The Gold Spread and Wall Street Banks

Thu, Apr 24, 2014 - 11:32am

It is so obvious, and so apparent, that I wonder why commentators have only now seen fit to say something.

“It” of course, being the prounoun referencing the gold spread and the insane, short-term profits the Wall Street Banks have been reaping right before our eyes. Let’s talk about it.

From Wikipedia: Arbitrage:

“In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.”

When does arbitrage arise?

“Conditions for arbitrage - Arbitrage is possible when one of three conditions is met:

(1) The same asset does not trade at the same price on all markets ("the law of one price").

(2) Two assets with identical cash flows do not trade at the same price.

(3) An asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate (or, the asset has significant costs of storage; as such, for example, this condition holds for grain but not for securities).

Arbitrage is not simply the act of buying a product in one market and selling it in another for a higher price at some later time. The transactions must occur simultaneously to avoid exposure to market risk, or the risk that prices may change on one market before both transactions are complete. In practical terms, this is generally possible only with securities and financial products that can be traded electronically, and even then, when each leg of the trade is executed the prices in the market may have moved. Missing one of the legs of the trade (and subsequently having to trade it soon after at a worse price) is called 'execution risk' or more specifically 'leg risk'.

In the simplest example, any good sold in one market should sell for the same price in another. Traders may, for example, find that the price of wheat is lower in agricultural regions than in cities, purchase the good, and transport it to another region to sell at a higher price. This type of price arbitrage is the most common, but this simple example ignores the cost of transport, storage, risk, and other factors. "True" arbitrage requires that there be no market risk involved. Where securities are traded on more than one exchange, arbitrage occurs by simultaneously buying in one and selling on the other.”

But, conditions for arbitrage, at least in non-manipulated markets, normally lead to Price Convergence -

“Price convergence - Arbitrage has the effect of causing prices in different markets to converge. As a result of arbitrage, the currency exchange rates, the price of commodities, and the price of securities in different markets tend to converge. The speed at which they do so is a measure of market efficiency. Arbitrage tends to reduce price discrimination by encouraging people to buy an item where the price is low and resell it where the price is high (as long as the buyers are not prohibited from reselling and the transaction costs of buying, holding and reselling are small relative to the difference in prices in the different markets).”

So, let us apply this knowledge to the price of physical gold, as referenced by the Comex spot pricing, and most interestingly, with respect to Indian gold demand and their market conditions.

There is a dramatic price difference with respect to gold priced in USA federal reserve notes as compared to the price of gold in Indian rupees. The situation is so readily apparent, that smugglers have taken to swallowing gold in quantity in order to profit from the price difference.

Of course, the price difference is caused by excessive government meddling, in this case, massive import taxes:

“The gold bars are valued not just by the owner but by the Indian government. In total they’d command an import duty of $17,000 dollars. It’s little wonder some people would go to extreme lengths to try to avoid that.”



Is price manipulated to allow for western banks to profit in the short term?

Let us just examine the naked facts of the divergence in price between our western physical gold price, and the Indian physical gold price.

In the normal course of events, that huge price difference would lead to price convergence, that is, the price of Indian gold should fall, while the price of western Comex gold should rise. Indeed, this is what is expected from the academics: “The speed at which [divergent prices converge] is a measure of market efficiency. Arbitrage tends to reduce price discrimination by encouraging people to buy an item where the price is low [increase in demand causes prices to RISE] and resell it where the price is high [increase in supply causes prices to FALL].”

We can easily see that the so-called “markets” are neither markets nor efficient, because there is NO movement lower of the spread. Instead, efforts are taken by Indian authorities to KEEP the prices artificially high through import restrictions and taxes. But why? Think hard on that one and the answer is IMMEDIATELY clear. (Think in terms of incentives, of both sides to these transactions).

Let us also not forget about this assumption: “as long as the buyers are not prohibited from reselling and the transaction costs of buying, holding and reselling are small relative to the difference in prices in the different markets.” Well lookey there . . . Bingo!

Indian import restrictions/taxes, i.e., “transaction costs,” on gold have lead to ARTIFICIALLY high prices, thereby encouraging arbitrage by preventing price convergence. This is page one from the HUGE, multiple volume treatise entitled “Central Planning Failures.” And, naturally, the question arises as to who benefits from this?

So, now that it is obviously apparent there exists a massive risk-free arbitrage opportunity, wouldn’t you expect the big Wall Street Banks to be right in the thick of it? Of course!

