Transparent Gold and Silver Holdings From Funds and Trusts

Gold inventories in trusts and funds declined.   Silver inventories did not.

Even as the prices of both declined.

The largest gold trust is GLD.

Gold is held by HSBC Bank plc (the “Custodian”) in their London vaults on behalf of the GLD Trust.  And temporarily in unallocated accounts managed by subcustodians and bullion banks.

The Bank of New York Mellon, as trustee of the Trust, or the Trustee, and the Custodian have entered into agreements which establish the Trust's unallocated account and the Trust's allocated account, which are described in more detail in FAQs 18 and 19. The Trust's unallocated account is principally used to facilitate the transfer of gold between Authorized Participants and the Trust in connection with the creation and redemption of Baskets (a "Basket is 100,000 shares of the Trust"). The Trust's unallocated account is also used to facilitate the transfer of gold from the Trust for the payment of the Trust's monthly expenses. The Trust's Authorized Participants are the only persons that may place orders to create and redeem Baskets and, in connection with the creation of Baskets, are solely responsible for the purchase and delivery of London Good Delivery Gold Bars.

An unallocated account is an account with a bullion dealer to which a fine weight amount of gold is credited.  The bullion dealer may also be a bank.  Transfers to an unallocated account are made by crediting the number of ounces of gold being deposited to the account and transfers from an unallocated account are made by debiting the number of ounces being withdrawn from the account.  Gold held in an unallocated account is not segregated from the bullion dealer's assets.  Thus, credits to an unallocated account represent only the bullion dealer's obligation to deliver gold and do not constitute ownership of any specific bars of gold."

SPDR GLD Shares FAQs

Only authorized participants can add or redeem from inventories by creating or redeeming baskets of unit shares.

As of the latest quarterly report for GLD, Credit Suisse, Goldman, Sachs & Co., HSBC Securities, J.P. Morgan Securities, Merrill Lynch, Morgan Stanley, RBC Capital Markets, Scotia Capital, UBS Securities, and Virtu Financial BD LLC are the only Authorized Participants.

Shrinking Supply of Available Gold In London For World Demand - Timely Caution

It is reasonable to estimate that London, in all the vaults, has only about 900 to 250 tonnes of gold available for physical delivery, which is a shockingly low figure given the current demand from 'The Silk Road' nations alone that is running about 1,700 tonnes per year.  And even that 250 number is questionably high, depending on the status of the gold in the Bank of England.

The objective is to attempt to determine how much available physical gold for delivery can be wrung out of London and New York, in excess of what can be had from scrap, minining and leasing. We are calling that 'the gold float,' and it is feeding the demand for bullion in Asia.  At that point we might estimate when the pressure on price becomes irresistible.

We are thinking months, not years, at least with things as they are.

I wish to acknowledge up front the debt that is owed to Ronan Manly and Nick Laird especially for the data contained herein, as well as Koos Jansen for his ground breaking work in estimating Asian gold demand, and Bron Sucheki for his participation..  I have listed some of the pertinent published articles below.

It is regretful that one can only provide estimates.  But that is the nature of this beast that operates with secrecy of supply and distortion of actual demand.

What manner of business is this to enable price discovery in a public market, by covering so many fundamentals with secrecy?  Where is the mining community in all this?

The LBMA is said by those who are in a position to know these things to be running 90:1 or more leverage to each of its unallocated ounces of gold, which according to Jim Rickards is all of them.

The potential claims per deliverable ounce at the Comex right now is at an historic nosebleed high by of about 255:1, supposedly because the owners which to avoid a 'short squeeze' in bullion, although the party who said this did not say 'where.'  London probably, maybe Switzerland.

Peter Hambro says that "there is not enough physical about. There are endless promises."

In a nutshell, we now know that physical gold for global delivery, of which the London vaults are a major supplier, are rather tight, especially given the increasing demand for physical bullion in the East.

There is plenty of room for questioning the numbers and casting doubt on them, while hiding behind a curtain of exchange secrecy.  One might suppose that the gold bullion bank apologists will be hard at it soon enough again.

They too often do not help to advance the understanding of the public,  preferring to selectively twist the data to say 'all is well.'   They deride the supply problems that people in the industry are encountering, always saying they are not real.  And they like to include all the gold that exists in the warehouses for their calculations, whether someone else already owns it and is clearly not interested in selling at these prices.

More details would be useful, because if we could obtain a better idea on the extent of central bank leasing, we would be better able to estimate the risks and the relative fragility in the highly leveraged and hypothecated supply of gold in New York and London.

