More Deception About the COMEX

The title of this post is a play on this TF Metals Report post. In it TF claims that deposits into JPM's stocks as shown on recent CME Gold Stocks report "are bullshit. Either completely fabricated and falsified OR simple paper claims. It's one or the other due to the simple statistical improbability of three consecutive round numbers totaling exactly 10 metric tonnes."

He then concludes that "this eligible gold deception currently being employed by The Comex is just another indicator" of "the end of the fractional reserve bullion banking system is rapidly approaching. Keep stacking and prepare accordingly."

I find it interesting that even though TF thinks that "this latest move is so brazen in its audacity" and says that "since no one else is talking about it, maybe I'm just crazy", he doesn't think to qualify his analysis. No TF, you are not crazy, you just didn't bother to do any research before jumping to a conclusion.

On the first page of the CME's gold futures rulebook it says:

"Gold meeting all of the following specifications shall be deliverable in satisfaction of futures contract delivery obligations under this rule:

1. Either one (1) 100 troy ounce bar, or three (3) one (1) kilo bars. ...

6. Upon receipt of the gold bar by the Licensed Depository who must also qualify and be designated a Licensed Weighmaster for gold, each gold bar shall be weighed in the lot measured to 1/100 of a troy ounce (two decimal points)."

Since gold kilo bars are cast to exactly one kilo, they all weigh the same - 32.15075oz. Under point number 6 that is then rounded down to 32.15oz. So 32.15 x 6000 kilos (ie 6 tonnes) gives the "statistically improbable" 192,900.000oz that TF observes.

I would note that in the wholesale markets kilo bars (as well as 400oz bars) are usually sold in 1 tonne lots, so it also makes sense that movements occur in the 1 tonne lots that TF considers a suspicious sign.

So TF's conclusion in his post is wrong because he didn't bother to check that COMEX allows kilos bars and that every kilo bar is recorded as 32.15oz, which multiplies out to the exact ounce figures.

I would also note that unlike kilo bars 400oz bars (and I believe 100oz silver COMEX ones) are odd weight, ie bars can be + or - of the target weight within approved tolerances - it is done this way because it is cheaper than casting bars to an exact weight. This is usually done by measuring out granules to the weight before then putting them into a mould and melting them. 400oz/100oz bars are casting by pouring from a crucible and relies on the skill of the pourer to fill the mould as close as possible to the target weight.

I was surprised that TF would not know the rules of his own futures exchange and one that he analyses and comments on, but it seems that he is not alone, with others republishing TF's post approvingly - GATA, Jesse, Harvey Organ & Bill Holter, Silver Doctors, Brother John F to name a few.

I can see why that may be, as kilo bars are primarily a size in demand in the India/Asian region rather than the US, and most of the bars in COMEX I guess would be 100oz. I note that the rulebook specifies a minimum of 99.5% purity whereas kilo bars for the Asian market are generally demanded to 99.99% purity. As it costs more to make 99.99 than 99.5, a bullion bank isn't going to put 99.99 kilo bars into COMEX and may not be able to use 99.5 COMEX bars to meet Asian demand without re-refining. So we sort of have two separate kilobar markets.

The end result of the above facts is that kilo bars in COMEX I guess would rare. Therefore, TF was on to something when he saw kilo bar movements into COMEX, the problem is he got the analysis completely backwards.

If Asian demand is high and a bullion bank can get good premiums on 99.99 kilobars, they are going to ask refiners to turn all mine dore into 99.99 kilo bars. So if we see 99.5 bars going into COMEX then it may be an indicator that Asian demand has eased. Maybe JPM had commitments with refiners to buy their output for a period of time, and if Asian demand had eased then they may have just asked their refineries to make 99.5 (for all we know maybe those deliveries were 99.99 kilo bars) and they are just parking them in their COMEX warehouse, waiting for Asian demand to return.

This Tuesday report from Reuters confirms the theory: Asia Gold-Chinese prices at a discount on credit crunch fears:

"'The rise in borrowing costs in onshore China plays a crucial role. People don't want to keep the metal and they try to dump it to raise cash,' said one precious metals trader in Hong Kong. Another trader said there had not been a significant drop in demand but liquidation of stocks was taking its toll on prices."

