The Fraud and Conspiracy of Bullion-Leasing

July 11, 2013

In stating for many years that the gold (and silver) market is being heavily manipulated in order to suppress the price, those asserting this fact have often pointed to the highly suspicious activity of bullion-leasing as one basket of evidence supporting this viewpoint.

Why is bullion-leasing an inherently suspicious activity? For that we need only turn to the propagandists in the mainstream media. Why are we told again and again that no astute investor should ever buy gold or silver? Because they “generate no income.”

Thus in bullion-leasing, the obvious question is this: what is the commercial purpose (for the lessee) of having mere temporary possession of an asset which generates no income? The answer (of course) is that there is no legitimate purpose. This brings us to the realities of bullion leasing.

The illegitimate purpose of bullion-leasing (which has long been asserted by the detectives at GATA) is that bullion-leasing is simply a fraudulent means of maximizing the shorting of bullion (in order to suppress prices). While this point has always been obvious to any informed observer who studied this market; the problem has always been a “smoking gun” to confirm this fraud.

In this respect, there is no better smoking-gun than a confession. We can thank Reuters for being kind enough to oblige here. And it does so with four simple words:

BORROW GOLD TO SELL

While the low-grade Drones of the mainstream media can be credited with little in the way of intellects; we must presume them capable of grasping at least this simple premise:

You can’t “sell” what you don’t own.

Attempting to sell something which one has merely borrowed is a prima facie confession of fraud – with the exception of one context. There is one instance where it is legal (if not legitimate) to borrow-and-sell: short-selling. Here we get the confession:

…some speculators are borrowing physical bullion and then selling it, a move that could add downward pressure to gold prices, analysts said.

Assuming that what these “analysts” are describing isn’t prima facie fraud (attempting to sell what they don’t own); then what is being described here can only be short-selling. And when we look at both sides of these bullion-leasing transactions; all that we see is fraud and conspiracy.

On the part of the bullion banks (central banks?) leasing this gold; the fraud is obvious. To demonstrate it; we need only look at the normal shorting of equities.

How is such shorting (legally) perpetrated? The short-seller “borrows” shares from a long investor (via the broker holding those shares); and then shorts those shares against the financial interest of the investor from whom the shares are borrowed.

Does this long-investor voluntarily (masochistically) agree to this activity? Of course not. But most brokerage contracts stipulate this right for the broker (in small print); and then the borrowing is carried out without the knowledge or consent of the shareholder – but all entirely legal.

The scenario is dramatically different with respect to an asset-holder voluntarily lending-out their own asset; knowing that the “loan” will be used to short the asset – and destroy its value. No legitimate asset-holder chooses to destroy the value of their own asset. No legitimate asset-holder holds an asset solely to destroy its value.

Bullion-leasing is prima facie fraud on the part of the lessor. Knowingly lending out an asset for the explicit purpose of destroying its value. But the level/magnitude of the fraud becomes even more-repellent (and illegal) when we examine this market more closely.

We sometimes see lease-rates dip into negative territory. Paying someone to borrow any asset implies fraud. The very nature of our “credit” economies is that asset-holders earn interest from lending-out assets. Paying traders to borrow one’s bullion and then short it – for the explicit purpose of driving prices lower – is nothing less than an overt conspiracy to manipulate prices. Thoroughly illegal.

It gets worse. Given the vast tonnages of gold-leasing; one of two possibilities must be true. Some of these gold-leasing contracts are pure paper-fraud, where there is no metal backing the transaction at all. Alternately, in order to supply these vast tonnages; some/most/all of this leased gold must be originating from Western central banks.

We know it must be Western central banks, because these are the only central banks in the world with a multi-decade track record of gold-dumping.  When these central banks were dumping 500 tons per year of gold onto the market; they were accused (at the time) of engaging in deliberate price-suppression.

Their response was flat denial. They claimed to be “regulating” the price of gold with this scheduled selling; because they were ridding themselves of a “useless asset” – what they called (at the time) a “barbarous relic”.

We know now this was all lies. All of the gold-dumping (through official sales) has ceased, and the world’s central banks are currently buying gold at the fastest rate in history. But the gold-leasing continues, and here is the problem.

The central banks don’t actually own a single ounce of gold. They are Trustees holding this gold on behalf of the nations they (supposedly) serve. It would be a fraudulent conspiracy even if central banks actually owned/held their own gold for the sole purpose of destroying its value. However, for these Trustees to lend-out these assets (our assets) in order to destroy their value is an especially reprehensible form of fraud – in that it necessary implies despicable betrayal.

Central banks only exist for the purported purpose of providing us with superior management of our monetary systems, and the financial assets contained therein. Knowingly/willfully sabotaging the value of one of these assets (for their own, nefarious purposes) is as immoral as it is illegal.

Understand that the inherent fraud of bullion-leasing (and shorting) extends to the traders perpetrating this market-manipulation as well. It’s simply much harder to prove in the same “red-handed” manner that we see the fraud on the part of the lessors/trustees.

Shorting (in any form) should not be legal, since (contrary to propaganda) it does not serve any valid market function. However, it must be acknowledged that shorting itself is not a crime. But as we all know; activities which are ostensibly legal can become illegal – if one engages in that action with nefarious intent.

For example; purchasing and looking through a telescope is unquestionably both a legal and harmless activity. However, the entire complexion of that activity instantly changes if the telescope-owner begins focusing his gaze on the windows of his neighbours (unless he works for the NSA).

Shorting an asset to make a profit on that trade is legal. Shorting an asset for the primary purpose of destroying its value is not. It is here that the paper-trail betrays these short-sellers as Conspirators.

There are two, stark categories of short-sellers in our markets. There are the Amateurs, whose average life-expectancy in 2013 markets is about 10 minutes. Then there are the Professionals.

It takes considerable savvy and discipline in our markets to make money as a short-term trader (or else access to “insider” information). It takes extreme savvy and discipline to make a living on the “short” side – where potential losses can literally be infinite.

The Golden Rule for any professional short-seller is simple: get in early; get out early. This is immediately followed with the accepted market maxim that “Pigs get slaughtered.” But we do not see profit-maximizing behavior with the Legions of bullion short-sellers acting as agents of the central banks.

They never “get out early”. Rather, even after large drops in the price of bullion have been manufactured through this fraud; we see this herd usually shorting just as aggressively when an obvious (short-term) bottom is nearing. In other words; unlike the behavior of short-selling professionals in any other sector, these Shorts always act like Pigs.

What we see through the consistent pattern of bullion leasing and the consistent pattern of shorting in bullion markets is unequivocal: conspiracy to manipulate bullion prices lower, by the participants on both sides of these bullion-leasing transactions. That’s fraud; and that’s illegal.

 

Jeff Nielson

www.bullionbullscanada.com

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

A single ounce of gold (about 28 grams) can be stretched into a gold thread 5 miles (8 kilometers) long.

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