Raiding the GLD

Fri, Feb 22, 2013 - 12:26pm

Time to broach this subject again.

Just yesterday, the GLD saw a withdrawal of 8.88 metric tonnes. This followed a drawdown of nearly 23 tonnes on Wednesday. In fact, since the start of 2013, the GLD is now down 59.61 metric tonnes or 4.42% of "inventory".

Hmmm. Now where has that gold gone?

  • Has it simply been returned to the Authorized Participants' vaults as investors reduce their exposure to precious metals?
  • Have GLD investors liquidated shares and taken delivery?
  • Or, as argued back in November, are the APs using the GLD as a store of gold that they can easily access anytime they struggle to find legitimate physical metal to deliver to clients demanding immediate allocation and delivery?
  • If the third bullet is true, then GLD drawdowns would be symptom of very strong, global physical demand.

    So, for your consideration, let's revisit this issue. First, here's a reprint of the points that Andrew Maguire made initially. The full link can be found here:


    The bullion banks finance their ‘physical inventory’ by leasing it or selling it to GLD and SLV shareholders/investors, then the bullion banks in turn use these ETF’s inventories as a ‘flywheel’ to both manage and leverage their physical reserves. For this walk-through, I will use GLD as an example. (One can substitute SLV for all that is described below relating to GLD except the basket sizes are smaller, constituting 50,000 shares).

    Baskets of GLD shares are bought and sold through a limited number of Authorised Participants. The authorised participants, (AP’s), are JPMorgan, Merrill Lynch, Morgan Stanley, Newedge (a joint venture between Société Générale and Credit Agricole CIB), RBC, Scotia Mocatta, UBS and Virtu Financial. This is how it is supposed to work. The size of each GLD basket comprises of 100,000 shares, each share representing just less than 1 troy oz. The AP’s, transfer ALLOCATED physical gold to the trustee who in turn creates the required number of new baskets of shares and then transfers these newly created shares back to the AP. To redeem the shares for physical gold or silver, the AP’s transfer any number of the baskets of 100,000 shares back to the trustee who then redeems these shares and transfers allocated gold back to the AP.

    This is all well and good on the face of it, but there are a number of ways this ‘allocated’ gold backing the shares in the ETF can be diluted /hypothecated in order for the bullion banks to ‘manage’ their physical reserves.

    If, as is often the case, there is insufficient allocated inventory available to the bullion bank at the current Comex driven & discounted spot fix price to create the necessary new GLD shares backed by allocated gold, then it is possible for a bullion bank to borrow short these GLD shares from the ETF instead of providing the required Allocated physical to the trustee to meet this obligation thereby ‘fly wheeling’ this physical demand in order to meet obligations elsewhere, likely at the day’s gold fix. This obviously has the effect of manipulating price lower vs. the true immediate supply demand fundamentals as no allocated physical metal has to be bought on the open market at that days fix to meet this new share demand as should be the case.

    This is now the point where transparency evaporates. The AP claims to be Short GLD while concurrently claiming to be backing it with an equal size long ‘UNALLOCATED’ spot gold position. However, LBMA unallocated gold accounts are run upon a fractional reserve requirement and leveraged around 100/1 so there is very little need to back this transaction with any real physical at this point; this is left until later as explained below. To unwind this short GLD position, the bullion bank has to ALLOCATE the required amount of unallocated gold and then transfer this gold back to the trustee thereby receiving back the required # of shares in order to repay the original GLD shares sold short.

    However, in conjunction with concurrent concentrated short futures positions, the sole object of this entire charade is to assist in depressing the price of gold at times of strong physical demand so that the futures price can be capped, usually at key inflection points where the price would break out and also swamp the very large concentrated Comex short positions. If this were not the case, the bullion bank would simply bid up that days fix price until it reflected that days true supply demand price levels for that fix and provide allocated gold to meet this real demand at that higher price.