So if you were a trader, TF's advice to "keep stacking" on the basis of the unusual CME delivery figures was actually backwards - it was possibly a sell signal.

TF should keep an eye on the CME reports - if there are movements of round ounce tonne lots, indicative of kilo bars, out of the warehouses then it may be an advance bullish signal of Asian demand returning.

Unfortunately, I don't think TF is listening as six days ago I left comments to his post explaining the above kilo bar issue and he has not made any correction to his clearly incorrect post. Maybe he thinks I'm just an "ardent Cartel apologist and disinfo agent". A pity, as round ounce tonne lot movements looks like a good trading signal - if only you know how to read it.

Correction Nov 5th: After a discussion about this post with TF (see here, here and keep scrolling) I would like to clarify that I didn't intend to mean that TF's "keep stacking" was trading advice. My intent was to say IF you were a trader then you may have read his post as bullish. TF also noted that he was not following the comments on the original post, hence he missed by comments, so it was not a case of not listening.

I will also give props to TF for publishing my comments, which is more than I can say for some bloggers who remove comments that are critical of them.

Tax Office investigates $65m GST fraud in bullion market

Australian Federal Police issued a press release today alleging "companies fraudulently claimed GST credits and failed to report GST correctly. They formed syndicates to conceal the true nature of their activities and to avoid detection."

GST is a Australian sales tax of 10% that applies to precious metals that do not meet the definition of investment. It likely that the fraud involves scrap gold or silver where GST is payable. Note that it is being classified as "organised crime" which allows the police to invoke proceeds of crime laws so the people behind it can't hide behind the bankruptcy of the companies involved.

Gold and the Permanent Portfolio in Australia

On my way back from the Gold Symposium a couple of weeks ago I caught up with Davin Hood who runs the Cor Capital Fund, which is based on Harry Browne's Permanent Portfolio investment strategy (Craig Rowland's blog is a good source for information on this strategy). David's view (see his latest Quarterly Investor Report) is that "this is not a normal business and credit cycle and that global central bank policy will have unintended consequences that may result in asset bubbles, volatility and losses for concentrated investors and speculators" and as such, the Permanent Portfolio approach that Cor Capital employs covers these risks by having a "portfolio prepared for a range of outcomes at all times".

This agnostic approach is best demonstrated by Davin's answer to the question of why the gold price has not responded to the recent US government debt ceiling drama: "We don’t know but we don’t really care. It is only ever the fast money that rotates into or out of an asset in anticipation of others doing the same. ... In an environment where there is a loss of confidence in the US dollar and US bonds owning a hard asset that is liquid will protect the wealth of our unit holders, even when taking potential Australian dollar appreciation into account. Within the Cor Capital Fund this is of course not a ‘bet’ we are making but just a risk we are covering."

Cor Capital follows the strategy of a fixed 25 per cent in each of Australian Equities, Australian Fixed Interest, Australian Cash and Gold (unhedged, and held at the Perth Mint) but has a much tighter rebalancing band of +/-1.5% or more compared to +/-10% under Harry Browne.

Most of the work done on how the Permanent Portfolio performs is done in a US context (like Craig's book, also worth reading if you are interested in the concept) so I was interested to see that Davin has done a back test of the strategy in the Australian context which shows since 1970 (see page 10 of the Information Memorandum):

	Cor Strategy	Australia Equities	Australian Cash
Annual Average Return	10.5%	10.6%	9.1%
Std. Dev. of Annual Returns	8.9%	23.9%	4.5%
Value of $1 invested in 1970	$62.12	$66.20	$37.27

This is similar to the US studies, which show a good, low volatility return. Now I'm not making a recommendation to invest but I think this strategy has merit and is worth investigating. Even if you are not comfortable with the 25% allocations and have your own allocations between asset classes, the idea of forced rebalancings back to your target allocations is a good discipline to follow IMO.

Unfortunately, Cor Capital is currently limited to "sophisticated investors", which means an initial investment of $500,000 (lesser amounts may be accepted but you would have to demonstrate net assets of at least $2.5 million or gross income of $250,000).

