Wall Street Paper Gold Posts Record Short Position

The attack on gold by Paper money Wall Street gold persists at a relentless pace.

We find that speculator shorts are at record highs

Writes the Zero Hedge: (italics and bold original)

Premia for gold bars (physical over paper) rallied to their highest since late-2008 according to SocGen, even as 'professional' investors look to position the exact other way. The combined short positions of futures and options speculators in COMEX gold is now at a record high for the third week (having surged from 4.3 million ounces in late September to a a stunning 13.9 million ounces short now. At the same time, Gold ETFs have only seen one in-flow day in the last 34 days. It seems investors are well-and-truly on one side of this boat - even as price continues to buck the supposed structural weakness.

COMEX Gross Short positions...

ETF Holdings...

but price is now ignoring the flows (despite the protestations of some in the media)...

The Zero hedge earlier pointed to more signs of massive draining of inventory by JP Morgan at the Comex.

Finally the Zero Hedge quotes Society General’s research (bold original) 

Shortage of metal drives premium higher as customers told to wait for delivery

While many professional investors looked to exit the market, the opposite response in the physical market to this recent price fall has also been dramatic. The price drop ignited a buying frenzy in Asia and other parts of the world, leading to a shortage of gold bars and coins in Hong Kong, Singapore and Tokyo, and helped the metal stage a rebound. The sudden demand surge caught many traders off guard and sent premia for the yellow metal soaring….

While investment bar and coin premia has eased from the frantic highs, they remain at elevated levels in several markets, with robust demand surging at every retracement in price. Mints and refineries continue to struggle to deliver supply chain orders with up to a one-month wait for delivery. For now though, there appears to be a growing disconnect between paper and real gold.

The tensions between real physical gold and Wall Street gold have been intensifying. Wall Street keeps draining its gold inventories, but physical gold markets remain great robust.  One is about to give. We will see soon which gold market eventually will dominate.

Gold Suppression Scheme: China’s Record Gold Purchases Came PRIOR to the Selloffs

One can smell wretched signs of manipulations from the actions in the physical real gold markets. 

From Bloomberg: (bold mine)

Gold imports by China from Hong Kong more than doubled to an all-time high in March as buyers in the biggest consumer after India boosted purchases, underscoring increased bullion demand in the world’s second-largest economy.

Mainland buyers purchased 223,519 kilograms (223.52 metric tons), including scrap, compared with 97,106 kilograms in February, according to data from the Hong Kong government yesterday. Net imports by the mainland, after deducting flows from China into Hong Kong, were 130,038 kilograms compared with 60,947 kilograms a month earlier, according to Bloomberg calculations.

The shipments preceded gold’s plunge into a bear market last month, with prices tumbling 14 percent in the two days through April 15 in the worst drop in three decades. The slump led to a surge in demand for jewelry, coins and bars from India and the U.S to China. Separate data yesterday showed China’s gold consumption rose 26 percent in the first quarter as prices fell.

More:

The purchases in March were more than three times higher than the 62,913 kilograms in the same month last year, according to the data from Hong Kong’s Census and Statistics Department. Mainland China doesn’t publish such data.

Exports of gold to Hong Kong from China were 93,481 kilograms in March, according to a separate Statistics Department statement, up from 36,159 kilograms in February, and compared with 32,484 kilograms in March 2012.

Volumes for the spot contract on the Shanghai exchange, China’s biggest cash bullion market, topped 323 tons between April 16 and May 3, according to data compiled by Bloomberg. Volumes reached a record 43,272 kilograms on April 22…

So again this report confirms that mainland Chinese buying of more than 10% of annual gold mining output over 2 weeks.

Even More

Retail gold sales tripled across China on April 15-16 after the rout, according to the China Gold Association. Zhang Bingnan, deputy head of the association, said on May 2 that there’s a shortage of gold jewelry inventory in the country after consumers bought up supplies and the industry is increasing raw-material purchases to ramp up production.

