Should I Buy GLD ETF?

If you are interested in GLD, the gold ETF, take note of the following interesting posting made by Rob Kirby. Rob highlights GATA board member Adrian Douglas' paper titled The Alchemists in his FinancialSense market wrap commentary.

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Douglas points out that,

• “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.”

It used to be that the COMEX standard for good delivery gold was .995 fineness ONLY.

So, why was this standard altered?

Douglas also points out how the COMEX amended its rules back on Feb. 18, 2005;

• 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.

I’d like everyone to stop and think about the verbiage this statement: “substantially the economic equivalent.”

Sounds pretty vague, doesn’t it?

Coin Melt Qualifies as a “Substantially Economic Equivalent”

22 Carat Coin Melt: Interestingly, anecdotal reports began surfacing around the world in recent years that gold bars of less than .995 fineness have been appearing with increasing regularity. It is also a matter of historical fact that the U.S. sovereign gold reserve is understood to be the world’s largest repository of gold less than .995 fineness; resulting from President Roosevelt’s gold confiscation back in 1933. Circulating gold coins were struck in 22 carat gold – the addition of hardening alloys gave the coins more durability. Could this twisted / ambiguous verbiage be the means by which Sovereign U.S. coin melt [22 Carat gold] was / is being mobilized in an attempt to satiate growing international demand for gold bullion?

If such were the case, that would necessarily imply that the U.S. Treasury / and the private Federal Reserve [they are one and the same, aren’t they?] have “swapped” their less than .995 fineness gold, eh?

Interestingly, back in October, 1997, James Turk reported;

• “We now have more evidence that all may not be well in Fort Knox. Many thanks go to Bill Rummel of Charleston, South Carolina for bringing the following to my attention.
  
  The US Treasury quietly made a subtle change to its weekly reports of the US International Reserve Position, which includes the US Gold Reserve. This change was first made on May 14th. The differences can be seen by comparing the report’s old format release on May 8th to the new format used the following week. Here are the links:
  http://www.treas.gov/press/releases/2007581342179779.htm http://www.treas.gov/press/releases/20075141738291821.htm
  
  Note the additional description of gold provided in the new reporting format. It says the US Gold Reserve is 261.499 million ounces and importantly, that the gold is now reported “including gold deposits and, if appropriate, gold swapped” [emphasis added].
  
  This description provides clear evidence that the US Gold Reserve is in play. Gold has been removed from US Treasury vaults and placed on deposit, presumably in the couple of bullion banks the Treasury has selected to assist with its gold price capping efforts.
  
  Gold placed on deposit gets loaned out by these bullion banks, and then sold into the spot market to try capping the gold price. The same thing happens with swaps, but the vague language in the note to the Treasury reports makes it uncertain whether they are in fact being used at the moment.

Speaking of ambiguous verbiage where gold is concerned, let’s not forget how the U.S. Treasury “reclassified” its definition of sovereign U.S. gold stocks back in 2001; first from Sovereign Gold to “Custodial Gold”; and then from “Custodial Gold” to “Deep Storage Gold.” The former change is highly suggestive of a change of ownership and the latter further suggesting that sovereign physical gold stocks have been mobilized.

The notion that sovereign entities would swap physical gold for yet-to-be-mined gold, or, gold-of-one fineness for another should come as no surprise to anyone. It is a matter of historical fact that “gold quality swaps” are part of the deceptive means by which sovereign entities shroud their price suppressive dealings in gold [definition footnoted on the bottom of page 6 here]:

• “Under a gold location swap, gold stored in a particular physical location is swapped with a market counterparty for specified period with gold stored in another physical location. Under a gold quality swap, gold of a particular quality [fineness] is swapped with a market counterparty for a specified period with gold of different fineness. In each case a fee is built into the transaction.”

Whether or not the U.S. Treasury is / has employed gold swaps, a picture is beginning to emerge that, given the obsequious COMEX rule changes, at least some of the world’s precious metals ETFs have perhaps been created with the expressed purpose of creating “stealth supply” - aiding in the suppression of the gold price.

