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Commodities
Futures Trading Commission
3 Lafayette Center
1155 21st
St. NW
Washington,
DC 50581
Re: Physical
Metal Hedging and Metal ETF’s
Dear
Commissioners:
I am very
concerned about the CFTC’s very apparent lack of understanding about
what constitutes the “physical market” of both gold and silver
and how your organization justifies the large metal short positions as
“hedging”. The recent hearings on the metal markets
revealed some very disturbing information from both the supposed
“hedgers” and the organizations the CFTC has relied upon for
vital information.
First of all, it
has been shown that JP Morgan and HSBC are the two banks that hold these
monster short positions in gold and silver on the COMEX. Although the CFTC is
prevented from disclosing this fact it is easy to determine from comparing
the CFTC Bank Participation Report and the BIS Derivative Data. There are
many articles on the internet proving this fact and the CFTC itself has had
to change the BPR report in order to disguise the participants so not to be
in violation of the law. Here is just one of the articles from Adrian Douglas
of GATA:
http://www.gata.org/node/8355
Although JP
Morgan did not testify in the hearing, a representative from HSBC was present
to defend their position. When asked about the reasoning behind their
outsized metal positions, Jeremy Charles of HSBC claimed that it is to offset
huge physical gold positions, at least for HSBC, as well as servicing their
clients. Upon questioning from Chairman Gensler, Mr. Charles was
adamant that HSBC’s short COMEX position is hedged by their “cash
position in the London local market” and emphasized that “London
is a physical market”. I would assume that the same explanation would
be used by JP Morgan in justifying their gigantic short position in silver.
To call the
London a “cash market” or a “physical market” is a
stretch by any sense of the imagination. It is proven by the LMA’s own
reporting statistics that the amount of paper trades vs. physical delivery of
metal is over 100x. David Morgan explained this fact to you years ago. I even
had correspondence with David Kass, Senior Economist Market Surveillance
Section Division of the CFTC in May 2008 on this matter when the CFTC
released the results of their 2nd Silver Investigation:
___________________________________________
CFTC: 6 Strikes
and Yer Out!
http://www.roadtoroota.com/public/138.cfm
“
The CFTC uses the London Metal Exchange as a price gauge for the physical
price of silver. David Morgan pointed out in a recent article entitled
‘Silver Price Manipulation’ that the LME traded 30 BILLION oz of
silver last year alone!”
http://www.silver-investor.com/davidmorgancommentary/articles/5-22-08_ibtimes13_silverpricemanipulation.html
"That
would equate to 120M oz of physical silver being transferred every trading
day. To picture how far off of physical reality this is, imagine 1,250 three
ton capacity armored cars being loaded and unloaded out of LME warehouses
EVERY DAY! Impossible! The LME has NOTHING to do with the realities of the
physical silver market. There are currently reports of silver shortages
around the world including from your counterparts at the US Mint. The #1
proof of COMEX manipulation according to your 2004 letter is if the COMEX
prices diverge with the physical market. The recent 20% COMEX silver price
dive with no physical availability of silver is the smoking gun of silver
price manipulation."
___________________________________________
But
this is not the reason for this letter. What disturbs me the most is that
during my email correspondence with David Kass we spoke specifically about
using ETF silver to back short COMEX positions he informed me that:
“Silver
in London vaults is not deliverable against the NYMEX futures contract. If,
in the future, any of the silver held by the Trust were to meet the location,
brand, size, and quality standards of the NYMEX silver futures contract, it
could be deliverable on that contract. We cannot opine on whether the Trust
could or would hold silver in NYMEX-approved vaults, whether any such silver
would also meet all of the futures delivery requirements, or whether the
obligations of the Trust would allow (or preclude) making any such silver
available for futures delivery.”
The
email correspondence can be found in this article:
Who’s
the Little Man Behind the Curtain
http://www.roadtoroota.com/public/133.cfm
As you
know, JP Morgan and HSBC are “Custodians” for the iShares Silver
ETF (SLV) and the SPDR Gold Trust ETF (GLD) respectively. Their current
custodial responsibilities are for 296M oz ($5.3B) of physical silver and
36.3M oz ($41B) of physical gold which is by far the largest publicly traded
physical metal concentration anywhere in the world. This responsibility is so
great that any malfeasance, misreporting or fraud in either of these entities
would completely upend the entire global metal trading complex and likely the
world’s fiat monetary system and yet the Prospectus of both these funds
is about as water tight as Swiss cheese. Again, there are many internet
articles on this subject:
Risk
of Investing in GLD ETF
http://www.marketoracle.co.uk/Article9030.html
Let’s
get real here. HSBC holds all the gold for the largest physical gold fund in
the world and would rightly claim that GLD is one of their customers. When
Mr. Charles of HSBC was asked by Commissioner Chilton if they would be
opposed to separating their trading positions from that of their customers,
Mr. Charles’ answer was “that would be extremely
difficult”. Perhaps he should have answered “Not without
exposing the fact that we use our customer’s physical gold holdings to
justify our gigantic naked short position…AND WE HAVE NO IDEA HOW MANY
OTHER PARTIES THAT GOLD IS PLEDGED TO!”.
Yes,
this is a naked short position. HSBC does not own the gold they are
custodians of so they have no right to pledge this gold against promises to
deliver on the COMEX. And since the GLD prospectus is so flimsy, HSBC, the
COMEX or the CFTC have no idea if these “gold bars” are leased,
swapped, tungsten filled, 18 karat, gold painted or even imaginary bars of
gold. Justifying monster shorts on the COMEX with ETF gold is FLAT OUT FRAUD
AND ALL OF THE ABOVE APPLIES TO JP MORGAN AND THE SILVER ETF AS WELL!
It’s
time that the CFTC wakes up and understands that they have been hoodwinked by
the banking cabal for years. You have been played the fool for too long.
Position
limits will help stop the manipulation but I urge you to implement all of the
17 regulatory changes I discussed in my previous letter:
New
CFTC Gold/Silver Regulatory Framework
http://www.roadtoroota.com/public/207.cfm
I know
you are struggling to enforce the law without knocking over the apple cart
but sometimes you gotta spill a couple apples before you can move forward.
Sincerely,
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