Has the collapse begun? Is paper gold selling in a panic to buy physical?

[Spectrism]

Yeah- why would you want gold? It isn't backed by anything!

Now look at this beeeeeeautiful little federal reserve note:

http://stephansmithfx.com/wp-content...serve-Note.jpg

It is backed by the full faith and credit of... well.... uhhh.... another federal reserve note.

[mamboni]

WHO SAID THE HYDRA WOULD TAKE IT LYING DOWN
while its several heads were being chopped off one-by-one?


Antal E. Fekete
New Austrian School of Economics


I have never appealed to the so-called conspiracy theories in trying to explain
the strange world of fluctuations in the price of monetary metals. But neither
have I ever said that the fiat-money Hydra will take it lying down when it comes
to chopping off its several heads one-by-one.

Markets for the monetary metals under fiat money

Here are the relevant facts:

(1) The U.S. government defaulted on its obligation to pay its short -term
dollar debt to foreign governments and central banks in gold at a fixed rate, as
confirmed by several international treaties and by the solemn pledges of several
sitting presidents, on August 15, 1971. Subsequently it has been bankrolling a
chorus of servile academic cheer-leaders and other sycophants to shout from the
roof-top that the gold standard was a ‘barbarous relic’ anyway, quite ripe to be
gotten rid of – in an effort to cover up the shame of fraudulent default
(fraudulent because the U.S. did have the gold and could have lived up to its
international obligations).

(2) Thus the U.S. confiscated some of the gold belonging to institutions
outside its own jurisdiction, but could not confiscate all of it. University
economics departments and research institutions have failed to investigate what
gold at large will do in the long run. They just assumed that it will be business
as usual without gold in eternity. Well, it didn’t quite turn out that way.
Speculators soon started trading gold futures, first in Canada, then in 1975 in the
U.S. as well. No universities and think-tanks showed an interest in studying gold
futures trading and its long-run consequences. Why, gold has been reduced to
the status of frozen pork bellies. We know all that is to be known about trading
frozen pork bellies, don’t we? Supply and demand, right? And when push comes
to shove, it is easier to increase the supply of paper gold than that of frozen pork
bellies, isn’t it? (With due apologies to the late Fritz Machlup of Princeton
University for this interpretation of his theory of gold futures trading.) We may
bypass the question whether our institutions ignored problems connected with
futures trading of monetary metals on their own volition, or whether they did so
under duress. As it turned out two scores of years later, the failure to study the
consequences of the so-called demonetization of gold (euphemism for highway
robbery) has caused an unprecedented world disaster: the disintegration of the
world’s payments system that is now unfolding before our very eyes.


(3) A scientific inquiry would have shown back in the 1970’s that the gold
basis (defined as the difference between the nearby futures price and the price
for immediate delivery of gold) would be robust, in fact, it would be at its
maximum (equal to the carrying charge, or opportunity cost of holding gold).
But soon it would start its relentless decline all the way to zero and beyond. A
negative gold basis, a condition known as backwardation of gold, would create
an extremely unstable situation in international finance because it meant risk
free profits for holders of gold. Knowledgeable market participants realize that
persistently falling basis means increasing scarcity which, in the case of gold, is
not and cannot be alleviated by current output from the mines. Output ultimately
proves no match for the mass movement of gold going into hiding, first
gradually, eventually reaching crescendo when the threat of permanent gold
backwardation starts looming large. At that point all deliverable supplies of
physical gold would be gobbled up by gold hoarding. In case of monetary
metals, in contrast with all other commodities, high and increasing prices may
not bring out new supply. Rather, they might make supply shrink. Monetary
metals are exempt from the law of supply and demand.


Under permanent backwardation, as no gold were offered for sale at any
price, the ‘price of gold’ would become a vacuous concept. Gold, silver and,
soon enough, all other highly marketable goods would only be available through
barter. In other words, paper money as we know it would simply cease to
function. We cannot fathom how our complex world economy could operate
under such circumstances. One thing was certain, though: the world economy
would contract in a way that would make the contraction in the 1930’s appear as
a blip on the screen.


