Is The Gold Manipulation Backfiring?

The term “unintended consequences” is used to describe outcomes not foreseen by the central planner. It certainly describes most government programs.

For years, I have insisted that the term does not do justice to what actually happens. It is not strong enough to properly convey the results of major government actions. Hence, the “Pelerin Rule” was developed: Whatever the stated objective of a government program, the opposite will result.

There are innumerable examples of this law being fulfilled. The most recent is barely underway and the results are obvious. I speak of healthcare reform where the stated objectives were to cover more people, lower costs and improve the quality of medicine. As Obamacare rolls out just the opposite is occurring. People are losing their health coverage and health care costs are soaring. The deterioration in the quality of medicine will be apparent soon, especially once doctors begin leaving the profession.

Now the same phenomenon may be occurring in the gold market. In an effort to discredit gold, alleged government and bank interventions occurred that drove down the price. This action seems to have altered the gold markets in a way never intended. A move allegedly undertaken to tarnish gold’s luster purportedly in an attempt to protect fiat currencies and the manipulations of the paper gold markets by central and bullion banks appears to have brought physical gold, the last refuge from scoundrels, to center stage.  That is the opinion of The Golden Truth as expressed in the following article:

The Global “Fractional” Paper Bullion Market Is Collapsing

I wrote last week that there was a scramble going on globally by entities seeking to take physical possession of the gold on which they have a legal claim, most of which is sitting either in alleged “allocated” big bank bullion vaults or in alleged “allocated” accounts in Comex custodial warehouse vaults.

I also demonstrated mathematically, using the reported numbers on the CME website for precious metals futures open interest and warehouse gold/silver stocks, that the amount of gold represented by Comex futures open interest far exceeds the amount of deliverable gold on the Comex (the analysis is even more extreme for silver).  In fact, if less than just 10% of the buyers of June gold contracts demand delivery, the Comex won’t have enough gold to cover the legal claims.  For silver (July silver) it’s even more extreme.
This is a global problem and not just endemic to the Comex.  Globally, the legal claim of ownership on physical gold far exceeds the amount of gold represented by paper futures, LMBA forward contracts, leased gold and vault receipts.  The latter – vault receipts – is where the big banks in London have the most severe problem, as gold this is supposed to be sitting in “allocated” accounts under the name of the legal owner who bought and paid for those bars has been largely leased out.  I’ll get to that in a minute.
First, I received this comment from John Brimelow’s “Gold Jottings” report, which comes from Gerhard Schubert, head of Precious Metals at Emirates NBD, the largest banking group in the Middle East.  Keep in mind that Middle Eastern buyers demand physical delivery of their gold.  Here’s the quote from his latest weekly report:
I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

 

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.
The price hit of two weeks ago has triggered a serious scramble for physical gold and silver.  Reports like the above comment have been flooding from Europe, the Comex has had about 30% of its gold bars literally drained from the customer accounts of the Comex bank custodian vaults and the U.S. mint is running way behind on demand for silver eagles and some weights of gold eagles.  Ditto for the Canadian mint.
continue article at EconomicNoise.com:
http://www.economicnoise.com/2013/05/03/is-the-gold-manipulation-backfiring/