From the article, here:

“[T]here’s evidence that Wall St smuggled a HUGE amount of gold from GLD into India to make huge premiums and fast money and that the amount of gold smuggling in India over the last 4 months was more than in the last 10 years prior to the Indian government doing stupid legislation!”

Really, now, you don’t say? Gold has been secured at low prices from the western banks/gld scam, sold into the Indian markets for huge, short-term premiums, prices have NOT converged AT ALL, and we all wonder whether western gold prices are artificially low through manipulation? No chance of that, none at all, right?

And finally, there is this:

Now why on earth would the CME want to establish an eastern futures market for gold?

Perhaps because there is lots of gold in the east, dwindling amounts in the west, if at all, and the world’s capital engine for growth is shifting inexorably east in real time, right now? What better place to open a futures market, no?

This last development should put the nail in the coffin on manipulation deniers. It is fast time to prepare, please do so before it is too late.

About the Author


Apr 25, 2014 - 12:40pm

About That New Russian Coin...

That new 1-Kg. sterling silver coin that was recently made by a private mint in Russia has been mentioned here in Turdville.

If the image of the 1-KG coin has already been posted, I apologize for the repetition.

The translation is:

LH side – Putin Vladimir Vladimirovich President of the Russian Federation

RH side – Accepting the Republic of Crimea to Join the Russian Federation

Apr 25, 2014 - 12:22pm

For all the brave souls at the Bundy Ranch...

who are risking their lives...for the rights of that all of us can be free!!!...

Bag Of Gold

Apr 25, 2014 - 12:14pm

FRYday before f*mc week.

All hangin on ole yeller. Snoozer. Shorts reeled in for more pain on the indexes. SOP while no fireworks in metals to speak of. A close by gold over 1300 looks gook but the silver lagging as usual. Lest putin buys all silver for his commemorative coin of world domination(2.2lbs), this weekend in a few billion USDinker dollars, & so announced world wide, nothin changes until after f*mc. GREAT WEEKEND ALL!

Apr 25, 2014 - 10:28am

@realitybiter re: race card . . .

"The travesty is that most Americans are so intellectually lazy that they buy it."

Unfortunately, people are generally too preoccupied with their business/personal lives to question anything.

Plus, most were brought up in a school system that taught them to respect, believe and obey authority.

I believe almost nothing I read or hear from MSM or any politician except Ron Paul, who is retired. I don't trust Rand Paul, either. I have tried to instill this in my wife and kids, who are starting to "get it."

Spin and deception are all that's left of western civilization, due primarly to the fact that we cannot have an honest system without honest money.

Apr 25, 2014 - 9:54am

Once the race card is played

you, the intelligent BS news reader, should immediately disregard EVERYTHING the player that plays said card. Come on. It is so full-tard that folks even listen to this nonsense. They have no argument and then their wee little brains stumble, "he's, he's a jew hater, he's a nazi.....uh, uh, he is a racist!...he's a homophobe....he's a holocaust denier!!! The travesty is that most Americans are so intellectually lazy that they buy it. When you hear these accusations you should immediately think, "ahhhhh, I guess you are wrong and you either hate this person yourself, or the accused person is right and the demonizer is wrong."

Apr 25, 2014 - 9:50am

pigatha got swine flu?

u.s. dullar lookin' droopy

Key Economic Events Week of 5/25

5/26 8:30 ET Chicago Fed
5/26 10:00 ET Consumer Confidence
5/27 2:00 ET Fed Beige Book
5/28 8:30 ET Q2 GDP 2nd guess
5/28 8:30 ET Durable Goods
5/29 8:30 ET Pers Inc and Cons Spend
5/29 8:30 ET Core Inflation
5/29 9:45 ET Chicago PMI

Apr 25, 2014 - 9:25am

Asian CME Gold Futures Market

Maybe someone can explain the potential impact of the CME gold futures market in Asia. Although the link states that it is to be for physically settled gold futures contracts, I am skeptical that these contracts will be SOLELY physically settled. The COMEX also makes physical settlements. I would expect that the Asian CME will also offer cash settlements. Outside of the fact that it is a tangible move to serve the Asian markets, I just see it as a greater opportunity to manipulate gold price. It might add a counterbalance to western manipulation, but if there is collusion, we are in trouble. Double trouble.

Apr 25, 2014 - 9:13am

Motive of the Indian smuggler

After thinking about it for a while, I think I have come to understand the motive behind the Indian smuggler who swallowed the gold bars.

Remember these $425 pills of gold leaf that are supposed to make your poop glitter?

Well, you can figure out the rest. I guess he just wanted to impress someone.

