Below is the text from a KWN interview with Andrew Maguire on last week's gold action. As you read, notice the amount of gold redemptions from ETF's compared to the amount of gold purchased by Eastern central banks in a similar period. And recall my thesis that paper gold price is being attacked to make more physical gold available from these ETF's when traders & investors sell the funds. Remember, with a open end ETF, the custodian must buy or sell the underlying metal to create or destroy shares so that the gold ETF's match the gold price.
Also notice how he mentions that from the perspective of the central banks (and also the Bank of International Settlements) the cross between the dollar and gold is just another currency cross. That is, just as central banks regularly and openly intervene in currency markets between, say, Japanese Yen and US Dollars, they also intervene in crosses between currencies and gold. Though Bernanke may not admit that gold is money, their policies and interventions in the gold market indicate otherwise.
Also, you may remember in my post about the BIS rejecting gold as Tier 1 capital. Had they allowed gold as Tier 1 capital it would in essence have admitted gold IS money and increased its desirability. Certainly that would not have been in the interests of Western and Japanese central banks.
All bold print is my emphasis:
“The lower these prices are set in the paper (gold and silver) markets, the stronger the physical buying becomes. But it’s totally unsustainable. And given the incredibly bullish COMEX structure now, and the global market underpinning, these paper sales just cannot continue any longer.
Officials have not been selling any physical gold for many months now....“However, by manipulating the gold price lower through the foreign exchange interventions, they’ve succeeded in forcing 600 tons of ETF redemptions, COMEX capitulation, and drawn in an unprecedented level of fresh managed money short supply. This has now successfully allowed the bailout of the bullion banks to the point where they have been able to get net long (gold) futures. The two primary bullion banks that we all know about are net long.
But from a cash forex trading (currency trading) point of view, we are definitely still seeing aggressive official intervention, including the post-Bernanke smash (in the metals). Any time he speaks we get the same thing. The problem is this cash market intervention is also causing precious (metals) bullion inventories to deplete at a much faster rate than if gold was priced at $1,900.
Now I have contacts very close to the centers of influence in China, and I’m absolutely certain there is an escalation of this rapid exchange of dollars and euros for gold. These spot indexed long gold/short dollar transactions (by the Chinese) are (ultimately) closed by seeking and taking physical allocations of (gold).
This is a huge deal, and it crystalizes the paper shuffle into real bullion. That is (gold) bullion which is leveraged and underpinned by just a fraction of its face value (because of the LBMA paper Ponzi scheme).”
Maguire: “Well, Eric, since we’ve cracked $1,300, it (physical offtake) has been so large. In May and June we saw record numbers far in excess of (global) mine supply. Just (physical gold demand) from China and India was far in excess of mine supply.China, alone, (their massive physical demand) in June has exceeded (global) mine supply. If you look at all of the others, you’ve got Russia, the Eastern trading blocs, when you add it all together (their physical gold buying), we have exceeded mine supply by double the amount.”
Maguire: “Eric, we are talking about a massive 580 tons (25% of annual mine production) of physical gold purchased by the Eastern central banks since June 20th.”
“The question that keeps coming up to me is how long can this paper market selling continue? How can it continue to drive price when at the same time we are actually seeing such a massive transfer of physical underway into the Eastern trading blocs?This recent heavily margined forced capitulation was absolutely Fed-induced. And the only short-term goal of this was bailing out the defaulting bullion banks. If you remember, we talked about this back in April after ABN AMRO exposed the whole LBMA system to a probable default. This was a (major) crack in the system...“The result of this official intervention: There’s a tradeoff involved here because it’s tipped the balance and irreversibly broken the relationship between the paper markets and the global physical markets now.
The majority of all traded volumes are actually paper gold in the far less transparent over-the-counter foreign exchange markets. People believe it (the manipulation) is all happening on the COMEX, but it’s not. This (over-the-counter trading) is actually much more of a tool for the Fed and the Bank for International Settlements (BIS) than directly intervening in the COMEX.
You have to understand that gold/currency crosses are the primary focus of these official interventions that we see daily. In other words, unlike all other commodities, gold and silver are first and foremost a heavily central bank manipulated (market), and are traded as a foreign exchange cross.
Now, Eric, here’s the rub. This has created a huge problem for the central banks. As a tradeoff in supporting the dollar it forces the shorting of gold, which then in turn leads to the Eastern central banks exercising the other side which is their long (gold) side. And they convert that into real physical allocations at the daily precious metals fixes (in London).
In the past this (activity) was just a thorn in the Fed’s side. The bullion could be borrowed or replaced at a later stage. But the sheer volume of bullion being transferred out of the LBMA has now become a major threat to the Western central banking system.”
Maguire also added: “On one hand the Fed is forced to prop-up the foreign exchange and financial markets to avert an imminent global crash, (which has the undesirable effect of) allowing the gold to be consumed by Eastern trading blocs. The demand for physical gold has never been higher.”
“Let’s start by looking at what happened on Wednesday morning because this is really where the intervention came in: In the very thin access markets, in very thin liquidity, we saw a surgical strike.
And it was designed to trip-off and accelerate end of quarter position squaring. There is no doubt this (manipulation) was Fed-backed and (agent) bullion bank instigated...“This is the important part, these producers have to balance their books at the end of the quarter, and these guys were hoping for prices above $1,300. This was a highly predatory move, but it enabled these bullion banks to go some way towards replenishing depleted bullion inventories. But it was directly at the expense of these producers who had been holding out for a price rise well above $1,300.”
“Absolutely no physical (gold) has turned up. So when you estimate that we’ve had 600 tons of ETF capitulation, and when you see the fact that we’ve had forced producer sales, none of this is appearing on the market. Why? Because the bullion banks are repaying their positions.
We are still seeing backlogs and huge delays. This morning we saw (stunning) $50 wholesale premiums in Shanghai. Of course we’re seeing massive premiums, backlogs, and delivery delays. And if you want physical (gold) you are going to pay a physical price, not the paper price, if you want size.”