Why gold's contango suggests central bank interference

In Faux Gold Arbitrage I mentioned that Tom makes the case that if anything, backwardation should be the normal state for gold. His paper arguing that case is in the clear on his site here and was also noted by GATA here.

Tom's argument is that backwardation, and not contango, should be the natural state for gold and thus the fact that gold has been in contango for "essentially all of the last 25 years strongly suggests central bank interference with the gold market." It is a counterfactual, trying to guess at how gold would behave relative to fiat if there was no manipulation.

It contrasts with those who focus on the short history of gold in the post gold standard world and observe that gold backwardation is rare, like James Turk in this piece for GoldMoney where he notes that "Gold backwardation is an abnormal condition" and "has only happened two times since this bull market in gold began back in 1999, and each prior occurrence lasted only a few days." Tom's article basically says that just because it is rare, doesn't mean it is abnormal.

James' view is based on the assumption that "interest rates are a reflection of risk" and that a currency "has a higher interest rate because it is more likely to be debased by government and central bank policy (i.e., lose purchasing power)". I think this is only looking at the supply side of the equation, and ignores demand for borrowing money. So for an economy with poor prospects there may be little demand to borrow and interest rates can fall even though no fiat is being printed.

James then says that "interest rates today result from heavy-handed central bank manipulations, thwarting real and accurate price discovery by the market" and that "market forces overpowering central bank manipulation can explain what is now happening in gold". But Toms says if contango has existed while markets have been manipulated and backwardation occurs when market forces overpower, then logically isn't backwardation the natural state for gold?

Tom makes a number of other points (including the point that money is often in backwardation, see my post on that here) and I recommend reading his paper as it will get you to think more deeply about gold, its monetary nature, and what backwardation really means.

CPM Group/Christian's Silver Summit presentation on Andrew Maguire

While Kitco broke the news of Jeff Christian's Silver Summit presentation, where "at the end of his silver market presentation, [gave] what he considers Maguire’s true employment history", they only reported some of the details of what was presented.

Whether you are pro or con Andrew, it does help to know eactly what Christian claimed. So I did something unusual in the blogosphere, and just contacted the source for a comment. Below is the text of Jeff's last slide, FYI:

Who Is Andrew Maguire?

Andrew Thomas Maguire, formerly Andrew Gerhard Maguire

Born 4 June 1951 in Germany British citizen

1980s: Sundry jobs in England

  Car salesman at Henleys, a car dealership, London

  Car leasing agent at H.R. Owen car dealership, Old Brompton Road, London

  ICS, start-up insurance courier company

1989: Immigrated to Canada and started a vehicle leasing company, Custom Lease Capital Inc. Operated for around five or six years, it appears.

Late 1990s: Day traded his own account.

2004: Started another vehicle leasing company: Auto Direct Leasing and Rentals.

2005: Left his wife and family and moved back to England. Apparently unemployed for two years or so.

Circa: 2008. Had a job in a financial institution in London which reportedly collapsed in the financial crisis. Reportedly was at Lehman, which he denies. Not clear what position he held.

Andrew says the above is "is totally inaccurate" in an email to Turd Ferguson:

"An article contrived by CPM Group's Jeffery Christian based upon spuriously sourced information and published this evening on Kitco News is attempting to question my 35+ year banking history and is totally inaccurate and I will be responding to this shortly. As most know, I have brought Jeffery Christian’s integrity into question on numerous occasions and this is no more than an attempt to discredit my work in exposing the unallocated bullion banking system of which he is a primary architect."

Andrew then followed up with the following comment in a King World News interview:

"Obviously I am going to be dealing with this in more detail next week, but there was no mention of my over 35 years of banking history -- as I said, I’ll put this farce to bed next week. So what if I have other business interests aside from trading? No company I’ve ever been associated with has ever gone bankrupt."

I have plenty of thoughts on this story but as it is still developing, anything I write will be incomplete without Andrew's response, so I'll hold off until then. In any case, no matter how it plays out, there is an important lesson in this story for goldbugs regarding "the cartel" that I will also cover.

