Rickards: 'Unallocated Gold Is a Euphemism for No Gold.'

I think that Rickards is correct in his judgement, and joins many others including Kyle Bass, who because of their backgrounds are much harder to ridicule and dismiss by the creatures of the bullion banks.  And in some of their more recent remarks about this, one can almost feel the desperation.  And here and there, the rats seem to be leaving the ship.

When this pyramiding of bullion and price manipulation falls apart, which history suggests that it must, there will be many angry investors demanding explanations of officials and regulators and bankers who will be shuffling from one foot to another, trying to excuse their lack of good fiduciary judgement and responsibility.

I just wonder if they will try to wait for some 'big event' to disclose this, in the hopes that fewer questions will be asked, and will be more easily dismissed.

As Rickards notes, and again I think he is right, they will 'close the gold trading window' and force settlements for cash at one price, and then reopen the price for actual bullion at a price that will climb  shockingly higher, despite a determined PR campaign by their friends in the media.

Perhaps I am wrong about this, but to me it has seemed for some time to be all too similar to the improbable sustainability of the Madoff scheme, and other such arrangements that depend on large numbers of people accepting a proposition that is dangerously misconstructed, misrepresented, and therefore mispriced in terms of risks.

"If JP Morgan leases gold from the US Treasury it does not mean that they back up a truck in Fort Knox and drive the gold away. There is no need for that. It is just a paper transaction. The gold can sit in Fort Knox. JP Morgan can take a hypothecatable title. Now once JP Morgan has the gold what they do is they sell it at times 100 to gold investors who think they have gold but what they really have is what is called unallocated gold.

Unallocated gold is a euphemism for no gold. If I call up JP Morgan and I say, 'You know I wanna buy a million dollars worth of gold,' they will say, 'Fine. Here is our contract. Send us the million dollars.' I sign the contract. I send the million dollars. They send me a confirmation and it says I own a million dollars worth of gold subject to the contract.

Well, read the fine print in the contract. What it says is your gold is unallocated which means that they do not claim to have any specific bar with a serial number or your name on it. In reality they have taken the same bar of gold and sold it to a hundred different investors.

Now that is fine if we are happy with the paper contract, but if all 100 of us show up at JP Morgan and they have only got one bar of gold, the first person may get the gold. The other 99 people, they are going get their contracts terminated. They are going to get a check for the value of gold at the close of business yesterday, but they are not going to get today's price movement or tomorrow's price movement when super spiking going up to $2,000, $3,000, $4,000 an ounce. That is when you want your gold for the price protection when everything else is falling apart. That is when you are going to discover that you do not have gold."

Read the entire interview with Jim Rickards here.

Very unlikely you say? Do you remember what happend to those who were holding their bullion in these warehouses through MF Global? And this was a relatively isolated event. A more general break in the chain of cross ownership and counterparty risks at 100 to 1 leverage would create a market dislocation that would be quite memorable.

And as a reminder, here is what Kyle Bass had to say about unallocated and hypothecated gold, even that held within a 'fractional reserve' exchange structure.

Gold Daily and Silver Weekly Charts - April Fools' Day

The Non-Farm Payrolls Report this morning was a mixed bag, with enough different kinds of data to provide material for both the hawks and the doves.

The dollar initially rose and stocks dumped, in sympathy with global stocks overnight action, especially the emerging markets.

But at some point Wall Street decided it was all good, and the word went from desk to desk that 'the Fed's got our backs, come what may. So don't ask why, just buy!'

And so US stocks climbed for the rest of the day on slow but steady buying, and after initially being slammed hard lower, gold recovered, as did silver, which managed to hold on to the 15 handle.

Speaking of handles, gold is now doing what I wanted to see in terms of setting a proper handle for the potential 'cup and handle' formation.

Look carefully at the gold chart below, and the way in which the price is moving within the longer term trends.   I do not know what is going to happen, but it certain helps to have a well-marked road map.

Stocks are jammed up into some more substantial overhead resistance, and with earnings season coming up, the Fed will have to provide more support than smarmy whispers of easy money for financial assets, and let the real economy fend for itself.

And when this latest bubble, third of this cycle, collapses like the rest, more substantial edifices to greed may fall than just some personal fortunes and pensions.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Wall St: 'The Fed Has Our Backs'

US equities initially sold off on this morning's Jobs Report, but then reversed as Wall Street looked at the landscape and decided that come hell or high water for the real economies of the world, the Fed has our back.

