GOLD & SILVER: The metal v paper discrepancy now lacks any credibility

The Slog

by John Ward

For nearly three years, The Slog has been saying the tracker v physical precious metals price misfit is ridiculous. Now it is insane…and offering solid reasons why last week’s gold collapse was no collapse at all.

I spend a fair amount of time reading about gold, and even more thinking about it. That’s because, despite all the palpitating craziness of last week, my common sense (and nous about anthropology) keeps repeating over and over that precious metals are like properties: they are ultimately worth what real people will pay – not what some mendacious arse with an agenda says they’re worth. Even if everyone from estate agents to Fed Reserve goons via landlords and Chancellors say “It’s worth this”, ignore them and ask the market. This is the acid test that usually roots out the liars from the information providers.

Eighteen months ago – as the tracker price of gold finally, and grudgingly, got up to around $1785 – I still knew the price should really be closer to $3000 based on the economic and fiscal fundamentals in play. I sold the lot, and vowed never to buy paper again: but the clincher for me at that time was a self-conducted telephone survey I did among gold experts and retail sellers in the US, South Africa, the UK, and three EU countries. The smallest premium over the ‘tracker’ price that day was 10%; more often it was closer to 15%. And whereas the 60-day picture on paper suggested a waning interest in the metal, every last retailer could only offer me a rationed amount of physical: demand, they told me, was through the roof.

I am a marketing man by discipline. Free markets just do not behave like that.

Over the weekend, I repeated the exercise in the light of the previous week’s market trauma. Not only am I now convinced that the entire price collapse was staged, it is also my considered view that I was too narrow last week in seeing this as a central-bank grab for cheap gold. Some of my change of heart is a conviction that I misread signs: but most of it, again, is based on talking to experts and dealers, then looking around on the Net for like minds who’d garnered evidence I hadn’t come across yet. It is on exercises like these that, to be blunt, the internet becomes a strategist’s wet dream.

First things first. My qualitative sample was unequivocal in its view of last week’s price falls: in terms of physical in the real world yes, there had been selling: but it felt unnatural. And the premiums quoted to me now were over 25% above the paper price. Yet again, nobody had tons of the stuff for sale: rather than muck about with minnow buyers, quite a few of them had placed a minimum purchase quantity of £1,000 in value. Not one of the respondents saw the market as in crash mode: all of them saw it as manipulated…although a variety of theories were offered as to how and why.

Secondly, let’s look at some of the signals that preceded it. As I reported nine days ago, central banks had been buying gold like the clappers for the previous year at least. But in the last part of Q1 this year, massive amounts of physical were removed from the COMEX warehouses – the most ever in recorded history. Q-end removal isn’t that unusual, but it is on that scale. My first thought was that it had been removed prior to a strategic gold dump: and when that duly happened, I smugly thought “Yup, I was right”. But I wasn’t: I’m now sure that the removal was based on owner doubt – ie, an inability any longer to trust any bank ‘looking after’ anything of value.

I think this idea germinated for various reasons: the slowness of the US Fed in coming up with Germany’s gold, the stealing of depositor money in Cyprus, the revelation that most developed nations also had larceny plans, and then the jerk Djisselbloem’s slip of the tongue about ‘the template’ for future bailins around Europe. All this understandably made the gold-owning franchise nervous. The trust in this world has, let’s face it, gone: and in financial markets, trust and confidence are everything.

About four hours ago, I found this piece at Zero Hedge, and I’m now fairly sure that far from being a signal foretelling manipulation, the COMEX withdrawals were a signal for the Treasuries and Sovereigns of the West: and what they said to Those in Charge was, “If we don’t do something and fast here, there’ll be a gold run and it will blow the whistle on just how little gold we’ve actually got”.