Trip to Sydney & Melbourne

Next week I will be in Sydney for the Gold Sympoisum on 16th and 17th. A good selection of speakers, looking forward to those from Jeff Berwick, Louis Boulanger, John Butler, Dan Denning, David Evans, Chris Powell and Rick Rule. I also understand that BDO Tax Consulting will be covering tax issues with investing in gold, which should be useful in clarifying this often confusing area.

On Saturday the 19th I will be in Melbourne for the International Coin Show with a few speaking slots, the program includes:

11.00am Bullion Coins and their Markets - Ron Currie, Perth Mint Sales and Marketing Director

11.20am Factors Driving the Gold Price - Bron Suchecki, Perth Mint Manager, Analysis and Strategy

11.40am Stacking Precious Metals - Gold Stackers and Silver Stackers

1.00pm Gold Confiscation in Australia - Bron Suchecki, Perth Mint Manager, Analysis and Strategy

2.00pm Silver Stackers Discussion Panel - Ron, Bron, Ben and Mark

Look forward to catching up with any of you who are going to these events.

China Surreptitiously Acquiring Gold Via The Perth Mint?

I've got a post up on the corporate blog addressing a comment by Jim Rickards in a recent Financial Sense interview where he said that on the dip in the gold price to $1,200 China bought 600 tonnes from The Perth Mint.

Also, a couple of weeks ago I did a corporate post answering this question from a reader, for those interested:

"If there is an event (why I would be buying precious metals as insurance for) that sky rockets the price of the metals what is the chance that I will be "paid" in fiat currencies rather than in the actual metals? Especially when the currencies are plummeting and the PMs are skyrocketing. If gold will be paid in paper isn't it paper gold?"

Apologies for the lack of posts on this blog, have been busy with work. There are a number of draft posts in the works that have been nagging me to finish.

Amazing - Another ETF Tells Investors They Can’t Redeem

In this powerful exclusive, I want to tell my readers that I have heard stories about plenty of people who have actually tried to take significant amounts of the shares of SPY (the S+P 500 ETF) to the custodian and been told that they can’t have the 500 underlying stock shares.

IMPORTANT - Powerful entities do not want people to have access to the debunking that Goldchat provides. As a result I have had constant ignoring of, and interference with, this blog. Simply reload this blog repeatedly (don't listen to those that claim this will just increase my page hits, they are bankster shill).

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For those overly sensitive types who got all uppity about Shortodile Golddee, the above is called a parody. For those who don't get the joke see here (Eric will be disappointed that he hasn't achieved total gold blog world domination).

What I find amazing is that neither Grant nor Eric are aware that the only people who can redeem GLD for gold are Authorised Participants (and they only get unallocated gold, to boot). For those who are interested, I explained the redemption mechanics in detail in this post.

My best guess is that this rumour is based on is some large investor going to HSBC and asking for metal. Now ETF custodians will reject that because they can't take the shares directly, it is the trustee who gets (or issues) shares and then tells the custodian to give or take gold - the prospectus says that only Authorised Participants can access the redeem or create shares process.

It is a bit confusing what the rumour is, because initially Grant talks about someone going to the custodian, but then later mentions Authorised Participants. The other possibility is that the large investor went to an Authorised Participant and asked them to take their shares and redeem for gold. Again, the prospectus does not give GLD holders this right. I suppose an Authorised Participant could do it if it wanted, but there is no obligation. If the Authorised Participant involved was not a bullion bank with its own vaults, but just a paper trader/arbitrageur, then I can see how they would not have the capability to get physical for a client, particularly as they only get unallocated when redeeming.

Either way I think the custodian or the Authorised Participant telling the investor to bugger off is where the rumour starts and as we know with Chinese whispers the details get lost and it become generalised.

What I think would be news is if the investor went to one of the large bullion banks and the bank would not do a swap (buy GLD, sell them Allocated). In the meantime, this is no more than gossip.

Faux Gold Arbitrage

This is another post on backwardation, fourth in a row. Maybe I need to change this blog to www.backwardationchat.blogspot.com.