China’s gold consumption jumped 26 percent to 320.54 tons in the first three months from a year earlier, the association said yesterday. Consumption totaled 776.1 tons in 2012, down from 779.8 tons the previous year, according to the producer- funded World Gold Council. China and India account for more than half of global demand.

So if gold purchases from mainland Chinese were at a record pace even prior to flash crash, where they along with India constitute "more than half of the global demand", then why the crash at all? Because JP Morgan acted so.

Whatever the intent from Wall Street’s move, “shortage”, “more than doubled”, “three times”,  and “topped” certainly lead to the opposite outcome ("lead to a surge in demand") than what they expected. Instead of a panic out of gold, real physical markets panicked into gold. Talk about blowback.

Since gold cannot be printed, I’d like to see Wall Street empty their inventories or reserves, even if this means interim price pressures.

This should flush out whatever schemes being applied to gold and put into light actions as expressed by prices from the real gold markets, overtime.

Meanwhile mainstream media is having a buoyant moment in assailing gold bulls. They highlight on John Paulson’s hedge fund whose gold fund lost 27% last month. And gave weight to the dissing of gold from Warren Buffett, the supreme Obama crony. 

They peddle the idea that unsound money is sustainable. History tells us otherwise. And look at the bubbles going around the world.

Chart of the Day: Diverging Real Gold from Paper gold

From Zero Hedge

I pointed out of the distinction between paper gold and real gold here.

And I also noted that strong global physical demand amidst the Wall Street instigated selloff means a massive transfer of gold reserves to the physical “real” markets.

Since the bear raid or in over 2 weeks, mainland Chinese alone reportedly bought 300 tons of gold or about  a little more than 10% of annual mine production.

And I also pointed out that such transfer means that Wall Street-Central banks may have lesser leeway to continue with their stealth suppression attempt.

The above chart shows that GLD’s inventories have steeply fallen and continues to fall and has been diverging from what seems as recovering gold prices.

Has this been an anomaly or a partial validation of my prognosis?

We will see soon.

More Poker Bluffs: FED will Cut QE by Yearend

Since 2010, each time the US economy showed some signs of strength, Fed officials talk about “exit” strategies or the communications strategy proposing policy changes by the reduction on the amount of stimulus applied to the economy. Such farcical routine I have repeatedly called as “poker bluffing”. 

Recent record stock market highs, a conspicuous rebound in the housing markets and some indications of economic “recovery” has again prompted Fed officials to blather anew about paring down stimulus.

From Bloomberg

Chairman Ben S. Bernanke will probably reduce the Federal Reserve’s monthly bond buying in the fourth quarter to $50 billion from $85 billion as he begins to unwind record stimulus, economists said in a Bloomberg survey.

Policy makers must find a way to slow the pace of purchases enough to signal confidence the economy is strengthening without prompting a sudden rise in interest rates, said former Fed economists Michael Feroli and Joseph LaVorgna. They said that probably means the Fed, which concludes a policy meeting today, will follow a three-step strategy to wind down bond buying.

How it seems so simple.

Yet since 2010, each exit blarney has led to the opposite outcome. The US Federal Reserve’s stock holding of US treasuries for instance continues to balloon. The recent jump includes QEternity.

At the end of 2012, 90% of US treasuries issued were bought by the US Federal Reserve.

As explained before, the exit talk is likely a sham because there are hardly enough savings (domestic or foreign) that the US government can tap to finance her spendthrift ways. 

Whatever recovery seen in the US economy are symptoms of inflationary boom rather than a genuine economic growth. Yet another economic bust would mean more debt from more bailouts and more inflationism.

Besides, US financial markets have become almost entirely dependent on government support which signifies as a byproduct of the wealth effect theory that undergirds such easing policies.

The removal or even a reduction of such stimulus essentially would “pull the rug from under” the inflationary boom and undermine the current government debt financing mechanics that would stir such massive market and economic disorder and volatility. This would raise the spectre of the “deflation”, a market phenomenon which incumbent authorities have a rabid phobia on, as well as, raise the risks of a default.

