May 24 ……Gold climbed, snapping a three-day retreat, as renewed weakness in the euro revived demand for a haven and last week’s decline to the lowest level in more than two weeks boosted the metal’s allure.

Gold for immediate delivery, which slid to $1,166.30 an ounce on May 21, the lowest price since May 5, climbed as much as 0.7 percent to $1,185.05. The June-delivery contract in New York rose 0.5 percent to $1,181.60 at 9:07 a.m. in Singapore.

After the “selloff there’s some revived appetite for precious metals, including gold, as a decline in the euro reminds the market of risks linked to the region,” said Hwang Il Doo, a Seoul-based trader with KEB Futures Co. “The price declines are no more than a mere correction.”

The euro weakened against the dollar, ending a three-day gain, after European Union finance ministers pledged to stiffen sanctions imposed on high-deficit countries and ruled out setting up a mechanism to manage state defaults. The region’s debt crisis helped drive gold to a record $1,249.40 on May 14.

Gold slid 4.6 percent last week, the most since February 2009, as some investors reduced their positions as the euro advanced. The metal has strengthened 7.9 percent this year and is heading for a 10th annual gain.

Hedge-fund managers and other large speculators cut their net-long positions in New York gold futures in the week to May 18, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 231,670 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions fell by 4,155 contracts, or 2 percent, from a week earlier.

Silver for immediate delivery jumped as much as 1 percent to $17.8225 an ounce, and traded at $17.70. Platinum rose 0.4 percent to $1,507.20 an ounce, and palladium increased 0.5 percent to $439.13 an ounce.

Gold, trading little changed near a five-month high, may climb for a fourth day as sovereign debt risks in Europe and volatile currencies boost demand for the metal as a haven.

Gold for immediate delivery was at $US1181.88 an ounce in Singapore, after gaining as much as 0.2 per cent earlier in the longest rally since the five-day advance ending April 9. The metal reached $US1187.80 yesterday, the highest intraday level since December. 4.

”With Greece practically bankrupt, Portugal and Spain under close observation and Argentina with a fresh debt re- scheduling, investors”’ striving for a safe haven is understandable, Oliver Heuschuch, sales and marketing manager at Heraeus Metallhandels, said in an e-mail. ”For the moment, gold cannot do much wrong.”

Gold priced in euros, sterling and Swiss francs climbed to records yesterday as investors sought a hedge against declining currencies. The euro fell yesterday for the first time in four days against the dollar as investors doubted the 110 billion euro ($US146 billion) bailout package will ease Greece’s government debt crisis.

Euro-region finance ministers approved the bailout for Greece on May 2, while refusing to say how they would help other indebted nations if the need arose, calling Greece a ‘’special case.” Bullion rose 1.9 per cent last week on concern that Greece’s debt woes will spread to Portugal and Spain.

Argentina’s government yesterday opened an offer to exchange about $US20 billion in defaulted bonds held out of a 2005 swap. Economy Minister Amado Boudou said there was a ”quite good reaction” from investors whom he met.

‘Demand from investors’

”If news from Athens, Lisbon, Madrid is bad, the yellow metal profits from demand from investors who want to secure part of their assets,” said Heuschuch. ”If however, for a change, good news comes from these capital cities, the euro benefits and gold gets bought as a hedge against a falling US dollar.”

Platinum for immediate delivery climbed 0.2 per cent to $US1726.50 an ounce after dropping as much as 1 per cent yesterday as the dollar rose and April sales by carmakers including General Motors and Ford missed analysts’ estimates.

Silver was little changed at $US18.805 an ounce after rising as much as 1.2 per cent to $US18.865 an ounce yesterday, its highest price since January 11. Palladium rose 0.2 per cent to $US542.38 an ounce after falling 1.3 per cent yesterday.