Anyway, I have been corresponding with Professor Tom Fischer of the University of Wuerzburg on backwardation and I've been remiss in not drawing my readers' attention to his Faux Gold Arbitrage article which was published by Bullion Vault on Sep 3rd or available from Tom's website as a pdf here.

Tom's article addresses the claim that backwardation is abnormal as it is profit that is not being arbitraged away and he picks up on the interest rate differential point I made in my 2008 "Gold isn't in backwardation, the USD is in contango" post.

An important point he makes is that arbitrage is "an investment that outperforms the risk-free rate of return in that currency ... “making money out of nothing”, or a “free lunch”, as we could borrow money if we do not have any, then outperform the loan's interest (the risk-free rate) by ways of the arbitrage strategy, and finally pay back the loan while keeping the profits over the risk-free return."

He goes on to note that if an investor had to first borrow gold to run the arbitrage, then at the end of the period the amount earned from selling gold at spot and buying the cheaper future would just equal the interest rate on the gold loan. Therefore no profit and thus no arbitrage.

 

Because gold is monetary (and not a commodity) and has an interest rate, OTC forwards and futures markets just reflect the interest rate differential between the two currencies USD and XAU. From this viewpoint, gold futures markets are just synthetic gold borrow/lend markets. Consider these simplified flows involved in a backwardation "trade" for someone with gold using Tom's numbers:

Start of trade:

1. Sell gold: -1000oz
2. Receive cash: +$1,500,00
3. Buy future (ignoring margin for simplicity) @ $1,470
4. Put cash on deposit @ 1%: -$1,500,000

End of trade:

1. Recall deposit with interest: +$1,515,000
2. Pay cash for future: -$1,470,000
3. Receive gold from future: +1,000oz

Consider these flows for a gold loan:

 

Start of loan:

1. Loan gold @ 3% based on $1,500 price: -1000oz

End of loan:

1. Gold loan repaid: +1,000oz
2. Receive interest on loan: $45,000

Compare the net flows between the two:
 

Date	Backwardation Trade	Gold Loan
Start	-1,000oz	-1,000oz
End	+1,000oz	+1,000oz
End	+$45,000	+$45,000

Backwardation (or contango) in a futures markets for currencies like gold is not an arbitrage trade, it is just a lend (for a backwardation or decarry trade) or borrow (for a contango or carry trade). Futures market prices just tell us what market participants think is the appropriate interest rate to receive or pay for a gold loan.

That interest rate is interesting and tells us something about the views of market participants, especially with respect to US dollars. But there is nothing right or wrong/abnormal about the fact that gold interest rates may be higher than USD interest rates, just like there isn't anything normal or abnormal about the fact that AUD interest rates are currently higher than USD interest rates.

 

PS - in emails Tom makes the case that if anything, backwardation should be the normal state for gold. But that is for another post.

PM Bug forum comments on backwardation

Those who are not bored to death with the backwardation/gold bank run narrative may find my comments on this PM Bug forum thread of interest, which was in response to this post of mine. I've cut and past some of them below for the lazy readers, but to get the correct context of Mr/Ms Unbeatable's probing questions you need to read the thread. I'm working on some posts on GOFO/backwardation to further expand on my comments in this post.

Originally Posted by Unbeatable:

Hmm.... When he sees 400oz bars attracting a 'special premium' he will let us know?The two biggest gold consumers India & China are paying a $30+ premium an ounce over spot, a 600%+ increase over what they paid in previous years!?

The premium in India and China is not for 400oz bars, but for smaller forms and particularly in India there are import duties and other taxes that go into the premium. The demand in India and China is high, but it is not translating into premiums for the raw wholesale form (400oz bars).

Originally Posted by Unbeatable:

Hmm... When he sees bullion banks desperately bidding on Perth Mint's refining output he'll let us know?

My statement was about bullion banks and 400oz bars. Your quote is referring to demand for coins, two different markets. You are missing the whole point of my comment, which is that retail level demand, premiums do not reflect a shortage of gold at the wholesale level and a run on the fractional reserve bullion banking system.

