A Thought Experiment

232
102
Sun, Dec 11, 2011 - 5:09pm

As we prepare for what will certainly be another wild and volatile week, I thought I would propose to you the thought experiment I have been considering all weekend.

First, let's summarize what we know:

  • Rehypothecation at MFing Global causes $1.2B in customer assets to vaporize into the ether.
  • JPM, HSBC (the EE) et al claim seniority on ownership of these client assets.
  • The assets in question include not only cash but paper and physical metal.
  • An MFing Global client (named Jason Fane) has sued HSBC demanding his gold and silver be returned to him by HSBC.
  • HSBC claims the gold and silver is theirs, not Fane's, even though Fane had bought and paid for it.

So, here's the deal. Going forward, why on earth would anyone purchase gold and/or silver on the Comex with the intent to take delivery? You'd have to be either crazy, ignorant or some combination of the two.

Therefore, if you are holding a Feb12 or April12 contract with the intent to take delivery, why would you keep it? Now that you know that your trading firm will rehypothecate your account and now that you know that there will likely be multiple claims on your metal, why would you even consider fiddling around with the criminals in London and New York?

Additionally, if you are an investor, trader or financial advisor, why in the world would you continue to hold GLD? The only possible reason I can see would be stupidity and/or ignorance.

And with that, here's the thought experiment:

Are we now going to witness the final disconnect between the actual physical price and the paper metal price as determined by the Comex and the LBMA? Investors who wish to own actual physical metal that is allocated to them personally and they can hold in their own two hands will, in all likelihood, eschew the Comex and LBMA entirely. Then, here's what I think happens next:

  • Physical demand soars and, with it, physical price. Sources tell me this is already happening as bulk physical gold is currently being sold and delivered at $1950/ounce.
  • Paper demand dwindles and paper price declines. As buyers exit the Comex, the tenuous balance between buyers and sellers is disturbed. More sellers than buyers means a declining price.
  • Paper price is also pressured by the liquidation of GLD and other etf shares.
  • The Cartel, unwilling to establish additional shorts, will be buying and closing contracts almost as quickly as the specs are selling and closing contracts.
  • We will know this physical/paper breakdown is finally upon us if we continue to see widening spreads of physical vs paper all the while the total Comex open interest continues to collapse, through 400,000 contracts and down toward 300,000.

This process could rapidly accelerate and the Comex might finally meet its demise.

Could I be wrong? Of course, which is why I'm looking for your feedback on this idea. Regardless though of the timing, the Comex/LBMA fractional bullion banking system is dying. The exposed criminality of the MFing Global affair is the mortal wound to which it will eventually succumb.

What can you do to prepare? Do not, under any circumstances, purchase Comex or LBMA contracts with the intent to deliver. Only buy metal from reputable dealers and then store it outside of the current bullion bank system. If etfs and closed-end funds are your only option for protection, you should look closely at some of the physical metal funds that are based in Canada. GLD and other paper metal etfs should not be considered safe for anything other than day-trading.

Always remember what has been stated here ad nauseam: The only metal which you can be 100% confident that you truly own is the metal that you hold in your own two hands. Period.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  232 Comments

Dec 11, 2011 - 5:10pm

A short video

This video is everywhere today. It might as well be here, too.

If Silver Goes Down All Hell Will Break Loose In The Physical Market: Silver Investment Update
Brotha Bob
Dec 11, 2011 - 5:16pm

Looks at silver cot report

This weeks silver cot reports shows the market shrinking. Negatives across the board. Appears that everyone is leaving the market.

silverkid420
Dec 11, 2011 - 5:20pm

Silver price

You guys think we see a price drop as people leave the market in "FAKE" silver? Mite this be the week of high $20's?

What do you all think?