(4) All bubbles, all currency and financial crises of the past forty years are
direct or indirect consequences of the vanishing gold basis – whether we admit it
or not. A few years ago Professor Robert Mundell of Columbia University
invited me to attend his annual seminar at Santa Colomba, with most of the
leading monetary scientist in attendance. I circulated a statement warning of the
danger of permanent gold backwardation and how it would adversely affect the
world economy.


I argued that permanent backwardation of gold would be a watershed -event. As long as the gold futures markets are open, U.S. Treasury debt is still gold-convertible (albeit at a fluctuating rate, never mind that the rate is
minuscule). But no sooner had gold futures trading stopped after the advent of
permanent backwardation than gold was no longer to be had in exchange for
U.S. Treasury debt. The entire outstanding debt of the U.S. was worth not one
ounce of gold. Not one gram of it. It is insane to pretend that this would make no
difference in world trade, as pretended by official doctrine. This event would
mark the transition from monetary economy to barter economy.


My missive did not provoke a single rejoinder. It was simply ignored. All
the same, I have reasons to believe that people in the U.S. Treasury and the
Federal Reserve started to listen and they took a crash course on the problem of
vanishing gold basis and the threat of permanent gold backwardation.


(5) To summarize, in forcing the world off the gold standard in 1971 the
U.S. government created a many-headed Hydra. The problem was compounded
by the apparent gag order, muzzling research on the gold basis – as a face-saving exercise to cover up the fact of default.

Gold is not the same as frozen pork bellies after all
In waking up too late that there was a problem after gold futures markets have
been flirting with backwardation for a year or so, officialdom was forced to act.
Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15
the paper gold market was demoralized by a ferocious attack on the lofty gold
price. This in and of itself is proof that Bernanke is fully aware that permanent
gold backwardation is imminent, and that it will create and unmanageable
situation. It’s got to be stopped in its track at all hazards.


Well, well, well. Gold is not the same as frozen pork bellies after all. The
Hydra is not taking it lying down. The kid gloves have finally come off.
Bernanke is trying to stop gold backwardation by selling unlimited
amount of gold futures contracts through his stooges, the bullion banks. He is
underwriting losses they are certain to suffer in due course. We can take it for
granted that they haven’t got the gold to make delivery on their contracts. In
fact, delivery of gold will be suspended under the force majeure clause. Short
positions will have to be settled in cash, to be made available by the Fed’s
printing presses. Gold futures trading will be a thing of the past.

Bernanke and columnist Paul Krugman, formerly his subaltern colleague
at Princeton don’t understand that the issue is not the price of gold. The issue is
backwardation or contango. In trying to wrestle the gold price to the ground the
Fed makes “the last contango in Washington”* an accomplished fact.
From the frying pan into the fire.

Ostensibly a lower gold price would solve the problem Bernanke has.
Demoralized gold bugs would be forced out of their holdings through margin
calls. Disillusioned investors would shun gold. This would make physical gold
available to rescue the strapped gold futures market.

In fact, however, a lower gold price is making the problem more
intractable, not less. The Fed is diving from the frying pan into the fire. This is
the point missed by almost all observers and market analysts. They ignore the
underlying flight into physical gold that continues unabated, in spite of (or,
better still, because of) the panic in the paper gold market. The Fed’s
intervention in bankrolling short interest is going to back-fire, for the following
simple reason. The Fed’s strategy is inherently contradictory. A lower price for
paper gold makes it easier, not harder, to demand delivery on maturing futures
contracts.

The more paper gold Bernanke sells, the lower the cost of acquiring
physical gold in exchange for paper gold becomes. The price of the nearby
futures contract will drop to hitherto unimaginable depths, relative to the cash
price, making backwardation worse, not better. Ultimately this will make
backwardation irreversible. Welcome to the world of permanent gold
backwardation.

