Egon von Greyerz: The Dark Years are here

The Dark Years are here

by Egon von Greyerz – Matterhorn Asset Management

"In this newsletter we will outline what is likely to be the devastating effect of the credit bubbles, government money printing and of the disastrous actions that governments are taking. Starting in the next 6 months and culminating in 2011-12 the world will experience a series of tumultuous events which will be life changing for most people in the world. But 2011-12 will not be the beginning of an upturn in the world economy but instead the start of a long period of economic, political and social upheaval that could last for a couple of decades..."

To read this no-more-half-truths newsletter please click HERE

Antal E. Fekete: An open letter to Paul Volcker

REMOBILIZE GOLD TO SAVE THE WORLD ECONOMY!

An open letter to Paul Volcker, Chairman of the Board of Governors of the Federal Reserve, 1979-1987; Chairman of President Obama’s Economic Recovery Advisory Board

Antal E. Fekete

San Francisco School of Economics

E-mail: aefekete@hotmail.com

Dear Paul:

In 35 years our paths have crossed for the second time. In 1974/75 you and I were Visiting Fellows at Princeton University. Now, in 2009, both you and I are attending the Santa Colomba Conference on the present debt crisis at the invitation of Bob Mundell.

In 1975 you conducted a seminar on the international monetary system and invited me to contribute a paper on gold which I did. Those were halcyon days by comparison. The United States, after the turbulence of 1971, successfully consolidated the international position of the dollar and could confidently lift the 42-year old ban on the ownership and trading in gold.

On December 31, 1974, trading of gold futures contracts started in New York and Chicago. It showed a robust contango at full carrying charge, that is to say, the gold basis (the spread between the futures and the cash price) was at its peak. It indicated that monetary gold was available in great abundance to meet any demand for any reason. It showed that the gold futures markets could serve as the fulcrum in seeking out the equilibrium between the supply of and demand for gold. They could act as a safety valve, releasing occasional pressures that, in the absence of paper gold, may be a threat to the monetary system. It looked as if the gold problem has been solved for once and all.

But as I feared, and as the intervening 35 years have proved, rather than moving towards equilibrium we have been constantly moving ever farther away from it, as measured by the gold basis. The secular vanishing of the gold basis is a most ominous danger signal. It indicates that monetary gold is increasingly unavailable, and in case of a crisis it can no longer be relied upon to come to the rescue. Basis started out at 100 percent of the prevailing interest rate, but has been steadily eroding all the way to zero percent today. Permanent gold backwardation (negative gold basis) is staring us in the face. The gold basis is trying to tell you something. It heralds the greatest monetary crisis of all times. It warns about the possible collapse of the international monetary and payments system.

Let me explain. Gold is the only ultimate extinguisher of debt. Other extinguishers do, of course, exist but they are not ultimate in that they have a counterpart in the liability column of the balance sheet of someone else. Gold has no such liability attached to it. Gold is where the buck stops. It is this property that makes gold unique as a financial asset. Historically, gold discharged its function as the ultimate extinguisher of debt through the gold clauses written into the bonds of the U.S. government before 1933. Gold could also discharge this function, albeit rather imperfectly, under the gold exchange standard of 1934 with gold redeemability limited to foreign holders. Still more imperfect was the system of fluctuating gold prices introduced in 1971, thanks to the availability of paper gold. Imperfect as though these stratagems were, they served as a pacifier to the bond market. But as the threat of permanent backwardation indicates, all offers to put monetary gold at the disposal of the international monetary system could be abruptly withdrawn. In that event there would be no ultimate extinguisher of debt. The world is totally unprepared for such a momentous development. I ask you: are there contingency plans in the U.S. Treasury and in the Federal Reserve what to do if backwardation makes monetary gold unavailable for the indirect retirement of debt?

The message to debt holders would be: sauve qui peut. There would be a rush to the exit doors and people would trample one another to death in trying to get out. The debt crisis of 2008 was a dress rehearsal. It gave the world a foretaste. This crisis is a gold crisis. It is a crisis indicating the threat of a shortage of the ultimate extinguisher of debt, without which our runaway debt tower is doomed. When it topples, it will bury the world economy under the rubble, as the Twin Towers buried the people working inside in 2001.