LBMA OTC GOLD MARKET CITED AS A PONZI
SCHEME IN CFTC HEARING

The “bombshell” that GATA dropped at the CFTC Public Hearing on Precious
Metals, March 25, 2010 was stunning. The video of Bill Murphy, Chairman of
GATA, revealing a whistleblower source who has warned the CFTC Enforcement
Division of market manipulation by JPMorganChase in advance of it happening
and witnessed JPM traders bragging of their exploits can be viewed here.
Murphy explained that despite the Enforcement Division receiving detailed
information in December 2009 the manipulation continues unabated as can be
seen by the way gold was taken down this week to rob holders of April gold call
options in the strike range of $1100-$1150 as the hammering made them expire
worthless.
GATA believes that this new evidence and “smoking gun” will be a watershed
event in liberating the gold market from its shackles of price suppression.
As dramatic as this revelation was at the CFTC hearing there was another
“bombshell” exposure during the hearing. This was the testimony that GATA
Board member, Adrian Douglas, was able to deliver during the hearing while
assisting Harvey Organ with his testimony. Adrian was able to introduce
arguments that the London Bullion Market Association (LBMA) OTC gold market
is nothing but a massive “paper gold” Ponzi scheme. What was then astonishing
is that the bullion bank apologist, Jeffery Christian, of CPM Group, who has
always been staunchly against GATA endorsed Adrian’s comments as being
“exactly right” and went on to confirm that the LBMA trades over 100 times the
amount of gold it actually has to back the trades.
There were lots of almost as equally explosive admissions so I have taken the
time to make a transcript of the relevant section of the webcast. I have posted the
two short video clips
http://www.youtube.com/watch?v=jok3XLBz_SI
http://www.youtube.com/watch?v=BfCn8NlLHko
which are what have been transcribed.
The transcript is given below with some notes and discussion added by me.
S. O’MALIA: Both Mr. Organ and Mr. Epstein in the second panel, raised the
concerns that short positions exceed the physical supply. The second panel kind
of argued that that wasn’t a concern. Are you concerned that the shorts will not
be able to deliver if called upon?
J. CHRISTIAN: No. I am not at all concerned. For one thing it has been
persistently that way for decades. Another thing is that there are any number of
mechanisms allowing for cash settlements and problems and a third thing is
as many people who are actually knowledgeable about the silver market and the
gold market have testified today that almost all of those short positions are in fact
hedges, the short futures positions are hedges, offsetting long positions in the
OTC market. So I don’t really see a concern there.
[Note: It is interesting that Mr. Christian is not concerned about the ability of the
shorts to deliver because they can cash settle! He clearly has no understanding
that when someone wants to buy precious metals giving them cash instead is a
failure to deliver. It is a default! But he is not concerned!
He says that the short position is actually hedged by a long position on the OTC
but we will see later in this testimony how he describes the “OTC Physical
Market” and we will see that the long position is not bullion but is in fact an
unbacked (or only partially backed) I.O.U. bullion.]
S. O’MALIA: Mr Organ would you like to respond?
H. Organ: I do see a risk on this, and I think it is a risk that we have to be very,
very careful of. As countries like China, South Korea and Russia start demanding
and taking physical delivery of their gold and moving it offshore to their shores
and putting pressure on the Comex, and we will probably come to a point in time
where we will have a failure to deliver.
A DOUGLAS: Mr. Chairman, could I make a comment?
CHAIRMAN GENSLER: No! Who are you?
A DOUGLAS: I would…
CHAIRMAN GENSLER: No! I said “No!”
A DOUGLAS: Oh! You said “No”?
CHAIRMAN GENSLER: I don’t know who is this?
A DOUGLAS: I am Adrian Douglas; I am assisting Harvey.
CHAIRMAN GENSLER: Alright, Sir. Yes.
A DOUGLAS: I would just like to make a comment. We are talking about the
futures market hedging the physical market. But if we look at the physical market,
the LBMA, it trades 20 million ozs of gold per day on a net basis which is 22
billion dollars. That’s 5.4 Trillion dollars per year. That is half the size of the US
economy. If you take the gross amount it is about one and a half times the US
economy; that is not trading 100% backed metal; it’s trading on a fractional
reserve basis. And you can tell that from the LBMA’s website because they trade
in “unallocated” accounts. And if you look at their definition of an “unallocated
account” they say that you are an “unsecured creditor”. Well, if it’s “unallocated”
