Open Letter to GATA

Dear GATA and Mr. Chris Powell:

I am writing this in response to your article Monetary Metals’ Weiner refuses to see anything wrong in the gold market.

There is a certain irony for me to read that I refuse to see. I have spent eight years studying the mechanics of the market, building a model, developing software to run the model through several generations, and licensing nearly three terabytes of data giving ever bid and offer in both the spot and futures markets with sub-millisecond resolution, going back to 1996.

In my previous company, I architected a massively scalable 3D voice server. In a normal world, I would be working on another Internet software company. Instead, I made a huge investment in drilling deeper into the gold market. The reason is that I am driven by a powerful need to see.

Two theories compete to explain the gold and silver markets. One, the conspiracy theory, holds that the big banks are naked short futures in a long-term effort to keep the gold price far below what it should be. The other, my theory, is that the banks are primarily market makers and they do not hold a massive and perpetual short position.

I proposed a way to test whose theory is right: to look at the behavior of the gold basis as each futures contract heads into expiration. In my recent article, Thoughtful Disagreement with Ted Butler, I published the experiment and the data. The results are conclusive. Whatever else may be going on in the markets, the alleged massive, chronic naked short position in futures does not exist.

In that article I encouraged—and still do—anyone to criticize either my method or my data. So far, no one has come forth with any serious criticism. At the time, you dismissed it as mere “technical analysis. It is not.

In your latest, you say that I “would need to know the details of every gold-related transaction…” No, I would not need to know that. Just as if someone stands on a scale, I do not need to know the details of everything he ate, or the name of his personal fitness trainer. I can read the needle.

You continue that “…leasing gold is not really ‘carrying’ the gold for the duration. He is carrying the liability.” Let’s drill down. The market maker simultaneously enters into a set of transactions:

  1. Borrow dollars
  2. Buy gold bar
  3. Sell gold future for a fixed duration (e.g. 6 months)
  4. Lease gold out for same duration

The market maker does this to earn a profit, which is basis + lease rate – borrowing cost. In other words, the market maker is carrying the gold position. It does not own the gold. It has sold the economic ownership, i.e. price exposure, to the buyer of the future. It is carrying the metal.

Now let me address the second part of your headline, that I deny that anything is wrong in the gold market. Actually, everything is wrong in the gold market, starting with the very use of fiat money, and the fact that we buy and sell gold in the first place.

Aside from that, there should not even be a gold futures market. There should be a gold interest rate market—i.e. a gold bond market. There should not be propaganda in every government school, teaching that money means Federal Reserve Notes and that gold is a volatile commodity. There should not be investment regulation that forces advisors to treat gold as risky, or an investment (it is neither).

There should not be a Fed-induced perpetually-falling interest rate which fuels endless asset market speculations including gold. There should not be a general belief that investing means seeking capital gains provided by the next investor who hands over his capital as your profits. There should not be capital gains taxes on gold, and taxpayer should not be forced to keep their books in dollars, which show a phantom profit if their gold holding increases in price.

One of the consequences of this lust for capital gains combined with the belief that gold is just another chip in the casino, to bet on the price action, is the gold futures market. Futures markets developed as the way for people to coordination storage and later consumption of commodities which are produced seasonally. Gold is not produced seasonally (or consumed).

I could go on.

Let me clarify one other point. You ask, “If central bankers do not think about gold, why is their agent, the Bank for International Settlements, constantly swapping and leasing gold…?” I will clarify my point. The central banks do not care about the price of gold. They have no motive to conduct a long-term suppression scheme. If gold is $200, $2,000, or $20,000 it makes no difference to them. Gold did not circulate as money when it was trading in the $200 range. There was no sign of circulation when it traded at nearly $2,000 in 2011, and it will not circulate when the gold price reaches $20,000.

The central banks are in the gold market to make money—which all agree means dollars. They seek to earn fees on what would otherwise be an asset with a negative-yield.

The irredeemable currencies will continue to do what they are doing—which is be used for every kind of transaction in trade and finance, while they gradually fail. That failure is not the thermonuclear blast of hyperinflation expected by the gold bugs. It is the slow sinking under the water line of drowning in debt.

And at the end, when America collapses as Rome did, and there is blood in the streets—look to Caracas Venezuela for as small preview of what this will look like—gold will be far too precious for anyone to want to show his neighbors that he has it. Which pretty much describes the Dark Age that followed the collapse of 476AD.

In other words, the central bankers should be afraid that their system is failing, but they are not. One thing is for sure, gold is no more a threat to them than a 1955 Ferrari. Both are just chips people use to bet for dollars.

