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If you’ve checked out the Compare AFE, BullionVault & GoldMoney page, you’d have noticed that BullionVault & GoldMoney packaged their bullion dealership and custodian services very differently. It’s interesting to note how the same service can be approached in such a contrasting manner.
There is however, one other significant difference not highlighted in the comparison. It’s not so much about differences in the companies’ services. Rather, it’s over differing opinions of the founders in the much debated the matter of Gold Cartel and Gold Price Manipulation.
In a recent interview by Chris Martenson, Paul Tustain of BullionVault said:
I am not really strongly in the manipulation camp but I do agree that market manipulation tends to happen in futures contracts. This is not anything to do with gold or silver specifically, it is to do with the way futures contracts work.
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London AM & PM Fix
There are many gold and silver market abnormalities that have been cited as supporting evidence of gold price suppression by the “manipulation camp”. One of the more interesting ones is the phenomenon where the London AM fix has almost always been higher than the PM fix for over a decade. When asked concerning the above, Paul responded:
But I think there is a rational market explanation and I do not think that market manipulation by governments is in fact it. I think it is much simpler than that.
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It appears that he is using the Occam’s Razor, which is a principle urging one to select among competing hypotheses that which makes the fewest assumptions and thereby offers the simplest explanation of the effect. Put another way, it admonishes us to choose from a set of otherwise equivalent models of a given phenomenon the simplest one. It should be noted however, that simplest available theory need not be most accurate. Listen to Paul’s take on this issue and make your own conclusion after reading a detailed analysis of this phenomenon by Adrian Douglas. Paul also goes into great detail showing how other perceived market abnormalities or statistical aberrations can be explained away without invoking the manipulation theory, including the much discussed bullion banks’ short position in the futures market. A transcript of the interview can be found here. -
Gold trading is influenced by government intervention
On the other corner of the gold price manipulation ring, we have James Turk, founder of GoldMoney, director of GoldMoney Foundation and consultant at Gold Anti-Trust Action Committee (GATA). James’ work exposing the gold price suppression scheme is all over the web.
The investigation into the inner workings of the gold market that are out of public view and decided behind closed doors in central banks is an ongoing effort. It has been that way for years, and fortunately, the Gold Anti-Trust Action Committee has been there relentlessly compiling the mounting evidence that something is amiss, that gold trading is influenced by government intervention aimed at keeping the price from rising to its fair value. Or to put it another way, by allowing the gold price to climb higher year after year in what I have dubbed a “managed retreat”, governments hope that people will not notice what is happening to the ongoing debasement of the US dollar…
That was his conclusion at the end of his argument for the case that gold (& silver) price manipulation by central planners has been and still remains a strategic policy to keep the dollar and the banks that support it alive. Read the full article here.
In his presentation at the GATA 2008 conference, James explained why central banks interfere in the gold market. Interesting to note how he foresaw the Lehman Brothers bankruptcy by predicting another Bear Stearns collapse was only several months away.
So there you have it - two innovative entrepreneurs, two great companies, very contrasting views on PMs market manipulation but they share one very important thing in common - Their relationships with their clients are on a Bailee/Bailor basis and not on a Debtor/Creditor basis. Both companies vouch in no uncertain terms that their clients have complete ownership of physical bullion in their custody. Their At the end of the day, I think that’s what matters most.
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[Active updates: Developing stories] The South Carolina Treasurer’s Office, acting upon a directive from the state legislature, has recently published a report on the advisability of investing in gold and silver. Basically, the state legislature wanted to know if it’s wise to invest public funds under it’s custody in gold & silver.
Here’s what the Treasurer’s Office has to say about itself:
Our mission is to serve the citizens of South Carolina by providing the most efficient banking, investment and financial management service for South Carolina State Government. Our commitment is to safeguard our State’s financial resources and to maximize return on our State’s investments.
This is a tall order, hence we can assume that the report must be well researched and credible. It concluded that it is not advisable to invest public funds in gold & silver because:-
There’s escalating market speculation
Current value (I think they mean price) is too high
Market possibly in a bubble
South Carolina Code of Laws states that the Treasurer has “ full power to invest” in debt instruments of the US government and corporations, but makes no mention of investments in derivatives of gold & silver. Hence investing in gold & silver derivatives may “create a legal conflict”
While the timestamp of the document was 27 Feb 2012, it can be assumed that the report was prepared soon after the end of September 23, 2011 due to this inclusion. From the perspective of a short term investment, that was a pretty good call, considering the fact that gold and silver have been taken down to $1624 and $31.40 respectively as I write.