From what hole does the evil deflationary wind blow?
Academia and the financial press have utterly failed to recognize the relevance
of gold backwardation as regards deflation. They might fret about hyperinflation
as a result of unbridled money-printing (euphemism for the monetization of
government debt). Yet the real danger is not on the inflationary but on the
deflationary front as realized even by Krugman – while he is perfectly clueless
on the question from what hole the evil deflationary wind blows (other than
conservative wishful thinking).


Well, I can pinpoint the location of the hole to within yards for the benefit
of Krugman. It is on Constitution Avenue, in Washington, D.C. The evil
deflationary wind is blowing from the building of Federal Reserve Board.
If Bernanke thought that his attacks on the gold price would stem
deflation, well, his efforts were counter-productive, to put it mildly. They have,
in fact, made the flight into physical gold accelerate. Permanent backwardation
of gold, and its concomitant, the re-invention of barter – the ultimate in deflation
– will be the result.


There is no reason to fear that the Fed is pushing the world into hyper-inflation. In fighting the gold price the Fed unwittingly pushes the world into
hyper-deflation.

All the same, it is destroying the dollar and the international monetary
and payments system.



April 18, 2013.

[mamboni]

Let's not forget what we saw before the takedown:

1) ABN Amro announces to clients they won't deliver any gold. Forced cash settlement.

2) Multiple reports of individual large clients being forced to take cash settlement for their gold when they attempted to retrieve it from LBMA banks in the aftermath of the Cyprus FUBAR.

The purpose of the takedown was to drain the GLD etf to bail out the LBMA. Every time somebody sells shares in the GLD, gold bullion is transferred from the client side of the vault to the trustee side. That's why buying SLV or GLD plays right into the hands of the EE.

[mamboni]

Interesting comments/'gossip' allegedly from Dave in Denver (via DavidPierre @ ZH) in the comments of the same article:

"My buddy in NYC just called me. He was chatting with a high level relationship manager in a big bullion bank private wealth management area. It's a pretty small-knit community. This guy worked at JPM until about 6 months ago and now works at another Euro-based bullion bank (there's only a few).

He (my friends contact) said that there's a massive scramble going on in Europe right now by very wealthy families and individuals to get their 400 oz. bars OUT of the bank vaults. He said "imagine a very wealthy Swiss family walks into a JPM office and says 'Id like to take my $30 million in gold bars out of your bank and if you don't let me do that I'll move my $100's of millions you manage somewhere else.'" Apparently this scenario is going on en masse. In fact, he said not too long ago JPM sent around a notice to wealthy clients that their bars were safe in a segregated vault account at JPM.

He said everyone is aware of what's going with the paper vs. physical scheme and now these wealthy entities are doing what they can to get their physical bars out of the bullion bank vaults. It certainly explains the drain in "eligible" gold from the Comex, most of coming from JPM's vault.

He also said that he suspects - although he can't confirm - that someone like a John Paulson held a gun to GLD's head to get their gold out of GLD. That's part of the bar drain from GLD. He can't confirm it was Paulson specifically, but Paulson is a private bank client of JPM's. JPM is also Paulson's main hedge fund prime broker."
Denver Dave


www.lemetropolecafe.com

[gunDriller]

He (my friends contact) said that there's a massive scramble going on in Europe right now by very wealthy families and individuals to get their 400 oz. bars OUT of the bank vaults. He said "imagine a very wealthy Swiss family walks into a JPM office and says 'Id like to take my $30 million in gold bars out of your bank and if you don't let me do that I'll move my $100's of millions you manage somewhere else.'"

might make a good core plot for a movie.

