The Run on Bullion Banks Has Begun
For longstanding gold and silver investors who have waited patiently for an end to the bullion banks' collective ability to maintain their price-suppressing stranglehold on the market by means of massive leverage, naked short selling, and insidious opacity, their house of cards is finally in the process of falling down.
The BIS gold swaps were an injection of gold liquidity. If the gold market had never been transformed into fractional reserve system as Adrian Douglas has shown, then such a liquidity injection would never have been necessary.
Now, just when Douglas has conducted excellent research into the obvious implications of available data from the LBMA market in London (which accounts for 90% of global trade volume in gold), coincidentally they go and cease publishing the data.
The COMEX did the very same thing on this side of the pond when Douglas deduced the indentity of the two major price-suppressing operators on the COMEX as JP Morgan and HSBC (see Pirates of the COMEX). The COMEX then ceased listing position data in a way that indicated the number of entities involved.
Wherever holes in their hull of deception permit truth to leak out into the public sphere, the offending data is thereafter withheld. It's a pattern as clear as the night sky. And it follows the broader pattern whereby the first response of fraudsters when their crime is in jeopardy of being discovered is to engage in cover-up. As Douglas points out this morning, examples from history are plentiful, including the doctoring of the Watergate tapes and the shredding of documents by Enron's auditors. I hope gold and silver investors will view the LBMA's decision to cease publishing crucial data on the gold market as a giant red flag pointing to the degree to which the exchanges themselves are co-conspirators. [Yes ... you can shake your heads all you want if you have been so conditioned by the word "conspiracy" ... but independent of your own conditioning the word still has a definition ... and the structure of the gold market indeed is a structure of conspiracy.]
Here is Adrian Douglas' latest, and I also highly recommend a review of his other recent piece establishing the fractional reserve ratio in the global gold market at just 2.3% (one ounce of physical gold worldwide for every 45 ounces of gold sold).
The London Bullion Market Association has just taken the highly unusual step of blocking access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members.
The LBMA has now commenced a cover-up with respect to the gold trading activities of its member bullion banks, withdrawing statistics from the public domain.
This appears not to be the only cover-up going on in the gold market.
For years the International Monetary Fund has made great fanfare of its mere contemplation of selling some of its gold, and actual sales by the IMF have been widely publicized. Since February the IMF has been surreptitiously selling large tonnages of gold each month, but these sales now are to be found only by digging through the IMF's financial statements, and even there the recipients of the gold are not disclosed. (See Reference 6 below.) One has to wonder why the IMF now is trying to fly under the radar with its gold sales.
Similarly it was recently discovered that the Bank for International Settlements didn't feel it necessary to announce its involvement in the largest gold swap in history, 346 tonnes. (See Reference 7 below.) The BIS swaps instead were discovered only because a market analyst dug through the footnotes of the bank's financial statements.
These developments have all the hallmarks of cover-ups.
In June the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by LBMA member banks jumped a massive 50 percent from the month before to 24 million ounces each day from 16 million ounces each day. That translates to $7.5 trillion annually. If an operation is running on a razor-thin fractional reserve basis, such step changes are often fatal.
It appears that a run on the bullion banks has commenced.
Investors could have been blindsided by the events of 2008, but anyone who misses the writing on the wall about what's going on in the bullion markets is just foolish. The bullion banks have sold far more metal than they can deliver, and more and more customers are asking them to deliver. This has led to back-door bailouts and cover-ups.
Anyone who has "unallocated" bullion should be very concerned. The LBMA itself describes owners of "unallocated bullion" accounts as "unsecured creditors." That means that the account holder has no collateral or title to any bullion.
I interpret the LBMA's move to secrecy as a sign that the opportunity to get real metal is closing fast.
As usual, Adrian is right on the money. Hedge funds are already beginning to hold actual gold bullion in place of ETFs, and even just a miniscule uptick in that trend is all it would take to send the bullion banks running for cover and completely unable to satisfy demand for their existing obligations.
As the world wakes up to the reality that most gold that has been sold in the world is nothing but a fraudulent piece of paper lacking any semblance of a capacity to fulfill the contract with bullion, prices for the actual physical metal will surge beyond $2,000 faster than most observers will have thought possible. It will be extremely volatile and downright scary ... and the ripple effects for the global financial system can scarcely be overstated. For holders of reliable bullion holders like CEF or PHYS, the gains will be extraordinary. Miners, the only steady source for the real bullion that the world would then be clamouring for, will enjoy a level of profitability that will be legendary.
And from AEP today: The Death of Paper Money
... [W]e should be careful of embracing the opposite and overly-reassuring assumption that this is a mild replay of Japan’s Lost Decade, that is to say a slow and largely benign slide into deflation as debt deleveraging exerts its discipline.
Japan was the world’s biggest external creditor when the Nikkei bubble burst twenty years ago. It had a private savings rate of 15pc of GDP. The Japanese people have gradually cut this rate to 2pc, cushioning the effects of the long slump. The Anglo-Saxons have no such cushion.
There is a clear temptation for the West to extricate itself from the errors of the Greenspan asset bubble, the Brown credit bubble, and the EMU sovereign bubble by stealth default through inflation. But that is a danger for later years. First we have the deflation shock of lives. Then -- and only then -- will central banks go to far and risk losing control over their printing experiment as velocity takes off. One problem at a time please.
Wondering how you'll know when the fraud really starts to disintegrate in the face of physical demand?
Keep your Foolish gaze locked upon the premiums over NAV for the more reliable instruments like CEF and PHYS. That premium is like a gauge of interest in physical bullion over mere promises or semblances of physical. Once those premiums reach well past 20% to stay, then the spot prices will carry incrementally less influence in determining the true value of gold and silver.
It won't be long now.