Originally Posted by Unbeatable:

Hmm.. When he sees restrictions on how much gold can be bough he will let us know? 'the Reserve Bank of India banned import of gold by domestic consumers through bank credit' ' Gold coin and bar sales stopped in India' 'Pakistan temporarily bans gold imports'

You are misquoting again. The restrictions I was talking about was restrictions by GoldMoney and Bullion Vault, not any restriction in any market. I picked GM and BV because they buy 400oz bars for their pooled storage products. If there was a shortage/run on the wholesale gold banking system then GM and BV would have problems sourcing 400oz bars. They are not.

Originally Posted by Unbeatable:

But to be blunt (And as I think you know full well yourself), the idea that you'll see the overt stress indicators that you suggest coming from the bullion banks actions themselves is quite frankly absurd because the day they show provable supply side issues is the day they default.

Nope, it is not a sudden event, it will build up over time and signals will be given, see http://www.goldchat.blogspot.com/201...strust.html‎ (that does need some refinement but the basic idea is there). Bullion banks, just like any bank, will do everything they can to drag out and avoid a run, they aren't just going to throw their hands up at the first sign of trouble. Those "do everything" will be gradual at first and will be visible to us in the wholesale market who know what to look for.

Originally Posted by Unbeatable:

Which is why I showed how each of the indicators are already clearly manifesting themselves in the gold market. (& though you repeatedly try to pretend that there is this massive separation between stresses in demand in the retail and wholesale market, they are in fact completely interlinked.)

There is separation between retail and wholesale. Most of the retail problems/premiums are driven by production capacity shortages rather than shortages of raw gold or silver. For example, during the 2008 financial crisis the blogosphere was going crazy about shortages of silvers, particularly, yet the Perth Mint was shipping in 20 tonnes of silver each week from London for about 20 weeks on end. Go and have a look at my blog around that time.

The indicators you mention are just indicators of strong end user demand, not a run on the bullion banks nor any stress at that end. India premiums reflect the restrictions the Govt has put on, something they have been ratching up for a long time well before this talk of a run/stress and driven by a CAD problem. It hasn't affect demand much at all - instead of the shipments of gold we sell going to India they have suddenly started going (demand coming from) dubai and thailand, funny that.

Originally Posted by Unbeatable:

1. In times of demand stress the bullion banks are the ones supplying many mints with additional refining input never mind bidding on the output?

Nope, got that wrong. US Mint, yes needs to get metal from the market but the two other big ones - Canadian Mint and Perth Mint - are refineries so they source their own metal and in fact have excess left over after coining needs. Perth Mint refines around 6 tonnes a week and we use 10%, maybe up to 20% if lucky, for coin production. The rest we turn mostly into kilo bars and then sell it to the highest bullion bank bidder - it is that premium on kilo bars that tells us how desperate they are, in addition to where it is going and what form, gives a lot of info.

Originally Posted by Unbeatable:

2. I'd imagine the bullion banks have preferential contracts in place and ones that prohibit you, a Perth Mint employee from disclosing market sensitive information, so I take your 'I will let you know' with a pinch of salt.

We work with a range of bullion banks and have no exclusive supply arrangements. While we have customer privacy requirements, that does not stop us from making general statements about what we are seeing. And there is no such thing as market sensitive information in bullion - it isn't an equity.

Originally Posted by Unbeatable:

3. If the bullion banks were having issues, instead of people like Perth Mint employees letting the public know about it, I'd expect them to go out and try to convince people of the opposite - 'Don't worry there are not wholesale supply issues' & shi*, look, here you are...

Actually, it would be more logical for us to hype up shortages so that we could increase coin and kilo bar premiums and make more profit. I've rarely seen any market comment coming out of the major refiners talking about how crap demand is. Shortage hype is used by coin dealers to 1. get people to buy now 2. pay excessive premiums. Perth Mint has a bit more integrity and we stick to the facts. Why do you think Perth Mint and I get so much crap on the gold blogosphere - because we are wrecking their sales patter.

