Stocks and Precious Metals Charts - Central Banks Buy Most Gold Since 1967

 

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair

"It is important to bear this in mind, because it tends to knock down the assertion that the current financial crisis is somehow an act of God, something that just happened.  There was an intent to subvert the regulatory process, to increase leverage beyond what has long been known to be prudent, and to engage in systemic fraud with a group of enables and agencies, such as the ratings firms, in order to reap fabulous personal profits for a small group at the expense of the many. 

There was planning, premeditation, malice aforethought. They may not have intended to harm; they just did not care. They really truly did not care, if they got theirs.  Until the banks are restrained, and the financial system reform, and balance restored to the economy, there will be no sustained recovery.

And there can be no better start than to stop the gambling with the public money that is the core of the existing US banking system.  The parallels with organized crime and the subversion of the public interest through graft and corruption are compelling.  And one thing we must accept is that the financiers will never be able to reform themselves, to regulate themselves, to even tell the truth overmuch about regulation while they are still 'in the game.'  It goes against their very nature, their creed, the rules of their profession. They keep what they kill, and everything that is not theirs is fair game."

Jesse, Restoring Glass-Steagall, 28 October 2009

"Successful crime is dignified with the name of virtue; the good become the slaves of the wicked; might makes right; fear silences the power of the law."

Lucius Annaeus Seneca

“Those entrapped by the herd instinct are drowned in the deluges of history.  But there are always the few who observe, reason, and take precautions, and thus escape the flood.  For these few gold has been the asset of last resort.”

Antony C. Sutton

Just another day in the Pax-American Metaverse.

The FOMC raised interest rates the expected 25 bps.

And in the end Wall Street read this as dovish, and rallied to beat the band, going out near the highs.

The NDX set a new 'third high.'  

The SP 500 was lagging and failed to set a new high.

The Meta stock was soaring after hours dye to 'not as bad' as expected results.

The Dollar slumped hard.

Gold and silver rocketed higher.

While stocks were soaring the Metaverse, back in the real world:  Central Banks Buy the Most Gold since 1967  

And the times, they are a-changing.

Why didn't the spokesmodels, chief strategists, breathless Mahoneys, and sock puppets talk about this historic development, which has been slowly unfolding since before 2009??

Yeah, buddy...

Non-Farm Payrolls on Friday.

Let's see if bully can keep it up.

With these jokers its always easy come, easy go.

Have a pleasant evening.

 

The Trend Change In Central Bank Gold Reserves in 2008 That Few Have Noticed And Fewer Acted Upon

This excerpt below is from a blog which I published in 2013.   It is a theme that I have been striking since 2009 specifically.

The turn in central bank gold buying came in 2008, although the bullish case for gold for other reasons became pretty obvious in 2002.

The bottom in the gold price was marked when England sold its remaining physical gold, in the notorious 'Brown's Bottom.'

By 2009 the data made it completely clear that the world's central banks had turned from net sellers of gold bullion in order to control its price and had become net purchasers of physical gold for their own reserves. 

Demand has been led by 'the New Silk Road.'

I suspect this change was a reaction to the currency crisis in the emerging markets in the 1990s.   It was referred to as 'the Currency Wars' popularized in China and given little coverage here.

And of course there was the failure of the Washington Agreement, struck in 1999 to manage the gold price through planned central bank sales in order to support what some called Bretton Woods II and the exorbitant advantage of the perodollar.

Hardly anyone outside of a small community of analysts had noticed, and even fewer understood what it meant.

I include the older charts, and a recent tweet by analyst Luke Gromen that shows where the central banks are in their purchasing today.

Hint, they are still buying gold, physical gold, and in steady to increasing amounts such that the 'free float' of available physical gold for delivery is strikingly low compared to demand.

I suspect that silver will have a role to play, judging by the enormous silver hoard that JP Morgan has established, for customers unknown.

Nothing to see here. Just a bunch of conspiracy theories.  And dirty little secrets that we prefer to keep hidden.  Move along.

"Few people realize that around 2008 central banks turned from being net sellers of gold to net buyers, and began to accumulate gold reserves in a big way for the first time since the 1970's, when Nixon slammed shut the gold window.

This is based on what they report officially to the IMF. There is strong anecdotal evidence that the actual turn in buying occurred quite a few years earlier, and more in line with the rapid appreciation in price as selling declined.

First the selling slowed and the stealth buying began, particularly in Asia and the Mideast.

There was a sea change in the gold market as central banks scaled back on their strategy of supplying official gold to the bullion banks in order to keep the price down.

The bottom in the gold price occurred when Gordon Brown threw England's gold with a pre-announcement into the market in order to bail out any bullion banks that were caught flatfooted 'in the turn' in May of 1999. This was the first clear sign that change was in the wind.

The Big Turn occurred in 2007 when the western central banks capitulated, and realized that they must allow the price of gold to rise, or exhaust their own gold reserves in the process. The central bank change did not cause this, although it certainly reinforces the trend. It is a symptom of the great change and the first unmistakable manifestation of the currency war. Although astute observers could see this coming in the aftermath of the Asian currency crisis in the 1990's and the Russian default on the rouble.

Gold commentators who do not realize this significant dimension of what has occurred and account for it in their thinking have been simply left behind, lost in an outdated frame of reference. They do not see the forest for the trees."