All kinds of ad hoc explanations have been offered for the debt crisis. But the real explanation is that under the threat of gold backwardation creditors are scrambling for liquidity. There will be no recovery unless provision is made for the orderly retirement of debt through a mechanism using gold as the ultimate extinguisher. The alternative is a Great Depression worse than that of the 1930’s. To understand this we have only to contemplate the shock to the world if it was revealed that the debt of the U.S. government was in fact irredeemable. The Emperor is naked. As long as bonds carry a gold clause, or the bond market is supported by the trading of paper gold, bonds are deemed redeemable. But once permanent backwardation makes gold unavailable, debt becomes irredeemable in the eyes of the bondholders. Paying U.S. bonds at maturity in F.R. notes does not establish redeemability. The latter is just evidence of debt secured by the former as collateral revealing that bonds are not really redeemable at all. An interest-bearing bond is replaced by a non-interest-bearing bond, that is, by an inferior instrument. All you do is shuffle various forms of irredeemable debt. When the world wakes up to this prestidigitation, the international monetary system will not be able to survive the shock-waves. The chaos that will engulf the world is appalling.

The solution is relatively simple. The world’s monetary gold should be remobilized. This can be accomplished by opening the U.S. Mint to the free and unlimited coinage of gold. There should be no attempt to fix, cap, or otherwise control the dollar price of gold. The gold coins of the United States ought to be made available to bondholders in order to provide for an orderly retirement of debt, if that is what the bondholders want. When they become convinced that this avenue is open to them through the unlimited availability of gold coins of the realm, the scrambling for liquidity will peter out and stability return. If other great nations wanted to join opening their Mints to the free and unlimited coinage of gold, so much the better. It should not be beyond the power and the wit of the U.S. government to rein in this crisis and make a decisive move in the direction of full recovery through opening the U.S. Mint to gold, as demanded by the Constitution.

Gold is a great world resource. It would be foolish if, for parochial or ideological reasons, we failed to enlist it in the cause of economic development — even in the absence of a great crisis. But given the present crisis situation, remobilization of gold is imperative.

Yours very sincerely,

Antal E. Fekete

Santa Colomba, July 10, 2009.

Boys will be "boys"...

Causes and effects

Hugo Salinas Price

Jul 18, 2009

Let us imagine that in August of 1971 the governments of the world decreed that as of that date all vehicles of the world should run on water rather than on gasoline. Within 48 hours, at the most, all vehicular traffic in the world would have ceased.

The cause - an absurd decree - would have produced disastrous effects immediately.

In human affairs, which are much more complex, it generally happens that bad decisions do not produce all their bad effects immediately, but only in the course of time.

Today the world is struggling with an unprecedented economic collapse, caused by a mistaken decision taken almost 38 years ago.

The distance of 38 years in time, in a world which is undergoing change at such a rapid pace as ours, is a great distance. Those who can remember the bad decision of August 15, 1971, and who can recall how the world worked before that date, are today at least 63 years of age. They are already either retired or about to retire from active life.

For men who are active today, 1971 is a date that is beyond the horizon of their interest. For those men, what they have seen in their lives seems to them completely normal; they think that life has always been as they have known it. Why should it not continue to be so?

Perhaps this is the reason that all we read in magazines and newspapers and all that we see on TV never mentions the mistaken decision taken on August 15, 1971. Both those who govern and those who are governed cannot establish an intellectual link between a cause,which happened either before they were born or when they were still wearing short pants, and an effect, the present global economic disaster.

What happened on that fateful day?

What happened was the equivalent of decreeing that cars should run on water: for the first time in history, the whole world began using fictitious money, papers that simulated real money. This happened when President Nixon of the United States decreed that as of that date, the dollar - the central currency of the world on which rested all the other currencies - ceased to be redeemable through the delivery of one ounce of gold for each $35 dollars which central banks of the world might present for collection in gold.

The effect of this event has taken 38 years to be felt in all its enormity.

Nature does not care if human beings think or do not think. Nature does not care if humans take note of causes and effects, or if they ignore them. Nature does not care if they are wise or foolish: Nature is pitiless about collecting its due. If you do not sow, you will go hungry. Academic discussions do not influence the inexorable operation of the Laws of Nature.

Cars do not run on water, they run on gasoline. Economies - civilizations themselves - cannot function on simulated money, money that is fraudulent, fictitious and imaginary (in the case of bank money).

Tacitus, the Roman historian, wrote: "The man who is ignorant of that which happened before he was born will always remain a boy."

Only boys, and nothing more, are the great pundits of economics, the great directors of national economies, the great presidents and prime ministers of the Powers, who cannot or will not recognize that everything that has been built in the world since 1971 has had as a foundation nothing more than quicksand.

As long as the use of real money - either gold, or both gold and silver money - is not reestablished in the world, the civilization which we have known is in danger of disappearing.

At the recent meeting of the Heads of State of the "Group of Eight" (G-8) the President of Russia, Dmitry Medvedev, presented a coin which he said was to be the new international currency. He is in the photo below. Note that he is holding a gold coin.

Therefore we have hope that at last, a true Statesman will take the historic decision to reinstate gold as money. The adjustment of the world to this measure will be painful, but the return to real money is indispensable if our world is to endure.

