COMEX Deliverable Gold Bullion Has Plunged By 78% in 2013 - Claims Per Ounce Highest On Record

The last time that the claims per ounce were nearly this high was in the late 1990's. At that time the central banks had to intervene to keep one or more bullion banks from faltering.

It occurred during a period of coordinated bullion selling from the central banks into the market under the Washington Agreement, culminating in the notorious gold dumping known as Brown's Bottom.  Their gold may have been sold as well, but at least the Germans still have a receipt. 

That selling failed to hold the line, and shortly thereafter gold began its great bull market run. 

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.   Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, reportedly in private conversation, September 1999

The first chart below shows that pressure on available supply in owners per ounce rather nicely.   Nick Laird, the maestro of charts from Sharelynx.com, was kind enough to go back and pull all the available data. It helps to complete the picture don't you think?

One difference this time is that the fellows who examine the more detailed reports tell us that the big boy of the bullion banks, JP Morgan, is said to have already liquidated their large short position and gone net long gold. Perhaps they are well advised.

Deliverable 'dealer' gold, known as registered gold at the COMEX, has plunged a remarkable 78% during the vicious price smashing of gold in 2013.

This decline in gold available for delivery has not been matched by a similar decline in contracts bidding for that gold, known as the open interest.

Therefore the number of contracts for each ounce of deliverable gold has now reached a new all time high of about 57.8 claims per ounce, a level that has not ever been seen since Nixon closed the gold window.

There was another big buildup in the claims per ounce that occurred just before gold began its big bull market run in 2000.    Some contend that this drain in dealer gold was the result of a last ditch effort to the hold the price of gold lower before the market broke and the price began its remarkable run.

But given that the banks became net buyers of gold around 2008, as shown in the third chart below, it does not seem likely that the Bank of England or the western central banks will sell bullion into the market to save the overleveraged speculators again.

Recently the Federal Reserve was unable to comply with a request from the Deutsche Bundesbank to return the German national gold which had been held in custody in New York. The vault seems to be a bit on the thin side in general.  I am sure all the gold is there, it is just that we live in an age in which multiples of rehypothecation for our financial assets held in trust are de rigeur.   All the finest financiers are doing it without fear or regret, even when it occasionally decimates their customer accounts or shakes the global economy to its foundations.

Also included below is a peek at the registered inventories of all the COMEX warehouses.  Some of the declines are impressive.  What a remarkable coincidence.

There has rarely been a dull moment since they knocked down Glass-Steagall. It will be interesting to see what happens next.   This has been so much fun that it hard to know whether to crack open a bottle of champagne, or to make a run for the border.

We'll probably have to wait for the equity market to break until after Goldman brings out the Twitter IPO.  Priorities.

Have a pleasant weekend. See you Sunday evening.

The Center of the Gold Trading World Is Now In Shanghai

"If once you forfeit the confidence of your fellow citizens, you can never regain their respect and esteem."

Abraham Lincoln


"It is lack of confidence, more than anything else, that kills a civilisation. We can destroy ourselves by cynicism and disillusion, just as effectively as by bombs."

Kenneth Clark


"At the root of America's economic crisis lies a moral crisis: the decline of civic virtue among America's political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world."

Jeffrey Sachs

Shanghai is emerging as the new center of the gold trading world, as the price shenanigans of London and New York discredit their exchanges, and accelerate the flow of gold from west to east.

The volumes on the LBMA and the COMEX are larger but misleading, because for the most part they represent the passing around of paper claims, at a leverage of 50 to 1 or more, against a diminishing pile of actual gold bullion.   They are now running on custom and momentum, but losing substance and confidence with every passing day.

This is the direct result of not allowing the market to set the price, and the moral hazard of not restraining overly cynical, if not overtly fraudulent, representations of value and risk. 

The market operation that took down the price of gold which we saw earlier this year on the COMEX was so blatant, so heavy handed, so patently obvious that it jarred the world markets, and had the opposite effect to which one might presume it was intended.  It was a bureaucratic over-reaction, panic more precisely, to the Bundesbank's request for the return of their national gold.

If the Anglo-Americans did not use this opportunity to secure the return of the gold bullion which had been leased out, it was a strategic blunder of epic proportion. It may be viewed in retrospect as the watershed moment in which London and New York squandered away the confidence of the world.  In their cynical and amoral self-delusion, and a contempt for other people, they assumed that maintaining public confidence is a function of being bolder and more skillful liars. Nicely played, gentlemen.

Integrity is the prerequisite for confidence, and bad behavior drives out the good.  A loss of confidence after repeated abuse is a genuine risk whether one properly accounts for it or not.

Weighed, and found wanting.

The original article from which this chart has been taken can be found here.

GLD Shares, COMEX, And Bullion Heading East

Yesterday a reader asked me to comment on a recent article from a blog that I happen to like which asserted that these large and recent declines in gold bullion inventory on the COMEX and ETFs are merely a sign that gold is now in a bear market, and that investors were simply liquidating positions.

I looked over the blog's argument, and after subtracting much detail that while technically correct was extraneous to the proposition, came to the conclusion that the basis for the argument was that if one is simply looking at bullion levels in the COMEX and maybe GLD, you could point to the fact that they were increasing while the price of gold was rising, and are decreasing now while price is decreasing.  QED.

The problem I have with this argument is that if it were true, if the disgorgement of gold from GLD and the COMEX was just a result of investor disenchantment, then the market should be awash in cheap physical gold.

Unlike debt paper assets, physical gold does not simply disappear when it is liquidated. You may see some paper gold evanesce as leverage is unwound, since it really has no substance of its own, and is merely a rehypothecation of many claims on the same physical bullion.  But actual metal has to go somewhere.

This is why the evidence of scarcity of bullion in the markets in Asia and the Middle East has been so important.  And also the change to net buying, instead of steady selling, of gold bullion by the central banks, which is a phenomenon very new, relatively speaking.  Indeed it is something we have not seen in over twenty years. 