"Gold is unique among assets, in that it is not issued by any government or central bank, which means that its value is not influenced by political decisions or the solvency of one institution or another."

Salvatore Rossi, Chief of the Central Bank of Italy, 30 Sept 2013

How Much of 1,740 Tons of London 'Good Delivery' Gold Monetized and Sent to China Central Bank

Koos Jansen has an interesting piece out this morning, that asks some very insightful questions in the ongoing attempt to connect the dots between the shocking decline in the 'float' of unencumbered gold out of the London Vaults with the tremendous, and not always fully visible, flows of gold into strong hands and Asian Vaults.

As you may recall it was Koos' groundbreaking work in analyzing the Shanghai Gold Exchange that blew the lid off the enormous flows of physical gold into China, despite the stubborn opposition of some well paid establishment analysts.

And all of this is relevant to what some have called 'the currency war,' which is the attempt to forge a new international monetary regime out of the ruins of the Bretton Woods Agreement and the fiat petrodollar.

This analysis ties together with a number of highly significant events, including the backwardation of gold price, the flight of gold from the registered category at Comex, and the tightness of physical supply in London as shown by lease rates and informed observations, despite the usual scoffing from apologists.

I have seen various estimates that the London float is now adequate for about 4 to 12 months at most, given this draining of supply, before the market gets into serious trouble.  That is unless a central bank or gold pool friendly semi-official fund undertakes to divest itself of more their nation's gold, as England apparently did by selling their sovereign gold wealth on the cheap near the turn of the century to bail out their banking chums, in the odd case of Brown's Bottom.

The gold in this current instance seems more likely to have been taken out as leases and sales from custodial gold holdings at the Bank of England, and the stores of gold that is backing ETFs and Funds in private vaults, having been disgorged by the actions of their participants and custodians, often the self-dealing bullion banks.

Perhaps this is mistaken.  Perhaps there is a reasonable explanation for all this oddness in the gold market.  Good then let us hear it, and not these silly scoldings and transparent fabrications of nonsense that seem to be the stock in trade of the bullion bullies and paperati which only serve to fuel more doubt and questions.

And why is it again that the US and UK were unable to return Germany's national gold stores in a reasonable timeframe?  And India desperately looks for ways to limit their peoples' appetite for physical bullion of their own?  So many questions, so much leverage, secrecy, and stonewalling.

As Koos Jansen observes:

Consider the following:

• Good Delivery gold bars can be monetized – in countries like the UK, Hong Kong, Switzerland and Singapore – from where they can be shipped into China while circumventing global trade statistics. This is because monetary Good Delivery gold bars are exempt from global trade statistics (UN, IMTS 2010). Needless to say monetary imports into China are conducted by the PBOC.
• Non-monetary Good Delivery gold bars (declared at international customs departments) imported into the Chinese domestic gold market are required to be sold through the SGE. However, trading volume at the SGE in GD bars has been a mere 3 tonnes in all of history.

We can thus conclude that if any Good Delivery gold bars have entered China these did not go through the SGE system where Chinese citizens, banks and institutions buy gold. Instead, it’s likely that the Good Delivery gold bars that crossed the Chinese border went directly to the PBOC vaults...

Nick Laird and I noticed that although the total amount of physical gold in London fell roughly 2,744 tonnes (9,000 – 6,256) over four years (graph 1), only 997 tonnes were net exported as non-monetary gold (graph 4). This makes me wonder where the residual 1,747 tonnes (2,744 – 997) went. Possibly, this gold has been monetized in the UK and covertly shipped to a central bank in Asia, for example China. I don’t have rock hard evidence, but it fits right into the wider analyses.

You may read the entire piece and its complete evidence and reasoning The London Float And PBOC Gold Purchases.

One thing that is strikingly odd about this is that it is one of the more revelatory accumulations of data on the shadowy corners of the global gold market since Frank Veneroso's seminal study of the flows in the gold market involving central bank gold at the beginning of the great bull market that began at the start of the new century.

And yet so many sites still have not picked up on this sea change and unfolding currency war, despite it tying together so many other observations and data and market tremors.  Perhaps it is insufficiently pedigreed.   The contrarian perspective says that this may be the hallmark of the real thing.

Gold Daily and Silver Weekly Charts - Gold Is the Statist's and the Con Man's Bête Noire

"I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.

There's an interesting question here because if the gold price broke [lower] in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.

Now, we don't have the legal right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing."

Alan Greenspan, Federal Reserve Minutes from May 18, 1993

If you take a look at the Fed minutes over the years you will see that Bernanke's response to the Congress that the FOMC does not think about gold is just prevaricating nonsense.

At this point I am getting curious why the Fed in particular would wish to see the price of gold kept down.  And I don't say this too lightly, but it would take a serious effort to ignore the blatant and heavy handed public relations campaign downplaying the value of gold, in the face of increasing physical demand around the world, and the undeniable fact that for the first time in several decades the central banks of the world have turned from being net sellers to net buyers.

As we see from the minutes above most clearly, the Fed was watching gold carefully for indications of monetary inflation.  And this was during the long bear market in gold in the 1990s when central banks were still routinely and openly selling gold to keep the price lower.

Why would the Fed, if indeed they are involved or more likely fully aware, like to see an indicator of inflation supine while they are laboring mightily to convince people that there is a recovery in the economy so that they can get off the zero bounds and raise rates?   Wouldn't a rising price of gold give them some credibility in such a move?