Also such policy reversals would undermine the interests of the political class and those dependent on them, which is why incumbent political officials aren’t likely to resort to them, except as trial balloon or as part of the manipulation scheme for the continued suppression of gold prices

Nevertheless, Simon Black of the Sovereign Man eloquently enunciates why US Federal Reserve has been TRAPPED by their own actions on financing the US government or the monetization of US treasuries.

Now, bear in mind that US debt already exceeds 100% of GDP.

Even using the US government’s own ridiculous budget projections (which assume 3.5% REAL GDP growth) Uncle Sam will still accumulate over $5 trillion in debt over the next decade.

But here’s the thing– the current $16.75 trillion of US debt has an average maturity of just 65 months. This means that the US government will be on the hook to repay a huge chunk of its debt within the next 5 1/2 years.

So in addition to issuing $5 trillion (optimistically) in new debt, they’ll also have to re-issue trillions more in existing debt.

Someone is going to have to mop up all that debt. The question is… who?

The Chinese are actually REDUCING their Treasury exposure as a percentage of total US debt (see chart). This is consistent with their objective to strengthen the renminbi.

The story is the same with Japan at the moment, whose nominal US debt holdings have actually been decreasing.

The US Social Security trust fund is also a major holder of US debt. Yet, according to the Washington Post, roughly 10,000 people EACH DAY become eligible to receive Social Security pension benefits.

Given the increased outflows and high level of US unemployment (fewer people paying into the system), it’s doubtful that the Social Security trust fund will have sufficient cash to bail out the Federal government.

This leaves the US Federal Reserve as the lone player to mop up all this debt. There simply are no other options; the US government will default in all likelihood, unless the Fed continues debauching the currency to buy Treasuries.

Yet the recent flash crash in gold has been used to justify calls from some quarters to indulge more rather than less inflationism.  

Fed officials and their apologists will continue with their blandishments of steroid withdrawals but real political economic conditions suggests that all these represent as mere bluffs.

CME Chairman on Gold: People don’t want Paper gold. They want the real product.

I have pointed to the fundamental difference between Wall Street “Paper” gold and physical “individual real” gold, where the former  serves the interests of Wall Street as against the latter which accounts for the real economics (demand and supply) of gold.

This quote from Terrence Duffy, President and Executive Chairman of CME Group Inc,. on Bloomberg TV (April 29, 2013) strongly reinforces my observations

What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real  gold.  That’s going to show you, people don’t want certificates, they don’t want anything else.  They want the real product.

Zero Hedge on the CME Chairman’s comment (bold mine)

I’m actually still in a state of shock that the head of the CME Group would make such an observation and in such blunt terms.  I mean the guy admits that volume on his exchanges suck, yet basically claims paper gold (one of their marquee products) is becoming irrelevant.  In my mind there are two likely explanations for this.  1) This is how he has started to feel personally and he is loading up on physical gold rather than his company’s paper products and would like some cover if that is ever unearthed. 2) This is what people close to the gold market are telling him and he’d rather make it clear he understands that paper is paper and gold is gold and that there is a big difference.  So “caveat emptor” if you are hanging around the COMEX.

This simply means that if the CME chairman understands the real drivers of the gold markets, then those (mainly the gold bears) who opt to ignore, downplay and or even discredit developments in the the real physical gold markets are making a colossal mistake.

Paper Wall Street Gold: Has JP Morgan Engineered the Flash Crash?

Recent developments in the gold markets seem to have exposed, which partly validates my view (if the below report is accurate), that the flash crash in Wall Street-Government Paper gold had been contrived.

From CNBC:

J.P. Morgan accounts for nearly all of the physical gold sales that Comex in the last three months, blogger Mark McHugh wrote in a blog on Friday, which was reposted on ZeroHedge.

McHugh, who writes the “Across the Street” blog, cited a report on the CME Group web site that details metals issues and stops year to date for his findings.

In the report, “I” stands for issues, the number of contracts it sold, “S” stands for stops, meaning the firm took delivery of the gold, McHugh said. It shows that just one firm accounts for 99.3% of the physical gold sales at the Comex in the last three months, he said.

