Debunking the Post-CFTC Precious Metals Fear Mongering Campaign

[Gneisenau]

Debunking the Post-CFTC Precious Metals Fear Mongering Campaign by Erik Townsend

* There is good reason to question JP Morgan’s concentrated short position in COMEX silver futures, and to investigate allegations that JPM used it to manipulate the silver market.
* The Gold Anti-Trust Action Committee (GATA) has handled this matter poorly by focusing its attention on baseless, unproven conspiracy allegations pertaining to the London gold market (outside CFTC’s jurisdiction). GATA should instead focus on the compelling evidence that is directly material to the still-pending CFTC investigation.
* Jeffrey Christian’s testimony at the CFTC Hearing has been taken completely out of context, and allegations that it reveals a scandal or revelation are baseless.
* Despite the best efforts of some responsible journalists including Jim Puplava, others including Tyler Durden (ZeroHedge) and Eric King (King World News) have contributed to the misinformation campaign by promulgating GATA’s baseless allegations.
* There are legitimate reasons to be concerned about the ratio of “paper gold” to real gold, but they are not the reasons GATA has made so much undue fuss about. They also have nothing to do with leverage.
* Investors should focus on understanding the inherent risks and limitations of their precious metals investment vehicles. The most popular are reviewed and contrasted.

http://www.financialsense.com/editorials/townsend/2010/0419.html

Erik Townsend about the latest "revelations" in the pm manipulation scheme and about the real problems concerning pms. A long read, but well worth the time. I have to admit, I've fallen for the leverage thing :oo-->, not for the Andrew Maguire story.

[Gneisenau]

It has come to my attention that several private parties have accepted contract assignments to neuter the COMEX and London Metals Exchange, to render ruin to its gold market. That bears repeating from the rooftops. MUTLIPLE HIRED HITMEN HAVE ASSIGNMENTS TO KILL THE COMEX GOLD MARKET.

http://news.goldseek.com/GoldenJackass/1243491300.php

One year ago Jim Willie published an article about several hitmen being contracted to bust the COMEX. Did you ever wonder where people like Andrew Maguire and Tyler Durden (zero hedge) are coming from? Tyler Durden has massive financial knowledge and spends a large amount of his time blogging for free? To me it looks like a controlled demolition of the world financial system is on its way.

[JohnQPublic]

To your last comment, I think the demolition (or collapse) of the world financial system has largely occured.

I have kept an open mind on the CFTC, COMEX, etc. issue, but I have heard (but not verified) that all futures markets end up having a lot more paper "X" than physical "X" (X= orange juice, soy beans, pork bellies, etc.). But still, if the 100:1 is true, then a "bank run" type scenario is a danger (I have not read your OP article yet, but will take a look at it).

I'm glad you brought it up. Thre are some really interesting developments occuring, but we need to investigate what is real and what is not. There could be "bad guys" on both sides of this issue.

[mamboni]

This guy Townsend sounds like the Alan Greesnpan of commodities trading: Nothing to see here.

A recent audit of the Scotia Mocatta vault in Canada disclosed only ~20% of the physical gold bullion claimed to be reposed there. That's a fraud in my book (e.g. Mocatta has exchanged physical gold for paper certificates). This has not been widely disclosed to priavte investors who believe own physical bullion when in fact they own paper claims on gold. And these same investors are being charged storage fees, which is a fraud.

Anyone who owns precious metals and does not take physical possession is going to get royally screwed in the goodness of time.

[JohnQPublic]

I'm reading the article. Some relevant points:

"The maximum degree of leverage for trading futures contracts is controlled by the rules of the futures exchange. For COMEX gold and silver contracts, it works out to a maximum leverage ratio of less than 10 to 1."

"The hypothetical scenario where buyers of COMEX futures contracts and LBMA OTC Forwards (aka “Paper gold”) suddenly all demand physical delivery of metal, and there isn’t enough metal to go around. There’s a small amount of justification for that concern, but it’s being taken completely out of context here and its significance is grossly misrepresented."

