Tuesday, January 21, 2014

Gold news and views January 21 , 2014 -- Grant Williams missive covering 2013 ( for the seismic events concerning gold ) ..... Fixing the London gold Fix a topic of the day.... Chinese Gold Leasing : A Hidden Danger -- Koos Jansen ..... Additioanl items to ponder including a further look at Germany missing gold and their attempts to regain same ...... .


Things That Make You Go Hmmm... Like Gold Bullion, Gordon Brown, & A Growling Bundesbank

Tyler Durden's picture

2013 was an absolutely seismic year for gold, but, as Grant Williams details in his latest letter, the way in which the tectonic plates shifted has yet to be fully understood. Simply put, the gold in every central bank's possession around the world is the property of the citizens of that country - not of the incumbent politicians or central bankers. Consequently, if the people want it audited, there shouldn't be any reason to say no ... unless... Williams firmly believes that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel - the day the Bundesbank blinked and demanded its gold...
"It was probably a mistake to allow gold to rise so high."
– Paul Volcker
After a run-up to a spike-high of $415.50 on February 2, 1996, gold began to fall. It fell fairly quickly at first, losing 3% in six trading sessions; and then the decline steadied for a while but remained consistent — until, around the end of the calendar year, gold suddenly and inexplicably spiked straight down. By the end of 1996, it had lost 11% of its value.
As 1996 turned into 1997 the price continued to fall; and the new year saw several inexplicable downdrafts of considerable size and alarming speed which, by the time the dust had settled at midnight on December 31st, 1997, had cut the value of an ounce of gold by almost a quarter.
Gold market watchers were baffled at the continued weakness in their beloved metal.They bemoaned their bad fortune and pleaded with the gods above, but neither activity made any difference — the price continued to fall.(Sound familiar?)
"What a year this has been for gold,

"The price of the yellow metal fell almost 30% from its peak at the end of August a year earlier, to bombed-out lows amidst a wall of selling which included several very sharp and somewhat counterintuitive selloffs, including violent plunges in both the April-May time frame and again into year-end.

"Throughout the year, the spectre of manipulation was never far from the minds of all those involved in the gold market, whether they were crying 'foul' or asserting that, of course, there was no manipulation whatsoever and that those who suggested there might be were nothing more than conspiracy theorists, kooks, and whackos.

"The main suspects at the heart of the conspiracy theories were, naturally, the bullion banks and the central banks.

"The bullion banks, of course, have the eternal motive: profit; but what possible reason could central banks have for suppressing the price? None whatsoever, of course. The gold market is too small and too inconsequential for them to take an interest.

"And yet, rumours abounded that the bullion banks were in dire trouble and that a rising gold price could send one or more of them over the edge and into insolvency as a scramble for physical metal exposed massive short positions that had grown out of a fractional-reserve-based lending system backed (if not explicitly, then certainly complicitly) by central banks..."
Now THAT, you may well have thought, was the heart-racking, pulse-pounding introduction to my year-end look at the gold market. No preamble, no carefully constructed narrative to entice you into my latest little web, just BOOM! Straight into it.
And every word of the above makes sense based upon what we've seen happen in the past twelve months in the topsy-turvy world of element 79, which holds down the spot in the periodic table just after platinum and just before mercury.
But of course, nothing is what it seems when we are discussing gold.
That words above are the intro to the year-end review of gold that I would have written in 1999 ... had I been doing such things back then.
2013 was, in many ways, a case of been there, done that; and to understand what is happening today, it is extremely instructive to go back to 1999 and reexamine some very strange goings on at the UK Treasury, AIG, Rothschild, Goldman Sachs, and Number 11 Downing Street.
(Cue dreamy harp music.)
The chart of the gold price between February 1996 and August 1999 (above)  will look eerily familiar to anybody who follows the gold market closely; and for those who don't, just stick around and I'll show you what you've been missing.
2013 was an absolutely seismic year for gold, but the way in which the tectonic plates shifted has yet to be fully understood.
I firmly believe that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel.
That day, the day the Bundesbank blinked and demanded its bullion, will be shown to be the beginning of the end of the gold price suppression scheme by the world's central banks; and then gold will go on to trade much, much higher.
The evidence of suppression is everywhere, though most refuse to believe their elected officials are capable of such subterfuge. However, the recent numerous scandals in the financial world are slowly forcing people to realize that anything and everything can be manipulated.
Libor, mortgage rates, FX — all were shown to be rigged markets, but NONE of them have the importance that gold has at the centre of the financial universe, yet all of them are far bigger markets than gold and therefore much harder to rig.
Gold is a manipulated market. Period.
2013 was the year that manipulation finally began to unravel.
2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz.
Count on it...