However, this piece is not about how good the Treasurer’s Office was at making an investment call based on price. Neither is it about whether gold & silver is in a bubble. These conclusions (2) & (3) are opinions of the Treasurer’s Office, which are subjective. Of greater interest are the facts revealed in the body of the report.
Regular readers of this blog would have noticed that there are several key issues that are repeatedly discussed or highlighted here (through news feeds or third party contributions). They include:-
Gold & silver prices are being suppressed
Central Banks & major bullion banks are suppressing their prices
Naked short selling is one of the price suppression mechanism
Bullion Banks and exchanges practice fractional reserve bullion banking
Stay out of gold or silver bank accounts, ETFs, Certificates, and all forms of derivatives
The safest way to own gold & silver is to hold physical gold & silver
Items (1) to (4) are often disputed by the mainstream media and investors, sometimes referring to them as conspiracy theories. Hence, it is most interesting to see what this government published report has to say about these 6 issues.
Price Suppression is Real
In one short paragraph, this report confirms in no uncertain terms the truth behind the so called “conspiracy theories”. Not only does it confirm the existence of price suppression, it discloses the WHOs and the HOWs!
Risks of holding gold through ETFs, Certificates, Bank Accounts & other Derivatives
It has been repeatedly emphasized here that the only secure means of owning gold & silver is by holding physical coins and bars in your own possession or stored in a private vault outside the banking system. Anything else is a derivative - a paper or electronic representation of the real thing.
This report explains the nature of these derivatives and lists the risks associated with each, together with reasons why the Treasury’s Office advised against investing in them.
The full report in pdf is available for download at the South Carolina Treasurer’s website. Text from relevant sections is reproduced below with comments related to the 6 items above highlighted. Most of the remarks are self explanatory. There are, however, two groups of comments that warrant some discussion.
1. Allocated & Unallocated Accounts
Ways to Invest: Certificates
Unallocated gold certiñcates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the bank’s gold on deposit. Allocated gold certificates should be correlated with speciñc numbered bars, however it is difficult to prove whether a bank is improperly allocating a single bar to more than one investor.
Ways to Invest: Accounts
One of the most important differences between accounts is whether the gold is held on an allocated or unallocated basis. Another major difference is the strength of the account holder’s claim on the gold, in the event that the account administrator faces gold-denominated liabilities, asset forfeiture, or bankruptcy.
The above describes two products offered by banks to clients who want to invest in gold (or silver) without having to deal with the physical metals. For example, when a bank accepts $2,000 from a customer and issues a gold certificate or credits the customer’s gold account under the unallocated system, the bank is not obliged to buy and store 1.2 oz (at current price) of gold on behalf of the customer. It holds only a tiny portion of that amount in gold. Hence when many of its the customers decide to redeem their certificates at the same time, the bank will not have sufficient gold to deliver. This is what’s referred to as a “run on the bank’s gold on deposit”. The same applies when depositing cash in your bank. The practice of keeping only a tiny fraction of what’s rightfully belonging to the customers (gold or cash) is referred to as fractional reserve banking.
When selling allocated gold products, the bank is legally required to hold 100% of the customers deposit in physical metal. For example, if a customer deposits sufficient cash to own a 400 oz gold bar and is assigned a bar bearing serial No: AGR Matthey 156571, how can one be sure that the same bar or a portion thereof is not assigned to another customer at the same time? That’s the issue raised by the report - and the risk is real.
This brings us back to “the only secure means of owning gold & silver is by holding physical coins and bars in your own possession or stored in a private vault outside the banking system”. If you have to use a third party to store your metals, use specialized private vaults instead, because banks operate on a fractional reserve banking system.
There are many companies outside the banking system that offer secure vaulting services. Generally, they have very high transparency, including publishing audited client holdings on the web for public scrutiny (without any login required). Of course clients’ ID are anonymous, and known only to the operator and the client.
2. Reason for not investing in physical gold & silver
The report listed 5 ways to invest in gold & silver - ETPs, Certificates, Accounts, Derivatives and physical coins & bars. Notice how it highlights & explains all the risks associated with ETPs, Certificates, Accounts and Derivatives and the reasons why it is not advisable for the Treasury to invest in these.
Notice also that there are NO risk associated with physical metals. The only reason given for not investing in coins and bars is “South Carolina does not have the capacity to store or funding to secure gold and silver bullion”.
Proviso 89.145 GP:
Gold & Silver Investments
Office of State Treasurer
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GOLD AND SILVER AS AN INVESTMENT:
Historically, investors have purchased gold as a hedge against an economic, a political, or a currency crisis. A decline in investment markets, a growing national debt, a weak currency, increasing inflation, military conflicts and social unrest are the most common reasons for investment in gold. Currently, gold and silver are at historic highs leading many expert investors to conclude that a bubble has been created in the precious metals market. Since the US recession began, the value of gold and silver has increased as investment markets perform poorly, troublesome economic news is announced, and when uncertainty in international markets intensifies.
