LBMA Part IV
THE GRAND LBMA EXPOS: A Collective-Mind Analysis
Part - 4
This writer will present the entire situation via a
chronicle of all the news publications about the subject,
providing dates sources and authors - where possible. Nearly
all available information was researched from Internet
sources. Most comments are verbatim from respective authors.
Occasionally, this writer added comments of clarification
and/or conclusions where the research leaves off.
Internet Commentary #18 -
Posted on the Internet February 22, 1997 by arden
Comex warehouse stocks are composed of two parts, eligible and
registered. The total between the two is reported here almost
daily by myself as a courtesy to my Kitco friends. If I do not
make a post, it is either the fact that they are unchanged or
that I am in the field (I am a geologist and do have to find gold
once in a while!) If I do not post the numbers they can be found
on Steve Kaplan's excellent web site or delayed from Bart's
prices page. Look under FWN (which is Futures World News). This
info is delayed six hours which used to really irritate me so I
subscribed to the service, thus I get the info about 4:00 p.m.
eastern time. Since I paid for it, I feel it is OK to pass it on
to Kitco.
My main reason for doing this is because I think it is very
important. Sometimes I have felt like a voice in the wilderness,
but I think I am slowly getting converts. Let me explain my
rational as follows:
As far as I understand (and this is based on some trading
commodities experience) there are two ways to create a contract.
First is to deposit money into brokerage firm as margin, then
write a contract (which is a short). There are two classes of
these 'writers', hedgers and speculators. Bonafide hedgers have
different margin requirements than the speculator because
presumably the hedger has the gold around somewhere (inventory,
reserves, etc.) while the speculator is only betting on a price
decline in the commodity if he writes the contract. The other
method of creating a contract is to physically deposit gold
meeting the specifications of the Comex contracts with a
certified Comex warehouse. Then you may write a contract against
your deposit. These I believe are the 'eligible' gold deposits,
that is eligible to be delivered against a contract. The other
form of deposit is 'registered' which I believe is simply gold on
deposit in a warehouse with no obligations against it. This may
be done for the simple function of security and ease with which
to collect 'interest' on the gold by selling a future contract in
a flat market. The warehouse charges storage and security fees I
believe so its not a free place to leave your gold.
That leads us to our present situation. Currently there is
582,762 ounces of gold on deposit in Comex warehouses. Of this
ONLY 323,111 OUNCES ARE 'ELIGIBLE' against an open interest of
roughly 20 million ounces worth of contracts. In addition to the
outright contracts outstanding, there are a huge number of calls
at various strike prices. It is not uncommon for someone to write
an out-of-the-money call without having the call covered by
physical metal. The theory ( called delta hedging I believe ) is
that you can always buy more metal as the price gets closer to
the strike price. You can see how well this worked in the copper
market last year with 'delta hedged' puts.
It is my personal belief that we are in an explosive situation
and that the early warning signs are in the Comex gold warehouse
stocks. I have poised this concern for nine months or more and
have slowly watched people pay attention.
This 'smokescreen' from the LMBA has obscured what may
really be going on now. I can not believe that the
amount of bullion changing hands is of this magnitude
without price movement. Rather I think you should pay
very close attention to the wording of their statements.
They say that 'deals' for that amount are transacted on
a daily basis, not that actual bullion sales occurred.
No my friends, I think the cupboard is BARE
and we will soon see the results!
Internet Commentary #19 -
Posted on the Internet February 22, 1997 by arden
Vieserre - you miss my point a bit and its my fault for not
expressing it better. The Comex gold stocks and inverted pyramid
that they represent between physical gold and gold obligations
are symptomatic of the entire world gold position! *We have heard
that Central Banks in countries such as Brazil have written
contracts for far more gold than they own.* If this were just
some distortion in the world gold market ( Comex gold stock
decline that is ) , then obviously there would be some arbitrage
players involved like there is in so many stocks. I don't think
so. I suspect the real situation with the LMBA is very similar to
the Comex situation! Thank you for pointing out my omissions!