"It would seem that the scenario GATA and Maguire want us to panic over is the one in which suddenly, all of the buyers of paper futures contracts and OTC Forwards simultaneously and unanimously decide that they want to take delivery of physical metal rather than settling their contracts in cash."

Good point, but it would not take ALL of them. Only somewhere between 1-10% of them would cause a problem.

"But suppose that all of a sudden there was enough demand for physical delivery that twice as much gold was requested for delivery as actually existed in both the COMEX and LBMA vaults. The answer (as Jeff Christian pointed out elsewhere in his testimony) is that this is a well understood risk, and that the markets are designed to accommodate it. Every [competent] futures or OTC Forward trader who buys a long contract understands what they are really buying: It’s a promise to that one of two things will happen if they choose to stand for delivery: Either they’ll get to buy the physical commodity assuming some is available, or they’ll get a cash settlement equal to the value of the commodity on the delivery date. Those are the rules: You’re never guaranteed that you’ll get to buy the actual metal when you buy a futures contract or OTC forward. If you want to buy the metal, you only get to take delivery if there is enough to go around, and if there isn’t, you’ll get cash instead. If you don’t like those rules, don’t trade in the derivatives markets where they necessarily exist! "

[DMac]

2 words:

Damage Control.

[JohnQPublic]

This guy Townsend sounds like the Alan Greesnpan of commodities trading: Nothing to see here.

A recent audit of the Scotia Mocatta vault in Canada disclosed only ~20% of the physical gold bullion claimed to be reposed there. That's a fraud in my book (e.g. Mocatta has exchanged physical gold to paper certificates). This has not been widely disclosed to priavte investors who believe own physical bullion when in fact they own paper claims on gold. And these same investors are being charged storage fees.

Anyone who owns precious metals and does not take physical possession is going to get royally screwed in the goodness of time.


Just reading that part:

"Nick Barisheff, who was interviewed to debunk the Organ interview on KWN. Barisheff said that he had personally visited the Scotia Mocatta vaults at least 10 times, and that the gold had always been there. He went on to explain that “the vault” actually comprises several different secure rooms, and speculated that perhaps Mr. Organ had only visited one room and mistook it for the whole vault. I know people who’ve had direct dealings with Mr. Barisheff, and he comes highly respected. I’ll take his word over Organ’s, but you can draw your own conclusions."

Word vs. word at this point.

[JohnQPublic]

Zerohedge attack:

"It would seem that the ZeroHedge community is hell bent on perceiving a conspiracy to exist where none does. A couple of sensible commentators tried to point out that Mr. Christian’s testimony was entirely factual and no cause for concern, but they were quickly silenced with personal insults and ad hominem attacks. ZeroHedge readers are a reality-resistant community, it would seem.

Mr. Durden seems to enjoy tearing apart other authors’ articles and assaulting their arguments, often with abrasive language. I suppose that this article might become the target of another such attack by Mr. Durden. As I contemplate that possibility, Clint Eastwood’s famous line from the film Dirty Harry comes immediately to mind: Go ahead, punk. Make my day."

[JohnQPublic]

Gee, wasn't this obvious all along? When you buy gold you are not actually buying gold. You are buying paper!

"...a sudden event like a nuclear strike on Iran or an abrupt escalation of the sovereign debt crisis could very possibly induce a large-scale retreat from paper assets to physical precious metals. In that scenario, the COMEX warehouse inventory could very possibly be depleted in a single month. But what’s important to understand is that this is a known risk that futures and OTC forward traders are expected to understand before they make their first trade. It is not a revelation, nor is it a scandal, nor is it a validation of GATA’s nonsensical claims. It’s just a fact of life in the derivatives market: When you buy something and stand for physical delivery, it’s possible that the other guy won’t deliver and the warehouse won’t have enough inventory to cover for him."

And if course the "physical gold" market is a derivatives market.

