Financial Cryptography

> > I don't normally follow the gold talk because on the one hand it is the
> > goldbugs saying "gold is set to explode" and on the other is a bunch of
> > bankers that insult the noble metal, while on the backside buying &
> > selling it short, naked and happy as fast as they can. That is, the
> > story never changes.

I'm always in the middle ground, that boring position which says that gold tends to maintain its purchasing power over the decades, centuries, and millenia. This is demonstrably true in spite of the "1980" canard which the gold-haters endlessly trot out, conveniently ignoring other years such as "1970" and "2000". And those who squawk "you can't eat gold" should promptly stuff their pie holes with $1 bills.

The USD, EUR, CHF, SEK, etc. are all figments of central bankers' imaginations, so I don't expect them to maintain real value very well over time. But they are highly convenient for everyday trade, so they have a special cherished place in my cash portfolio. Just not 100%.

> > But it is possible, because the
> > gold markets have not been divorced from the decades of corruption that
> > brought down the other markets.

Spot on, if you'll forgive the pun.

I shall heartily enjoy the forthcoming stories of asset owners calling the bluff on the lousy bums. A Krugerrand in hand is worth two in the bush.

Good to hear JPM is still kicking around.

Hello (hat tip to Patrick who showed this to me)

My firm has dealt in LBMA Good Delivery Bars for over 17 years.

I have seen this before "In an Asian depository, they've found "Good Delivery" bricks that had been gutted and filled with tungsten."

What is unclear from anything I have been able to find anywhere, is which 'Good Delivery' system is being referred to here?

There are more than one. COMEX "Good Delivery" for example is settled in 100oz bars, while Dubai "Good Delivery" is settled in 1 kilo bars - LBMA bars are 400oz fine weight.

It is certainly possible that these were not 'LBMA Good Delivery bars' - I personally doubt the fiasco occurred with an LBMA security facility (solely my opinion)

Not to say I am defending all the member banks of the LBMA - but not all members of the LBMA are of the same ilk, and I should not say more on that.

Also "There is now an overall trend to take physical delivery from metals facilities (vaults, exchanges, etc)." - I would say this is more speculation than fact - while we may see some of this in the news I hardly think it amounts to an 'overall trend' - we are certainly not seeing it.

I do not discount the idea we could see defaults on major exchanges or with individual banks.

Best,
Alex

In an effort to diversify its foreign reserves, India bought 200 tonnes of GOLD from the IMF during October, which will nudge the country into the top ten gold-holders worldwide. The news sent the price of gold to another high, approaching $1,100 a troy ounce.

http://news.economist.com/cgi-bin1/DM/y/eB24U0Vsyj0Mo0GCSm0EU
India is eager for the IMF’s bullion

IF YOU count bangles, necklaces, anklets and other pieces of jewellery, India is the largest repository of gold in the world, according to the World Gold Council. Many Indians see gold as an investment as well as an adornment. India’s post office sells 24-carat gold coins, as small as 0.5 grams, to savers wary of fiat currencies or mutual funds. The latest big investor in the metal is the Reserve Bank of India (RBI). On November 3rd the central bank said it had bought 200 tonnes of gold from the IMF, a purchase that would have cost about $6.7 billion. The news pushed the price past $1,090 an ounce for the first time.

The IMF’s gold holdings are less decorative than India’s, but also impressive: the third-biggest official stash in the world. Its sale to the RBI is part of a plan to offload 403.3 tonnes, or an eighth of its total. The proceeds will create an endowment to cover the fund’s operating expenses and help expand its lending. It is doing its best not to rock the market by selling first to central banks, in keeping with their agreement in August to sell no more than 2,000 tonnes over five years. But the gold market is now interested in how much central banks might buy, not how much they might sell.

The central banks of China, Mexico, the Philippines and Russia have all added to their gold reserves in the past year. The RBI is merely catching up. Its stockpile fell to just 3.5% of its total foreign-exchange reserves (of $281 billion) in September. This purchase will restore it to almost 6%. Every central bank with a large holding of American debt is worried about capital losses if the dollar continues to weaken. Gold offers reassurance. Anyone who wants to try “quantitative easing” in the gold market has to dig a mine.

The story of phony gold and naked trading reminds me of the old "race horse" scam.

What the scamers used to do was sell shares in the horse to people however they would sell 20 or 30 10% shares.

They would then bill each share holder 10% of the running costs.

However the trick was to make sure the horse nearly always nearly won to keep the shareholders in the scam. But in reality the horse next to never won any significant money.

Because if the horse ever made significant winnings then the shareholders would expect dividends or put their shares up on the open market.

So who want's to buy a 10% share of a horse called "gold brick"?

The amount of “salted tungsten” gold bars in question was allegedly between 5,600 and 5,700 – 400 oz – good delivery bars [roughly 60 metric tonnes]. This was apparently all highly orchestrated by an extremely well financed criminal operation.

Within mere hours of this scam being identified – Chinese officials had many of the perpetrators in custody. And here’s what the Chinese allegedly uncovered:

Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day. I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.

Refuting the current tungsten rumor:
http://www.rapidtrends.com/2009/11/14/why-gold-bugs-are-considered-nuts/

Do not mistake this for me saying we may not see scandals in the future involving banks, gold, who says they have it but really dont etc

What I am posting is that I dont think the current story holds water - and the reasons why

Alex: I don't disagree, and would expect many of the claims of that community to not hold water. You'll note that I don't often post on the gold market, partly for that reason. :-)

However there is a case to be made that there might be trouble ahead. Humans are sadly human, and we are in the presence of material evidence that the banking system as a whole has been fiddled with in quite large doses. By humans.

Also, above, you say "and I should not say more on that." Well, precisely: this means that the good evidence we need for both bad and good events is simply not available. So even as the goldbugs' stories are often laced with wild speculation propped up on thin facts, so goes also the credibility of the more formal press. When a gold bank puts out news that gold is going up another $50, does that mean that this is serious financial reporting, or are they trying to front-run their customers?

Given that practically all of the real information as to gold reserves and positions is locked up somehow, we'd be a bit naive not to assume the financial crisis rot is in there somewhere. It may not be likely we can figure out where, though, before it happens.