and you buy one hundred tonnes of gold even if you don’t have the serial
numbers you should still have one hundred tonnes of gold, so how can you be an
unsecured creditor? Well, that’s because its fractional reserve accounting, and
you can’t trade that much gold, it doesn’t exist in the world. So the people who
are hedging these positions on the LBMA, it’s essentially paper hedging paper.
Bart Chilton uses the expression “Stop the Ponzimonium” and this is a Ponzi
Scheme. Because gold is a unique commodity and people have mentioned this,
it is left in the vaults and it is not consumed. So this means that most people trust
the bullion banks to hold their gold and they trade it on a ledger entry. So one of
the issues we have got to address here is the size of the LBMA and the OTC
markets because of the positions which are supposedly backing these positions
which are hedges, but it is essentially paper backing paper.
[8 seconds of silence]
CHAIRMAN GENSLER: Oh! I guess I get time. Errr…Umm. I don’t have any
other questions. Commissioner Dunn.
M. DUNN: I appreciate the difficulty of trying to do this by remote but at the end
of your testimony you start talking about bona fide hedge exemptions for
commercial traders and must be part of position limits and not to grant hedge
exemptions to swap dealers would be devastating for liquidity of exchanges and
the price discovery capacity, and we got into who determines what is legitimate,
but could you amplify on that a bit and what you see as a danger there?
J. CHRISTIAN: Yes I can amplify on it; but amplify on it a bit is more difficult
because it is a very big subject. The first thing is that precious metals, copper,
other metals, energy these are all traded internationally and are fungible
commodities by and large. There are a lot of strange things that have been
misspoken about the difference between the wholesale and the retail market and
we don’t really have the time to go over those, I think. But the fact of the matter
is…
[The lights go off]
J. CHRISTIAN: Oh excuse me. I am in a building with motion sensitive lighting
and it doesn’t recognize what I do as human activity.
CHAIRMAN GENSLER: Those were your words not anybody’s here.
J. CHRISTIAN: No, they were my wife’s! If you start putting position limits on
bona fide hedgers for example, the bullion banks, and the previous fellow was
talking about hedges of paper on paper and that is exactly right. Precious
metals are financial assets like currencies, T-Bills and T-bonds they trade in the
multiples of a hundred times the underlying physical and so people buying them
are voting and giving an economic view of the world or a view of the economic
world and so when you start saying to a bank I have a number of people…
[Note: This is mind blowing. He openly admits that the LBMA OTC market is not
trading in physical gold or silver; it is trading in paper promises. Gold is not
intended to be a “financial asset” like T-Bills and currencies. That is the whole
point of owning it. Actual physical bullion is a tangible asset with intrinsic value
that doesn’t have counterparty risk. He believes the purpose of trading paper
promises in gold is for investors to “vote” on their view of the economic world! He
confirms that the LBMA trades hundreds of times the real underlying physical.
This is even a higher estimate than I have previously made! It is, as I asserted
before the Commission, a giant Ponzi Scheme.]
J. CHRISTIAN: well, actually let’s go back to a concrete example of Mr. Organ
when he was talking about August of 2008 when there was an explosion in the
short positions in gold and silver held by the bullion banks on the futures market
and he seemed to imply that that was somehow driving the price down. If you
understand how those bullion banks run their books the reason they had an
explosion in their short positions was because they were selling bullion hand over
fist in the forward market, in the physical market, and in the OTC options market.
Everyone was buying gold everywhere in the world so the bullion banks who
stand as market makers were selling or making commitments to sell them
material and so they had to hedge themselves and they were using the futures
market to do that. So if you place position limits on the futures market they will
have to find some other mechanism to hedge themselves …and they will. And
someone else will provide that market…
M. DUNN: Jeffery, I am going to cut you off because I want to ask another
question of Mr. Organ.
[It is hard to imagine more inane drivel than this. He conjures up the image of
bullion bankers selling bullion like crazy to the general public who are in a
feeding frenzy and the bullion bankers are “hedging themselves” by selling gold
short on the COMEX!!! Did he get that idea from a blonde? A little while later