The alternative is too terrible to contemplate

July 2009
Hugo Salinas Price, President
Asociación Cívica Mexicana Pro Plata, A.C.
Mexico City
email: plata@plata.com.mx
website: http://www.plata.com.mx

J. Rubino: A Tremendous Secret

In his new essay, "A Tremendous Secret," financial writer John A. Rubino, co-author with GoldMoney's James Turk of "The Coming Collapse of the Dollar," foresees an imminent worldwide currency revaluation. This revaluation, Rubino thinks, will correct the biggest financial imbalance of all, the ratio between the value of the world gold supply and the supply of fiat money.

Such a prospect is not quite a secret to GATA supporters. They may remember that the British economist Peter Millar contemplated in great detail such a worldwide currency valuation relative to gold in the May 2006 edition of his Valu-Trac Investment Research newsletter, to which GATA has called attention from time to time:

http://www.gata.org/node/4843

Such revaluations, as Rubino notes, are not done gradually but overnight, so that no one can trade against them and so there is no chaotic escape from the new currency system after it is imposed.

A clue in support of Rubino's speculation may be found in the communique issued last week by the G8 conference in Italy, which said: "We will refrain from competitive devaluations of our currencies. ..."

See:

http://finance.yahoo.com/news/Sarkozy-calls-for-talks-on-apf-1742717360.html?x=0&.v=3

But of course the G8 pledge against "competitive devaluations" was not a pledge against coordinated and cooperative devaluations.

***

"A Tremendous Secret"

7/14/2009

by John Rubino

Last week FOFOA posted a long article on the coming devaluation of the dollar and how it might play out. He thinks it will be sprung on us without warning -- sooner rather than later:

The point is that during times of transition, surprises are always the order of the day. We have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later. A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks. Frankly, I'm not buying it. Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin. In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be. Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic. The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset? This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

The idea that we’ll wake up one day to discover that the international monetary system has been “reset” and that our dollar/euro/yen savings have taken a huge hit (while the local currency value of our gold and silver soar) reminds me of an exchange in The Virgin’s Lover, by Philippa Gregory (yes, I like historical romances). The year is 1560 and the young queen Elizabeth rules a country nearly bankrupted by a Spanish alliance that produced only war and debt. The English treasury has been systemically debasing its coins by clipping and shaving them, so that their face value vastly exceeds their gold content.

Elizabeth’s advisors have decided that the monetary system needs to be reset, and have been importing borrowed gold. On the appointed day they intend to call in the circulating coins and replace them -- by weight rather than face value -- with newly-minted coins. This devaluation will transfer citizens’ wealth to the government, impoverishing the former and enriching the latter. And if all goes as planned it will come as a surprise to most of the country.

But Elizabeth’s lover, Sir Robert Dudley, learns of the plan and is not happy:

Elizabeth turned and smiled at him and took his hand and held it to her cheek. “My Robert.” “Tell me, my pretty love,” Robert said quietly. “Why are you bringing in boatloads of Spanish gold from Antwerp, and how are you paying for it all?” She gave a little gasp and the color went from her face, the smile from her eyes. “Oh,” she said. “That.” “Yes,” he replied evenly. “That. Don’t you think you had better tell me what is going on?” “How did you find out? It is supposed to be a great secret.” “Never mind,” he said. “But I am sorry to learn that you still keep secrets from me, after your promises.” “I was going to tell you,” she said at once. “It is just that Scotland has driven everything from my mind.” “I am sure,” he sad coldly. “For if you had continued with your forgetfulness till the day that you called in the old coin and issued new, I would have been left with a small treasure room filled with dross, would I not? And left at a substantial loss, would I not? Was it your intention that I should suffer?” Elizabeth flushed. “I didn’t know you were storing small coin.” “I have lands; my tenants do not pay their rents in bullion, alas. I have trading debts which are paid in small coin. I have chests and chests of pennies and farthings. Do tell me what I may get for them?” “A little more than their weight,” she said in a very small voice. “Not their face value?” She shook her head in silence. “We are calling in the coins and issuing new,” she said. “It is Gresham’s plan -- you know of it yourself. We have to make the coins anew.” Robert let go of her hand and walked to the center of the room while she sat and watched him wondering what he would do. She realized that the sinking feeling in her belly was apprehension. For the first time in her life she was afraid what a man was thinking of her -- not for policy but for love. “Robert, don’t be angry with me. I didn’t mean to disadvantage you,” she said and heard the weakness in her own voice. “I know,” he said shortly. “It is partly that which amazes me. Did you not think that this would cost me money?” She gasped. “I only thought it had to be a secret, a tremendous secret, or everyone will trade among themselves and the coins will be worse and worse regarded,” she said quickly. “It is an awful thing, Robert, to know that people think that your very coins are next to worthless.”