Or is this 'a wholly different things' as then chairman Greenspan said above?   Are we at that kind of moment that Eddie George, the governor of the Bank of England, talked about in late 1999, culminating in the infamous Brown's Bottom when England's financiers sold her gold on the cheap, presumably to bail out the Banking speculators.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.  Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

This current pool operation is indeed odd, unless one subscribes to the idea of a currency war pitting the US dollar status quo against the emerging economies who wish to find alternatives to what they feel is an abusive, almost neo-colonial form of monetary repression and at times a facility for plunder.

Although as I have mentioned before, I have a very open mind to the notion that some of the shenanigans from the last decade put some official sector and too big to fail jokers 'over their skis' in the precious metal markets, to the extent that Eddie George's abyss was starting to yawn like the Grand Canyon again. I never like to attribute to bad policy what can be just as easily attributed to purely stupid and short-sighted personal concerns and greed.

August looks to be a littler more interesting at The Bucket Shop. There were some more dribbles out of the warehouse, and the 'leverage' of claims is probably still well over 100:1. I'll have a look at it when mon ami Nick puts out his latest.

Fundamentally speaking, if we dare do such a thing in such dodgy markets, the demand for physical silver is increasing in 2015 while the supply is contracting, resulting in a projected deficit for the year.

Have a pleasant evening.

COMEX Deliverable Gold Bullion Has Plunged By 78% in 2013 - Claims Per Ounce Highest On Record

The last time that the claims per ounce were nearly this high was in the late 1990's. At that time the central banks had to intervene to keep one or more bullion banks from faltering.

It occurred during a period of coordinated bullion selling from the central banks into the market under the Washington Agreement, culminating in the notorious gold dumping known as Brown's Bottom.  Their gold may have been sold as well, but at least the Germans still have a receipt. 

That selling failed to hold the line, and shortly thereafter gold began its great bull market run. 

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.   Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, reportedly in private conversation, September 1999

The first chart below shows that pressure on available supply in owners per ounce rather nicely.   Nick Laird, the maestro of charts from Sharelynx.com, was kind enough to go back and pull all the available data. It helps to complete the picture don't you think?

One difference this time is that the fellows who examine the more detailed reports tell us that the big boy of the bullion banks, JP Morgan, is said to have already liquidated their large short position and gone net long gold. Perhaps they are well advised.

Deliverable 'dealer' gold, known as registered gold at the COMEX, has plunged a remarkable 78% during the vicious price smashing of gold in 2013.

This decline in gold available for delivery has not been matched by a similar decline in contracts bidding for that gold, known as the open interest.

Therefore the number of contracts for each ounce of deliverable gold has now reached a new all time high of about 57.8 claims per ounce, a level that has not ever been seen since Nixon closed the gold window.

There was another big buildup in the claims per ounce that occurred just before gold began its big bull market run in 2000.    Some contend that this drain in dealer gold was the result of a last ditch effort to the hold the price of gold lower before the market broke and the price began its remarkable run.

But given that the banks became net buyers of gold around 2008, as shown in the third chart below, it does not seem likely that the Bank of England or the western central banks will sell bullion into the market to save the overleveraged speculators again.

Recently the Federal Reserve was unable to comply with a request from the Deutsche Bundesbank to return the German national gold which had been held in custody in New York. The vault seems to be a bit on the thin side in general.  I am sure all the gold is there, it is just that we live in an age in which multiples of rehypothecation for our financial assets held in trust are de rigeur.   All the finest financiers are doing it without fear or regret, even when it occasionally decimates their customer accounts or shakes the global economy to its foundations.

Also included below is a peek at the registered inventories of all the COMEX warehouses.  Some of the declines are impressive.  What a remarkable coincidence.

There has rarely been a dull moment since they knocked down Glass-Steagall. It will be interesting to see what happens next.   This has been so much fun that it hard to know whether to crack open a bottle of champagne, or to make a run for the border.

We'll probably have to wait for the equity market to break until after Goldman brings out the Twitter IPO.  Priorities.

Have a pleasant weekend. See you Sunday evening.

One of the Most Important Gold Charts That You Should Remember

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, in private conversation, September 1999

Few people realize that around 2008 central banks turned from being net sellers of gold to net buyers, and began to accumulate gold reserves in a big way for the first time since the 1970's, when Nixon slammed shut the gold window.

This is based on what they report officially to the IMF. There is strong anecdotal evidence that the actual turn in buying occurred quite a few years earlier, and more in line with the rapid appreciation in price as selling declined. 

First the selling slowed and the stealth buying began, particularly in Asia and the Mideast.

There was a sea change in the gold market as central banks scaled back on their strategy of supplying official gold to the bullion banks in order to keep the price down. 

The bottom in the gold price occurred when Gordon Brown threw England's gold with a pre-announcement into the market in order to bail out any bullion banks that were caught flatfooted 'in the turn' in May of 1999.  This was the first clear sign that change was in the wind.

The Big Turn occurred in 2007 when the western central banks capitulated, and realized that they must allow the price of gold to rise, or exhaust their own gold reserves in the process. The central bank change did not cause this, although it certainly reinforces the trend. It is a symptom of the great change and the first unmistakable manifestation of the currency war.  Although astute observers could see this coming in the aftermath of the Asian currency crisis in the 1990's and the Russian default on the rouble.