As for the newly created precious metals ETFs, their biggest claim to fame is that they “track” the price of the underlying precious metal. The negatives, if they are not already apparent, are nicely summed up by James Turk when he pointed out the disadvantages of holding one of the most popular, highly touted gold ETFs – StreetTracks GLD:

1. GLD does not prove the gold exists [or its quality] with independent third party audits.
   
2. The same gold in GLD may be owned by two people because of short selling.
   
3. Even if GLD were in reality backed by gold, there are too many parties between you and the gold to claim that you really own it. So while you may have “access” to the gold price through GLD, you do not have access to any physical metal that it may be holding.

Remember folks, all ETFs are not created equal.

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How?

ETF fan?

Interested in buying GLD?

Is The Gold Market Really Rigged?

Dedicated to .... ( *whistle2* )

Posted on MoneyWeek.com Is The Gold Market Really Rigged?

• I've been looking at some charts and an astonishing pattern has become apparent. It's a pattern which, if you'd traded it methodically, would have earned you 1% every 20 days over a period of 24 years. That compounds to a staggering 2,050%!

• What is more astonishing is how this pattern has accelerated since 2007. Sell gold in the morning, buy it back in the afternoon, and a cool 1.78% 20-day profit will be yours:

• Finally, before I go, here's an interesting statistic for you: the first fixing was in September 1919 when the gold price was £4 18/9d per ounce. It's now more than £600. My, how well sterling has maintained its purchasing power. Here's a chart that tells you what a rotten investment the British pound has been ever since we came off the gold standard in 1914. It comes from a House of Commons research paper (03/82 11 Nov 2003 [pdf]) – so they know.

Now this very same posting was highlighted by Jesse: Is Gold and the Balance of Power Shifting from the West to the East?

Quote:

• We might agree with the surmise that it involves the steady selling of leased gold from the West into the gold markets, but that could only be confirmed by an audit, and an admission from some large central bank that they have been obligating increasingly large amounts of their inventory into the public markets in a previously undisclosed manner.
  
  The transaction costs are a problem if you are standing at the retail counter, we fear, so don't get any ideas about playing this trade. Its a sinecure for the big boys only, who can take advantage of market inefficiencies by trading in large, ever increasing volumes, like the whiz kids at LTCM did until they blew their trade book up.
  
  Oddly enough, the data from the Office of the Comptroller of the Currency report on Derivates shows that only two banks, JPM and HSBC, are holding almost $124,000,000,000 in gold derivatives between them, approximately 98% of all gold derivatives in the world.
  
  At $850 per ounce, that represents about 145,882,353 ounces of gold.
  
  As the tides of monetary bubbles recede, curiosities are turning up on the beach every day.

The chart and table provided by Jesse speaks volume on the issue! Do give Jesse's blog a read. :)

And do try google the phrase "Is The Gold Market Really Rigged? "

Shocked?

Another worth while reading is from Rob Kirby: Fed Manipulating Market Prices, Gold, Oil and Bonds

• In short, says Fell, "don't measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that's the ultimate test."
  
  Fell's admission coupled with the recently unearthed account of the Fed's game plan shows that gold “is” and always has been feared as competition for the U.S. Dollar and a game plan has long been in place to thwart it. This explains why economic data has been falsified and the price of gold has been surrepticiously managed and interfered with by the United States Treasury and the Federal Reserve.
  
  The mounting evidence is this regard is so compelling that from this point forward any ‘economist' attempting to explain our current situation without prefacing their explanation with an EXPLICIT ACKNOWLEDGEMENT that our capital markets are not free and are in fact RIGGED by officialdom – their analysis is not worth the time to read it. In this regard, perhaps never have more prescient words been uttered than GATA's Chris Powell in Washington in April, 2008 – when he opined, There are no markets anymore, just interventions .
  
  The recent decoupling in price of gold as measured by the spread between the futures price and the cost to obtain physical ounces is a stark reminder that smart money is beginning to repudiate fiat money by seeking tangible ownership of goods perceived to posses value instead of derivative ‘promises' to deliver the same.

Conspiracy On How The Commodities Markets Were Rigged!

FinancialSense's market commentator, Rob Kirby has a very interesting piece on how the commodities markets were rigged!

