Bullion Bank Apologists and Physical Versus Paper Gold

I see that the apologists for the status quo are actively 'refuting' the tightness of physical gold in the London markets, largely by ignoring that and concentrating on the Comex, which they assert is 'well-stocked.'

Clever people learn from the political process to ignore the tough questions that they do not wish to answer, and to misconstrue the question into whatever it is they would rather answer, often squirming through the issues to put some proposition in the most favorable light for their firms.

So we see this in so much commentary from the bullion bank and trading house apologists this past week.  I won't dignify them by citing their names, but I think you will know who they are.

Peter Hambro's recent point was fairly clear.  It is almost impossible to obtain sizable amounts of physical gold in London which is the center of the Western physical gold trade.

"It is virtually impossible to get physical gold in London to ship to those countries now. We get permanent requests in Russia now. Would we please sell our physical gold to India and to China?

Because there is not enough physical about.  There are endless promises. And I worry that the market, the paper market, could be stamped on and people say 'sorry we're going to have a financial closeout' and it's all over. If you want to be in the gold business, you ought to be in the physical business."

 Peter Hambro

The gold apologists bravely assert that there is plenty of gold in the Comex, relative to the demand there.  Never better.  More on that later.

As I have pointed out on any number of occasions, the amount of physical gold in all of the Comex warehouses of any categories is a rounding error on the physical markets of Asia.  As I said the other day:

I am certainly not suggesting that there will be hard default at the Comex.  How could one expect that in a relatively small market that almost always settles in cash and is dominated by a few, very large insiders who are actively working both sides of the trade?    No, if there is a default anywhere, it will precipitate in a physical marketplace where bullion changes hands and form, more likely in London, perhaps even Switzerland.  And then it will cascade to all the other markets quickly.

The portion of the gold in London that is not specifically 'spoken for' and held closely is considered to potentially be part of 'the float.' 

That was the key point that the apologists are ignoring.  They ignore the physical market, and concentrate on a scenario at the Comex which is becoming almost atavistic, but still worth noting nonetheless as a kind of barometer.  Comex seems to have lost its position as a source of genuine price discovery relative to the greater market of physical demand and supply.

The Comex gold warehouses, all of them, are a rounding error on the physical gold demand in India and China alone.  The Comex serves as a diversion from the developing situation with the supply of bullion.

As you know if you frequent this site, there is an interesting phenomenon of diminished deliveries and stocks of gold at Comex that is 'for sale' that extends back to 2013.

Further, the volumes of paper contracts traded against the physical backing for them is reaching unprecedented numbers of leverage, even going back twenty or more years.

You may see this information at Record Low 'Deliverable' Gold At the NY Comex - Unusual Tightness of Supply In London.

Yes Comex is well supplied in relation to its deliveries if one is to assume that it is just a betting parlor unrelated to the physical market worldwide for which it presumably provides price discovery.  

The analyst for Mitsubishi was speaking directly to the booming demand for physical bullion in India and China, and to the current conditions in London as you can see by reading Financial Media Wakes Up to 'Physical Tightness' In London Gold Bullion Market.

And so his concerns are answered by apologists again pointing to plenty of supply on the Comex.

Anyone who questions this situation, who looks at the data, who sees the almost daily slamming of the price of gold into the London PM fix and the New York trade, is obviously a hysterical conspiracy theorist, right?  And we must do what is required to intimidate them, to shut them up.

After all, what could be odd about such a multi-year pricing pattern like this in a market that purports to genuine price discovery, not for two cities alone, but for the world?

One *could* explain this by saying that Asia is buying, and the West, particularly London and New York, are selling.  And you could cast aspersions on the foolish Orientals for wasting their money on 'pet rocks.'  All of this has been done.

That is not the point.  The point is that there is such a phenomenon, it is valid, and it tells us something that some people apparently do not wish us to think about.

Given the opaque nature of the markets, and the lack of honest disclosure and discussion of what is happening, it is difficult to engage in reasoned arguments about this, especially when the sides quickly degenerate into hysteria, name calling, and all too often in search of headlines.

