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The Bankers’ New Gold

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In a fresh sign of bankster desperation, we recently learned that they have pushed lease rates for gold to the lowest, negative level in history – i.e. they are paying people more money to “borrow” their gold than at any other time. We know this is a sign of desperation, because back in the real world, buyers are paying premiums near record-highs to buy their (real) gold.

There are numerous implications regarding this latest bankster tactic to suppress the gold market, but before getting into those let’s explore all of the reasons why bankers like “leasing gold” in the first place. The starting point is to note that it is with gold-leasing that we see the beginnings of the banksters’ 100:1 leverage in the gold market.

A banker is holding a quantity of gold in his vault. He “lends” the gold to a trader, and suddenly you have two parties both pretending to be the “owners” of that gold. Naturally, the banksters also like the fact that this is a totally opaque, unregulated/unreported transaction. The banksters can secretly lend out their gold, and since the transactions are never reported, we lack the absolute proof that none of this “loaned gold” is ever repaid.

There is certainly plenty of circumstantial evidence on which to base such a conclusion, however. In order to review this evidence, we first need to know what is being done with the bankers’ leased gold. A detailed analysis by veteran precious metals commentator Frank Veneroso explains how and why “The ultimate borrowers in the gold lending operation are these shorts in the gold futures and forward market.

We immediately see a second reason the bankers love gold-leasing: all of the “leased” gold ends up being shorted onto the market. What this directly implies then is that in order for these gold leases to ever be repaid the short positions must be closed out so that the gold (supposedly) backing the trade can be repatriated to the bank. However, what we see in the gold market is a huge, permanent short position in the gold market – which has swelled enormously since Veneroso wrote the article above nearly a decade ago.

We now know that at least some of these gold leases have never been repaid, since the gold that was loaned out remains on the market. However, as a matter of simple arithmetic we can deduce that few if any of these leases are ever repaid. As I noted above, each gold lease creates “paper gold” (i.e. a “fractional reserve” gold market) and increases the bankers’ leverage in the gold market.

We know from Jeffrey “I can’t keep a secret” Christian of the CPM Group that the gold market is leveraged by approximately 100:1. Yet just as every new lease increases leverage in the gold market, closing out any lease would reduce leverage by a corresponding amount. The combination of the permanently rising leverage, and the permanently rising short position provide irrefutable empirical evidence that little if any of this “leased gold” is ever repaid.

We can reinforce this conclusion further through common sense, and a basic observation of bankster behavior. Specifically, bankers never reduce their leverage voluntarily – the exception being short-term panic reactions each time their reckless gambling (again) pushes them to the verge of their own bankruptcy. However, as noted above there is zero empirical evidence that the banksters ever reduce their leverage in the gold market on even a semi-permanent basis.

Having supplied several powerful reasons as to why the bullion banks love to “lease” their gold (i.e. sell it to multiple buyers) begs the question: why aren’t the bankers always “leasing” vast amounts of gold to suppress the price? Hopefully that answer is obvious to regular readers.  If you want to loan ton after ton of gold onto the market, you must have some original bullion to lend into the market in the first place.

Here is where we come upon a seeming paradox with respect to the recent explosion of gold leasing. We know that the banksters have virtually run out of their own bullion, as the evidence is absolutely conclusive. The same Western central banks which were openly selling 500 tons of gold per year onto the market every year have now all totally ceased their gold sales. They have no more gold…or at least they had no more gold.

Yet here we have the same bankers directly implying that suddenly they have lots of gold. It makes no sense to announce “the greatest sale on gold in history” – only to run out of inventory after the few first customers have bought their fill. Clearly the bankers have some new gold. This begs an even more obvious question: where did they get it?

Here, unfortunately, we must descend into speculation. However it is speculation which we can back up with yet more circumstantial evidence. As I noted in a previous commentary, as part of the “economic rape” of European economies, the bankers announced that they would be “willing to accept gold as collateral” for some of their (fraudulent) paper debts. How magnanimous of them!

As we all know, when Greece (finally) forced the bond parasites to absorb 50% “haircuts” on their holdings that was a default event. What happens when a debtor defaults on a debt? Collateral is seized. The latest statistics from the World Gold Council on official government reserves show Greece sitting with over 111 tons of gold. And as victims of the MF Global collapse have learned the hard way, our criminal governments (and the bankers who pull their strings) no longer see it as necessary to even report when they have taken something from people. Thus the bankers could have looted every ounce of Greece’s gold from its people and it could be months, years, or never before we finally find out about it.

