Friday, May 10, 2013

"Rumors Of My Death Have Been Greatly Exaggerated" - Paper Gold

Zero Hedge is currently headlining an article on their site (original source: The Economic Collapse blog) called: "Are We On The Verge Of Witnessing The Death Of The Paper Gold Scam?". I'm sick of propaganda like this which floods the precious metals blogosphere. The number of inaccuracies, conspiracies and information from unreliable and unverified sources in precious metals articles boggles the mind. Will there ever be a collapse in the "paper" Gold market? It's possible those holding COMEX short positions could default if all longs were able to stand for delivery (not likely for reasons expanded on below), but the "factual" liberties that many writers take to get to the conclusion that we are on the eve of such an event is ridiculous.

Let's take a look at 3 separate "facts" that are used in the article to draw the conclusion we are on the verge of a paper Gold collapse today:
FACT #1: COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2. Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults.
This fact starts out as much, but then flows into purely speculative claims that the flow of Gold out of the COMEX vaults is due to distrust in the banking system. While there has been a massive decline in COMEX vaulted Gold, the ratio to open interest is still not at exceptional levels. See this blog post over at Bron's Gold Chat (conclusion below):

"So even after that COMEX stock drop in gold, we still have a coverage ratio that is way above that which applied in the 1980 bull and which is not down much on 2012. The current coverage of around 20% also needs to be kept in context of the percentage of open interest which stands for delivery, which for gold and silver over the past five years averages between 2% to 4%. So it looks like COMEX has plenty of stock on a historical basis. It is when that percentage coverage gets a lot closer to the average standing for delivery rate that we can consider COMEX under stress and at risk of cash settlement. We aren't close, no matter how the much the pumper sites like to hype the recent stock declines.

And for those who will say what about if everyone stands for delivery, well consider that while most of the shorts don't have the metal, most of the longs don't have the cash. We know this because of all the talk about margin calls causing people to have to sell. Think about that - if they couldn't meet the margin calls, then it means they didn't have the money to stand for delivery."

As this chart on Zero Hedge shows, while we have a large drop in available metal, it has only returned to levels that we saw in early 2009 when open interest on the COMEX was at a similar level. So what's the problem? Wake me up when the drain continues significantly and open interest remains elevated.
FACT #2: One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a "binding" contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well.
Again taking liberty with "facts". The ABN Amro "default" was also well publicised on Zero Hedge and other Gold related sites, but many of the conclusions drawn were not within the context of the letter which was sent to a small number of their clients. ABN responded to the claims of default (not that you will see this published on Gold conspiracy loving sites):

“Until 2009 ABN AMRO had a small bank that traded in physical gold called Hollandse Bank Unie (HBU) located in Rotterdam. Following our integration with Fortis Bank Netherlands, ABN AMRO was required by the European Commission to sell a part of its commercial banking portfolio in the Netherlands to Deutsche Bank. This was publicly announced at the time and included the sale of HBU, along with the transfer of HBU clients to Deutsche Bank. These HBU clients were able to use ABN AMRO facilities during the transition phase, and Deutsche Bank also offered its HBU services to ABN AMRO. Deutsche Bank subsequently announced last year that they would cease HBU activities in the Netherlands from 1 April 2013 – including this facility for ABN AMRO. We recently sent a letter to small number of affected clients, advising them that we can no longer make use of the HBU facilities provided by Deutsche Bank from this date. ABN AMRO has not provided these services directly since the sale of HBU, so there is no change to our offering – only to the facilities provided by Deutsche Bank. We have also found a new provider for these services, that is UBS.”

Not the story it was made out to be...
FACT #3: Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2, the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral.
It is a fact that Andrew Maguire said that, but by the very description provided it sounds like 3rd or 4th hand information at best. It's hardly a fact that the LBMA has defaulted on physical Gold with cash settlement. Such claims have been circulating for as long as I've been reading precious metal related news (5 years) and probably much longer. And who is Andrew Maguire anyway? These facts were posted on Paper Money Shield (satirical site, but questions surrounding Andrew Maguire remain relevant and unanswered):

1.       Mr Maguire came out of nowhere only a few years ago, with no previous involvement in the internet gold community. Google searches reveal nothing.

2.       Mr Maguire is said to be a former Goldman Sachs trader. We all know GS has planted many former employees in government positions seeking to influence them to suit itself.

3.       Jeff Christian, who also worked at GS, could not find anyone in the precious metals industry who had heard of Mr Maguire and Mr Maguire has failed to provide a CV listing his employment in rebuttal.

