Where's the Gold - odd things happening down at the Comex

[Chris Bowen]

Where's The Gold ?
Posted: June 26, 2009 07:45
Nathan Lewis on ............a series of very odd things happening down at the Comex.

.........in April, delivery notices were sent on a whopping 1.5 million ounces of gold, against 2.5 million ounces of dealer inventory. That month, Deutsche Bank alone delivered 850,000 ounces. This coincided, rather suspiciously, with a sale of 1.14 million ounces of gold by the European Central Bank that month, suggesting that Deutsche Bank was being bailed out in a big way. Nothing of this size turned up in the warehouse reports. Nothing followed similarly large deliveries in December 2008. By Comex rules, all physical deliveries must go through the warehouse. What happened? Until investors receive an explanation from the exchange, which has thus far been silent, we must regard it as being very suspicious. Very, very suspicious.........
.........what does it all mean? First, there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.
New York

http://www.huffingtonpost.com/nathan-lew...16896.html

[Magda Hassan]

Thanks for this. Very interesting Chris. Where is David G when you need an informed comment. Perhaps Peter P will have something to say about this? It is all looking like fiction to me and it looks like it always was.

[Peter Presland]

My take -FWIW - as a guy who day trades the COMEX PM's complex for a living and whose modus operandi depends upon an account which is small enough not to attract attention together with an understanding of what TPTB (ie Fed CB's and friends) want WRT PM's - particularly Gold - prices. Also a good few years experience of how the market has operated historically, particularly WRT Open interest movements through the life of a contract for the various categories of trader and the spreads between current and forward month contracts. Those are 'the tools of the trade' so to speak.

Briefly TPTB are desperate to keep a cap on prices. Da Boyz (JPM, GS, DB, London Bullion Banks etc) know this. They understand that their status as 'Friends' of the Fed/CB's is dependant upon their assistance in this endeavour. On no account can they be seen to profit from an Upwards step change in the PM's trading ranges. My perception is that their task is becoming more and more difficult but, so long as they don't throw in the towel (which would be evidenced by a parabolic spike above $1,200 say) their modus operandi will not change much and nimble day-traders who assume it will continue (as I do) will continue to make a few bob from the crumbs.

The basis of their control is twofold:

1. Knowledge of the percentage of expiring contract long open interest that will demand delivery and an expectation that it will continue to run at historically miniscule levels (ie 2-5% max)
2. Collusion and privillaged inside information about such things as the CFTC's tolerance of market concentration and evidence of significant new players accumulating long positions and possibly intending to take delivery.

The info in Chris's post is evidence of the stress involved in TPTB maintaining control. It's common knowledge that Deutsche Bank was effectively rescued by the ECB at the March contract expiry. They were on the hook for big unexpected deliveries when roll-overs were expected. A default was avoided and the MSM hardly noticed. All the big COMEX Shorts are now acutely aware of being ambushed on unexpected delivery demands whilst the likes of GATA and its supporters agitate continuously for unambiguous evidence that the COMEX does actually hold sufficient physical to deliver ALL the short positions of its members. As always obfuscation is the name of the game.

We have now had 2 further contract expiries since a possible default was first mooted on the December 2008 contact. March was a close run thing but June was a bit of a damp squib.

The only way I can see a default occuring is if someone with sufficient resources (ie a BIG fund -Sovereign or otherwise or an Agent for a State entity) that doesn't care too much about upsetting Uncle Sam, the EU etc, succeeds in engineering a sufficiently large long position (ie in the several millions of ounces plus) without Da Boyz spotting that they intended taking delivery and then following though with a demand for delivery. The Hunt Brothers tried it with silver many years ago and look what happened to them !

Not saying it won't happen but a liitle guy can lose his shirt smartish by betting against the system, no matter how corrupt and self-serving it is. For sure all the bleating about manipulation etc will continue to be water off a ducks back. I mean does ANYONE seriously suggest that we have genuinely free markets in anything these days?

[Chris Bowen]

thanks for that reply - some of which I think I followed !