    The resulting distortion now created between the real and paper market price is exacerbated through the use of heavy position concentration and leverage in the futures and derivatives markets, where these very same bullion banks then seek to profitably repay the shorted GLD shares at a lower price at the point at or below where the lines cross profitably. This then puts these bullion banks in a position to finally spot index UNALLOCATED gold against this naked short position only then moving to buy the now discounted unallocated gold into the Comex contrived dips. These discounted unallocated long spot index positions are then ALLOCATED at the upcoming fix, enabling both the repayment of the GLD short position at a profit but most importantly controlling the rise in price against much larger derivative positions elsewhere.

    Conversely, as evidenced by the steady 12-year stair step rise in prices easily observed in the daily and weekly charts, despite this many-year capping, we have also seen an ever larger and untenable LBMA unallocated short positions grow to what I now consider to be extreme danger levels. The reason is as follows: When the Bullion bank needs to make good on the unplanned/unanticipated CB and sovereign physical allocations at the fixes, they have regularly achieved this by going long GLD vs. short/selling UNALLOCATED gold. They then immediately turn around and transfer the required number of baskets of GLD shares to the trustee and receive ALLOCATED gold in return. Instead of settling/covering the short UNALLOCATED leg with this ALLOCATED gold, they are forced to satisfy these CB and Sovereign allocations by providing them this metal instead. The longer term price charts reveal this stair step higher, whereas we see no reduction, in fact from 2008 an increase, in the naked short Comex, (and unallocated OTC), bullion bank positions.

    I hope this has been helpful in providing an insight into the internal dynamics of the ETFs and how the bullion banks continue to operate in the shadows.

    Quite a few folks found this explanation a little too technical and slightly confusing. To help the cause, a few days later I took a stab at deciphering Andy's message:


    Finally today, please allow me to take a stab at explaining in greater detail the "Guest Post" from Andrew Maguire. I posted it on Wednesday as we were leaving for Thanksgiving and I can see now where it caused some confusion. As you know, one of my favorite techniques for explanations is the chronological layout so let's give that a try. Additionally, I think I'm laying this out accurately. This is how I understand it. I'll check with Andy on Monday to ensure that this is at least close to being accurate. If it's not, I'll post some additional clarification then.

    1. The "Authorized Participants" have a special relationship with the fund whereby they issue metal, 100,000 ounces at a time, to the fund in exchange for 100,000 share blocks.
    2. This should function as a two-way street where the AP can get its metal back by redeeming shares and the AP can also supply additional metal in exchange for additional shares. THIS, HOWEVER, IS WHERE THE TRICKERY AND MANIPULATION BEGINS.
    3. On big UP days in paper price, there is often a big physical demand in London and a big demand for additional shares in GLD.
    4. This is a double whammy of demand. The Bullion Bank (and Authorized Participant) should have to not only supply metal at the London allocation but this same BB/AP might also have to deliver metal to GLD to cover all of the newly-issued shares.
    5. I think you can see where that's a lot of metal and, in an environment of limited inventories, rapid BB/AP supply depletion would lead to shortages and even higher prices.
    6. So, here's the trick they employ to manage the situation, even doing so at a profit: The GLD delivers the gold back to the AP without the AP actually redeeming their shares. The AP is considered to be "short" the shares, instead.
    7. These shorted shares provide the "offer" against the investment world "bid" for GLD shares that day on the NYSE. Since no new shares are needed to be created that day, no new demand for physical deposit is created, either.
    8. On the other side of this trade, GLD delivers metal to the AP as if it had redeemed the shares, though. The AP uses this metal to settle the physical allocations for that day.
    9. So, where there should have been two, separate demands for physical, the demand was met by short-selling GLD and then using this GLD metal to meet allocations in London.
    10. The effect is then chronicled by Harvey and others as "gold went up $20 but, mysteriously, GLD shed 2.72 tonnes".
    11. Here, then, is how they reverse these "trades" and return everything to where they were. The BB/AP that is short the metal to the GLD needs to put it back in at some point. The next time a paper price raid is effected on the Comex, the AP itself takes delivery of some metal in London.
    12. This metal is then returned to the GLD in exchange for a "covering" of it's short position.
    13. This, typically, takes place on a DOWN day where Harvey et al notice that "though gold declined $15, the GLD added 2.72 tonnes of metal today. Go figure."

