The Cartel And Hedgies Are Short Paper, But Long Physical Gold

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The following bulletin from Jim Sinclair explains where gold is headed and who will benefit.  In typical fashion, Sinclair’s information is superb but his writing style isn’t exactly clear.  In fact, after reading it, my wife asked me what he meant by “7 touches”?  (See following bulletin)  Half a dozen years ago it was fashionable within the gold community to point out that a few bullion banks (Goldman Sachs, JP Morgan and a few friends) were always “short” gold. Sinclair stated then, that the bankers weren’t stupid and as the bull market advanced, the same bankers that were “short” would be the ones who were “long” and they would make a fortune on their gold holdings.  That’s right, they would be “long,” not “short!”  At the time, not many people believed him – but here he is, in the bulletin below, once again pointing out who is accumulating gold.  Low and behold, it’s the very same bankers that are being blamed for being “short.”  Of course, they are “short,” short paper gold and “long” the physicals.  That is exactly what Sinclair is alluding to.  But it’s not just the bankers that are accumulating physical gold; it’s also “big money.”  They are starting to protect their wealth against the coordinated central bank (QE) money debasement from the Fed, the ECB and Japan.

If this isn’t reason enough to shun the paper gold vehicles like GLD and go through the minor aggravation of accumulating physical gold, I don’t know what is.  This has been my plan for more than a decade.

In The News Today – jsminset.com

September 23, 2012, at 9:16 am
by Jim Sinclair

My Dear Friends,

You can be absolutely sure the 7 touches capping sells at $1775 were for the purpose of accumulation.

Our newly created trillionaire banksters will be long of cash gold in their own depositories.

Gold is going to $3500 and beyond much, much, much faster than it took to get to go above $1900.

If you think the major banksters are either short or flat on this gold move, you are seriously bonkers.

Regards,
Jim

Gold Seen Luring Wealthy as Central Bankers Expand Stimulus 
By Glenys Sim – Sep 21, 2012 4:00 PM GMT

More high-net-worth individuals are seeking to buy gold to protect their wealth from the risk of rising inflation after central banks boosted stimulus, according to Deutsche Bank AG’s asset and wealth-management unit.

“Gold has historically been considered to be a store of value and an inflation hedge and increasingly it is being utilized as a monetary instrument,” said Mark Smallwood, head of Asia-Pacific wealth-management solutions. “There is a growing interest among our clients to gain exposure,” he said, with an increased preference for physical holdings.

Gold is in the 12th year of a bull run, 13.5 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Holdings in gold-backed exchange-traded products expanded to an all-time high yesterday, and Bank of America Corp. and Deutsche Bank are among banks forecasting that the price will rally to a record.

“With the movements by the central banks globally in the last few weeks, there is considerable investor concern as to the long-term effects of the liquidity infusions,” Smallwood said by phone from Guilin, China yesterday. “As a result of that, private clients are concerned about the possible future effects of inflation and the means of hedging that risk.”

Immediate-delivery gold reached $1,779.50 an ounce on Sept. 19, the highest price since February, after central banks took further steps to bolster their economies hurt by Europe’s debt crisis. The metal, which reached a record $1,921.15 on Sept. 6, 2011, gained 0.4 percent to $1,774.85 at 5:30 p.m. in Singapore.

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Whereas Ted Butler focuses on JP Morgan and “the Big Four Commercial Banks,” and their perpetual “short” position in silver (and gold), I don’t recall him ever suggesting that they actually own the physical silver to offset their short positions.

My friend Trader David R flatly states that this IS the case; he has seen the silver with his own eyes in London.  In fact, he asked me to come with him last year and told me he would bring me to the vaults and personally show me the silver.  Last winter he emailed me and said, “I will be going to London in May; if want to come along, I am sure I can get you a tour of a few of the major banks vaults (JPM included) and you can see all of the gold and silver for yourself ?”

Who is Trader David R and why should you believe him?  Judge for yourself.  He told me:

I worked at some of the largest bullion banks in the world over my career and I ran all types of books and did a lot of business with Central Banks around the globe.  I was involved in the largest gold hedge ever done in the history of the world back in 1996.  This has been my life for the past 18 years.  From 2000 to 2006 I was the gold trader at Barclays London. I have worked for AIG, Barclays, and UBS, some of the biggest bullion desks in the world.

