Source: Securities Times Network Securities Times Network
[ This article has been translated from Chinese by Google Translate with extra comments by myself in brackets ]
On Wednesday Night, The Wall Street Journal quoted sources that said the U.S. Commodity Futures Exchange Commission (CFTC) is studying whether there is manipulation in the daily London gold and silver market pricing and will review the transparency of the mechanism at all levels. However, it is not yet initiating a formal investigation.
[ The London Daily 'Fix', issued by the London Bullion Market Association, is the rate at which banks buy and sell gold from each other.]
The Daily London gold price [ also known as the 'London Fix' ] is decided twice each trading day by teleconference between five banks Barclays, Deutsche Bank, HSBC, Scotiabank Canada and Societe Generale. None of the Banks responded when asked for information. [ Gee, what a surprise. ]
According to Reports by the Kui Hang network, analysts believe that there is evidence that the price has been manipulated and suppressed, if this is proven true, precious metals prices are likely to rise sharply.
According to the Wall Street Journal, the U.S. Commodity Futures Trading Commission decided in 2008 to investigate complaints of misconduct on the silver market. Some investors insist that silver prices plummeted in the summer of 2008 as the result of market manipulation. The U.S. Commodity Futures Trading Commission (CFTC) has never published the results of that survey and has not officially confirmed the end of the investigation. The U.S. Commodity Futures Trading Commission spokesman did not respond to reporters' requests for comment.
The possibility of manipulation in the LBMA London Fix pricing mechanism has been a hot topic for discussion on the gold and silver markets. [ Indeed it has, ever since JP.Morgan Chase inherited 10 million ounces of Silver shorts at a strike price of between $10 and $15 USD when they took over the carcass of Bear Stearns ]
Kurt Pfafflin, an Advanced Metal broker for Daniels Trading in Chicago, said that at this point people are dwelling on conspiracy theories and that the spot price is not manipulated. [Of course, he would say that, since at the moment, anyone who can buy Gold for the Spot price, then turn it around and sell it for the physical price, will make an instant 10% profit ]
The London Fix was started in 1897 for Gold, [ with the laying of the telegraph cable between London and New York. ] Silver was added in 1919. Today, however, the banks conduct the London Fix meetings via telephone conference.
The gold pricing meetings are generally held at 10:30 and 15:00 GMT, while the silver pricing meeting is held once a day, generally at noon.
The London gold price is set by the five banks, Barclays, Deutsche Bank (Deutsche Bank AG), HSBC Holdings plc (HSBC Holdings PLC), Scotiabank (Bank of Nova Scotia) and France Industrial Bank (Societe Generale).
Silver prices are set by the Bank of Nova Scotia, Deutsche Bank and HSBC.
[ In case anyone wonders how the London Fix is actually done, all the banks get on the conference call and call out offers to buy and sell. Once the two numbers come within 10% of one another, the difference is split and the Fix price is announced. ]
[ The reason this article is important is that the spot price is composed not just of physical gold holdings, but also 'Paper Gold' which is created out of think air by banks in the same way that they create paper money out of thin air by the magic of fractional reserve banking. In other words, a bank is only required to keep something like 5% (possibly even less) of the value of the Gold they have 'loaned out'. This makes it possible for there to be 'runs' on bullion banks or ETF's, where everyone wants get their Gold or Silver out at once. However, in this scenario, the Bank cannot give the depositors back their Gold, since it has loaned it all to make money on the interest payments.
Imagine the scenario, you put your life savings into a Gold ETF, thinking that even if Gold doesn't rise, because it is Gold, it will never drop to Zero. WRONG! If there is a scandal or default event in the ETF, then the actual people who have given their money to the ETF in exchange for Gold certificates (or numbers on a computer screen) will be the LAST people to receive money when the ETF is wound down. This means that it is likely that they will get nothing. ]
[ A disturbing twist to this tale is the invention of Credit Default Swaps, which means that a bank can take out a life insurance policy on any other company, even if they have no connection to it at all, thereby profiting if it fails. This is the equivalent of being able to take out a life insurance policy on someone you have never met. The reason this is not allowed in the real world is because it would give people an incentive gang up, buy insurance on someone's death and then kill them. However, in the world of finance, it is perfectly legal for a number of banks to get together, buy Credit Default Swap insurance on a company, then agree to crash that company into default so the CDS insurance policy pays out. This is much easier for banks to do than other companies, since a bank can simply decide to refuse to loan money to the company, at any price, or demand early repayment of loans outstanding. This is exactly what happened to Lehman Brothers. The other banks could have stepped in to help (they only needed cash for 24 hours) but because so many other banks were holding CDS protection on Lehman Bros and Bear Stearns, it was more profitable to let them fail, especially when you consider that afterwards, they can buy up their former competitor for pennies on the dollar. Incidentally, it was the paying out of all those policies that crashed AIG Insurance, which was one of the largest bankruptcies in US history.]
