02 May 2013

Questions from TF Metals Report readers

Have got engaged in some discussions on TF Metals Report. Since I've spent a bit of time responding, may as well share with readers of this blog here in one convenient spot and for my easy of reference in the future.


victori: "I guess Bron Suchecki will make no mention of this in his blog (unless he's got something bearish to say?)"

Do you actually read my blog, this is what i said on April 22, so ZH is 8 days late: "The most interesting thing about this price drop is the reaction of retail clients, who have gone crazy like its 2008. The Perth Mint's bullion website has been having traffic problems and we've had lines at our Perth retail outlet. Depository buying is relatively more subdued, but still the volumes are up."

Purplefrog: "he lumped registered and unregistered together to make his point about how much Comex still has. I guess that is the same as allocated and unallocated. Am I correct in viewing those two categories as totally separate?"

Registered and eligible are both physical real metal, neither are unallocated or paper. While eligible is not "registered" for delivery, I included it because the fact that the owners keep it in COMEX deliverable form and in COMEX warehouses means they have an eventual intent to sell it back into the futures market. If they took it off eligible there would be costs to get it accepted back as eligible.
The recent moves in JPM's vault from eligible to registered demonstrate this.

Nick Elway: "If the physical-paper price connect becomes glaringly obvious, will Bron then be able to admit it?"

I am very interested in a physical-paper disconnect. It was the key part of my pesentation at the Gold Standard Institute seminar in 2009 on COMEX, see here http://goldchat.blogspot.com.au/2010/07/degrees-of-distrust.html and it is intimately linked with backwardation in gold. In the blog you linked to the quote from Jim Sinclair tells you what market to watch for the paper physical disconnect, and it ain't 1oz coins. Or do you disagree with Jim Sinclair?


Adolf_Hitler: "You wrote:"While eligible is not "registered" for delivery, I included it because the fact that the owners keep it in COMEX deliverable form and in COMEX warehouses means they have an eventual intent to sell it back into the futures market."

SLV has allegedly 15.001,355 ounces of silver in JPM NY, which is a COMEX warehouse. So you seem to admit that SLV or JP Morgan, which is the custodian bank of SLV, wants to dump the SLV silver into the futures market, AKA, make delivery?

If so many people want to sell physical silver in the futures market, then why is the level of registered silver so low? It's now 45,945,448 ounces. That's equal to the level of Sept 2006.
The ratio of registered vs eligible is now 1:2.6. That's equal to the level of Q1 2001. "

SLV itself doesn't buy or sell metal, it is the Authorised Participants (AP) who do that. If there was selling of SLV by investors, then the AP's would buy those shares, tender the shares to SLV for physical ex-NY and then sell futures against that physical, which they would deliver into the future. This is just an arbitrage and explains why SLV would hold metal in a COMEX warehouse as it makes the arbitrage of keeping SLV's price in line with silver prices easier.

Any amount of SLV stocks in COMEX figures would overstate the coverage ratio as SLV stock is not available to the market, unless SLV holders are selling.

With your registered vs eligible ratio what you are missing is that it is just a book entry to change eligible to registered. So if you just look at registered and go OMG its about to run out, you will get caught because it is so easy for the seller (who has been "hiding" their intention to sell by hold eligible) to instantly switch to registered. That's why I prefer to look at both together.


Adolf_Hitler: "3. You wrote “Any amount of SLV stocks in COMEX figures”(eligible silver) would overstate the coverage ratio as SLV stock is not available to the market, unless SLV holders are selling.” And you also wrote “I prefer to look at both (registered silver and eligible silver) together.”

These 2 sentences contradict each other. You want to include the eligible silver to calculate the coverage ratio. And you also admit that including SLV silver, which is eligible silver, will overstate the coverage ratio."

They do not contradict each other, I admitted that any inclusion of SLV stocks is overstatement however that doesn't mean you throw the baby out with the bathwater and completely ignore ALL eligible as you want to, particularly when the SLV stocks are potentially in play if their is net selling of SLV. Eligible + registered it not perfect, but better IMO than just using registered.

I side with the Doc on this issue, we'll just have to agree to disagree, see here:

"The most emphasis on COMEX silver inventories is placed on registered, as technically, this is the only silver that is available for delivery to longs. Theoretically, if 34 million oz worth of longs stood for delivery in September, the COMEX would default, as only 33 million ounces of registered silver remain.