Chairman Gensler also realized that this was the biggest baloney ever concocted
as a cover for massive gold market manipulation by JPMorgan and HSBC in
2008 and so poses a follow up question]……
CHAIRMAN GENSLER: I would like to follow up on Commissioner Dunn’s
question for Mr. Christian, if I might, because I didn’t quite follow your answer on
the bullion banks. You said that the bullion banks had large shorts to hedge
themselves selling elsewhere, and I didn’t understand; I might just not have
followed it and you’re closer to the metals markets than me on this, but how do
you short something to cover a sale, I didn’t quite follow that?
J. CHRISTIAN: Well, actually I misspoke. Basically what you were seeing in
August of 2008 was the liquidation of leveraged precious metals positions from a
number of places and the bullion banks were coming back to buy it, and they
were hedging those positions by going short on the COMEX and that is really
what it was.
[Even on a second attempt Mr. Christian invents the most ridiculous poppycock
to explain away the blatant manipulation of the precious metals in 2008. If, in his
own words, investors were buying gold hand over fist everywhere in the world
why would leveraged long holders dump all their long holdings? They would have
ordinarily been making a fortune. The bank participation report of August 2008
shows that 2 or 3 bullion banks sold short the equivalent of 25% of world annual
silver production in 4 weeks and the equivalent of 10% of world annual gold
production. There was simultaneously a decrease in their long positions, which
were almost non-existent anyway, which is incoherent with a notion the bullion
banks were mopping up dumped leveraged investments. For an intelligent and
coherent explanation of what happened in August 2008 read my CFTC written
testimony here]
CHAIRMAN GENSLER: So I am glad I asked because I really didn’t follow that.
But if I think of the earlier charts of the positions of the bullion banks that Mr.
Sherrod had these concentrated shorts have been, well you know, reasonably
consistent, they are not exactly the same on every day, but his charts showed a
similarity across a couple of years. So what are bullion banks, I mean I am just
trying to understand, what are bullion banks hedging on the other side, we heard
from other panels, but you seem to be familiar, is it warehouse receipts, what is
it?
J. CHRISTIAN: Well it’s a tremendous number of things. You were at Goldman
shortly after me and we had an MIS system that kicked out a daily gold book.
CHAIRMAN GENSLER: That’s really remarkable because we don’t seem to have
a lot of similar views, but you know, a lot of people were at Goldman Sachs.
J. CHRISTIAN: Well I didn’t like the trends at Goldman so I left in 1986. But
honestly, and bad jokes aside, if you look at a bullion bank’s book, its gold book
for example, you will see an enormous number of things; there will be gold
forward purchases from mining companies, there will be forward purchases from
refineries, there will be gold that has been leased out to electronics
manufacturers, component manufacturers, and countless manufacturers and
jewelers. As gold flows through the beneficiation process and again these are all
long complex issues that are hard to reduce, but you know, a lot of producers will
sell their gold the moment it leaves their possession at the mine. It might be in
concentrate form or it might be in dore form. It then goes to a smelter or a
refinery. The bullion bank buys that and it agrees a price at the time it is buying it
but it won’t be allowed to sell that metal until the refinery outturn which maybe
two weeks but it could be six months. So they will go into the market and short
the market in order to cover the commitment they have made to buy at that price
and then when they get the metal in the physical market then they can either sell
that metal in the physical market and unwind the hedge in the futures market or
the forward market or do something else. There are all sorts of other derivative
contracts that investment banks and bullion banks will sell to investors, to other
banks, pension funds, to insurance companies and each of those will often have
a long exposure in gold which will be hedged with an offsetting short position
[note: There he goes again with that blonde idea that when you sell gold to
someone you hedge that with a short position!]. So if you look at a bullion bank’s
gold book or silver book you would find a large range of topics. One of the things
that the people who criticize the bullion banks and talk about this undue
large position don’t understand what is the nature of the long positions of
the physical market and we don’t help it; the CFTC when it did its most
recent report on silver used the term that we use “the physical market”. We