21 JANUARY 2014

Gold Daily and Silver Weekly Charts - Gold Fix, Gold Rigging

Gold fell back to test its 50 DMA in light trade today, and silver followed.

There was a little movement in and out of the Comex warehouses on Friday, but nothing of significance.

This is a holiday shortened week in the US, and trading will be even lighter than usual in the first part of this week thanks to winter storm Janus. Janus as you may recall is the two-faced Roman god of transitions, beginnings and endings. He might very well be the god of choice for politicians in the modern era as well.

I am not so enthusiastic that the discovery and investigation of the London Gold Fix, which is much talked about these days and rightly so, will result in a meaningful reform in the precious metals markets, because it is taking away all the attention from the New York futures gold rigging, a daily fixing of the gold and silver prices by a few powerful players. It certainly presents a regular pattern of hit the price in the morning, and then let it recover overnight.

February is shaping up to be an interesting month for our first active delivery month of the year.

Have a pleasant evening.


German legislator seeks repatriation of all the Bundesbank's gold

4:45p PT Monday, January 20, 2014
Dear Friend of GATA and Gold:
A member of the governing coalition in the German Parliament, Philip Missfelder, is calling for repatriation of all of the German Bundesbank's gold vaulted abroad, according to this report today by the German Internet site Die Freie Welt:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Tocqueville's Hathaway expects 'a circus of retribution' against the bullion banks

5:39p ET Tuesday, January 21, 2014
Dear Friend of GATA and Gold:
The Tocqueville Gold Fund's John Hathaway, long a pillar of the financial establishment, sounds like a GATA radical in his interview today with King World News, where he sees a short squeeze in gold "right around the corner," along with regulatory investigations that drive investors out of paper claims on gold and into real metal, lawsuits arising from gold price suppression, and "a real circus of retribution" aimed at the bullion banks. May this interview go from Hathaway's lips to the Great Market Manipulator's ear, and that's not Bernanke:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Banks in London gold fix are getting worried, Wall Street Journal says

Gold Price-Setting Banks Form Committee, Meeting Tuesday -- Source
By Francesca Freeman
The Wall Street Journal
Tuesday, January 21, 2014
LONDON -- The five banks tasked with setting the benchmark price for gold have formed a steering committee to review how the so-called "fix" is set and are meeting Tuesday, according to a person with knowledge of the matter.
The committee, which will seek an external audit of the process, has been formed as regulators investigate possible manipulation of precious metals prices.
... For the full story:

