Deutsche Bank Refuses Delivery Of Physical Gold Upon Demand

There are no two ways about it.  This is a commercial signature failure to deliver physical gold--an outright default from Deutsche Bank.  The price of physical gold should be soaring right about now.

http://www.zerohedge.com/news/2016-08-31/deutsche-bank-refuses-delivery-physical-gold-upon-demand

Comex Must Change Its Delivery Mechanism Soon

http://www.jsmineset.com/2013/07/22/comex-must-change-its-delivery-mechanism-soon/

Fraud Confirmed: 100-Day Delay To Take Bullion Delivery In London

This would be a good article, except the author confuses the London Metal Exchange (which deals in industrial metals) <click here> with the London Bullion Market Association (which guarantees good delivery of gold and silver) <click here>.

He correctly calls the 100-day delivery delay at the LME as a default, but that doesn't have anything to do with the dwindling inventory of gold and silver in London and New York, although also true.

http://www.bullionbullscanada.com/gold-commentary/26273-fraud-confirmed-100-day-delay-to-take-bullion-delivery-in-london-

Despite soaring demand for physical precious metals, supply is constrained

The world will run out of physical gold and silver.  Here's some evidence, some coming from obscure news sources, as the mainstream media is not covering these events.

Barrick, the world's biggest gold miner, has their biggest mine being shut down in Chile.
http://www.trefis.com/stock/abx/articles/189839/barrick-golds-crucial-mega-mine-may-be-delayed-at-least-by-one-year/2013-06-04

Freeport McMoran operates the Grasberg mine in Indonesia, which has the world's largest gold reserves.  It is also shut down for up to a year.  Notice how the article focuses on copper--and not gold.
http://www.bloomberg.com/news/2013-06-04/copper-rises-on-supply-concern-as-second-biggest-mine-stays-shut.html

And finally Rio Tinto's Bingham Canyon mine is America's largest silver supplier, as well as a significant miner of gold, is also shut down.  Again, they mention copper, but not a peep about silver.
http://www.reuters.com/article/2013/04/12/rio-utah-slide-idUSL2N0CZ1EO20130412

I've blogged about soaring demand for physical gold and silver.  It's being reported in the major financial media outlets now.  Now I'm blogging about dwindling supply.  Usually, when a price of a commodity rises, like gold has risen from $250 to $1400 in the last decade, more supply is brought into the marketplace, as producers with a profit motive capitalize on higher prices.  Then, as supply increases, prices taper off.  It's one of the universal laws of supply and demand balancing themselves out.

THAT HAS NOT HAPPENED with gold!  Production has flat-lined, on averaging rising 1% a year, despite soaring demand from central banks, sovereign wealth funds, jewelry, investors, and in the case of silver, industrial demand also.  Instead of prices rising in the last two years, prices have declined.  This price manipulation/suppression will not last, because economic laws will eventually win out, much like gravity dictates how fast a Newtonian apple falls to earth.  It can be temporarily propped up, but remove the props and the apple resumes its acceleration.

The stresses in the physical market are showing up in the vaults of JPMorgan, the COMEX, and the US Treasury.  Readers need to educate themselves on the difference between COMEX "registered" and "eligible" inventory.

Quickly, registered is inventory set aside for physical delivery of COMEX bars to longs (owners of futures contracts).  Eligible is client inventory kept inside the vaults--they are essentially "untouchable".  However, if you look at the chart in the article below, JPMorgan was shuffling eligible inventory toward the registered category just to meet delivery demands (typically, only 1% of longs demand delivery--the other 99% are dumb and happy to receive cash settlement--or roll over their contracts to future months).  This is a form of re-hypothecation--or multiple pledging of the same inventory.  It's theft (Google Jon Corzine and how he robbed clients before MF Global collapsed).

JPMorgan, a custodian bullion bank, is running low on physical inventory.  By extension, the COMEX is also running low on inventory of physical precious metals, and could potentially default when longs demand delivery in the future.  This could happen soon at current depletion rates. But given these bullion banks are clever and will find ways to shake the trees to scare more longs out of their positions (using the GLD and SLV ETF's as another set of naked shorting tools), I believe the end of year rush to buy metals will cause the default--the so-called "force majeure" declaration.  They'll simply run out, throw up their hands, and say we couldn't help it--it was an act of God, much like a weather disaster.

And when that happens, if you're a long looking to take physical delivery, good luck on suing them with your legal claims.  This chilling disclaimer was inserted yesterday in the COMEX daily report:

“The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness.  This report is produced for information purposes only.”