One hundred and eleven tons is a lot of gold to lease, but it’s certainly not the only gold hoard onto which the bankers could have recently latched their talons. Those who followed the “Libyan revolution” will have recalled a remarkable flip-flop by the West.

At one moment, we had the vastly superior military forces of Muammar Gaddafi steamrolling the rag-tag, disorganized rabble we knew as the “Libyan rebels”. They were on the verge of collapsing. All hope was lost. Western leaders lamented that the lack of “UN authorization” prevented these upstanding citizens of the global community from doing anything to assist the rebels – and there was absolutely no sign of any “movement” in those negotiations.

The next moment, the same disorganized rabble which didn’t even have a military command structure (let alone a nation to command) announced they had created a “central bank”. About ten seconds after that announcement, Western leaders announce a “sudden breakthrough” at the UN, and a drafted-and-approved resolution instantly materialized. And before the ink was even dry on that document, war-planes from several Western nations were on the way to Libya to enforce a “no-fly zone”.

At that point we witnessed how much regard these Western nations had for international law. When following the UN mandate and merely enforcing the “no-fly zone” was not producing the result these nations desired, they simply tore up the resolution and threw it away. Instead, they began carpet-bombing any/all areas under the control of Gaddafi, slaughtering his ground forces (and large numbers of civilians) in what is a textbook example of “war crimes”.

This brings us back to the pivotal moment when Libya’s central bank was created. What possible purpose could there have been for the rebels to create a central bank before they had even created a real army to take control of the country? There was no “banking” to be done. And yet it was the creation of that symbol which was the obvious catalyst for a massive military commitment by the West.

One thing we do know about central banks is that they are the official receptacles for a nation’s gold reserves. Turning again to WGC statistics on national gold reserves, we see that Libya had even more gold than Greece,  143.8 tons to be precise – and more than enough for a group of gold-hungry bankers to instruct their lackeys in government to mobilize their war-machines.

Let’s summarize the facts. We had Western central banks totally running out of any gold to sell onto the market, with all gold sales having ceased for more than a year. Suddenly, we have the bullion banks announcing they have so much gold on their hands that they are doing more than just giving it away, they are literally paying people to “borrow” it – in the greatest “gold sale” in all of history.

We have the same bankers announcing that the gold of Greece was now “collateral” for its sovereign debts. We then had the Greek government defaulting on those debts, directly implying the seizure of that collateral.

We had the”rebels” of Libya on the verge of total annihilation, while Western governments claimed they were helpless to intervene because it was “against international law”. We suddenly saw the rebels create an official receptacle for their nations gold, and then had those same Western nations instantly launching a massive military intervention into Libya, where Western governments flagrantly disregarded international law while committing their war crimes.

You be the judge.

For newer or more timid investors in the gold market who fear that this latest operation is somehow an indication of bankster omnipotence, relax. It was less than two years ago that the scheming banksters thought they could torpedo the gold market through getting the IMF to dump 400 tons of gold onto the market (50% more gold than that of Greece and Libya combined).

What happened then? As soon as that gold hit the market, India swallowed-up half of it in one gulp. The price of gold was permanently launched above the $1000/oz mark – and the gold market has never looked back since.

We know that the banksters are capable of depressing the price of gold over the short-term. We also know from the six-fold increase in the price of gold over the past decade that they are losing this “war”. Meanwhile, it is only a matter of time until the masses realize that the worthless paper in their wallets is worthless. Sounds like a great time to buy gold – on sale.

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bobbbny
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written by bobbbny, December 18, 2011
lanK, these are excellent points, but they are clearly confusing, even to professionals.
Could I press upon you to clarify the lease rate scenario once again?
Jeff, my understanding from the volume of futures to physical trading indicates a paper to physical silver ratio of more like 1000:1.
Jeff Nielson
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written by Jeff Nielson, December 16, 2011
Do the Banksters lease gold to other Banksters only? Would this imply a Ponzi leveraging?
Since we have no QE3, who is buying/paying the App. 100 Billion dollars a month in deficit spending by the US Gov.? Is this not a secret attempt by the FED and US government to suppress the price of GOLD? And if the FED is not creating the 100 Billion $'s a month, than who is?
If the Banksters/GOV are siezing gold from the Libians and the Greeks, is not confiscation from the citizens of the western world the next order of business?