Century-old London gold benchmark fix said to face overhaul

By Suzi Ring, Liam Vaughan, and Nicholas Larkin
Bloomberg News
Tuesday, January 21, 2014
Banks are considering an overhaul of London's century-old gold benchmark used by miners, jewelers, and central banks to buy, sell, and value the precious metal, according to a person with knowledge of the process.
The five banks that oversee the so-called London gold fixing -- Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc, and Societe Generale SA -- have formed a steering committee that's seeking external firms to advise how the process could be improved, according to the person, who asked not to be identified because the review isn't public.
The fixing is a rate-setting ritual dating back to 1919. Representatives of the five member banks spend from a few minutes to more than an hour on the telephone discussing buying and selling gold. The method has faced scrutiny in recent months, with regulators in London, Bonn, and Washington -- who are already looking into manipulation of interest rates and currencies -- investigating how prices are set in the market.
While investigators haven't leveled any accusations that the gold fix is being manipulated, economists and academics have said the way the benchmark is set is outdated, vulnerable to abuse, and lacking in direct regulatory oversight. Deutsche Bank, Germany's largest lender, said in a statement last week it plans to withdraw from the panels for setting gold and silver fixings.
Discussions about the gold fix come as authorities grapple with a widening list of scandals involving the manipulation of benchmark financial rates, including the London interbank offered rate, or Libor, currencies and ISDAfix, which is used to determine the value of interest-rate derivatives.
On conference calls at 10:30 a.m. and 3 p.m. London time, firms declare how many bars of gold they want to buy or sell at the current spot price, based on orders from clients as well as their own account. The price is increased or reduced until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other, at which point the fixing is agreed on. Traders relay shifts in supply and demand to clients during the calls and take fresh orders to buy or sell as the price changes, according to the website of London Gold Market Fixing Ltd., where results are published.
Bloomberg News reported in November concerns among traders and economists that the fixing banks and their clients had an unfair advantage because information gleaned from the calls provided an insight into the future direction of gold prices. Banks can bet on spot and derivatives markets for the metal throughout the call.
The five banks that co-own London Gold Market Fixing, which administers and sets the rate, are considering how to improve the process before European Union legislation on financial benchmarks' regulation and oversight comes into force, according to an adviser to the commission who asked not to be named. One option for the European Commission, the EU's executive arm, would be to scrap the conference call and base the benchmark on an average of trades in the spot market over a short period, the person said. The legislation is currently before the European Parliament.
Germany's financial markets regulator Bafin has interviewed Frankfurt-based Deutsche Bank employees as part of a probe into potential manipulation of gold and silver prices, Bloomberg reported in December. The U.K. Financial Conduct Authority is also scrutinizing how prices are set in the gold market. In private meetings last year, the Commodity Futures Trading Commission, which regulates derivatives in the U.S., discussed reviewing how gold prices are set, Bloomberg said in November.
The people with knowledge of the probes who were cited in the stories wouldn't say what's being looked at or if regulators suspect wrongdoing. None of the regulators has opened formal probes into the matter.
Ila Kotecha, a spokeswoman at Societe Generale, and Vincent Domien, a precious metals trader at the lender and chairman of the London Gold fix, declined to comment. Douglas Beadle, a consultant to the London Gold Market Fixing company, referred calls to the Paris-based bank.
Nick Bone, a spokesman at Deutsche Bank, Aurelie Leonard of Barclays and Shani Halstead at London-based HSBC declined to comment. Joe Konecny, a spokesman for Toronto-based Bank of Nova Scotia, didn't return voice messages left on his office and mobile phone, or reply to an e-mail seeking comment.
Deutsche Bank said last week it will withdraw from gold and silver fixings as it scales back its commodities business. It will continue in the fixings until a buyer for its seat is found, a person familiar with the plan said at the time.
Afternoon Gold
About $19.6 trillion of gold circulated globally in 2012, according to CPM Group, a New York-based research company. Bullion was fixed at $1,238 an ounce this afternoon. Gold for immediate delivery, which trades throughout the day, was at $1,241.26 as of 4:26 p.m. London time. Prices slumped 28 percent last year, the most since 1981, as some investors lost faith in the metal as a store of value.
The London Bullion Market Association said in November it's reviewing its benchmarks to see whether they conform to guidelines set by the International Organization of Securities Commissions, including making prices based on "observable" deals where possible.
The LBMA oversees gold forward offered rates, which reflect bullion borrowing costs for different durations and are used in loan agreements. It has "no jurisdiction or responsibility" for the fixing process, Stewart Murray, its former chief executive officer, said last year.


Chinese Gold Leasing: Hidden Danger

I got this article from a source in the mainland.

In short, some enterprises in China use gold leasing from banks to solve their short-term funding problems in the hope of buying back the gold at lower levels to repay the lease. However they can be short-squeezed when gold moves higher. My source was so kind to do a quick translation for us (the west):

bulls vs bears china gold leasing

The Gold Bear Market Game: Spread Arbitrage Through Gold Leasing For Individuals

January 20, 2014
By Chen Zhi, Shanghai

It’s Spring Festival time again. A private business owner Chen Qian (Alias) is unhappy with her own investment impulse.

At the beginning of January, she got the 11 million RMB from a due trust product and she wanted to use it as the cushion to pay for the bills for procurement. 2 weeks later, because she couldn’t resist the temptation of a real estate trust product with an annualized rate of 11%, she put her money into this product.

To her surprise, because another sum of sales proceeds was said to be delayed, she now needed some money to pay for business procurement.

In fact, this is not her first time to be in a shortage of funds. In the past, she could pledge trust products at banks to apply for short-term bridge loans. This year, she was told banks didn’t have enough lending capacity so the bridge loan was impossible.

Therefore, she had to try the gold lease business.

Gold lease is like this: eligible businesses can lease gold from banks and pay the same quantity and grade gold when the gold lease is due and pay the relevant gold lease rate. During the lease, businesses can sell the gold to get short-term funding.

However, to her surprise, gold lease is not only a new financing tool but many business owners use it as a modern arbitrage means.

“Among my friends, there are business owners investing tens of millions of RMB and play the gold lease risk-free spread arbitrage.” Chen Qian said. But in her opinion, this kind of risk free arbitrage may have unfathomable risks.

The Real Asset Co. Buy Gold Online

6.7 % Funding Cost: The Involvement Of Individuals

Chen Qian’s first experience with gold lease is from the recommendation of a jewellery manufacturer.