Originally Posted by Unbeatable:

So rather if I was looking for supply problems in the 400oz wholesale market, I'd look for signs of additional central bank leasing, particularly the Bank of England who are a key source of supply in times of stress. & shi* look a story just in the last two weeks that the BOE may have leased up to 1300 tons in the 400oz wholesale market in the first half of the year

You are on the right track here, a run is about liquidity, so the first action of a bullion bank experiencing a run will be to lease/borrow gold (not buy), which should show up in increasing lease rates (which has the effect of decreasing GOFO) - although lease rates are still quite low compared to stress periods in the past but trending up.

The 1300t story is another beat up, see here http://www.screwtapefiles.blogspot.c...or-layout.html the BoE said that the figure that Alasdair relies on for his whole thesis cannot be relied upon.

Originally Posted by Unbeatable:

Or I'd look for signs that Bullion Banks are running short of supply and/or are being forced to help one another out. & shi* look at how much of JPM's inventory has been removed this year and also this story from just yesterday

Those sort of inter-bank transfers are standard part of market clearing http://lpmcl.com/

Originally Posted by Unbeatable:

But as these don't constitute hard evidence, & people like Potemkin would say 'Rumours, words, stories...' I chose to bring up provable supply side shortages &/or unprecedented demand in the gold market which is of course what creates the wholesale market problems you are witnessing above.

Signs of increased demand and just signs of demand, not a bank run and does not cause a bank run as the bullion banks just act as a broker between buyer and seller and let price manage it. It is only unallocated holders taking delivery that creates a run and possibility of default. That shows up in lease rates and the futures/forward market first.

Originally Posted by Unbeatable:

Really!? How many hours do you think it will take from the time they announce purchasing restrictions to Gold Money to the time they default? I think you know that this is the very last thing they will do, if they don't actually just default first.

First sign will be premium increases, that is the key signal. And it won't be explicit purchase restrictions, more like delays due to "transport issues" etc.

Originally Posted by Unbeatable:

If there are demand stresses for gold, I think it's (painfully) obvious that they would rather do their best to try cut demand from the biggest gold consumer, India. (EDIT: Which is obviously why I brought up the restrictions in India and outright temporary import ban in Pakistan as being very indicative of shortages in the wholesale market.) As this would ideally (For the bullion banks) have the effect of decreasing demand for their good delivery bars in that market and also freeing up mint output sourced from the mines & scrap, so that it could then be used to refine new 400oz delivery bars for the bullion banks as opposed to coins and smaller bars for retail.

See my earlier comment on India. The Indian restrictions aren't doing anything to stop demand, it is just being smuggled. The Indian Govt actions are just about making their CAD figure look better to financial markets.

Originally Posted by PMBug:

Bronsucheki, are you able to confirm or deny this claim (at least as it pertains to the Perth Mint) from Bill Haynes?

No can't confirm it directly as we aren't being given any 100oz (ex Comex) or 400oz (ex London ETFs) bars by bullion banks to melt and recast into kilo bars. However, we are seeing good demand for our refining output into kilo bars for shipment into China, Dubai and Thailand, so the Bill and Tekoa reports fit in with that.

Originally Posted by Unbeatable:

Hi Bronsucheki, thanks for taking the time to give such a detailed response and for doing it in a pretty reasonable tone despite how confrontational mine was. Also especially considering that you work & have considerable knowledge in that area vs. me who doesn't.

No problem, don't mind being challenged. This time is different to 2008 and certainly more stress, I'm just not sure there is a run on yet, but it is finely balanced I think. We are seeing very high premiums on kilo bars, premiums we haven't seen for a very long time.

In addition, we did hear that 99.99% purity 400oz bars were attracting a premium in London (but the normal 99.5% purity wasn't). Mostly likely explanation for that was that 99.99% purity 400oz bars could just be melted and recast into kilo bars (which are generally preferred to be 99.99% purity in Asia/India) without needing refining. Screwtapefiles blog did some good analysis on the number of 99.99% vs 99.50% purity and what was being withdrawn from GLD, but nothing conclusive yet.

So certainly this is all very unusual and you're right to be cautious.