Are we basically saying that banks are operating in the gold market in a not dis-similar way to fractional reserve banking where they don't actually hold enough physical "stuff" to repay on demand all those who could in theory require them to do so.

[Peter Presland]

thanks for that reply - some of which I think I followed !

Are we basically saying that banks are operating in the gold market in a not dis-similar way to fractional reserve banking where they don't actually hold enough physical "stuff" to repay on demand all those who could in theory require them to do so.

That's a good analogy. In this case the law and the rules policed by the CFTC put traders into one of three categories: Commercial, Large Speculative and Small Speculative. Commercial is a privileged category that harks back to simpler times when Miners and Farmers needed to sell some/all of their production before it was actually produced - ie had a genuine hedging requirement. Banks got into the 'Commercial' category by arguing that their crop/production finance loans needed to be hedged in the futures market. Commercial category traders are allowed much larger position sizes but are required to go though a lot of hoops - in theory anyway. The bottom line for PM's is that they must have sufficient metal deposited in COMEX wharehouses to meet a LOT more than the 2-5% of contracts that normally go to delivery - and the long held suspicion is that they don't and that all sorts of shenegans are underway to hide that simple fact.

[Magda Hassan]

Admittedly $15 million is chicken feed compared to some of the figures thrown around these days but... some one sure has been careless at the Canadian mint.

Royal Canadian Mint Releases Missing Gold Findings

By Royal Canadian Mint on Jun 29th, 2009 in Bullion Articles and Precious Metal Reports, Canadian Coins, Proposed or Recent Coinage Legislation, Royal Canadian Mint | No Comments

OTTAWA, ON — The Royal Canadian Mint today released the findings of a third party review related to the unreconciled difference between the Corporation’s rolling inventory and the physical count of precious metals for the 2008 fiscal year.
The scope of the review, conducted by Deloitte and Touche, was to specifically determine if the unreconciled difference in gold was the result of an accounting or transaction recording error.

The report concluded that "the unaccounted for difference in gold does not appear to relate to an accounting error in the reconciliation process, an accounting error in the physical stock count schedules, or an accounting error in the recordkeeping of transactions during the year."

The Deloitte and Touche report identified three other areas for consideration:

1. A technical review of operations – As the Mint applies scientific processes and formulae to various aspects of refining, such as process losses, the Mint may wish to review and update its benchmarks and/or third party studies regarding such technical processes and formulae.
   
2. An accounting review of prior periods - Precious metal reconciliations have been performed by the Mint twice annually in prior years. Although, in theory, revisiting prior period reconciliations could explain the difference, it would be difficult to complete such a review due to the passage of time, the availability of supporting documentation and the turnover of Mint staff.
   
3. Security reviews - A more in-depth review of systems security and an assessment of potential inappropriate activity by both internal and/or external parties.
   

"As a Crown Corporation, we understand that Canadians hold us to a high standard of accountability and the Mint’s Board of Directors will continue to work closely with management in ensuring that this matter is pursued vigorously," said James B. Love, Chairman of the Board of the Royal Canadian Mint.

"In response to the report’s recommendations, the Mint has engaged third parties to assist the Corporation in its review of specific aspects of its operations, including refinery processes and internal controls," said Ian E. Bennett, President and CEO of the Royal Canadian Mint. "We have also requested the RCMP’s assistance to investigate the matter and the Mint has committed to fully co-operate with them."

