Blockbuster In Gold

May 23, 2013

This has been one of the worst stretches for gold and silver pricewise in quite some time, no secret there.  I have to go back to when silver was in single digits to find a comparable period.   The question on precious metals investors’ minds is whether this bad stretch is going to continue much longer.  Are the past few months setting the stage for a pronounced rebound in prices or has the tide changed for the worse for an extended period of time?  I think the answer can be found in analyzing the following facts.

One of the key considerations in gold has been the redemption of more than 10 million ounces (over $15 billion) since year end from the world’s largest gold Exchange Traded Fund, GLD.  That is a major amount of gold and represents around 25% of the entire holdings in GLD (at year end).  The gold ETF holds the largest privately held stockpiles of the metal.  Consequently it has a pronounced influence on gold prices

It is widely reported that the 10 million ounces of gold that came out of the GLD have been bought by India or China, even though substantiating data is lacking.  Let’s only consider the facts that we know.  The 10 million gold ounces came out of the GLD equals roughly 100 million shares of GLD (one-tenth ounce per share).  The 10 million ounces that are no longer in the GLD still exist and, therefore, must be owned by someone.  We know that the reason the shares were liquidated in GLD was due to the rotten price performance that weighs on metals investors’ minds.  This tends to eliminate China as the big buyer; as such buying would cause gold prices to rise, not fall.  The shares were sold and metal redeemed because the price went down, largely a self-reinforcing spiral.  We know how much was sold and who the sellers were.  What we don’t know is the identity of the buyers.  There is a good reason for that. The buyers have tried mightily to hide their identity.

I believe that the big buyer of the 10 million ounces of gold liquidated in the GLD was JPMorgan, either alone or with other collusive commercial banks.  The same methodology I’ve previously attributed to a potential Mr. Big in SLV (also probably JPMorgan) is at work in GLD.  If one (or 2 or 3) big buyers in GLD had merely purchased the 100 million shares that were sold in GLD, that would have quickly pushed the big buyer(s) over the 5% SEC reporting threshold thereby revealing their identity.  But by having the gold redeemed out of the trust and the metal being purchased (instead of shares), stock reporting requirements are evaded.  A single holder, perhaps working with a few collusive partners, have come to own what is, effectively, almost a quarter of the world’s largest gold stockpile and no one is the wiser.

I’m not suggesting that JPMorgan did anything wrong by intentionally evading SEC reporting requirements.  That potential infraction pales in comparison to the real crime.  In this crime (actually more egregious in silver than in gold) the crooked bank manipulated gold prices lower, via the usual COMEX price-fixing mechanics, to induce GLD shareholders to sell. This was a planned and executed operation that left no stone unturned. 

From late November, the commercials as a whole, bought more than 160,000 net COMEX gold contracts on declining prices, the equivalent of 16 million ounces.  When you include what came out of the ETFs and exchange warehouses it adds an additional 15 million ounces.  Together that totals 30 million ounces ($45 billion).  Options and over-the-counter derivatives transactions could double that amount.  This likely brings the total of their purchases to 50 million ounces ($75 billion).  This sound like a huge number but it’s quite manageable for these big banks and it represents a small fraction of the total derivatives market.  The scope of their purchases is enormous and the bullish implications are staggering.

I believe that JPMorgan and the commercials have come to hate the COT and Bank Participation reporting data because it reveals what they are up to in exquisite detail.  Wrong doers prefer to operate in the dark, under rocks.  But the one thing the available data shows is that the big buyers on the wicked price decline have been the commercials.  On the one hand, I find it deplorable that big banks are allowed to manipulate our markets for their own benefit, making a mockery of our laws and corrupting our regulators.  On the other hand, watching JPMorgan and the commercials buy so aggressively in gold and silver only leads to the conclusion that these crooks have a plan for much higher metals prices to come.  If, as I contend, JPMorgan picked up at least 20 million gold ounces they shook out from the GLD and elsewhere, a $300 dollar gold rally will net them $6 billion in ill-gotten gains on that position alone.  It could be much more if they are more ruthless in creating higher prices.  Generally, with these crooks they usually exceed what you think they are capable of.

It appears to me that JPMorgan and their ilk have bought absolutely massive quantities of gold and silver in many different markets.  Unfortunately, much of that buying has come as a result of the deliberate and successful manipulation of price in order to force others to sell.  I don’t believe that is fair or even legal.  Nevertheless the bloodless verdict of the market suggests we are going a lot higher at some point soon.

Ted Butler

(Reprinted from the Investment Rarities Inc. newsletter)

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The total world's holdings of gold could be transported by a single solitary oil tanker.