Dear Friend of GATA and Gold:

GATA today scored a small but perhaps auspicious victory over the Federal Reserve in our lawsuit seeking access to the Fed’s secret gold files. The judge presiding over GATA’s federal freedom-of-information lawsuit in U.S. District Court for the District of Columbia, Ellen Segal Huvelle, granted GATA’s motion to order the Fed to produce in complete form for the judge’s private review 20 gold-related documents the Fed has sought to keep secret. The judge ordered the Fed to deliver the documents by Friday.

Through its lawyers, William J. Olson P.C. of Vienna, Virginia — www.LawAndFreedom.com — GATA has argued that the Fed’s production of gold-related documents has been so inadequate and the Fed’s arguments for keeping them secret so weak that the court should review the documents acknowledged by the Fed and order the Fed to answer 25 questions from GATA about the Fed’s search for relevant information.

While Judge Huvelle still could grant at any time the Fed’s motion to dismiss GATA’s lawsuit, her ruling today at least implies a little skepticism about the Fed and its tactics. Combined with today’s statement by U.S. Rep. Ron Paul, the new chairman of the House Financial Services Committee’s Subcommittee on Monetary Policy (http://www.gata.org/node/9495), Judge Huvelle’s ruling gives hope that the Fed’s enormous secret power to rig markets and bestow the most fantastic patronage on a parasitic financial elite can be brought to account eventually.

The judge’s order to the Fed to produce documents for her private review can be found at GATA’s Internet site here:

http://www.gata.org/files/GATAFedLawsuitCourtOrder-01-10-2011.pdf

Those who are skeptical of GATA’s complaint that the Federal Reserve is part of an international gold-price rigging scheme should reflect on the meaning of the Fed’s refusal to disclose all its gold-related records, records that include gold swap arrangements with foreign banks:

http://www.gata.org/node/8192

If the U.S. gold reserves are just sitting somewhere, inert, unencumbered, and unused for surreptitious market intervention, what’s the problem with full disclosure?

Financial journalists unafraid of aggravating the world’s financial powers should start putting gold-related questions to the Fed and other central banks and stop simply assuming that secrecy should be the normal order of things with central banks and gold.

And people everywhere who believe in free markets in the monetary metals and who have not already supported GATA financially can join our struggle here:

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

This struggle could have been undertaken easily and likely more effectively by the World Gold Council, which aims to represent gold mining companies and gold investors. But the council’s indifference to questions of surreptitious central bank intervention in the gold market has left the struggle to GATA. We need your help to pursue this struggle to victory for free markets, limited government, and a better, fairer world.

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

– 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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Here is the scam’s pitch:

“So we have found a way to profit from China’s growing economy and don’t want to keep the know-how just for ourselves. With MandarinInvest you will be able to partake in our success and patch up any financial holes your budget might have gotten due to the world financial crisis.”

Strangely enough?… I followed a Pecunix, keyword alert.

and found this wonderful scam interview, posted on a scam promotional web site, for a fraudulent/scam investment ponzi scheme.

Hi everyone! For my first post today I am really pleased to finally have this interview with the admin of what has surely been one of the most successful programs and consistent performers in the online investments industry for the last several months. I’m talking about Robbyn Hart who I’m sure needs little introduction to the many loyal fans of MandarinInvest (reviewed here).

That popularity is in no small part due to the professional service and regular and dependable payouts made by MandarinInvest. In what can be a very difficult area of the HYIP industry to establish yourself in, Robbyn and MandarinInvest have worked tirelessly to earn a reputation as a team that can compete with the more established names in the industry. And I think you’ll agree after reading this that the program is in some very capable hands and managed by some good HYIP professionals.

Before we hear from Robbyn however allow me to just briefly remind you that MandarinInvest is a long term HYI program that offers 1% for 30 days, 1.3% for 100 days, and 1.6%-2.1% for 150 days, with your principal returned on expiry.

I’m so tired of seeing these HYIP investment scams and writing about them (not that anyone cares) but we are today dropping Pecunix and C-gold from any future magazine issues. You are now both banned from our tiny part of the DGC world.  No ads, no articles etc.

I’m very unhappy to make such a decision, but to the operators of those companies, we are distancing the magazine and blog from you because of your continued support and integration with such scams.

@2008 UK Silver Investment Summit

May. 26, 2009

Employer’s gold, silver payroll standard may bring hard time

‘This is a case about money, greed and fraud’

Robert Kahre, who owns numerous construction businesses in Las Vegas, is standing trial on 57 counts of income tax evasion, tax fraud and criminal conspiracy. If convicted on most counts, he could live out his life in prison.

But attorney William Cohan paints Kahre as an American “hero” who believes his payroll system helped keep the U.S. monetary system sound, and was also a form of legal tax avoidance.

A self-made entrepreneur, Kahre, 48, paid his workers in gold and silver coin, and said they could go by the coins’ face value — rather than the much higher market value of their precious metal content — for federal tax purposes. He did not withhold taxes from their wages, and he provided the same payroll system to 35 outside clients, which were other local businesses.

Judge David Ezra is presiding over the criminal trial, which began May 19 in U.S. District Court. Joining Kahre as defendants are his longtime girlfriend, a sister who works in his businesses, and a former business assistant.

Three of the four present defendants were among the nine people tried on similar charges two years ago, but no convictions resulted. In the 2007 trial, four others of the nine defendants, including Kahre’s mother, were entirely acquitted. Two individuals were only partially acquitted, but dropped from the indictment that forms the basis for the trial before Ezra.

This time around, the only new defendant is Danille Cline, Kahre’s girlfriend of 19 years, and the stay-at-home mother of his four children. The government claims she obstructed the Internal Revenue Service by allowing Kahre to place several homes in her name, thus attempting to conceal his assets.

Cline’s former brother-in-law, Thomas Browne, also was indicted this time, for his role as broker in some of the real estate transactions, but has since reached a plea bargain. He is expected to testify against the defendants.

“This is a case about money, greed and fraud.” The line appeared on screen in court during the government’s opening statement by Christopher Maietta, a trial lawyer from the Washington, D.C., office of the Department of Justice.

According to the government, Kahre and others concocted a fraudulent cash payroll “scheme” and then peddled it to other Las Vegas contractors. Defendants did not report to the IRS any payments made to workers, “either at the true amount or at the bogus amount, … being the face value of the coin or coins,” according to the indictment.

The now-suspended payroll service handled about $114 million over six years, according to court records. Between 17 and 25 percent of that went to Kahre or his workers; the rest went to the 35 client businesses to pay their workers, court records show.
Read the full story here: http://www.lvrj.com/…

You will find the story of Robert Kahre’s original arrest and trail in our February 2008 issue.