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The
London Bullion Market Association has just taken the highly unusual step of
blocking access to statistics relating to the trading activities of its
member bullion banks. This information has been available to the public since
1997 but as of this week it is available only to LBMA members. (See http://www.lbma.org.uk.)
I have
recently written a series of exposes of the LBMA (see References 1-4 below)
using the association's own data to show that the LBMA's bullion banks are
operating on a "fractional reserve" basis. My analysis indicates
that the bullion banks are holding only 1 real ounce for about every 45
ounces of gold that they have sold, a reserve ratio of just 2.3 percent
At the
March 25 public hearing of the U.S. Commodity Futures Trading Commission on
precious metals futures markets I cited the LBMA's own statistics to label
the "unallocated gold" accounts of the bullion banks as a Ponzi
scheme. (See Reference 3 below.) There were bullion bank representatives at
the hearing but no one expressed an objection. That hearing was videotaped
and posted at the CFTC's Internet site but the bullion banks have not made
any public statement rebutting what I said. In fact at that hearing Jeffrey
Christian, CEO of the CPM Group, acknowledged that what is widely called the
"physical market" is in reality a largely "paper market"
trading gold and silver as if they are financial assets and not physical
metals. Christian stated that 100 ounces of paper gold are traded for every 1
ounce of physical gold.
When the LBMA
first made its trading statistics available in January 1997, observers and
analysts were shocked. (See Reference 5 below.) No one could reconcile the
statistics with other market data, nor comprehend how the bullion banks could
be trading on a net basis more than 240,000 tonnes of gold annually while the
global mine output was only 2,400 tonnes. Over the years the furor over these
statistics had subsided until the end of 2009, when I commenced writing about
my studies, showing that the statistics can be reconciled with other market
data if the bullion banks are operating a fractional-reserve bullion banking
operation with a recklessly low reserve ratio. I have also shown how the
price of gold is suppressed because 45 ounces of demand are being diluted to
result in purchase of only 1 ounce of real metal. If instead all 45 ounces
were to be sourced and purchased, the gold price would be multiples of the
current price.
Typically
when people are exposed in a scandal their first reaction is a cover-up. The
most notorious examples of this are the Nixon administration, when it
doctored the Watergate tapes, and Arthur Anderson, which shredded millions of
pages of documents relating to audits of Enron Corp.
The
LBMA has now commenced a cover-up with respect to the gold trading activities
of its member bullion banks, withdrawing statistics from the public domain.
This
appears not to be the only cover-up going on in the gold market.
For
years the International Monetary Fund has made great fanfare of its mere
contemplation of selling some of its gold, and actual sales by the IMF have
been widely publicized. Since February the IMF has been surreptitiously
selling large tonnages of gold each month, but these sales now are to be
found only by digging through the IMF's financial statements, and even there
the recipients of the gold are not disclosed. (See Reference 6 below.) One
has to wonder why the IMF now is trying to fly under the radar with its gold
sales.
Similarly
it was recently discovered that the Bank for International Settlements didn't
feel it necessary to announce its involvement in the largest gold swap in
history, 346 tonnes. (See Reference 7 below.) The BIS swaps instead were
discovered only because a market analyst dug through the footnotes of the bank's
financial statements.
These
developments have all the hallmarks of cover-ups.
In
June the LBMA trading statistics showed that in May 2010 the average net
daily trading in gold by LBMA member banks jumped a massive 50 percent from
the month before to 24 million ounces each day from 16 million ounces each
day. That translates to $7.5 trillion annually. If an operation is running on
a razor-thin fractional reserve basis, such step changes are often fatal.
It
appears that a run on the bullion banks has commenced.
There
is a cover-up of back-door injections of liquidity of physical gold, and the
LBMA now is trying to conceal trading information.
There
has been much debate about how investors, politicians, and regulators didn't
see the 2008 financial crisis coming, and lack of transparency was cited as a
key reason. Clearly those who have been manipulating the gold market are
trying to skulk deeper into darkness. They have a lot to hide.
Investors
could have been blindsided by the events of 2008, but anyone who misses the
writing on the wall about what's going on in the bullion markets is just
foolish. The bullion banks have sold far more metal than they can deliver,
and more and more customers are asking them to deliver. This has led to
back-door bailouts and cover-ups.
Anyone
who has "unallocated" bullion should be very concerned. The LBMA
itself describes owners of "unallocated bullion" accounts as
"unsecured creditors." That means that the account holder has no
collateral or title to any bullion.
Bullion
bank unallocated account agreements require the bank only to settle in cash
for non-performance. That means when the physical squeeze that is evolving
takes gold and silver prices to multiples of the current price, holders of
unallocated metal accounts will not get any bullion, nor will they be
compensated at the prevailing market price.
I
interpret the LBMA's move to secrecy as a sign that the opportunity to get
real metal is closing fast.
Adrian Douglas
Marketforceanalys.com
Adrian
Douglas is proprietor of the Market Force Analysis newsletter (www.marketforceanalysis.com) and a member of GATA's Board of Directors.
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