You make one other remark, “Weiner is in the gold arbitrage business and complaints of manipulation of the gold market by governments and central banks may be bad for that business…” The second part is simple, so I will address it first. Monetary Metals is not affected by the price of gold. Monetary Metals is not a bullion dealer and does not buy or sell gold. We do not promise clients that gold will go up. We have long argued that gold does not go up or down, but that it is the dollar which goes down or up.

As to our business, Monetary Metals has two products but they are not based on gold arbitrage. I write about arbitrage, which is the basis (pun intended) of my weekly writings on the gold basis. That is for insight into the likely direction of the price of the metal. The gold basis is the basis for the only true fundamental analysis of the metals.

Our flagship product is gold fixed income. We pay interest on gold. We do that by providing the gold to jewelers, manufacturers, and others who use gold working inventory or as work-in-progress. They need to finance this physical gold, and are happy to pay interest. Investors want interest, and are happy to provide the gold. It’s a win-win deal. It is honest finance, unlike much of what passes for gold “lending” in bullion markets today.

We are doing this for a simple reason. I believe—and I’ve written a lot about this over the years—that interest is the regulator of flows of gold. If the interest rate is zero, gold cannot circulate. It disappears into private hoards. It may be traded for the price action, but it is not used in finance or as a medium of exchange.

We believe that paying interest on gold paves the pathway for the world to move forward to the gold standard, “creating good conditions for the gold business and restoring free and transparent markets”.


silvermail Pearson365 Wed, 03/14/2018 - 12:28 Permalink

The author claims: We have long argued that gold does not go up or down, but that it is the dollar which goes down or up.

But this is a lie. Or half lie. Because in addition to the concept of "gold prices in US dollars," there is such a thing as "the value of gold against the basket of consumption."
If we consider the value of gold against the basket of consumption without the participation of the US dollar, it becomes obvious that the value of gold today is artificially suppressed.

In reply to by Pearson365

InnVestuhrr Wed, 03/14/2018 - 10:56 Permalink

Fiat is reality forever due to human nature, ie humans cannot live within limits, like abstaining from sex.

Shiny shit was always a failure as currency limiting excessive spending and debt, which is why it's use was always debased, inflated and eliminated.

Dabooda anarchitect Wed, 03/14/2018 - 21:22 Permalink

"Educate enough people and they will use the political process to eliminate capital gains taxes on gold and silver."

Pure wishful thinking. The people who control the political process (and that's NOT voters) will never voluntarily give up the privilege of printing money for themselves and those who support them. The RNC, the DNC, and the elites who fund their campaigns like things just the way they are. Oh, and they ALSO control what's taught in schools -- like "paper is money, gold is a pet rock." And good luck with educating an electorate that mostly never reads a book after they leave high school.

In reply to by anarchitect

FIAT CON InnVestuhrr Wed, 03/14/2018 - 18:33 Permalink

I thought we went through this already today on the other gold article.

Gold will always have it's place and as Venezuela continues sooner or later all fiat con's will fail and tangible items will be money not fiat.

Venezualen's cannot get rid of their Fiat fast enough hence it has no value...Supply and demand.…

Even if you tripled your fiat investment it's still worthless unlike gold!

In reply to by InnVestuhrr

JerseyJoe Wed, 03/14/2018 - 11:12 Permalink

My data is good - I have worked on it for years....I have lots of data.   I have software... lots of it.    

I love how this idiot argues while making blanket statements about "gold bugs."   A-hole.


BobEore Pearson365 Wed, 03/14/2018 - 11:43 Permalink

Everybody who has failed to make gold work for them over the past decade loves to dump on Keith. Who has made a business of making gold work for him. Physical gold. I'm not big on this business model of his... but

butt... I'll take Keith n Bron any day of the week over a pack o daft zhombies whose ship went out about the time the tide went out on GATA. Free enterprise business versus the whiny holdovers of a pump n dump which left its inevitable trail of helpless bagholders rooting for every neo-communist & totalitarian shithole on the planet.

Hard choice.

You don't suppose they all be a lil .... envious o the winners do ya?


"Oh I'd love to be an Oscar Meyer Weiner... "

In reply to by Pearson365

DanDaley Wed, 03/14/2018 - 11:31 Permalink

Watch this brief video about whether the gold market is manipulated. Specifically, Rickards' reference to statisticians' findings with respect to the chances of market closes and opens of gold over a 10 year period. 


The chances of these patterns occurring in an un-manipulated market are ZERO! Look at the forest, not just the trees! DeMartino-Booth (unfortunately, because she is well informed in most other respects) falls for this same "there is no manipulation" BS also.



BobEore Bay of Pigs Wed, 03/14/2018 - 11:49 Permalink

I wonder if the factual evidence that JPM & CHINA stepped in big time to manipulate prices  -even moar than before- ... so as to scoop up shiny on the cheap... \was one of the main reason the price o gold was taken down back down?


