Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Why A Gold Crisis Looms

It is a slow day today with the usual end of week profit taking. Even the monetary whack-a-mole, Zimbabwe Ben, popped his head out today to give a verbal goose to the markets.

I came across an article that addresses an interesting phenomenon that rarely gets an airing, except perhaps by those stalwarts in GATA.

"The World Gold Council recently released its second quarter statistics on gold “demand and supply trends”. For those not familiar with the WGC, it is an “industry trade group” composed of large-cap gold miners who love bankers.

How much do these mining companies love bankers? So much that they allow the bankers to keep all the records for their sector, and pretty much do all of their of their promotion to the world. It is the WGC which elevated two private “consultancies” (of bankers) – GFMS and the CPM Group – to the status of quasi-official record-keepers for the entire global gold (and silver) industry.

It would be problematic at best for the gold industry to allow itself to be almost entirely represented by a “profession” now known only for its rampant fraud. However, given the known hatred of the banking community toward gold and silver, and their relentless attacks on both the bullion market and the miners themselves; it’s almost beyond comprehension that the world’s largest gold miners choose bankers as their spokesmen.

I’ve already exposed the devious/perverse manner in which these consultancies produce phony inventory numbers in the silver market. In the upside-down world of these “record-keepers”, when someone purchases an ounce of silver from a silver-ETF (and thus takes that ounce of silver off of the market), the CPM Group adds another ounce to total inventories.

In other words, if silver investors were to buy-up every ounce of silver currently available in the world (via silver-ETF’s), global silver inventories would supposedly double, while if silver-ETF holders were to sell all their holdings it would (apparently) collapse inventories..."

Jeff Nelson, Why a Gold Crisis Looms

Speaking of the available supply of silver, Ed Steer reports this morning that:

"Sprott's Physical Silver Trust reported receiving 320,000 ounces of silver yesterday...and still has over a bit over a million ounces left to be delivered from their latest offering. Since they got the first tranche on July 11th, they have received just under seven million ounces...and since they purchased a bit more than eight million ounces, they're just awaiting the balance...44 days [6+ weeks] since receiving the first shipment. It will be interesting to see how long it takes to get the rest. From this information it should be obvious that good delivery bars are not exactly laying around."

I doubt the concerns about manipulation in the markets will amount to anything until an actual crisis hits, and someone big defaults on either gold or silver and threatens to take down an exchange. And then the masters of the universe will run around waving their hands saying 'we have a problem, we have a problem,' and do something obtusely irrational and carelessly self-serving to try and fix it. You know, like TARP, or most corporate reorganizations for that matter.

(Inside the idiom reference. At a certain technical school in Cambridge Mass they used to refer to the case study crackheads up Mass Ave as the 'hand wavers' who, when things did not go as planned, only knew enough to recognize that they were in trouble, and run around waving their hands saying 'we have a problem, we have a problem.' And then, after a few stupid attempts at a quick fix and a cover up made things much worse, look for someone to fix it for them. In my own defense I was not formally enrolled at that particular tech school, I was merely a 'fellow traveler.' In other words, I had a girlfriend.)

Gold continues to command a higher premium than silver in the funds.

In a recent interview (JPM Is In Trouble) Bill Murphy made some allusions to a scandal brewing in the silver market that may burst upon the public before year end. One can only imagine. Bill is an optimist, which is one of his great strengths and supports. I am stoically skeptical, but long term hopeful, about anything approaching transparency, disclosure and reform. And the current trend in reform is not promising.

I provided an update to the NAV chart at 3:00 PM.

See you at the close.

Matt Taibbi and Eliot Spitzer Discuss Eric Holder's (and Obama's) Failure: Credibility Trap

The failure of Obama's Justice Department to engage in any systemic investigations and indictments of a thoroughly rotten and corrupt financial system that has laid waste to the real economy is an almost perfect example of the credibility trap.