Gold commentators who do not realize this significant dimension of what has occurred and account for it in their thinking have been simply left behind, lost in an outdated frame of reference. They do not see the forest for the trees.

This is about much more than gold and silver. This is about a major, an historic change, in the composition of the world's global currencies and trading system. The dollar regime that has been in place since the end of World War II is undergoing a major evolution.

If there is anything that shocks me, it is how few economists understand it, or even realize it. I suppose that is how it is when the big things occur. Most of the operational people are left staring at the old paradigms, and wondering why their models are malfunctioning.

Rather than accept the change and understand it, they get busy trying to prove that it is not happening, since they have such a vested interest in the past. And so we see the occasional hysterical outburst from the status quo, that what is indeed happening does not make sense, and is irrational. 

Their reasoning begins to take on the shrill character of propaganda as they do their duty for their powerful patrons.  And they further discredit and isolate themselves from things as they are, and from people who have eyes to see.

The Anglo-Americans will be the last to let this folly go.  And I hear there is quite a bit of official irritation with those bullion banks who do not wish to go along with them.  They prefer to get out of this while they can with their balance sheets intact, even to the extent of getting out of the business, and enduring subtle retaliation for their recalcitrance.

I cannot foresee exactly where we are going, no one can, because there are simply too many exogenous variables.  But I doubt that it will be back to where we have been.

Unstoppable Demand Meets Undeliverable Object - A Run on the Bullion Banks

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith, The Age of Uncertainty

If this is accurate, if this is really happening, I think that the effects of this run on the bullion banks are going to hit quite a few people dead cold, like a smack in the face.

That is because there is so little coverage of what is going on in the media, even the internet media.

The gambit of smacking down price to dampen the desire for gold appears to have backfired in a big way by sparking an insatiable demand for the physical metal and a remarkable decline in available inventories. That certainly wasn't what had been expected I would imagine when the process of a more energetic price manipulation in response to Germany's request for the return of its gold began.

That a sovereign nation asked for the return of its own gold being held in custody, and that request was flatly denied, is almost as unbelievable as the fact that so many are willing to take it in stride, like something that would happen every day. 

A seemingly unstoppable force, the flow of gold from west to east, is going to meet the undeliverable object, the nominal inventory of unencumbered gold in the bullion banks and exchanges, sometime over the next twelve months.

Of course one cannot predict exactly what will happen and when, given the phony controversies, obfuscations, and stonewalling that seem to settle like a thick fog over the markets at every treacherous turn in this slowly unfolding financial crisis.  But the math is intriguing.

This is getting very interesting. Let's see what happens. 

Is this what I wish to happen?  No, I would prefer that the markets be transparent, honest, and provide genuine price discovery and allocation of capital with relative rationale decision making open to all market participants.   I think for now the game is badly tilted in favor of insiders and their powerful friends.

I do not believe that there can be a sustainable economic recovery without genuine reform.  A financial disaster is what the financial predators seemingly wish to happen, assuming they even care about the broader effects of their foolish greed.

At some point one would have to anticipate a declaration of force majeure and/or a change in the rules if the financial interests do not relent on their aversion to a market-clearing price.  And when that tide goes out, we will see who is swimming naked.

But there remains plenty of opportunity for more desperate antics, so as always caution is advised , particularly in the use of any leverage and short term time horizons.  This is not a healthy trading environment for the non-professional.  And many a person has gone bust by underestimating the shameless manipulation of the markets when regulation is lax.

The exchanges and the Banks will not fail, because the financiers and their friends make their own rules as they go along, and do not hesitate to act in their own interests, promises and customers be damned.  That seems to be the way of modern finance and monetary theory.  Whatever we say it is, is because we say it is.

The time for debate seems to be coming to an end. Weighed and found wanting.

Stand and deliver.

The Longer Term Fundamentals of the Gold Market As They Are Today

There should be no doubt in anyone's mind that the fundamentals for world gold supply and demand have changed dramatically over the past ten years at least.

The world's central banks, most significantly in the West, had been selling bullion from their central bank reserves since 1989. The first chart below shows the long decline in the official gold reserves of the central banks through the long bear market from 1979 through 2000, and even in the beginning of the bull market.

There was an explicit public arrangement called the Washington Agreement struck in 1999 to regulate that official selling after a particular central bank had disrupted the market.

"Under the agreement, the European Central Bank (ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all.

The agreement came in response to concerns in the gold market after the United Kingdom treasury announced that it was proposing to sell 58% of UK gold reserves through Bank of England auctions (aka Brown's Bottom), coupled with the prospect of significant sales by the Swiss National Bank and the possibility of on-going sales by Austria and the Netherlands, plus proposals of sales by the IMF. The UK announcement, in particular, had greatly unsettled the market because, unlike most other European sales by central banks in recent years, it was announced in advance. Sales by such countries as Belgium and the Netherlands had always been discreet and announced after the event. So the Washington/European Agreement was at least perceived as putting a cap on European sales."

There is some speculation as to the reason why the UK's Brown decided to engage in that rather extraordinary action, against the counsel of his own advisors, but that does not concern us here. 

This outright selling in gold by central banks is different from the leasing of gold by central banks, which is generally not transparent and openly announced. In this leasing operation, bullion banks pay a small lease rate to the central bank for the right to use that gold as collateral and for sale, with the promise to replace it after a period of time with a fee. It is a subject of controversy how much of the existing stock of central banks has been committed to the market through leasing arrangements. The number is not insubstantial. The gold is likely to have been sold or otherwise committed, and must be repurchased to be returned.

