The Good, The Bad and The Disgusting

[irneb]

See this "nice" scenario: http://www.financialsense.com/fsu/ed...2009/1009.html

Absolutely nice aint it? As an analogy here's what's happened:

1. Contractor A has a contract to deliver and / or use some raw material (call it Granite) in a project.
2. A searches around for a good price and finds there a some huge wholesalers around, but the price is pretty much the same.
3. A goes and buys some from wholesaler B (one of the larges and most respected), whose indicated they've got a huge stockpile at reasonable prices.
4. A pays B in advance and states he needs the product ASAP.
5. After A again mentions to B "Where's my product?" B states there is not enough stock, would A accept the money back with a 25% penalty profit?
6. A states NO, I need the product. The money's worthless to me since I've got commitments for the product and not some paper. If I don't deliver my losses would be much greater than 25%.
7. B then goes to C (the central holding company through which all suppliers sell to the wholesalers). These guys state "We don't have enough either, but we can give you some broken slabs.

Now to get to the naming of this post:

• The Bad: This form of Naked Short Selling is actually criminal. And it's being advanced by central banks by trying to cover it up. Unfortunately this only goes and indicates that the central banks have also been Naked Shorting for decades, seeing as they also don't have the product. Or at least don't have the correct quality of gold (This is the original definition of DEBASEMENT folks!)
• The Disgusting: How do you think the Gold price has been "steady" at between $900 and $1000 for the last year or so? Even after all those bad indicators of last year. For that matter, how did the gold price only now reach the same level of the mid 80's? If one sees gold as a method of indicating what true money is actually worth (i.e. Inflation / Deflation) as it was used traditionally: there was absolutely no inflation since 1985. If someone tells you this you'd think them totally stupid, right? So how did the gold reach this conundrum? Fort Knox has not been audited since the 60's, and US have been selling gold since when, when did their paper money finally break away from being based on gold? I'm not saying anything further, you make your own conclusions.
• The Good: well, maybe. It's more like maybe not so bad. Once this duping of the public about gold and its "weakness" becomes evident more widely, it's going to hit the world markets like a tidal wave. Causing gold prices to skyrocket like no-one's ever seen before. (That's not true, every fiat currency in history has seen this form of hyper-inflation comparing to gold). So maybe ... just maybe ... SA could be better off than the "Western" economies. Not to say we'll not have damage, but our historically major export could be worth a lot more than currently. It's been an open "secret" for the last decade that China's been buying up all this gold (amongst other metals), so maybe they've foreseen the death knell of fiat currencies in the future?

[Dave A]

I don't get this. By my understanding a future has a deliverable and a deliverable date. Is it any different for a gold future?

[Marq]

Contractor A has a contract to deliver and / or use some raw material

Does this scenario not start and stop here. No demand...no problem.

[irneb]

Yes that's exactly the point. The idea of futures was always misused, sometimes even against the law (as is in this case). Selling a product which you don't have and do not have any contracts to obtain in the stipulated time is what's known as Naked Short Selling.

A "decent" future would be if the bank can prove that they will have the actual gold for delivery at the stipulated date. The proof that they don't (and won't) is that they offered paying more back and then (when the buyer refused) asking the reserve bank to help out. If they knew they'd have the gold at the future date, they could simply have stated: "No ... as per the future agreement you have to wait until the date expires." This they didn't do!

As for the demand ... I'm not sure what you mean. Clearly the "demand" is already there since the buyer has bought the future and asked for the physical gold. It's the supply which is not there, the bank does not have the gold and apparently can't get hold of it either. But still they sold it!

I'd actually like to see a comparison between the amount of gold traded through futures and the tonnage mined to date. Hopefully there's not a glaring discrepancy, but I'll not be surprised.

[Dave A]

Yes that's exactly the point. The idea of futures was always misused, sometimes even against the law (as is in this case). Selling a product which you don't have and do not have any contracts to obtain in the stipulated time is what's known as Naked Short Selling.

This is go-to-jail stuff. Are governments and regulatory authorities seriously condoning this sort of behaviour?

[irneb]

This is go-to-jail stuff. Are governments and regulatory authorities seriously condoning this sort of behaviour?

Yep & yep again! Seeing as the central bank is trying to help out these "bullion holding" banks (which apparently they aren't since they don't have the gold), it seems that the "government" (or at least that institution with government powers, but private and secret shareholding) is trying to cover up the fact that these banks have sold non-existent gold.

BTW, gold is not the worst of it. This has even been done to shares (note ... not futures but actual shares). Read (or listen to) the interviews on Bloomberg with Dr. Byrne, as well as the Crime of the Century series by Jim Puplava (linked to in this http://www.financialsense.com/metals/crime/main.html).

But what really cooks my noodle (as if that's not bad enough): the gold bars which the central bank lent these criminals was deemed deficient - i.e. the caret quality was below the stipulated minimum. What does that tell you about the central bank?