use that term as did the CFTC in that report to talk about the OTC market in
other words forwards, OTC options, physical metal and everything else.
People say, and you heard it today, there is not that much physical metal
out there, and there isn’t. But in the “physical market” as the market uses
that term, there is much more metal than that…there is a hundred times
what there is. If I look at the large short positions on the COMEX my question is
where are the other shorts being hedged? because the short position, that I
believe the bullion banks use to hedge their physicals, is larger than their short
position on the COMEX and the answer is that they hedge it in the OTC market
in London.
CHAIRMAN GENSLER: I thank you for that detailed discussion
END
This is a stunning revelation. Mr. Christian confirms that the “physical market” is
not in fact a physical market at all. It is a loose description of all the paper trading
and ledger entries and some physical metal movements that occur each day on
behalf of people who believe they own bullion in LBMA vaults but in fact they
don’t. They are told they have “unallocated gold” or “unallocated silver” but that
does not mean the LBMA has physical metal set aside for those customers and
has just not given specific bar numbers to the customers. No, it is the most
cynical and corrupt definition of “unallocated”…the customer has NO bullion
allocated to him. NONE! The LBMA defines the owners of “unallocated accounts”
quite clearly as “unsecured creditors”. That means they have NO collateral.
NONE. Can it be any clearer? It is a giant Ponzi scheme.
Mr. Christian confirms what many analysts and GATA have been alleging that
there is not much REAL physical metal, but testifies that there is actually one
hundred times the REAL Physical metal being sold based on the much more
“loose” definition of what “physical” means to the bullion banks.
The last sentence of his statement is mind-blowing. He says the “physical”
positions of the bullion banks are so huge that they are much bigger than the
COMEX short position. He says the “physicals” are hedged on the OTC market in
London! Did you get that? Let me walk you through it. The bullion banks are
selling what is supposed to be vault gold but it is just a ledger entry if the
customer never asks for delivery. They must balance their exposure with a ledger
deposit entry. This has to be some paper promise of gold from a third party, or
some derivative, or even some real gold bullion. If all the ledger entries balance
out then the bullion bank has no net exposure in exactly the same way the
futures market works with a short offsetting a long. A futures market can never
default if no one asks for delivery as only paper contracts are traded. The loosely
defined “physical” London market is an identical scheme. As long as everyone is
prepared to buy and sell “ledger entries” for imaginary gold in the vault no one
will ever discover the fraud.
The LBMA does, however, buy and sell some real physical metal as well. But we
now know form Mr. Christian’s testimony that this is one one-hundredth the size
of the paper gold trading. The LBMA states on its website that it trades 20 million
ozs of gold each day on a net basis. We can calculate the net trade of REAL
physical gold should be about 200,000 ozs each day; that is 6.25 tonnes per day
or 1625 tonnes per year. This is very much in line with the size of total global
mining output of approximately 2200 tonnes per year.
So the giant Ponzi trading of gold ledger entries can be sustained only if there is
never a liquidity crisis in the REAL physical market. If someone asks for gold and
there isn’t any the default would trigger the biggest “bank run” and default in
history. This is, of course, why the Central Banks lease their gold or sell it
outright to the bullion banks when they are squeezed by high demand for REAL
physical gold that can not be met from their own stocks.
Almost every day we hear of a new financial fraud that has been exposed. The
gold and silver market fraud is likely to be bigger than all of them. Investors in
their droves, who have purchased gold in good faith in “unallocated accounts”,
are going to demand delivery of their metal. They will then discover that there is
only one ounce for every one hundred ounces claimed. They will find out they are
“unsecured creditors”.
GATA has long advocated the ownership of real physical bullion. The
“bombshells” dropped in the CFTC Public Hearing have only served to reinforce
that view. We believe we have made significant new inroads into exposing the
fraud, and the suppression of precious metals prices and it is documented in the
CFTC’s own hearing.
March 27, 2010
Adrian Douglas
Director of GATA
Proprietor of Market Force Analysis
www.MarketForceAnalysis.com
info@marketforceanalysis.com

