‘Serious manipulation’ of gold, silver markets

Price of precious metals allegedly forced down for profit

Towards the end of the article, he quotes Andrew Maguire in this statement:

Attempted murder?

Maguire and his wife were involved in a bizarre car accident in London, the New York Post reported March 29.

Maguire told WND he reluctantly has come to believe the car accident was an attempt on his life.

“We got hit in the side at full acceleration and tried to corral the cars in a gas station, including the guy who hit us with a commercial vehicle,” Maguire explained.

The assailant then got in his car and accelerated, hitting a number of cars as he escaped from the gas station, making the event into a hit-and-run situation.

“The police told us the assailant was known to them and even that they arrested him,” Maguire said. “But recently the police won’t say anything, and I haven’t been able to learn anything about the assailant.”

http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/3/30_Andrew_Maguire.html

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This just in from Chris Powell at GATA:

In his weekly interview with Eric King of King World News, silver market analyst Ted Butler announces that the Anti-Trust Division of the U.S. Justice Department has told a Butler newsletter subscriber that it is investigating a complaint of silver market manipulation against JPMorgan Chase & Co.

In a subsequent King World News interview, market analyst James G. Rickards, senior managing director for market intelligence at the Virginia-based research consultancy Omnis Inc., notes that the Justice Department’s reply to the Butler newsletter subscriber went out of its way to mention Morgan Chase, even as the Butler newsletter subscriber, in writing to the Anti-Trust Division, had not mentioned the investment bank. Thus, Rickards says, the Anti-Trust’s Division’s reply is “a stunning communication.”

Rickards speculates that the Anti-Trust Division’s reference to Morgan Chase may have been prompted by press reports linking Morgan Chase to silver market manipulation. Of course such press reports have arisen from the complaint brought by GATA to the March 25 hearing held by the U.S. Commodity Futures Trading Commission about trading practices in the precious metals futures markets. At that hearing GATA presented the story of London trader Andrew Maguire’s attempt to walk the CFTC through an ongoing market manipulation by traders for Morgan Chase, and the CFTC’s seeming lack of interest.

The King World News interview with Butler is 10 minutes long and you can find it here:

http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/5/1_Ted_Butler_on_the_Metals_Market.html

The King World News interview with Rickards is 12 minutes long and you can find it here:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/5/1_Jim_Rickards.html

Please remember that King World News isn’t just audio anymore — that it has started posting some pretty compelling text commentary as well, including commentary by Rickards, Richard Russell, Nouriel Roubini, and Marc Faber. You can find the King World News text commentary section here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/KWN_DailyWeb.html

Source: http://www.gata.org/node/8596

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– Posted Friday, 23 April 2010

By Adrian Douglas

On April 21, 2010 Paul Tustain, CEO of BullionVault, posted an article at gooldseek.com entitled “Cash Futures, Physical Forwards, and London Gold’s 100-to-1 Leverage” in which he characterizes my comments and analysis of the LBMA as a “misunderstanding”.

http://news.goldseek.com/BullionVault/1271872184.php

The following commentary is written as a rebuttal to Mr. Tustain’s article.

Mr. Tustain argues that the characterization of the London LBMA OTC market as a “paper” market where the ratio of paper to actual bullion sold is 100:1 is incorrect because much of the “paper” trades are “forwards” which will at some future date be delivered against with actual bullion by the seller of those forwards. I will show that cannot possibly be the case.

The Bank for International Settlements (BIS) in its Q2 2009 OTC Derivatives report gives the notional value of gold forwards and swaps as $179 billion and for silver as $101 billion. In weight terms this is 193 million ozs of gold and 7,481 million ozs of silver. Over the last 50 years all large above ground inventories of silver have been drawn down so the only legitimate sellers of silver forwards on a consistent basis have to be mining companies. The US Geological Survey tells us that in 2009 the total silver reserves on planet earth were 8,400 million ozs. If the LBMA is not a paper market we would have to believe that mining companies have already sold forward 89% of the silver reserves of the world! Yet if we look at the major silver mining companies their production is largely unhedged. So who could possibly have sold forward 89% of the economically mineable silver on the planet if it was not the entities who actually own it? It must be entities who don’t own it. The inevitable conclusion is that the LBMA forward market is a paper market and is not backed by future production.

Mr. Tustain spoke about the spot market and the forward market but conveniently sidestepped the issue of unallocated bullion that is meant to be held by the LBMA.

What I argued was that there is a large amount of gold that is neither a spot market operation which is for immediate delivery nor a forward purchase that is for delivery in the future. That category is “unallocated gold” which has been bought by investors and should be held by the LBMA on their behalf. The fact that such investors are considered “unsecured creditors” means that the gold is not vault gold but an IOU gold. The LBMA is selling much more bullion than it actually has by employing a fractional reserve system.