1. .. In what many folks might disregard as an unimportant revelation, the Bank of Montreal’s Don Coxe provided in his weekly web-cast to the bank’s institutional and private banking clients, a telling descriptive [transcript available here] of recent market events where he lays out how the Federal Reserve and the U.S. Treasury in conjunction with the CFTC and SEC “RIGGED” the recent collapse in commodities complex and the accompanying bounce in financials to purposely destroy people who were making commodity bets and shorting financials.

Kirby continues..

1. The unintended beauty [sic] of Cox’s words is that they “drip” with nuance illustrating the incestuous relationship between the Federal Reserve / Treasury and one of their favorite private sector agent / provocateurs - Goldman Sachs.
   
   This space has extensively documented the role of both Goldman Sachs [primarily in the investment banking / commodities space] and J.P. Morgan Chase [primarily in the commercial banking / interest rate complex] and their use as “TOOLS” to implement Federal Reserve Monetary Policy via stealth, all the while trying to maintain the illusion of “free markets.”
   
   If my read on these goings-on is only half correct, this grand stage illusion of a charade is about to come to an end.

Read rest of it here: The Stars are Aligning - But For What?

Over-Valued or Under-Valued?

FSO, Market Commentator, Mr. Rob Kirby, posted an interesting commentary, Anecdotal Asides and Questions Begging Answers.

In the commentary Mr. Kirby compares the stock market capital capitalization of China and US and compared them both to their respective GDP.

For China, Rob Kirby made the following remarks.

• While the notional value [U.S. 500 billion] is very dated – it’s the percentage of GDP that I would like to draw everyone’s attention to – namely and explicitly, the market capitalization of the Chinese Stock Market as a percentage of GDP – 30%.
  
  Now, let’s consider that Chinese GDP data are “suspect” – owing to their arbitrarily and, as some would argue, artificially [manipulated] low currency “peg” to the U.S. Dollar – and as a result – Chinese GDP data are, in fact, under-reported.

And for the US, Mr. Kirby made the following comments.

• With U.S. GDP running around 13 Trillion, we can CLEARLY see that stock market valuations [combined NYSE and NASDAQ] are running at 26 Trillion – or 200% of U.S. GDP!

So he asks, "So whose stock market is over-valued now?"

What say you?

Crude Revelations

Here's an editorial from Rob Kirby on crude oil. Give it a good read: Crude Revelations

A bit about Copper

Read an interesting comment posted by Rob Kirby on copper: Contrary Views on the News

This section is worth reading:

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China And Base Commodities In Context, Perhaps?

So, while empirically – a current chart of the price of copper looks like this;

We might be well advised to remember that while this graph illustrates the price of copper falling off a cliff – it really only mirrors the U.S. housing industry to a tee. Perhaps we should all stop and take stock of what is going on regarding copper in China. Remember folks, copper is essential to the build out of infrastructure – equally as is nickel.

Has anyone [namely the copper bears] stopped to consider the non-confirmational behavior of nickel recently? Take a look:

Last I read was that China is still expecting GDP growth of double digits++. The dynamic driving infrastructure build out in China is vastly different than “home building in the U.S.” Firstly, in China – infrastructure build out is the NATIONAL POLICY of the best heeled purchaser [the Chinese Gov’t] the planet has ever seen and they keep getting RICHER – as evidenced by their swelling foreign reserve account.

While the U.S. consumer is SPENT – we’ve all known that for a long time.

Now, China’s exports to the U.S. account for roughly 8% of Chinese GDP. If this trade was cut to ZERO – and how likely is this? – China would likely still have substantially positive GDP growth.

Additionally, while the Chinese are well known to be “hoarders” – in the past they have been shown to be totally absent from [or even sellers in] strategically important markets which they CATEGORICALLY MUST be major buyers in – but only for short periods of time – like here and now in COPPER.

For those with good memories, it was just a couple of years ago that a China Aviation Oil blew up “shorting oil” – or jet fuel to be more exact – and then hid the loss. I’m sure everyone can appreciate the FACT that China is CATEGORICALLY NOT a REAL exporter of petroleum products.