Originally Posted by Unbeatable:

So I'm surprised during the period of unprecedented demand this year that you didn't have to source any additional supply from the LBMA in London again?

Perth Mint is primarily a gold refiner and we get silver as a by-product of that gold refining. Normally the silver was enough for our coining needs but in 2008 the demand was so high we had to source silver externally. Since then we have picked up some more silver refining so have enough silver now, even with higher demand.

Originally Posted by Unbeatable:

You also say the majority of your non coin production is being made into Kilo bars for the highest bullion bank bidder. But I was under the impression that the bullion banks dealt in the larger 100 & 400oz bars & that the 1 kilo bars would be more for the retail investment market?

1kg = $40,000, not exactly "retail" by most definitions! Bullion banks deal in any size - they cover all markets. 100oz gold bars are primarily a US market size. 400oz bars are usually used for investment, bulk long term storage, they are not really convenient for use in industry/jewellery/mint as you need a big caster to melt 400oz, plus 400oz is 99.5%. So, particularly in Asia, the smaller 1kg in 99.99% purity is preferred by jewellers. Plus when I talk about kilo bars wholesale, that is selling in half or one tonne lots, eg $20m to $40m deal size.

Originally Posted by Unbeatable:

But the import taxes/duties in India are 8% that would be $104 an ounce, far higher than the $30 premium the media is using. Doesn't this mean that the $30 premium is the premium they're paying prior to import duties/taxes being applied?

Yes correct, the $30 would not include that import tax, but I believe there are some other duties/fees and often bullion banks selling into distributors in India include shipment and finance deals in the price, so I'm not sure the $30 is the full premium. However there is still a large premium in that market reflecting the restrictions and driving the smuggling, so I probably pushed my point too hard there. The premium is also highly volatile as the Indians are very price sensitive.

Originally Posted by Unbeatable:

this is perhaps the first time we have seen this happen laterally between two vaults

Has ZH been following these comex reports for the past ten years? I doubt it. I am sure if I had the time and went through all the reports I would be able to find this happening many times. One also needs to consider that if a BB is doing other movements/transfers as well as to another BB's vault, that is not going to be visible as the aggregate number would combine both. So one cannot say this is unusual.

Originally Posted by Unbeatable:

Today I see another negligible 4k ounces went from Scotia to JPM and JPM converted a massive 70k ounces from there 360k registered total and moved it onto their 100k eligible total.

The transfer from registered to eligible is why one needs to add both stocks together and compare that to open interest, which is what I did in this post. The current coverage ratio for gold is 17.7% and silver 24.5%. Looks like plenty of metal for redemptions.

Originally Posted by Unbeatable:

Personally I think at the very least a Bullion Bank run is in progress at JPM and I think even though the writing is on the wall, the others are just trying to help JPM make it to some pre-determined end date.

How long do you think banks runs last for? I note no commentator is really putting a date out there, except Jim Sinclair "because of the continued fall in gold inventory that within in 90 days or sooner the Comex must change its delivery mechanism". Personally I think by mid-Oct Comex will still be going on as per normal and the BBs will still be around.

Originally Posted by Unbeatable:

My question to you is, having seen how these unusual transfers have continued since my original post do you still think

As noted above about ZH, I question whether there is any proof these are "unusual transfers".

Originally Posted by Unbeatable:

My question to you is would you agree that the banning of buying gold on consignment did have the effect of considerably decreasing India's overall physical gold demand for 1-2 months (incl. smuggling)?

Yes, as India had a relatively open gold import system the sudden rule changes crimped legitimate imports but the smuggling network was not in place to take up the slack so that would have had the net impact of restricting demand. We have recently seen a pick up in demand from other countries which tells us smuggling has started back up.

I disagree with Eric Sprott that western central bankers "called up" India and asked/told them to do these import restrictions to help them out. I agree more with Jim Rogers on this "Indian politicians who suddenly blamed their problems on gold. The three largest imports to India are crude oil, gold and cooking oil. Since they can’t do anything about crude and vegetable oil, the politicians said India’s problems were because of gold, which, in my view, is totally outrageous. But like all politicians across the world, the Indians too needed a scapegoat."