A Thought Experiment

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.


About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 12, 2011 - 4:43pm

PS turdites

USDinker dollar has another one day wonder ahead of the fomc. Tomorrow will be different and the lease rate look out stuff is merely a head fake as the western bankstering thugs are desperate to scoop up what's left at these low prices. Lower prices; especially silver would expose the shortage big time. There's those who know the data is massaged in the silver arena from the mint to disguise such shortage getting acute. Should silver or gold for that matter be easily obtained the hpig vs jpig fight for 20 plus bars of gold/silver would be moot. The rat bastard western bankstering cartel wouldn't eat each other, if it was easily obtainable physically; now lower prices. The squids are facwe torching each other for 20 bars plus. My hell it's petty in the globalls sceme of above ground if it's really there. rehypothecation bitchez coming out of the wood work. The last vampire squid standing comes down to the golden rule. The vipers poisoning each other as I type. I'm with Celente. It all, fiat ponzi, goes to hell the 1st quarter of 2012.

Dec 12, 2011 - 2:17pm

TP Beta ...GoldMoney muppets


It seems to me that it is getting harder and harder to move money around in these investment vehicles. If you are having this kind of bureaucratic hassle trying to move money into this account, you can only imagine how hard it may be to move it out. Especially if we are in a SHTF scenario.

Also, watch out for those buy/sell and storage fees, as they can really eat up your holdings.

Dec 12, 2011 - 2:05pm

GoldMoney Account Setup

GoldMoney account setup is non-trivial. You need to be very careful how you fill out the international wire transfer form. You should definitely go into a bank and talk to the manager and ask if they have experience with international wires before doing it. My money was converted to British Pounds because GM's bank is HSBC in Scotland. The wire then failed because GM was expecting dollars. In the week it took to amend the wire I had lost $1000 due to currency swings. I put in a complaint with GM and asked for them to start accepting checks. Since then GM has setup an account with a US bank so you can do a domestic wire.

Dec 12, 2011 - 12:13pm

TP Beta ...sense resumes

GoldMoney have finally accredited my account this evening after i asked them to send the 'big issue' of being over/under the account limit by plus/minus $200 USD (depending on the exchange rate of the hour!) to a manager and/or the Regulator

very relieved some common sense prevailed ...thanks for your response :)

dos pesosTF
Dec 12, 2011 - 11:50am

1. Open your mind 2. Pick up

1. Open your mind

2. Pick up the phone

3. Call CNI (www.golddealer.com)

4. Buy whatever quantities of gold you want at 1800 or lower

5. Hang up

6. Call your friends that mislead you and ask them to check their data

Dec 12, 2011 - 11:17am

Turd,There are so many


There are so many variables that I can't even pretend to critique this one. I see your case as the most likely. However, my Devil's advocate case for continued existence of the COMEX for an extended time to come would look something like this:

Most of the people trading on the COMEX gold and silver markets are just gamblers. The existence of the underlying doesn't matter to them as long as they can cash out of their trades. The gamblers far outnumber the traders interested in taking delivery. If legit traders flee the market, their loss can be made up by just luring in more gamblers with higher prices. Gamblers trade momo. If there's more action in gold and silver futures, they will come. If too many traders get clever and demand delivery, they can just shut down their brokerage and steal their accounts through rehypothecation. To argue that people will flee the COMEX because the risk is too high ignores a lot of market history teaching us that greed can make one ignore fear or at least rationalize the risk away. TPTB can make it worth their effort.

TPTB don't want rising PM prices, but given the choice between the end of the game (decoupling prices) or paying higher prices to stack gold at the central banks, they will choose the later.

Dec 12, 2011 - 10:53am

"MF Global is A Piece of Dynamite Sitting Underneath

the Gold Price"

Brand new Jim Sinclair in the house

Video unavailable
Video unavailable
Dec 12, 2011 - 10:39am

One of two things...

A: Either this beat down was what we expected so the shorts could cover;


B: This is the beat down so the FOMC can come out with QE.

My bet is on A:

Note they could be doing it for both as they are not mutually exclusive.

Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

Dec 12, 2011 - 10:32am


I imagine it's run by computer programs that don't allow the employees much flexibility.

Dec 12, 2011 - 9:58am

@ TP Beta ...GoldMoney muppets

Rules and strict adherence to them, especially applied without common sense, is the death of any commercial organisation and can be found in the ruins of Empires (see Ming Dynasty, Communist Russia and China and any European or American post office)

Rules throttle progress and flexibility ...rules are for morons who cannot think or act (see Congress)

I've just messaged GoldMoney that £96,000 = $149,864.43 ...yes i am UNDER the $150k limit, as I was (and tried to be) the day i transfered my money to them

let's see what triviality/blockade nonsense they come up with (this time!!!)

Subscribe or login to read all comments.


Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 8/10

8/10 10:00 ET Job openings
8/11 8:30 ET Producer Price Idx
8/12 8:30 ET Consumer Price Idx
8/13 8:30 ET Initial jobless claims
8/13 8:30 ET Import Price Idx
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Unit Labor Costs
8/14 8:30 ET Cap Ute and Ind Prod
8/14 10:00 ET Business Inventories

Key Economic Events Week of 8/3

8/3 9:45 ET Markit Manu PMI July
8/3 10:00 ET ISM Manu PMI July
8/3 10:00 ET Construction Spending
8/4 10:00 ET Factory Orders
8/5 8:15 ET ADP employment July
8/5 9:45 ET Markit Service PMI
8/5 10:00 ET ISM Service PMI
8/6 8:30 ET Initial jobless claims
8/7 8:30 ET BLSBS for July
8/7 10:00 ET Wholesale Inventories

Key Economic Events Week of 7/27

7/27 8:30 ET Durable Goods
7/28 9:00 ET Case-Shiller home prices
7/29 8:30 ET Advance trade in goods
7/29 2:00 ET FOMC Fedlines
7/29 2:30 ET CGP presser
7/30 8:30 ET Q2 GDP first guess
7/31 8:30 ET Personal Income and Spending
7/31 8:30 ET Core inflation
7/31 9:45 ET Chicago PMI

Key Economic Events Week of 7/20

7/21 8:30 ET Chicago Fed
7/21 2:00 ET Senate vote on Judy Shelton
7/22 10:00 ET Existing home sales
7/23 8:30 ET Jobless claims
7/23 10:00 ET Leading Economic Indicators
7/24 9:45 ET Markit flash PMIs for July

Key Economic Events Week of 7/13

7/13 11:30 ET Goon Williams speech
7/13 1:00 ET Goon Kaplan speech
7/14 8:30 ET CPI for June
7/14 2:30 ET Goon Bullard speech
7/15 8:30 ET Empire State and Import Price Idx
7/15 9:15 ET Cap Ute and Ind Prod
7/16 8:30 ET Retail Sales and Philly Fed
7/16 11:00 ET Goon Williams again
7/17 8:30 ET Housing Starts and Permits

Key Economic Events Week of 7/6

7/6 9:45 ET Markit Service PMI
7/6 10:00 ET ISM Service PMI
7/7 10:00 ET Job openings
7/9 8:30 ET Initial jobless claims
7/9 10:00 ET Wholesale inventories
7/10 8:30 ET PPI for June

Key Economic Events Week of 6/29

6/30 9:00 ET Case-Shiller home prices
6/30 9:45 ET Chicago PMI
6/30 10:00 ET Consumer Confidence
6/30 12:30 ET CGP and SSHW to Capitol Hill
7/1 8:15 ET ADP Employment
7/1 9:45 ET Markit Manu PMI
7/1 10:00 ET ISM Manu PMI
7/1 2:00 ET June FOMC minutes
7/2 8:30 ET BLSBS
7/2 10:00 ET Factory Orders

Key Economic Events Week of 6/22

6/22 8:30 ET Chicago Fed
6/22 10:00 ET Existing home sales
6/23 9:45 ET Markit flash PMIs for June
6/23 10:00 ET New home sales
6/25 8:30 ET Q1 GDP final guess
6/25 8:30 ET Durable Goods
6/26 8:30 ET Pers Inc and Spending
6/26 8:30 ET Core inflation

Key Economic Events Week of 6/15

6/16 8:30 ET Retail Sales
6/16 8:30 ET Cap Ute and Ind Prod
6/16 10:00 ET Chief Goon Powell US Senate
6/16 4:00 pm ET Goon Chlamydia speech
6/17 8:30 ET Housing Starts
6/17 12:00 ET Chief Goon Powell US House
6/18 8:30 ET Initial Jobless Claims
6/18 8:30 ET Philly Fed
6/19 8:30 ET Current Account Deficit
6/19 1:00 pm ET CGP and Mester conference

Key Economic Events Week of 6/8

6/9 10:00 ET Job openings
6/9 10:00 ET Wholesale inventories
6/10 8:30 ET CPI for May
6/10 2:00 ET FOMC Fedlines
6/10 2:30 ET CGP presser
6/11 8:30 ET Initial jobless claims
6/11 8:30 ET PPI for May
6/12 8:30 ET Import price index
6/12 10:00 ET Consumer sentiment

Forum Discussion

by argentus maximus, 9 hours 48 min ago
by argentus maximus, 13 hours 4 min ago
by jack3617, Aug 7, 2020 - 5:51pm
by Titus Andronicus, Aug 7, 2020 - 5:13pm
by jack3617, Aug 7, 2020 - 5:06pm
by Steve S, Aug 7, 2020 - 1:59pm