One would think from the known data that the unallocated gold in London is counter-claimed many times, and even the allocated and custodial gold is likely to have multiple claims upon it.   So the actual 'gold float' is probably quite a bit less than 1,361 tonnes.  Each of us has our own favorite ballpark number ranging from 900 to 250 tonnes and less, not fully accounting for leases and leverage on the remaining stock.

Nick Laird had a secondary outlier estimate which he expressed in colloquial Australian, which I dare not repeat here.  But it was quite low.  lol. Maybe four months worth of float left.

And it would certainly be nice to have more information about silver, especially since to my knowledge the central banks have dealt their own supply away some years ago and there are quite a few indications of tightness of supply, although not in the Comex yet.

I do consider this analysis to be a work in progress,    Nick Laird and Ronan Manly are the key data organizers I believe, with help from Koos Jansen and Bron Suchecki, and the odd bit from Jesse the consulting detective.    So I would look to their sites for explication of their methods and sources. Ronan Manly in particular is a public source and he goes into quite a bit of detail.

Given the struggle it has been to obtain the data, and the refusal of central bank personnel to discuss their own supplies on orders from above, there may surely be gaps and errors in this, but not for lack of effort.

If I have any major concern it is that the management, the exchanges and the regulators, will allow the traders to sleep walk themselves into a rather serious situation.  And don't we know how little self-restraint these traders have been showing.

The remedy for this situation is not even more leverage, or more hypothecation of the unallocated stock, or even more leasing by the central banks, or more programs in India to dampen demand.

The longer they allow this price rigging and leveraging up, the slower productive mines will come on line, and the worse the tightness on the remaining physical supply will become.  But as they say in New York and London, 'nothing is broken yet.'

The market solution for this tightness of supply is HIGHER PRICES and not increasingly ludicrous jawboning, spin, and bear raids.

And if higher prices might inconvenience the policy and perception management aspirations of the Wall Street financiers, their enablers and associated hirelings, well then too bad. Try to behave more responsibly, and stop attempting to make the rest of the world pay for your excessive gambling losses and poor judgement.


Related:
On the LBMA and Their Unallocated Holdings
Lions and Tigers and Deriding the Tightness of Gold Supply
How Many Good Delivery Bars Are In the London Vaults - Ronan Manly
Central Bank Gold at the Bank of England - Ronan Manly* (detailed sourcing of this data)
The London Bullion Market and International Gold Trade - Koos Jansen
Detailed London Charts and much data gathering - Nick Laird (available to the public)

Here are a few additional charts from Nick Laird's site at goldchartsrus.com to break out a bit more detail and to provide some context for the estimated physical supply compared to physical demand.

Gold Daily and Silver Weekly Charts - GLD May Be In the Eye of the Gathering Storm

I spent some time rereading the prospectus and some recent filings of the SPDR Gold ETF today. 

A reader had asked me a question this morning about a statement I made yesterday about the squeeze on physical bullion and how it may intensify if gold rallies. I said that GLD has to start adding back some of the bullion it has disgorged at some point, and many of those 400 oz. bars may likely have headed east, not to return.

The reader said, 'why can't GLD just refuse to add the gold back?'

It is not the management of GLD's decision to make. I had to go back and read the prospectus and some recent filings to remind myself why.

GLD essentially acts as a trustee, with very light obligations and therefore a small management fee. It is primarily an organizer for the bullion banks and other brokers, who as 'Authorized Participants' make the decision to increase or decrease the amount of gold held in the GLD ETF and the number of unit shares outstanding.

The current Authorized Participants according to GLD's most recent filing are Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc., UBS Securities LLC, Virtu Financial Capital Markets, LLC and Virtu Financial BD LLC.

GLD is a creature based largely on arbitrage and self-regulation of a variety of market participants and custodians. HSBC acts as primary custodian for the gold in their allocated and unallocated accounts. An Authorized Participants can add or redeem gold from the holdings of GLD in 100,000 unit tranches.

Although it can be confusing, I sometimes refer to 'GLD' as the collective action of the Authorized Participants in arbitraging the price and inventory. And I am not the only one.  I know its sloppy, but that's what it is. Earlier this year a spokesperson  for GLD itself made the same type of statement about their intention with regard to share/bullion ratios, and I quoted it indirectly.

But it is correct to say that this is a 'group thing' based on market equilibrium, arbitrage, and counterparty trust.  I am sure they do not have to meet about or discuss it, because in theory the information is all conveyed by the market and their access to real time inventory data.  I do not think all this information is shared equally among market participants.  There is an 'intraday indicative value' with the symbol PHYS.IV.

The Authorized Participants have the ability to sell the units short, although they could achieve a similar equilibrium by shorting or buying in an associated market like the COMEX or the derivatives market for example.