There is a very high likelihood that gold collateral has been rehypothecated, or used many times with a number of parties holding claim to it. This is a common practice and is referred to as fractional gold reserves. These most often take the form of 'unallocated bullion' which is when a certificate of ownership is issued, but no particular bars have been identified. And as we saw in the failure of MF Global, even allocated bullion ownership, in which specific bars are committed and paid for, ownership can be a rather philosophical concept in which possession is nine-tenths of the law.

The second chart shows the period from 2000 to 2012, with emphasis on 'the Turn' which is when central banks turned from net sellers to net buyers of gold. I cannot stress enough how important this is to the fundamental outlook.

Economists, pundits and investment managers can say whatever they like, but the proven fact remains that the world's central banks, on the whole, do not agree with them that gold is not an important store of value, and likely to become more important in the future. It is somewhat ironic that these same fellows would uphold the power of the central bank on one hand, and say things like Don't fight the Fed, or Bernanke says what the market is, but then will turn around and suggest you ignore what the central banks of the world are doing on the whole. It is hard to imagine that this is not someone woefully ignorant of current trends or with some other agenda who would take such an obtuse position.

And of course we also have the statement and opinions of those who say, personally I think gold is barbaric and useless, but then will say, money is based on consensus, and so fiat money is sound. Again, the clear consensus of the central banks is that gold is an important facet of their reserves, and the importance to their future plans is growing, for whatever reasons they have not yet disclosed.

The third chart demonstrates the significant increase in gold bullion acquired by the Chinese. This is both private and official purchases. A large producer in their own right, China exports little of their domestic production, and is a large net importer. Several other countries are following the same pattern, the common thread being that they are the high growth countries who have the need to increase their reserves, or whose people have new wealth they wish to deploy.

The fourth chart shows the well established fact that the increase in the gold supply through mining is relatively inelastic with regard to price. It takes significant effort and capital to create new mining operations, and there is a natural decay in the productivity of existing mines as with most natural resources. The estimate is that the gold supply can increase through mining at roughly 2% per year. This is one of the features that has long made gold attractive as a form of money.

As demand increases therefore, the price of gold must rise. If someone wishes to hold the price steady, new supplies of gold must be found, and they will not be discovered in mines.

There is a fairly well established 'scrap market' in which old jewelry and other gold objects can be purchased and melted down for bullion. But this market again is not robustly elastic although it can respond to higher prices more readily than mining operations.

So for ready access to gold to meet market demands, other sources of gold must be found.

This is where we get into the concept of 'fractional reserve gold' and 'paper gold' in which ownership is more of a financial concept than a hard reality. This includes both the leasing of official reserves, and the use of unallocated reserves that would be discovered in purchasing programs and perhaps even some well known funds.

One would hope that highly transparent audits of such things would exist from impeccable sources, but sadly that does not seem to be the case.

Leverage and rehypothecation are two of the largest factors in the recent financial crises, in addition to the mispricing of risk and fraudulent representations.

I think one of the more remarkable features of the current situation is the storage of official bullion in custody in New York and London. Venezuela was one of the first countries to demand that their gold be repatriated from New York, and this has happened despite much scoffing and derision by the usual pundits.

But then in response to domestic requests and changing circumstances, the German central bank requested that some portion of their gold be returned from out of country.

The German gold had been stored out of country in response to concerns that the gold was not safe, given the divided nature of the country and fears of a Soviet incursion. Obviously with their country reunited and at peace, it would make sense to return things to normal.

They had already received much of their gold back from London, in large part because it was incurring significant storage fees. They are also requesting their gold back from France.

By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time.

The following table shows the current and the envisaged future allocation of Germany’s gold reserves across the various storage locations:

	31 December 2012	31 December 2020
Frankfurt am Main	31 %	50 %
New York	45 %	37 %
London	13 %	13 %
Paris	11 %	0 %

To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.

What is so remarkable is the response from New York. The Fed is agreeing to return a portion of Germany's gold in SEVEN YEARS. 

Until the fundamentals change, the offtake of gold will continue to deplete supply, until the price moves to strike an equilibrium.

And as I have attempted to show at some length and detail on this site, the recent sell off in the price of gold was largely motivated by speculation in paper gold on western markets, specifically London and New York, that resulted not in a decrease in demand but an increase in demand that led quickly to spot shortages, delays, and premiums over the paper price for actual bullion.

I do not know the future. It is patently obvious that China and Russia and a few other countries, are making a concerted effort to increase their gold reserves for some reason. There is significant speculation that the nations will be changing to a new form of reserve currency for trade that will be backed at least partially by gold.  In addition, several countries are said to be making plans to back their national currencies by gold in some manner as the devaluations of world currencies obtain momentum.  I think these all these plans are under serious discussion today. There is no doubt that international discussion have been going on for some time.

I am aware that there are other, more specialized and sophisticated, studies out there about the gold and silver markets.  Much of them are with regard to the shorter term for traders.  But there are a few extraordinary efforts conducted by groups like GATA, data compilers like the World Gold Council, and individuals such as Eric Sprott, who has done a remarkable job of attempting to derive the demand and supply data for gold over a longer period of time.