In the meantime – the charts are all “set up” so that a strategic PUSH by a major industry/futures player [like a large investment bank/futures player, perhaps?] on copper in the next few days will have every Technician in the bloomin' world pressing the ejector seats on their positions with CNBC, Bloomberg et al right at their sides TRUMPETING – and giving the play-by-play demise of the commodity bull.

Remember folks, asset prices like base commodities are set in global markets – if markets really are “free” – and have been raising largely in response to excessive money [debt] and credit creation. While a housing slump in the U.S. has a definite effect on domestic U.S. demand, growth [and ultimately price] at the margins in many of these base commodities is now set in foreign lands.

I’ve said it before but it bears repeating, stockpiles of too many of these strategic base commodities are at historic lows – until that picture fundamentally changes – everyone should treat their investments in companies that produce them accordingly.

Subtle Manipulation

In today's FSO write-up, Rob Kirby writes about Fundamental Vs. Technical Analysis and More. This section of his editorial is utmost interesting.

Enjoy!

<<<<<----->>>>>

The Subtle Side of Molding Market Sentiment

Other times, manipulations are more subtle. An example is illustrated from my correspondence with this particular financial reporter just this past Friday. I make specific mention of this because this particular piece has actually made it onto the front page of the business section of one of Canada’s major daily newspapers today, December 11, 2006:

The piece in question was reported Friday by MarketWatch:

By Steve Goldstein, MarketWatch
Last Update: 8:50 AM ET Dec 8, 2006

LONDON (MarketWatch) -- Worries about the strength of the global economy pressured the metals sector in London share trading Friday, though a solid report on U.S. payrolls growth and speculation of banking takeovers helped lift shares of other top British companies.

Merrill Lynch downgraded the entire metals sector to neutral on economic-growth fears and concerns about the manipulation of metals prices. …

So I contacted the author:

Mr. Goldstein;
Could you elaborate on Merrill's comments about manipulation of metals prices?

"Merrill Lynch downgraded the entire metals sector to neutral on economic-growth fears and concerns about the manipulation of metals prices

Here was the response I got:

I'll quote what they said:

Our view is that spot metal prices have been pushed to over-inflated levels by hedge / investor fund manipulation (eg 1 investor holding >50% LME Al stocks), and that there is a much greater risk to the downside from spot prices than to the upside. With slower global demand growth likely in 2007, particularly in the US, and a likely de-stocking of metals inventory in the G7 after a very strong demand growth in 2006, the risks are that base metals prices could correct ~30% from current spot levels, and this would negatively impact the equities. We continue to believe in the super-cycle, that metals prices will be stronger for longer; however, this means stronger than long-term average prices, not stronger than current spot prices. History shows us that no matter how much we believe that weaker commodity prices are already factored into equity prices, if the commodity prices re-trace, the equity prices of leveraged stocks follow. Whilst metals prices have outperformed the equities on a 12-month view, over the last 6 months, global mining equities have outperformed the LME index. In fact, as seen by the Bloomberg World Mining index in the margin chart, equities have been moving higher in recent weeks and have recovered much of the sector pull-back that occurred in early November. The laggard has been the AsiaPac mining index. However, we remain convinced that if the metals prices do see a correction from current elevated spot positions, equity prices will also correct. It is amazing to us that despite statements that liquidity will continue to flow, when sentiment

So I replied with this;

Steven;
I wonder if you bothered to question them about "a likely de-stocking of metals inventory in the G7 after a very strong demand growth in 2006."

The reality is that de-stocking of base metals HAS ALREADY OCCURRED!! - witness the all time critical lows of copper, aluminum, lead, zinc and nickel in LME warehouses.

Before "DE-STOCKING" can occur in the future - INVENTORIES HAVE TO FIRST BE REBUILT.

Rebuilding of critically low inventories would CONTRADICT this forecast - wouldn't it?

Regards,
Rob Kirby

And Mr. Goldstein then replied with this;

You may well be right -- we pass on the news, leave it to you to accept or reject.
Cheers, Steve

The HUGE Issues Here

First, these "allegedly professional" mega financial institutions sometimes put forth fundamentally FALSE and often CONFLICTED research for unknowing, unsuspecting consumers and - Second - the media so often takes this false and / or conflicted research, asks few questions as to its veracity, and presents it to the public as "NEWS" and then – only if pressed / questioned or cornered – it’s like we’re "all free" to accept or reject what they report as news.