[JohnQPublic]

In the conclusion:

"Conclusions

I find it shocking that GATA has so badly botched the opportunity to stay focused on the compelling evidence they allegedly have in hand pertaining to COMEX futures, the market the CFTC actually has authority to regulate. The JP Morgan silver short appears to be real, and very possibly a real scam. But instead of focusing their attention on those issues, now, while CFTC is directly considering position limits, GATA instead insists upon spending their efforts spreading baseless propaganda about scandals that don’t really exist in the LBMA, a market system that is completely outside the jurisdiction of CFTC. Eric King has meanwhile perfected his ability to say the words “greatest fraud in history” with a ring in his voice that a sports announcer would be challenged to match. Sadly, Mr. King has failed to do his job as a journalist and check his sources or ask his interview guests challenging questions to test the veracity of their arguments."

A counter-conspiracy theory proposition (subtly implied by the article): GATA works for JP Morgan/COMEX and is trying to take focus off them and onto LBMA.

[JohnQPublic]

My conclusion:

A useful article. Covers many points. Does not settle the issue, but gives some alternative views. It does sound a bit like damage control. It is definitely pro derivatives. I

Yes, this is the way that derivatives marklets work- and derivatives are probably a big reason our financial system collapsed.

[gunDriller]

This guy Townsend sounds like the Alan Greesnpan of commodities trading: Nothing to see here.

highly recommended - the Financial Sense Hour 2 of the April 17 webcast. Jim Puplava spends an entire hour trying to debunk the experience & Harvey & Lenny Organ in their attempt to recover allocated metals from an account at Scotia Macotta.

http://www.netcastdaily.com/broadcast/fsn2010-0417-2.mp3

Part of the debunking is to explain the difference between allocated & non-allocated accounts. What they don't touch is the fact that Harvey & Lenny Organ have an allocated account, and obtaining their metal is like pulling teeth from a wild horse - VERY difficult.

They also accuse us of being wild-eyed - which could be taken as a compliment.

That's as far as Puplava goes to acknowledging the extremely specific allegations by Andrew Maguire about market manipulation on the LBMA. Most of us here saw the downticks in silver to $16 and then $15 in early February, 2010. While we were watching, Andrew Maguire was whistleblowing; he told the CFTC about the market manipulation at LBMA.

Puplava or one of his designees points out that the CFTC doesn't regulate the LBMA.

but so f*cking what ?!

here we are presented point blank with evidence of market manipulation, and the best Puplava can do edit in the soundbite where an educated viewer calls us "wild-eyed", and then various non-specific ruminations about Eric King's recent reporting being somehow deficient.

Generally I thought Jim Puplava took some pride in his work, but by spending an hour on this attempted hatchet job, he makes a profound & non-complimentary statement about his integrity & his reasoning ability.

In short, Puplava both testifies to the existence of significant fraud in the metals markets, e.g. this guest piece by Jim Willie about Tungsten Gold -
Financial Sense article on Tungsten Gold
http://www.financialsense.com/fsu/editorials/willie/2009/1118.html

I think the debunking effort tells us as almost as much as the original story.

Between the shut-down of GIM, Jim Puplava's attempt at a hatchet job & damage control, it is obvious that fraud in the gold markets is a very sensitive subject.

Therefore I bring up the subject of LTCM, the big financial scare of the late 1990's. At the time of the LTCM's failure, they had a 400 ton naked short position. I believe England helped them out by selling a chunk of gold at a very low price.

Here we are again, on the brink of a cascading credit crisis that, as is pointed out by Harvey Organ, combines the elements of a bank run and a gold rush.

As if we didn't learn the meaning of the term "counterparty risk" by kicking back and watching the economy from 2007 to 2010.

One final point. I believe the vigor of the debunking effort is a testament to the notion proposed by Andrew Maguire - that JPMorgan and HSBC do have a massive naked gold short position, and that a financial organization with deep enough pockets can make $trillions by taking the opposite bet (i.e. by going long physical gold and short US$.)

In the attempt to do damage control, the US Gov. has told China et al exactly where America's weak point is.

