Apr

22

This is a very interesting documentary about gold: "The Secret World of Gold". It just aired on CBC. The premise is that central banks have leased out gold, bullion banks have sold it multiple times over, and there is a big gap in physical gold that is supposed to be in vaults vs the claims that counterparties/customers have on it. But before that there is some really interesting historical stuff about gold at the front end. This was a really good watch.

So if the bullion banks and western central banks have this big shortfall of gold and it is starting to come to light, my theory is that what is going on right now in the gold market is a bear raid to get the prices of gold and silver down as far as possible so the mega-short bullion guys can buy in as much physical that they can (at lower prices) to avoid getting caught in the short-squeeze that has to be the outcome of this.

A couple of points that seem to be adding up.

1. Germany asked for its gold back and was told - 7 years. They were not allowed to see the gold that was supposedly there, supposedly for security reasons.

2. Texas wants its gold back from New York! They don't trust fed government sanctioned counter-parties in their own country!

3. J.P. Morgan was successfully sued (settled) for storage charges on physical gold that was supposed to be in their vaults, but was not.

4. ABN-Amro recently settled gold claims in cash at prevailing market prices. Investors came to get their gold - turns out there was none.

5. China and Russia probably smell what's coming and have been buying large quantities of gold, and encouraging their citizens to do so - setting up the short squeeze?

6. Forcing Cyprus to sell its gold? So who's buying it?

7. What's behind Utah, Arizona and other states legislating gold as legal tender?

If this is what is happening, best way to play it is in physical bullion, certificates in bullion trusts that actually hold the physical gold like Sprott, and gold/silver miners I would think (even if its in the ground, they still have gold). Not sure about futures and options, ETFs that use futures as underlying, nor precious metal ETFs that don't publish the serial numbers of their inventory.

Even if banks settle in cash, it will validate/underscore the shortage of the physical product. And if a manipulation comes to light, people will realize there was nothing wrong with gold as such, and will scramble to buy it back themselves for the reason they had it in the first place - insurance. There may also have to be more government assistance if the squeeze turns out really badly for the bullion banks, exacerbating the money-printing.

Anyway its an interesting scenario. Could be a good trading opportunity, I think the move could be explosive depending on how the news comes out - days of limit-up stuff in the futures markets (unless the banks and government call "uncle"). For disclosure purposes - I'm in a battered long precious metals trade right now, holding what I still have (I took partial stops) and starting to slowly rebuild the position.

Anatoly Veltman writes:

Outside Canada, the documentary can be watched here.

I think it's been known for a while that:

1. There is no upside limit for the price of gold in fiat currencies

2. That government confiscation is unavoidable, to limit item 1

Thus, the balance of the two is likely to be found within the historical $255-$1921 range…

Remember the logic for $250-500 oil calls, as $147 was being approached? All scenarios are always based on unrealistic "all else staying the same". Well, it never does. So it was on approach of $150/barrel, that Vitol got the news that it was "not a hedger" and thus is deemed in violation of NYMEX position limits, i.e. must liquidate…So what news will be new on gold's new wave up? That private ownership of it, outside jewelery and numesmatics is prohibited. First to liquidate will be funds, then individuals desiring to stay out of jail. In George's words, the move could be explosive depending on how the news comes out – days of limit-down stuff in the futures markets…

Stefan Jovanovich writes:

When gold was "confiscated" in 1932 holders were paid for their specie in F.R. bank notes at the Constitutional "price" - $20.67. People had to turn in bullion, coin and the outstanding gold certificates - the U. S. Treasury notes that had remained outstanding after 1912. When 2 years later the value for international exchanges was raised to $35 an ounce, the "profits" went to the U.S. Treasury which also took title to all gold and gold certificates held by the Fed. It is hard to see what the Fed/Treasury would gain from a repeat performance. They are no longer obligated to settle foreign exchanges in anything but the currency of their own digital creation.

Let me try to understand what is being suggested about the current state of the world regarding gold, prices and credit: (1) the amount of physical bullion actually available in the world is far, far less than advertised, (2) to preserve their legal tender oligopolies the central banks are not only lying about how much gold they have on hand but actively short-selling against their reserves, and (3) when interest rates rise in the U.S., social chaos will result and the government will impose Martial Law.

The premise seems to be that the U.S. and Europe have unsustainable government debts, and an inflation is inevitable. To avoid this, the Fed/Treasury/IMF/ECB and other institutional villains are doing everything they can to destroy speculators betting that the currency prices of gold will go up.

I don't get it. All of the past examples of government default that the Roganistas point to occurred during periods when foreign exchange markets cleared in gold. No country, not Britain, not the United States even in their days of greatest authority, could settle its foreign debts in its own fiat currency. When Roosevelt issued his Executive Order making the ownership of gold (and govenment promises to pay gold) treasonous, the worry was that the U.S. would literally run out of gold because our European trading partners' currencies were no longer fixed by a specie weight and measure. When, 2 years later, the U.S. devalued by 40%, it was to create a "stabilization reserve" that would keep the country from running out of gold. Even after WW II, with the rest of the world in ruins, the U.S. still had an explicit obligation to redeem its foreign exchange deficits in specie valued at $35 an ounce.

Our present world only began when President Nixon and Treasury Secretary Connolly adopted the Henry Ford approach to currencies - the U.S. trade partners would have their accounts settled in any colors they wanted as long as they were green and black ink on rag paper. Since that time, prices for the same scarce objects - fine art and Bel Air real estate, for example - have literally soared. But what has driven them is not an explosion of legal tender - what was quaintly described by Friedman as "the money supply" - but an explosion of private and public borrowing. When credit has become "tight", prices have fallen; once banks and other lenders, including the government itself, have been able to write checks once again, prices have resumed their increases. It is hardly surprising that gold - itself a scarce object - that has shared that increase in price. What is surprising is that we are somehow supposed to learn the "lessons" of those times in history when foreign exchange was measured in gold ounces and apply them to a period when current annual borrowings, including rollovers of existing debt exceed the sum of all borrowing by the species from its origin until gold's full legalization in the U.S. in 1975.


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