Paxjds, I certainly don't pretend to be an expert on gold leasing itself. I asked Chris Powell of GATA for some help in getting a handle on that aspect of the market - and he referred me to the article by Frank Veneroso. So your best bet would be to read through that article.

[quoted above]

http://www.gata.org/node/4249smilies/wink.gif
paxjds
...
written by paxjds, December 16, 2011
Great article Jeff!
Do the Banksters lease gold to other Banksters only? Would this imply a Ponzi leveraging?
Since we have no QE3, who is buying/paying the App. 100 Billion dollars a month in deficit spending by the US Gov.? Is this not a secret attempt by the FED and US government to suppress the price of GOLD? And if the FED is not creating the 100 Billion $'s a month, than who is?
If the Banksters/GOV are siezing gold from the Libians and the Greeks, is not confiscation from the citizens of the western world the next order of business?

Jeff Nielson
...
written by Jeff Nielson, December 15, 2011
No Roentgen, when Christian was testifying before the CFTC he was SPECIFICALLY talking about the gold market.

http://www.youtube.com/watch?v=BfCn8NlLHko&feature=player_embedded

Thus we can assume that the total leverage in the silver market is even GREATER than 100:1 - since there is so much LESS bullion to leverage.
Roentgen
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written by Roentgen, December 15, 2011
As far as I recall Christian Jeffrey of CPM let out that the leverage of SILVER runs about 100:1.
Gold should be leveraged in the area of 45-55:1.
Jeff Nielson
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written by Jeff Nielson, December 14, 2011
IanK, IF the lease rate is defined as you claim, then you should really be starting your "information tour" with Bloomberg News, as this is what THEY said about the negative lease rates in the article I quoted above:

"A negative reading means banks have to pay to have their gold deposits lent."
IanK
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written by IanK, December 14, 2011
I think that is not accurate on two counts. GOFO is the interest rate you pay to borrow gold. It is higher than LIBOR. That means you can no longer borrow gold, dump it, and loan out the proceeds to make the difference in the interest rates. The gold carry trade is unprofitable and can no longer be rolled over. I think it is being cured with real gold this time because the real problem is that after MF global, people are leaving the exchanges with their gold. The bankers had to respond with the real thing because it is a physical drain. But I don't think it is a real addition to supply because it is just what people thought they already had.

I understand the term "lease rate" is deceptive in that it is not at all what it sounds like. When it is negative, it really means gold is more expensive to borrow than cash. I know that most people don't understand it because even the press is getting it wrong. I used to think the same thing. Here is a decent article where it is explained early on: http://seekingalpha.com/articl...could-rise And here is some raw LBMA data: http://www.lbma.org.uk/pages/index.cfm?page_id=55
Jeff Nielson
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written by Jeff Nielson, December 14, 2011
IanK, that definition makes no sense to me. To suggest that a "negative lease rate" makes gold more expensive while a "positive" lease rate denotes gold getting cheaper is simply perverse.

As for the bankers "needing" to flood the market with "gold" because (supposedly) the gold-carry trade has blown up, that's simply absurd. The ONLY way the bankers would have any gold to "flood the market with" is under the terms I described.

Otherwise all they ever do is flood the market with PAPER...
IanK
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written by IanK, December 14, 2011
I think you are misunderstanding the lease rate. The lease rate is LIBOR minus the Gold Forward Rate. The lease rate is not the rate at which gold is leased. It is the profitability of the gold carry trade. When the lease rate goes negative, it means you are paying more to borrow gold than you are to borrow dollars. The gold carry trade blew up. That is why the bankers are trying to flood the system with gold. LIBOR is skidding around at .28 indicating there is no cash shortage. The GOFO rate is around .8%. This is the gold shrt nightmare scenerio and you are seeing a bailout.
Brian Boutilier
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written by Brian Boutilier, December 14, 2011
Thought provoking article Jeff. In addition to your beloved Bankers and their leased Gold, I've noticed the the market manipulators are also leasing the "Emperors" Clothes. Naked Shorts seem to be all the rage. smilies/cheesy.gif

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