My goal here is to present what I like to think of as the bigger picture.  My own analysis of the global economy started in 1992 in a brief return to academics, and a natural interest as someone involved in international business. 

Starting with the Asia currency crisis of the 1990's and the collapse of the rouble, my thinking led me to assume that there was going to have to be a significant change in the structure of the global trading arrangements with regard to currencies.  Up to that point in 1999 I had no interest in gold whatsoever.  I discovered gold and silver in my process of thinking about other things, and everything I had anticipated seems to have been unfolding, with variations of course.

There is the little detail that the second credit bubble tied to housing has collapsed, and the powers that be will not take the banks down, but are going to try and reflate the financial paper, particularly bonds and equities, by devaluing the major developed currencies.  They are doing fairly well of hiding its effects, but at some point it is going to bite.  A lot of the shenanigans going around now are trying to position the public, weakest segments first, into picking up the tab.

Make of this what you will, but I think the facts are sound. I suggest you look at this, and then come to their own conclusions.  It may provide a framework with which to interpret events as they continue to unfold.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Brown's Bottom

The prices are higher, sans exubérance.

I have not seen the gold and silver crowd so gloomy since about 2000-2001 when the consensus was that gold was 'dead money.'

And of course we know that this marked the bottom of around $250 per ounce. 

I was not watching gold at the time. I was watching the big triple top in the dollar, and the antics in the equity markets, and wondering what was going on.

That time was marked by the selling of Britain's gold reserves allegedly to bail out the bullion banks it is said, which has since become known as Brown's Bottom.

The disconnect between reality and the financial markets seems quite vividly to resemble the tech and housing bubbles, when the markets were marked by a pronounced mispricing of risk, and rampant bad behavior and white collar theft of assets.  These things can go on for some time.

What does one call a negative bubble, a time when prices are pushed artificially lower, in order to use overvalued paper to pick up productive real assets on the cheap?

I thought Russia's proposal to the G20 for more transparency in the global raw materials markets was interesting, although the G20 have pulled the original press release from its web site.  Are we seeing some discord in the emerging global oligarchy?  One can only hope.

I could not help but notice that there was no press release, and not even one word, that came out of the meeting of the G20 in Istanbul over the 'reinventing of Bretton Woods.'    The principals who are in charge of communication will not even acknowledge emails.  But the G7 finance ministers called an emergency meeting for the following weekend, which also released very little news except that they were exploring ways to mitigate the corruption in the financial industry.

You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.

And some of those people have enough power to resist you when you inevitably resort to more than persuasive means. And this is the great flaw in Modern Monetary Theory, whether it is debt based or Treasury based.  People rarely govern themselves wisely, much less oversee the wealth of others when it can be so easily taken, especially when there is a lack of transparency and accountability.  It matter little how one rolls when the system itself is corrupt.

The banal chatter and triumphalism of the economists is quite discouraging, as once again they willfully miss what is happening all around them.   A few are raising their voices, somewhat timidly, but the most of them are all too willing to go along to get along, or to safely lose themselves in triviata of their fallen profession.

Brown's Bottom: Why Gordon Brown Sold England's Gold On the Cheap To Bail Out the Banks

Although this is nothing new, as I and several others have reported this several times in the past, with a very nice documentary on it having been done by Max Keiser, this is still a very important article for two reasons.

First, it lays out rather nicely the gold panic of 1999 and Brown's Bottom, which is the low in the price of gold achieved by the dumping of 400 tons of gold into the world market at an artificially low price by the British government.

This was done apparently to bail out a bullion bank or two who were enormously and irretrievably caught short of gold by the carry trade.

Second, it provides a good description of the gold carry trade. When gold is leased out by a central bank, the bullion bank takes possession of it and sells it into the market, and invests the proceeds. At the end of the lease period, the bullion bank buys the gold bank in the open market and returns it to the central bank.

Although the gold likely never changes physical location in this process, the claim or title to the gold does change hands, although that change in claim may not be adequately reflected in the public records.

Although the author does not mention it here, there is some thought that the 'sale' of the central bank gold at private auction is in reality a paper transaction between the central bank and the bullion banks who are short leased gold from the bank, and are unable to return it without causing a price disruption in the world market.

This is something which could be easily cleared up with the kind of disclosure one might think is owed the people when their national heritage items are sold away by the government.

And again, although it is not mentioned in the article, Britain's gold depletion to save the private banks is infamous only because of the clumsy manner in which it was conducted. It is thought that several other European central banks have gold listed on their books which they no longer have, because of this pernicious habit of lending out the gold on the cheap to the banks, only to have it sold off in the market, never to return, leaving only a stack of paper promises.

And finally, the most intractable problem which the bullion banks face today is that no central bank has a stockpile of silver left with which to bail them out. So they are caught playing a shell game, robbing Peter to pay Paul, and living in dread of the day of reckoning when their schemes will be exposed, and the markets will go into default on their naked short positions.

Telegraph UK
Revealed: why Gordon Brown sold Britain's gold at a knock-down price
By Thomas Pascoe
5 July 2012

A great deal of Gordon Brown’s economic strategy would strike a sane man as troubling. Not a great deal was mysterious. The orgy of consumption spending, frequent extensions of the cycle over which he would “borrow to invest”, proclamations of the “end of boom and bust”: these are part of the armoury of modern politicians, of all political hues.