And this is why the leasing of gold for temporary use and even outright selling is important, and therefore the negative GOFO rates, as they point to the scarcity for near term delivery of gold and possible imbalances in longer term obligations.  And of long lead times on retail purchases, and large delivery flows on other exchanges that are not largely paper markets like the COMEX.

And the absolutely incredible fact that a request for the return of Germany's sovereign gold from the custody of the Fed was flatly denied, and put off for seven years.   If gold is in such disfavor that tonnes of it are being abandoned as a consequence by the market, why can't Germany have its gold back?

People who only watch a few familiar metrics and draw conclusions from them may be experts in them, and they may be right. But in times of dramatic sea change, it often pays to cast one's eye across the broader horizon, towards foreign shores, to see if the receding of the ocean is something more significant than the simple ebbing of the tide.

Now, one might wonder, could the funds and the bullion banks in the gold market, who must surely be aware of what is happening behind the fog of their opacity, act in such a short sighted manner as to ship the gold east to be melted down and held closely in the vaults of strong hands, and in the private caches of the many, not likely to return?  And yet still continue on in their game of leveraged ownership and price rigging?  Is this not a recipe for a future disaster?

Is there any doubt, after all that we have seen in the past ten years, that betting on the foolish and often destructive greed of the Anglo-American bankers offers something less than long odds?

You are right, we don't know what is happening with certainty.   I surely do not.  And this is why we must try to keep looking for some alternative explanations and additional data.  But one has to sort this puzzle out with all the available data, and not just from a few sources, especially those under the management of the same old group of Bankers and Traders.

The best way to address this is not to dismiss or even ridicule those who are seeking information and asking some very good questions. The most effective response is increased transparency and disclosure of data that is often unnecessarily hidden from public view so that the powerful can gouge a few more easy dollars from them by manipulating information and gaming the system.

It is the inability of money to flow freely without undue fees, distortions, and interference, and the commensurate problem of assessing risk, that is at the heart of the inability of our unreformed system to recover.

Unfortunately that difficulty in measuring risk is in the nature of an economy that has become founded in secrecy and an undue concentration of power, governed by foolish people whose primary concern is their own personal greed, almost to the point of madness, and to hell with the consequences.  And if something should go wrong, well, the public is there to take the burden for them.

Weighed, and found wanting.

Stand and deliver.

"GLD Is Collapsing Its Shares And That Gold Is Being Shipped Directly To Asia"
By Tekoa Da Silver
August 9, 2013

I had the chance to reconnect with a source in the bullion management business, whose operations deal on a direct basis with the shipping desks at the GLD. While remaining unnamed at this time, it was a powerful conversation, and he was quite liberal in sharing thought.

Speaking to what his group is hearing from the main GLD custodian [HSBC], he noted that, “GLD is collapsing in [terms of] the number of share issuance, and [is] being redeemed…we are hearing from my end…that the GLD main custodian has been collapsing it and redeeming it, and that gold is just being shipped via their shipping desk directly to Asia.”

He further added that, “It is quite clearly a major establishment using their shipping desk to ship gold bullion, and potentially having it re-smelted down in Singapore, Hong Kong, etc. It (the gold) is moving.”

When asked his thoughts on the potential for a short-squeeze down the road as all this gold moves east, he concluded by saying, “Anything that can go down as hard as [gold] has, can obviously have a dramatic short squeeze at some time…at the end of this market [I expect] you will have a ridiculous squeeze.”

While much is left unanswered in the public domain regarding this year’s mysterious clearing out of physical gold from Comex warehouses, it would make sense for such events to occur right before a massive run-up in price—whether it be through freely traded markets or by governmental decree...

Read the entire article here.

Related:
GLD May Be in the Eye of the Gathering Storm.
Tonnes of Gold Removed From the COMEX and Major ETFs Since January 1
Stand and Deliver: How Germany Disrupted the World's Gold Market

This chart below comes from expert analyst Ned Naylor-Leyland via Mr. T. Ferguson's excellent Metals Report blog.

I am not closed minded when it comes to coincidence. But after several of them, all in essentially the same direction, things tend to get a bit disquieting, suggesting that a closer examination is warranted.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, in private conversation, September 1999

How much should the people be expected to sacrifice to save a reckless and unrepentant few? Their homes, their health, their pensions, their children?

It is never enough, because the financiers will always need more, or more properly, crave more. So change must come, before there is any sustainable recovery.

Unstoppable Demand Meets Undeliverable Object - A Run on the Bullion Banks

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith, The Age of Uncertainty

If this is accurate, if this is really happening, I think that the effects of this run on the bullion banks are going to hit quite a few people dead cold, like a smack in the face.

That is because there is so little coverage of what is going on in the media, even the internet media.

The gambit of smacking down price to dampen the desire for gold appears to have backfired in a big way by sparking an insatiable demand for the physical metal and a remarkable decline in available inventories. That certainly wasn't what had been expected I would imagine when the process of a more energetic price manipulation in response to Germany's request for the return of its gold began.

That a sovereign nation asked for the return of its own gold being held in custody, and that request was flatly denied, is almost as unbelievable as the fact that so many are willing to take it in stride, like something that would happen every day. 

A seemingly unstoppable force, the flow of gold from west to east, is going to meet the undeliverable object, the nominal inventory of unencumbered gold in the bullion banks and exchanges, sometime over the next twelve months.

Of course one cannot predict exactly what will happen and when, given the phony controversies, obfuscations, and stonewalling that seem to settle like a thick fog over the markets at every treacherous turn in this slowly unfolding financial crisis.  But the math is intriguing.

This is getting very interesting. Let's see what happens. 

Is this what I wish to happen?  No, I would prefer that the markets be transparent, honest, and provide genuine price discovery and allocation of capital with relative rationale decision making open to all market participants.   I think for now the game is badly tilted in favor of insiders and their powerful friends.

I do not believe that there can be a sustainable economic recovery without genuine reform.  A financial disaster is what the financial predators seemingly wish to happen, assuming they even care about the broader effects of their foolish greed.