Doing the math on J.P. Morgan, McHugh says the brokerage “fumbled ownership” of 1,966,000 troy ounces of gold since Feb. 1 through the reporting date of April 25. (One gold futures contract is 100 troy ounces.)

That nearly 2 million ounces of gold is 74% more gold than the U.S. Mint delivered through the U.S. Mint’s American Eagle program in all of 2012, said McHugh.

“One thing’s very clear: When it comes to selling physical gold, J.P. Morgan is acting alone,” he said.

Gosh. 99.3% of gold sales contracts.

 

Two days ago, Zero Hedge questioned the steep fall on JP Morgan’s eligible inventories (bold and italics original)

What many may not know, is that while registered Comex gold has been flat, the amount of eligible gold in Comex warehouses (the distinction between eligible and registered gold can be found here) in the past several weeks has plunged from nearly 9 million ounces, to just 6.1 million ounces as of today- the lowest since mid-2009.

What nobody knows, is why virtually the entire move in warehoused eligible gold is driven exclusively by one firm: JPMorgan, whose eligible gold has collapse from just under 2 million ounces as of the end of 2012 to a nearly record low 402,374 ounces as of today, a drop of 20% in one day, though slightly higher compared to the recent record low hit on April 5 when JPM warehoused commercial gold touched a post-vault reopening low of just over 4 tons, or 142,700 ounces.

This happened just days ahead of the biggest ever one-day gold slam down in history.

Some questions we would like answers to:

1. What happened to the commercial gold vaulted with JPM, and what was the reason for the historic drawdown?
2. Gold, unlike fiat, is not created out of thin air, nor can it be shred or deleted. Where did the gold leaving the JPM warehouse end up (especially since registered JM and total Comex gold has been relatively flat over the same period)?
3. Did any of this gold make its way across the street, and end up at the vault of the building located at 33 Liberty street?
4. What happens if and/or when the JPM vault is empty of commercial gold, and JPM receives a delivery notice?

Inquiring minds want to know...

Adding up the pieces of the jigsaw puzzle.

Falling comex gold warehouse inventories—both from the registered (top) and eligible (bottom) categories—appears to be consistent with the record sales exhibited by retail physical “real” gold markets worldwide. Both charts are from 24gold.com.

A drawdown in the Comex inventories may have been channeled to the physical markets, which also means that Wall Street-Central banks may have lesser leeway to continue with their stealth suppression attempt.

But marked distinction between the withdrawal in “registered” gold which is reportedly the “physical” inventory relative to the eligible “gold” which is “some else’s inventories” seems like another puzzle. Add to this JP Morgan’s collapsing ‘someone else’s’ gold holdings, which partially matches the reported dominance 99.3% of selling contracts over the last 3 months. Has JP Morgan shorted gold deposits of their clients? Could the client/s be the New York Federal Reserve? Or the US Federal Reserve?

Such mysteries will likely be made public soon.

I share the conclusions of Alasdair Macleod from GoldMoney.com:

For the last 40 years gold bullion ownership has been migrating from West to elsewhere, mostly the Middle East and Asia, where it is more valued. The buyers are not investors, but hoarders less complacent about the future for paper currencies than the West’s banking and investment community. There was a shortage of physical metal in the major centres before the recent price fall, which has only become more acute, fully absorbing ETF and other liquidation, which is small in comparison to the demand created by lower prices. If the fall was engineered with the collusion of central banks it has backfired spectacularly.

The time when central banks will be unable to continue to manage bullion markets by intervention has probably been brought closer. They will face having to rescue the bullion banks from the crisis of rising gold and silver prices by other means, if only to maintain confidence in paper currencies.

A blowback may be in the process.

Cash Hoarding No Security Against Confiscation, UK’s Panic Buying of Physical Gold

A gold bear analyst recently commented that the confiscation of bank deposits particularly in Cyprus represents a bearish factor for gold. The reasoning goes that deposit confiscation will motivate people to pull money out of the banking system and hold onto cash by storing them in pillow mattresses rather than own gold, because gold is subject to seizures.

