THE LBMA COVER-UP

By Adrian Douglas 

The London Bullion Market Association (LBMA) has just taken the highly unusual step of blocking access to statistics relating to their member bullion banks’ gold and silver trading activities. This information has been available to the public since 1997 but as of this week it is only available to LBMA members (www.lbma.org.uk). 

I have recently written a series of exposes of the LBMA (see References 1-4) using their own data to show that the bullion banks of the LBMA are operating on a “fractional reserve” basis. My analysis indicates that the bullion banks are holding only one real ounce for about every forty-five ounces of gold that they have sold (a reserve ratio of just 2.3%).  

In the Commodity & Futures Trading Commission (CFTC) Public Hearing on Precious Metals Futures Markets held on March 25, 2010 I cited the LBMA’s own statistics to label the “unallocated gold” accounts of the bullion banks as a “Ponzi Scheme” (reference 3). There were bullion bank representatives in the hearing but no one tabled an objection. Since the meeting the bullion banks have not made any public statement refuting what I said in that public, vide-taped government meeting. In fact Jeffrey Christian, CEO of the CPM Group, agreed that what is widely referred to as a “physical market” is in reality largely a “paper market” trading gold and silver as if they are financial assets and not physical metals. He stated that 100 ounces of paper gold are traded for every one ounce of physical gold.  

It should be noted that when the LBMA first made their trading statistics available in January 1997 observers and analysts were shocked (reference 5). No one could reconcile the statistics with other market data nor comprehend how the bullion banks could be trading on a net basis over 240,000 tonnes of gold annually while the global mine output was only 2,400 tonnes. Over the years the furore over the significance of these statistics had subsided until the end of 2009 when I commenced writing about my studies and showing that the statistics can be reconciled with other market data if the bullion banks are operating a fractional reserve bullion banking operation with a recklessly low reserve ratio. I have also shown how the price of gold is suppressed because 45 ounces of demand is being diluted to result in purchasing only 1 ounce of real metal. If instead all 45 ounces were to be sourced and purchased the gold price would be multiples of the current price. 

Typically when people are caught out and exposed in a scandal their first reaction is to implement a “cover-up”. The most notorious examples of this are the Nixon Administration when it doctored the Watergate Tapes and Arthur Anderson which shredded millions of pages of documents relating to Enron audits. In a similar vein the LBMA has now commenced a cover-up with respect to the gold trading activities of its member bullion banks making previously available statistics non-public. 

This appears not to be the only cover-up going on in the gold market. The International Monetary Fund (IMF) has for years made great public fanfare of any discussions of merely contemplating selling some of its gold and news of actual sales has been widely publicized. Since February the IMF has been surreptitiously selling large tonnages of gold each month which are only to be found by digging through its financial statements and even so the recipients of the gold are not disclosed (reference 6). One has to wonder why the IMF is now trying to fly under the radar with its gold sales. Similarly it was recently discovered that the Bank for International Settlements (BIS) didn’t feel it necessary to announce the largest gold swap ever in history of 346 tonnes (see reference 7).  It was instead only discovered by an analyst digging through the footnotes of its financial statements. These have all the hallmarks of cover-ups. 

In June the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by its member banks jumped a massive 50% from the month before to 24 million ounces each day from 16 million ounces each day. That translates to 7.5 trillion dollars annually. If an operation is running on a razor thin fractional reserve such step changes are often fatal. It appears a “run on the bank” of the bullion banks has commenced. There is a cover-up of back door injections of liquidity of physical gold and the LBMA has taken the suspect action of trying to hide from the public trading information. There has been much debate about how investors, politicians, and regulators didn’t see the 2008 financial crisis coming and the “lack of transparency” was cited as a key ingredient. Clearly the gold market is trying to skulk into darkness. It suggests it has a lot to hide.  

Investors could have been blindsided by the events of 2008 but anyone who misses the writing on the wall of what’s going on in the bullion markets is just foolish. The bullion banks have sold far more metal than they can possibly deliver and more and more customers are asking them to deliver. This is creating back door bailouts and cover-ups. Anyone who has “unallocated” bullion has reasons to be very concerned. The LBMA themselves describes owners of “unallocated bullion” accounts as “unsecured creditors”. That means the account holder has no collateral or title to any bullion. Bullion bank unallocated account agreements only require the bank to settle in cash for non-performance at the cash value before the non-performance occurs. That means when the physical squeeze that is evolving takes the gold and silver prices to multiples of the current price holders of unallocated metal accounts will not get any bullion and nor will they be compensated at the prevailing market price. I would interpret this latest move to secrecy by the LBMA as a sign that the window of opportunity is closing fast.  

Adrian Douglas

July 25, 2010 

Adrian Douglas publishes the Market Force Analysis letter (www.MarketForceAnalysis.com) and is a member of GATA’s Board of Directors.  
 

References: 

1. Adrian Douglas: Proof of gold price suppression — gold and the U.S. dollar www.gata.org/node/8844

2. Adrian Douglas: Price suppression follows inevitably from fractional-reserve gold banking www.gata.org/node/8820

3. Adrian Douglas: It’s admitted to the CFTC: London gold market is a Ponzi scheme

www.gata.org/node/8478

4. Adrian Douglas: Jeff Christian’s CPM Group explains how to make paper gold www.gata.org/node/8627

5. The Grand LBMA Exposé: A Collective-Mind Analysis

www.gold-eagle.com/gold_digest/baron907.html

6. Adrian Douglas: IMF can’t explain gold sales now without revealing squeeze

www.gata.org/node/8607

7. Adrian Douglas: Mysterious BIS gold swaps are likely a bullion bank bailout

www.gata.org/node/8803