now, most likely the tip of the iceberg.
Very astute points, which is why this will start making headlines in the MSM soon.
Wait........what?
Please fasten your safety belts, and be sure to keep arms and other extremities within the car for the entire ride. Have a pleasant day.
Oh, so this is one factor as to why the price of gold has not been going up as much as it should, because the Chinese were not really buying as much as was being said!
Another factor is outright price manipulation, of course.
Wrong - paper and physic gold - 2 different things... They just do what west was doing all time to get free cash.
Why the fuck they should use real gold to get money?)
I'm saying that even the "real" gold purchases are probably largely falsified, just as the copper metals et al scandal and the tungsten filled fake gold shipments. The world financial and trade systems are more corrupt right now than in the 1920's and 30's! Who knows what was really bought and what was just mainpulating posturing?
No. The purchases are correct.Its what happened after to the metal.
Just like the gold in Ft.Knox was there once.
How do we know the purchases are correct? Did you see that one Zero Hedge article about fake tungsten gold shipment in Hong Kong that was quickly whisked into China before it could be thoroughly examined?
Knowing what I do about Chinese culture, and I do know more than just a little bit, I'd say anywhere they can lie and score some money for their family to use, they will lie and score some money for their family to use. So unless the gold was all examined, all guarded, and all nailed down, then I would not feel sure that it ever existed in the first place.
Just because someone is lying about the paper, doesn't mean they can't be lying about the underlying asset too.
I get the feeling that the warp field coils are breaking down and the separation of Matter (Credit above the line) and Anti-matter (Debit below the line) is in danger of being crossed. Once Debit and Credit get too close to each other they will annihilate each other releasing Bank Obliterating Restructurions. Only cold gold when present under deep pools of water (such as the caches in place from unfortunate boating accidents) can provide much protection from such a meltdown.
Well if they want a real economy they should use real gold to underwrite the loans. But if they only want a paper fiat economy based on a lack of assets, they they could use any old thing for that.
And anyway, if the paper is rehypothicated to such an extent, why would anyone believe that the real gold shimpents are all legit? Did someone get on the boats and look over every bar? I doubt it.
You're assuming the physical is there. You know what they say about assumtions don't you? When you assume you make an ass out of u and me.
The gold does not exist. The non-existant gold is hedged. They shoot people in China for fraud. Perhaps Goldman and BOAML can once again tell us once again to sell gold.
To them...
This mess translates to full employment with overtime for Chinese firing squads.
Someone please push the first derivatives domino so we can help get this world de-levered where it belongs
$80billion yeah sure.
Try $200billion and you'll probably be far nearer the truth.
Folks, if you haven't worked it out yet the equation is very simple -
Banks and/or finance houses + Financialisation = Fraud (not all the time of course, but lots of the time).
This is going to end well.
Speaking of falsified gold, how is that German repatriation thing going?
Anybody check Fort Knox lately?
Fort knox empty
But, the Patton Museum is still open.
....as is the PT Barnum museum.
The Chinese agency that stockpiles strategic commodities is checking to ensure its copper purchases are free of collateral risks
BWAHAHAHAHAHAHAHAH
$80B = 2000 tons. So please explain:
"As much as 1,000 tons of gold may have been used in lending and leasing deals in China and Goldman reports that up to $80 billion false-loans may involve gold."
Each loan, be it a healthy or an unsound one, has only a small portion of gold?
Or most all majorally gold collateralized loans are unsound?
Or the numbers are off?
Fraud in the reports of Chinese fraud? Say it ain't so!
That is a derivative
I was wondering about that, but whatever. I think the important point of the article is that supply and demand for physical gold, rather than all the paper games, will start playing a bigger role in setting price,. Looked at another way, the demand that previously was satisfied with paper promises will now insist on physical. Price should rise.
A leases 1 ton of gold to B, who pledges it as security for a loan to C, who includes it in his asset base, already we have 3 tons of gold in the system and we haven't started playing tricks yet.
Between all the futures contracts, lending, borrowing, options, and so forth, you could turn 1 ton of gold into 1000, and if you ask where the gold is, everyone points to someone else.
Carry this on far enough and you don't even need the actual gold, it can all be done with paper.
I never knew how you can lease an asset and then both the leaser and the leasee think both people can use the same asset as colateral. It is nonsense.
Can your renter use your rental apartment as collateral to buy something like a car? It makes fundamentally no sense.
How can a financial system be based on that and allow countries to grow?
It is time to rename gold as "Physical gold" and sever the link. The paper tail is wagging the real dog....
I don't understand your confusion. In your wallet are printed pieces of paper, fiat currency, issued by a Central Bank that fundamentally believes in exactly that - what's your's is partially or wholly mine as well.
In my wallet are only a few FRN. I try to do everything with credit cards and pay them off monthly.
I try to keep the debt notes (FRNs) in my wallet to a minimum.
I am getting concerned that I might be getting too much PMs... Someone told me here on ZH that 50% was too much....
Then all those loans, 1000s, have gold figuring in 'em. So my question still stands. Something is wrong with the article analysis or facts.