 It happens on both sides of the argument, although I will confess that the paid professionals are getting rather good at it, and may confound many.  Clever boys are well taken care of by this foul and rotten financial system.  Oh you think I exaggerate?  Where have you been the last ten years?

No, this situation will be resolved by a hard failure to deliver, and most likely in London or Switzerland. The last place I will look for a clear indication of the market is at the Comex, although as Hambro was suggesting it is likely to be significant collateral damage.  That is what he said.

And then when that tide goes out, we will see who is who and what is what. And we may have to wait awhile. But given that so many major markets have been proven to have been manipulated for the benefit of a few powerful firms, even though perhaps justice has not been done and settlements made without criminal admission, I think questioning the odd events and integrity of this particular market is certainly worthwhile in the light of its recent performance.

And for my own part, the arguments that seek to 'explain' the oddness in these markets are found to be wanting at the very least, and disingenuous in far too many. But I understand that one must do what their position requires.

So tell me fellows, is London well stocked relative to gold available AT THESE PRICES?  Are we secure in the knowledge that continuing levels of demand from 'Chindia' and elsewhere will be met AT THESE PRICES?    Is the true state of the Comex and the LBMA transparent to all market participants?

The total amount of ALL gold held by ALL market participants at ALL the Comex warehouses, whether it is on offer or not, is about 218 tonnes.  That is less than one month's demand for physical bullion in China and India and India alone.   And by far the vast majority of that gold is not for sale AT THESE PRICES.

And given the leverage of paper claims everywhere, not just Comex but at the more important LBMA, and one can see that a misstep by the gambling goofballs of Wall Street could lead to quite a messy market situation.  This also is what Peter Hambro said.

Oh no, they would NEVER overextend their positions in the quest for easy money.  Who could even think that?

It is good to keep a level head, and be guided by common sense.  And I think it is all too easy to fall into the habit of either shutting up and keeping your head down, or answering ridiculous excuses with equally ridiculous assertions, and so leave the poor bewildered investor in a state of confusion.

Let's recall what Kyle Bass, who is not so easily dismissed as a 'crank' had to say.

The Institutional Corruption of the Privileged, Or the Corruption of Institutions By the Powerful

Is it the elite institutions that corrupt the privileged by failing to teach them the virtue and necessity of civic justice, or is it a recurring class of fortunate sociopaths who corrupt the institutions of a people with the power and influence of their ill-gotten wealth?

It is an interesting question.

I think it speaks more about a period of time than it does about a particular institution in most cases, although there are certainly institutions whose influence can become rather pernicious under certain philosophies and leadership, at least according to history.

The credibility trap and will to power, when it arises in a generation, has an insidious influence on most social institutions, because the prevailing attitude of those who set the example and control those institutions for an entire nation becomes one of personal greed and the 'law of the jungle.'  And so lawlessness becomes fashionable.

And the public at large at long last has become sick of it, the cynical deception and greed, the wickedness in high places among the privileged in the financial system, the media, the universities, and in the political offices.

This is nothing new.   It is a cyclical thing.   People suffer hardship, and they embrace justice because they have felt the sting of injustice.  And then they get comfortable, and sociopaths and narcissists use their cunning to skirt the law and rise to powerful positions, and a portion of the people are swayed by deceptive slogans and philosophies, and they forget.

Do you find yourself listening to things like this and saying, 'well then, that is how things are, and it is naive to expect anything different.  Better to go along to get along.'   If so, then you have become captive to the foul spirit of the age, and it is time to wake up.

Men go mad in crowds, said Mackay, but they come back to their senses one at a time.

This matter is of interest to all, of course, because until there is meaningful reform of the key systems of our nation there can be no sustainable recovery, and no meaningful administration of justice.

Here is a brief excerpt video of a speech by Ralph Nader, and below that, another speech given at Harvard in 1905 by Theodore Roosevelt.




Here is a link to the entire speech if you have the time to listen to it.