A credibility trap is when the regulatory, political and/or informational functions of a society have been compromised by a corrupting influence and a fraud, so that they cannot address the situation without implicating, at least incidentally, a broad swath of the power structure. The status quo has at least tolerated the corruption and the fraud, if not profited directly from it, and most likely continues to do so.  The power brokers have become susceptible to various forms of blackmail.  And so a failed policy can become almost self-sustaining long after it is seen to have failed, and even become counterproductive, because admitting failure is not an option for those in power.

Another example is the blatant fraud, and principles not of productivity but of prey, that prevail on the financial asset exchanges and the monetary system, the stealing of customer funds, and the manipulation of commodity markets such as silver. And it expresses itself in the frivolous coarseness of spectacle, and careless brutality of decline.

"Happy Hunger Games. And may the odds be ever in your favor."

Normally a two party system or a balance of powers would correct such a situation, but if the fraud is pervasive and enduring enough, those remedies can lose their effectiveness since the fraud binds even seemingly diverse elements in its grasp. And therein lies the trap.

There is a general loss of honor, a disparagement of moral principles, the common welfare, and a sense of 'service.' People in power are creatures of the system, 'getting their ticket punched' in Washington, as resume builder on their way to an even more lucrative position back in the corrupt system where they can leverage their connections and knowledge of the system to further undermine the rule of law. Their guiding principles are self-referential greed and power.

After one of the most outrageous periods of widespread fraud in a major developed country, prosecutions for fraud are at twenty year lows.  Who expected this outcome from an election in which the theme was change and reform?

Here is a recent article, Why Can't Obama Bring Wall St to Justice, asking the broader question inferred by this video interview. Why?  And the answer is not to be found in making excuses and allowing him to hide behind the incompetency or disengagement defense so popular in American management circles.

And if you think that voting for the other guy in this case, the emotinally engaging but fatally flawed red v. blue paradigm, is going to provide a cure you are sadly mistaken. The other guy in this case is the poster child for most of the problems that face a nation under siege by a financial elite engaged in an economic, ideological, and political coup d'etat.

As Glenn Greenwald recently put it:

"You can often, and I would say more often than not, in leading opinion-making elite circles, find an expressed renouncement or repudiation of that principle [of the rule of law]...All of these acts entail very aggressive and explicit arguments that the most powerful political and financial elites in our society should not be, and are not, subject to the rule of law because it is too disruptive, it is too divisive, it is more important that we should look forward, that we find ways to avoid repeating the problem...the rule of law is not that important of a value any longer...

The law is no respecter of persons, but the law is also a respecter of reality, meaning if it is too disruptive or divisive that it is actually in our common good, not the elite criminals, but in our common good, to exempt the most powerful from the consequences of their criminal acts, and that has become the template used in each of these instances."

And thanks to the apathy of the people and the gullibility of the badly used, self-proclaimed 'patriots' they are winning.

“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least to neglect, persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”

Adam Smith

Such unsustainable social arrangements are backed by force and fraud. And as the fraud loses its power over time, force must increase, until there is an end in genuine reform, or a terrible self-destruction.

Gold Daily and Silver Weekly Charts - Hard into Resistance

So far it has been a real lift for the metals, as they have both broken out of their short term capping and coiling patterns.

Now they have both reached intermediate, rather than short term, overhead resistance from trend lines.

I would not be surprised to see a little consolidation here and a few weak hands taking profits.

Bill Murphy Interview: JPM Is In Trouble (audio)

SP 500 and NDX Futures Daily Charts - Profit-Taking Down to Support

The SP futures closed at 1400 and the NDX futures at 1360.

We *might* have some more downside here even if this is a correction in this summer rally. 1385 or so might be a decent target.

Europe weighs on the market, but volumes remain light.

Earnings and Revenues are not coming in well, so it may be on the central banks to provide some joy juice to the markets. It is likely not to help the real economy however since the monetary transmission systems are on 'shift upward without producing anything of value.'