Mr. Tustain says “exchangeability is the source of their [futures contracts] liquidity. Forwards, on the other hand, are hopelessly illiquid. Each was custom built ‘over the counter’ for a specific settlement day. But forwards really are deals in physical gold – which will settle as Good Delivery bars, on almost every day of the year”

He claims that “forwards” are hopelessly illiquid. But the LBMA reports that on average 20 million ozs of gold are transferred each day and 90 million ozs of silver on a net basis. That is $6.5 Trillion of net trade on an annual basis in gold alone. That is one heck of a lot of liquidity! If the forwards are hopelessly illiquid then this trading must be almost entirely due to trading of unallocated gold. I have addressed this before in previous articles and shown that this level of trading cannot be backed 100%. In fact I estimated that approximately 50,000 tonnes of gold has been sold that does not exist in the vaults. Interestingly enough 50,000 tonnes is approximately equal to all the gold reserves left to be mined on the planet.

Finally Mr. Tustain addresses futures market manipulation. He concludes that small investors will lose money in the futures markets because they don’t have the monetary or bullion resources to play against “the professionals” (aka the Gold Cartel). This is exactly what regulations are meant to guard against. Big players are not supposed to make money just because they are big. Is it the small investor’s fault that just two bullion banks are allowed to control anywhere from 40-100% of the net short position or to hold 95% of all OTC precious metals derivatives? Is it the small investor’s fault that two bullion banks in July 2008 sold short the equivalent of 25% of the global annual silver production and 10% of the world gold production in 4 weeks?  This was not some professionals doing some arbitrage between the futures market and the forward curve. This was blatant manipulation because the financial crisis was causing a “run on the bank” of the LBMA due to investors wanting so much bullion that it risked exposing their inability to deliver. This was not “novices” as Mr. Tustain characterized them; this was intelligent and rational investors wanting to protect themselves in a credit crisis. The “run on the bank” for physical had to be stopped at any cost before it exposed the bullion bank short position. So the bullion banks went massively short on the Comex to crater the price to squash the notion that precious metals could be a safe haven. This process was accurately described by Jeffrey Christian in his testimony before the CFTC except he described the shorting on the Comex as “hedging” of the physical sales being made in London. When questioned by Chairman Gensler about this bizarre concept of going short to hedge something that has already been sold he claimed he had misspoken. But the facts speak for themselves; there were physical shortages which even obliged the mints around the world to ration supply, and yet the Comex prices of gold and silver plummeted.

In characterizing the shenanigans on the Comex as perfectly logical arbitrage trades against the forward curve, Mr. Tustain disregards the information given to the CFTC by Andrew Maguire about manipulation of the silver market by JPMorganChase in advance of the manipulative events actually occurring; he also disregards the fact that the CFTC has been investigating alleged manipulation in the silver market for over 19 months. There is a preponderance of evidence that the counterintuitive price behavior of the Comex gold and silver futures market are anything but just innocent arbitrage.

I would like to commend Mr. Tustain for taking the time to publish his comments because it is by way of following a healthy debate that market participants can be better informed. However, his arguments to dismiss my concerns that the LBMA has sold many times more gold and silver than it can deliver do not stand up to close examination.

Of course, the debate could easily be settled by the LBMA making a statement that all the unallocated bullion they have sold is 100% backed by inventory which is unencumbered in any way and publishing a third party to audit to verify it. They could further change their account agreements to make unallocated account holders “secured creditors” instead of “unsecured creditors”. They could further aid investors by publishing data on their forward contracts and details on their trading volumes and making it clear how annual net trades of $6.5 trillion can be achieved with bullion that is not hypothecated and confirming that the Comex futures are hedging real physical bullion and not paper promises of bullion.

I will not hold my breath waiting.

Adrian Douglas

Editor of Market Force Analysis

Board Member of GATA

April 22, 2010

www.marketforceanalysis.com

Market Force Analysis is a unique analysis method which provides reliable indications of market turning points and when is a good time to enter, take some profits or exit a market. Subscribers receive bi-weekly bulletins on the markets to which they subscribe.

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Now with less crunch.

Dear Friend of GATA and Gold:

As you may have seen from the Bloomberg News story dispatched to you previously today,(http://www.gata.org/node/8352), Federal Reserve Chairman Ben Bernanke is to appear next week before the banking committees of Congress to present the Fed’s semi-annual report on the economy. Presumably Bernanke will be subjected to the usual questioning by committee members. The problem, of course, is that these questions are seldom very compelling and so elicit little about the Fed’s secret, market-manipulating actions.

With your help, we can change that next week.