The amount of the unreconciled precious metals at this stage is approximately $15.3 million. Mr. Bennett emphasised that "the Mint will aggressively continue its efforts both internally and with outside experts to determine the sources of the unreconciled difference."
In the interim and on the basis of the Deloitte and Touche report, the Corporation has notified its insurance carriers that it intends to file a claim under its "All Risks" insurance policy which, if successful, will largely offset the amount of any unreconciled difference.
The full Deloitte and Touche report and executive summary are available on our website at www.mint.ca. Accompanying these documents is a backgrounder on the Royal Canadian Mint’s refinery operations and key questions.
[B]About the Royal Canadian Mint[/B]

The Royal Canadian Mint is an ISO 9001-2000 certified company, recognized as one of the largest and most versatile mints in the world. With facilities in both Ottawa and Winnipeg, the Mint is a commercial Crown Corporation which produces and manages the distribution of circulation coins and provides advice to the Government of Canada on matters related to coinage.
The Mint also designs, produces and markets numismatic coins and gift products and also manufactures coins and blanks for countries around the world. The Mint operates full-service gold and silver refineries, offers storage services to Canadian and international customers and produces precious metal products for the investment community. For a complete overview of the Mint’s products and services, visit http://www.mint.ca.
http://www.coinnews.net/2009/06/29/royal...-findings/

[Magda Hassan]

I wonder if this has anything to do with the events at the comex?

Dubai to get back gold reserves from London banks


Commodity Online
DUBAI: All the gold of Dubai that is held in the vaults of various banks in London is coming back to the City of Gold.

The Dubai Multi Commodities Centre (DMCC) has opened new vaults to store the gold reserves in Dubai, currently being looked after by central banks in London.

DMCC officials disclosed that DMCC vaults will be a home to the gold allocated to the Dubai Gold Securities (DGS) Exchange Traded Funds (ETFs). The vault may also become a natural choice for storage of gold reserves by central banks in the Middle East bullion market.

At present, gold allocated to DGS is kept at HSBC’s vaults in London and gold reserves held by GCC’s central banks are held by various other vaults in London. London has been home to safe and secure gold vaults for more than a century.

The new gold vaults at DMCC became operational in April. DMCC officials said that the gold held under DGS ETFs at the HSBC vaults in London will be bought to Dubai soon.

Dubai Gold Securities listed on Nasdaq Dubai in March. Each security represents ownership of 1/10th of an ounce of gold and is expected to initially trade in increments of $0.10.

HSBC has been storing gold bought by investors, charging 0.4% of the value a year. The price of Shariah compliant Dubai Gold is determined by bids and offers and is designed to follow spot gold prices.

Initially, a creation basket of 50,000 shares will be issued and up to one billion shares can be issued, according to market demand.

Liquidity for Dubai Gold is backed by the London OTC gold market. Mac Capital has said it 'believes that Dubai Gold makes a sound addition to an investment portfolio'.

The recently-launched Dubai Gold Securities offers investors Shariah-compliant access to gold bullion investment without the additional costs normally associated with insuring, storing and transacting in physical gold.

And, Shariah-compliant gold funds are offering better returns than the other funds as investment in the yellow metal has lifted its price by multiples of a thousand dollars, according to the managers of Shariah-compliant funds.

After the launch of Dubai Gold Securities at Nasdaq Dubai on March 2, the World Gold Council (WGC) had said that cross-listings of the product is being planned on regional markets.

WGC now thinks that it can cross-list the product on other exchanges in the Middle East, particularly in Saudi Arabia. As part of the WGC strategy for exchange traded gold, it has key partners worldwide. WGC can use them to cross-list the product.

Each security is 100% backed by physical allocated gold held in safekeeping by an independent custodian. One share represents an initial interest of one-tenth of a fine troy ounce of allocated gold bullion.

The current wisdom for central banks is that if they have more than 20% of their reserves in gold, they are overweight. Central banks with low reserves of gold are looking forward to increasing their reserves. They are trying to analyse what the right balance should be. They are getting aggressive. And this includes the banks in the Middle East and in the Bric countries, the WGC said.

In contrast, some countries hold 80%-85% of their reserves in gold. This includes Switzerland. The US Central Bank also has a high gold reserve. These banks also need to readjust their strategy.

Dubai also hosts gold futures trading at the Dubai Gold and Commodities Exchange (DGCX). The state-run DMCC holds a majority stake in the DGCX.