In actuality however, I believe that the TOTAL silver inventories are what matters. Eligible silver supplies meet exchange requirements- they are simply not currently offered for sale by the owners. Clearly this silver would become available at a certain price. I also believe it likely that the owners would likely be strong-armed or forced into converting their eligible supplies into registered should things become desperate for the cartel."


Nick Elway: "Thanks for your link http://goldchat.blogspot.com.au/2010/07/degrees-of-distrust.html from 2010. While your Phases 3 and 4 of distrust didn't envision the recent paper price drop I would guess today's removal of gold from "the system" puts us in your Phase 4 of distrust.

The quote of yours that I commented on was your words "I have been trying to kill this[physical-paper disconnect] meme ever since it first appeared in 2008" http://goldchat.blogspot.com.au/2013/04/chill-out-dudes.html

If you've been publicly and forcefully trying to kill an idea for 4+ years then I wonder (cognitive dissonance effect) what would be your threshold to admit the idea has some validity? If the Perth mint was having to pay 10 per cent over the London fix to source bullion would that be enough? Would 50 per cent be enough? When would you quit trying to kill the meme and instead support the meme? Does the Perth mint count as a large enough buyer for its purchasing experience to be a valid measure?

In summary, if it isn't revealing a trade secret, can you tell us if the Perth mint has (or has not) had to pay more than x percent premium for bullion for minting in the last 2 months? At what x would you consider there is a physical-paper disconnect?"

The meme I've been trying to kill is the idea that the price of retail coins/bars is indicative of a physical-paper disconnect, not the idea of a physical-paper disconnect for wholesale forms of metal. This may not have been clear as I assume readers of that blog post are familiar with my prior posts on that matter.

We are currently not paying any premium for raw gold or silver. I don't think there is a specific level which constitutes a physical-paper disconnect. A few dollars wouldn't but $10 over spot would. What I am looking for is desperation by bullion banks when they are bidding for our excess (above coining and small bar needs) refining output, which could be indicated not just by what premium they are willing to pay, but say us being contacted by counterparties we don't normally deal with, wanting 400oz bars for shipment into London rather than kilo bars to Asia etc. Other factors would be backwardation.

I wouldn't say we are in Phase 4 because backwardation isn't there as described. A lot of Fekete's work is based on backwardation rather than just price drops (or rises) as the key indicator of stress, so I would place more emphasis on backwardation.


Fred Hayek: "You seem to present a false dichotomy, the ETF's have either everything they say or nothing. Why? This is silly. There are as many intermediate possibilities as there are putative holdings. Only if you pretend that one must accept a false dichotomy of possibilities, all or nothing, does Andrew Maguire's thesis make no sense."

I get the distinct impression from Andrew Maguire's work that he believes the ETFs have the metal, which is why I presented it as binary. Anyway, I don't see a partial coverage theory as making much sense. I mean, if you can get away with 80% cover when the auditors come around (the same auditor who does GoldMoney), then why hold 80%, why not 70% or 60% etc? And once you have whatever fractional amount in the vault, then would each additional ETF share sold or bought not require any physical, in which case my point is valid that those sales or purchases don't have any impact on physical price.

Strawboss: “defined a falling level of inventory in GLD as being in level 4 (the worst), implying that it signals a severe lack of trust on the part of investors to have their gold held by a counterparty. Would like to hear your thoughts on the recent GLD drawdown and what it means in terms of "trust in the system".”

Those phases were just a theory so I’m not saying it will play out that way, however, the phase 4 I suggested included ETFs balances declining AND persistent backwardation and at longer maturities. As we only have backwardation in the near contract, I’d say we are still in 2nd phase maybe moving to 3rd.

When I hear of 99.99% purity 400oz bars in London attracting a small premium, which is very unusual, then it tells me we are in a very interesting market situation. I would note that I’m not hearing that the bullion banks paying a premium to get 99.99% purity 400oz bars, so it is not a real squeeze yet.

TF: “Though your questions strike me as disingenuous”

I don’t play games, everything I do is straight up.

TF: “The reason I use "inventory" is the misleading assumption placed by others in the media and financial services that the gold "owned" by the fund is actually the sharholder's. Meaning, who owns the GLD's gold? From where did it come? From whom is it leased/loaned/hypothecated/rehypotecated etc?”