Whatever happened to responsible journalism where errant reporting led to a retraction and an apology?

I bring all of this to your attention for a few reasons. First, a general understanding of the differences between technical and fundamental analysis gives investors greater clarity in deciphering the blur or hype of economic reporting in today’s market place. Second, regardless of which discipline you’re an adherent of – your results will always be dependent on the quality of inputs or soundness of your assumptions. The lesson here is ‘be careful who or what you hitch your wagon to.’

Remember; there’s no such thing as a dumb question when it comes to your investments. Knowledge provides comfort and it’s the basis of power!

Because events like the ones described above have a great influence on what happens to your investments on a day to day basis, understanding what is affecting your investments and sometimes WHY – might just lead to a greater comfort level and a better night’s sleep!

Poking fun at the US Job Numbers

Rob Kirby from Kirby Analytics had this to say about the US Job Numbers.

• Last month’s Labor Report was revised from 51K to 148K?
  
  And the month’s previous to that from 188K to 230K?
  
  And listen to this one...the unemployment rate declined from 4.6% to 4.4%?

And Allen Wastler had this more colorful commentary posted on CNN website. ( here )

• NEW YORK (CNNMoney.com) -- Numbers lie. Especially economic ones. But some of you already knew that.
  
  And it's all a conspiracy.
  
  Take the employment numbers Friday. The government reported that 92,000 jobs were added to U.S. payrolls. Its previous estimate of jobs created in September was revised from 51,000 to 148,000. And the unemployment rate dropped to 4.4 percent.
  
  Despite our best efforts, the conservative conspiracy was apparent.
  
  "I had to laugh at your story on job creation and unemployment," Miguel G. wrote to us. "How in the hell do you revise the number of jobs created in September from 51,000 to 139,000? (sic) Why does Bush even report the numbers if he's just going to change them a month later? Anything from his fanatical Christian government is pure lies."
  
  Or was it a liberal conspiracy?
  
  "Just curious if you'll be leading your newscasts off today with the new unemployment rate?" David W. flamed. "Our economy is good and it's about time you liberals in the media stop hiding that fact. Tell the truth on the economy and perhaps you'll gain more viewers."
  
  Half-empty, half-full? You're tagged either way.
  
  Either view is right. The employment report is actually made up of two different surveys ... one of employers (the payroll number) and one of households (the unemployment rate). Economists frequently debate the merits of the two and what they do and don't count. The payroll number doesn't reflect the self-employed all that well, say some. The household number doesn't reflect all the people who gave up looking for a job, say others. It's the stuff number-cruncher cage matches are made of.
  
  There's a fight like this about every economic number:
  
  The leading indicators are actually lagging.
  
  The gross domestic product doesn't give the service sector its due.
  
  Shouldn't food and energy be considered "core" to inflation calculations?
  
  And on and on.
  
  
  
  

Kirby's Blast From the Past.

Read this article. Thought I share with everyone here.

A BLAST FROM THE PAST AND MORE

Former Fed Chairman Alan Greenspan had a few “choice” words for his Russian counterparts late last week when he warned them that their refusal to allow the Ruble to meaningfully appreciate against the dollar may have inflationary consequences.

Greenspan Warns
Russian Authorities Against Investing in U.S. Dollar
Created: 20.10.2006 12:52 MSK (GMT +3),
Updated: 15:43 MSK
MosNewsRussia should be wary about the inflationary impact of buying U.S. dollars to insulate its economy from an influx of foreign earnings from oil exports, former Federal Reserve Chairman
Alan Greenspan said on Thursday, Oct. 19.

Tulips Come To Mind...

Greenspan went on to point out that Russia’s massive Trade Surplus – owing to 600 million per day in oil revenue – [implied] should naturally lead to a rising domestic currency as petrodollars are repatriated – an event or process dubbed “Dutch
Disease.”

