Good morning Maurice, sheets and blankets of water pouring down from the sky today in Money Rock and presumably Freedom Mountain as well.
<<Five stories below the ground at the Federal Reserve Bank in New York City is an enormous, compartmentalized vault holding some 10,000 metric tons of gold worth $117 billion - the gold reserves of some 50 nations>>
I believe gold hedge books stand at 900 mm ozs, vs 8xx mm oz held by all central banks, or 24 years of worldwide digging, or all the gold held by intervention-wannabe bankers. The math will fail for one side or the other!
siliconinvestor.com
<<Gold has dropped nearly 10% … spread … large … Gold is just another object of increasing or decreasing value depending on supply and demand …>>
… My teacher, a Mr. Marc Faber, gloomboomdoom.com
thinks your idol, Greenspudnik, is stuck between a sharp edge and a tough point. In the latest print report, The Gloom, Boom & Doom Report, “In the Twilight Zone”, he asked a good question about the gradually less foggy nature of Barrick Gold (ABX) siliconinvestor.com
gold hedge contracts, specifically, who is the bag-holder of the unpaid-for ‘deferred delivery clause’?
Let me backup and step back for a moment, and explain in my own way:
(a) ABX heard that the Central Banks intend to get rid of their gold and terminate gold’s monetary role;
(b) ABX figured correctly that gold price will fall;
(c) Central banks starts selling;
(d) ABX and other gold mines starts selling their production forward;
(e) Investment houses such as siliconinvestor.com and siliconinvestor.com and siliconinvestor.com got into the act by leasing gold from Central Banks and sold forward as well;
(f) Speculators like siliconinvestor.com got into the act as well;
(g) The sales proceeds were invested in US treasuries, corporate debt and equities, helping in some measure to lower the cost of money, simply because long dormant and not-figured-on sleeping-money was liberated from reserves, used to earn current income, to fund Euro social spending, to enrich US executive compensation, and a good time was had by all, just like the Japan Yen carry-trade, except the gold hoarders and Japanese savers;
(h) To get a sense of just what a great big free lunch it all is, reread this Message 17803270 and Message 17803272
"Where those that are dealing in the derivative contracts are wholly dependent on the balance sheet of the counterparty gold bank, which is not a primary but rather a subsidiary of the holding companies of the large good name bank holding companies. Now these contracts are not listed on any exchange. There’s no clearing house funding of these contracts which stands to reasonably guarantee their financial integrity. There’s no transparency in dealing. The prices of these contracts generally are computer-simulated models -- not anything to do with the market place. In many situations, the dealers and the gold companies don’t have right of offset, which is similar to say having a deposit in a savings bank and a mortgage from the savings bank. If the savings bank were to go broke and you had no right of offset, you’d have to pay back 100% of the mortgage while you lost probably 100% of your deposit. So those gold companies, now, that are proud to have their hedge books balanced, are not taking into consideration the financial weakness of an agreement which stands only on the balance sheet of the counterparty and which has no clearinghouse funding to protect it. Now this has grown to a rather enormous number. The number reported by the IMF and the BIS right now, if you were to convert it into ounces, is equal to 900 million ounces. And 900 million ounces, if you take present production and the tailing off of production, is more than 24 years production. And because all of these contract have been developed within a long declining period of gold, there’s only one side the contract can be on and that’s called a “short spread”."
(i) The daisy chain worked like so: mines like ABX and AU signed OTC non-offset-able, non-exchange-cleared hedge contracts with investment houses like JPM, GS, AIG to deliver still-in-the-ground gold sometime in the future;
Investment houses leased Central Bank gold, immediately sold same on spot market, most of the gold ended up in the jewelry trade, as opposed to the monetary profession. The gold is melted down and transformed into trinkets;
The central bankers earn a paltry interest of around 1% off their leased and effectively hard to recover gold;
The investment houses plan to take delivery of newly mined gold and return same to the central banks as payment of principle for the gold leased;
The mining companies just keep digging for gold and transfer the result to the investment houses at earlier agreed prices.
So far, so good, and a cheap lunch is had by all, as long as gold price keeps going down due to gold unloaded from underground vaults.
(j) Now the bad news. You remember my idle speculation here on what would be reasonable, long before the later consolidation transactions Message 16025306
(k) The consolidation is happening, kicked off by NEM and followed-on by other large mining companies, due in large part to the falling price of gold, gold reserves, and the increasing attractiveness to reverse the trend;
(l) As a part of the consolidation process, and the inconveniently timed upward trending volatility in gold price, more facts are shaken out of the proverbial closet about the nature of gold hedge contract. It turns out, as admitted by ABX itself, that they have the option of delaying delivery of their mine gold to the investment houses by anywhere from 5 to 15 years should the price of gold spike up, allowing ABX to choose to sell gold into open market, as opposed to paying down their hedge book. This is presumably a hard to price and probably mis-priced lunch by the investment banks who in turn are obliged to pay their obligations to the central banks on time;
(m) Earlier on, some central bank mumbled something, a clue perhaps … Message 17334840
(n) So, as we were anxiously watching DDGU, day after awful day and night before horrid night, the Greenspud construct was shaken, stirred, in John Woo choreographed slow-motion collapse, contra to what Greenspud’s script Message 16898478
Something had to be done to try to douse the fuse smoking under JPM, AIG and GS. Look at their chart, and realize these organizations are HUGE, capable of leaving a mess of fizz and foam that makes Japan bubble look like a solid golf ball.
Well, that is a story, and I will continue to add to paper gold. I never considered my physical hoard to be for trading. The paper stuff is for hoarding, trading and later, spending.
<<I have planned that move, with timing depending on the script timing … like a tide. It comes and goes>>
Your plan is my plan, and have you ever played around the rocks and tide pools, finding youself suddenly surrounded by rapidly rising water, cutting off planned-for way to reach higher ground? I have, and was terrified.
In the meantime, why pass up the chance with gold, simultaneously casting a vote, follow a mystery, making a speculation, punishing a bunch of crooks, and answering a question, namely “who is the bag-holder of the unpaid-for ‘deferred delivery clause’?”.
I want to make my later reading of “When Genius Failed Again – The Rise and Fall of the Morgan House” more meaningful.
images.amazon.com
Chugs, Jay |
