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Debunking the Precious Metals Fear Mongering Campaign - Erik Townsend

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  • #61
    Re: Update from the author

    Thank you very much for taking time to reply in such detail.
    Originally posted by xPat View Post
    The whole point of the article was to point out that instead of focusing on their chartered mission, GATA has been instead engaged in a rhetoric campaign pertaining to issues on the LBMA that the GATA people clearly don't understand and have not represented accurately.
    Here we agree completely. GATA has focussed on the wrong target, missing the crux of the problem. I was surprised to see so little understanding of an issue that should be the reason of its existence. If an organization has a mandate to fight against price manipulation on the gold markets by central banks one would expect they would at least have a basic understanding of how:
    -commodities (gold) futures markets work
    -gold price can be manipulated
    -central banks have the ability interfere in the price discovery process, using among other tools large position players (like JPM)

    GATA's failure was abysmal here.

    Originally posted by xPat View Post
    Meanwhile the critical issue of actual market manipulation and the still-pending CFTC review of position limits on the COMEX was taking a back seat to baseless allegations of fraud and default in London.
    Here I agree completely.


    Originally posted by xPat View Post
    Some people seem to think I am refuting the possibility that the market is manipulated. The opposite is true: I think the market is manipulated, and for that reason I think it critical that someone do a competent job of the task GATA has undertaken incompetently.
    Here I would like to offer my feed-back. I believe that a lot of people got that impression due to the fact that in your piece, while you made very clear why GATA has the wrong target, you didn't put the same weight in describing what is the real target they should foccus on and how can the sistem be (and probably is) abused.

    I think that one paragraph (right at the beginning or in conclusion) describing in simple and clear terms that:
    physical PM trading + paper gold trading of classic speculators= good for price discovery

    while:

    physical PM trading+ paper PM trading of classic speculators + paper PM trading of manipulative speculators = bad and the system can be abused.

    Most gold bugs and small gold investors have an unfounded bias against all paper PM trading (GATA makes this mistake too) not realizing that the classic (economic but non-manipulative) speculators have a positive influence on creating open and transparent market and are unable to differentiate between classic speculators (non-manipulative), while financial manipulative speculators (such as JPM, GS and large hedge funds) can abuse (and probably are abusing) the system.

    Some of the reactions on this thread are a clear evidence of this "all paper PM trading is bad" mentality.

    If you wanted to pour a little more gasoline on fire, you could also explain the well known fact that such large financial players, which have the ability to abuse the system have close relationships with central banks, interested in depressing the gold price (this connection is a fact, not an allegation).

    Otherwise, IMHO. the piece is excellent and I completely agree with everything stated there and in your reply. Keep up the good work, because people (GATA included) need a better education to understand what is the real issue, so they can be able to ask for the much needed proper regulatory overhaul.

    Comment


    • #62
      Re: Update from the author

      It's been a long time since I looked at the data myself but this chart confused me.

      For the chart to stand alone (which is what I think you meant to do) you may need to copy and paste a blurb from Christian's book.

      The red bars I believe are amounts of Gold that actually change accounts (they don't physically move). The Green bars would be red except that the parties to the accounts owe each other Gold, and when you subtract mutual exchange you end up only moving a small amount of Gold.

      In other words the green bars are all physical, no derivatives (futures or forwards or options) are reflected in the green bars, but the 2 way exchange nets out to the red bars.

      That's to the best of my recollection anyway.
      Originally posted by xPat View Post

      I pointed out to them that had they done even the most basic research, they would have known that information has been available to anyone free for the asking at www.lbma.org.uk since 1997, and that they needed only to visit Jeff Christian's web site or buy his book, where they would have found this chart:

      [ATTACH=CONFIG]3214[/ATTACH]

      Umm, well, for some reason the chart pasted into the edit window really small and wouldn't resize.. Try Clicking on it. If my preview pane is accurate, you should be able to click to get an enlarged view. If you can't read it, it's showing the LBMA clearing volumes in millions of ounces. The green and yellow bars are the derivatives and the teeny weeny red bars at the bottom are physical bullion volume.

      The GATA guys expressed great shock to learn, apparently for the first time at the CFTC hearing, that LBMA was mostly paper. They have now posted a rebuttal to my article here, where they insist this information was not "well-known" as I claimed. Ok, fine, if they are using themselves as an example, it's apparently not well known. But my point was that its public knowledge and they needed look no further than Christian's book or LBMA's website to find it. It's certainly never been a secret, as GATA has repeatedly insinuated.

      Comment


      • #63
        Re: Update from the author

        "What you really need is a physical market tied directly to the paper market in a system where everyone is forced to behave and nobody can take advantage of the system."

        Even a purely physical market can be grossly manipulated, the art market immediately comes to mind.

