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GLD: Fully-Backed by and Redeemable for Gold Bullion (Buddy,can you spare a cool $17 million?)

June 23, 2012 Leave a comment

Part 1: Some Background

I can only tell you how the operations proceed. The rest is up to you.

For reasons of brevity and because The SPDR Gold Trust (GLD) is the largest ETF in the world, I shall in this article focus my attention specifically on GLD. UK readers, some of whom may be invested in the ETF Securities’ Physical Gold ETF (PHAU) should not feel left out for the issues raised here in relation to GLD apply equally to PHAU too. In fact, as far as I have been able to determine there is no facility available to investors whereby PHAU shares are redeemable for Physical Gold bullion. (But I will return to this later)

Perhaps unsurprisingly given the enormous number of investors who have sought exposure to gold via Physical Gold ETFs (in truth, no more than paper gold price trackers), many readers of my recent Oil-Physical-Gold-True-Value essay contacted me to express their deep concerns at the assertions I had made in my article. The force of their determination to validate the superficial (and deceptive) claims made by GLD somewhat startled me. In my naivety, I truly believed the scam had been well and truly exposed, even if -entirely true to form- the financial media continues unashamedly to support the deceit in GLD’s misleading sales patter.

I’d suggested that investors should read carefully the prospectus of the Physical Gold ETFs for they would find there is always a clause allowing settlement in cash. Foregoing my advice, many unleashed their anxiety and upset at my warning, claiming the veracity and validity of the GLD headline (‘100% physical gold backing’; ‘shares are redeemable for Physical Gold’) sales-pitch. “I can’t believe” was their rallying cry, opposing my simple advice…It seems there is no end to the degree of deceit and duplicity many GLD investors will not greedily swallow- and this despite the here-and-now MF Global eye-opening smack-in-the-face lesson that there is NO honour nor integrity in the financial world.

“I can’t believe regulators would permit this/that/and the other to take place in a publicly traded….” was the vehement protest. So, let me save you the heartache and wallet-ache of finding out in the same way MF Global investors did: those very agencies sold to you as having been set up to regulate, oversee and protect you and your trades, in reality (far too often) appear to turn a blind eye to even the most grave and blatant malpractice. I assumed most of you would have learnt the stark lesson. Why then this insistent resistance, this irrational response to defend GLD’s misleading claims?

It can be hard work explaining something which at its very core is duplicitous and immoral, for such a scheme/scam will have, inevitably, constructed the most reassuring narrative in order to conceal its fraudulent essence/nature. A complex, multi-layered, labyrinthine web of spin, half-truths, ‘true-sometimes-but-not-always’ terms and conditions obfuscate mislead and bar access to clear facts, and in this way endorse and perpetuate the deceit and powerful duplicity. But it is always a worthy goal to alert victims to the fraud being perpetrated, to guide them patiently through, above and beyond the entirely natural cognitive dissonance until it is finally dispelled. Some frauds are so artfully conceived, constructed, then disseminated that many simply can not contemplate that a fraud is at all possible. They resist a permanent uncovering, employing all subtle means at their disposal to distract. So it is that I have lost count of the number of times I have explained, at length, in the clearest detail, the full machinations of the GLD scam to the very same individual/hedge fund/Gold company. My own personal groundhog day/ mutiple déjà vu.

In what ranks among the most pathological cases of short term memory loss I have come across, the very instant the financial and business media rush to make public a ‘sale’ of GLD shares by the likes of Soros, Paulson, it seems everyone (including many Gold commentators who should know much better) quite happily misconstrues the true significance of the GLD shares ‘sale’, incorrectly interpreting it as a ‘dumping’, as a rejection of Gold. The media’s fallacious reporting and interpretation of the ‘sale’ as bearish never fails to take delight in these investment deities decision to ‘dump’ their GLD shares. As such the mainstream commentary buys into the very deceit at the heart of the GLD fraud. As if the financial and banking powers-that-be needed any more help in the maintenance of their artfully constructed Physical Gold ETFs fraud! With the media’s rigid adherence to the engineered conventional narrative, is it any wonder the fraud continues to thrive? Those at the heart of it, their access to Physical Gold guaranteed, are laughing all the way to their personal vaults, whilst the small and hoodwinked investor is left holding paper claims that can never be redeemed for Gold bullion.