Well lucky for the bloke that gold prices fell in his direction.

But such logic doesn’t stand on firm grounds. While gold is also subject to confiscations, hoarding cash does not secure one’s savings or purchasing power from government's predation.

Governments around the world has embarked on the trend to ban cash or to limit cash transactions. Such has been the case of Russia, Mexico, Italy, Spain, Louisiana in the US,  Greece and elsewhere. Scotland proposes to restrict use of cash on scrap metal sales, while Sweden’s anti-cash programs promoted by banksters have been stonewalled by the public.  

A few years back, I had a personal nightmare with Philippine airport authorities, who initially threatened confiscation of my excess cash holdings due to arbitrary Anti Money regulations that I have not been aware of.

And this is partly why people have sought alternative currencies such as the use of Tide detergent (in the US) or of Bitcoins.

As a side note, bitcoins after the recent crash, which ironically had been coincidental with gold’s flash crash, has began to show signs of recovery also along with gold prices.

In addition, governments confiscation of people’s savings are being done directly (deposits) and indirectly (inflation), so cash holdings provide no better safehaven alternative to gold. Both are subject to legal forfeitures but at least gold can preserve the purchasing power from growing aggressiveness by central banks to resort to the paper money solution. Central bankers have now been revered by media as superheroes. Move aside Iron Man and the Avengers, here comes Bernanke, Draghi, Kuroda, Carney, Tetangco and their ilk to save the world.

Yet events in UK has also been proving the opposite of such theory as the UK's physical gold market reveals of the same panic buying spree as elsewhere.

From Bloomberg: (bold mine)

Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined.

Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint. Gold is down 11 percent this month, heading for the biggest drop since September 2011.

Gold markets operates in a distinct market relative to other commodity markets. Demand is hardly driven by consumption but by demand due to gold’s quasi money properties (store of value) or as seen by mainstream as “investment” and or from speculative functions or particularly reservation price model or from reservation demand.

Hence when media reports that physical gold inventories have been strained, then this means that much of the current cumulative physical gold holders, which consist of all gold that had ever been mined since history (171,300 tonnes), simply have resisted selling, since they don’t see current price levels as adequate.

Alternatively this means that when the physical markets have seen tight inventory pressures, which means that the current mining output can’t service (close to 2,500 tonnes annual), aside from where most current gold owners have resisted the temptations to sell, then much of the selling may have come from elsewhere.  They may come from stealth central bank selling via bullion banks or from Wall Street’s paper gold. Central banks own 19% of all above ground gold

In short actions in the physical "non-political individual" markets have been exposing on the attempts to manipulate the gold markets via bear raids using "Wall Street-government" paper gold.

The physical markets also reveals that gold hasn’t lost its luster as insurance and as safehaven alternative in the quest for the preservation of the purchasing power by the non-political public.

More Signs of Parallel Universe in Gold: American Eagle Coins Sold Out

More signs of the widening disconnect between bankers-government paper gold versus physical individual real gold. 

From Bloomberg: (bold mine)

The U.S. Mint ran out of its smallest American Eagle gold coin after demand surged following the biggest drop in futures in three decades.

Sales of the coins weighing a 10th of an ounce were suspended after demand more than doubled in 2013 from a year earlier, the Mint said yesterday in a statement. Total sales of American Eagles in April have almost tripled from a month earlier, according to its website.

Shoppers from India to China and Japan joined consumers in the U.S. and Australia in the rush to buy jewelry and coins after futures slumped 13 percent in two days through April 15. Indian buyers flocked to stores and banks for ornaments, coins and bars as purchases from the Perth Mint in Australia doubled and retail sales across China tripled.

Pressure on inventory means higher premium

A rush by Indian consumers for bracelets and coins is prompting jewelers to offer premiums on imports as traders and banks run out of stockpiles, a trade group said yesterday. Jewelers in big cities are paying as much as 800 rupees ($14.73) per 10 grams (0.02 pounds) while retailers in some remote areas are paying about 1,200 rupees per 10 grams as a premium, according to Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation...

