The Fort Knox Gold Scandal will be aired on the History Channel’s H2 channel Saturday, Feb. 4 at 22:00 EST or 21:00 at 21:00 CST.

Aaron answered them, “Take off the gold earrings that your wives, your sons, and your daughters are wearing, and bring them to me.  So all the people took off their earrings and brought them to Aaron.  He took what they handed him and made it into an idol cast in the shape of a calf, fashioning it with a tool.  Then they said, “These are your gods, O Israel, who brought you up out
of Egypt.”   –   Exodus 32:2-4 (NIV)

It seems to me that in this day and age of economic/social/political uncertainty, more and more people are frightened and have started clamoring for something away from the Old System of our economic norm: principally fiat currency (i.e. money with no tangible assets backing it, but just the good faith and credit of the government).  These people are alarmed by the recent decline in monetary values and the specter of inflation and possibly hyper-inflation.  Increasingly, they use the examples of runaway inflation in Argentina in the 1990’s and Weimar Germany in the 1920’s to prove that fiat currency is inherently evil and unreliable.   So, in their fear they turn to a substance which they believe is indeed right and true, gold, in order to return us all to what we want: a bull market and good times.

While there are indeed many problems with the status quo, I firmly believe that a rush by the people to call for a resurrection of the “golden bull” of a gold standard in the United States may lead to inevitable ruin, just as it did for those who strayed in the Hebrew Bible.  As much as the gold-standard proponents tend to point to history, I too will take a cue from the pages of days gone by.  Following the establishment of the Federal Reserve System in the U.S. in 1913, the American people were promised economic stability and prosperity.  Instead, they underwent two recessions and The Great Depression within 25 years, all while under a Gold Standard.  The Panic of 1907 was instigated during a Gold Standard, as were recessions, depressions, and bank runs throughout the 1800’s in our country.

In times of antiquity, many countries can attribute rising economic periods and prosperity for the majority of their citizens while using fiat currencies.  The Romans (copper and bronze coins), England (tally sticks), and the American Colonies (Colonial Scrip) are but a few examples of economic prosperity and development under stable fiat currency systems, some lasting for centuries.

So, why the sudden push for a return to a Gold Standard?

I believe there are two reasons, primarily.  One, the average citizen today is not aware of the economic setbacks under gold standards in the past and is lulled and enticed by terms such as “solid,” “stable,” “real,” and “inherent” when describing gold’s value.  They often point to gold’s scarcity to highlight its inherent value to societies throughout history, stating that it will not lead to inflation or hyper-inflation.  However, I submit that it is specifically because of gold’s scarcity that it is a dangerous commodity to base one’s economic hopes.  Gold’s scarcity makes it easier to control and manipulate by a small number of powerful elites, which leads me to the second reason for the recent push for a gold standard: Central Banks.

While publicly central banks around the world appear to downplay the value of gold and its role in establishing a “stable” currency anytime in the near future, their actions seems to discredit their assertions (in recent Congressional testimony, Federal Reserve Chairman, Ben Bernanke went so far as to say “No,” when asked if gold is money).  In the past decade most central banks around the world have turned from being net sellers of gold bullion to net buyers.  The largest single holder of gold bullion today is the International Monetary Fund (IMF, the central bank of central banks).  And there is substantial evidence to suggest that the gold thought to be in Fort Knox, Kentucky is no longer there and has been transferred to the control of central banks, out of the hands of the American people.

So, while the American people may run to their high priest of finance and cry for a new golden calf to be made so that they may worship at its feet, we should all remain vigilant of the need to steer away from anything that takes more power out of the hands of the American people and puts it into the hands of a select group of über-rich bankers.  Perhaps instead we should wait for the prophet, who right now is getting the divinely inspired word that yes, indeed, we can have economic prosperity, if only we will take the power to create money out of the hands of the big banks and put it back into the hands of We the People.  I think I see him coming down off the mountain now…

What we need instead of a Golden Calf is an end to the debt-standard of money creation.  Currently, when the American government issues more money, they do so by borrowing it into existence, issued out of nothing, by a small group of mega-banks.  And while that system may work for a while, it is inevitably doomed to collapse, as you can never get rid of debt by borrowing your way out.  Instead, we need to get back to what our government is constitutionally mandated to do: coin money and regulate the value thereof.  It’s been done before in America.  President Abraham Lincoln won the Civil War with debt-free currency (the “greenback”).  The colonies prospered under a debt-free fiat-money system.