BEIJING (Commodity Online): As the year nears to a close and 2010 is all set to shine, there is gold glittering in the Chinese landscape. There is a mad gold rush going on across China as people are on the streets, swarming gold jewellery shops to buy coins, bars and ornaments during an year-end shopping spree.
China is today the world’s largest gold market. China recently overtook India and emerged as the largest gold consumer in the world. The dragon land is the largest global gold producer.

In this following feature, China Daily reports on the ongoing gold rush in China:

“Gold jewelry sales jumped more than 30 percent over the weekend in Beijing, as bargain shoppers swarmed the city’s major jewelry stores on year-end promotions.

In a collective sales campaign after international gold prices fell, stores including Caibai, Gongmei and China Gold reduced the pure gold’s price by as much as 9 yuan per gram, with more Christmas-themed jewelry designs for shoppers to choose from.

According to the Beijing Morning Post, the China National Gold has doubled its sales to 40 kg per day. Caibai, the largest gold store in China, reported 30 percent more business than last year over the weekend after they drop the price from 278 yuan to 269 yuan per gram.

But the pure gold’s price at Caibai is still 59 yuan per gram higher than last Christmas when it was sold at 210 yuan per gram.

“The gold price had kept rising in Beijiing this year, so this decrease somehow influenced customers’ decisions,” the marketing department manager of Caibai department who preferred to be known as Niu said yesterday.

Niu is also very optimistic about sales in the rest of the holiday season that spans from Christmas to the Chinese New Year in February. She said Caibai extended the trading hour from 8:30 to 9:30 pm on Christmas Eve, to serve the crowds of customers.

“I am looking for a gold pendant with a tiger on it,” said a 23-year-old woman customer surnamed Yang, who was born in the year of the tiger.

“I have had this idea since October, but the price just kept rising. It is going to be the year of tiger soon, and they dropped the price a little bit, so I want to buy it now,” she said on Friday.

Beijing residents showed keen interest when the limited edition gold bars for the Chinese Tiger Year went on sale earlier this month.

Caibai received 1.5 tons of orders while they were holding 1.3 tons of gold.

According to the Beijing Evening News, almost 20 kg of gold bars for investment were sold on Thursday morning after the price adjustment.

Beijing residents are also rushing to hoard the yellow metal, as they expect the economic inflation next year.

“I feel it is safer to invest in gold than other things in this period,” said a business consultant surnamed Bai, who has been investing in gold since September this year. “The inflation in Beijing is quite obvious, but I can still keep my wealth after the economic bubbles break in Beijing.”

THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

”A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,” Senator Joyce said.

His warning came as the Rudd Government ramped up its attack on Senator Joyce as an economic extremist by highlighting his strong opposition to Chinese sovereign investment in Australia.

The Treasurer, Wayne Swan, said it was a cause for concern that Senator Joyce had been elevated ”from the reactionary fringe of our economic debate to the second-most senior economic policymaking job in the alternative government”.

The scrutiny of foreign investment bids was adequate and ”if we were to follow the advice of some of the extremists on foreign investment, it could cost something like 20,000 jobs right across Australia”.

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

He said the Federal Government’s debt would push up interest rates and predicted that some state Labor governments would not be able to repay their borrowings.

”The Federal Government has $115.7 billion in debt, Australian government securities, notes and bonds on issue, and the states have another $170 billion in debt.

”We have to ask whether the states have the capacity to repay that. I would say in some instances they do not, particularly Queensland.”

Senator Joyce said that if the US recovered, global funds would flow back into North America. ”There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,” he said.

”That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn’t repay its debt - the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others - and then we are really nailed.

”The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight.

”It’s the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.”

Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.

”Things you look for in that economic Armageddon are the capacity to feed ourselves, the capacity to provide the fundamentals in medicines and basic fundamental requirements for our nation.”