Naw. That's conspiracy talk> we prefer to chatter way bout faceless villains and elusive abusers!


cue: beard muttering/gnashing of fangs from behind floorboards!

In reply to by Bay of Pigs

BobEore Bay of Pigs Wed, 03/14/2018 - 21:22 Permalink

My 'difficulty of understanding' stems from having rigorously researched both ...

who did the actual work involved in sussing out the original 'manipulations' of markets for metals \hint: NOT who you claim it to be;/

extensively reading the actual writings of the two guys who actually DID do that work /hint: THEIR names are NEVER mentioned here, save by myself /

then compounded my 'misunderstanding' by taking the real implications of that research...combining it with the evidence of 'my own lying eyes'... to come up with a novel precis about who was doing serial market manipulations... and why,

as well as bothering to closely read  Bob Blumens' seminal  MISUNDERSTANDING GOLD DEMAND

thereby properly inoculating myself for all time from the distortions of devious precious metal pushers...

and then executed a strategy which saved me from getting hagholdered like the whiny anti Weiner crew... by buying and holding gold in the right format from the right sources at the right time and thereby NOT MISUNDERSTANDING

THAT ... after placing my comments in response to the downer dirges of the dead enders here... I would be able to retire for the night secure in the knowledge that when I returned here from my sleep cycle, I would find NO substantive rebuttal of either Weiners' post... nor of my own small contribution...

only the usual squeeks n squacks of a squad of odd jobb who mistake their mistaken conceits and petty vanities for a financial position and/or investment strategy. But I am impressed that for once you did deliver your reponse in a forthright manner not involving any overflow of invective. You've earned this Cohiba... on the house. Lighter er up Jefe!

"Los que sabe no sabe.... los que no saben saben!

In reply to by Bay of Pigs

fbazzrea Wed, 03/14/2018 - 13:41 Permalink

there's no manipulation... the banksters wouldn't do such a thing. and their settlement agreements for price manipulation were just a figment of our imagination.


Kokulakai Wed, 03/14/2018 - 13:55 Permalink

I have no doubt that Mr. Weiner has a firm grasp on what it is he does.

I just don't always understand it.

Here is how I read his business model.

Anthony pays interest on gold that he no longer has in his possession as he has given it to others on time.

I know one thing for sure about gold:

If you don't hold it, you don't own it.

KrazyUncle Kokulakai Wed, 03/14/2018 - 14:07 Permalink

Our flagship product is gold fixed income. We pay interest on gold. We do that by providing the gold to jewelers, manufacturers, and others who use gold working inventory or as work-in-progress. They need to finance this physical gold, and are happy to pay interest. Investors want interest, and are happy to provide the gold.

In one sentence MM provides the gold, and in the last sentence the investors provide the gold. Makes no sense. If they provide it to others, they dont have it? Is he even talking physical here in any sense of the word?

In reply to by Kokulakai

KrazyUncle Wed, 03/14/2018 - 13:57 Permalink

The market maker simultaneously enters into a set of transactions:

  1. Borrow dollars
  2. Buy gold bar
  3. Sell gold future for a fixed duration (e.g. 6 months)
  4. Lease gold out for same duration

The market maker? On what exchange? I sell a gold future, someone buys it. There is no market maker. Does he mean central bank interventions?

If so then he simply goes back to supporting the way the market functions even though he agrees it shouldn't function that way.

1. Borrow dollars....the banksters don't need to borrow dollars.

2. Buy gold bar. From who? Other banksters.

3. Sell gold futures....on the same ounce over and over. Rolling over futures keeps the price down, minimizing losses and the need to deliver physical.

4. Lease gold out.....make money out of thin air!

JerseyJoe Wed, 03/14/2018 - 17:27 Permalink

The CRIMEX OI on Silver is once more over a BILLION OUNCES!!!!   According this turnip off the short bus, the seller has all of this in Phyzzz but yet ALL of the silver (registered and held as eligible) on CRIMEX is only 253.7M ounces...

So very the basis for his original whining attack on Sprott and others is pure BULLSHIT.   f-ing idiot.   He has to justify this BS analysis for his customers but I have to believe when they read his BS, they walk away.    

Manipuflation passerby Wed, 03/14/2018 - 20:43 Permalink

Just keep stacking.  Even if seems to be not that much it adds up over time.  The work of accumulation that I do now is not for me, it is to be passed on to my children with the instruction that they must continue on with the process to their children.  I have no retirement fund per se.  I don't dream of luxury. 

I heard a great quote today.  "If you are afraid to grow old then you must die young."  Makes you think.

In reply to by passerby