Dutch Disease refers to the potential negative long-term impact of one explosive sector —- oil, in the case of Russia —- which boosts the value of the currency, making locally produced goods less competitive compared to foreign goods.

He warned that artificially depressing their currency to cure “Dutch Disease” – by buying foreign currencies like dollars - could lead to inflationary problems down the road.

The Russian Central Bank has intervened in the foreign exchange market by buying U.S. dollars to slow the ruble’s growth. The move, however, fuelled money supply growth of about 45 percent and inflation of around 10.9 percent in 2005.

Wow, money supply growth of 45%. That sure sounds inflationary, doesn’t it? Me wonders whether that 45% growth rate refers to the Russian equivalent of M3? That would be the very same measure of money supply that Sir Alan banished in the U.S. - as one of his last official acts as Chairman of the Federal Reserve – isn’t it?

Anyhow, Greenspan goes on to “speculate” about the Ruble’s future prospects as a “potential” Reserve Currency – and he points out how important the “rule of law” is – as a fundamental precondition for such an occurrence. Me wonders, again, speaking of rules in law - if he might be referring to such fundamental things as “habeas corpus” – an inalienable, basic human right since the 12th century that the U.S. recently discarded. Who knows, Greenspan always did have a way with words – didn’t he?

Percepts of Prosperity?

The following is a very interesting piece from Rob Kirby at FSO.

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Precepts of Prosperity

For those of you who are ‘caught up’ or bought into the notion that the status quo either is or has been great for all of us, please consider the following sage words from Mr. Nelson Hultberg’s wonderful treatise, Contrarians and The Keynesian Myth,

“As recorded in The Statistical History of the United States, real wages for the workingman tripled in the years 1850-1913, and the GDP increased over 500% averaging 4.3% annual growth from 1870-1913. This was all done without any inflationary infusions of fiat money from the Fed because there was no Fed. This highly productive era, based upon the "barbarous relic" of gold, was accompanied by an actual deflation of prices. From 1800 to 1913, there was an overall 30% reduction in the Consumer Price Index from 43 to 30. 6 That's right, we had 4.3% annual growth amidst gently deflating prices all without government fiat money, all without FOMC pooh-bahs, all without today's Gargantua on the Potomac.”

It is not until we view economic growth, productivity and prosperity in this light that one might ‘make the connection’ and realize why economic growth has come to embody what we nowadays accept as such.

One needs to consider that the very nature of all fiat money systems implies that ALL MONEY is, in fact, loaned into existence. This fact [that all fiat loans are repaid principal PLUS interest] dictates that the money supply must FOREVER expand to simply service the existing debt. An ever expanding money supply juxtaposed against the constraints of the earth’s FINITE resources is fundamentally foolish and unsustainable with a completely predictable outcome.

In this light, money growth as we know it is more akin to CANCER – a type of growth that touches so many of our lives – which generally harms [or kills] the host,

Cancer is a class of diseases characterized by uncontrolled cell division [growth] and the ability of
these cells to invade other tissues, either by direct growth into adjacent tissue (invasion) or by migration of cells to distant sites (metastasis). This unregulated growth is caused by a series of acquired or inherited mutations to DNA within cells, damaging genetic information that define the cell functions and removing normal control of cell division. ...

In case any of you are wondering, here’s a graphical depiction of what Central Bankers – cheered on by BIG GOVERNMENT – have done to our money supply:

Fed Res. Chart compliments of Jesse: http://www.geocities.com/arthurcutten/jesse.html

By observing the chart above, is it not obvious to everyone how closely correlated money supply growth is with virtually everything? Since 1996:

• Has the stock market not doubled or tripled?
  

• Have housing prices not done the same?
  

• What about the price of crude oil?
  

• How about commodities prices?
  

• How about the value or purchasing power of the dollar?
  

• Deficits?

Do the words of the Fed, namely,

“….the relationship between growth in the money supply and the performance of the U.S. economy has become much weaker,….”

seem credible to ANYONE?

In the end, perhaps the real question is whether or not we will opt for something resembling the discipline of the gold standard, how long we’ll all be prisoners in our own homes or maybe even how many of us will be lucky enough to be cancer survivors.