At some point one would have to anticipate a declaration of force majeure and/or a change in the rules if the financial interests do not relent on their aversion to a market-clearing price.  And when that tide goes out, we will see who is swimming naked.

But there remains plenty of opportunity for more desperate antics, so as always caution is advised , particularly in the use of any leverage and short term time horizons.  This is not a healthy trading environment for the non-professional.  And many a person has gone bust by underestimating the shameless manipulation of the markets when regulation is lax.

The exchanges and the Banks will not fail, because the financiers and their friends make their own rules as they go along, and do not hesitate to act in their own interests, promises and customers be damned.  That seems to be the way of modern finance and monetary theory.  Whatever we say it is, is because we say it is.

The time for debate seems to be coming to an end. Weighed and found wanting.

Stand and deliver.

Gold Backwardation: When Good People Make Bad Comparisons

You may have heard some talk lately of 'gold backwardation.'

Backwardation is a pricing phenomenon in the futures markets where the price of an asset now is higher relative to the price of that same asset in the future. 

The usual state of most assets is one of contango, where the price increases in the future. This is often due to the time value of money. But let's put that aside for now. Especially in times of ZIRP.

And there is the source of the term backwardation.  The pricing is literally 'backwards.'  I don't remember where the heck contango comes from, and don't care, but that is a shortcut in how I remember the difference between them. 

There are strong indications in the gold market of short term physical supply pressures. Gold Forwards prices are negative, and in a way that we have not seen in some time.   Registered or dealer inventories on the COMEX exchange are at record lows for this leg of the bull market, something that has signaled a change in price trend since the gold bull market began.  Reports of tight supply in the physical markets have been in the news especially in Asia.

The German people asked the NY Federal Reserve for the return of their nation's gold bullion that is being held in custodial trust, and the Fed said 'no can do, Fritz, come back in seven years.'  Are you shitting me?  If that does not get one's attention, you have to wonder what will.

But the fact remains there is not much 'backwardation' on the gold futures market at the COMEX. Below is a chart showing the contract pricing over time. What's up with that?

Furthermore, some astute market observers have pointed to the pricing structure in the oil futures market, and rightfully observed, 'Now THAT's backwardation!'

So what does all this mean?

First of all, one has to look at what is usual and customary for a given market, in addition to making cross market comparisons.

When one is comparing the body fat to weight ratio of a polar bear and a flamingo, for example, one might assume that the polar bear was rather unhealthy since in general too much fat is bad, and the polar bear has quite a bit more than a flamingo. Unless of course if one understands that what is normal for a polar bear may not be normal for a flamingo, because there are some basic structural differences between them.  One always compares a thing to itself, to establish the trend and the norm, in addition to something else, in order to accurately ascertain any changes in condition.

If the gold market ever goes into the type of backwardation shown in that oil chart above, I submit that you will not have look at a chart on the internet to figure out why. You will be more concerned with getting long bread, bullets, and bibles, because the economic system will be going up in the flames of some currency failure, barring some anomalous corner on the market such as we saw in silver with the Hunt Brothers and silver.

And yet with oil in that type of backwardation as we see above, nothing is particularly going on in the world.   One might assume that there is something particular with the oil market that is not indicative of the general economy and money.   Oil, while not perishable, has a cost of storage and delivery relative to the utility of a barrel available for distillation and sale as something else that makes for some natural arbitrage opportunities. Its more complex than that but you get the general idea.

So why are not seeing at least some greater degree of backwardation in gold than we see now, throwing out the awkward comparison with oil which is obviously different in character from precious metals?

Well if the problem is a shortage of supply of physical gold bullion, would one go to the COMEX to get it?  The COMEX is a locus of the supply problems,  being a paper market with record leverage or claims to available supply.  Why would you go to the source of the scarcity in order to relieve it? You would try to get the bullion from someplace else.   Do you go to the desert to find water to relieve a drought?  No, you go to where the water is likely to be found.

The backwardation thing, being specific to the futures paper market, is not all that important for gold, for the reasons cited above.

Thanks especially to Dave of Golden Truth for tracking the gold forwards for us.   I will continue to keep an eye on price and supply, and consider the technicals as they are appropriately applied.   

Developing Gold Bottom: A Closer Look At a Short Term Excess of Power

"The banks have essentially been told by the Federal Reserve they're allowed a certain number of sins. Just not as many as there used to be."

Brad Hintz, Wall Street Reshapes Commodities Market to Fend Off Regulation


"The severity of the Russian winter has been greatly exaggerated."

Napoleon Bonaparte

Here is a closer look at the gold bottom that everyone and their brother was rushing to call last week, so they could claim prescience. 

As a reminder this is an option expiration week for the precious metals on the COMEX, and next week begins the August delivery period.

I have also included an update to the weekly silver chart, for inquiring minds who wish to know.   Silver is following gold on this upsurge.  A confirmation of the rally by silver is important.  If silver confirms the breakout, it will most likely gather significant momentum as its volatility engages the short squeeze.  But the physical silver supply situation is not as compelling as gold has been, although the seeds were sown when the pricing started to curtail mining activity more significantly.

Banks who take funds and guarantees from the Fed at a subsidy have absolutely no business trading the markets for their own profit without significant restraints and transparency, if at all.   The reasons for the prohibitions of Glass-Steagall should be apparent, once again, to all but the most craven servants of big money and the excesses of power.

As I have said several times over the last several weeks, every time that the COMEX dealer inventory has fallen to record lows like this, it has marked an intermediate trend change that in retrospect proved to be significant.

The drawing down of physical inventory available for delivery is one of the surest signs of a price manipulation gone too far.

And for the first time in this waterfall decline since the German people had the temerity to ask for the return of their national gold from the NY Fed, we see a legitimate chart formation that could mark a significant bottom in price.

Note the 'slanting W' which is a term I coined some years ago for a certain type of bottom in a price decline.  The most important feature was the successful retest of support at 1280, and the subsequent breakout above the top of the W today.