4.       Searches on London newspapers such as the London Times, The Guardian, The Sun, and The Telegraph, for confirmation of the supposed hit-and-run that sent Andrew Maguire and his wife to the hospital give no results, which is strange for such a dramatic event which involved hospitalization, a head-on at full speed (with the driver hitting 2 other cars as he sped off), and police helicopters.

5.       Mr Maguire supposedly has deep contacts in the precious metals market, yet did not inform his readers that a price smash was coming, causing them to lose a lot of money.

Does this sound like a man who we can just take at his word about the LBMA defaulting and settling physical Gold with paper?

While there are reasons to own Gold and one day there may be a dismantling of the paper Gold market, the hyperbolic claims in articles such as this are not warranted and not supported by evidence. The paper Gold market lives on.

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  1. Thanks for that on the ABN Amro story, who would every had thought about contacting the bank themselves :)

    1. Who would have thought? :)

      Mind you going to the source of the rumours doesn't always get you information requested. I tried contacting Bundesbank for reasons it is taking 6 years to repatriate their 300 tonnes, but they were not forthcoming with the information (with good reason though, security concerns).

  2. Taking a break here for a moment to figure out your site.

  3. A well written and edited post. Sort of reminds me of the infamous perpetual selling of 403 tons of IMF gold in a way. The bullshit-O-meter I have is also at 11 right now.

    Nice website. No ads or popups. +1

    I would advise adding Disqus as an option to comment as well.


    1. Thanks (there is a couple of ads, but a little more discrete than on most sites).

      I am definitely no fan of the Blogger comment system with captcha. Had not realised that using Disqus on blogger sites was possible, but evidently it is, will try implementing this soon.

  4. Little did I know that Disqus was available for Blogger, so I have implemented. Apologies to those who had already commented on this article, but I'm led to believe these will sync across within 24 hours.

  5. I'm going to have to implement Disqus on my blog!

    Anyways, that's not why I'm commenting. As I tweeted last night I was having trouble commenting.

    This is a great post Bullion Barron.... It really shows how the information contunues to be manipulated to fit the meme and has been something I've been trying to expose for a while too. Glad to see you call it like it is. I was long since banned from Zero Hedge for challenging Tyler's posts on silver and incorrect information that he was passing off as "fact".

    Great work on the AMRO info ... Amazing what a little fact checking can acomplish. Why is it so easy for us to double check our facts before running with something but so hard for others. Why is it so hard for many precious metals investors to think independantly?

    I wrote a piece questioning who Andrew Maguire really was

    It got a lot of comments but nobody answered the question. I still shake my head at how he's been given the "whistleblower" tag when he won't even prove his background. Especially when all of what he has to say has clearly been hear say. It's so easy for him to quash his critics .... But he choses not to which leads me to believe he is indeed not everything he claims to be.

    Anyways, I don't want to ramble on .... Good post.

  6. "information continues to be manipulated to fit the meme" That's a good way of putting it. As I tweeted earlier, the story on GLD changes depending on the agenda being pushed, one minute it's paper Gold and the metals is not really there, or tungsten filled, or leased out and the next minute as GLD inventory drops the same permabulls are screaming that physical is being drained from the market out of GLD (I thought it was paper?)... they need to make their minds up!

    I have seen some skepticism creep into the forums about the permabulls such as Maguire and Sinclair, which is a good thing.

  7. FWIW, the idea that AM changed his name may explain some of the non-evidence (for safety, etc as might be expected), but I agree this doesn't explain the overall lack of authentication to support the credibility.

  8. One Smart PrepperMay 13, 2013 at 5:50 AM

    Paper Gold is dying out ...People want FISICAL gold. The U.S. Dollar is slowly dying too. FACE THE FACTS! ....Smart people want tangible assets!

  9. Good article BB. There are good reasons for people to own precious metals and I think the pumper websites actually put the general public off (in the west) from wanting to participate, by creating such extreme expectations and by constantly pumping rumour and innuendo. Who wants to participate in a circus?

  10. One very important consideration you are overlooking. Yes Comex inventories have been this low before, but there was a lot of producer hedging and deliveries going on back then. Today we have only 27,000 contracts sold by producers versus 200,000 last October. That's spread out over months. Further I suspect producers will not deliver to the Comex at all, as physical prices are superior elsewhere.

    If so the Comex will not have much supply of gold at all, definitely creating a force majeure threat. 302,000 oz are standing for delivery in May a low month, 10 times normal. The big month of June will be very interesting.

  11. This is creating havoc in the investment community. And right now people are apprehensive as their lockers are being drained of physical gold at an alarming rate. So what happens when the physical gold is gone and the bankers still have lots and lots of people with legal claims to gold? Is there actually a death of paper gold? Are the bankers trying to keep the paper gold scam from completely unraveling?

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