Internet Commentary #20 -
Posted on the Internet February 22, 1997 by Vieserre
The situation with the LMBA is profoundly interesting. How so
much gold can be transacted in "deals" or "sales" without more
attention being given publicly to the nature of the transactions
is incomprehensible, particularly in the present economic
environment where one almost daily reads that gold's usefulness
as a financial asset is relic of prehistoric times. Since it
makes for a great story, I would think a great number of people
are diligently investigating, and seemingly someone by now would
at least come up with a 'Deep Throat.' The participants must have
deep pockets such as CBs and the like, but if so, why would they
not deal directly with one another and not through an exchange,
unless they desire anonymity which may support the China
connection. I wonder. Why would the LMBA suddenly make the
annoucement? An explanation of calling attention to the world of
the importance of the exchange does not have superficial merit.
If they have so much business, why do they need to champion
themselves; and since parties making the transactions would
presumably desire anonymity, they are not currying favor with
their clients by the disclosure.
What persuasive public policy is rendered
by disclosing the information?
Internet Commentary #21 -
Posted on the Internet April 1, 1997 by Vieserre
@the Rigged Market:
Have you considered how bullion is marketed: Bullion dealers are
often banks or entities owned by banks, the major wholesaler are
Swiss Banks and their owned refineries, banks control most of the
world supply, London price fixes are made by banks, the LBMA is
comprised of banks, most physical gold is traded through the
LBMA, in some countries all gold produced is marketed by the
bank, and I am told a producer's output is sold by its refinery
at the then prevailing price without negotiation of price. Do you
think this means anything. (:-))
Internet Commentary #22 -
Posted on the Internet April 5, 1997 by Cmax
On January 29, the London Bullion Market Association confirmed
that 30 million ounces (approx. 930 tons) of GOLD were being
cleared per day through their organization alone. They are
primarily a physical clearing house, so obviously, these
extremely high volumes would not indicate gold hoarding, but that
gold being used as a form of currency for the payment of commerce
(money).
It has been reasonably estimated that
world volume would be 3 to 5 times this
daily amount. Again, there is a huge
undercurrent of gold volume, and no one
is listening, especially the paper markets.
Internet Commentary #23 -
Posted on the Internet July 27, 1997 by Cmax
The issue on LBMA or OTC trading vis-a-vis the Comex with regard
to price leadership is a question I have raised repeatedly on
this forum and elsewhere with no substantive response, except for
Earl's amplifier hypothesis. (Red Baron comment: Unable to find
Earl's comment) It is a missing link in my analysis, one that I
have seen no analyst touch on, and one which I would appreciate
your comments on if you find an answer.
Internet Commentary #24 -
Posted on the Internet August 1, 1997 by Vieserre
The LBMA Puzzle and the Dachshund:
Thanks for the earlier comment, sorry I have not gotten back to
you sooner on the LBMA. There is a lot I do not understand about
the gold markets but the LBMA is biggest puzzle. To consider that
over 930 tonnes of gold - equivalent to over 10 billion dollars
and the entire reserves of the European Union Central Banks - is
traded "each day" is mind boggling. Yet so little is said about
this "behemoth" as to who the traders are and the purpose of the
trades. And why the COMEX should be able to wag its tail since it
is a Dachshund in comparison, as C-max put it, is indeed
perplexing.
In an attempt to make sense of this, I view the gold
market as having several basic types of supply/demand
components. The first is what everyone reads about:
producer supply and scrap on one side, and fabrication
demand on the other. A second type rises from CB's
adding to or reducing gold reserves. And this together
with the first is often massaged and misleadingly
reported to support the spin that the media or
commentator desires to make with respect to gold supply
and demand. And depending on the spin, one could believe
that there is a huge deficit, a modest amount or a
surplus. The third type which I believe is most
important is investment supply and demand on which I
have not seen much published except for related
speculative buying and selling on the futures exchange.