If the American people are tired of economic uncertainty, depression, and stagnation, we should indeed consider the past – and not consider a gold standard.

By Torin Nelson

If you want a way out of the perpetual debt slavery, make your vote count this time.  Support real hope and change you CAN believe in:  Bill Still   Still2012.com

Uh….

Due to operational difficulties the London Gold Exchange is permanently closed for business.

Thanks to all of our members.

 

London Gold Exchange
International Digital Currency Trader

26/09/2011

Um, what might those “operational difficulties” be, if I may be so intrepid as to ask?  (I am assuming their site was not hacked, of course.)

There are times I have to chuckle…

I know, I know, it’s just a correction (never mind that the blow-off was one of those things that I warned people about.)

But…. before you are utterly convinced, I think you should consider this chart, the “other” alleged sound money….

Roughly a 40% loss against the dollar in four months.  Why that’s damned impressive!  What would that be in annualized terms?  Let’s see… about 78% if my calculations are correct… without leverage.

Ps: Can someone point to just one actual “printed” monetary unit among major currencies since this crap started in 2007?  Just one please.  Hint: Issuing debt is not “printing” – you have to pay that back, with interest, and screeching that “they will, they will!” when you can’t present any evidence that they did ought to be carefully contemplated before such a statement is made on the forum.  You know how much I love swinging the Thor Device around and the weekend is coming up.

CFTC Warns, GOLD/SILVER Spikes?

Posted by Karl Denninger

Hmmmm….

WASHINGTON (Dow Jones)–The U.S. Commodity Futures Trading Commission issued a warning to the market on Friday to remind participants that speculative trading limits apply throughout the trading day as well as at the end of trading.

Timestamp, 11:15 Central time

Now let’s look at two charts.

You don’t think that GOLD was being speculatively shorted beyond intraday position limits, do you?  That oval, by the way, is right when the announcement was made.

Or shall we look at SILVER?

Naw, there’s no evidence that “someone” (or a few someones) were breaking the law here, is there?

Nobody would ever close out unlawfully-held shorts after being warned by the CFTC, would they?

“My Son..Went Inside There And Basically Saw that the Vault was Empty.”

Every day when I think I am going to get a day off from this story, some revelation seems to be come out, each as compelling, shocking, and suspicious as the others, but all fitting together in what looks like a nasty picture of reckless behaviour gone wrong developing.

Apparently some banks and brokers had been selling gold and silver which they do not have. We know it happens because Morgan Stanley was caught doing it, and was even charging storage fees from unsuspecting investors.

Do these banks not have auditors? Are the regulators sweeping this under the rug? Are the insiders and their spokespeople correct in just dismissing this as a problem, as was done with the subprime market even by Ben Bernanke himself before it collapsed into a bank run that shocked the financial system?

Now, we have to carefully distinguish between allocated metal, in which one holds a certificate and are assured of a firm ownership of actual metal, and an unallocated holding in which you hold basically a paper claim on metal, for which you may be an unsecured creditor, even if you are paying regular storage fees. But in the cases I am hearing about it is a firmly stated ownership of something that does not exist, and cannot be obtained at current prices.

This is important because although there is always shorting, and some fractional reserve aspect to all banking , even in the case of bullion banking, in this case the proportion or leverage of the selling of the assets starts to look more like a Ponzi scheme than a rational and efficient market. There is a point at which ‘speculation’ becomes fraud, and the fraud becomes large enough to start risking the health of the bank.

And in our under-regulated and excessively leveraged financial system, that becomes a problem because it all looks to be a pyramid scheme of sorts. JPM alone is holding derivatives with notional values approaching a very large portion of World GDP.