        It can take years to build up a market in a particular artist or genre, where the would-be market-makers buy the works back and fort between themselves, gradually jacking up the price and building interest. Sure it's illegal, and is done all the time.
        Justice is the cornerstone of the world

        Comment


        • #64
          Re: Update from the author

          It won't take a nuclear war to trigger the doomsday scenario you describe.

          But here's the real issue: the paper gold market is not the only such market. That's the real problem.

          We've allowed a financial tower of babylon to evolve haphazardly - with the focus not on its integrity, but on its profitability. Yet we study each brick individually by itself, standing alone, and say the odds of each brick failing are minimal. The problem is, when you look at all the bricks in toto... and how they push and weigh on eachother, the degree of risk changes. It grows exponentially.

          The financial world nearly ended with LTCM, we did nothing different afterwards. The financial world nearly ended when a mere spark we called subprime loans ignited - we patched things up - at an EXTREME cost. I don't recall any nuclear weapons being deployed that could have triggered LTCM or the Global Financial Crises that began in earnest in the fall of '08.

          We used up a lot of ammo to hold off that catastrophe, we don't have much, if any left.

          It's no longer a lone subprime borrower game, no longer a hedge fund game, or a TBTF bank game, it's now a sovereign game. And it's happening real time.

          Yet the madness continues. The paper casino is running full speed.

          I''ll break it down even further:

          The casino is too big, too leveraged, and in the end, too useless. People buying things: metals, foodstuffs, energy, insurance, etc... yet they don't own them. That's madness.

          But my argument is not technical enough, some may say. That too is the problem today. It takes a lot of brain power to understand the intricacies of these derivative markets. Most people are clueless.

          But, if the players are so smart - what can go wrong?

          [edit... I don't mean to sound adverserial. I appreciate your article and effort to share your info and opinions. I'm just taking a more macro view)
          Last edited by gnk; 04-22-10, 10:43 PM.

          Comment


          • #65
            Re: Update from the author

            Okay, since we mostly agree. I'm going to ask you a question for FUN.

            I assume you read my response to symbols:

            "Alan Greenspan in his congressional testimony DIRECTLY contradicts your assertion here. In fact, he makes the direct claim that derivatives are of benefit to monetary authorities PRECISELY because they absorb excess monetary emission that might otherwise flow into demand for real goods, namely commodities."

            So I agree that manipulation can take place regardless of the paper to physical ratio BUT...

            If we agree that manipulation is taking place, does the growth in derivatives in anyway signify the amount to which the price of gold has been or is being suppressed?

            In other words, I understand that manipulation can take place regardless of the paper/physical ratio, but if it is taking place, does the growth in the derivatives trade suggest that prices are being kept "a little low" or "extremely low"?

            Simply, how undervalued IS gold? (Based on the tools that are available to prevent true market price discovery)

            Again, we are agreeing that the price is manipulated, so I would like your opinion on what a free market price of physical gold should be if these manipulative constraints were removed or overcome.

            I have my own idea's, but I really would like to know what you think.

            (I saw you were still on the thread and there wasn't much action, so I thought I'd just spice things up a bit)

            Comment


            • #66
              Re: Update from the author

              Upon reflection I have just a couple of comments. My apologies if these have already been posted. I only have a little time tonight and have not been able to read all of the most recent comments.

              It seems that most of the disagreement with Gata is over secondary stuff.

              As to the big issue -- i.e., the concentrated shorts are almost certainly manipulating prices through their control of the paper markets and this needs to be stopped -- xPat, Symbols, Jtabeb, gnk, and most others agree with Gata. Unfortunately, this point is likely lost on many casual readers who will see only the headline and maybe scan the article. While the article itself is excellent, the title is (unintentionally) misleading. "Debunking" sounds very much like the author is just another one of many saying that manipulation claims are from fringe lunatics and something to be laughed at. I know this was not xPat's intent but if we publicly ridicule an ally, particularly on the topic of PM manipulation, we are likely hurting the common cause. Confusion and division may prevent some from writing to the CFTC.

              Did Gata make a mistake in how they presented the LBMA issue? I think they probably did. At a minimum they should have presented it in a dry, business-like manner as one other fact to be considered. The sensationalism helps the banks in their campaign to convince everyone who matters that PM manipulation claims are not made by serious people and should not be seriously considered.

              Nonetheless the criticism here of Gata may be overly harsh. Perhaps the commissioners did not or do not know that the LBMA physical market is not physical. I do not buy futures but I am fairly well read and I have always heard the LBMA referred to as "the physical market", unlike the Comex paper market. Perhaps in the past when the concentrated shorts have justified their gigantic positions by claiming that they were simply hedging, they gave the impression to the regulators that they were hedging physical. Since it seems that they are not, maybe this is a pertinent revelation to at least some of the commissioners and regulators. This could very much tie into Butler's argument that the concentrated shorts are manipulative.