The piece linked above by JS Kim is a must read. In it, the author asserts that:

‘The Obama administration called a meeting of the following 15 bankers just one day prior to the start of the now infamous banker gold and silver raid:

Lloyd Blankfein, Chairman and CEO Goldman Sachs

Jacques Brand, CEO Deutsche Bank

Michael Corbat, Chief Executive Officer Citigroup

Jamie Dimon, Chairman, CEO and President J.P. Morgan Chase

Sergio Ermotti, CEO UBS

James Gorman, Chairman and CEO Morgan Stanley

Gerald Hassell, Chairman and CEO Bank of New York Mellon Corporation

Jay Hooley, Chairman, President and CEO State Street Corporation

Abby Johnson, President, Fidelity Financial Services, Fidelity Investments

Steve Kandarian, Chairman of the Board, President and CEO Metlife

Brian Moynihan, President and CEO Bank of America/Merrill Lynch

John Strangfeld, CEO, Prudential

John Stumpf, Chairman, President and CEO Wells Fargo

Jim Weddle, Managing Partner, Edward Jones

Bob Benmosche, President and CEO American International Group’.

Talk about “round up the usual suspects”. I have not as yet come up with another reason unrelated to the gold and silver plunges that would explain why the Black Dude would summon all those Swinging Dicks to the White House. By contrast, I do find Kim’s rationale compelling:

‘So what was a banker to do? The easiest answer would be to slam the paper gold and silver price so that profitable long contracts would quickly transform into unprofitable ones as a mechanism to stop physical delivery requests that would expose that the emperor indeed had no clothes. In other words, because the Western banking cartel-controlled COMEX and LBMA vaults had insufficient physical gold and silver for delivery and other banks were struggling to make good on the contracts they had signed with clients to deliver physical gold, they needed to stop delivery requests immediately.’

Now being a modest sort of chap, when somebody very bright comes up with the same reasoning as me, my tendency is to think that he or she is a person of great discernment and must be right…just like me. But disregarding my continent-sized ego for a second, I really do urge you to read every word of JS Kim’s article. Not only do the data and charts support his case pretty conclusively, they also should have the capacity to terrify everyone with only 30% of their brain functioning reasonably normally. For what happened last week was nothing less than the global banking system coming within days of being found out for the bare cupboard – aka empty gold vault – it is.

So come with me now and watch what’s been happening to the paper price on the NYSE today thus far. Watch as Goldilocks tries to make good her escape from the wicked Paper Witch of the West prior to 8am EST. Thrill as the Witch wrestles Goldilocks to earth again:

None of what I am trying to posit here is news. It is merely another ugly dollop of the bleeding obvious: we are, all of us, being cheated and robbed.

We are not in the same boat here. We are the poor folks locked in steerage because there are only enough lifeboats for the pricks who promised to trickle down some of their obscene wealth to us. They manipulated Libor to save themselves, they emptied the Treasuries full of our money to save themselves, they cheated small entrepreneurs to save themselves, the destroyed our welfare services and taxed us all to Hell to save themselves, they stole depositor funds to save themselves, they manipulated the gold price to save themselves, and let’s face it folks – there is nothing these psychopathic bastards won’t do to save themselves.

In the UK context, without weakly unethical Labour politicians and approving Conservative gargoyle politicians, they would all have been banged up with long sentences years ago. In the global context, thinly disguised Berlin imperialists play dice for high stakes as the barbarians charge up Rome’s wide avenues. They can try to destroy the modern Greek State, but they are as nothing compared to the all-pervasive power of the money-monsters – busily about their business of demanding that everyone else should pay their gambling debts.

Every last one of these snakes is still at large, hissing at critics as they slither about on a counterfeit surface of risible excuses provided by apologists like Boris Johnson, Mario Monti, Michael Fallon, Bob Diamond, and the profoundly ghastly Jeremy Hunt.

I would say “God rot them all”, but there is no God: there are only strong people, willing to say No, No and No again. We desperately need more naysayers and dragon slayers if we are to avoid a world run by slave-traders.