Similar to other commodities, the value of gold and silver is determined by supply and demand, as well as speculation. The Federal Reserve, The London Bullion Market Association, JP Morgan Chase, and HSBC Holdings have practiced fractional-reserve banking and engaged in naked short selling causing artiñcial price suppression.
There are several ways to invest in gold and silver: bars, coins, ETP’s, certificates, accounts, and derivatives. If a state were to choose to invest in gold (and silver), it would likely choose to invest by:
1. ETP’s-Exchange Traded Products. This allows the stakeholder to invest in bullion without having to store bars and coins. The ñrst gold ETF (Exchange Traded Fund) was created in 2003 and has been viewed largely as a success, but has also been compared to investing in mortgagebacked securities. The annual expenses of the fund (storage, insurance, and management fees) are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. ETF’s are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UIT), but differ from traditional open-end companies and U]T’s. The main differences are that ETF’s do not sell directly to investors and they issue their shares in what are called Creation Units. Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF‘s portfolio. The Usually, the Creation Units are split up and re-sold on a secondary market.
2. Certificates- allow investors to avoid the risks and costs associated with the transfer and storage of bullion by taking on a set of risks and costs associated with the certificate itself. Banks may issue gold certificates for gold which is allocated (non-fungible) or unallocated (fungible). Unallocated gold certiñcates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the bank’s gold on deposit. Allocated gold certificates should be correlated with speciñc numbered bars, however it is difficult to prove whether a bank is improperly allocating a single bar to more than one investor. The US ñrst authorized the use of gold certificates in 1863. By the early l930’s the US placed restrictions on private gold ownership and therefore, the gold certificates stopped circulating as money, but certificates are still issued by gold pool programs for investment purposes.
3. Accounts- Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve (non-allocated, fungible) basis. Pool accounts, facilitate highly liquid, but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated or unallocated basis. Another major difference is the strength of the account holder’s claim on the gold, in the event that the account administrator faces gold-denominated liabilities, asset forfeiture, or bankruptcy.
4. Derivatives- The product symbol for gold futures is GC, and it is traded in a standard contract
size of 100 troy ounces. In the US, gold futures are primarily traded on the New York Commodities Exchange (COMEX). As of 2009 holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.
ADVISABILITY: There is no statute preventing the State from investing in gold and silver. The various methods of investment in gold and silver each carry different and often significant risks, the foremost being speculation. As the US has experienced the recent bursts in the housing and tech bubbles, it is important to take caution when contemplating an unconventional investment. Taxpayer money (state funds and state pension) across the US has not typically been used to invest in gold or silver bullion.
Recently, with the uncertainty in global markets, the devaluation of the dollar, rising inflation, and a flat US economy, there has been a renewed interest in either moving back to a gold standard, investing in gold or both. The value of gold and silver has significantly increased in the last decade, meaning it would cost a great deal to invest at this time.
Risks: 1. Bars and coins-South Carolina does not have the capacity to store or funding to secure gold and silver bullion. For these reasons the State Treasurer’s Office does not advise investing in gold and silver bars and coins.
2. ETP’s- The armual expenses and costs associated with this type of investment are high. In recent years there have been issues surrounding gold ETP’s. The purchase price provides the investor with a fluctuating amount (in weight) of the metal. Over time, as value increases and more investors participate in the fund, the amount of metal owner by the investor decreases. ETP’s can also be split and sold on the secondary market. For these reasons the State Treasurer’s Ofñce does not advise investing in ETP’s for gold and silver.
3. Certificates- Certificates for allocated gold present an accountability problem. Allocated gold certificates are supposed to be correlated with speciñc numbered bars; however, it is difficult to verify whether a bank is improperly allocating a single bar to more than one investor. Also, unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the bank’s gold on deposit. This is in conflict with S.C. Code of Laws 1976 SECTION 11-9-660. For these reasons, the State Treasurer’s Office cannot advise investing in gold and silver certificates.
4. Accounts- Similar to the risks associated with gold and silver certificates, allocated and unallocated metals held in accounts produce similar accountability problems. The strength of the account holder’s claim on metals is subject to the account administrators liabilities, assets, and/or solvency. Per S.C. Code of Laws 1976 SECTION 11-9-660, the State Treasurer’s Office cannot advise investing in gold and silver accounts.