I feel like a barnacle on a boat. I get to watch these huge financial organizations duke it out.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


Long Term Capital Management - Death by Naked Gold Short
The Official Explanation - no mention of gold
http://en.wikipedia.org/wiki/Long-Term_Capital_Management

It looks like LTCM was short 400 tons of gold at the time of their demise. It also
looks like the US government has worked very hard to keep this part of the story
out of the public record, to the extent possible.

http://www.zealllc.com/2000/delta2.htm

http://hf-implode.com/imploded/fund_Long-TermCaptialManagement(LTCM)_1998-12-31.html

[mamboni]

This guy Townsend sounds like the Alan Greesnpan of commodities trading: Nothing to see here.


Long Term Capital Management - Death by Naked Gold Short
The Official Explanation - no mention of gold
http://en.wikipedia.org/wiki/Long-Term_Capital_Management

It looks like LTCM was short 400 tons of gold at the time of their demise. It also
looks like the US government has worked very hard to keep this part of the story
out of the public record, to the extent possible.

http://www.zealllc.com/2000/delta2.htm

http://hf-implode.com/imploded/fund_Long-TermCaptialManagement(LTCM)_1998-12-31.html





I didn't know about the physical gold short at LTCM until it was posted here. This reminds me of the revelation about WTC7 long after 9/11. Personally, I'll go with GATA and folk like Sinclair, Chapman and Ted Butler. The Wall Street crowd is crooked to the core and I believe they have looted the bullion reserves and left paper IOUs in their stead. I'll also wager that a lot of this bullion has been moved furtively to a certain shitty little country by the Mediteranean sea. It's only physical metal for me.

CAVEAT EMPTOR SUCKERS!!!

[gunDriller]

The Wall Street crowd is crooked to the core and I believe they have looted the bullion reserves and left paper IOUs in their stead. I'll also wager that a lot of this bullion has been moved furtively to a certain sh*tty little country by the Mediteranean sea.

yeah, basically.

[Chibioz]

I often listen to the financial sense newshour weekly podcasts, but over time they have gotten a bit tedious to listen to. It seems like every episode is about peak oil, which I do not buy into.

When I first started listening I thought that they were on the side of the "gold bugs," but after being a listener for a while my opinion is that that Financial Sense presents a much more Wall Street type view. The defense of derivatives does not surprise me. I'm sure Papluva has made a fortune trading paper gold, oil, and mining stocks and it seems that he does not want to participate in the killing of the goose that is laying his golden eggs.

[jedemdasseine]

I often listen to the financial sense newshour weekly podcasts, but over time they have gotten a bit tedious to listen to. It seems like every episode is about peak oil, which I do not buy into.

When I first started listening I thought that they were on the side of the "gold bugs," but after being a listener for a while my opinion is that that Financial Sense presents a much more Wall Street type view. The defense of derivatives does not surprise me. I'm sure Papluva has made a fortune trading paper gold, oil, and mining stocks and it seems that he does not want to participate in the killing of the goose that is laying his golden eggs.

I used to listen to them regularly, but I felt the same thing. Now I might download them, but after a few minutes, I can't take it anymore and just delete the file. Same guests. Same commentary. Same same same.

[Bigjon]

I'm in the same camp, Puplava is mostly a liar by ommission, but tells some whoppers along the way... Peak oil especially.

[KumbayaMan]

Very good reading... I was taking the GATA news at face value, now I have a little more to think about (considering the source of the article)...

I haven't grown tired of Paplava yet but I haven't listened to this weeks show yet either ;D

It's threads like these that make me happy I'm here and (and not someplace else) ;)

[Slimer]

I was listening to Puplava from 2006 to about last year. I stopped in 2009 when he started to sound like Jim Cramer. ???

[Gneisenau]

First of all, I don't think Mr. Townsend is doing any kind of "damage control". He tries to be very straight in his article avoiding any kind of "conspiracy theory", but he clearly states that there are two things wrong with the gold and silver markets: Number 1 is J.P. Morgan's massive short position of more than an annual global production and number 2 is the large number of people investing in ETFs and funds believing they actually own gold, but don't.

What I get from Mr. Townsend's article has nothing to do with whether there is a manipulation in the gold market or not. Like most of the people here I know the pm markets are manipulated. Some of the keywords here are London gold pool, late 2008 smackdown or friday afternoon price-suppression. What Townsend wants is to separate truth from fiction and facts from desinformation. And I think he is right about Maguire being desinfo. Why is that?