We could see a retest of support or two, and there is the more difficult resistance to be encountered from 1340 to 1360, which also includes gold's 50 day moving average.  This is an area of prior support where a potential double bottom failed in the face of a relentless paper selling attack some time ago. I suspect that while it achieved it's purpose, it was 'a bridge too far.'

To put it more simply, taking gold below 1340 was a terrible strategic error, most likely done with nothing but short term greed in mind.   

It may even mark the beginning of the decline and fall of the famed mistress of Wall Street derivatives and commodities manipulation, one way or another.

Sometimes there is no greater justice than when the powerful get their own way. They tend to do foolish things like engaging in a protracted winter war without arranging for adequate supplies, assuming that by their actions the supplies will become available.

The measuring objective of this particular chart formation is about 1450 or so.  There will be additional macro formations to look at on the chart which we will discuss as they develop further.

There is little doubt that the market mischief makers may have another go or two at this down the road.  It will be interesting to see how far their arrogance takes them.   

Of paramount importance is the physical supply.  The damage done to the real market structure for gold by this paper exercise should not be underestimated.   There are great things occurring, in quiet and largely unmarked, in the global markets. 

Gold Chart Intraday - The Bernanke Dipsy-Doodle and Germany's Gold

As you know Ben Bernanke is giving what is likely to be his last testimony to Congress today as the Chairman of the Fed.

So we see gold doing the old 'wax on, wax off.'

The wiseguys need bullion going into a key delivery month of August at the COMEX. Their registered for delivery inventories are at record lows for this leg of the bull market. Overall inventories are getting thin as well.

Every time this has happened, there has been a marked change in the direction of price, higher.

I found this transcript of Lars Schall's interview with William Kaye to be informative.

The decline in the price of gold coincided with the Bundesbank's request for repatriation as I have shown in the past. I would not be surprised if this gold market operation, which is facilitating the removal of large amounts of gold from the ETFs which I have also documented, is serving the purpose of replenishing the missing gold stocks.

Stand and Deliver: How Germany Disrupted the World Gold Market

It may also take the form of a 'stealth confiscation' which will allow the TBTF bullion banks to get long the metals, and ride them higher.

As some commentators have pointed out, there are big drains of physical metal in the gold ETFs, and comparatively little from the silver.  That is not a mark of 'silver strength,'  but more a sign that the physical gold is in very short supply, whereas silver has a more systemic and longer term supply problem.  This is what I think if one looks at the total picture.  Silver supply on the COMEX is not under immediate pressure.

It will be interesting to watch the hedge funds, who are quite short, try and wriggle out of this one.  They deploy their dependents in the media quite well, but that does not help them provide what they have already sold.  It will be bought back at higher prices.

The wiseguys and their water carriers in the media will try to blame China, which indeed is a recipient of much of this gold, because they are a willing buyer, seeking to trade paper for metal as part of their reserve's plan. But I think they are just a contrarian player in a market managed by the Anglo-American banking establishment. 

As I have noted many times before, there is a 'currency war' underway as the international monetary regime evolves and changes.  And it appears that the wealth of the German people in the form of gold may be serving as cannon fodder as it has been conscripted and deployed.

Change in the monetary system status quo is being resisted by the elite that it has enriched, as it always has been and does still.

So for today, time to shake the ETF tree. Tough times ahead so better sell that gold.

Tut tut, looks like rain.

More On the German Gold Situation: Some Light from Deutschland and Canada

Journalist Lars Schall was kind enough to forward this excerpt from one of his articles that is printed below.

I think it 'frames up' the situation with regard to the repatriation of Germany's gold from the US very nicely.

How sovereign is Germany relative to the US? Indeed how sovereign are a number of the western nations vis-à-vis the Anglo-American establishment? The recent search for the elusive Snowden cast some light on the issue of sovereignty.

And as a corollary, how complacent and compliant are the western people to the Banks?  Have the Banks quietly assumed the role of government, without proper accountability to the people?

And secondly, what exactly is the problem with the gold? Is it there or gone? And if it is there, is it already spoken for, in the manner of modern banking rehypothecation? And if so, why?

Jeff Nielson casts some light on that subject of central bank leasing in his recent article here. It is finely reasoned. Short selling is legal, but like many legal things it can become illegal if it is done with an intent to manipulate prices, even with the blessing of entities who, through their association with a sovereign, hold themselves to be above the law and public accountability.

This is the excerpt of Herr Schall's interview. You may make up your own mind as events unfold, but it does seem to parse the subject quite nicely.

Lars Schall: In January this year, the Deutsche Bundesbank announced that it wants to repatriate some of its gold holdings at the NY Fed and all of its gold from the Banque de France. Do you consider it a bit strange that apparently it will take seven years to bring roughly 300 tons of gold from New York City to Frankfurt and five years to bring roughly 370 tons from Paris to Frankfurt? Moreover, the Bundesbank will leave a huge amount of its gold in New York City and London to have in the event of a currency crisis ”the ability to exchange gold for foreign currency […] within a short space of time.” Does this argument convince you?

Norbert Haering: The specifics of the plan for partial repatriation of gold seem to be designed to quash the public discussion about gold storage abroad. For many years to come, the Bundesbank will be able to answer these calls by saying: we are already working on it. And that will work well as a communication strategy. But the truth of the matter is that there is no good reason to store your national gold treasure abroad. The issue and the way in which the Bundesbank got itself tangled up in conflicting statements and justifications during these discussions makes one suspicious that either there is a problem with the gold or that Germany might not be as sovereign a state as we like to think. I do not know which one is true.

Lars Schall, Money Lies Disguise Banking Truths: An Interview with Norbert Haering

I find the refusal of the Federal Reserve to release the national gold of Germany for repatriation for seven years to be one of the most remarkable of recent developments in the world of money. And it is all the more remarkable in that so few are willing to even ask the most fundamental of questions regarding the custodial integrity of the bankers.