That looks rather benign, but could you imagine if your bank inserted a similar footnote in your monthly statements, and declared:

"The information in your account statement is taken from sources believed to be reliable; however, Bank of (fill in the blank) disclaims all liability whatsoever with regard to its accuracy or completeness.  This statement is produced for information purposes only."

If you received that statement, you would run to the bank and withdraw all your funds yesterday.

This is the smoking gun.  It is an open declaration that their inventory reports are suspect, and the assets clients think they legally own will be settled in whatever means the COMEX wishes to settle it.  In lieu of physical delivery of bars, longs will receive cash instead.  The COMEX is preparing for the run on physical gold and silver from which they won't be able to deliver, and this disclaimer preempts any lawsuits due to non-delivery.

http://www.zerohedge.com/news/2013-06-04/jpm-comex-gold-slides-new-all-time-low

 

My conclusion:  GET PHYSICAL GOLD AND SILVER.  Do not mess with ETF's, futures contracts, certificates, etc.  More importantly, the existing and intensifying shortage is strongly bullish for gold and silver's fundamentals.  Ignore the daily gyrations and fluctuations--it's all noise.  Just accumulate, and BTFD when the opportunities arise.

This is not an investment.  Physical gold and silver do not pay dividends--there is no return on investment.  In fact, it costs money to store and secure them.  But treat precious metals as part of your savings--outside the increasingly corrupt and fragile banking system.  The window is closing.

Sprott: Shorts May Need To Deliver 40 Million Ounces Of Silver

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/1_Sprott__Shorts_May_Need_To_Deliver_40_Million_Ounces_Of_Silver.html

The Traders Who Make The Big Money

The Traders Who Make The Big Money

Why they refuse to do the same with gold is really difficult to grasp unless of course they are fearful of government regulators sniffing around their business. Maybe the word has gotten out that this will be the case with any hedge fund manager who dares to try to force the shorts to delivery the gold. One thing along this line – China or Russia nor mid-Eastern interests are under no such constraints and could break the back of the bullion banks tomorrow if they chose to do so. That they have not signifies that they are not through acquiring cheap gold yet.

More crooks

Stephen Obie, Director of Enforcement with the Commodity Futures Trading Commission (CFTC), which oversees the futures exchanges, is on Fox Business News preaching about transparency, oversight, regulation, and enforcement, and waving his hands on TV like a Dale Carnegie salesman. He's saying how the SEC and investors didn't oversee and perform due diligence on Bernie Madoff.

What's unbelievable is that the commodity pits are rife with manipulation and corruption beyond imagination. Big commercial traders and banks have artificially suppressed prices on the futures markets for years--yet, the CFTC never investigates the commercials--they know where their bread is buttered. Naked shorting makes it possible for the commercials to dampen prices on commodities like gold and silver, with no intention for physical delivery on settlement date. In other words, they'll sell short a futures contract with no inventory, and no intention to deliver at that date. These are phantom contracts, much like the toxic credit default swaps which were uncollaterized. These naked short-selling commercials are selling vaporware, and their massive short positions alone can drive prices lower due to no other reason than market manipulation.

Instead, the CFTC goes after the small-time speculators for minor non-compliance, but they will not reveal who takes large positions on either side of a trade--including the commercials who manipulate the markets. Transparency? What a crock--Fort Knox hasn't had an independent audit for its gold reserves since the early 1950's. Many conspiracy theorists are saying half of what is reported in vaults has either been sold off or leased, yet is still counted.

Eventually, this con game will be exposed when a seller will default, unable to meet physical delivery demands. That day is approaching, as buyers in the middle east are scrambling to buy gold and dealers are unable to meet that demand.

Contango--why this dance is important

Contango is the recent buzzword in trader's vernacular. It's basically the difference between the higher-priced futures contract and the lower-priced spot price of a commodity--like crude oil, for instance. It has recently made headlines due to the plummeting price of oil, causing the spread--or contango--to widen. Hence, big oil companies and financial institutions are taking advantage of that spread, taking immediate delivery of oil at the much lower price, and storing it for sale and future delivery at the higher price (less storage, security, and insurance costs). In doing so, they've basically locked in a guaranteed profit via the contango trade. Fundamentally, a contango exists in normal market conditions, but it's been in the news lately due to its uncommonly wide spread.

But contango's antithesis--backwardation--has quietly made some news in the precious metals market (I glossed over it last month). In a contango, the spot price is lower than the forward futures contract. However, with backwardation, the opposite is true: the spot delivery price is HIGHER than the forward futures contract. How can that be? After all, doesn't taking immediately delivery incur additional inventory costs (as described above)? To answer that, let's perform a quick anatomy on the gold market, and compare it to crude oil.

