the naked truth...
Good morning and welcome to another Top-Shelf Thursday! Seals and Crofts greet me this morning with their 1972 hit, “Summer Breeze.”
If you’ve been with me this week, you know that we’ve been looking at the Precious Metals Market and uncovered what I consider to be a lot of greed, corruption, and power. But then the view from the cheap seats isn’t always 20/20 and I figure they see it differently.
Before I conclude this look at the Precious Metals Market, I do want to address a comment from a reader that had noticed that five of the ten Bullion Banks were United States institutions. There is an obvious reason for this. The U.S. has historically been the safest place for nations around the globe to store their wealth. With that said, there is some concern today with the U.S. debt rising to US$20T, and many nations have or are considering repatriating their gold.
These Bullion Banks had this gold in their vaults as “Allocated Gold Accounts.” If you bought gold but didn’t take physical possession of it nor can you, most likely you bought it as an “Unallocated Gold Account.” As I said yesterday, from what I’ve read, these accounts were initially created by leasing the gold to a 3rd party. This is where the rubber meets the road. What happened next was these 3rd party clients would then lease this gold again and again to where today we have over 15,000 ounces of unallocated gold trading for every physical ounce in existence. Sort of reminds me of the housing bubble of 2008.
As I promised yesterday, we’d take a look at the U.S. Commodity Futures Trading Commission and their weekly COT or Commitment of Traders report. Although the commission was created in 1974, agriculture and other farm futures trading have been going on since the mid 1800’s. From the beginning and into the early 20th Century futures contracts were based on a known quantity. In other words, the folks at the market had a pretty good idea what and how much was on its way to market which reduced speculation considerably. In the 1920’s, broader speculation was occurring and the Federal Trade Commission had to step in to create limits. In the 1930’s the Commodity Exchange Administration was created that further limited speculation. Even with all of that, by the 1960’s we had excessive speculation and manipulation of the commodities. But what does all of that have to do with gold you ask?
Although the United States abandoned the gold standard in 1933, gold was still monetized until 1971 when President Nixon ended the convertibility of U.S dollars to gold. That folks is when precious metals became commodities and fell under the Commodity Exchange Administration and Futures Trading Commission. Today, if you want to buy a future position (long or short) on the gold market, you are speculating on December prices. And believe it or not, that speculation is what drives today’s spot price. Crazy isn’t it? When you tie the banks and investment houses to the unallocated precious metal accounts and the same banks to the futures trading, you can see where and how corruption and collusion becomes the “norm.”
Okay, are there any protections built in to the system? You’d think so. That’s where the COT or Commitment of Traders report comes in. Every week, the Commodity Futures Trading Commission requires all of the traders to file their open interest positions. Unfortunately, I’ve personally seen huge swings in the spot price without any indication showing up in the report until weeks later. So the banks do a very good job at hiding their transactions, and thus limiting their exposure. Attached HERE is the latest COT report. If you go to the “Gold” heading you can see a total of 35K long positions versus 224K short positions. Each position is a contract of 100 troy ounces of metal. This hugely unbalanced situation is the reason that the spot price is dropping even with all of the world's economic and political turmoil. Insane!
Well, I can go on and on, but I have to stop somewhere so that’s it for today. Go out there and make a difference! See ya’ll later!