According to a WGC report, gold investment in the Middle East jumped 38% in 2008 compared with 2007’s fourth quarter. Saudi Arabia saw a massive 300% jump in investment demand, Egypt 67% and other Gulf countries registered a 2% increase.

According to the WGC, several Middle East nations including Dubai are going to be action centres for gold investments.

A Shariah Supervisory Board has been constituted to supervise the issuance of Dubai Gold Securities and will conduct regular physical inspections of the gold held on behalf of investors.

DGS’s listing on Nasdaq Dubai follows the successful listing of similar bullion securities products on a number of stock exchanges around the world, including the NYSE Arca and London Stock Exchange.

Currency devaluations have particularly shifted the focus to gold. Printing more paper is eroding confidence in it. So, not only gold, but every hard asset is becoming more reliable. Gold especially has attracted a lot of investments.

Gold occupied five per cent of above ground financial asset in 2008. It occupied 22 per cent of it in 1982.
http://www.commodityonline.com/news/Duba...4-3-1.html

[Peter Presland]

This was first mooted back in April and the original speculation about timing has been proved false - which arguably undermines the whole thing. That said, if the trading sources I monitor are any guide, it is gaining traction with timing said to be immanent (weeks-months ish).

Briefly it is a hypothesis that rejects the interminable Hyper-inflation -v- deflationary depression debate as diversionary. To the extent that it is thus uber-contrarian, it probably has merit.

This from a long article:

The point is that during times of transition, surprises are always the order of the day. Look to the consensus on both sides, optimistic consensus and pessimistic consensus, and expect a surprise different from that consensus, depending on which direction we go.

One of the few things we are confident about is, some very improbable things will happen. Surprises will occur so often they will become routine... I am sure this was only the beginning of a parade of shockers.

-Richard Maybury 06/09

This is true because the market CANNOT reward the majority for long. A zero sum game, the market must reward a minority. If too many people pile into one line of thinking, the market is primed for surprise.

Because of the slow-motion train wreck we are all passengers on, we have reached a unique dichotomy of opinions. This divergence can be boiled down to the inflation-deflation debate, with a few variations. On the inflation side we have both optimists and pessimists, who view the coming inflation as either good or bad. And on the deflation side we have mainly pessimists who see continued downward pressure on the stock market, the housing market and consumer prices as well.

Running parallel to these general impressions, we have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later.

A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks.

Frankly, I'm not buying it.

Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin.

In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be. While at one time it may have happened over a month, it could now happen overnight! The laws of economics can only be violated for a limited time frame. So far that time frame is four months and counting. Or viewed another way, 15 years and counting. Viewed yet another way, 38 years and counting. And viewed one more way, 96 years and counting. These are four waves of economic violation that are converging right in front of us.

What kind of correction are we looking at?

I think we will have a correction of ALL FOUR waves of economic and monetary violation... all at once!

To see this, you must view the imbalance that has developed during each of these time frames. On the medium scale we have the imbalance of debt in the West with surplus in the East. This imbalance is an ongoing flow that has not only gone parabolic, but is projected to continue through at least 2025 (BIS study)! How can a trend that has gone parabolic in only 15 years continue for another 15 years?

In the shortest time frame, the imbalance is between market technical patterns, managed through media spin and "other means", and long term (secular) market fundamentals. This imbalance is most obvious in the divergence of the public sector and the private sector. The public sector has been bailed out by the private sector without its consent. In fact, against its wishes. This has created an imbalance of fairness that is boiling under the surface tension of the green shoots media hype.

Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has also gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic.

The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Here at freegold.com, we like to call it FREEGOLD!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.

Some of the entities that you think most deserve to be wiped out will turn out to be the BIGGEST beneficiaries of this "overnight" transfer of wealth. And others who thought they were fully hedged will be wiped out. These are the kinds of surprises I expect. I am truly in the mode of "expecting the unexpected" with a timeline shorter than a normal TV season.