    Anyway, I hope this helps explain the process. Again, the Bullion Bank that is also an AP of the GLD can "flywheel" metal into and out of the GLD and/or SLV anytime they need to in order to meet physical demand elsewhere. In the process, the BB/AP conveniently provides liquidity for GLD/SLV share demand, which negates additional GLD purchasing which would have otherwise been necessary. It's a true WIN-WIN-WIN for the BB/AP as they are able to cap and control price while appearing to have no problem meeting London demand and then they turn around and cover all the positions at a profit on the next bout of price weakness.

    Again, THIS IS NOT SUPPOSED TO BE HOW IT WORKS. The banks are supposed to supply metal to both the GLD and the London buyers. There is not, however, sufficient supply to make this happen at the current price levels. So, instead of allowing price to rise to the natural equilibrium of buying and selling interest, the BB/AP uses the tricks outlined in Andy's guest post to manage and cap the situation. On the bright side, THIS CANNOT CONTINUE FOREVER and, WHEN it fails, the reset in price will be spectacular to behold.


    By the time the next week rolled around, there was an active discussion on the internet regarding the accuracy of this analysis. (No doubt this post will reinitiate the "discussion" and bring out many of the same commentators.) Here's a link to the follow-up discussion, posted a few days later. Before you form an opinion on the matter, you'll definitely want to read both sides of the issue:

    So there you have it. All of this should all make a very interesting reading assignment for you as we wait for today's GLD numbers. Could there be another huge drawdown? If so, what does it mean? Does it even matter? I look forward to reading your comments.


    p.s. Andy just recorded this morning another interview with KWN. Be sure to check that site later today for the full interview.

    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Texas Sandman
    Feb 22, 2013 - 9:41pm

    possible bottom

    I won't fully trust it until the MACD confirms with bottom above bottom & top above top, but with the retest of these lows, it may be worth taking a gander at the long side. It is of course, possible we fall through to the lower trend channel, but less likely after today's retest. This is the graphical representation of TF's FUBM. It is a doji representing indecision, but a BULLISH one. My best guess based on history is we just bump along here with a whole series of doji's while the MACD prints a higher low & then a higher high. Generally, you don't lose much by just waiting for that before committing on a longer timeframe. One other possibility is a sharp rally followed by a collapse back down to the line again (something like mid-December 2012). That happens sometimes in this situation. I think longer term longs are dicey here & it's far too late to sell short.

    My rebuttable trading bias for Monday is LONG.

    Feb 22, 2013 - 9:42pm

    Mr. Fix

    You made me laugh.

    Feb 22, 2013 - 9:44pm

    Mr. Fix

    My understanding JPM has set the trap for them. JPM needs to cover more shorts, but have also added many longs and wants to balance those for more future covering of there shorts. It was also my understanding they could/might even draw in some more shorts for the slaughter. I think JPM is started to feel some regulation pressure. My understanding also they can now make more on the upside, and a personal thought maybe they know they cannot keep the price down much longer. Turd can explain it better.

    A side note, think about how many still believes MSM about GOLD and Silver

    Feb 22, 2013 - 9:46pm

    @Mr. Fix

    I have also often wondered why the specs fall for this again and again. Surely they are more connected and knowledgeable than we are.

    I used to subscribe to Ted Butler, and I distinctly remember him saying the same thing once. He said it happened so often it seemed like the specs must somehow be in on it. I don't believe he elaborated on it, but your reference to possible shell companies made me remember it.


    Mr. Fix
    Feb 22, 2013 - 9:49pm

    I guess we can conclude that

    some hedge fund managers will be "retiring" this week.

    Feb 22, 2013 - 9:52pm


    I just think about how much BS and propaganda that is on the airways.

    Bongo Jim
    Feb 22, 2013 - 9:52pm


    Thanks for the heads up

    Mr. Fix
    Feb 22, 2013 - 9:54pm

    @ Sheetrocker

    They would have to be in on it.

    Apparently, “this happens every time”.