In the past, through gold lease, this jewellery manufacturer could easily get tens of millions yuan of “cheap”funds, even in the time of credit crunch, which made her jealous.

It works like this: the jewellery manufacturer first leases 33kg of gold from a bank and then sells it through the Shanghai Gold Exchange to get around 10 million yuan (at 303 yuan/gram). Then he uses 1.5 million (15% margin rate) to buy 33 kg of gold futures contracts and use the 8.5 million left for the short-term funding of businesses.

Because the finance expenses including the gold lease expense, the brokerage fee for the futures contract are less than 0.55 million yuan, then the effective cost for the gold lease is close to 6.7 %. At the same time, the total finance expenses for bank loans (including loan rate, to cost to buy wealth management products, business audits, etc) are more than 9 %.

But not all businesses are qualified for gold lease as a means to get low rate loans. Chen Qian’s first application for gold lease was turned down. The reason is banks only lease gold to companies involved in gold market, including gold production, fabrication, sales and trade. Gold lease is not available for high net worth individuals.

Under the guide of the jewellery manufacturer, Chen Qian found that high net worth individuals can circumvent rules to get gold lease contracts. Way No. 1: set up an enterprise related to gold business. One only needs to put the phrase “gold jewellery business” into the business license to satisfy the internal compliance needs of banks. Way No 2: use the “tunnel” provided by financial lease companies and gold fabricators. One just needs to ask them to lease gold from banks to re-lease to individuals.

In her opinion, her enterprise’s internal credit rating in banks is B+ and has enough credit limit and funds so leasing gold is simple.

“Some bank insiders say, gold lease is an off-sheet lease activity. When authorities are putting tight controls on on-sheet lending, this kind of off-sheet lease business is flexible” Chen Qian said. The biggest flexibility in her opinion is lack of generalised pricing standards.

At the moment, ICBC, CCB, SPDB, BOC etc all have gold lease businesses. The 3 banks Chen met had the following rates: the lowest 3.5 %, highest 4.2 % and one is 3.8 %

“The pricing (of the lease) is related to banks’ internal pricing of risks” a person working at a Bank’s precious metals dept. This is related to the bank’s cost to deal with future gold volatility, the cost for physical delivery etc. But he emphasized that to prevent enterprises and individuals to use gold lease to get funds for speculation, most banks don’t allow non-gold related enterprises to get involved.

Every rule has loopholes. Chen found in casual chat that gold lease has become a fashionable spread arbitrage game among the enterprise owners around.

Picking Pennies In Front Of A Bulldozer Through Spread Arbitrage.

Spread arbitrage is like this: these business owners, in the background of gold’s 28% pullback in 2013, remain bearish on gold. They “borrow”gold through different ways and sell the gold on the SGE for funds. They hope to buy back the same amount of gold to repay and get the spread when gold falls further to their targets in 2014.

“A business owner signed a 3-month gold lease agreement at the end of last year and sold the gold at $1300/oz. He said he would buy back and return the gold when gold fell to $1150/oz in Q1 2014 and pocket the $150/oz difference.” Chen said. This business owner used tens of thousands of yuan. Because banks had many limitation on gold lease targets, he chose to lease physical gold from gold producers/merchants.

Gold merchants have a lot of physical gold in hand and this gold has no interest. So they would rather lease out the gold for a return.

This method is similar to banks’ gold lease. It needs business owners to put a certain percentage as margin and use real estate as pledge. During the lease, the hedge in the gold futures agreement must be done through the gold merchant’s account to control gold price volatility. But if the gold’s fall is far less than business owner’s target price to buy back the gold at the beginning of the lease, the business owner has to meet margin calls or even suffer losses.

“Gold lease is usually shorter than 1 year because the shortage the tenor, the easier to control price volatility.” The person working at the Bank’s precious metals department said. But there are some radical rich investors.

Recently, some rich people even use the funds through gold lease to invest in high yield real estate trust products to achieve “getting something from nothing”. The spread between the yield on trust products and gold lease rate is risk free in their eyes.

“Is it really risk free?” Chen was suspicious. On the one hand, many real estate investment products are facing default risks and on the other, gold lease arbitrage is facing the volatility of gold price. If these 2 risks occur at the same time, this seemingly risk-free arbitrage could be in fact “picking pennies in front of a bulldozer.”