Before I continue with the central thrust of this article, I want to take a brief diversion in order to, I hope, provide you with some of the backdrop to the origins of, steady growth in, and finally the explosion in the ‘supply’ of paper gold products. It is important that readers understand the route to the Bullion Banks addiction to the creation of paper gold ‘supply’, for -like all addictions- it did not take place in a vacuum, free from historical and social context.

Oil and Gold: a heady mix. Prior to Nixon’s 1971 de facto announcement of the USA stepping off the Gold Standard, it had already become abundantly clear to all but the most determinedly naïve observers that the USA had been printing dollars far in excess of their Gold reserves. The USA had in fact been printing dollars not against its Gold reserves but against the vast profits that cheap Oil had brought and which were projected to continue well into the future. This was the great contribution that technology had ushered in- all those advances meant that production capacities soared whilst Oil flowed and its price remained steady. Companies’ profits and P/E ratios had never looked rosier, and that would continue as long as Oil remained cheap relative to the enormous increases in productivity and profits.

The meaning of the USA’s public abandonment of the Gold Standard ‘discipline’ was not lost on anyone who knew the self-evident disadvantages such a move would bring. The strain on Oil and Gold prices was palpable, and on a couple of occasions tensions reached such a pitch that it looked like the whole global financial system was set to explode as Oil and Gold prices ran away from the control of the BIS and Central Banks. But an extremely neat solution was devised in a secret Oil for Gold deal. For the purposes of this blog, the most pertinent aspect of this deal was that Saudi Arabia agreed to continue to allow Oil to flow at a cheap USD price whilst behind-the-scenes receiving a Gold ‘kicker’ as part payment for their Oil. The tool employed to re-establish a cheap USD Oil price was the creation of a paper gold market to expand Gold ‘supply’ and in this way rein in the naturally spiking Oil and Gold price so that they were now back under BIS and Central Bank control and management. This Gold for Oil deal was conducted with Saudi alone, and it is difficult to argue that its primary goal was anything less than worthy. For it allowed Oil to be purchased cheaply and thus maintained the production boom and all the benefits that came with it. There were naturally enough those who benefitted most, but who can deny many of the gains were spread around? It’s true, this deal worked well, as paper gold ‘supply’ became a successful mechanism for maintaining a cheap Oil price, and society grew lazy feasting on the consumer goods served up by cheap manufacturing costs.

This whole scheme relied on the BBs creating paper gold products at an entirely reasonable and manageable volume. The whole system would continue to bring forth its many benefits provided the Bullion Banks kept the paper gold ‘supply’ at a volume that stayed within the fractional reserve parameters laid down and backstopped by Central Bank Gold bullion. And there you have it, the intrinsic flaw in this deal. Inevitably, banks and bankers being what they are and doing what they do, irresponsibility and short-term financial greed took the reins and the Bullion Banks began printing paper gold at a volume far exceeding any possible future redemption for Physical Gold.

There was no way the Central Banks and BIS were going to stand by and watch that happen, for (on paper at least) the Central Banks were the ultimate backstop of Bullion Banks’ paper gold selling. The CBs loaned the gold in paper transaction (no gold moved from CB vaults) and the BBs created paper gold backed by the CB loan. In truth, the CB lease was less a loan backed by Gold but rather backed by the CBs good name (there is no way any of those paper gold claims would remove Gold from CB vaults).