It is this function that provides the lever for the arbitrage. If retail demand pushes the price of GLD above its Net Asset Value based on its bullion and units, the Participants who know this figure intraday can sell shares short to match it to the price of gold and buy bullion if they wish as a hedge. Or tweak the spot price in the futures market by performing essentially the same buy and sell functions.

If they wish to cover these shorts, they may deposit a 100,000 unit tranche of gold back into the ETF and use those shares received in return to cover the short. Or they may buy back in the open market if the price has dropped below the NAV. If they wish to reduce the amount of gold in the GLD account they can redeem units in 100,000 unit tranches.

Off hand I could not say if the ETF unit shorts are borrows or naked.  I suppose it is like anything else these days.

I know this is a simplification, and there is an interesting dynamic going on since these same Authorized Participants are sometimes 'major players' in the COMEX where the price of spot is essentially set intraday, in addition to the LBMA twice daily price fixes.

If you wish to read this further here is a link to the GLD filings. Some web sites such as VictortheCleaner also provides further commentary, although I might not call GLD the central bank of the bullion banks because of GLD's structural passivity.

In reviewing things, I have come to a tentative conclusion that if this system of balancing risks should fail, a counterparty failure is more likely to occur first with GLD rather than in the COMEX or LBMA, although this might be a matter of a same day occurrence.

So if the price of gold starts going higher, and the shorts cover in the open market, they have little other choice in their arbitrage than to buy gold eventually and add units to the ETF to bring the NAV back into equilibrium with price.

Where they may find the suitable 400 oz. bars to do that is another question altogether. And the fiduciary responsibility for GLD is spread across a range of participating custodians, subcontractors and brokers.

Weighed, and found wanting.

Stand and deliver.

A Forensic Investigation of Gold

This is interesting, but apparently somewhat tentative, which is understandable given the nature of the subject.

I am not in a position to assess it quite yet, but I thought it was worth sharing to see what you all might think. I intend to follow this closely and spend more time looking into it. Today I am preoccupied with the wonders of the healthcare system.

I find the opacity in these exchanges and funds to be somewhat frustrating as I am sure many do, as well as the lack of detailed independent audits and full and timely disclosure, especially with regard to what might be considered to be public information.

But still the effort can be made to untangle things as best we can.

Here is a summary of key points by Mr. Ferguson of the analysis.

"GLD was "funded" with gold leased out (sold) by the BoE and SNB.

With everything going on, not only are those entities no longer willing to provide supply, they're actually taking their gold back before it's too late.

Holders like Paulson and Soros are the "fly in the ointment" as they have a GLD claim on the same gold that the BoE and SNB claim as their own "leased" assets.

We are witnessing a managed, slow-burn "run" on the London vaults, where supposed "allocated" gold rests for entities worldwide but this gold has instead been leased out, not only to the GLD, but sold into the market and currently dangling around the necks and wrists of Asians as well as being recast into 1Kg Chinese bars."

Read the entire article here.

I would imagine it would be fairly easy for GLD to address any mistakes in this with a clear statement with regard to any claims or counterclaims on its bullion.

How the Gold Market Was Crashed - But Most Importantly, Why? Leveraged Default? And Silver?

Many are still sorting through the data to try and figure out what happened, but it is hard to look at the available data and the market action and conclude that the recent 'flash crash' in gold was anything but a calculated takedown.

Some big players had been trying to work the market price of bullion down in stair step fashion for some time.  Their tracks on the tape were big enough to be hard to miss, and any number of people who watch the market structure as it develops were seeing them, and a few were reporting what they saw.

But it just wasn't enough.  The pressures were building, and something had to be done. 

A plan for a market operation to relieve the pressure was made, and then executed ahead of the upcoming option expiration on the Comex on April 25th.  The word was quietly spread so the important monied interests would not make a fuss about losses when the time came, as in the case of MF Global and Cyprus.

And then Goldman gave the signal to the market with their 'short gold' call.

As I said at the time, I was not sure if this was done to try and avert a disaster, or to cover up some longer term corruption. Or perhaps a bit of both.  Motives are never easy to discern where leverage and opaque trading pools are involved.

This could be in advance of a major announcement out of Europe with regard to the Eurozone and also their monetary policy following along the lines of Japan.  Perhaps it is even something regarding US policy.  Obviously one has to have an open mind about that.

But there were persistent rumours of a potential default situation at both the LBMA and the Comex. Well, one has to take those with a skeptical eye.  But there are some data that point to the LBMA in particular, although the drawdown of bullion from the two exchanges could have been more general. 

Linked just below is a report that includes more data and it well worth reading. It tends to concentrate on the Comex.

How the Gold Market Was Crashed.