Volumes of gold products sold jumped 150 percent in Hong Kong and Macau during the April 13 weekend compared with the weekend before, according to Dennis Lau, director of sales operations at Chow Sang Sang Holdings International Ltd. (116), last week. Retail sales tripled across China on April 15-16, the China Gold Association reported.

And the Japanese capital flight to gold may have began as anticipated.

Japanese consumers are poised to become net buyers of gold for the first time in eight years as the yen’s decline and looming inflation drive them to seek refuge in bullion, according to Standard Bank Plc.

Funny how the depletion of inventories and higher premiums doesn’t seem to be reflected on paper gold.

Such chasm between physical and paper gold means one thing, gold prices have likely been manipulated.

Paper ‘Wall Street’ Gold versus Physical ‘Real’ Gold

Casey Research economist Bud Conrad suggests that the recent flash crash in gold may have been engineered.

Can markets really be influenced by big players? Well, was the LIBOR rate accurately reported by huge banks? Have players ever tried to corner markets? The answer to all the above, unfortunately, is yes.

There's an even bigger problem with the legal structure of the futures market: even the segregated funds on deposit can be pilfered by the broker for the brokerage's other obligations. That is what happened to MF Global customers under Mr. Corzine. (I had an account with a predecessor company called Man Financial – the "MF" in the name. I also had an account with Refco, which is now defunct. Fortunately, the daggers did not hit my account, since I was not a holder when the catastrophes occurred.) My take: the futures market is dangerous, and not a place for beginners.

One last note: after the Bankruptcy Act of 2005, the regulations support the brokers, not the investors, when there are questions of legality about losses in individual investment accounts.

The recent actions in the gold markets reveals of the stark difference between paper gold and physical gold markets.

Paper gold markets have essentially been influenced by Wall Street, who in turn are influenced by policymakers such as the FED and central bank cartel, as well as, the governments via regulations and mandates.

In contrast, the physical gold represents real demand and supply which involves the consuming and investing public and real inventories around the world.

So when gold prices suffered a quasi price crash, instead of triggering a wave of selling spree, retail participants rose to the occasion and used such opportunity to accumulate with such ferocity. 

Of course it would be a mistake to view retail buying as non-investments or as non-investors as media commonly portrays. 

Said differently panic selling in Wall Street extrapolated to the inverse scenario—panic buying in the global physical market as shown by the chart from US Global Investors.

In short, the gold flash crash demonstrated the contrasting actions between politically backed financial institutions and of non political influenced individuals.

There has been more accounts of rapid depletion of gold inventories as a result of the flash crash. Premium on physical gold continues to rise, particularly in Asia as of this writing, as a result to supply constraints

Even prior to the flash crash, physical markets kept showing signs of vigorous demand, so the crash shouldn’t have happened, but it did.

This tell us that the parallel universe or patent disparity between gold’s paper markets and the physical markets implies of the anomalous nature with the current pricing dynamics of gold. 

Thus logic supports the idea that there has been an ongoing suppression-manipulation scheme against gold prices or an undeclared war on gold.

And it would also signify a mistake to assert otherwise.  

We don’t really need conspiracy theories, for the simple reason that manipulation of the marketplace has been legitimated and a principal tool used for implementing social policies.

Proof? From Ben Bernanke’s 2010 speech: (bold mine)

Notably, since December 2008, the FOMC has held its target for the federal funds rate in a range of 0 to 25 basis points. Moreover, since March 2009, the Committee has consistently stated its expectation that economic conditions are likely to warrant exceptionally low policy rates for an extended period. Partially in response to FOMC communications, futures markets quotes suggest that investors are not anticipating significant policy tightening by the Federal Reserve for quite some time. Market expectations for continued accommodative policy have in turn helped reduce interest rates on a range of short- and medium-term financial instruments to quite low levels, indeed not far above the zero lower bound on nominal interest rates in many cases.