Now, at least three things can be gleaned from all this:

1) FOFOA is right that the world’s governments stand to gain most from asurprise devaluation, since it will prevent us commoners from preemptively swapping our paper for real things, setting off an inflation that would make an even deeper devaluation necessary.

There's a rumor that I was reluctant to mention when it first started circulating, because it seemed a little too far down the tin foil hat / black helicopter road. But in this context it seems pretty reasonable. According to widely-followed newsletter writers Harry Schultz and Bob Chapman:

”Some US embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of US cash to purchase currencies from those govts, quietly. But not £’s. Inside the State Dept there is a sense of sadness & foreboding that ‘something’ is about to happen, unknown re a date—just that within 180 days, but could be 120-150 days.” Bob quotes another source that “Panasonic has told their people to be back in Japan by Sept 09.” Harry Schultz’s remarkable take on the situation: “My HSL suspicion is that the elite plan another FDR style “bank holiday” of indefinite length, perhaps very soon, to let the insiders sort-out the bank mess which is getting more out of their control every day. Insiders want/need to impose new bank rules. Widespread nationalization could result, already under way. It could also lead to a formal US$ devaluation, as FDR did by revaluing gold (& then confiscating it). But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies (which seems more likely)—& much in the news recently. Any kind of bank holiday will push the US$ lower, which may be a bonus benefit to their ongoing scenario of letting the $ fall. Such a fall would get the devaluation they want without having to declare it. In sum, the insiders want more bank & system control, fewer banks & a lower US$. A bank holiday would suit all their needs."

2) The details of the plan will spread within an ever-widening circle of banking and government folks who, like Sir Robert, will demand the chance to profit from the insider trade of the century. Because such a secret is impossible to contain for long, once in place the plan has to be executed as soon as possible.

3) If the rest of us play it right, we’ll be able to at least protect ourselves, and maybe even make out (in percentage terms at least) like Goldman Sachs no doubt will.

Harry Shultz: “Obviously, U can’t open safeboxes if the banks are closed, so plan accordingly. During the FDR bank holiday, thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages.”

FOFOA: “It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.”

BUY OFFSHORE GOLD AND SILVER AT GOLDMONEY

The right to bear arms

Marc Faber interviewed recommends gold/ silver

Marc Faber speaking to Bloomberg from his home base in Thailand recommends diversifying from US dollar assets into gold, silver and platinum....

Latter days Alchemists

GATA board member Adrian Douglas discloses in the report below, titled "The Alchemists", that the New York and Tokyo commodity exchanges have been permitting their gold futures contracts to be settled not in real metal but in shares of gold exchange-traded funds (ETFs). This essentially allows the gold shorts (and the exchanges themselves, which guarantee futures contracts) to transfer their obligations to third parties that may not have the metal they claim to have and that, in any case, are operated by the investment banks running major short positions in gold.

Thus it is likely that the paper claims to the world's supply of gold are greater than even GATA has suspected -- that the gold supply is even more oversubscribed and that "paper gold" is being created at an ever more frantic rate to suppress gold's price.

The ability to offload futures contract gold obligations to the ETFs could become the principal mechanism of the gold price suppression scheme. GATA asks its supporters to call Douglas' report to the attention of financial journalists, market regulators, and elected officials everywhere.

CHRIS POWELL, Secretary/Treasurer

Gold Anti-Trust Action Committee Inc.

The Alchemists

By Adrian Douglas
Saturday, July 11, 2009

In the Middle Ages alchemists toiled in vain to transmute lead into gold. One wonders why they used such an expensive starting material, such as lead, when modern alchemists in the gold world have succeeded in transmuting paper into gold. This article reveals the anatomy of a scam that has been perpetrated on investors and goes a long way to explain and tie together developments in the precious metals markets in recent years.

As many readers may know, I have recently been reporting on how delivery notices at the COMEX cannot be reconciled with movements of metals from and into the warehouse. Clearly these are not going to match on a daily basis, just as orders into a factory will not match shipments out on any given day, as there is a time lag. But when averaged over a month, the "flow" of metal inventory should be comparable to the delivery notices issued. This is just basic accounting. But I have observed that reconciliation is almost impossible with the COMEX data. The only explanation I could think of is that settlement of contracts must be bypassing the warehouse. But how could this be possible, as I thought all contracts had to be delivered via a COMEX registered warehouse?

The COMEX states:

- - - -

Delivery:

Gold delivered against the futures contract must bear a serial number and identifying stamp of a refiner approved and listed by the Exchange. Delivery must be made from a depository licensed by the Exchange."

This seems unequivocal until you find this exception:

Exchange of Futures for Physicals (EFP)

The buyer or seller may exchange a futures position for a physical position of equal quantity. EFPs may be used to either initiate or liquidate a futures position.