    So, I'm not going to be the one to state that “this time it's different”,

    but one does have to wonder why the specs keep getting the short end of the stick.

    My theory, is that they're all the same people, and they're all just as twisted as hell.

    The only thing that is certain, is that the banks will never take a loss on this.

    Feb 22, 2013 - 9:55pm

    I continue to believe...

    CB's are all engaged in the same race to debase. So net net, no currency is devalued against any other. Indeed funds tend to flow into USD as a "Safe Haven".

    But The Fed NEEDS to devalue the Dollar so as the make repayment of the debt feasible, as the ONLY alternative to default. It has been suppressing PM's in particular and commodities in general (See Crude last week for instance) to maintain the charade of safety in Fiat. But it seems to me that the ONLY way the Fed can achieve its primary goal of depreciating the Dollar would be to allow PM's and other commodities, which have an inverse correlation to USD, to appreciate, using (Or abusing) the position of the USD as the World reserve currency (At least still for a while longer). The Fed simply CANNOT have it both ways forever.


    Feb 22, 2013 - 9:56pm

    Volunteers for Amerika

    Mr Fix: Why would anyone volunteer to take one for the team? Why... it could be another PPT/ESF smoke screen aka "cost of doing business". They will just pass along the cost (paper losses) to their 'customers', or just make a call to print more funny money.

    All in the name of protecting the faith, credit, national security and profitability of the Western elite banking establishment.

    Large specs, small specs, buyers of size, BIS, G7... all an illusion. Until the mirror cracks. That may be soon. But I'm just speculating here.

    Feb 22, 2013 - 9:56pm

    Mr. Fix

    Let's hope so, but somehow most of them still keep there job with bad performance.

    A highly rigged game!

    ForWhomTheTollBuilds Oboma
    Feb 22, 2013 - 9:59pm

    I wonder if this is what Santa has been alluding too.

    " they will go long and then we will have the turn around. the next few weeks will be tell tailing."

    Took the words outta my mouth. Don't know if you saw this CIBC report:

    The logic in this report is so outrageous that it reads like propaganda to fool Johnnie come latelys into a short position on "something that has no value anyway". That article says that Bernanke isn't creating any new money among other things, but the topper is that under the scary headline it says gold will fall all the way down to.... $1500 *over a few years*.

    Its like you can see these Comex commercial players trying not to snicker too loud as the joe public bellies up with a sure-fire short bet thats gonna make him rich at the expense of those annoying tinfoil hatters.

    I wrote JS to ask him about his opinion on the size of COT numbers we have been seeing lately because I wanted to know if he thinks it's unusual or sustainable. Hope he answers even if he does talk down a little.

    Feb 22, 2013 - 10:01pm

    LCS Report - Valley of The Sun, Phoenix

    Went back to my favorite LCS here in Phoenix, actually east Mesa, today. I've visited 3-4 times in as many weeks. Yesterday was the very first time the owner had NO generic one oz silver rounds/ rectangles and only a couple twos, fives and tens. NO older ASEs and only a few 2013 ASE at $4 over spot. Usually I buy generics in airtites for $1.75 over spot. So yesterday with no gens I bought five 2013s and some scrap sterling bling for @ .85 a gram. Three weeks ago when I went to the same LCS, 87 octane gas was $3.07 a gallon. Now in east Mesa it is $3.85. Sure, crude went up $3-4 bucks in the past three weeks but geez, use some lube would ya fellas, before ya screw us.

    Today, took my older sister to see this cool little LCS. She wanted to know where I get all the sweet sterling. Earlier visit, I had asked the owner if he had ever had an armed robbery. Yes, he said, some had attempted. I'd noticed one of his clerks with a CC under his baggy shirt. The owner says they all had CCs. So I figured, this being Arizona, I'd CC too and we'd outgun anyone 4-1. Another pawn shop I visit, Liberty Pawn, also in Mesa, the 4-5 clerks all open carry. Holdups must be infrequent there. But they never sell silver, only BUY gold, guns and guitars, so I don't get into Liberty much anymore, although the owner, Larry is cool.