[ In addition, there is a very suspicious publicity video of what is supposedly a tour through the vaults backing the GLD ETF. Not only did the wooden shelves look too flimsy to support the amount of gold on them (take a look at the vault inside the Bank of England and you will see what I mean) but the head of the ETF held up a bar for the cameras which was marked with a serial number that was listed as being owned by ANOTHER GOLD ETF. ]
[ In other words, because the 'real' i.e. physical price of Gold and Silver is diverging from the spot price, (the cost of buying actual physical gold or silver in your hand is at least 10% more expensive than the spot price), the ETF's and Banks are all very worried that people will want their physical Gold and Silver back, since they will stand to make an instant 10% profit. ]
[ This is doubtless part of the reason why various European countries such as Germany, france and Belgium want to repatriate their Gold from the USA, since, apart from the worry that the Gold might not even be there, if the USA says "We can't give you the Gold, but we will pay you the spot price in USD" then those countries stand to lose hundreds of millions of dollars. ]
[ Bullionvault, a bullion bank that I use, gets around this problem by conveniently charging a 10% fee for anyone who wishes to tie actual possession of their Gold. As if that was not enough, if you wish to withdraw your Silver, they will charge you 20% VAT and the 10% removal fee, ensuring that it is not economically viable for people to take possession of their Gold and Silver, meaning they will sell it over Bullionvault's internal electronic market, which runs on the Spot Price.
Everything that I see happening in the world convinces me that this problem is only going to grow worse. Therefore, I plan to sell my Gold and Silver in Bullionvault as soon as it reaches break-even price, then buy physical bullion and store it in a rented vault, since any bank that is using the spot price is participating in a massive fraud. ]
[ One final parting word for anyone who is thinking of selling their Gold or Silver because the price is so low. If you have the Gold or Silver in your hand as physical, then do not pay attention to the spot price, look around the world and see the prices that actual bullion stores are selling gold and silver for. I can tell you on thing, they are not selling at the spot price. In fact, the only people who are selling Gold and Silver at the spot price seems to be the banking members of the LBMA that set the daily London Fix. If your Gold or Silver is already invested with an ETF or Bullion Bank, my advice would be to get out as soon as the spot price reaches whatever you paid for it. Then take that money and buy actual physical Gold or Silver and store it in a secure vault or secure deposit box. By the time the masses begin to notice that Hyperinflation is upon them, the actual value of physical Gold or Silver will go through the roof, whereas Paper Gold is just that, paper and as such, will likely be worthless. ]
The original article, in Chinese, can be found here
A Blog about the constantly moving world of finance with a focus on the struggle between the paper gold and physical gold markets and the manipulations used by large banks to keep precious metals prices down. I believe these events will eventually lead to the collapse of the paper fiat economy, leaving anyone who is holding paper instead of physical commodities totally broke. Now is not the time to own paper.
Friday, 15 March 2013
Tuesday, 12 March 2013
Hyperinflation - This time, it's always different.
This article was originally posted by Forbes Magazine here, however, I copied it from 24Hrgold.com here
I present this article because of the coming hyperinflation that is being caused by the race to the bottom to devalue all currencies in the west. The price of Gasoline in the USA rose 20% last month and the actual yearly inflation in the UK is 8% (Although the UK Government says it is 4%, all the banks paid 8% larger bonuses this year, I know who I believe.)
Like the story about the frug in the pot of slowly boiling water, who does not realise it is too hot because the temperature is raised gradually, I do not believe we we actually hear the man in the street talk about hyperinflation until it reaches 200% a year. By that time, the damage will be irreversible.
Incidentally, things could be worse, much, much worse. As you can see from the chart below, the inflation figures are actually being held down by the very slow velocity of money in world financial system, since banks are not lending to anyone but each other, because of the lack of return on loans caused by Zero Interest Rates. However, as soon as the interest rates are raised, the increase in money velocity will make inflation shoot up even faster than most people can imagine, unless, like some of my friends, you have actually lived through a currency collapse.
Article Begins, with some slight alterations.
[ There are money good books on the subject of hyperinflation, however, this review of "Fiat Money Inflation in France", by Andrew Dickson White. Seems particularly good.- ed] It refers to experiments with printing press finance that began in 1789. The book was published in 1896.
I will simply provide here some short excerpts. I think they speak for themselves.
“Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Mirabeau, in his speech which decided the second great issue of paper, had insisted that, though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen. The latter were for a time deluded, but were at last rudely awakened from this delusion.”
“A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,—a disease more permanently injurious to a nation than war, pestilence or famine. For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. . . . . As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country . . . grew lean.”