And here is a similar speech at Harvard given in a different age of excess, monopolies, and bad behaviour, covered in gilding.

"The very rich man who conducts his business as if he believed that he were a law unto himself thereby immensely increases the difficulty of the task of upholding order when the disorder is a menace to men of property;  for if the community feels that rich men disregard the law where it affects themselves, then the community is apt to assume the dangerous and unwholesome attitude of condoning crimes of violence committed against the interests which in the popular mind these rich men represent. This last attitude is wholly evil; but so is the attitude which produces it.

We have a right to appeal to the alumni of Harvard, and to the alumni of every institution of learning in this land, to do their part in creating a public sentiment which shall demand of all men of means, and especially of the men of vast fortune, that they set an example to their less fortunate brethren, by paying scrupulous heed not only to the letter but to the spirit of the laws, and by acknowledging in the heartiest fashion the moral obligations which can not be expressed in law, but which stand back of and above all laws. It is far more important that they should conduct their business affairs decently than that they should spend the surplus of their fortunes in philanthropy. Much has been given to these men and we have the right to demand much of them in return.

Every man of great wealth who runs his business with cynical contempt for those prohibitions of the law which by hired cunning he can escape or evade is a menace to our community; and the community is not to be excused if it does not develop a spirit which actively frowns on and discountenances him.

The great profession of the law should be that profession whose members ought to take the lead in the creation of just such a spirit. We all know that, as things actually are, many of the most influential and most highly remunerated members of the bar in every centre of wealth make it their special task to work out bold and ingenious schemes by which their very wealthy clients, individual or corporate, can evade the laws which are made to regulate in the interest of the public the use of great wealth."

Theodore Roosevelt, Address at Harvard University, June 28, 1905

Postnote:   My friend who is a lawyer and a humanist, a wise and honorable man of letters and learning, had this to say:

It is the people, not the institutions.  I have tired of hearing the argument from my friends about how we could not expect anything better from various folks given the perverse incentives.  I cannot accept that.  I know of several people who have failed to take advantage of their good government jobs when they moved to the private sector.  They have done reasonably well, but they have not enriched themselves at the expense of everyone else.  I know of even more who have prostituted themselves.  The institutions may provide the opportunity, but it is the person who acts on it.

Gold Daily and Silver Weekly Charts - The Downward Spiral of Hysterical Dumbness

Gold and silver took their usual price hits this morning in NY, afternoon in London.  Gold managed to climb all the way back to a slight gain while silver remained slightly lower.

It is all about the Federal Reserve and China this week.

The Fed is considering finally getting off the 'zero bound' of interest rates, largely to reload their policy options for the next financial paper asset panic.

China has a real economy that is definitely slowing, and reaping the results of some bad policy decisions of their own.

I hope there is no doubt in your mind that the physical gold market is tight globally, with bullion available for immediate delivery commanding a premium.

We keep hearing different plans being proposed by the Anglo-Americanized government of India to monetize the gold held in their temples, and now, a program to stimulate domestic gold mining.

China, Russia and the Mideast are not relenting in their strong demand for physical gold at these prices, and the Indian officials are doing what they can to please the Western financiers who are struggling to sustain their gold pool.

Even though all the figures I am seeing suggest that this tightness will resolve with a higher market clearing price to increase supply, as you might expect, I would not rule out something incredibly reckless on the part of the Western central bankers, to try and pretend and extend their pointless 'perception management'.

I still have a gut feeling that they have been co-opted and confounded by the bullion banks, that same crews that have been at the center of so many other serial financial criminal actions for the past ten years.

I am studiously avoiding hysterical commentary both pro and con the metals these days.  While it is fun stuff and makes for great headlines, it is not the sort of thing that is constructive to the real objective of protecting our wealth during a time of profound but difficult to predict changes.

I think we will have to watch and see what the facts are, and allow them to lead and modify any of our decisions as best we can, calmly and with a basis in the situation as it is.

Let's see what happens.

Have a pleasant evening.