              The key, I believe, is that a concentrated short should have to prove that it is in fact hedging. Ideally this would include a requirement that the short is hedging a true physical position or a paper contract that will deliver true physical. That may be too much to hope for though. If the CFTC simply requires that the large shorts prove that their positions are in fact hedging at least something, then that alone might be a very big step forward. Some of the trading appears on the surface at least to be so clearly focused on controlling prices that I doubt any hedging at all could be shown for it.

              Anyway, thanks for the excellent article xPat. I certainly know a lot more about the LBMA than I did a two weeks ago.

              Thanks also to Symbols in particular for some thought-provoking comments, even though many of them were fairly depressing. Whenever I've been worried in the past about possible manipulation, I've always consoled myself with the conventional wisdom that a manipulation can work in the short-term, but not much longer. After reading Symbols I'm not so sure.

              Cheers
              Last edited by Pascal; 04-22-10, 11:02 PM. Reason: typos

              Comment


              • #67
                Re: Update from the author

                One more thing, I just wanted to share my financial reform proposal with you. Most of the group here has had a chance to read it. I was wondering if you could give me a few pointers.

                http://www.itulip.com/forums/showthr...-TO-FIX-THINGS...

                Comment


                • #68
                  Re: Update from the author

                  Originally posted by LargoWinch
                  Man, I thought the FED had you "retired". ;)
                  Well, they tried, but the vault in which they put me had only 3 feet thick walls (I'm still very busy and I'll be off iTulip again this weekend. If I don't reappear in a few months, then, probably, Bernanke has put me in an orange jumpsuit, and Geitner is torturing me everyday by forcing me to listen to his interpretation of Das Kapital.)

                  Originally posted by jtabeb View Post

                  Simply, how undervalued IS gold? (Based on the tools that are available to prevent true market price discovery)

                  Again, we are agreeing that the price is manipulated, so I would like your opinion on what a free market price of physical gold should be if these manipulative constraints were removed or overcome.

                  I have my own idea's, but I really would like to know what you think.

                  (I saw you were still on the thread and there wasn't much action, so I thought I'd just spice things up a bit)
                  This is a question very difficult to answer, because we are talking about a systemic value. For example is easy to say that the chinese Yuan is undervalued with respect to USD due to the currency manipulation (mainly through dollar sterilization) perpetrated by PBoC. If you take the absolute PPP as a yardstick you get that Yuan is undervalued with 50%, and if you rely on MacPPP you get 67% (you get a different yardstick you get a different value, but IMHO PPP and MacPPP are the most accurate metrics). But you can say that only because both US and China are in fact losing money financing China's rapid development and the system is unstable, therefore one can calculate the yuan undervaluation assuming the absence of chinese currency manipulation and the absence of trade barriers.

                  To calculate the "real" price of physical gold, one should detail all the assumptions. IMHO, currently we have two types of manipulative effects:
                  1)CBs trying to keep the price of gold depressed.
                  2) Vampire squids playing financial gold.

                  With 1) maybe Bart has a better idea, because things are really opaque, and it is difficult even to identify evidence of manipulation from big CBs.
                  With 2) things are even more complicated because big financial players make most of their profits in the OTC market. If a lot of "sophisticated" investors are convinced by a respectable Vampire Squid that gold (oil or other commodity) is going up, they all gather themselves in a long herd, wile the Vampire Squid financial entity takes the other side of the deal pushing the price down. But financial manipulation doesn't have necessarily an effect of depressing gold prices. They can make good money by pushing the gold (or any other commodity) up, then down again, until the "sophisticated" investors have lost most of your retirement savings, 401k and so on and the government has to borrow more for another bailout.

                  You can also take a macro forensic approach. Go to that horror fairy tale foileton called H4.1 get all The Fed liabilities. Then get the number for Fed's gold reserves, subtract from that the total weight of fake tungsten bars and you get a price of $50,000/oz. (if the spot price of tungsten equals the spot price of gold than you can consider that all those tungsten bars are as good as gold, and the price would be about $8000/oz.

                  You can also take the price of gold in 1913 (when a group of private banks formed the Fed and entered the business of counterfeiting gold certificates) at 20.67/oz and use a good inflation indicator (such as Finster's index) and calculate the cumulative inflation 1913-2010. You get 20.67*(e^4.25)=$1449/oz

                  If you do the math for '33 and $35/oz you get some $2600/oz

                  By the way, going back to the original subject, just to make things better, Bill Murphy goes to Alex Jones and gives an interview in which he compares himself with Markopulous. For Pete's sake!!!! I couldn't take it any more. Listening to this interview I had the impression that Alex Jones had better knowledge and more common sense than Murphy.






