Central Banking: A Blight On Humanity

[Peter Presland]

This is the first time I have seen an article by a mainstream PM's market analyst that suggests vast amounts of Black Gold (Yamashita Gold as he dubs it ignoring similar vast amounts systematically looted by the NAZIs - but no matter) as a possible explanation for the increasingly strange behaviour of both the paper PM's and bullion markets.

The following is from Paul Mylchreest's 'Thunder Report' and I have attached the entire pdf for those interested in the minutiae.

Briefly, he posits two alternative possibilities

1. That, on average each London Good Delivery bar is effectively allocated to more than one owner, such that through those paper promises, were everyone to demand physical delivery, more than double the amount of gold officially acknowledged and allegedly audited would be required to avoid a default. This would of course involve gross illegality - but then that's hardly surprising in the murky world of PM's ownership and trading.

2. That serious amounts of 'Yamashita Gold' have been drip fed into the London Bullion Market over an extended period from the 1980's to today. Here's what he says on this point:

Alternative 2: There is FAR more gold bullion held in private hands than is acknowledged by current industry estimates. It is the large amount of additional gold on top of known gold stocks which provides sufficient liquidity to support the high volumes traded through London. The most likely source for this gold dates back to the Japanese conquest of Asia from 1894-1945 when Japan is alleged to have looted the gold and valuables of 12 nations – it is best known as the story of Yamashita’s Gold. If true, my analysis shows that particularly heavy volumes of this gold may have been laundered into the London market during 1986-90 and the mid/ late 1990s. In this scenario, the continued evolution of the gold bull market could be more protracted, if supplies of this gold continue to enter the market periodically.
It seems to me that an investigation into the gold market is justified. The Bank of England and the Financial Services Authority (FSA), which have some responsibility for overseeing the gold market in London, are probably the best placed institutions to carry this out.
I’m not afraid to be ridiculed for these views, indeed it would surprise me if I wasn’t (especially by the professionals in the OTC gold market), just as I experienced plenty of ridicule during 2006-07 when I was talking about credit bubbles, Kondratieff Winters and Austrian economics.
Given that the outlook for most paper currencies is so dire. I don’t see the need to alter my portfolio weightings at this point whether Alternative 1 or Alternative 2 is correct. If it’s the latter, it just means the authorities can keep the fiat currency party going for longer, but eventually the party has to end. As I said in the last Thunder Road, “Defence is sometimes the best means of attack”, 90% of my portfolio is in gold, silver and food/agriculture related stocks at this point. I’m sitting tight for now, but may sell a bit of gold and silver exposure into a big spike if there is one (in case Alternative 2 is the correct one).
I should also make it clear that if Alternative 2 is correct, I have no intention of delving deeper into the subject of Yamashita’s Gold – it would be something for others, possibly at an official level. Indeed, I have deliberately held back a great deal of information on this subject from a variety of sources. My main aim is to provide investors with a better understanding of the gold market which, even on a good day, is about as clear as mud and frequently behaves in a counter-intuitive fashion, as I have highlighted numerous times.
One final thought on Alternative 2. If it is true, much of the gold allegedly stolen by the Japanese is believed to come from China. Not only has China announced that it has doubled its official gold reserves, but it has started to promote the ownership of gold and silver to its people. Is China actively trying to reverse events which began more than a century ago?
One final thought on Alternative 1. If it is true, the next phase in the gold bull market will be a religious experience for anyone unfortunate enough to be short of gold.

The rest of the article is an impressive analysis of the volumes of gold traded on the London Bullion Market together with new production figures, all of which point inescapably to one of the 2 alternatives suggested - or more probably in my view, a dirty muddled amalgam of the two.