It seems that the word has gone out to the media and the stories are being spun to protect the system.   And the parrots dutifully pick up the chatter, without knowing why.

The story being spun that there was a speculative excess in gold being held by pension funds that panicked.   Foolish people, outsiders really, got over their heads and caused this regrettable incident.

There is probably a grain of truth in that, but I think it is more likely that they were forced out of their positions by a market operation designed to do just that.  And market insider knew exactly what they were holding.

Price declines caused by legitimate selling and panicked longs are not marked by increasing open interest. That is the hallmark of short selling with a purpose.

This is a big deal, and it was writ large across the media.  And that suggests that there is an equally big problem that had to be dealt with quickly and brutally.  Ordinarily market operations are more adept and protracted.

Something was close to breaking, and it most likely still is. 

And if it broke, it would prove to be embarrassing to quite a few very important people.  At least, that is what this situation suggests to me. 

Even the endlessly levitating stock markets seem a bit 'edgy' with a tension on the tape.

I cannot possibly know what is at the root of this.  Can't find Germany's gold, and can't buy enough at the LBMA to deliver it, because the market is leveraged 100 to 1?

Maybe not that but something of that magnitude.  A major TBTF tottering on the brink of a derivatives domino collapse? There are rumours out of Switzerland about Italy and France.

Most eyes are on the States, but how quickly we forget that ABN/Amro declared a force majeure and stopped all physical delivery of bullion, forcing settlement in cash.  The soft default of a major bullion bank is no joke, especially when it appears they could not obtain suitable goods at any price. 

This tends to point towards problems in Europe and the LBMA.  And one of the big sources of LBMA 400 oz. qualified gold is the big SPDR Gold ETF, GLD which is stored by HSBC in London.  I have included a chart of who tends to use 400 oz. bars below.  The COMEX does not.

As you may recall, Andrew Maguire reported early on that there were indications of problems on the LBMA with regard to gold inventory.  It is said to be leveraged 100 to 1.

“Entities went to the LBMA and said, ‘We don’t trust anybody anymore. We want our physical metal.’ They were told they would be cash settled instead by a bullion bank. The Western governments have been trying to plug holes, and the reason for it has to do with the default that was taking place at the LBMA.

This is why this smash has been orchestrated because of the run that has been taking place on physical metal. So Western governments had to do this because of an imminent run on the unallocated LBMA system. The LBMA bullion banks had become so mismatched at one point on their trading positions vs real world demand that they had to orchestrate this smash."

The 'entities' in question are again just rumour, but they are most likely to be from the Mideast or Asia.    They could be a central bank, or even an ETF for that matter.  But the size was said to have been substantial, and untenable for withdrawal without a severe market disruption given the leverage on which the LBMA operates.  100 to 1 leverage is no joke when the drawdown is physical and available supplies are tight.

If you have not picked it up, the implication in this theory is that the big price declines allowed some non-allocated repositories, like GLD for example, to disgorge delivery ready bullion to the LBMA for delivery to the entity that had demanded delivery.

And something like this might not be a singular event.  People talk, and if one entity got nervous and took delivery that information cannot be kept from other sizable players in the same circles.  And so others step up and ask, and there is the threat of a run.  And it could be happening in more than one place, ie not just the LBMA.  Hence the decline in inventories at the Comex referenced above.

JP Morgan holds enormous derivatives positions in the precious metals not reported anywhere in detail except occasionally in the OCC report.  If something were to perturb the markets, it would almost certainly affect them. 

And recall that the outrageous excesses of the 'London Whale' were not uncovered by regulators, but rather by market participants who reported JPM to be distorting the market because of the size of their position.  And the OCC is having a bit of recent notoriety from overlooking irregularities (some say crimes) to protect the banks.  So keep that in mind.

Changing the subject, if you wish to get a bit more baroque, gold may have been a necessary misdirection with the real target being silver, which hardly anyone is talking about, even the house economists and spokesmodels for the status quo. 

Keep an eye on stocks and the markets.  The big money always moves first, because they get to know what is happening first.

But I have to remind you, your guess is as good as mine.   It is an opaque market, and it has gotten worse and not better, despite all the show of 'reform.'

When the tide goes out, you not only get to see who is naked, you see who they are naked with.  And so the smokescreens go up.

I suspect that this is going to get ugly.

Related: Update to the Update: The Attack On Gold - Paul Craig Roberts (this gets more into the general government-business-as-usual theory rather than something that was incidentally related, ie a major impending default.  As I pointed out I think those sort of antics tend to be a more elegantly executed and gradual.  The recent gold/silver smack down was sheer brute force.  Could have been shock and awe but it really was over the top and probably called far too much attention to itself to have been a 'policy thing.')