“The evils which we have already seen arising from the earlier issues were now aggravated; but the most curious thing evolved out of all this chaos was a new system of political economy. [Author's emphasis.] In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values: that it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations: that thus shall manufacturers be encouraged; that commerce with other nations may be a curse, and hindrance thereto may be a blessing; that the laws of political economy however applicable in other times, are not applicable to this particular period, and, however operative in other nations, are not now so in France; that the ordinary rules of political economy are perhaps suited to the minions of despotism but not to the free and enlightened inhabitants of France at the close of the eighteenth century; that the whole state of present things, so far from being an evil is a blessing. All these ideas, and others quite as striking, were brought to the surface in the debates …”
This time it’s different?
Eventually France returned to gold — mostly because paper money fell out of use entirely by 1797, and bullion coins again became the standard of commerce. Successive governments attempted several more paper issuances, with little result except their own increasing unpopularity.
Thus the stage was set for the rise of Napoleon. Napoleon formalized France’s return to a gold standard system by the establishment of the Bank of France in 1803. He also refused to engage in any deficit spending, and lowered tax rates dramatically. The Magic Formula was in action in France. Again, from White:
“But this history would be incomplete without a brief sequel, showing how that great genius [Napoleon] profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807—there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, ‘While I live I will never resort to irredeemable paper.’ He never did …”
Napoleon was so popular that he declared himself emperor in 1804, and it stuck. Thus did a great nation rise again from the ashes; although Napoleon soon returned it to ashes in his own special way, with a side trip to Moscow.
The self-destruction of today’s Keynesians will lead to a new gold standard system, just as it always has in the past. But, first the Keynesians need to light themselves on fire, accompanied, as it was in 18th century France, by widespread cheers and encouragement.
That should be interesting. Get your popcorn ready!
I present this article because of the coming hyperinflation that is being caused by the race to the bottom to devalue all currencies in the west. The price of Gasoline in the USA rose 20% last month and the actual yearly inflation in the UK is 8% (Although the UK Government says it is 4%, all the banks paid 8% larger bonuses this year, I know who I believe.)
Like the story about the frug in the pot of slowly boiling water, who does not realise it is too hot because the temperature is raised gradually, I do not believe we we actually hear the man in the street talk about hyperinflation until it reaches 200% a year. By that time, the damage will be irreversible.
Incidentally, things could be worse, much, much worse. As you can see from the chart below, the inflation figures are actually being held down by the very slow velocity of money in world financial system, since banks are not lending to anyone but each other, because of the lack of return on loans caused by Zero Interest Rates. However, as soon as the interest rates are raised, the increase in money velocity will make inflation shoot up even faster than most people can imagine, unless, like some of my friends, you have actually lived through a currency collapse.
Article Begins, with some slight alterations.
[ There are money good books on the subject of hyperinflation, however, this review of "Fiat Money Inflation in France", by Andrew Dickson White. Seems particularly good.- ed] It refers to experiments with printing press finance that began in 1789. The book was published in 1896.
I will simply provide here some short excerpts. I think they speak for themselves.
“Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Mirabeau, in his speech which decided the second great issue of paper, had insisted that, though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen. The latter were for a time deluded, but were at last rudely awakened from this delusion.”
“A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,—a disease more permanently injurious to a nation than war, pestilence or famine. For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. . . . . As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country . . . grew lean.”
“The evils which we have already seen arising from the earlier issues were now aggravated; but the most curious thing evolved out of all this chaos was a new system of political economy. [Author's emphasis.] In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values: that it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations: that thus shall manufacturers be encouraged; that commerce with other nations may be a curse, and hindrance thereto may be a blessing; that the laws of political economy however applicable in other times, are not applicable to this particular period, and, however operative in other nations, are not now so in France; that the ordinary rules of political economy are perhaps suited to the minions of despotism but not to the free and enlightened inhabitants of France at the close of the eighteenth century; that the whole state of present things, so far from being an evil is a blessing. All these ideas, and others quite as striking, were brought to the surface in the debates …”
This time it’s different?
Eventually France returned to gold — mostly because paper money fell out of use entirely by 1797, and bullion coins again became the standard of commerce. Successive governments attempted several more paper issuances, with little result except their own increasing unpopularity.
Thus the stage was set for the rise of Napoleon. Napoleon formalized France’s return to a gold standard system by the establishment of the Bank of France in 1803. He also refused to engage in any deficit spending, and lowered tax rates dramatically. The Magic Formula was in action in France. Again, from White:
“But this history would be incomplete without a brief sequel, showing how that great genius [Napoleon] profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807—there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, ‘While I live I will never resort to irredeemable paper.’ He never did …”
Napoleon was so popular that he declared himself emperor in 1804, and it stuck. Thus did a great nation rise again from the ashes; although Napoleon soon returned it to ashes in his own special way, with a side trip to Moscow.
The self-destruction of today’s Keynesians will lead to a new gold standard system, just as it always has in the past. But, first the Keynesians need to light themselves on fire, accompanied, as it was in 18th century France, by widespread cheers and encouragement.
That should be interesting. Get your popcorn ready!
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