It is truly the dog that did not bark.

Stand and deliver. Either the bullion, or the truth.

Note:  You may click on the label 'German Gold' just below to see the other articles I have written about this subject.  In retrospect it seems rather obvious that this smash in gold price is tied to the request for the repatriation of Germany's gold, and the panic that ensued.  Just how depleted or compromised is the custodial bullion held in NY and London?

COMEX Gold Inventories - A Towering Citadel of Paper

Lower and lower, to new record lows.

Weighed, and found wanting.

Who is running this sideshow?

And where will it end?

Let's take a closer look at today's gold market action on the COMEX...

Gold Daily and Silver Weekly Charts - The Dog That Didn't Bark

Gold and silver were rallying in the evening last night, but met some resistance today.

They are being pushed lower as usual in the off hours.

There was intraday commentary here that references some secondary information that seems to support the theory that it is the demand for German gold, rebuffed by the Fed, that is at the heart of this current market operation to loosen bullion from the ETFs.  The gold has been leased to the banks and been sold, and the physical market is so highly leveraged that it cannot be retrieved except through extraordinary market antics.

It certainly is the oddest thing that I have seen in some time, and the lack of serious coverage of this is remarkable in itself.  How can a custodian tell a sovereign people that they may not have their own property back for seven years, too bad, and that's that?   

Is this some new standard for custodial management that has been aped from the likes of MF Global, to be followed now even by the central banks whose most vital asset is an unshakable confidence in their integrity?

Have the expectations of the financial sector been dragged down to the general conduct of conmen and gangsters, so that one expects them to use other people's property as their own, and then brazenly defy the rightful owners to attempt to get it back? And this is not extraordinary or notable?

This whole affair seems so straightforwardly odd that one must return to the same conclusion, over and over, that something has gone terribly, terribly wrong with the financial system.

And no one seems to raise any fuss about it, or even seriously question it?  Indeed, it almost seems to be cloaked in an unusual silence, like the dog that didn't bark.

Stand and deliver.  Either the bullion, or the truth.

William Kaye: The German Gold Is Gone

Inspector Gregory: "Is there any other point to which you would wish to draw my attention?"
Sherlock Holmes: "To the curious incident of the dog in the night-time."
Inspector Gregory: "The dog did nothing in the night-time."
Sherlock Holmes: "That was the curious incident."

Arthur Conan Doyle, Silver Blaze

There is some speculation in this interview excerpted below, but I think it raises important issues that need to be addressed more fully and frankly to eliminate the need for speculation.

The leasing of gold, and the disposition of it by the central banks, including of course the Fed and the Treasury, is remarkably opaque considering that they do not own this gold, but merely hold it in custody for other parties, primarily the people of the nation that claims ownership.

As you know I have wondered if it was the realization that the German gold was not readily obtainable that triggered the heavy handed market operation, a stealth confiscation if you will, to free up gold from the ETFs, from the beginning of the year, when the Bundesbank presented a formal request for repatriation on behalf of, and furthermore at the insistence of, the German people.

The Fed has been resolutely and somewhat obtusely silent on this subject, even in the face of such absurd statements that the German people may have their gold back, but must wait seven years for it.  And this is a relatively nominal amount of gold given the flows in the world markets!

Also as you may recall, there were reports earlier this year of large quantities of gold leaving New York en route to refiners in South Africa for reprocessing.  They were large enough to show up in official reports.  They were attributed to slack capacity in that country because of the gold mine strikes.  And the amounts seemed to be far in excess of the normal 'scrap market.'

One might wonder if this was to change the nature of the gold from New York and London, to remove any existing hallmarks of ownership, and to convert it to the 400 oz. sizing and quality demanded by the Asian market.

This may or may not be the case. But the intransigence of the Fed, the Treasury and the Bank of England to submit to meaningful audits by independent parties in the face of such repeated claims of crony dealings with the bullion banks is almost incredible to otherwise understand.  A seven years delay to return property held in trust? 

I do not feel the need to impute a motive such as Mr. Kaye does that the leasing is intended to cap the price of gold, although it is certainly possible.  Current bank practices are sufficient.   I think making a cheap source of rehypothecated collateral available for the favored TBTF banks is fully in line with current central banking practices, even to the extent of reusing the same asset multiple times so that ownership often becomes a somewhat vaguely philosophical concept. 

When does a custodian deny legitimate and official requests from other governments and domestic bodies for an audit of assets held in custody?   Is the government imitating Bernie Madoff or Jon Corzine now in refusing to disclose the details of its transactions and potential rehypothcation of customer assets?  The lack of inquiry on behalf of the media is bewildering.

Kaye raises some serious questions in this article below which I would suggest you read in its entirety.   And they are easily addressed, if they can be done so openly and honestly. 

An answer is owed to the people of Germany at the least.  And it is a shame to their politicians that they will not ask it, and even demand it, on their behalf.  As Sophie Scholl once said, a people deserve the government which they are willing to tolerate.

"...once JP Morgan and Goldman Sachs get the gold they sell it into the market. So these bullion banks then become net-short gold. And the Fed says, ‘Well, we still have a contract where in theory we can claim the gold. So we’re going to report that we still own it in the official documents.’

But in reality the gold has been sold into the market. That gold winds up in places like Beijing. But before it gets to Beijing it frequently goes through Hong Kong. And when it goes to Hong, it goes to our refiner, the same people we use...'"

Read the entire interview with William Kaye at KWN here.

Tonnes of Gold Removed From the Major ETFs and the COMEX Since January 1

Considering the theory that the purpose of this market operation was designed to take the price of gold lower since the first of the year, and to free up bullion to relieve certain stresses in delivery, I was wondering if we could quantify the results of it in any way.

With the help of Nick at Sharelynx.com, the keeper of records and master of charts,  I was able to calculate the approximate number of tonnes of inventory that were released into the market, or some private storage area perhaps, from the top funds and exchanges in the western world. The time period is from the beginning of this year through 26 June.