    Anyway, back to my fav LCS today, and I ask Greg, the owner, "More buyers than sellers recently?" No sellers he says. I notice 5 generics and buy the nicest in airtites (I have a strict budget) and some 49 grams of estate sterling bling (I can resell the sterling jewelry to my sisters at a favorable exchange for both partys). I notice below the counter only ONE ten oz silver bar but 2-3 tenner rounds. Gilded walking liberty rounds, made by Sunshine says the clerk. He has a stackable hundred ozer under the counter, and two Big Hurt two oz silver rounds. Ugly coins. Silver would have to drop to $20 an oz before I buy Santa Claus or Frank Thomas rounds. Some gold and many numi silver dollars in the case. Then a guy came in and asked for platinum. Greg only had ONE one oz round and ONE half oz bar and two platinum fractionals. The guy couldn't decide and I suggested he buy gold at $1575. Greg said platinum had a better upside, in his opinion. The guy couldn't decide. Then I noticed the tray of junk silver was almost out. And the tray with silver dollars was empty for the first time since April 2011. Not a single slick Morgan. "Gone," said Greg, "guy came in and bought them all". No more in back. Next thing I overhear a clerk say to someone on the phone, Yes we have a few five oz rounds left, but we are are out of Eagles. Saturday should be fun. But I got ALL the collectible sterling jewelry. Five sisters, several nieces, don't ya know.


    Feb 22, 2013 - 10:02pm

    @Bongo Jim

    I still have some of the Crumb "Mr Natural" Head comics I bought in SF in "The Summer of '69". Can't remember much else........

    linkman Mammoth
    Feb 22, 2013 - 10:05pm

    That's great Mammoth!That's

    That's great Mammoth!

    That's current melt approx. but good for you!

    Be sure to check for numismatic value if they're in decent shape and put them aside if you can.

    Check here for current numismatic value.

    And carry a magnet when buying!

    Feb 22, 2013 - 10:10pm

    Because it's Friday...

    Bridge Of Sighs - Robin Trower (1974) ~MetalGuruMessiah~

    The Trees - Rush (1978) HQ Audio HD Video

    Feb 22, 2013 - 10:11pm

    Mr Fix

    You're making it too complicated.

    Most of the hedge funds and money mgrs which make up part of the "LargeSpec" category only employ a small part of their AUM to metals and they are simply chasing a dot on a screen. When the BBs rig and paint the chart, the LargeSpecs are easily led into whichever position The Cartel would like to have them in.

    Wash, rinse and repeat.

    atomic180 Mr. Fix
    Feb 22, 2013 - 10:12pm

    Thanks actually a long time reader...

    but never posted from watchtower days ... this does have me perplexed though... I'd like to know... CME was having problems and had a meeting before lowering the margins... is something going on behind the scenes... was a deal struck... the Au was up against $1700 then this... plus the 0820 raids inside job...

    atomic180 Mr. Fix
    Feb 22, 2013 - 10:12pm

    Thanks actually a long time reader...

    but never posted from watchtower days ... this does have me perplexed though... I'd like to know... CME was having problems and had a meeting before lowering the margins... is something going on behind the scenes... was a deal struck... the Au was up against $1700 then this... plus the 0820 raids inside job...

    Feb 22, 2013 - 10:13pm

    @ Mr. Fix

    PT Barnum said "There is a sucker born every minute". Or something very close. Why do you assume the specs, especially the small specs, are always the same players? And why do you assume they are smarter than the average bear? Couldn't the small specs be different dumb players?

    Couldn't the large specs could just be taking more (different) "small specs" (little people's like you and me) money and playing the wrong side.

    I dunno. Just wondering.


    Honest_Money Sheetrocker
    Feb 22, 2013 - 10:13pm

    Managed Funds

    The Managed Funds do not trade on fundamentals at all. They only trade off of momentum of price. The concentrated short-selling and high frequency trading by the cartel successfully down-shifted the price to the point where it turned the spec computer models short. The cartel won once again but at least they have covered enough shorts to let the price break free for awhile.

    Mr. Fix
    Feb 22, 2013 - 10:14pm

    Thank you Larry.