Here are his concluding remarks:

If Alternative 2 is correct, and there is far more gold in existence than is generally understood, a strong case can be made that the unusual behaviour of the gold price and the huge volumes of gold traded through the LBMA in a major bear market for gold suggests that looted gold was being laundered through the London market - during these periods in particular and most likely others given the frequent counterintuitive movements in the gold price for more than a decade. The question for my friends at the Gold AntiTrust Action Committee is whether the gold price suppression has been the result of covert sales of central bank gold or from the Yamashita hoard?
Finally, if Alternative 2 is correct, what are the implications from an investment standpoint? If it is true then the periodic laundering of clandestine or “black” gold into the London market has been a feature of the gold market since the end of the Second World War so going forward what’s chagned? One of the key themes of Thunder Road has been the inevitable approach of a dollar crisis (and a Sterling crisis) hence the need to own gold and silver. Alternative 2 doesn’t change the technical insolvency of the US. At the same time, nations like China and Russia are buyers of gold. My lateral thought on China is that much of the gold allegedly stolen by the Japanese is believed to come from the Middle Kingdom. Not only has China announced that it has doubled its official gold reserves, but it has started to promote the ownership of gold and silver to its people. Is China actively trying to reverse events which began more than a century ago and reclaim its gold?
From a tactical perspective, if there are still quantities of clandestine gold which can be dumped into the market periodically, short-term pull backs in the price will remain a feature in the gold market but, once again, that’s no different from what we’ve been experiencing anyway. Let’s not forget, the gold price on 15 January 2009 was US$810/oz compared with US$995/oz on the day before Bear Stearns collapsed in March 2008. In the intervening 10 months, the world economy had been decimated and governments around the world, especially in the US, had spent or pledged many trillions of US dollars created out of thin air. Counter-intuitive anybody?
A final thought is: why did the LBMA suddenly surprise everybody by starting to publish data on the volume of gold trade going through London in January 1997? If Alternative 2 is correct, was somebody high up in the LBMA suspicious about the heavy selling of bullion which was pushing the gold price down? Was it their way of letting us know? Here is an posting on the internet from 31 January 1997 from “CMAX”. The only changes I have made are to improve the English without restraining some of his (slight?) hyperbole!
“HOW HOW HOW...in this enlightened age of information, did something exist so large as loco London?? It has been hidden all this time not by government mandate...but by private enterprise. The discovery of loco London is akin to discovery of the New World by Columbus...these are the numbers of a GOLDEN ALTERNATIVE CURRENCY, here and NOW.”

The whole piece stikes me as right on the button, with the caveat that I personally am less circumspect about the existence of the black stuff. It should be of especial interest to David G who could probably fill in some gaps in the author's relatively lightweight treatment of that aspect.

[Peter Presland]

This is a good article on the increasingly unstable markets in all things gold.

I think the guy is perhaps a little too smug about the amount of physical gold ever mined being containable inside a 19 Metre cube that grows at a mere 2% per annum. Nonetheless it is an informative trot through the extraordinary developments of the past 18 months or so.

What is really scary about gold breaking the $1000 barrier is that it happened in the face of a flood short selling in US futures markets. So while gold was being driven up by Hong Kong buying, it has also been getting killed by unrelenting selling during COMEX hours. As can be seen in the chart below, the quantity of COMEX gold futures contracts has begun spiraling out of control since the end of August.

I have now stopped trading the GLD futures contract because its intra-day volatility has become astronomic with no tools that I am aware of capable of providing a trading edge no matter how steady one's nerves.

As the author states, the paper gold market has effectively become a fractional reserve system with the amount of physical gold available to support outstanding claims on it (ie options and futures contracts open interest) sitting at an unprecedented 4% or so. In addition there is considerable and very legitimate doubt about the security of so called 'allocated' gold deposits in that the temptation to use it too as a sort of fractional reserve deposit (albeit probably - hopefully?? - with rather greater than 4% backing) has undoubtedly been overwhelming through the past decade or more, meaning more than the assumed single owner/claim per bar.

The problem with the article (IMHO) is that it appears oblivious to the likely existence of vast quantities of gold outside of the 19 Metre cube. I personally believe that it is the people who control the bulk of that stuff who are likely to become the arbiters of just how this whole thing plays out.

So who are they? Is control totally fragmented? - unlikely IMO - or is it in the hands of those who define their interests as synonymous with the existing Bankster Cartel? - more likely IMO. If so the denouement could turn out rather differently to the prayers of the 'Gold Bugs' even if still a good hedge against Armagedon.

Interesting times indeed.