Posted: Wednesday , 17 Jul 2013
LONDON (Mineweb) -
Whether you believe his point of view or not, Grant Williams' 'Things that make you go hmm' newsletter is always a fascinating, and thought-provoking read and the latest one is no exception.
In it Williams to an extent covers ground he has written about before – primarily about what he sees as the hugely illogical way the gold price has performed in recent months. He describes this as "the bizarre price action over the last six months, which has run counter to most logical assumptions" When everything would logically have pointed to a sharp rise in price, what has happened? Gold has fallen – and fallen sharply. Indeed, if he was not fully in it beforehand, Williams is now firmly in the camp of believers that the gold price is very definitely being manipulated downwards by the global financial elite to try and hide the fact that there is a huge shortage in physical gold developing – or already developed.
What Williams sees as virtual proof of his viewpoint is that there are various triggers which should have had gold moving up heavily - notably the repatriation of some of Venezuela's gold and the even bigger furore over the repatriation of 300 tonnes of Germany's gold supposedly held by the New York Fed and that it is going to take 7 years to complete the transfer of its gold held in the U.S. Indeed on the announcement of these, gold did move up initially and briefly, but then dived – a pattern that has been followed since on a number of other announcements which would normally have led to gold moving upwards in price.
His basic conclusion is that the reason the German gold repatriation fiasco in particular was the most significant trigger is that the evidence would overwhelmingly seem to suggests that the 300 tonnes of German gold to be repatriated just isn't available – with the assumption that, over the years, it has been leased out to the bullion banks, thereby earning revenue. The banks have then sold it on and currently have no means of repaying it in kind – at least not inside maybe 7 years! There has thus been a huge move to smash the price of gold so that the banks may be able to buy it back and return it to the U.S. Fed under the terms of the leasing agreements.
He pointed out the logistics of actually shipping the U.S. held gold from New York to Frankfurt – a point made by Mineweb at the time – the whole 300 tonnes could be carried by three Boeing 747 freighters which make the 7 year period illuminating. Mineweb's comment back in January was as follows: Back to the logistics of moving the gold. The Boeing 747-8F freighter, of which a number are in service with commercial operators, can carry a payload of 140 tonnes over a 4,000 mile plus range so the gold from the Fed, and more, could be delivered by air comfortably in three plane loads which really does beg the question why seven years? Something the Bundesbank may well be called upon to answer by the German people. Williams makes the point that if this kind of quantity split over three shipments is not insurable, then perhaps shipping 1 tonne at a time would still enable the German gold to be transported inside a month or two.
But Williams' analysis doesn't end there. Over the past two years there have been a host of announcements that under normal circumstances would have seen gold kick up The same pattern emerges – an initial price rise immediately followed by a big take down as huge volumes of paper gold are unleashed on the futures market. It seems that after initial success in achieving this kind of manipulation of the gold price without any action being taken against them , the bullion banks and their allies have become ever more blatant in their moves.
The regulators don't want to get involved – indeed the suggestion is that they may be implicit in these actions, as would be the Central Banks which do not want the fact that gold leasing may well have left them devoid of the amount of attributable gold they claim to have in their vaults. Indeed, most classify their gold holdings as inclusive of leased and swapped bullion, no matter that the leased gold may never be able to be returned as physical metal.
Now we have additional ammunition for the manipulation theorists from Williams' research in that there has been a steep fall in COMEX gold inventories, and also in those held by JP Morgan and Brinks – ably illustrated by a charts from Bloomberg and Sharelynx – and also the big sell offs of gold from ETFs has also been going somewhere. A recent Natixis comment suggested that the ETF sell-offs in particular have virtually alone led to a huge increase in gold supply, swamping demand and consequently leading to the lower prices that could yet see gold falling to $1,000, but this seems to conveniently forget the huge gold inflows into China alone which have dwarfed the ETF sell-offs, as well as high demand for physical gold reported elsewhere..
(Re. the Central Bank gold leasings and ongoing sales of the metal by the recipient bullion banks, there has been a report from a Hong Kong refiner that they have been recasting Central Bank gold bars for the Asian market. This leads to yet another suggestion that the Central banks which have leased gold don't necessarily expect to ever get it back, but still continue to present it as part of their reserves.)
As we noted earlier, Williams has covered much of this ground before, but this edition of 'Things that make you go hmm' includes further research and analysis of the situation. He makes a strong case for his viewpoint, although it is perhaps unlikely to affect the views of those who feel there is no manipulation under way like CPM's Jeff Christian and that the gold price fall has been purely due to normal market criteria. And perhaps if one considers financial manipulation by big money as being an integral part of normal market conditions in any sector these days, perhaps Christian has a point . But to ignore the increasingly strange sales patterns in the gold futures markets and its effect on the physical gold price, does seem to be a case of burying one's head in the sand.
Now maybe as COMEX influence on metal pricing starts to wane, perhaps replaced by the Shanghai Exchange as the most important trading platform, things will gradually change – but then perhaps the Chinese will establish their own agenda for market control – markets are jsut not transparent any more – indeed if they ever were.
To read Williams' latest edition of 'Things that make you go hmmm' – click here. It's recommended whether you believe in his views or not. It's a great read regardless.