1000 tonnes of gold used as collateral for 50 different loans. Probably more like $400 billion in unbacked loans - or more...
Falisified...such a harsh word.
I agree.
Re-hypothicated sounds much more scientifically obscure.
The bullion banks seem to have plenty of paper gold, so I would think shorting 1000 tons of it so the Chinese can cover shouldn't be an issue. Hell, it seems like on a good night they'll dump that much in 30 seconds.
It sounds like the Chinese took paper gold lessons from the FED.
Fractionally reserved to air.
Germany is happy now that the Federal Reserve told them their gold is gone. What can Germany do about it? Nothing.
Slap a special export tax on Mercedes deliver to the USA. The rich will pay.
Those Chinese commodity traders really like to put the cart in front of the horse...
Once Gold starts its rise there will be a lot of new fiat coming into the physical and paper markets. I also wonder how many derivative bets are based on the price of gold. I guess we will find out. This thing could get out of control.
Could?
When is past tense, no?
Titanium back loans remained strong however.
blah blah blah...something about holding it, not owning it...blah blah...i don't know.
The Central Banks of the world have leased out at a minimum 25% o their holdings and maybe as high as 50%.
Now, this is NOT rumour, it's fact. The Central Bank of Portugal lent 17 tonnes to Drexel Burnham in the 1980s. Drexel sold the Gold to re-invest the profits into something else, probably junk bonds.
When Drexels went under the Gold claim was bascially lost and as of now, 25+ years later that 17 tonnes of Gold still hasn't been returned.
Moral of the story - when you lend it out you might think you'll get it back (look at all all the legal paperwork, that makes it 'secure') but chances are you won't because Wall Street/London are too smart and criminal for the high level bureaucrats to handle.
>>> ...unwind of the Gold CFDs would lead to buying back of 'paper' gold hedges and implicitly a rise in prices <<< I don't agree. To me, loans have been made pledging gold as collateral, and there is a suspicion that the collateral isn't there. Either (A) the loan is repaid, or (B) it isn't. If (A) - no pressure on gold price (whether or not gold was properly pledged) If (B) - Either lending party will be selling gold (if there is gold properly pledged) (so downward pressure on gold price), or lending party cannot sell gold (so no pressure on gold price) So overall effect is _downward_ pressure. Further, think about the macro position. There might genuinely be potential borrowers who are prepared to buy gold and use it to pledge against the cash borrowings they wish to take. However lenders, seeing these reports, will no longer be prepared to do this business, so the potential borrowers will have a reduced desire to buy gold, because the 'pledging against loan' option is no longer there. So another source of downward pressure on the gold price, from demand reduction. Watson
I was thinking that in the short term, downward pressure on price. Unless you are taking physical posession, the paper you are holding may or may not be backed by some real gold. I would think if you don't know for sure, you would dump it to get whatever you can and hope not to be the chump without a chair when the music stops.
I have similar thoughts - one must know who is on the other side.
That is, I personally would demand the gold, however, a financial institution (generally) would want the cash (so to speak).
But in the end, a default is a default. In bizarro land, it's extend and pretend. I think once creditors start demanding actual repayment (or liquidation of the underlying collateral), then we get back to the 'good ole days' where companies and people GO BANKRUPT AND LOSE IT ALL.
Until creditors start forcing liquidations, this crap can go on forever. Even if they can prove the underlying collateral is gone, unless the creditor forces the issue, it's all extend and pretend. When TPTB are the ultimate creditor, then it makes sense why forced liquidations are not happening for now.
The loans were falsified but not bad. The mechanism was designed to allow dollars to be converted to local currency without being limited by currency controls. Buy gold with $ from selling useless junk to the US and then use the gold as collateral to borrow local RMN currency for real estate speculation. Short gold as a hedge against falling gold prices due to real estate being the favored speculative vehicle. Selling the real estate would free up the gold as collateral but it wouldn't mean selling the gold or covering the hedge. I think this stuff is completely meaningless as a driver of the price of gold just as all these claimed sure fire gold to the moon hopey hopes that get printed about gold. Since August 2011 gold has spectacularly failed to make a new high, it is in a confirmed downtrend until it makes a new high. Until then, be prepared to keep buying it lower and lower because it's not in an uptrend now.
Clearly $1320 is the Maginot line and gold bulls have no ability to get around that line.
Corruption and fraud worldwide.
Fractionally reserved reality.
Contracts written 1,0000 times for one real item. Ponzi extraordinaire.
+1 for fractionally reserved reality.
Asset based lending! We don't need no stinkin' asset based lending! Vamanos! Print you filthy bitchez! Print!
As far as any price action move, I really don't give a shit other than it becomes more expensive to buy. Now if this helps lead to the destruction of the paper markets then we are talking. My guess is that when the gold move happens, it will be so quick that people's heads will spin, just like the inevitable stock market collapse.. If you're not on board the train before it takes off, you're fucked.
Disgusting...the shit's happening in broad daylight.....
Holding out hope that (at least in China) there's CONSEQUENSES for FRAUD....
Remember, Hang a Banker today.