5. Derivatives- Over the last three years, gold futures traded on the New York Commodities Exchange (COMEX) have encountered significant accountability problems. Holders of COMEX gold ñltures have frequently experienced delivery delays of their metals. Once delivered, there have been many reports of inaccurate weights and serial numbers on bars that do not match the holder’s contract. For these reasons the State Treasurer’s Office does not advise investing in gold and silver derivatives.
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Gold: April 2012
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Having read the above, it may now be easier to make sense of the sharp price decline for both gold & silver over the past 2 days. Lets now ask some questions. Was the price action due to:
Market forces or Price Suppression in action?
Falling Demand or Naked Short Selling?
Human Traders or High Frequency Traders (HFTs)?
Historically, investors have purchased gold as a hedge against an economic, a political, or a currency crisis. A decline in investment markets, a growing national debt, a weak currency, increasing inflation, military conflicts and social unrest are the most common reasons for investment in gold
Have any of the issues above that formed the rationale for purchasing gold (and silver) been resolved?
Recently, with the uncertainty in global markets, the devaluation of the dollar, rising inflation, and a flat US economy, there has been a renewed interest in either moving back to a gold standard, investing in gold or both.
The mainstream media attributed this week’s sharp price decline to improving economy, low inflation and no imminent QE announcements following the release of the latest FOMC meeting minutes. Given that the above statement was published just 5 weeks before the FOMC minutes, who is lying?
- Developing Stories
12 Apr: Jason Hommel explains what Blythe Masters actually meant by “the underlying client position that we’re hedging”.
11 Apr:
Ted Butler, the pioneer of silver manipulation investigation finally broke his silence over the Blythe Masters denial video clip. By far, this is THE best, most level-headed, objective rebuttal to Masters’ famous words that they are “not running a large directional position”. Read “JPM’s TV appearance” posted at Silverseek.com.
Keiser Report on the same subject. His solution is the Silver Liberation Army (SLA)
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7 Apr: Mike Maloney on RT discussing gold & silver manipulation, Blythe Masters denial of JPM’s role in price manipulation, “First government admission of price suppression” & High Frequency Sheering. Must Watch!
Shortly after BuySilverMalaysia.com launched its webstore on Feb 2, I learnt from its proprietor that he has received numerous emails asking if he would offer buyback as part of the service. “It seems like Malaysians’ concern is about selling back their silver”, he lamented. You’ll notice that it is one of only two dealers amongst those reviewed here without a buyback service.
This is one of the tell-tale signs that many Malaysians who have recently caught wind of the gold & silver story are erroneously looking at gold & silver as speculative investments. They are interested in making a quick buck by buying these metals with the hope of selling them back to their dealers when prices move up in short order. Some are even excited about gold or silver savings accounts offered by various banks and are happy to invest in paper gold or silver. To get an idea of the general sentiment, check out some lively threads at the Lowyat forum (start here, here or here).
Meanwhile, over in the US, it has been reported that bullion dealers who’ve been serving their customers for decades see very little buybacks. Their long term customers have been accumulating these metals, buying when prices are rising and buying even more when there’s a price dip. How is that so?
In a recent interview by SGTreport, Andy Hoffman of Miles Franklin said:
There are no buy-backs. Customers are not selling anything. They haven’t been selling any gold & silver back to Miles Franklin or any of our competitors for years, and they’re never going to. So don’t ever ever think that when you see a big smash in gold or silver that it’s people selling. It has nothing to do with it. It is the gold cartel naked shorting paper, and it’s only a matter of time before they completely and uterly are destroyed as they were in 1968 with the London Gold Pool, and as they have been every single time in history when they attempt to subvert the forces of real money with paper.
You’re not even investing, you’re just owning real money… and you’re doing it for defense. We’re here to protect ourselves.
People should not think of silver & gold as investments. They are savings.
There you have it. They buy gold & silver for different reasons. Not for speculation. Not even as an investment. They buy whenever they wanted to convert their savings from one form of money into another. It is like someone having more confidence in the SGD than RM looking for opportunities to buy more SGD whenever exchange rates are favorable. They buy and hold gold and silver as savings because they know that these monetary metals store value (retain purchasing power) much better than paper currencies. Most importantly, they own gold & silver fully aware that these are political metals, whose prices are actively managed or manipulated by central banks.
[Note: It may appear from the paragraph above that Americans are astute investors or savers. Far from it. Retail ownership of gold & silver on a per capita basis is much higher in India and many Asian countries than in the US. The "they" refers to a very tiny group of well informed Americans who understand gold & silver for what they are.]