After all, what if a committee member asked Bernanke about the Fed’s gold swap agreements with foreign banks, agreements the Fed admits having and insists on keeping secret, agreements about which GATA is suing the Fed for access under the U.S. Freedom of Information Act?

Of course Bernanke might weave, dodge, and evade such questions, but then the issue would be squarely on the table.

These are the key questions for Bernanke:

1) Will you confirm the substance of Fed Governor Kevin M. Warsh’s letter of September 17, 2009, to the Gold Anti-Trust Action Committee, to the effect that the Fed has gold swap agreements with foreign banks and insists on keeping those agreements secret? (For a copy of Warsh’s letter, see http://www.gata.org/node/8192.)

2) What is the purpose of the Fed’s gold swap agreements?

3) Have any of these agreements ever been implemented? If so, exactly how, why, and when?

4) How do those agreements affect the U.S. gold reserves?

5) Why must the Fed keep these agreements secret? What would happen if the public, the markets, and Congress knew what the Fed was doing in the gold market? Will the Fed disclose those agreements to Congress? If not, why?

If you’re a U.S. citizen, you can help put these questions to Bernanke and thus hasten the end of the gold price suppression scheme by urgently contacting your U.S. representative and U.S. senators and ask them to see that Bernanke is asked about the gold swaps. You especially can help if your U.S. representative or either of your U.S. senators is a member of the House Financial Services Committee or the Senate Committee on Banking, Housing, and Urban Affairs, the committees that will question Bernanke directly.

You can find a list of members of the House Financial Services Committee here:

http://financialservices.house.gov/members.html

A list of the members of the Senate Banking Committee is here:

http://banking.senate.gov/public/index.cfm?FuseAction=CommitteeInformati…

You can identify and locate your U.S. representative here:

http://www.house.gov/

You can identify and locate your U.S. senators here:

http://www.senate.gov/

For this to have a chance with Bernanke’s testimony next week, you’ll have to try to reach your U.S. representative and senators on Monday. Please do try. All it will take is one member of Congress to raise the issue during the hearings. Thanks for your help.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *
Support GATA by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA’s full-page ad in The Wall Street Journal on January 31, 2009:

http://www.cartserver.com/sc/cart.cgi

Or a video disc of GATA’s 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16

GATA Washington Conference – Speech by James Turk from Chris Powell on Vimeo.

GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank’s records of its surreptitious market intervention to suppress the monetary metal’s price.

The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA’s law firm, William J. Olson P.C. of Vienna, Virginia, (http://www.lawandfreedom.com) Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

The lawsuit follows two years of GATA’s efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government’s involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul’s legislation recently was approved by the U.S. House of Representatives.

The Fed claims that its gold swap records involve “trade secrets” exempt from disclosure under the U.S. Freedom of Information Act.

While GATA has produced many U.S. government records showing both open and surreptitious intervention in the gold market in recent decades (see http://www.gata.org/node/8052), Fed Governor Warsh’s letter is confirmation that the government is surreptitiously operating in the gold market in the present as well. That intervention constitutes a huge deception of financial markets as well as expropriation of precious metals miners and investors particularly. This deception and expropriation are what GATA was established in 1999 to expose and oppose.

Of course GATA’s lawsuit against the Fed will take months if not years to resolve. We think we have a good chance of winning it in court. But we can win it outside court, and much sooner, if the suit can gain enough publicity from the financial news media and market analysts and prompt enough inquiry from them and from the public, the mining industry, and members of Congress.

So GATA urges its friends to publicize the suit and to urge journalists, market analysts, mining companies, and members of Congress to join us in seeking disclosure of the Fed’s gold market intervention records. If enough clamor is directed at the Fed about these records, the gold price suppression scheme will lose its surreptitiousness and fail.

Unfortunately the World Gold Council, which each year collects tens of millions of dollars in membership fees from mining companies in the name of representing them and gold investors, refuses to question governments about their surreptitious interventions in the gold market. These interventions powerfully influence not only gold’s price but the prices of government bonds and currencies, as well as interest rates generally and the value of all capital and labor in the world. There is no more important issue in the world economy than gold price suppression.

So what should have been the World Gold Council’s work has fallen to GATA, a non-profit educational and civil rights organization that operates from month to month on donations from people who share its objective — free and transparent markets in the precious metals and fair dealing among nations generally. As we prosecute our lawsuit against the Fed, we’ll be grateful for your support. We promise to do something with it.

For information about supporting GATA, please visit:

http://www.gata.org/node/16

GATA’s lawsuit against the Fed is listed in federal court records as civil case No. 09-2436 ESH, the letters being the initials of the district court judge assigned to it, Ellen S. Huvelle.

You can find the lawsuit here:

http://www.gata.org/files/GATALawsuitVs.Fed-12-30-2009.pdf