Once it became clear that the BBs had over-printed the ‘supply’ of paper gold, the Washington Agreement on Gold/Central Bank Gold Agreement (1999) was speedily initiated. It is remarkable that this Agreement was sold to the public as a restraint on Central Banks selling of ‘worthless’ gold in order to maintain a steady Gold price, which would -so the fabricated illusion and spin would have you believe- collapse if Central Banks gave free rein to selling all the Gold they would like to. This was not its goal or purpose at all!! The purpose was to issue the strongest warning to the BBs that they had overdone the paper gold selling, to rein themselves in, for the CBs would not lease in limitless amounts to match the limitless and -at that point- runaway excessive supply of paper gold being issued by the BBs. The CBs would no longer allow anyone to entertain the notion that their Physical Gold would in any way backstop the BBs over-printed paper gold.

The BBs were addicted to the free money and huge profits made selling limitless non-existent paper gold. Since the CBs had made it clear they were no longer going to lend their Gold/’Good Name’ to excessive additional paper gold supply, the BBs needed a new means then to create the illusion in the public’s mind that all that paper gold that the Bullion Banks sell into the market is fully-100%-backed by real Physical Gold.

They found it in the creation and expansion of the Physical Gold ETFs- PHAU, GLD, GBS, etc. Where the Central Banks had stood before now stood Physical Gold ETFs, and the latter were not going to get sniffy and tell the BBs to cool down any excessive paper gold selling.

What will it take to open investors’ eyes to the true meaning of ‘sales’ of 100,000 and above GLD shares?

Let’s put it in the most unambiguous terms, let’s tell it like it is: buyers of GLD paper gold shares are being treated as MUGS by the Bullion Banks and very-wealthy who control that scam. Buyers of GLD shares are feeding those who have so artfully led them to believe that they are investing in a convenient, fully-Gold backed, redeemable-for-Gold-bullion at any time investment tool. BUT, THE TRUTH IS: YOU ARE NOT!

That privilege is not for you, those benefits exist only for those who have a minimum of 100,000 shares (a Basket) and who can persuade one of the Trusts’ ‘Authorized Participants’ (you’ll never guess who the Authorized Participants are… the Bullion Banks!) to REDEEM that Basket of 100,000 GLD shares for Physical Gold from the GLD’s vaults. If you don’t have the money (currently $17million-ish) to purchase those 100,000 GLD shares, then none of the GLD-vaulted-Gold can ever be yours. And 100,000 GLD shares is the MINIMUM requirement to access the Trust’s Physical Gold. Does Joe Public GLD shareholder know that?

Now let me be absolutely clear. My firm conviction is that those who perpetrate this deception rely on a sophisticated web of misrepresentation in order to mislead the public. One of the mechanisms employed to carry out this duping is the tried and tested manipulation of media coverage in order to create a firmly embedded paradigm in investors’ heads. Thus any notable GLD shares activity is always represented in deliberately misleading terms: redemptions of GLD shares by the likes of Soros and Paulson are always described as ‘dumping gold’. Nothing could be further from the truth, for they are the very opposite! They are the exchange of paper gold GLD shares for Physical Gold, straight out of the GLD vault and into the safety of their personal vaults. Rather than those GLD shares ‘sales’ being bearish, the truth is they could not be more bullish. For, perhaps most importantly of all, they indicate that the wealthy are getting twitchy about the ever-more-rapidly-depleting amount of GLD-vaulted Gold bullion available for redemption.

When two of the largest GLD shareholders, who undoubtedly have access to ‘helpful’ information about the number of claims on unallocated and allocated Gold bullion in the GLD vault, start ‘selling’/exchanging their GLD paper shares for Physical Bullion, it is because they know fully well that this particular Physical Gold well is running dangerously dry. When Soros and Paulson feel the need to start taking possession of that Gold, it indicates that the Physical Gold bank run endgame is ever closer. They know the vault is emptying, and they want their hands on some of that Gold bullion whilst there is still some available. After all, the very purpose of the GLD paper gold scam is that the wealthy with 100,000 shares worth $17million-ish get the Gold bullion, whilst anyone with fewer shares gets left holding paper. For fear not, the wealthy will get the Gold bullion, they will, as ever, not be left holding burning paper.

That outcome is reserved for those holding anything less than 100,000 shares.

Part 2 explores the mechanics of the scam in closer detail.

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