30 years after the Hunt brothers we've had the next hearing on position limits in the silver market. When? In the midst of the biggest financial crisis since 1929. Two days before the hearing Maguire contacts GATA and tells GATA about manipulation in the silver market in London. Why? Because he has a bad conscience and because his kids will grow up in this industry :conf:. What happens next? One day later Maguire is the victim of a hit-and-run accident, just like to give his story more credibility. Sounds like some gangster movie from the 50s to me.
I wonder if anyone of GATA's people has actually seen the evidence for the manipulation before it happened. Note that GATA was contacted on March 23rd and the evidence was about manipulation on February 5th.

So if Maguire is one the hitmen paid for to bust the COMEX what does that mean? Two questions come to mind:

1) Why would anyone running the show want to bust the COMEX?
Maybe the financial crisis was set up to end this financial system and the blowing up of the pm markets is the next stage.

2) Who else is a hitman?
Zero Hedge, Kingworldnews covered the story first. Maybe someone in the CFTC. (guessing here)

Discuss.

[JohnQPublic]

First of all, I don't think Mr. Townsend is doing any kind of "damage control". He tries to be very straight in his article avoiding any kind of "conspiracy theory", but he clearly states that there are two things wrong with the gold and silver markets: Number 1 is J.P. Morgan's massive short position of more than an annual global production and number 2 is the large number of people investing in ETFs and funds believing they actually own gold, but don't.

What I get from Mr. Townsend's article has nothing to do with whether there is a manipulation in the gold market or not. Like most of the people here I know the pm markets are manipulated. Some of the keywords here are London gold pool, late 2008 smackdown or friday afternoon price-suppression. What Townsend wants is to separate truth from fiction and facts from desinformation. And I think he is right about Maguire being desinfo. Why is that?

30 years after the Hunt brothers we've had the next hearing on position limits in the silver market. When? In the midst of the biggest financial crisis since 1929. Two days before the hearing Maguire contacts GATA and tells GATA about manipulation in the silver market in London. Why? Because he has a bad conscience and because his kids will grow up in this industry :conf:. What happens next? One day later Maguire is the victim of a hit-and-run accident, just like to give his story more credibility. Sounds like some gangster movie from the 50s to me.
I wonder if anyone of GATA's people has actually seen the evidence for the manipulation before it happened. Note that GATA was contacted on March 23rd and the evidence was about manipulation on February 5th.

So if Maguire is one the hitmen paid for to bust the COMEX what does that mean? Two questions come to mind:

1) Why would anyone running the show want to bust the COMEX?
Maybe the financial crisis was set up to end this financial system and the blowing up of the pm markets is the next stage.

2) Who else is a hitman?
Zero Hedge, Kingworldnews covered the story first. Maybe someone in the CFTC. (guessing here)

Discuss.



Possible. As I said above:



...A counter-conspiracy theory proposition (subtly implied by the article): GATA works for JP Morgan/COMEX and is trying to take focus off them and onto LBMA.


But, Townsend sounds a little silly saying it should be obvious to everyone that physcal gold is mostly derivatives, This sounds a bit like, 'well if you read the 1000 pages of fine legaleeze you would have realized that' kind of talk. This does sound like damage control.

[Bigjon]

Everybody who is a sheeple knows there are no conspiracies.

[gunDriller]

Everybody who is a sheeple knows there are no conspiracies.


it's all one big kinetic sculpture, designed by God.

America is a shining beacon of Democracy.

Kirstie Alley is back up to 200 pounds.

[jedemdasseine]

Over a decade ago, the Financial Times reported the actual volume of gold that trades on the LBMA. Red Baron contextualized it in terms simple enough for anyone to understand. It was a bombshell revelation.
http://www.gold-eagle.com/gold_digest/baron907.html
This was back in 1997. Do you think much has changed?

[gunDriller]

http://www.gold-eagle.com/gold_digest/baron907.html
This was back in 1997. Do you think much has changed?

yes. certain bankster people have gotten even greedier and less honest.