David R left Barclays and moved to Manhattan to work for one of the largest and most successful privately held hedge funds in NYC.  He was in charge of the precious metals trading department, and supervised dozens of the most talented precious metal’s traders in NYC.  I was told by a reliable source that every metals trader worth his salt would kill to work for that firm.  The traders were not salaried, they worked on commission and they all made BIG money.  That is where I met David.  He gave me a personal tour of their trading department.  His understanding of the gold and silver industry and his resume is as good as it gets.

In concert with Sinclair, David R maintains that the banks (and large hedge funds) are long “physicals” and short “paper” gold and silver.  He told me:

They buy the physical silver at the same time they sell the future (on Comex) futures trade in contango (higher price than spot physical) they get zero interest rate cash from FED so borrow the money for free, they own the vaults to store the silver…. so as the future comes to maturity they can either settle against their physical long or roll the future to collect more free contango…. This is pure arbitrage paid for by the FED.  This has been going on for over 30 years and why shouldn’t they be allowed to have 25% of the Open Interest?  There is no manipulation because they are short the futures and long the physical and have “ZERO” price risk, but nice profits!  It’s brilliant trading and completely 100% legal and that’s why they will never be charged with manipulation because there is none going on. Sometimes it’s just that easy!

As for all the talk about a shortage of silver, he says:

Let’s go and visit their vaults and you can see all the physical silver there… Lease rates are at full carry +.  There is no shortage what so ever and the banks are charging 40 bp for storage because they cannot find any more space to put it all, you can take all the physical you want!  The JPM manipulation is not a manipulation, but a way of trading that has been going on for years. JPM is short futures (due to contango) and long physical.  People need to understand that metals are just a derivative of the interest rate market and once people do, they will get a better understanding why the market moves the way it does.

How can you be sure that he really knows what goes on with the bullion banks gold trades?  He said, “Because I worked for three of the major bullion banks for 11 years and was in charge of Barkleys gold book and the hired 42 Brinks trucks to move our 27 million ounces of gold out of HSBC ‘s vault and into JPMs vault when HSBC raised storage costs on us, I am 100% positive that it’s there. I know we had 27 million ounces of gold on our daily balance sheet and the other big banks all had around the same amounts.”  These facts tend to validate Jim Sinclair’s contention that the big banks do, in fact, have the physical gold to offset their short paper positions on the Comex.

For those of you who still doubt that the big banks actually own the physical silver, David R says you can find it listed on their audited annual financial statements:

They are clear as day on the “Notes to consolidated financial statements” under “physical commodities.”  You can see the assets.  If someone actually believes that their statement is being forged, then there is nothing that I am going to say that will convince someone like that.  These guys made a fortune in silver last year and it wasn’t because they were short. I know the guy who did these trades and saw the house in the Hamptons he just bought.  He also had a huge flag made which has gold and silver bars on it.  If you ever go to the Hamptons and you see the flag, you know who lives there!

He added:

I explained to you what HSBC and JPM do on the silver.  They get $ from the FED for free.  They own all the storage vaults, so they do not have to pay the fees for storage.  They then own the physical silver in their vaults and sell the futures contracts (which are in contango) at a much higher price than OTC price so then hold the both till delivery.  Since there is no cost for $ and no cost for storage, they made a fortune on earning the contango of the silver and gold market.  It’s a brilliant strategy, which has made them a fortune.

If you sat with me for a day I could show you how this market really works.

Last year, David R left the NYC hedge fund and opened his own closed fund and trades gold and silver with his own capital and funds provided by silent partners. I suspect he does it better than anyone else.

This is not information you will read anywhere else.  You can believe it or not.  I have known David R for nearly four years, and I do believe it.  David R is very much in agreement with Sinclair.  He is absolutely convinced that gold and silver are going MUCH, MUCH higher.  He told me last week that with the Fed’s latest “open-ended” QE edict the dollar and bond market are done, finished and the bull market in gold is guaranteed!  As far as he is concerned, Bernanke has sold out our kids and grandchildren and it no longer makes any difference who occupies the White House!

To wrap this up, I want to make it very clear that the “shorting of gold and silver” is NOT a negative for us; it is a positive.  It provides us with discount prices on the physicals.  If you don’t take advantage of this situation, before prices explode, you are foolish!  You have another chance on Monday morning to buy gold for a $15 discount (as of early this morning from the close on Friday).  There is no logical reason that gold should be cheaper on Monday morning – this is a “paper” event designed, as Sinclair pointed out, to allow the smart money to enter the physical market and pick up more gold at a lower price.  You can join in with them or sit on the sidelines – it’s your call.

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