The banks seem to be pointing to bullion supplies elsewhere, such as the LBMA in London, or in this case Hong Kong, and saying, “See if certificate holders demand their bullion, we can easily fulfill their requests.” The problem with this is that it appears that they are ALL doing this, overleveraging their supplies, becoming counterparties and potential sources of supply to each other, with few having a full supply of what they say they have.

King News World Interview Regarding Lack of Physical Bullion at Large Canadian Bank

Make what you will of this. I don’t understand what they are saying about the Bank of Nova Scotia as the only bullion storage facility. There are several. CEF and Central Gold Trust store their bullion at CIBC as I recall. And Sprott stores their gold at the Royal Canadian Mint. This may seem like a small point, but its important. It is also important to understand what is stated by the bank on the certificate that you hold. As outlined above, you might just be an unsecured creditor to an unallocated account. There is no fraud in that, only a risk of actual delivery should you ever ask for it.

I am sure more will be coming out, eventually. But for now this information is barely penetrating the radar of the mainstream media. These fellows may be wrong, but so far no one is denying specifically what they are saying with any persuasive proof. They just seem to be hiding behind secrecy and opaque transactions, saying ‘Prove it, prove it.’

As I have stated before, the problem I have with this is the lack of transparency and auditing in these markets, which makes them absolutely ripe for fraud and excessive leverage by the usual suspects in the TBTF banks.

This seems to be exactly what caused the subprime crisis and the bank run in 2008: a lack of liquidity and the mispricing of risk. How can one not be suspicious? We have just seen it happening, even though the herd behaviour is to simply ignore it because it is too alarming, too inconvenient.

Let the truth come out. Let justice be done.

Have we learned nothing? What time is the next bailout?

Is The Metals Market A Ponzi Scheme?

Posted by Karl Denninger

The stories are certainly gaining credibility – and volume.

There have long been claims that the “paper gold” market is wildly manipulated.  Certainly it does trade 100x or more the physical market, but this, standing alone does not prove manipulation.  Have a look at the number of contracts that trade against physical oil, wheat, soybeans or corn.  You’ll find that in each of these cases there are a lot more contracts than bushels or barrels.

But the recent allegations go further.  Now there is a document out on Zerohedge that makes the claim that the US Government has been involved in a massive and outrageous fraud – that is, the “creation” of fake gold bars that are in fact tungsten with a gold veneer on top.  We’re not talking about a “few” bars either.  The allegation is that ten thousand metric tons of fake bars are in fact in circulation – right now – and that our government was the one that caused it to happen.

Huffington Post has picked this up too, but unfortunately the author is a hard-core “gold is money and you need to buy a lot of it right now” guy.  Not exactly the most unbiased source…. and, if he (or his fund) is long a massive amount of the yellow stuff and smells deflation, well, “price support” suddenly becomes rather important.

A big part of the problem here is the insane amount of secrecy that surrounds what should be a completely-transparent market and reserves.  The US, for example, allegedly has a lot of gold at Fort Knox.  Is it really there – and is what’s actually there really of the quality claimed?  How do you know?

I’m a contrarian on the impact that would flow from proof being delivered that the US Gold stock was all tungsten bars with gold plating on top.  Many claim this would cause an instant explosion in price and collapse of the dollar. 

I disagree.

Discovery that the metals market has been “polluted” to the point of irrelevance would mean that those around the world who had bought and were holding alleged gold bars that in fact aren’t gold had tendered good money for nothing.  This would be a monstrous deflationary event – after all, the definition of deflation is the destruction of money, and that’s exactly what would have happened, just as if you took a stack of $100 bills and burned them in your back yard.  To the extent that sovereigns were unknowingly duped this could have enormous consequences, especially if, as is alleged, the fraud is traceable to direct and intentional action taken by the US Federal Government.

I’m in the camp that extraordinary claims require extraordinary proof, and a fuzzy video on Youtube claiming to be a sectioned gold bar – with no visible mint marks or serial numbers – doesn’t cut it for me.

If there is such a fraud on the scale claimed and it has in fact been discovered there are literally thousands of people who know about it.  While many of them have every reason to keep their mouth shut (it’s their money that was vaporized by the fraud!) there are a lot of others who have every reason to stand up and shout.  So far, other than a handful of very self-interested parties, nobody is.

