30 November 2012

ETF Price Suppression Mechanics

I've got a response up to Andrew Maguire's TF Metals Report article on the corporate blog "explaining" how bullion banks use ETFs to suppress the prices of gold and silver.

I wasn't planning on it turning into a 5200 word, 12 page article, but so many memes to set straight (do ETFs have the gold, ETF market making, share borrowing, 100:1 fractional reserve bullion banking) plus Andrew really didn't explain the "mechanics" very well.

I suspect Andrew expropriated Victor's idea about the ETFs being used as a source of metal, far too many similarities I think (eg reference to "inventory financing" and the selling and buying GLD versus unallocated strategies). Andrew really got himself into a knot however in explaining these.

I've had it on my to-do list to address Victor's post in detail, and I have sort of done that with this Andrew response, but it does not address Victor's inventory changes and "inventory strategy", for which I need time to analyse the numbers in detail myself.

I look forward to Victor rebutting my comments, which will be funny because he'll be supporting Andrew at the same time in a way.

One point I would make is that Andrew's post was originally written for TF's "Army" members. Ignoring the factual errors, the best that can be said is it was written in a slapdash way, stream of consciousness style, without much effort in writing simply and clearly. I would have thought paying members deserve better.

I was a bit suspicious when Andrew "arrived" out of nowhere with his evidence and then surprise, he shortly thereafter had a service to sell at http://www.coghlancapital.com/. Not supplying his CV also doesn't help (but FYI he has his own Wikipedia page). I also don't buy TF's explanation that Andrew "doesn't talk to ANYONE because of the ongoing CFTC investigation and the current silver manipulation civil lawsuit" - releasing a CV isn't going to be a problem in that respect. Jeff Christian has made a big deal about the CV, so why not bury him now on that matter?

Anyway, this article by Andrew has just got me asking more questions about him. This may seem like small stuff, but:

1. Andrew's use of "spot index" - this is not how London bullion traders talk (and I checked with a bullion bank contact to make sure and they said that phrase is not used).
2. Getting the number of GLD's APs massively wrong.
3. Borrowing shares "from the ETF".
4. "Allocated at the fix."

These are just not mistakes someone with deep knowledge of the bullion market would make. I note that his Coghlin website About section says "the last 19 years of which have been as a metals specialist" - doesn't say "precious metals specialist". My best guess at this time is he is a trader of base metals who made the switch to precious metals as that is the hot market and doesn't want to release his CV because it is hard to get people to pay you for precious metal trading advice if you can't demonstrate experience in that market.

Hey, this speculating without any facts and making stuff up is fun and easy. I should do more of it, everyone is doing it you know.

18 November 2012

Moving gold in/out/around Australia

The question of the need to declare movements of gold/silver in/out of Australia (as well on domestic flights) pops up frequently, most recently on silverstackers. I left the following comment to that forum thread below.

I think we need to distinguish between the security screening and customs functions (international flights only), which have different purposes.

Domestically there are no customs - something to do with the Australian Constitution i think :) So the screening is just for security reasons so I see no reasons why you can't carry as much as you want on a flight within Australia unless the security people think you are going to clobber someone over the head with your PMs.

There possibly is some thing for the security people about looking out for potential criminal activity but I suspect they are just trained to look for anything out of the ordinary, which would account for the request to check what those discs or blobs of metal are in your luggage.

For international flights/customs, there isn't anything in the Migration Act 1958 about gold. In Division 3.1 (Information to be given by arriving persons) of the Migration Regulations 1994 there is nothing about the interpretation of the wording on the passenger card, which says:

"AUD$10,000 or more in Australian or foreign currency equivalent? Note: If a customs or police officer asks, you must report travellers cheques, cheques, money orders or other bearer negotiable instruments of any amount."

Same wording on outgoing declaration:

"Are you taking out of Australia AUD$10,000 or more in Australian or foreign currency equivalent? If answered ‘Yes’ you must complete a Cross Border Movement – Physical Cash (AUD$10,000 or more) Report to present with this card. Note: If a customs or police officer asks, you must report travellers cheques, cheques, money orders or other bearer negotiable instruments of any amount."

The above requirements come from the AUSTRAC Act 2006, Section 53:

"53 Reports about movements of physical currency into or out of Australia
(1) A person commits an offence if:
(a) either:
(i) the person moves physical currency into Australia; or
(ii) the person moves physical currency out of Australia; and
(b) the total amount of the physical currency is not less than $10,000; and
(c) a report in respect of the movement has not been given in accordance with this section."

