Monday, May 28, 2012

Gold Bifurcation

At the beginning of this year I became convinced that 2012 would likely be the year that the physical and paper gold market bifurcated into two separate markets. The gold derivatives market is about 100 times larger than the total amount of actual gold!! This means there is a game of musical chairs where 100 people think they'll have a chair when the music stops, yet only one person actually does!

When I say the market will bifurcate, its because people will gradually realize there is a difference between owning "paper gold" and real gold, and as a result will begin pricing in the difference: one with all the intrinsic value, and on with no intrinsic value.

As I pointed out May 5th of this year, The Comex, the market where gold is traded in the U.S., is dying. Volumes were declining for some time but certainly were not helped by the collapse of MF Global and theft of client segregated funds.

You may also remember from my May 3rd post that:
Once people wake up to the fact that the paper market is not even a real market, meaning it’s a false market that can never deliver the real goods, once investors realize this, that is when people will really panic....

  Swiss refiners are “working round the clock because demand for gold is so massive.”

And from earlier that same day I posted:

 This has been very effective over the last year. As I have stated in previous posts, it has also enabled China to buy huge amounts at a discount. I believe countries like China have placed a strong floor under the price, as they are buyers on every take down.

On Monday another take down was attempted.....but failed! Just how big was the trade? The Wall Street Journal reports:

The CME Group Inc.’s Comex division recorded an unusually large transaction of 7,500 gold futures during one minute of trading at 8:31 a.m. EDT. The sale took out blocks of bids as large as 84 contracts in one fell swoop and cut prices down to $1,648.80 a troy ounce. The overall transaction was worth more than $1.24 billion.

This was an ongoing theme as I noted in my January 11th post titled: China Takes Advantage of US Fed Stupidity.

With all of this in mind, I present this podcast from TF Metals report.

You can listen to it yourself here.  Its nearly an hour long but below I present the highlights and the approximate time on the pod cast so you can listen for yourself.

  • 44-min: Orgs with segregated gold accounts 3+ years are getting 2011 bars when they request their gold to be delivered, implying bankers are scrambling to find gold to deliver.
    Segregated accounts are supposed to be segregated, just like they should have been  at MF Global where $1.6 Billion "went missing". Also, this delivery issue of "new metal" for contracts that were supposed to be held is similar to what Eric Sprott had with the COMEX when he requested tons of silver for delivery for his physical silver ETF. The dates on the silver suggested it had been recently acquired to fill his delivery demand.
  •  45-min: “A large contact” involved in gold/banking says much was raided from gold banks (cartel) since Feb 29th. Contact says 5,000  metric tons was shipped East, probably to China. $260 Billion in gold bars. Meanwhile, the banks hold naked short positions (a bearish bet). These are likely Asian countries buying "cheap" gold for delivery while paper prices are held down by the Cartel.

  •  50-min: The gold required to “fill” Chavez order to return gold held in foreign vaults (of the Cartel)came from “old” sources in London & Switzerland. (The Cartel) Have “raided” allocated accounts of 20k to 40k tonnes. This is fraud. The Cartel cannot even seem to deliver even the gold that should be segregated and not lent to other institutions.
So what does this all add up to? The bullion banks do not have the gold and silver they claim to have. As Hugo Chavez and Eric Sprott discovered, when they demanded delivery, the COMEX and the Bullion Banks had to acquire the metal they should have had on hand in segregated accounts. 

Instead, the COMEX did not have the silver to deliver and had to seek out new silver to deliver. The Bullion Banks had apparently lent out (rehypothecated) Venezuela's gold and had to acquire it, (probably from Switzerland who as I noted had been "working around the clock" to meet demand) in order to deliver.

There is nowhere near enough gold to meet demand which is increasing as global financial institutions go into deeper distress and fail. Whatever the price of gold is stated to be (set by the COMEX), it means absolutely nothing. There is a paper price you can find in the paper and the REAL price being determined behind the scenes in the REAL GLOBAL MARKETS, which most of us are currently not privy to.

I've said it before; If you cannot stand in front of your gold and defend it with a gun, you don't own it.

Oh, and just to put that 5,000 tons of gold in to context, I present below the gold holdings of the top 40 countries:

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