As they say, “show me the money” – or as is more appropriate in this case, “show me the tungsten.”

Posted by Karl Denninger

Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.

….

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the “gold” to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the “gold” custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not “allocated” to a particular investor. Since this is an “exchange traded” gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

That could be a problem, right?

Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.)  This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are “financial” (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false.  They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)

However, the elements of a scam – which could be the intended outcome – are indeed present.  The person buying or selling a futures contract can have either the intent of actually taking (or making) physical delivery or they can be a pure speculator on price, intending to execute the opposite trade prior to expiration (and thus pocketing either a profit or a loss thereupon.)  So long as the person executing a futures trade is required to post margin on all underwater positions nightly (and provided the market is honest, they are) the “pressure” on them as the market moves the wrong way tends to force correction toward the mean – and is counter-cyclical against imbalances.

But the buyer of an ETF is likely in a different circumstance.  Unlike the sophisticated speculator (like me) who buys and sells futures contracts on things like the S&P 500, currencies, gold and even oil without the intent to take delivery of a thousand barrels of crude in my driveway (that would be kinda messy, especially if the barrels were not included – and they’re not!) many if not most ETF purchasers are under the belief that they are buying actual physical gold or silver that someone is holding for them in a vault somewhere. 

The problem, of course, is that the so-called “gold” might not actually exist. 

For a futures contract with a time-certain expiration this is not a terribly-large problem, since the “discovery date” of the seller’s inability to produce (should you buy a contract and actually notice delivery) has a date on it by which you may demand (and expect) perfected delivery of an actual gold bar.  If there’s a “fail” there the results would be both dramatic and immediately-recognized.

ETFs are a different matter entirely.  These commonly are held for years, dramatically beyond the expiration cycle of the futures markets.  They also are often bought and held by people who believe they are actually holding metal – that is, as a hedge against things like currency debasement or even geopolitical collapse.

What happens if Janet’s scenario is correct?

Panic, that’s what.  A global market meltdown in which a handful of huge banks (who are very, very short in the futures market) suddenly get assigned for delivery – and yet they don’t have, and cannot acquire, enough physical gold to make delivery, because their open interest (in aggregate) exceeds the free supply available to trade.

This bankrupts these large dealers.  It also bankrupts the ETFs, who suddenly are “discovered” as having “leased” out all their gold – that is, they’re holding worthless paper promises to replenish their depository written by someone who has unfortunately become insolvent.

The “gold bugs” (those who hold physical metal) are of course very happy by this course of events, as the “spot” price would go to the moon – instantly.

Is this what’s going on?

Who knows. 

It certainly is the allegation and the number of people running stories that lead you to this conclusion over the last few months has reached a fever pitch.

But before buying into this story on either side be aware that when this was attempted by the Hunt Brothers with silver (and it was nearly the same path that Janet outlines in her article) the CFTC and other “regulators” in the market came in and changed the rules.  The danger here can be extreme, as most people with physical metal (the only people who will benefit if there is a monstrous spike in price – if you’re holding an ETF you will in fact likely get nothing!) cannot dispose of it fast enough to take advantage before the inevitable collapse on the back side of the cornering attempt occurs.

When the Hunt Brothers attempted this silver went from $11/oz to nearly $50 in less than four months – but two months later it had collapsed to below the original $11 price, with much if it happening in a literal single day.

I’ll stay away from this one – the criminals have proved that they can intentionally falsify the valuation of trillions of dollars in “assets” on balance sheets and otherwise cheat with wild abandon, but nobody will bring charges.  There is no reason to believe that you or I will be the ones who are able to get through the tiny little door if indeed this is the game that is being run, and every reason to believe that instead of the starry-eyed profits you dream of you will instead suffer a monstrous loss.

I’ll instead grab my  and watch the pretty fireworks.

To download a printable version, click on The Fallacy of Gold Backed Money

Bill Still – The Still Report, Why Gold Money Won’t Work Part I (5:47):

Bill Still – The Still Report, Why Gold Money Won’t Work Part II (9:59):