I view gold hedging in the same manner as naked
speculative buying and selling. It may temporarily
affect price when being implemented or unwound, but it
does not affect price based on physical supply since it
neither adds to or reduces total supply.
Trading directed to each of the above is evidenced both on the
COMEX and the OTC market, but most trading appears to take place
on the OTC. Some of the LBMA trading may relate to OTC forward
contracts being implemented by producers and speculators both on
the long and short side, not unlike undertaken at the COMEX.
However, major players may prefer the OTC as there is no
particular contract month to be concerned with, there is
anonymity, and one can contract directly with a party of his
choice, among other reasons. Then there simply may be other
traders who buy and sell on the LBMA spot market with little
interest or impact on price - which may include producers,
bullion houses, banks, and dealers. The producer has little
impact on price since it sells its gold at the prevailing spot
price. (It may however affect price by hedge timing, dependent on
its expectation of future price.) The commercial dealer for the
fabrication trade similarly will buy at prevailing spot in an
amount that will satisfy fabrication demand at that price. Banks,
bullion houses, dealers and the like may simply not care about
price as they may be trading risk free by passing the risk on to
others. THUS A LOT OF TRADING CAN OCCUR ON THE LBMA WITHOUT
REGARD TO PRICE.
However, a trader that would be expected to trade on the LBMA, as
well as on the COMEX, and who should affect price is the private
investor or hoarder of gold. He does not have to sell or buy, and
he will only do so at price which is based on his view of gold as
a performing asset. And, it is this Investor who is believed to
affect the margin, which usually determines price of most
commodities. I have no knowledge of the amount of gold held by
such investors, but my premise is that since 2/3 of the global
gold supply is in private hands, it would seem reasonable that a
sizable portion is held as private investment stock. And, these
holders may affect price even though they may only trade among
themselves.
Red Baron comment: Recognized experts estimate
the amount of existing gold in private hands at
about 80,000 tonnes - approximately equivalent
to 35 years of annual gold mine production
As to why the COMEX seemingly has such a large influence on price
when considering its relative size to the LBMA, I suppose it is
not unlike many other markets which are influenced by the futures
markets. A price change, owing to the size and nature of trading
would seem to be more easily accomplished on the futures market
as opposed to the OTC market. But it may also be because a lot of
the trading on the LBMA is done independent of price as above
reasoned. In any event, a price change induced by the futures
market should hold only if traders on the LBMA accept it, and
that is based on the above cumulative trading considerations and
others.
Since IMO the private investor is the sine qua non of price, if
gold is to significantly increase in price, (other than for
technical short covering) it is going to be because of conditions
that make gold attractive as an investment other than for
fabrication demand. Although fabrication demand is important,
there is far too much gold to satisfy this demand alone for
decades. But once gold becomes more attractive as an investment
for other reasons such as inflation, currency revaluation and the
like, it will rise in price accordingly. In addition such other
reasons are also likely to discourage CB selling and producer
hedging. IMO, since the investment community buys or sells gold
based on such economical or financial expectations,
axiomatically, it is why gold has responded reasonably well over
the years as a leading economical or financial indicator.
The above collage is based primarily on supposition, many parts
of which could be in error. Your comments are welcomed, as well
as others on this forum who are more knowledgeable.
THE RED BARON
(September 29, 1997)
READER COMMENTARY IS INVITED: Just click the email icon at the
bottom of this page.
(Coming in a few days Part - 5)
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THE GRAND LBMA EXPOS: A Collective-Mind Analysis - Part 1
THE GRAND LBMA EXPOS: A Collective-Mind Analysis - Part 2
THE GRAND LBMA EXPOS: A Collective-Mind Analysis - Part 3
CENTRAL BANK GOLD OPERATIONS & ITS RAMIFICATIONS - Part I
CENTRAL BANK GOLD OPERATIONS & ITS RAMIFICATIONS - Part II
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