From the day back in 2004 that I first read James Turk’s analysis of the GLD ETF, I had suspected that GLD had been created to take investor money and accumulate a large pile of 400 oz bullion bars that would be used eventually to manage the growing western Central Bank short position in paper gold. Paper gold being the fraudulent, blunt instrument used to illegally manipulate the price of gold.
GLD’s objective is not to provide investors with the opportunity to own gold bullion by investing in the shares of an ETF. Rather, GLD is designed to track the price of gold. That objective is no different than what is accomplished by a gold futures contract or any of the dozens of numerous gold derivatives available these days. More to the point, futures and derivatives are sold even if the seller does not own the underlying gold bullion needed to deliver on its obligation. They are in practice fractional reserve systems, which allow liabilities for gold to far exceed the quantity of gold owned by the seller of that liability. – James Turk, “Where Is The ETF’s Gold,” November 2004
In 2009 I wrote a reseach report on GLD in which I went through the GLD prospectus line by line and determined that the prospectus was specifically set up to enable the bullion banks – with HSBC suspiciously designated as the custodian of the GLD, as HSBC is the LBMA gold market counterpart in London to JP Morgan’s Comex silver market function – to amass gold in a legal structure that would enable the banks to finance the purchase of 400 oz ounce bars which could be leased or hypothecated via the “backdoor” web of subcustodians. Shockingly, even the trustee and sponsor of the the GLD trust, Bank of New York Mellon and the World Gold Council respectively, are not permitted to inspect the contents of HSBC’s vault without significant notice. And inspection is allowed according the prospectus only intermittently. Furthermore, no outside party is entitled to inspect any gold held by any subcustodian. The list of horrors is endless and eventually I’ll update and republish my report from 2009.
Everyone likely remembers the infamous scene on CNBC back in 2011 when CNBC made a big production of putting Bob Pisani inside the GLD vault to show the world GLD’s gold. Pisani was directed toward a stack of bars that were in the GLD “allocated” section of the vault. Pisani randomly picked up a bar and it turned out that – much to the horror of everyone watching live – based on the bar’s serial number, the bar did not belong to the GLD Trust despite sitting on the GLD stack.
In a world governed by Rule of Law, the operations of GLD should have been suspended and a full independent audit of all of the GLD vaults, including the subcustodial vaults, would have commenced immediately. But the world is governed by Rule Banks And Thieves and the episode was summarily dismissed.
It now looks like the looting of GLD is in full motion. The “reported” holdings of GLD peaked in December 2012 at 1351 tonnes. Since then, through last Friday, the number of bars “reported” has declined to 680. The last time there were this many bars reported by the GLD Trust was September 19, 2008 (679 bars) and the price of gold was $869.
I say “reported” because the integrity of the daily reports are dependent on the reliability of HSBC. See what I mean? HSBC has been found guilty of fraud and market manipulation of almost all of its major business segments. It would be highly improbable that the one area of its business that HSBC conducts honestly and ethically is in its precious metals operations. More likely the fraud and corruption in this business segment is the nexus of the bank’s criminal behavior.
But let’s suspend disbelief for a moment. According to the prospectus, the only mechanism by which gold bars can be removed is to amass shares in 100,000 “baskets” and turn them in to the Trust – BNY Mellon – in exchange for the equivalent amount of bars. It’s the only way gold is supposed to leave the Trust – in theory. Of course, the language in the Prospectus enables the Trustee to deny share for gold redemption and I have heard of a few large funds who have tried to redeem shares for gold but have been denied. In all probability, any gold redeemed and removed from the GLD vault has gone to the bullion banks for their use in delivering gold committed to large Asian buyers of paper gold issued and shorted in London.
It does not make sense that the amount of gold in GLD would decline with a fall in price. A fall in price would indicate a drop in demand for gold (or an increase in supply of the physical metal, which we know is not the case). For GLD to be losing gold indicates an increase in demand for physical gold. The physical markets are dominated by purchasers, and suppliers cannot keep up with the demand.
As an example, we know that China is currently on pace to buy a record annual amount of gold based on the YTD withdrawals from the Shanghai Gold Exchange. Contrary to reports from the World Gold Council and Reuters, movement into and out of the Shanghai Gold Exchange – LINK – has been rising, indicating that demand in China for gold is increasing. In fact, China is on pace to buy up the total amount of gold produced annually by mines globally.
Then there is India. The bullion premiums are evidence that Indian demand has increased significantly well ahead of its traditional autumn seasonal buying period. According John Brimelow’s “Gold Jottings” report, ex-duty premiums in India were as high as $13.59 last Friday. When this metric is positive, it indicates healthy import volume. When it’s in the teens, it indicates aggressive buying. This fact is confirmed by this article from the Hindu Times – Brisk Sales At Jewelry Shops As Gold Price Dips.
Furthermore, the U.S. Mint report record gold eagle sales in July: Gold Eagles Hit Monthly Record In July. It seems Americans are trading their fiat money for real money. This is confirmed by this fact – 1/10th of an ounce gold eagle sales soared in July to their highest level since 1999 (source: Smaulgld.com, edits are mine):
Unable to get silver, people turned to the 1/10th ounce gold coins. Who wants fiat money that pays negative interest rates?
The gold holdings of the GLD Trust are behaving inversely to the observed behavior of the global market for physical gold. If gold is in a bear market and people are selling rather than buying, GLD’s holdings should be rising, not falling from withdrawals.
By printing uncovered futures contracts, the bullion banks have artificially increased the supply of paper gold in the futures market where price is determined. This artificial price created by manipulating the quantity of paper contracts implies a bear market. Yet all evidence indicates rising demand for physical metal.
The ONLY explanation for this is that GLD is being looted by the bullion banks.