For a better understanding of the issues discussed above, listen to SGTreport’s interview with Andy Hoffman discussing a range of topics including Price Manipulation using High Frequency Trading (HFT), Quantifiable Criminality, Exponentially off-the-chart Methods of Attacking, Silver Subsidies, Gold Silver Ratio (GSR), and more. -
Part 1
High Frequency Trading (HFT) is now something like 75% of all NYSE trading as well as a big percentage of COMEX trading.
Goldman Sach is trading 1 out of every 6 trades on the NYSE everyday, which is basically the government controlling the market.
Avoid all paper investments. The only way you can beat them is with physical gold & silver that’s not margined.
Computers have taken over the market.
Part 2
Back in 2008, when silver was knocked down [to] $8 or $9 an ounce, the real price never got lower than $17 or $18 and most people don’t realise that.
You’re not even investing, you’re just owning real money… and you’re doing it for defense. We’re here to protect ourselves.
People should not think of silver & gold as investments. They are savings.
Silver sales in dollars is pretty darn close to gold sales in dollars.
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In 1933, U.S. President Franklin D. Roosevelt outlawed the private ownership of gold by American citizens, forcing them to sell any gold bullion in excess of $100 to the Federal Reserve at $20.67 per troy ounce. To store the huge stockpile of confiscated gold, the US Treasury built the United States Bullion Depository at Fort Knox, Kentucky, in 1936. This vault has a 25″ thick casing with a 21″ vault door made of the latest torch and drill resistant material weighing 20 tons.
There must be something very valuable in there to justify this level of security. Official records say there’s 4,577 metric tons (147.2 million oz. troy) of gold bullion worth over $200 billion at current prices. Of late however, there’s an increasing number of respectable people questioning the notion that the stated amount of gold is actually still there, and if so, that it remains unencumbered.
In this History Channel documentary Decoded, Brad Meltzer attempts to answer the question “Is there any gold in Fort Knox?”. Featuring interviews with notable figures like Chris Powell of GATA, Law Professor Kevin Goldberg, Senator Dee Huddleston, former US Senator of Kentucky and many more, it’s an eye opener. -
Part 1 “What if I told you that Fort Knox is empty.The last time anyone was allowed inside was in 1974. Many experts today believe the soilders stationed here are protecting absolutely nothing.They point to numerous theories to explain their believes.., but if you tell me that no one’s been allowed to see this gold since 1974, I want to know if it’s there and I want to know what else is inside. It is time to decode Fort Knox.”
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Part 2 Craig Hulet, a returning veteran charged with issuing weapons to guards at Fort Knox was told by his Officer In Charge not to issue any ammunition because there was no gold inside. As for potential armed intruders - there’s a policy of “Let them in and zip them up”.A Financial Engineer from Princeton who spoke on condition of anonymity discusses the implications of an empty Fort Knox. He compares his work on financial derivatives at Wall Street to the Manhattan Project.
Here are two great interviews discussing the reasons & implications of the recent price action of gold & silver. -
Sean (SGT Report) discusses the recent silver price take-down with David Schectman.
Place of technical analysis in a manipulated market
Silver is so oversold “It’s a License to Steal”
Difference between physical silver and paper silver prices
Why hedge funds sold their winning positions in gold & silver
While hedge funds, Soros & Paulson sold paper silver in the Comex, the Indians, Russians, Chinese, Arabs and retail buyers bought up all the physical silver they could get their hands on. (Make sure you watch part 2)
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Al Korelin (Korelin Economics Report) discusses the recent silver price take-down with David Morgan. Some key points:
Have the fundamentals for silver changed?
CME margin hikes favour the shorts
Political events and how they affect the price of silver
If you don’t want to lose any money, stay out of the futures market. They are for professionals
Stay out of this sector if you don’t have a high degree of accumen in the industry or can’t take wild swings
Peter Schiff, president of EuroPacific Capital was invited to testify in front of the House of Representatives Subcommittee on Government Reform and Stimulus Oversight. Here’s a 22-minute condensed version of his 22-minute version with his remarks and exchanges with the Committee.
Peter Schiff argued why government stimulus will never grow the economy, and why it will never create jobs.
“Stimulus is preventing the free market from unravelling the problems that years of bad monetary & fiscal policies have created.”
He calls for under consumption, savings, investments, reduced government spending, smaller government, a reduced regulatory environment, among others.
Charles Kupchan: We're moving into a Three-Currency, No One's World
Mike Maloney on RT discussing gold & silver manipulation, JP Morgan’s denial, “First government admission of price suppression” & High Frequency Sheering.
Some are even excited about gold or silver savings accounts offered by various banks and are happy to invest in paper gold or silver. To get an idea of the general sentiment, check out some lively threads at the Lowyat forum (start 
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