One decision stands out as downright bizarre, however: the sale of the majority of Britain’s gold reserves for prices between $256 and $296 an ounce, only to watch it soar so far as $1,615 per ounce today.

When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things.

First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory.

Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply.

The auction system again frequently achieved a lower price than the equivalent fix price. The first auction saw an auction price of $10c less per ounce than was achieved at the morning fix. It also acted to depress the price of the afternoon fix which fell by nearly $4.

It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.

One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade.

In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.

Once control of the gold had been passed over, the bank would then immediately sell it for its full market value. The proceeds would be invested in an alternative product which was predicted to generate a better return over the period than gold which was enduring a spell of relative price stability, even decline.

At the end of the allotted period, the bank would sell its investment and use the proceeds to buy back the amount of gold it had originally borrowed. This gold would be returned to the lender. The borrowing bank would trouser the difference between the two prices.

This plan worked brilliantly when gold fell and the other asset – for the bank at the heart of this case, yen-backed securities – rose. When the prices moved the other way, the banks were in trouble.

This is what had happened on an enormous scale by early 1999. One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price.

Goldman Sachs, which is not understood to have been significantly short on gold itself, is rumoured to have approached the Treasury to explain the situation through its then head of commodities Gavyn Davies, later chairman of the BBC and married to Sue Nye who ran Brown’s private office.

Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.

I spoke with Peter Hambro, chairman of Petroplavosk and a leading figure in the London gold market, late last year and asked him about the rumours above.

“I think that Mr Brown found himself in a terrible position,” he said.

“He was facing a problem that was a world scale problem where a number of financial institutions had become voluntarily short of gold to the extent that it was threatening the stability of the financial system and it was obvious that something had to be done.”

While the market manipulation which occurred when the gold reserves were sold was not illegal as the abuse at Barclays may have been, the moral atmosphere in which it took place was identical.

The crash which began in 2007 and endures still was the result of an abdication of responsibility across the financial sector. This abdication ranged from the consumer whose thirst for goods pushed him beyond into grave debt to a government whose lust for popularity encouraged it to do the same.

Responsibility is evaded by all bar those on whose shoulders it ought to rest. The gold panic of 1999 was expensively paid for by the British public. The one thing politicians ought to have bought with that money was a lesson in the structural restraints which needed to be placed on banks now that the principle that they were ultimately public liabilities had been established.

It was a lesson which could have acted to restrain all players in the credit market boom of the 2000s. It was a lesson which nobody learnt.

What Is the Primary Trend In Gold?

The market maven Richard Russell often speaks about 'the primary trend' in certain assets and markets.

I speak of it as the fundamentals, and also the primary trend.

Someone asked, "What is the primary trend in gold?"

Here is the big picture chart with the trend marked in green.

The primary trend in gold is being driven by two major fundamentals:

1. The Central Banks were net sellers of gold for over twenty years. One can debate their motivations, but it did appear to be a coordinated effort to suppress the price, exemplified perhaps by the clumsy sale of the Bank of England's gold at what has become known as Brown's Bottom. The Banks have now become net buyers of gold, led by the BRICs and popular movements by individuals to safeguard their wealth from the changes in the fiat money systems.

2. The US Dollar Reserve currency regime, also known as 'Bretton Woods II,' is changing. What exactly it is changing into cannot yet be seen with certainty, but it does appear likely that it will be a basket of currencies and gold, and perhaps silver. The Anglo-American banking cartel is fighting this change, as it affects the basis of their power. They are seeking to control it and the evolving nature of the global money supply.

Change is coming slowly, but surely.

"All things flow, nothing abides. You cannot step into the same river twice, for the waters are continually flowing on. Nothing is permanent except change."

Heraclitus

If you wish to find the unchanging, the perfectly complete and sufficient in itself, do not seek it in this world, but in something much greater than yourself, your money, and your diversions from the face of the eternal.

Brown's Bottom: Was This a Bailout of the Multinational Bullion Banks Involving the NY Fed?

The bottom referred to, of course, is the bottom of the gold price, and the sale of approximately 400 tonnes of the UK's gold at the bottom of the market.

The sticky issue is not so much the actual sale itself, but the method under which the sale was taken and who benefited.
There has been widespread speculation that the manner in which the sale was conducted and announced was in support of the nascent euro, which Brown favored. This does not seem to hold together however.

There is also a credible speculation that the sale was designed to benefit a few of the London based bullion banks which were heavily short the precious metals, and were looking for a push down in price and a boost in supply to cover their positions and avoid a default. The unlikely names mentioned were AIG, which was trading heavily in precious metals, and the House of Rothschild. The terms of the bailout was that once their positions were covered, they were to leave the LBMA, the largest physical bullion market in the world.

"LONDON, June 1, 2004 (Reuters) -- AIG International Ltd., part of American International Group Inc., will no longer be a London Bullion Market Association (LBMA) market maker in gold and silver, the LBMA said on Tuesday."

LONDON, April 14, 2004 (Reuters) — NM Rothschild & Sons Ltd., the London-based unit of investment bank Rothschild, will withdraw from trading commodities, including gold, in London as it reviews its operations, it said on Wednesday.

The manner in which the sale was conducted, and the speed at which it was undertaken, without consultation of the Bank of England, made many of the City of London's financiers a bit uneasy. The sale as bailout was given impetus by this revelation which surfaced some years later.