- - - -

The COMEX trading rulebook clarifies further:

- - - -

104.36 Exchange of Futures for, or in Connection with, Product (Physical)

(A) An exchange of futures for, or in connection with, product (EFP) consists of two discrete, but related, transactions; a cash transaction and a futures transaction. At the time such transaction is effected, the buyer and seller of the futures must be the seller and the buyer of a quantity of the physical product covered by this Section. The quantity of physical product must be approximately equivalent to the quantity covered by the futures contract.

- - - -

So what this means is that contracts can essentially be settled without going through the COMEX warehouse. Futures contracts and a physical commodity equivalent can be exchanged outside of the exchange and an EFP form can be filed to the clearing department at the COMEX. What's more, the physical commodity doesn't have to meet the specification of the COMEX Gold Contract of being a 100 troy ounce bar or three 1Kg bars of .995 fineness.

So what can be delivered as the physical gold commodity?

This is where it gets very interesting. On February 18, 2005, the NYMEX, parent of the COMEX, issued this announcement:

- - - -

http://www.cftc.gov/files/submissions/rules/selfcertifications/2005/rul0...

Exchange Rule 104.36, which governs exchange of futures for physicals ('EFP') transactions on the COMEX Division, refers to a 'physical commodity' as one of the required components of an EFP transaction but also indicates that the physical commodity need only be substantially the economic equivalent of the futures contract being exchanged.

The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds ('ETF') shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied.

Thus, acceptable gold-backed and exchange-traded ETF funds include, but are not limited to, the iSharesCOMEX Gold Trust (ticker: IAU), which began trading on the American Stock Exchange on January 28, 2005.

The trust is an exchange-traded fund that provides a means of obtaining a level of participation in the gold market through the securities market. The trust shares are intended to constitute a means of making an investment similar to an investment in gold. Each trust share represents a fractional undivided beneficial interest in the trust's net assets which consist primarily of gold held by a custodian on behalf of the trust. The shares of that trust are expected to reflect the price of gold less the trust's expenses and liabilities.

- - - -

So the gold ETF with the symbol IAU started trading on January 28, 2005, and three short weeks later the shares of IAU became equivalent to real physical gold in the eyes of the COMEX for delivery against futures contracts in an EFP transaction! I

If that doesn't blow your socks off, I don't know what will.

Also note that the ETF mentioned is a COMEX product! How convenient!

Where are the regulators? This ETF is not equivalent to gold. Note the description: "Each trust share represents a fractional undivided beneficial interest in the trust's net assets which consist primarily of gold."

All that is being guaranteed is that each share is a fraction of the ETF assets. The net assets could be 1 oz of gold while the face value of the total shares sold could be 100 million ounces!

The notice does not restrict which gold ETFs are eligible, so clearly the infamous GLD is also eligible to be considered as good as physical gold in an EFP transaction.

Right from the inception of the gold ETFs GLD and SLV, the Gold Anti-Trust Action Committee has deduced from studies of the ETF prospectuses that these funds very likely do not hold gold and silver to fully back the issued shares because the prospectuses don't categorically require it. (See footnotes 1 and 2.) In fact, the ETFs may have no gold or silver at all.

What seemed bizarre to GATA at the time was that the two mega-short anti-gold investment banks, JPMorgan and HSBC, would be involved in the launch and operation of precious metal investments that, on the face of it, would create huge investor demand for the very metals in which the banks hold massive and clearly manipulative concentrated short positions.

Now all becomes clear. The system is the ultimate alchemy. If ETF shares are NOT backed by gold but are accepted by the COMEX as equivalent to physical gold ... presto! You have turned paper into gold -- and paper is a lot cheaper than lead.

A futures market is supposed to provide price discovery for a commodity. In the gold market this notion has been hijacked because settlement can be made with a derivative instrument, such as an unbacked or partially backed ETF share. If that derivative instrument is not backed by gold on a 1:1 basis the scheme allows an artificial apparent increase in the supply of gold and so distorting price discovery toward lower prices.

Such a scam would be in grave danger of becoming exposed if anyone knew the true inventory condition of the vaults of the ETFs. That problem is easily solved by having HSBC be the custodian of GLD and JPMorgan be the custodian of SLV.

I have not found anywhere that COMEX accepts ETFs as an equivalent to physical silver for an EFP transaction, which probably explains why silver warehouse movements are much larger than those of gold, and perhaps may indicate that physical silver is the cartel's Achilles heel.