[mamboni]

http://static6.businessinsider.com/i...-kong-gold.jpg

Retail Demand For Gold Is Going Nuclear In Asia And Shops Can't Keep It On Their Shelves [PHOTOS]

Read more: http://www.businessinsider.com/asian...#ixzz2SAEBxUfy

[mamboni]

Monday, April 29, 2013

The Global "Fractional" Paper Bullion Market Is Collapsing


I wrote last week that there was a scramble going on globally by entities seeking to take physical possession of the gold on which they have a legal claim, most of which is sitting either in alleged "allocated" big bank bullion vaults or in alleged "allocated" accounts in Comex custodial warehouse vaults.

I also demonstrated mathematically, using the reported numbers on the CME website for precious metals futures open interest and warehouse gold/silver stocks, that the amount of gold represented by Comex futures open interest far exceeds the amount of deliverable gold on the Comex (the analysis is even more extreme for silver). In fact, if less than just 10% of the buyers of June gold contracts demand delivery, the Comex won't have enough gold to cover the legal claims. For silver (July silver) it's even more extreme.

This is a global problem and not just endemic to the Comex. Globally, the legal claim of ownership on physical gold far exceeds the amount of gold represented by paper futures, LMBA forward contracts, leased gold and vault receipts. The latter - vault receipts - is where the big banks in London have the most severe problem, as gold this is supposed to be sitting in "allocated" accounts under the name of the legal owner who bought and paid for those bars has been largely leased out. I'll get to that in a minute.

First, I received this comment from John Brimelow's "Gold Jottings" report, which comes from Gerhard Schubert, head of Precious Metals at Emirates NBD, the largest banking group in the Middle East. Keep in mind that Middle Eastern buyers demand physical delivery of their gold. Here's the quote from his latest weekly report:

I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.

The price hit of two weeks ago has triggered a serious scramble for physical gold and silver. Reports like the above comment have been flooding from Europe, the Comex has had about 30% of its gold bars literally drained from the customer accounts of the Comex bank custodian vaults and the U.S. mint is running way behind on demand for silver eagles and some weights of gold eagles. Ditto for the Canadian mint.

And then I get a call from a close friend in NYC last Friday. His career has been in private wealth management in the private bank department of the Too Big To Fail banks. He's been looking for work and chats with old colleagues all the time. He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.

This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact. He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment. The Bundesbank/Fed and the ABN/Amro situations triggered this move. He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts. He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors. His wording was "these people are putting a gun to the heads of private banks and demanding their gold."

I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.

Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes. After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years. To this day, the time required for that shipment has never been explained. Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.

And regarding the ABN/Amro situation. ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out. About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.

I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.

In fact, what we are now seeing is the final stages of the paper gold/silver bullion market, which has grown at a parabolic rate over that last 13 years, and includes Comex futures, LMBA forward contracts, OTC derivatives - which is an even bigger paper market than the Comex - leased gold claims/contracts and warehouse receipts.

At some point there will be an even bigger "run on the bank" by those looking for delivery of the physical gold/silver that they have been "assured" is sitting in their "trusty" bank custodian vault. I know for myself that I have seen enough from the JPM's of the world to not trust anything they do or say. I think a lot more people are finally coming to that same conclusion. At some point there will be a complete collapse of trust in the paper monetary system and the price of gold/silver will really go parabolic, as the masses realize all at once - and far too late I might add - that everything that was rumored over the last 13 years about paper gold, gold leasing, etc is actually true.

Posted by Dave in Denver at 10:55 AM

http://truthingold.blogspot.com/2013...lion_6103.html

[Serpo]

from above

It is very rare that physical markets can have a serious impact on market prices...hahahahahah

[mamboni]

from above

It is very rare that physical markets can have a serious impact on market prices...hahahahahah

Yeah, I picked that little gem up too! It's like what does the supply and demand of the actual physical commodity have to do with the price in this bizarro world?! LOL Everything is perception management by TPTB.

[Spectrism]

Yeah, I picked that little gem up too! It's like what does the supply and demand of the actual physical commodity have to do with the price in this bizarro world?! LOL Everything is perception management by TPTB.

Its worse than that. It is fake digits on exchange computers controlled to be whatever they decide they want. The plunge protection team has taken full control over the pretend market.