    Your explanation makes 100% complete sense.

    It is the only one that adds up.

    Which tells me, it is highly unlikely we have already seen a bottom.

    Keeping the price of gold and silver squashed, appears to be our government's number one priority.

    (After gun control)

    They are just playing a shell game, and coming up with new ways to keep the scam alive.

    It's all about defending the dollar, and keeping themselves in power.

    And whoever said before that all the gold has already been stolen, is absolutely right.

    That is why this scam can't end. Their crimes would be exposed for the world to see.

    They're going to need one hell of a diversion to cover that up.

    atomic180 Mr. Fix
    Feb 22, 2013 - 10:15pm

    DBBL Post

    Maybe Turd and Harvey tomorrow can figure this out...

    Mr. Fix
    Feb 22, 2013 - 10:18pm

    Thank you Turd, and everyone else.

    Sometimes I am overly suspicious, and yes, I tend to look for conspiracies where none may exist.

    Sometimes greedy people just do stupid things.

    Should be an interesting week,

    have a nice weekend everyone,

    I didn't mean to spend so much time on one question, sometimes I just try to make sense out of nonsense.

    Feb 22, 2013 - 10:20pm

    Mr. Fix

    Do you really think that countries like Germany, do not know there Gold is gone. Maybe the power centered is being moved. Is it also possible that most have been put to sleep and will fall for anything put on the airwaves, look at 9/11. I find the 98% percent of the people I meet are braindead.

    Turdle GG
    Feb 22, 2013 - 10:35pm

    The funds don't always lose

    To add to Turd's points raised just above, please consider that those that have recently gone short will buy to cover their shorts when momentum changes, but , even better, they will go long soon after upward price momentum is in place. So, they are not always suckers. If they get long and the upward momentum continues for a long time they will eventually make enough to cover their upcoming losses from covering the shorts they've just put on. And we'll all be happy.

    Feb 22, 2013 - 10:39pm



    The trolls are all supporting you. That ought to tell you something.

    Wake up man, you are missing this. Its gonna take some thinking on your part, but the CoT is totally relevant right now....the storyline is clear. Even if we go down further, it supports the March call. It is playing out perfectly and the hedgies will get trampled on.....again!


    Mr. Fix
    Feb 22, 2013 - 10:40pm

    Thank you DayStar,

    I was hoping you would come out here on Main Street for a while, and share some of your thoughts on the topic.

    I will be looking forward to your Harvey report tomorrow. It should be an interesting read.

    DayStar Mr. Fix
    Feb 22, 2013 - 10:41pm

    RE: The Diversion

    Mr. Fix, when the cartel gets ready to blow the dike, the diversion will be crashing the European bond market. That will set in motion the collapse of European economies and also dragging down Japan that is buying European bonds. The Japanese banks, bonds, and economy crash will throw gasoline on the raging derivative crash started by the collapse of the Eurobonds. The implosion of Europe and Japan will drag down the United States of Synthetic Money and we will get the "revaluation" of the dollar that Berneke desires, except there won't be any economy left to help, as it will be in shambles. If you want a good tale on how it could happen read The Day the Dollar Died.

    As far as the COT, it makes sense to me that the BIS was selling, because JPM was able to cover a bunch of shorts and yet accumulate longs. If they were working by themselves, they couldn't do that very well and still have the price go down. Since the large specs seem to always get it wrong, but they stay in business, maybe they just make another trip to the discount window to refill the coffers. Just look at Citi and Morgan Stanley. A year ago they were verging on collapse, and now you don't hear anything about it. Free money works wonders. If the BIS is an agent for old money, they may be dishording some of that 1/3 of Europe's silver that they stashed away in the crash of 1345. They have a schedule to keep, you know!


    TomMack ltcolkilgore
    Feb 22, 2013 - 10:49pm


    Where did you see/hear about the merc dimes being counterfeited

    the 1916-D mrec is usually the counterfeited. one in AG condition (date and mint mark barely detectable)it regularly trades for $500+. Counterfeiters make them in near mint condition then wear them down so they are very hard to detect.

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