How the metal in the ETFs was sourced does not affect the ETF Trust’s title to it - the metal in ETFs is not encumbered. I address that idea here http://goldchat.blogspot.com.au/2010/08/gld-leasing-and-encumbrances.html

TF: “The scam of it all is the very misleading assumption that every ounce in the world is 1:1...that every "owner" of an ounce is the only person/entity with a claim on that ounce. This is why I use the terms "alleged" and "inventory". You, of all people, know that this is how the current, fractional reserve bullion banking system works, yet you come here and set up this simple, straw man A/B argument in an attempt to accomplish what?”

The metal in the ETFs is allocated, not unallocated. Unallocated is fractional, not allocated. As specific bar numbered allocated metal is not leased (as per my link above), then leasing/hypothecating does not give allocated multiple claims.

For allocated to have multiple claims requires the custodian to fraudulently give the same bar number to multiple people. No doubt you consider that a reasonable possibility. I consider it unlikely. Why? Because why would a bank engage in a straightforward case of criminal fraud/stealing which requires a large number of employees to be complicit in (vault staff, internal auditor, external auditors, risk & compliance department, traders) and thus have a high chance of being found out when that bank can engage in far more profitable manipulations of a virtual financial engineering nature where there is sufficient vagueness as to valuation and risk of the financial instrument that can be debated with auditors and accountants and thus give room for excuses for the few traders involved?

Consider the recent ABN Amro story which I blogged on here http://goldchat.blogspot.com.au/2013/04/chill-out-dudes.html which many think is a case of default on allocated gold. Sorry, not true, as when you read the conditions of those accounts and on page 6, section 4.3 it is clear it was an unallocated account. That is how the game is played. Why worry about having to shift the same bar around for multiple clients when instead you can use shifty wording in an agreement and rely on idiot clients who don’t read what they are signing?

Tabberto: “but you clearly doubt the manipulation/JPM meme”

I believe in manipulation but not suppression. One is short term, the other long term. Many of the manipulation and suppression theories are simplistic comic book stuff. Often why people consider me anti-manipulation is because I critique these theories. Doesn’t mean I don’t believe others, like this http://goldchat.blogspot.com.au/2009/06/death-of-gold.html : “To kill gold you don't manipulate its price, you manipulate its volatility.”

Tabberto: “Am baffled as to why you would frequent such an establishment as this if that is your view”

I have TF’s posts in my RSS feed, but don’t follow the individual comments as I’ve got a couple of hundred RSS feed to scan through each day. However, people often email me about specific comments which is how I find out about them.

Tabberto: “high-horsing over specific language while ignoring elephants in the room dilutes valid contributions, we may all be guilty of this but I felt I would point it out (as exemplified by your nitpicking over language both with Turd and Maguire previously).”

I nitpick because if ones starting point or fact is wrong, then the whole conclusion can be wrong. Getting the details right is important. The ABN Amro story is a good example. Because few have bothered the research the story it is now accepted by many as a case of allocated default. What that has done is just missed the real story of default on unallocated obligation to deliver physical (indicating fractional backing) and educating people on checking the terms of their storage agreements.

Tabberto: “Do you think that the investigation into Silver manipulation by the CFTC is still 'ongoing' only because despite there being no evidence someone forgot to advise the public? Do you think it is beyond the CFTC to understand the subject?”

I consider it completely ridiculous that it has taken this long and that makes the whole affair suspicious IMO.

Tabberto: “Do you think Bart Chilton of the CFTC is imagining things when he says its happening, or maybe he wants to be loved by the Goldbug crowd?”

Consider that the CFTC has to deal/manage/politic two types of market participants – producers, who want prices to be high and consumers, who want prices to be low. I have seen the theory that Bart’s role is to play to or appease the consumers, which in the case of PMs means they want high prices. I really don’t know if this is the case or he is just straight up. Either way he is often very careful in what he says, and keep in mind the difference between manipulation and suppression. Bart talks of manipulation, not suppression.

Tabberto: “Do you recognise that placing and then immediately pulling 'fake' trades on a non-collating platform as a market signal would constitute market abuse or manipulation?”

Yep. Manipulation is a continuum with differing views on what constitutes unlawful or unethical behaviour. Traders I’ve spoken to see most of it as just part of the “game”, like a boxing match to see who is stronger. I tend more towards the ethical end but not na├»ve to think that you can walk in and put all your (price) cards on the table and not get screwed.

Tabberto: “Do you feel there is any issue with price discovery overall in Precious Metals?”

Not generally. Then again, Perth Mint has never traded on COMEX. We shop around each week to find the highest bidder for the 5 to 6 tonnes of gold we refine, which mostly goes into Asia. If a bullion bank want a few $100 million of gold, they have to pay up. Can't get any more free market/brutal price discovery than that.