Call me contrarian. But please don't call me a "doomer". I do not view this as doom. I realize the difference between the monetary system and the real economy. I recognize the difference between real capital and illusory wealth. The current monetary system is like a virtual grid, an electronic parasite overlaid on the real world. It can completely vanish and leave the real world totally intact. I look forward to a new beginning for the entire system. A healthy start like we have not seen in generations.

This reset is not something I am pushing for. It is not something I even wanted a mere year and a half ago. Instead, it is what I see as inevitable. Yes, many will be hurt and I will mourn their losses as some of my own loved ones are not well prepared. But what can I do more than I am already doing? We cannot fight the inevitable. We can only prepare.

Some have said that I am only viewing the forest and not the trees. That I do not care for the individual trees that will be engulfed by the forest fire. I do care, and this is why I blog.

There is NO SOLUTION that will save everyone's dollars. There are simply too many of them. There is NO SOCIALIST PARADISE. There is only reality and, living in it as we do, we must each walk our own Trail into the future.

Perhaps I am wrong and this fateful day will come later than I expect. I hope I am wrong. More people will make it to the safe harbor in the meantime. But do I venture out into the open sea while I wait? No, I remain moored to my anchor.

So call me contrarian, but follow the consensus voices out into the choppy waters at your own peril.

Making gold much more expensive in dominant fiat currency terms - especially the Dollar which de-facto already sets its price - would make a lot of sense to the Banksters, provided those agreeing to do so knew they controlled the vast bulk of existing stocks. If those 'existing stocks' include much of David Guyatt's 'Black Gold' which could then somehow be made 'legitimate' through such a major disruptive reset, then it would make even more sense.

Interesting times. Something major is in the wind. I can feel it in my bones.

[Magda Hassan]

Peak Swiss Gold Vault Space

July 17th, 2009 Via: Mineweb:
In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions. Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment – and in gold in particular, and in the necessary secure storage space in which to hold it..
One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold. The Zurich Kantonal bank put this down to the success of its gold ETF.
The website reports another Swiss investment banker despairing “We have the need to store more gold for our clients but are finding it difficult to find secure storage facilities”. Gold storage makes high demands on security which is what is making the gold holding task more difficult. Few banks will divulge exactly where their gold is stored for security reasons.
Another banker reported that his bank still had space but that it is beginning to run out.
Some of the problems are being handled by improving the storage systems in existing space. As one banker commented “A 12.5 kilo gold bar only occupies about the same amount of space as a tetrapak of milk”.
While the big U.S. based ETF, the SPDR Gold Trust has recently seen a relatively small decline in its gold holdings with some investors seeking better returns in the markets, the ever-cautious Swiss seem to be seeing continuing growth in locally managed ETFs. A recent report noted that Swiss Bank, Julius Baer, for example, was still seeing a 3.3% growth in its gold ETF in the current week. And even though the Swiss Central Bank has been selling gold via the Central Bank Gold Agreement, it still holds 38% of its foreign exchange reserves in the yellow metal.
http://cryptogon.com/?p=9937

[David Guyatt]

thanks for that reply - some of which I think I followed !

Are we basically saying that banks are operating in the gold market in a not dis-similar way to fractional reserve banking where they don't actually hold enough physical "stuff" to repay on demand all those who could in theory require them to do so.

I'm on a quick visit and haven't had the opportunity to read much posted on the forum thus far.

However, for Chris, it might be worth noting that the entire edifice of fractional reserve banking derived from the gold market and the realization that paper "receipts" instead of physical delivery suited most purchasers (it was the cheaper option). This very quickly resulted in a the gold dealers/banks realizing they could sell more gold than they owned and simply juggle physical with paper delivery.

Hey Peter, you're a brave man dealing in the gold paper market! Me, I'd only ever now buy physical and stash it under the bed in case that really rainy day ever arrived. I'm so old fashioned in these things that if I were ever flushed with temporary madness and decided to buy stock or shares I'd still want a certificate proving I actually owned something. The thought an entry on a computer system being my sole proof of ownership fills me with dread -- especially as the financial and commodities markets are so overwhelmingly staffed with crooks and organized criminals these days.