Bullets Beans Bullion
Dec 11, 2011 - 5:22pm

Obama Orders ‘Arctic Death

Obama Orders ‘Arctic Death Camps’ Built To Hold American Traitors

A disturbing report issued by the Russian General Staff to President Medvedev warns today that the North American Security Zone agreement signed this past week between US President Obama and Canadian Prime Minister Stephen Harper is a defacto merging of these two nations and allows the Americans to begin building one of the largest gulag systems [forced labor camps] in modern human history https://bulletsbeansandbullion.blogspot.com/2011/12/obama-orders-arctic-... that'd be just about everyone here tonite then.
AC_Doctor
Dec 11, 2011 - 5:23pm

1st in

SHIT FIRE! The lawyers will be busy for years trying to track down the multitudes of ownership and claims on silver bullion bars and gold bullion bars while the paper markets collapse, COMEX and LBMA default and physical metals skyrocket to unfathomable prices. This will obviously implicated the equities markets as faith in the system is finally pushed over the limits and the hedgies and big investement firms all scramble for the last remaining pieces of phys on the Planet Earth. Oh yeah, the mine stock owners will benefit immensely and the shorts will be methodically burnt to ashes. Get you AU and AG while it's cheap and don't forget the 3-6 months of food, water, supplies and some kind of protection for you and your family.

sweet cheeses
Dec 11, 2011 - 5:27pm

this is the sugarplum dancing in my head

Love to have one of these in my xmas stocking for the zombie apocalypse...just in case :)

700 WTF Rifle, Hand Cannon. Sugar-Sugar
WineGuy
Dec 11, 2011 - 5:29pm

Hey BBB

You've been a member 8 minutes and you are already promoting your own site? Good luck with that here

LaMachinna
Dec 11, 2011 - 5:32pm

Oops, always close but not quite right! Here's my post from

end of the last thread.

just not exactly sure WHERE! Help, turdites.

With all the hypothecation and rehypothecation and well, all those big screwed up things all the big screwed up financial institutions always do in a big screwed up kinda way....If PAPER metals crash, which sure wouldn't surprise me, then the LOGICAL thing would be for a instant significant focus on the PHYS and demand/shortage thereof.....right? Does LaMachinna have it half right even?

But, as LaMachinna's intuition continues to also flash bright red is that tptb (lowercase intentional) KNOW THIS TOO (and, am sure have known for way longer than I can even understand..). This is thus far the brick wall for little LaMachinna's mind.....like as you would say, Turd, beyond there are the dragons?

I just can't see (finally, now) tptb would allow for this to stand. Or, is it the less painful for them? And, that my fellow turdites is amazing.

<scratching head.....>

Brotha Bob
Dec 11, 2011 - 5:34pm

After MFing Global

After MFing Global, Turd, I think you are correct. Or at least prudence would dictate, that your money is not safe at a brokerage. Alas, some people are not always smart. They will refuse to believe the markets are crooked, even with the evidence right in fron of them. They can scuff at a one off event. "Oh, that won't happen to me." What you are watching is a slow-motion train wreck. MFG, while horrendous, only stresses the system. What your gaming will take another clearing house collapse. Then it will be "Kate, bar the door!" one event is easy to ignore. Two, impossible! With the stress on the system, another MFG is going to happen. How can it not? Did the banks learn from AIG? MFG? No. The next event, and there will be a next event, will be due to the rehypothion allowed in London, or the counter-party risks associated with CDS. Or, a combination. Let's not forget the time bomb that's is CDSs. Once investors loose confidence in the markets, that their money is not safe, watch the exits. Yes, this applies to the PMs. But I doubt it will be isolated to the PMs. It will be all markets, and all fiat paper. Why the CB raid on gold this week? Gold was not near an all time high. Why knock it down, again? The see what's to come. I think they are trying to keep things together for Christmas.

TheGoodDoctor
Dec 11, 2011 - 5:37pm

So, should you buy some puts

So, should you buy some puts on the GLD? So, that is an option right?