Tabberto: “Do you think that the London Gold Pool did actually exist in the 1960s and if it did why on earth would it not be operational now when it is needed more than ever?”

Yes it existed but that is ancient history – we were on a gold standard then and that was just what is now called FX and reserves management. I think the central banks these days are no so aligned in their interests that they would be willing to co-ordinate on gold, the game now is the value of your fiat vs other country’s fiat.

Tabberto: “Do you think the huge volumes in short timeframes on COMEX are pure and natural stop-tripping long-puking or do you believe that there is collusive shorting taking place that helps turn a sell-off into a waterfall??”

No it is suspicious and regulators should be looking into that as it is not rational selling behaviour, unless you are trying to hunt for stops, which is “trading” as discussed above.

Tabberto: “Do you consider the ETFS joint-custodying and then mixing bars up at HSBC (we all know that GLD/SPDR and ETFS were co-mingled as it was proven through Pythonesque means) to be a problem or maybe a good thing?”

I don’t think many vaults these days operate on a physical segregation “cage” type basis for numbered bars. It is just not practical and provides no additional safeguards. If there is a pallet with 32 x 400oz individually numbered bars on it then you know from your computer records which person owns which bar and you can pull that bar out at any time. How does putting each bar on 32 pallets or in boxes and recording in the computer that bar #1 in box #1 belongs to client A and bar #2 in box #2 belongs to client B etc make it any more “allocated” than recording in the computer that bar #1 on pallet #1 belongs to client A and bar #2 on pallet #1 belongs to client B etc? It doesn’t.
But that sort of physical segregation makes running the vault a lot more complicated and take up a lot more space, increasing storage costs without any increase in allocation-ness.

Tabberto: “are you happy with open pallets a la SPDR as the correct way to custody Gold in light of the above? A Genuine query of someone who should know about good practice.”

See comments above. That is how all vaults are operated. Are you saying the pallets should be covered up somehow? What exactly is the problem you have with this way of storing?

victori: “Your Conclusion: "That tells me there isn't any stress in the wholesale markets." Versus Jeff Clark's conclusion: "...You should know that supply among wholesalers is as every bit as tight as the retail side..." How do you explain this differing conclusion between you and Jeff Clark?”

Jeff Clark was talking about wholesalers dealing in 1oz and other retail forms. I’m talking about wholesale forms and quantities, that is, 1 tonne lots of gold kilo bars or 400oz bars.


  1. Bron,

    I think it really is great that you take the time and effort to help people understand the workings of the precious metals markets.

    I, for one, appreciate it. Thank you.

  2. +1 enjoy your continued efforts to promote rational discussion in the online precious metals space.

    Many of your candidly expressed views align with my own.

    No doubt there is a level of manipulation in the market, big players pushing their weight around (short term). If anyone is trying to suppress the price of metals (long term) they've done a pretty lousy job over the last decade.

  3. Anybody know if there is a good youtube link to Bron's 2009 presentation? Would love to hear it but I'm 4 years behind...

  4. Thanks for assembling these comments and your replies. I regularly scan TF's blog but missed most of these. Interesting and helpful.

  5. Thanks for assembling these comments and your replies. I regularly scan TF's blog but missed most of these. Interesting and helpful.

  6. I like your responses to Ned Naylor-Leyland aka Tabberto. Spot on Bron and thank you.

  7. I would really appreciate it, if you could explain how we have retail shortages or wholesale shortages for that matter, in a falling market? The reason a market should fall in the first place is over supply. Supplies should be willing to sell at lower rates because they have an abundance of supply. Most of us would gladly purchase at these prices and wait on delivery, but no one will sell/

  8. The price fell because of paper/speculative selling, it was not initiated by selling of physical.

    With gold you can't apply typical supply/demand analysis that you would do with commodities. Gold has an above ground inventory of around 70 years supply. Technically there is always too much and with that sort of inventory overhang for a commodity its price would be very close to zero.

  9. Here is another 'Epsilon type' quote for comparison.The United States Office of Strategic Services prepared a psychological profile report during the war describing Adolf Hitler’s method for controlling the minds of the German masses:
    “His primary rules were: never allow the public to cool off; never admit a fault or wrong; never concede that there may be some good in your enemy; never leave room for alternatives; never accept blame; concentrate on one enemy at a time and blame him for everything that goes wrong; people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it.”

  10. Nice quote, sounds like the operational procedures of many bloggers!