The definitions section in the AUSTRAC Act 2006 defines physical currency such:

"physical currency means the coin and printed money (whether of Australia or of a foreign country) that: (a) is designated as legal tender; and (b) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue."

would seem to exclude Perth Mint coins and bars as they don't circulate as money. That is, precious metals are not reportable at all, and face value has no bearing. To back up this view, see this interesting article by the Australian Institute of Criminology where the whole focus is on cash money laundering (includes great examples of how people try to smuggle cash and stats on the number of cash reports). I just don't think money laundering in/out of the country via bullion is a big risk that AUSTRAC are interested in - I mean, it is going to show up on the security scanners so can't actually be smuggled. See the AUSTRAC Typologies page where I can't find anything relating to gold.

FYI, note that moving cash in/out of the country is allowed, you just have to report it, see this Customs PR release:

"A 44-year-old Stirling man was detained for allegedly attempting to export over AUD$182,000 cash out of Australia via Perth International Airport. ... On his Outgoing Passenger Card the man had declared he was not taking over AUD$10,000 in cash out of Australia. ... There is no limit to the amount of currency you can bring in or out of Australia, however, under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 you must declare amounts of AUD$10,000 or more in Australian currency or foreign equivalent."

However, note that in the article it says that "Customs officers subsequently referred the matter to the Australian Federal Police (AFP) and the large amount of cash has been seized by AFP officers and investigations are continuing." While there is no law against such cash movements (just on not reporting it), keep in mind that the police can seize it if they think something dodgy is going on (proceeds of crime etc).

End result is, in my humble and non-legal advice opinion, while you don't need to report bullion, it will get picked up in the scanners and on the basis that such activity is not normal. Questions will be asked, so good to have proof of ownership so the AFP doesn't have cause to think it is proceeds of crime and want to "investigate" it further.

04 November 2012

Gold Symposium Trip

Back from my week long trip over East and have now caught up on the inbox/to-do. Monday and Tuesday was the Gold Symposium. Good to see a lot more bullion dealers there and a lot of people interested in the bullion investment sessions, in contrast to mining companies which has been the focus of the conference in the past.

David Evans from Gold Nerds gave the same presentation as last year but had tightened it up (click here). I think it is one of the best presentations for people new to gold or why they should be buying gold - its doesn't hype up the case or is too gloomer and is quite factual. If you have someone you are trying to convince to get into PMs, I'd recommend sending them this presentation.

Keith Weiner's presentation was also good but I can't find it on the Symposium slide share site. Other ones worth looking at are Richard Karn, Dan Denning and Rickards of course.

Funniest part was the presentation by the BetaShares guy on their USD hedged gold listed ASX product. I met him before his presentation and said I wouldn't heckle (as the Mint's PMGOLD is a competitor) but when he said that the 50% CGT discount didn't apply to physical gold purchases I couldn't let it go by with a comment/question at the end. However, I had to first wait for the inevitable questioning about his statement that physical buyers risked a 5%-10% cost for refining/assay when selling back!! He also lost a lot of people in trying to explain how the 30 forward FX hedge worked. All in all it was a Fail, as they say.

I think next year they should have one room for mining company presentations which you can drop in and out of as you see fit (plus it would give them a bit more time) with all the investment in PMs presentations in another room.

At the dinner/awards at the end Jean Kittson was very good with the mining/gold jokes. Also I think Gold Stackers should have won Trader of the Year award and got stooged on that.

Wednesday I went to the Sydney silverstackers lunch time meet up but had to cut that short because had lunch with Dirk Baur from University of Technology Sydney to chat about gold. He has done a few papers on gold, safe haven assets & seasonality - worth checking out for the academically minded, see his section on the SSRN website.

Thursday met up with BullionMark/Ainslie/Reserve Vault. Class outfits all of them and Mark will bring his usual professionalism to the Reserve Vault business providing another option for Brisbane stackers not happy with the outrageous Allocated storage fees of the Perth Mint :) Seriously the more options for investors the better for the market as a whole - its all about diversification.

Later in the day caught up with Warren from screwtapefiles blog to chat about his Bullion Bars Database project to see what we might be able to find out about the OTC bullion market. Pity Warren has a day job and can't spend all his time on that work as I think there are some nuggets buried in the data. Dinner later that night with some Brisbane PM bugs of varying ages was a treat intellectually and I was bummed to have to cut the stimulating conversion short due to an early flight out the next day.

Friday was a fly in and fly out visit to Nick of Sharelynx. It was great to meet Nick in person for the first time and we gasbagged on gold for about 6 hours straight and forgot about lunch (but not beer). The amount of data Nick has accumulated since the 1990s is invaluable. Well worth the subscription as I always say.