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1/15 8:30 ET PPI and Empire Fed
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Key Economic Events Week of 1/13

1/14 8:30 ET CPI
1/14 9:00 ET Goon Williams
1/15 8:30 ET PPI and Empire Fed
1/16 8:30 ET Retail Sales and Philly Fed
1/17 8:30 ET Housing Starts
1/17 9:15 Et Cap Ute and Ind Prod

Key Economic Events Week of 1/6

1/7 8:30 ET US trade deficit
1/7 10:00 ET ISM Services PMI
1/7 10:00 ET Factory Orders
1/8 8:15 ET ADP employment
1/9 8:00 ET Goon Chlamydia speech
1/9 1:20 ET Goon Evans 2:00 ET Goon Bullard
1/10 8:30 ET BLSBS
1/10 10:00 ET Wholesale Inventories

Key Economic Events Week of 12/16

12/16 8:30 ET Empire State Manu Idx
12/16 9:45 ET Markit flash PMIs Dec
12/17 8:30 ET Housing Starts and Bldg Perms
12/17 9:15 ET Cap Ute and Ind Prod
12/19 8:30 ET Philly Fed
12/20 8:30 ET Final guess Q3 GDP
12/20 10:00 ET Pers Inc and Spending
12/20 10:00 ET Core Inflation

Key Economic Events Week of 12/9

12/10 8:30 ET Productivity and Unit Labor Costs
12/11 8:30 ET CPI
12/11 2:00 pm ET FOMC fedlines
12/11 2:30 pm ET CGP presser
12/12 8:30 ET PPI
12/13 8:30 ET Retail Sales
12/13 10:00 ET Business Inventories
12/13 11:00 ET Goon Williams speech

Key Economic Events Week of 12/2

12/2 9:45 ET Markit Manu PMI
12/2 10:00 ET ISM Manu PMI
12/2 10:00 ET Construction Spending
12/4 9:45 ET Markit Services PMI
12/4 10:00 ET ISM Services PMI
12/5 8:30 ET Trade Deficit
12/5 10:00 ET Factory Orders
12/6 8:30 ET BLSBS
12/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 11/25

11/25 8:30 ET Chicago Fed Nat'l Idx
11/25 7:00 pm ET CGP speech
11/26 8:30 ET Advance Trade
11/26 9:00 ET Case-Shiller home prices
11/26 10:00 ET New home sales
11/26 10:00 ET Consumer Confidence
11/27 8:30 ET Q3 GDP 2nd guess
11/27 8:30 ET Durable Goods
11/27 9:45 ET Chicago PMI
11/27 10:00 ET Pers Inc & Cons Spndg
11/27 10:00 ET Core inflation
11/27 2:00 pm ET Beige Book

Key Economic Events Week of 11/18

11/19 8:30 ET Housing Starts & Bldg Perms
11/20 2:00 ET October FOMC minutes
11/21 8:30 ET Philly Fed
11/21 10:00 ET Existing Home Sales
11/22 9:45 ET Markit November Flash PMIs

Key Economic Events Week of 11/11

11/12 Three Fed Goon speeches
11/13 8:30 ET CPI
11/13 11:00 ET CGP on Capitol Hill
11/14 8:30 ET PPI
11/14 Four Fed Goon speeches
11/14 10:00 ET CGP on Capitol Hill
11/15 8:30 ET Retail Sales
11/15 8:30 ET Empire State Manu Index
11/15 9:15 ET Cap Ute and Ind Prod
11/15 10:00 ET Business Inventories

Key Economic Events Week of 11/4

11/4 10:00 ET Factory Orders
11/5 9:45 ET Markit Services PMI
11/5 10:00 ET ISM Services PMI
11/6 8:30 ET Productivity & Labor Costs
11/6 Speeches by Goons Williams, Harker and Evans
11/8 10:00 ET Consumer Sentiment
11/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/28

10/30 8:30 ET Q3 GDP first guess
10/30 2:00 ET FOMC fedlines
10/30 2:30 ET CGP presser
10/31 8:30 ET Personal Income & Spending
10/31 8:30 ET Core Inflation
10/31 9:45 ET Chicago PMI
11/1 8:30 ET BLSBS
11/1 9:45 ET Markit Manu PMI
1/1 10:00 ET ISM Manu PMI

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