                  Mabe Erik should go and give an interview on Alex Jones. Who knows? Maybe Murphy can get some common sense and learn something through that avenue. I don't know what to say any more....
                  Last edited by Supercilious; 04-23-10, 01:13 AM. Reason: typos, lots of them

                  Comment


                  • #69
                    Re: Update from the author

                    Me thinks your numbers are too low. I like the money supply outstanding vs CB gold supply. You know, like circa 1980, when the coverage ration went to 1-1. Like that, only a different ratio maybe. Could be a smaller ratio, or a bigger one. What do you think?

                    Comment


                    • #70
                      Re: Update from the author

                      Originally posted by jtabeb View Post
                      Me thinks your numbers are too low. I like the money supply outstanding vs CB gold supply. You know, like circa 1980, when the coverage ration went to 1-1. Like that, only a different ratio maybe. Could be a smaller ratio, or a bigger one. What do you think?
                      I think that Bart can answer better that question, but in that case one would assume that all world currencies would get on a gold standard. By the way.... Which number do you think is too low $50,000/oz , $8000/oz, $2600/oz or $1500/oz ?

                      Comment


                      • #71
                        Re: Update from the author

                        Originally posted by Pascal View Post
                        Thanks also to Symbols in particular for some thought-provoking comments, even though many of them were fairly depressing. Whenever I've been worried in the past about possible manipulation, I've always consoled myself with the conventional wisdom that a manipulation can work in the short-term, but not much longer. After reading Symbols I'm not so sure.

                        Cheers
                        Pascal, thank you for your kind words, and I apologise for making depressing commentaries. The truth is that once you understand how things really work, you have to develop a taste for bitter/cynical humour, or for various kinds of antidepressants (like Andrew Lahde), or you sell your soul and start making (stealing) money, while declaring you do God's work.

                        Comment


                        • #72
                          Re: Update from the author

                          Aww, that would take all the fun out! (But in answer to your question, all of them.)

                          I think the key to any of these calculations (estimates, really) is that you need to pick the correct starting dates for comparison AND you need a proper inflation metric.

                          I like John Williams of Shadow Stats for the CPI numbers as it is the only thing I've found that recreates the historical CPI calculations, back to the real start of the FIRE era which is also around 1980ish.

                          That also luckily corresponds to the last time the money supply was fully covered (1-1) by the reported gold bullion holdings of the US.

                          There is a synergy in this approach because you are really comparing the pre-Fire era to the Fire era.

                          I guess my whole point is that Steve Keen has show that reserves ALWAYS follow credit expansion, not the other way around as most other economists would argue.

                          To me that means, that although we will have a large decline in financial asset prices, there is still going to be A MAJOR amount of monetization to bring prices and ability to pay back in line.

                          The take away IS what ever the "fair price" of gold is today, eventually the gold price is going to have to reflect all that monetization that lies ahead.

                          Where it stops? Dow to gold .5-.25, US gold to US money supply ratio under one.

                          (That assumes NO hyper-inflation).

                          If you allow for hyperinflation, then all bets are off, of course.
                          Last edited by jtabeb; 04-23-10, 05:13 PM. Reason: correction assumes NO hyperinflation

                          Comment


                          • #73
                            Re: Update from the author

                            Absolutely no need for any apology. You bring a different point of view and a great deal of information to these boards.

                            Like Jtabeb, I certainly hope you keep posting here!

                            Comment


                            • #74
                              Re: Update from the author

                              FinancialSense asked me to write a reply to Chris Powell's rebuttal letter. They have posted it on their website, but unfortunately they got the link wrong so the homepage doesn't correctly link to it. Here's the corrected link: http://www.financialsense.com/editor...2010/0423.html

                              There's also a response from Jeff Christian to GATA, which you can find on the home page at financialsense.com.

                              I continue to believe that a back and forth memo writing contest is pointless. All parties seem to now agree that a debate between Christian and GATA would make a lot of sense. Nothing firm yet, but I'm pretty optimistic that will happen.

                              xPat

                              Comment


                              • #75
                                Re: Update from the author

                                Originally posted by xPat View Post
                                FinancialSense asked me to write a reply to Chris Powell's rebuttal letter. They have posted it on their website, but unfortunately they got the link wrong so the homepage doesn't correctly link to it. Here's the corrected link: http://www.financialsense.com/editor...2010/0423.html

                                There's also a response from Jeff Christian to GATA, which you can find on the home page at financialsense.com.

                                I continue to believe that a back and forth memo writing contest is pointless. All parties seem to now agree that a debate between Christian and GATA would make a lot of sense. Nothing firm yet, but I'm pretty optimistic that will happen.

                                xPat
                                Your reply was excellent Erik. Congratulations.

                                Comment

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