If this is correct, and the hypothesis is correct, then it is 'mission accomplished.'

There should be no excuses for not delivering Germany's gold.  And plenty of other bullion has been made available to solve those other pesky failures to deliver that seemed to be cropping up.

So one may presume that the bullion is in the mail to its rightful owners, in care of the Herr Weidmann at the Deutsche Bundesbank. The NY Fed sends its special regards.  Ich liebe dich.

Unless of course it has been rehypothecated to those barbarian buyers in Asia and the Mideast, yet again.

C'est la guerre des monnaies. Quelle dommage!

I have also included Nick's personal wave count for gold and silver, although I am not an adherent to the waves theory per se. And his long term confidence range for the gold bull market.

The stars seem to be aligning, with perhaps a few more antics and end of quarter shenanigans.  But boys will be boys, and they can't keep their hands off their toys.  So who can say what will happen next.  How about another round of bailouts?

Gold Daily And Silver Weekly Charts - End of Quarter, Stealth Confiscation

There is intraday commentary here.  I think it is important.

One remarkable thing about today's market action was the rebound in the miners even as gold underwent another waterfall bear raid of selling down to the 1200 level. 

While one can assign any motives they wish to the speculation about if and why there is a stealth confiscation happening, I do believe that the trigger for this was the request from Germany to have their sovereign gold returned, and the refusal of the custodian in New York to do so until 2020.

That is huge.  It is almost incomprehensible.

Any fails to deliver or difficulty in obtaining supply at the LBMA or the Comex is most likely a secondary effect to this request.

The scramble is on to find bullion, because a failure to deliver on a legitimate request from a sovereign nation to have their gold bullion returned at the insistence of their citizens, who actually own it, is stunning. I am surprised that more has not been made out of this, and that the German people took this so blithely.

A default on an exchange can be covered up with forced cash settlements. A rehypothecation of customer assets by an MF Global can be sectioned off and minimized with the right PR campaign, localized to the investors whose property has been misappropriated and will not be replaced, except in discounted cash.

But for a central bank to release another country's bullion to their cronies in the market and then be unable to replace it without roiling he markets and sending a shock into the financial system is almost unbelievable.

This is what has happened in my opinion, and why the 'dogs of the market' were released by the financiers on their own people to try and hide what must be an embarrassment of the first order.

And if you believe I am mistaken, or engaging in some obtuse conjecture, I have only one response.

Prove me wrong. Make the markets more transparent. And return Germany's gold.

"Truth never damaged a cause that is just."

Mohandas K. Gandhi

This has become a badly done shell game of rehypothecated assets that cannot be unwound except with much higher prices which are viewed as an embarrassment and an impairment to a few of the TBTF Banks.   Well, they have had plenty of opportunity to cover their massive short positions, and free up bullion from the big ETF.

The initial misdeed may have been minor, but as it always seems to happen, the coverup is growing like some gothic structure.  This is MF Global on steroids.

I think these fellows are playing for time, perhaps hoping for some 'big event' that will allow them to reset the markets and the rules of the game, for themselves and their cronies, once again.

Maybe there will be a rationale,  a fairy tale, that this was a way to pressure Iran, who was rumoured to be resorting to gold payments when their currency was blocked in the international payments system. The American people might believe this. I doubt the rest of the world will.

Show us the truth while they is still an honorable way out. Make the markets honest and transparent again. Stop stonewalling on the investigation of the silver market.  Fulfill your oaths.

Stand and deliver.

Stand and Deliver: How Germany Disrupted the World's Gold Market

Someone asked, 'why would there be a desire to do a stealth confiscation of gold from the public holdings in ETFs and private stores through price manipulation?' Who could have been assigned the task of prying bullion out of the hands of the people, and for what conceivable reason? It appears to be happening, but why?

There are any number of possible reasons. Concerns that an innovative new round of QE and money creation might create a run on the gold price is one possibility. There should be little doubt in those who look into the evidence that central bankers are quite sensitive to gold and silver as alternative currencies and reflections of their own policy initiatives.

And that is quite possible. As I have pointed out, there is some precedent for it. In 1933 Franklin Roosevelt pulled back much of the publicly held gold in the US. And after this was done, the government revalued the gold from $20 to $35 overnight, and then used the gains to recapitalize the banking system.

Although this could happen again, it does not seem likely because it flies in the face of everything the central bank has achieved by putting the US on a purely fiat money regime, the last gold ties being severed by Nixon in the 1970s. They prefer to denigrate gold, even though they still hold it, and certainly speak about it quite a bit often through their intermediaries.

There is definitely a movement to revisit the Bretton Woods Agreement that established the dollar as the world's reserve currency. The BRICs, whose economic power is ascendant, are seeking to establish a new currency for global trade that is owned by no single central bank or entangled in the domestic policies of no single country. And they wish to add gold and possibly silver to that mix. And they are in the process of acquiring substantial reserves to accomplish it.

The Anglo-American banking cartel is resisting this movement with all their diplomatic and political might. One of the sensitivities of the recent spying scandal leaks is the concern that they may be trying to obtain intelligence that could be used in these negotiations which are ongoing, very quietly behind the scenes.

But one has to ask, 'what set off the firestorm of price manipulation against gold that started at the beginning of this year?' Unless one is a shill, or naïve about markets, the market operation to knock the price of gold, and also silver, down is fairly obvious and heavy handed. They are not even trying to hide it. Traders do not dump hundreds or even thousands of contracts at market in quiet periods with any other objective than to take the price down. It really is that simple.

My initial take on this was that this was part of the 'price-setting' negotiation for gold and silver in the basket of currencies that the BRICs are developing. But that seemed a bit thin, unless it was seen as a 'last stand' against including gold and silver by making the argument that they were too volatile.

So I looked back on the chart for what I saw was the pivotal moment, and then checked the news and tried to find some event that may have served as the impetus for it. And the truth of it was staring me right in the face.