"In front of 3 witnesses, Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the Washington Agreement gold price explosion in Sept/Oct 1999. Mr. George said "We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.
Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

So it appears that long before AIG crafted its enormous positions in CDS with the likes of Goldman Sachs, requiring a bailout by young Tim and the NY Fed, it may have been engaging in short positions in the metals markets, especially silver, and may have required a bailout by England to preserve the integrity of the LBMA.

There are also some who think that the gold sale provided a front-running opportunity for that most rapaciously well-connected of Wall Street Banks, Goldman Sachs. Gold, Goldman, and Gordon

This is the undercurrent of the inquiries in England today, and the controversy surrounding Brown's Bottom. There is thought that the information disclosed on the London sales will be heavily redacted to protect the involvement of the US Federal Reserve bank, which is said to have engaged in gold swaps to further depress the price, in conjunction with a major producer and a NY based money center bank. The people of the UK deserve answers.
.

UK Telegraph
Explain why you sold Britain's gold, Gordon Brown told
By Holly Watt and Robert Winnett11:55AM GMT 24 Mar 2010

Gordon Brown has been ordered to release information before the general election about his controversial decision to sell Britain's gold reserves.

The decision to sell the gold – taken by Mr Brown when he was Chancellor – is regarded as one of the Treasury's worst financial mistakes and has cost taxpayers almost £7 billion.

Mr Brown and the Treasury have repeatedly refused to disclose information about the gold sale amid allegations that warnings were ignored.

Following a series of freedom of information requests from The Daily Telegraph over the past four years, the Information Commissioner has ordered the Treasury to release some details. The Treasury must publish the information demanded within 35 calendar days – by the end of April.

The sale is expected to be become a major election issue, casting light on Mr Brown's decisions while at the Treasury.

Last night, George Osborne, the shadow chancellor, demanded that the information was published immediately. "Gordon Brown's decision to sell off our gold reserves at the bottom of the market cost the British taxpayer billions of pounds," he said. "It was one of the worst economic judgements ever made by a chancellor.

"The British public have a right to know what happened and why so much of their money was lost. The documents should be published immediately."

Between 1999 and 2002, Mr Brown ordered the sale of almost 400 tons of the gold reserves when the price was at a 20-year low. Since then, the price has more than quadrupled, meaning the decision cost taxpayers an estimated £7 billion, according to Mike Warburton of the accountants Grant Thornton.

It is understood that Mr Brown pushed ahead with the sale despite serious misgivings at the Bank of England. It is not thought that senior Bank experts were even consulted about the decision, which was driven through by a small group of senior Treasury aides close to Mr Brown.

The Treasury has been officially censured by the Information Commissioner over its attempts to block the release of information about the gold sales.

The Information Commissioner's decision itself is set to become the subject of criticism. The commissioner has taken four years to rule on the release of the documents, despite intense political and public interest in the sales. Officials have missed a series of their own deadlines to order the information's release, which will now prevent a proper parliamentary analysis of the disclosures.

It can also be disclosed that the commissioner has held a series of private meetings with the Treasury and has agreed for much of the paperwork to remain hidden from the public. The Treasury was allowed to review the decision notice when it was in draft form – and may have been permitted to make numerous changes.

In the official notice, the Information Commissioner makes it clear that only a "limited" release of information has been ordered.

Ed Balls, who is now the Schools Secretary, Ed Miliband, now the Climate Change Secretary, and Baroness Vadera, another former minister, were all close aides to the chancellor during the relevant period.

If the information is not released by the end of April, the Treasury will be in "contempt of court" and will face legal action. A spokesman said last night that the Treasury was not preparing to appeal against the ruling.

How auctions cost taxpayer £7bn

The price of gold has quadrupled since Gordon Brown sold more than half of Britain’s reserves.

The Treasury pre-announced its plans to sell 395 tons of the 715 tons held by the Bank of England, which caused prices to fall.

The bullion was sold in 17 auctions between 1999 and 2002, with dealers paying between $256 and $296 an ounce. Since then, the price has increased rapidly. Yesterday, it stood at $1,100 an ounce.

The taxpayer lost an estimated £7 billion, twice the amount lost when Britain left the Exchange Rate Mechanism in 1992.

The proceeds from the sales were invested in dollars, euros and yen. In recent years, most other countries have begun buying gold again in large quantities.

Max Keiser Reports

Gordon Brown's Bottom and the Sale of England's Gold

Unrelated (perhaps not) to the English gold sale is this revelation about the gold reserves of Germany at around 7:25 in the tape .

This is of particular interest because Bundesbank has repeatedly denied the rumoured gold swaps with the the US Exchange Stabilization Fund (ESF) for 1,700 tons of gold, being held at West Point, NY with the designation "custodial gold."

Has the Bundesbank, like the Bank of England, sold (or lent if you will) half of its national gold reserves?

The other side of this rumour is that Bundesbank desperately wishes a 400 ton IMF gold sale to help it recover at least some portion of the 1,700 tonnes of gold which it has lent out to the bullion banks, who subsequently sold it into the market.

Why does it matter? It matters because of the lack of transparency of various Central Banks with regard to the size and timing of their gold sales, and their impact on the markets.

Its never really the initial act that is performed; it is the subsequent cover up and dissembling that brings down careers and governments.

"The most fascinating thing that I learned is that all the gold 'in Germany' is in New York."