We have all wondered how GLD could have amassed a stunning 1,100 tons of gold in less than five years without the gold price exploding. This represents buying 10 percent of all global gold output each year. What's more, in the last nine months the ETF holdings almost doubled, adding approximately 500 tonnes or 23 percent of annual global production. And this when the signatories to the second Washington Agreement on Gold have reduced their gold sales to a trickle, from 500 tonnes per year. If the GLD shares are unbacked or only partially backed by gold, the alleged 1,100-tonnes gold holding would be easy to achieve with just the use of a printing press for the share certificates.

In looking at COMEX reports the EFP transactions are reported under "Other Volume." This category is huge compared to delivery notices. For example, on July 8, 2009, the gold price fell by $20. Looking at the relevant COMEX report --

http://www.cmegroup.com/trading/energy-metals/files/cmxopint070809.pdf

-- on Page 4 "Other Volume" is 9,540 contracts or 954,000 ounces, while the much more visible delivery notices were only 17 contracts or 1,700 ounces! Judging from many reports the "Other Volume" category is orders of magnitude larger than the delivery notices.

What I don't know is how many of these trades are settled with the COMEX-approved gold equivalent ETFs or even if any are. I have sent an email to the COMEX to ask them. I won't hold my breath for a reply. My guess is that a lot of EFPs are settled this way, which would account in part for the meteoric issue of GLD shares. But the COMEX should be transparent; it should be required to publish exactly what is being traded as "Other Volume." In fact if the COMEX wants to be above suspicion it should insist in its rules that EFPs must be settled with gold that meets exactly the COMEX gold contract specification. The EFP then would facilitate delivery instead of facilitating a change in delivery obligations.

Why was it necessary to introduce a mechanism to exchange ETF shares in lieu of physical gold? Where there is smoke there is fire.

What I don't know is how many of these trades are settled with the COMEX-approved gold equivalent ETFs. I have sent an email to the COMEX to ask them. I won't hold my breath for a reply. My guess is that a lot of EFPs are settled this way, which would account in part for the meteoric issue of GLD shares.

Adding credence to this supposition is that GLD has gained wide acceptance with mutual funds, pension funds, and university endowment funds. Many sophisticated investors believe ETFs to be equivalent to investing in bullion. This makes this fiat paper bullion scam easy to perpetrate.

It would appear that the COMEX gold warehouse is merely a window dressing displaying an almost static 2.5 million ounces of dealer-owned gold inventory. But it would appear the vast majority of settlement occurs out of the average investor's view AND, therefore, out of the view of the regulators.

This means that the COMEX is not what it seems. Delivery for an EFP only needs to be "substantially the economic equivalent" of the deliverable commodity! A default could occur at any time if this sorcery of swapping paper for paper suffered a serious setback.

The members of the Gold Cartel must be very proud of themselves for succeeding where the ancient alchemists failed. In fact, they are so proud they decided they didn't need to limit the scam to the COMEX. They have implemented it on the Tokyo Commodity Exchange too.

On October 29, 2008, the TOCOM made the following announcement:

- - - -

Based on the Memorandum of Understanding signed in January this year, The Tokyo Commodity Exchange (TOCOM) and Tokyo Stock Exchange (TSE) have launched 'Inter-market Cooperation Workshop' in efforts to improve convenience for participants of both markets, and studied to reinforce cooperation between the commodity market and the stock market.

In light of the study at the workshop, TOCOM has added a 'physically backed commodity ETF' as a possible physical for EFP (Exchange of Futures for Physicals) transactions at the exchange, which allows seller and the buyer, who holds agreement for physical transactions, to conclude the contracts in the commodity futures market without continuous trading of physicals.

Therefore, the SPDR Gold Shares, physically backed commodity ETF listed on the TSE, which has a correlation with the gold spot price, can now be used as a physical for EFP transaction on TOCOM's gold market.

Thanks to this new arrangement, it is expected that the link between TSE's SPDR Gold Shares market and the TOCOM gold market will be strengthened and that the price reliability, as well as the liquidity of both markets, will be enhanced.

For inquiries about this news release, please contact:

Planning Department, The Tokyo Commodity Exchange

http://www.tocom.or.jp/news/2008/20081105-1.html

- - - -

Notice the comment that the "liquidity of both markets will be enhanced." There can be little doubt about that! They can print as many ETF shares as they want and they can then settle as many EFPs as they want ... and guess what happens to the price of gold with such an apparent increase in liquidity. Yes, it will be suppressed. As they said in the release, "the price reliability will be enhanced."

Now that reminds me of Alan Greenspan, who said, "Central Banks stand ready to lease gold in increasing quantities should the price rise." But why get the central banks to lease the real stuff when an ETF can print up an IOU that the unsuspecting investor will accept to be as good as gold?

Does this mean that the alchemists of the Gold Cartel have discovered the Elixir of Life for their gold suppression scheme so that it will go on forever?