How remarkable is it that Germany, at the urging of their citizens and despite the objections of their central banks, has requested the return of its sovereign gold from its custodial storage in New York? And that the Feds said, no. You can't have it, but we will be in position to return your own property in seven years time.

What was up with that? Venezuela had recently requested its gold to be returned, and that helped to push the price of gold up to its all time high, because the request had obviously been floated before it became public knowledge.

So why couldn't Germany have the return of its own property for seven years?

Think about this. And perhaps what is happening now will become more clear. It is all a part of the credibility trap, wherein past actions of officials must be hidden in order to protect careers and ensure the orderly functioning of the status quo, even to its own eventual detriment.

Oh this is wrong? This is some weird theory? Well I admit that part of the problem is that we are left to guess what the central banks and the markets are doing with our money and property far in excess of what might be expected in democratic societies. This is the failure of regulation and oversight, and the corrupting power of big money in politics.

But, ok. If this is just some distraction, then give Germany back its gold, in full, this year.

If you wish to prove your word is good and facts are straight, give Germany back its gold.

And if you wish to restore some level of confidence in the markets, make them more transparent and open so people can conduct their business efficiently and safely without fear of being cheated and defrauded at every turn.

If you wish the trust and respect of the world, redeem what you have pledged to hold in trust.   If you have taken some actions in the past that were made in good faith and for good reasons, but may have gone too far or turned out badly in retrospect, make good on them now.   The way to stem a scandal is to bring the truth to light.  It is never the initial act that brings down government, but the subsequent attempt at coverup that obtains a life of its own.

Do the right thing even if it is not convenient, because it is the right thing to do. 

Prove your full faith and credit to be worthy.  Fulfill your oaths.  Tear down the wall of secrecy that divides the people from their government. End this before it can go any further.

Stand and deliver.

"Oh what a tangled web we weave when first we practice to device."

Sir Walter Scott

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, in private conversation, September 1999

As for Germany's Gold, Things Are What We Say They Are

"Why wasn't the gold counted before this ?

Because it's very complicated and requires a big effort (so the americans say).   In fact the bars are lying around chaotically in the vaults of the US Fed, some of them at the far end of the walls."

Bild.de, Schützen Soldaten den Gold-Transport?


"In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank’s gold, or whether the gold is pure.

As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities and counted as bank capital just the same whether it exists or not."

John Carney, CNBC, The Germans Are Coming For Their Gold


"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'"

Lewis Carroll, Through the Looking Glass

The American response is to arrogantly dismiss any concerns that the German people may have for the integrity, and even the existence, of a large portion of their national bullion reserves.

They believe that the German people will forget about this, and turn their minds to something else, and the audit can be explained away, delayed, and never done. It is too difficult, it is too expensive.

And these days, that is all the American financiers have to say to their own people to get anything they wish, to make any sacrifice that they may require of them. 

Oh, you wish to have decent preventitive medicial care?  You wish to have safe banks?  You wish to know what the M3 level of your own money supply may be?   I am sorry, it is too expensive.  Now run along and leave these complicated things to your betters.

If there was an audit done, as some might say, thirty years ago perhaps, then it ought to be easy to do another, if the gold has remained untouched. All one has to do is to verify what has been done.

And if it has not been done, then it is about time one should do it, given the value of the possessions which you are holding in trust for another. Unless of course you follow the modern financial management practices of MFGlobal and PFGBest.

Madness always makes sense,  to the mad.

I do not think that this will go away. When it comes to money, the German people are no fools.

"For decades, the Bundesbank has relied on written confirmation of its gold holdings in London, Paris and New York. According to the report from the German audit court, the last time Bundesbank officials physically inspected the central banks gold holdings was, well, never.

(It should be stated that the folks at FT Alphaville quote a report saying an inspection took place in 1979/1980.)

Interestingly enough, the Bundesbank is apparently quite happy with taking the word of other central bankers about the existence, location and size of its gold reserves. It put out the word that it disagrees with the Audit Court, which only has advisory power and cannot force the Bundesbank to follow its recommendations, about the need for inspections. Nonetheless, the Bundesbank is actually going to follow the recommendation that it verify the gold stocks. It also has plans to ship some 150 tons of gold back to Germany for a more “thorough examination.”

The Bundesbank is, of course, quite right in its opinion of the value of the examinations. In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank’s gold or whether the gold is pure. As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities and counted as bank capital just the same whether it exists or not."

John Carney, CNBC, The Germans Are Coming For Their Gold

More On the German Gold Reserves Controversy - Where Is the Gold?

"Another amusing incident arose from the fact that the Reichsbank maintained a not inconsiderable gold deposit in the Federal Reserve Bank in New York.  Strong was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked:

'Now, Herr Schacht, you shall see where the Reichsbank gold is kept.'

While the staff looked for the hiding place of the Reichsbank gold we went through the vaults.We waited several minutes: at length we were told:

'Mr. Strong, we can't find the Reichsbank gold.'

Strong was flabbergasted but I comforted him. 'Never mind: I believe you when you say the gold is there. Even if it weren't you are good for its replacement.'"

Hjalmar Schacht, Autobiography: Confessions of 'The Old Wizard',  p.245

Is history rhyming once again?

One can only hope not so fully, as the central banker Schacht later became an integral part of a notoriously despicable regime after the fall of the Weimar Republic.

And if the gold is misplaced or otherwise preoccupied, is the Fed still 'good for it?' Perhaps not, in these times of rather tight and multiply allocated physical supply.

At least the German people are beginning to hold their politicians and bankers accountable, unlike their Western counterparts.

What has been hidden will be revealed, and what has been secret will be brought to light.

The Associated Press
Unease About Germany's Unchecked Gold Reserves
By Juergen Baetz
October 22, 2012

BERLIN (AP) — Germany’s central bank has failed to properly oversee the country’s massive gold reserves, which have been stored abroad since the Cold War in case of a Soviet invasion, independent auditors say.