"The Hows And Whys Of Gold Manipulation"

We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.  - Eddie George, then Governor of the Bank of England, 1999
That quote was Eddie George in reference to the reason why he sold half of England's 800 tonne gold reserve.  Looking back, the sale was a colossal financial failure for England as the announcement of it drove the price of gold under $300 and ounce and most of the gold was sold well under $300/oz.  England will never get that gold back unless they are willing to pay a price that would be many multiples of the current market price for an ounce - or if they confiscate what remains in GLD...

The manipulation of the gold market by the U.S. Government and the Federal Reserve has been going on for decades.  It intensified after the Bretton Woods Treaty established the dollar as the global reserve currency.  Since the Fed rolled out its QE program, its manipulation of the gold market has ramped up to the point at which it has become obvious to anyone involved in the markets and who has half a brain.

Paul Craig Roberts has been working hard to write articles which expose the truth about how the Government is systematically dismantling the U.S. Constitution and Rule of Law and replacing them with a system of political and financial repression.  He invited me to write an article with him on how the Fed/Government manipulates the gold market for the purpose of defending QE and the dollar.  Here's the link:

                        The Hows and Whys of Gold Manipulation

Keep in mind that the article is read world-wide and translated into several different languages, so we had to do our best to explain securities markets concepts in a manner which would be accessible to anyone not familiar with how securities and bullion markets operate.

Just like every other instance in history of Government intervention in markets and economies, this scheme has created economic dislocations and severe adverse consequences.  When it ultimately fails, the collateral damage caused from this will impact everyone.

Faith is belief in something without evidence.  With all the evidence available, anyone who refuses to believe that the gold  market is manipulated is making a faith-based judgement.

Bottom line of Deutsche Bundesbank gold: The fingerprints are gone

Independent German financial journalist Lars Schall talked with Bill Holter, who works for Miles Franklin, a precious metals investment firm in the United States, about the main driver of the price of gold; the current problems of the Bundesbank with “its” gold; and China’s heavy buying of physical gold.
By Lars Schall
Bottom line of Deutsche Bundesbank gold: The fingerprints are gone
Here’s the article that Bill Holter mentions during the interview, “It’s Gotta Be Close”.
Moreover, here is his initial reaction to the current gold problems of the Deutsche Bundesbank, Monkey Business!
Bill Holter wants to point out: “I said in the interview that the Fed lent out ’62 million times’ more money in 2008; my math was wrong, it was 62,000 times more.”
Bill Holter grew up in Connecticut and studied finance at UConn. He was a retail stockbroker for 23 years, the last 12 years as a branch manager for A G Edwards in Victoria Texas. He retired in late 2006 and moved with his family to Costa Rica for nearly 5 years. They moved back to Texas in 2011 in order, as he puts it, “to live with like-minded people when the financial system collapses.” He works for Miles Franklin, where he publishes regular market comments.

More on the German Gold Repatriation Scheme

This story gets more fantastic by the day. Just like The Jelly of The Month Club, I suspect that it will be "the gift that keeps on giving the whole year" in 2014.
So now we're told that Germany actually repatriated 37 metric tonnes of gold in 2013, or about 5% of the total 700 ton repatriation plan announced about a year ago. Of this 37 tonnes, 32 were shipped the 500km from Paris to Frankfurt while a whopping 5 metric tonnes made it across the Atlantic from New York.
We are then told by the various central bankers that the reason for the paltry and delayed shipments are "logistical" in nature, due to the "challenges" of moving so much gold. Really? Seriously??
Here's one for you...Did you know that, because of the density of gold, an entire metric ton can be poured into a cube with dimensions of just 15 inches on each side? Fifteen inches. If you laid them out in a row, end to end, five cubes (five metric tonnes) would stretch out for a total of 75 inches (also known as 6'3"). Hmmm. And the logistics of shipping more than 5 mts in a single year are challenging, huh?
How about the logistics of loading 32 of these cubes onto a truck and driving them the 500km from Paris to Frankfurt. That sounds like one hell of a challenge, too, doesn't it?
Look this is clearly all a farce, designed to patronize the German people while extending the life of The Great Ponzi. Perhaps the Germans are waking up to this as there's now a movement afoot to get ALL of the German gold back and pronto: http://www.gata.org/node/13541. We'll see about that. In the meantime, it should be great theater to watch the bankers preen and posture while they try to assuage their citizens' fears.
To that end, I thought I'd include here this latest video from Dan Ameduri. In this piece, Dan interviews Brien Lundin who, among other things, is the founder of the New Orleans Investment Conference. The NOIC is usually the biggest "natural resource" conference of the year so Brien clearly knows a little bit about the metals. You should watch the entire thing but you may find most interesting some of the stuff that is mentioned regarding the German Gold Scheme.
To be continued...