No, absolutely not. Faith in anything paper is going out of fashion. California is shortly going to discover that people don't like IOUs. Central banks outside of the G7 countries are buying gold, and I am sure they know about this alchemy. I doubt that the Chinese will accept GLD shares for settlement of futures contracts.

If you want an investment in bullion, then make sure you have an investment in bullion. In my opinion what I have presented here, and what other analysts have written, indicate that GLD and SLV are not investments in bullion. They are mere IOUs in bullion. Take physical delivery of gold and silver from the COMEX. They have only 2.5 million ounces of the real stuff in the gold inventory. That is a paltry $2.3 billion at today's price.

The Gold Cartel is desperate to suppress gold and keep the dream of a "strong dollar" alive along with maintaining low interest rates by using a mechanism described by Professors Summers and Barsky in their research paper "Gibson's Paradox and the Gold Standard." The London Gold Pool used real gold to try to suppress the gold market, and it failed. The paper IOU is going to be even less successful. Imagine what will happen to the gold price when the holders of the paper IOUs go looking for physical gold instead. The Gold Cartel has built a dam on the river of physical gold demand, thinking that it is clever enough to defy the laws of supply and demand. Wait until the dam bursts to experience gold fever such has never been seen before.

Buy real gold and silver before the dam bursts!

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References

[1] "The Paper Game" by James Turk

http://www.financialsense.com/editorials/turk/2007/0305.html

[2] "Unanswered Questions about the Silver ETF" by James Turk

http://goldismoney.info/forums/showthread.php?t=125607

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Adrian Douglas is a market analyst and CEO of the Market Force Analysis newsletter (http://www.marketforceanalysis.com). He graduated in 1980 from Cambridge University, England, in natural sciences. For 20 years he worked in the oil and gas industry, where he held senior management positions in marketing and sales. He now runs his own consultancy and has been contracted by the largest companies in the oilfield services sector. His study of enterprise pricing and commercial markets led to his interest in the market pricing mechanisms of financial assets. As a result he developed a unique algorithm and methodology for analyzing financial futures markets and in particular for identifying appropriate entry and exit points. The technique has been named "market force analysis" and two patents have been filed on his techniques. He has a particular interest in the precious metals markets and serves on the Board of Directors of the Gold Anti-Trust Action Committee.

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Orlandini talks about the "D" word....

Now here's a piece of what I call straightforward down-to-earth-one-plus-one-makes-two rational economic reasoning. It's from the latest Dow Theory Analysis by Enrico Orlandini:

".. I’ve talked a lot about deflation, so let me give you a simple explanation of how deflation works.

The Fed has been trying to grease the wheels of the economy with liquidity, or so it says, in an effort to get Americans back into stores and spending money. Yet every month 500,000 more Americans are unemployed. The current “official” rate is 9.5% and is projected to surpass 10% before the end of the year. The last thing you are going to do if you are afraid of losing your job is spend money on worthless crap, when you may need it to survive. You will service your debt for as long as you can, spend only on the basics, and save what you can. That’s why the savings rate has gone from 0% to 6% in less than a year. So you cut back on spending and that means store sell less. The store then cuts back on inventory and lays people off. The companies that produce goods for those stores cut back on production, buy less raw materials, lay people off, and in the end pay less taxes because profits fall. Everyone lays off employees and consumes less. This leads to even further cost cutting measures and that causes even bigger declines in consumption, and more jobs are lost and so on...

That’s a deflationary spiral, it takes on a life of its own, and that’s where we are now.

The Fed had one shot to stop deflation dead in its tracks, and failed miserably.

Now they will be forced to do one of two things: write off debt or print even larger amounts of money. Yesterday the administration sent off a trial balloon when Obama’s economic advisor, Laura Tyson, mentioned that we should consider a second stimulus plan. That in itself is misleading because we have already had three, maybe four, stimulus packages of one form or another.

It should be clear to a blind man by now that this is not the answer, but the administration persists, just as Bush and Paulson did. Again, I would love to know why.

The so called bail outs were never intended for the general public, so it should come as no surprise that they had little or no effect on the average consumer. Banks received the cash, but never wrote the bad debts off, so they really can’t loan. Aside from that, the banks never disclosed the amount of bad debt they really hold.

Current economic policy is more in the form of a hope and a prayer, and it’s been my experience that God does not answer that type of request."..

...and may I add, "Allelujah!!"

Erste Bank gold report cites market manipulation

Erste Group Research, a division of Erste Group Bank AG in Vienna, Austria, has just published a 53-page special report on gold that includes a section on manipulation of the gold market. This section seems to have been heavily influenced by GATA's work.