The FOMC has also acted to improve market functioning and to push longer-term interest rates lower through its large-scale purchases of agency debt, agency mortgage-backed securities (MBS), and longer-term Treasury securities, of which the Federal Reserve currently holds more than $2 trillion.

Or from a recent speech

The expected path of short-term real interest rates is, of course, influenced by monetary policy, both the current stance of policy and market participants' expectations of how policy will evolve. The stance of monetary policy at any given time, in turn, is driven largely by the economic outlook, the risks surrounding that outlook, and at times other factors, such as whether the zero lower bound on nominal interest rates is binding

The above speeches showcases how the FED works to influence the interest rate markets and thereby financial and economic forces. They are direct manipulations on the bond markets and indirect manipulations on other financial instruments.

 

Market manipulation has also been acknowledged by authorities. The New York Fed bragged about how FED policies has boosted US stock markets.  Japan’s finance minister recently said that they have a target for their stock markets.

Governments have also been engaged in banning short sales in both the stock markets and the bond markets to influence prices. Have this not been manipulation?

Here is a recent one.

From the Financial Times

It’s called the law of unintended consequences. Last November, European regulators were fed up with hedge funds using the derivatives market to bet against sovereigns so they imposed a ban on outright speculation.

But fund managers, not being ones to roll over and play nice for regulators, have found other ways to express the same view – this time in a way that analysts warn could increase borrowing costs for the banking sector.

Six months on from the ban on buying naked sovereign CDS protection – where the investor does not own the underlying government bond – it is clear that negative bets against large financials have emerged as a partial replacement.

A CDS, or credit default swap, protects the buyer against the risk of a company or government going into default. The instrument is worth more if the risks of default is perceived to be higher.

Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to a sovereign CDS.

Using organized force or governments to prevent markets from clearing or from revealing their real conditions are manipulations. Government's actions,  thereby, signify as the ultimate perpetrators of insider trading and of picking winners and losers.

So if the stocks and bond markets have been subjected to interventions, or may I say manipulations, directly or indirectly, then why should the gold-commodity markets be any different?

As I recently wrote,

A famous politician once said, You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

The pushback from the gold bear raid as seen in the physical gold market implies that the governments and their apologists cannot fool all the people all the time.

Gold Price Crash Spurs Boom in Physical Gold Markets

Apologists for inflationism have been saying in media that the plunge in gold prices marks the “end of gold’s bull market era”. 

But they hardy explain that the such quasi-crash has been brought about mainly by a selloff in paper gold rather than the physical gold: a parallel market.

Tocqueville Asset Management’s John Hathaway explains that the US centric based selling of gold paper translated to about 1 million contracts which exceeded global annual gold production by 12%—an anomaly. Well this for me smells like manipulation.

Since the selloffs, like press releases, suddenly media has synchronically been saying that central banks lost money from their reserves, which I point out in the case of the US government this has simply been untrue or disinformation, and that such selloff justifies more inflationism which has been expected of them

Yet following the price smash up, instead of prompting the public to eschew gold, the physical gold market continues to exhibit reaccelerated demand for gold worldwide.

From Bloomberg (bold mine)

Shoppers in China lined up for gold this week, while in Hong Kong they rushed to buy bracelets and in India sought jewelry for weddings not set until December. The metal’s biggest price drop in three decades provoked the clamor.

From Zaveri Bazaar in Mumbai, India’s largest bullion market, to Australia’s Perth Mint, where sales doubled from last week, consumers headed to shops after the commodity entered into a bear market last week. As gold plunged 13 percent in the two sessions through April 15, retail sales tripled across China on April 15-16, the China Gold Association reported.

The frenzy appeared in India and China, the biggest gold- consuming nations, with cultures that traditionally acquire the metal for brides, babies or strongboxes. This year’s 18 percent decline may reignite demand that last year fell for the first time in three years, with Asian investors in particular seeing the drop as a buying opportunity.

Note the term “frenzy”.