The central bank must renegotiate its contracts to gain the right to inspect its gold bars, which are worth tens of billions of dollars and are stored in the United States, Britain and France, the Federal Auditors’ Office said in a report to lawmakers obtained by The Associated Press on Monday.

The report says the gold bars ‘‘have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.’’ Instead, it relies on a ‘‘written confirmations by the storage sites.’’

Most of Germany’s gold reserves — some 3,400 tons worth an estimated $190 billion at current rates — have been kept in the vaults of the U.S. Federal Reserve, the Bank of France and the Bank of England since the postwar days, when Berlin worried about a possible land war with the Soviet bloc.

The auditors maintain that the central bank must be able to at least inspect samples of its gold bars in regular intervals to verify their book value.

The report acknowledges that such inspections might be logistically complicated, but it stresses that ‘‘this cannot discharge from the necessity to carry out an inventory.’’

The central bank said in a reaction to the report that was also sent to lawmakers Monday that it sees no reason for a physical inspection of the bars. ‘‘There is no doubt about the integrity of the foreign storage sites in this regard,’’ it stated.

The debate on most of the gold reserves being held by foreign authorities has caused some inevitable conspiracy theories questioning their very existence, but several German politicians have also voiced unease.

Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel’s center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.

Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for ‘‘thorough examinations’’ regarding weight and quality, the report revealed.

An initiative backed by some German economists, industry leaders and a few lawmakers dubbed ‘‘bring home our gold’’ launched in May has attracted some 10,000 supporters online so far.

But Finance Minister Wolfgang Schaeuble and others maintain that there is no reason to worry.

‘‘I currently have no doubt about the stock and the storage of the gold reserves,’’ said Priska Hinz, the opposition Greens top lawmaker on the budget committee. ‘‘I do not doubt the reliability of the foreign central banks,’’ she told the AP.

Several passages of the auditors’ report were blackened out in the copy shared with lawmakers, citing the Bundesbank’s concerns that they could compromise secrets involving the central banks storing the gold.

The report said that the gold pile in London has fallen ‘‘below 500 tons’’ due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.

GATA had this to day about that last paragraph concerning the decline in the amount of gold held in London for Germany.

"So despite the lack of official announcement, Germany lately has been selling gold from London -- perhaps as part of the secret "strategic activities" grudgingly acknowledged two years ago by the Bundesbank to GATA's friend, the German financial journalist Lars Schall.

The lack of announcement of the sale of the German gold in London suggests that the sale was actually part of a gold swap with another central bank -- like the New York Fed.

That is, the powerful implication here is that German gold in London was sold at the behest of the United States and in exchange Germany took title to United States gold vaulted in the United States -- or title to gold supposedly vaulted in the United States. This way the Bundesbank could continue to claim ownership of the same amount of gold without lying, at least not technically."

Gold Anti-Trust Action Committee, German gold report reveals secret sales that likely were part of swaps

Gold Daily and Silver Weekly Charts - Gold Tags the Handle Target of 30% - Germany's Gold

Last night gold broke down to tag our 30% correction objective (about 9 PM EST) which is just shy of 1710 spot, and then turned around and moved higher. Gold and silver were actually reasonably resilient most of today even as stocks moved lower led by the SP.

There was a rather interesting story in Der Spiegel today, reporting that a Federal Court has ordered the Bundesbank to undertake thorough audits of German gold, including the gold held in London and New York.  They may bring back 50 tonnes or so to verify it more closely.  Rechnungshof fordert Inventur der Goldreserven. Here is a translation courtesy of my friend Peter.

Der Spiegel
BundesbankRechnungshof demands inventory of the gold reserves
22 October 2012

Berlin - Germany's gold is safely kept in Central Bank vaults in Frankfurt am Main, New York, Paris and London. Apparently, nobody has verified that. The German General Accounting Office has now demanded a regular review and inventory of the huge gold reserves abroad by the Bundesbank.

The Auditors justified this in a report to the Budget Committee of the Bundestag on Monday citing the "high value of the gold reserves". The German gold reserves stored at other banks have never been audited by the Bundesbank itself, or by other independent auditors, that is, "physically tabulated and with their authenticity and weight verified." Indeed, numerous conspiracy theories abide on the topic -- the US gold reserves in Fort Knox were taken a long time ago.

The Bundesbank has, after the United States, the second largest gold reserves in the world. At the end of 2011 it was 3396 tons worth 133 billion euros. After the soaring of price of gold, it should be realistically even about 142 billion euros. The gold bars are kept by the Bundesbank in safes in Frankfurt am Main and three storage places abroad: at the US Federal Reserve (Fed) in New York, the French National Bank in Paris, and the Bank of England in London.

Bundesbank is retrieving tons of gold from New York

The Court of Auditors has to ascertain, on behalf of the Bundestag, whether the Bundesbank is precisely scrutinizing the gold it is storing abroad. It is controversial whether the practice by the Bundesbank for years is sufficient, to only rely on a written confirmation as to the gold bars by the foreign central banks.

The Court of Auditors therefore recommends that the Bundesbank negotiate a right to the physical examination of stocks with the three foreign banks. With the implementation of this recommendation the Bundesbank started according to the report. Also the bank has decided in the next three years to bring to Germany 50 tonnes of gold these from the Fed in New York, to make a detailed examination here. The report contains speculation in several passages. So is not clear from the paper, how much gold is exactly stored at which foreign Central Bank.

The bullion held at the Bundesbank headquarters consist of 82.857 bars, mostly stored in sealed containers with 50 bars each, which, according to the report, are kept in four separately sealed safes. A part of them (6183 ingot) are outsourced in the so-called gold Chamber being stored on open shelves in a separate safe. To secure the gold, according to the report: "The safes external shutter is double, the internal closures and the gold Chamber is under a triple lock. "

So what next? That's all anyone ever wants to know.

The handle target was touched in the overnight, but a few more tests to 'set it' would not be unlikely. And recall that a drop below that target is not a big deal, unless you are short term and highly leveraged, unless the spot price should happen to drop below the 50% correction level.

So let's see what happens.