Under the headline "Is the Gold Price Subject to Manipulation?" found on Page 39 of the report (and Page 40 of the Adobe Acrobat reader), the Erste Group report says:

"The intraday movements have been showing an unusual pattern for many years now. In the early hours of Asian trading, the gold price tends to go up. Conversely, the afternoon fixing in London tends to trigger a downhill ride, which finds itself offset only partially in the New York session.

"The extreme concentration of futures positions seems particular as well: Currently three U.S. banks are positioned net short to the tune of 12.3 million ounces. This is equal to more than 15 percent of global production.

"In a speech in July 1998 Alan Greenspan addressed this context, saying that 'central banks stand ready to lease gold in increasing quantities should the price rise.'

"The article 'Gibsons's Paradox and the Gold Standard' by Lawrence Summers, currently chairman of the economic advisory board of President Obama, is another example. In this article Summers explains the connection between low key lending rates and the gold price.

"Paul Volcker, former chairman of the Federal Reserve (1979 to 1983) and currently a member of the economic advisory staff of President Barack Obama, pointed out, 'Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.'

"And James Mofett, CEO of Freeport McMoRan, said, 'The central banks are the OPEC of gold. They will control the price of gold by selling until they change their minds.'"

You can download the report in pdf format at the Erste Group Internet site HERE

Free Bernie Madoff..!

Mises Daily by Jeffrey A. Tucker

Posted on 7/2/2009

Bernie Madoff stole billions from the customers of his phony investment funds, running a racket rather than a financial service. People who aren't even his victims are furious, and nearly everyone enjoyed a 10-minute sense of vengeance when the judge threw him behind bars for 150 years.

Let me weigh in with a contrary view. Free Bernie Madoff, I say.

His life is already ruined. He is a pauper. He will never again do business. >From the innovative genius whose information technology in the 1960s became the basis of NASDAQ, he rose to the heights and fell to the depths where he will stay this way until death. He won't be able to be seen in public for the rest of his life without encountering scorn and derision from everyone around him.

Maybe the idea of jail is punishment. I don't see how it can be a worse punishment than he would face on the outside.

Maybe the idea is to impose on him a feeling of remorse. But does he not already feel regret, even deep sorrow? This man who was widely considered to be a historic phenom is now disgraced, forever. We all have one life to live, and his is now a complete wreck, going down in history as the worst financial criminal of all time.

What, then, precisely, is the point of jailing him? He is no direct threat to anyone. Society would not be safer because he is in the slammer. He is not going to rob people or beat people up. He might write a book and donate the funds to charity or make some restitution to his victims. I, for one, would like to read that book.

Instead, taxpayers will be forced to pick up the tab for his living expenses. Victims get nothing. That's not justice. That's inhumane for both sides of the transaction: Bernie and us.

Will jail "rehabilitate" him? It's ridiculous. His rehabilitation, if there can be one, is probably already complete. Consider the dilemma in which he found himself. It began small, a simple scheme that anyone can play. His problem was that it worked better than most.

Once his scam began, he probably hoped the markets would turn around and he would become honest again. It didn't turn out that way. Then he couldn't dig his way out of it, no matter how much he hated his life. That it lasted decades instead of days is a testament to his marketing savvy, but that's not to say that he loved his life. Spending the rest of his life in the pokey won't rehabilitate him any more intensely than life on the outside.

The problem with prisoners is not that you are treated like an animal. Would that they had it so good! At the zoo, the animals are fed and groomed and cared for. They have value because they elicit affection from paying customers. Even slaves are in a better position, for at least they are valued to some small degree by their masters.

Prisoners, on the other hand, face a kind of metaphysical transformation. They go from being valued members of society to being treated like blobs of flesh taking up space. Their wardens see them as objects. They are abused by fellow inmates and live in a state of incredible degradation everyday.

All prisoners are therefore living amidst a kind of torture. It isn't modern. It isn't even medieval. It is contrary to all principles of civilization. Perhaps we should allow it for the most violent members of society, pending some other solution. But that doesn't apply to Madoff, and it doesn't apply to some ¾ of all the prison population.

But still, we are all supposed to feel some kind of joy at his captivity. For decades we've been told by sociologists that the real criminals in society are not muggers and murderers and rapists but rather "white-collars criminals" who are capitalists sneakily stealing money using fancy finance. They are the ones who should be in jail.

And so now, those educated by the sociologists, forever soft on real crime but oddly tough on financial crime, have their way, as the bourgeoisie cries out for vengeance against a guy whose sole victims were the rich people who were his own customers.

So let us ask the unaskable: Just how unusually evil were Madoff's actions? Not that unusual. In fact, the whole notion of paying off past investors with the funds of present investors is at the very core of the Social Security system. At least Madoff sought the consent of his investors who let him care for their money based on their own volition. And at least he didn't attempt to defend himself with the claim that he was conducting wise public policy.