Now to the coin market

From the Wall Street Journal (bold mine)

Sales of gold and silver coins are soaring despite the sudden plunge in the price of precious metals, benefiting mints around the world and driving the cost of the collector items to well above the value of the metal they are made of.

Coins account for about a fifth of all gold purchases for investment and are often favored by retail investors because they are far cheaper than the larger bars bigger investors buy.

While traders dumped gold futures earlier this week on signs global inflation is easing and world economies are slowing, coin prices have been cushioned by high demand from gold enthusiasts who say coins hold their value over the long term.

The premium on gold coins has risen to about 5% more than the spot price of the metal, and compares with 3% at the start of the year, traders say. For silver, the premium has risen to as much as 18% from about 15% at the start of the year. Comparisons aren't precise because the coins generally contain small amounts of other metals to strengthen them, and there is typically a small premium because of manufacturing costs.

Again prices in the real world and financial paper gold reflects on a patent disconnect.

Yes central bankers have reportedly been divided too.

From another Bloomberg article:

The biggest drop in gold prices since 1983 has divided central banks on whether the metal is cheap enough to increase investment.

Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island will “favorably” examine buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor said bullion has no “intrinsic value.” South Africa’s central bank governor won’t adjust its reserves policy.

Central banks own about 19 percent of all gold ever mined, and last year boosted their holdings by the most since 1964, according to the London-based World Gold Council.

In the attempt to shut down alternative currencies, and by claiming that gold isn’t a safehaven, what politicians and the inflationists want to project is that we all have NO choice but to trust governments.

This means that we ought to or should unquestionably abdicate to governments a bigger part of our savings directly via outright confiscation or indirectly by inflation for the benefit of the political class and their cronies.

 

A famous politician once said, You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

The pushback from the gold bear raid as seen in the physical gold market implies that the governments and their apologists cannot fool all the people all the time.

Updated to add: The Zero Hedge points out that the US Mint sold a record 63,500 ounces of gold in ONE day.

According to today's data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone.

Contra Media, US Government Gold Reserve Holdings Unscathed by Gold Plunge

Mainstream media attempts to downplay the “conspiracy” theory that the current plunge in gold prices may have been engineered.

So they allude to losses incurred by central banks in the wake of the selloffs 

From a Bloomberg article 

Central banks are among the biggest losers because they own 31,694.8 metric tons, or 19 percent of all the gold mined, according to the World Gold Council in London. After rallying for 12 straight years, the metal has tumbled 28 percent from its September 2011 record of $1,923.70 an ounce.

Central bank-got-hit meme looks like a press release.

Reuters has a chart suggesting the same

I don’t know about other central banks, but for the US government via the US FEDERAL RESERVE and the US Treasury, the recent slump has hardly impacted the dollar value of gold reserves because they are “valued” at 42.2222 per troy ounce.

This straight from the US Federal Reserve’s footnote on US Reserve Assets as of September 2012

Gold held "under earmark" at Federal Reserve Banks for foreign and international accounts is not included in the gold stock of the United States; see table 3.13, line 3. Gold stock is valued at $42.22 per fine troy ounce.    

And this from the US Treasury

The Status Report of U.S. Treasury-Owned Gold (Gold Report):

• Reflects gold bullion and gold coins owned by the federal government
• Summarizes the fine troy ounces and the book value of gold held by various facilities
• Identifies the value of gold coins and bullion on display at Federal Reserve banks; coins and bullion in reserve at the Federal Reserve Bank of New York; and gold held by U.S. Mint facilities

The book value of gold is currently $42.2222 per troy ounce. The information used to compile this reporting is received from the U.S. Mint, Federal Reserve banks, and FMS.

In effect, based on the US government's accounting treatment of gold reserves, media’s reporting can be seen as deceptive or misleading.

And that's even to assume yet that the official holdings of gold are intact, which is questionable. It would reportedly take SEVEN years for the FED to return the gold reserves of the Bundesbank. Why?

I am inclined to think that this quasi-crash may have provided the window for the Fed to load up gold to return to the Bundesbank. Talk about conspiracy.