On December 2, 2008, for the first time in the history of mankind, gold reached backwardation. Gold is predominantly not a consumable asset, but is stored mostly in vaults at central banks, commercial money centers, private banks, etc. Hence, it is almost always in contango. On that date, COMEX spot prices for gold were higher than December gold futures, for December 31 delivery. Backwardation exists because of perceived scarcity, which causes investors to pay a premium for guaranteed delivery. In other words, buyers insist on delivery, instead of cash settlements. By contrast, a contango exists when there is perceived oversupply, which is normally bearish when you consider demand/supply dynamics. For instance, prior to oil's meteoric peak at $147 a barrel, a contango formed, precursing the huge decline to its present levels in the $40's.


Gold, on the other hand, is not consumable, so has been in contango into perpetuity. That is, until December 2nd. Gold's backwardation is the inverse of crude oil's 2008 contango, and subsequent precipitous decline--all you'd have to do is turn the chart upside down. Therefore, backwardation--especially for gold, as it has never occurred before--has the opposite effect—and is extremely bullish for gold. In fact, crude oil had its own backwardation in 2007, foretelling its parabolic run up in price into the summer of 2008. Backwardation reflects scarcity at current price levels, and is an indicator that gold will continue its secular bull market.

Who is shorting gold?

Regarding the gold shorts, I've read JP Morgan, HSBC, and Goldman Sachs were shorting gold futures, artificially driving the price down, while at the same time hoarding the physical bullion on the spot market at a lower price. Ironically, JPMorgan Chase and Citigroup analysts are forecasting $2000/oz gold. Looks like manipulation, especially when you factor in a ten-fold increase in short positions. Someone on the inside knew what was going on with Fed easing and tightening.

I'm not sure if it was just big money centers--I think some of the commercial shorts were mining companies themselves. If they short it and the price plummets, they've locked in a profit as the short contracts increase in value when gold declines in price. That's why gold producers use it as a hedge in the case of falling gold prices. If they sell short the futures contracts, and prices rise against them, they are forced to cover at a higher price, but then their gold inventory also increases in value, negating the loss from short sale. In other words, they profit either way--as long as they have the gold in inventory. Without said inventory, they are "naked" and must realize the losses within 5 days--or until they deliver the physical product.

If indeed manipulation is going on, it is not only illegal, it will not be sustainable. Eventually, the Fed won't be able to save the shorts, as physical bullion becomes even scarcer, and buyers insist on delivery, instead of some "shadow" paper delivery against some vault. Gold experienced backwardation for the first time ever in December--the spot price was higher than the forward contracts. In other words, buyers wanted delivery NOW--and would not sell at ANY price, as fear has gripped the markets. Under normal conditions, a contango exists, where forward contracts command higher prices. I think this backwardation is very bullish for gold, and the fact that mints are out of inventory is indicative of that.

Also, I've read statistics where central banks, especially in Europe, are no longer selling their gold inventory. If the Chinese government steps up and purchases tons of gold like they have threatened (their ratios are much lower than the US's and Europe's), that will absorb inventory and drive prices higher also. And India is already the world's largest buyer of gold, up to 20%. With the Pakistan thing going on, I can't imagine them wanting more rupees, instead of gold, which has become the de facto currency.

Bottom line: MV = GDP, and as long as the Fed provides easy credit (interest rates can't get much lower than 0%), and as long as the Treasury prints trillions of dollars, the money supply M will be poised to catalyze inflation. But once the velocity V of capital flows thru the economy, it will provide the stimulus our economy needs, but potentially kicking off hyperinflation. In other words, once bank balance sheets have been restored, they will start lending again. We would have avoided another Great Depression, but God helps us when we get runaway inflation a la the 70's. Having an extra $8 trillion floating around in our economy will prove inflationary, and interest rates will soar. Treasury bondholders with longer maturities will get crushed, as the Fed can only influence short-term maturities (T bills). With higher interest rates, the government won't be able to pay off its huge debt obligations, and we'll have stagnant growth for years. We are experiencing a credit crisis because investment and commercial banks are insolvent. When the markets realize the US government is also insolvent, all hell will break loose. The government has compounded a multi-billion-dollar debt crisis into a multi-trillion debt crisis.

I hope I'm wrong in this logic chain, but this playbook has been repeated many times before when fiat currencies are under attack by central banks. I just don't see any other outcome when your debt is almost as large as the size of your economy.