My Chinese friend he say Chinese cannot say 'wehypophicated'. So he say "If no say - must be no faud".
Ahh, my meds are hereat last.
OT but awesome http://news.yahoo.com/high-court-rebukes-obama-recess-appointments-14131...
http://www.youtube.com/watch?v=rX7wtNOkuHo&&feature=kp
Gold. Flesh of the gods.
GS is "doing gods' work": collecting gold for Aliens. In a manner of speaking.
p.s. Define "gods", and define "Aliens", to use decoder ring.
Now you know why there was a big ass Gold spike last week. There is going to be a lot more $0.5 Billion futures contracts coming any day.
80 billion dollars = 1745 tonnes = no horse xxxx.
Foster. I wouldn't be surprised if last week's spike was insider trading, those in the know bought what they could, they weren't buying to cover shorts and or paper claims.
If I'm right (and I'm only right 50% of the time) the next wave could be some real panic buying a la a bit short squeeeezzzzzzzy.
Whatever the case, I'm a buyer on the 1st of every month, physical of course :).
@Calculus99
15th,16th and 17th of the month is normally the cheapest to buy.
But, wait a minute, I have a reciept! All the accountants said this was a good transaction....
If I don't hold it, I don't have it. Fuckin A, only the first rule...
If CCFD causes the price of copper to go down, why has the price been moving up for the past 2 weeks?
The Chinese did this? Impossible! They are the worlds next superpower, they can't do something as stupid as this! I don't believe the Chinese would do this.....it's a lie by the haters of the wonderful Chinese people.....
I understand your sarcasm. I have lived in China and that area for a while so I don't have any naive ideas about their magic powers. I couldn't stand when Western manufacturing, already perfected and ready to run, was just plopped down in China, then everyone started gushing about how advanced the Chinese were!
My favorite was the idiots who raved that Chinese had invented paper, porcelain, and gunpowder over a 2000 year period, and doesn't that just prove how amazing the Chinese are.
I tried to argue that all humans on this earth have also invented things to write on, containers to put things in, and weapons to fight with, but to no avail. The Chinese cash-in craze outweighed simple observation.
Well, once China shows itself to be as corrupt and incompetent as the rest of us then I guess the Sino worship will end then.
But they will still have most of the world's manufacturing capacity (thanks to Western political and business "leaders") and the world's biggest domestic market.
India once had a massive railroad infrastructure, but only installed it, didnt invent or improve it. closed cultures do not progress
"But it says right here on thbis piece of paper that I own xxx ounces of gold....see?"
Gee, if peeples haven't learned yet, If you don't hold it [and guard it] it will be gone....Poooofffffffff!
"Son, those are 'trading sardines', not 'eating sardines'".
(From the classic Wall St. joke)
As Bloomberg reports
Look, over there!!
I mean such a thing could never happen over here. /s
gold is a barberic relic......unless you live where I do in Thailand. Here gold is money. Gold Bitchz!
So Goldman is saying the lion's share of these babies(65bil out of 80bil) are held by foreign banks, again, just like copper.
On a side note, strange how Goldman seem to know the numbers so well on fraud but can't even make one acceptable economic growth forecast... is it really research?
Good news. This ought to get a few more jumping.
Bad for art sales though. That's ok. I rather see them jump.
Add another commodity to the queue. China Forestry Holdings corporate debt default.
Don't the gold coins wit choclate inside count?
1000 tons x 1000kg = 1.000.000 kilograms *32oz =32.000.000 oz *1.300usd= 41.600.000.000 USD in todays prices.
and the loans are (see text) 160.000.000.000.
this is ONLY 4x the physical.
In the City they go beyond 50x. China has a way to go......
Right, I was just thinking while 80B seems like a lot, as a % of the 'market float' or something similar, is this more dramatic or less dramatic than soybeans etc? your example here I think jives with my hunch that its not as significant.
if you look at a chart of DBA which is all ag...that may have been a part of the mechanics described in the article. while we might hope gold does something similar, it could be much less significant, maybe only 5-6%. then followed by the general less activity in the gold mkt by the china financing phenom----general deflation. also when the loans which do not have collateral are called, wont other assets be sold to pay the loan...stocks, commodities etc .....the classic debt destruction unwind into a bidless mkt???
Silver Bitchez!
This could explain the $50 move up last week. We should see a few more nice moves up as the new contracts roll.
SERIOUS QUESTION:
If banks routinely show they can't be trusted to WAREHOUSE a physical commodity for which they are hand-receipted and legally accountable to produce on demand, why do people trust them with their currency, for which they are NOT LIABLE and DO NOT HAVE TO PRODUCE ON DEMAND????
Isn't that kind of like giving a junkie the key to the medicine cabinet?????
The games central bankers are playing in supporting their and other currencies has reached a dangerous level, we may be in the "red zone". Currencies are important chips in the commerce of government and the business of running a country.
History has shown that in the past both leaders and governments have fallen with the demise of their coin. If people lose faith in the system it could just come crashing down around our ears. At a time when billions of dollars can be traded in just the blink of an eye imagine how fast things could go to hell. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/01/currencies-games-in-danger-zone.h...