The major indices are now at their 2016 highs.  

And they are now at major overhead resistance.

The Fed needs to provide something more substantial to keep this one going.

Have a pleasant weekend.

Gold Daily and Silver Weekly Charts - You Ain't Seen Nothing Yet

"Full fathom five thy father lies,
Of his bones are coral made,
Those are pearls that were his eyes,
Nothing of him that doth fade,
But doth suffer a sea-change,
into something rich and strange."

William Shakespeare, The Tempest

Let's see how we do through the Non-Farm Payrolls Report tomorrow.

Like most of the really big, substantial changes, this one continues on, moving slowly, lulling almost everyone into a false sense of continuity. And then the sea-change comes.

According to Bloomberg, even with this sluggish March trading, this was the 'best quarter for gold in 30 years.'

We live in a time of great trend changes, in finance, in politics, and power.

You ain't seen nothing yet.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Beauty Is Only Skin Deep....

...but ugly goes down to the bone.

Stocks were running out of gas today.

Traders were continuing to sit on their hands for the most part, judging by the volumes, waiting to see what unfolds from the Non-Farm Payrolls Report tomorrow.

The market has had a nice upwards bias thanks in large part to Chairperson Yellen and her dovish cooing about easy money.  The problem is that most if not all of this easy money is being used to inflate financial assets bringing profits to the top ten percent.

The real economy continues to languish.

And so I think that risk is grossly underpriced, right now.

Earnings season is dead ahead, and I suspect that they will not be all that good.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - 'The Mother of All Short Squeezes'

“Pity the nation whose people are sheep,
and whose shepherds mislead them.
Pity the nation whose leaders are liars, whose sages are silenced,
and whose bigots haunt the airwaves.
Pity the nation that raises not its voice,
except to praise conquerors and acclaim the bully as hero
and aims to rule the world with force and by torture.
Pity the nation that knows no other language but its own
and no other culture but its own.
Pity the nation whose breath is money
and sleeps the sleep of the too well fed.
Pity the nation — oh, pity the people who allow their rights to erode
and their freedoms to be washed away.
My country, tears of thee, sweet land of liberty.”

Lawrence Ferlinghetti


"I think that what we need to do is pretty clear.   If one views the current version of the Democratic establishment as a different kind of evil rather than the lesser of two evils, one has to withhold support and votes regardless of the consequences.   For me, it will start by not voting for Hillary. Then perhaps it would be worthwhile to organize to challenge the corporate wing."

Jesse's Samoan Attorney

I hear this from quite a few of the professional class, who formerly might have leaned for the more liberal side of the political equation in the recent past.  They have become utterly disillusioned with the personal greed and duplicity of the political establishment.

Speaking of which I enjoyed this video interview with Thomas Frank about What Has Gone Wrong with the Democratic Party.  I thought it was a brilliant dissection of what has happened with that party, and the liberal establishment in general.  The GOP gets plenty of attention with its own problems, which are rather significant.

I normally do not follow party politics all that closely, but one would have to be fairly oblivious not to see the shifting of the bases under the established leadership of both parties in the US.  And I believe that this has some analogues in Europe as well, and especially the UK and France.

And the times, they may be a-changin'.

Gold moved lower today WITH the dollar, as the VIX measure of volatility moved to its lows for this year at least, while the SP 500 and the Dow Industrial hit their highs for this year.

Smells like the end of quarter to me.

The Non-Farm Payrolls report will be 'the big thing' on Friday.

A number of people forwarded me a link to that really embarrassingly clumsy video hit piece on gold in the Financial Times Alphaville last week Izabella Kaminska.   I wonder if Alphaville is the infomercials section of FT.

It was actually so bad, such a chain of non sequiturs, it was a howler.  I have refrained from commenting on it, or the 'serious'  blogger who was touting it, because it was not even in the ballpark of serious analysis.   I took it as a desperate attempt by those who are holding on to the shortening end of their bullion ropes, marshalling the forces of their minions and courtiers.  LOL.

I have included a brief video from Jim Rickards below as an antidote.

But all things in their own time.  Let's see what happens.  As I have said, I suspect we will be seeing quite a short squeeze on bullion, perhaps around the middle of this year.

Have a pleasant evening.