Any other situation, I might say - "dude, ur doin it wrong"

But gold bars?

Maybe he's doin it right.

Apr 25, 2014 - 2:36am

Suspect accused of chucking shoe at Hillary Clinton

June trial set for suspect accused of chucking shoe at Hillary Clinton

By Sun Staff (contact)

Thursday, April 24, 2014 | 4:59 p.m.

Metro Police

Alison Michelle Ernst

Hillary Clinton Speaks at 2014 Institute of Scrap Recycling

Launch slideshow »

The woman accused of throwing a shoe at former first lady Hillary Clinton during a speech earlier this month in Las Vegas will remain in custody for the time being.

Alison Michelle Ernst, 36, Phoenix, appeared Wednesday in U.S. District Court in Las Vegas, where she was arraigned on two misdemeanor counts accusing her of trespassing and violence against a person.

Ernst pleaded not guilty to the charges.

Magistrate Judge Cam Ferenbach and ordered that Ernst continue to be held in detention set a bench trial for June 25 before Magistrate Judge Peggy Leen. Additionally, Ferenbach directed the U.S. Probation Office to prepare a report for the court detailing Ernst’s criminal history.

Ernst is represented by two federal public defenders, William Carrico and Elisa Vasquez.

On April 10, Clinton was a few minutes into her keynote address at the annual convention of the Institute of Scrap Recycling Industries at Mandalay Bay when Ernst approached the stage and threw a Puma soccer cleat at the former secretary of state, said Brian Spellacy, special agent in charge of the Las Vegas office of the Secret Service.

Clinton ducked the shoe and was unharmed.

“Thank goodness she didn’t play softball like I did,” she quipped to loud applause.

Ernst immediately walked out of the ballroom and was surrounded by security personnel and Secret Service agents.

According to the arrest report, Ernst carried the shoe inside her purse before throwing it overhand at Clinton.

Ernst, whose booking photo shows her with short, reddish-brown hair, wore a long, platinum blond wig during the incident.

A spokesman for the recycling institute said Ernst did not have credentials for the event and slipped past security and into the ballroom where Clinton was addressing more than 1,000 people.


Hillary Clinton manages to have 4 marines killed and this woman gets detained for 2 1/2 months for throwing a shoe? One day I hope justice prevails.

Apr 25, 2014 - 2:02am


Washington is humanity's worst enemy

How does Washington get away with the claim that the country it rules is a democracy and has freedom? This absurd claim ranks as one of the most unsubstantiated claims in history.

There is no democracy whatsoever. Voting is a mask for rule by a few powerful interest groups. In two 21st century rulings (Citizens United and McCutcheon), the US Supreme Court has ruled that the purchase of the US government by private interest groups is merely the exercise of free speech. These rulings allow powerful corporate and financial interests to use their money-power to elect a government that serves their interests at the expense of the general welfare.

The control private interests exercise over the government is so complete that private interests have immunity to prosecution for crimes. At his retirement party on March 27, Securities and Exchange Commission prosecutor James Kidney stated that his prosecutions of Goldman Sachs and other "banks too big to fail" were blocked by superiors who "were focused on getting high-paying jobs after their government service." The SEC's top brass, Kidney said, did not "believe in afflicting the comfortable and powerful." In his report on Kidney's retirement speech, Eric Zuesse points out thatthe Obama regime released false statistics in order to claim prosecutions that did not take place in order to convince a gullible public that Wall Street crooks were being punished.

Democracy and freedom require an independent and aggressive media, an independent and aggressive judiciary, and an independent and aggressive Congress.The United States has none of the above.

Paul Craig Roberts

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 5/25

5/26 8:30 ET Chicago Fed
5/26 10:00 ET Consumer Confidence
5/27 2:00 ET Fed Beige Book
5/28 8:30 ET Q2 GDP 2nd guess
5/28 8:30 ET Durable Goods
5/29 8:30 ET Pers Inc and Cons Spend
5/29 8:30 ET Core Inflation
5/29 9:45 ET Chicago PMI

Key Economic Events Week of 5/18

5/18 2:00 ET Goon Bostic speech
5/19 8:30 ET Housing starts
5/19 10:00 ET CGP and Mnuchin US Senate
5/20 10:00 ET Goon Bullard speech
5/20 2:00 ET April FOMC minutes
5/21 8:30 ET Philly Fed
5/21 9:45 ET Markit flash PMIs for May
5/21 10:00 ET Goon Williams speech
5/21 1:00 ET Goon Chlamydia speech
5/21 2:30 ET Chief Goon Powell speech

Key Economic Events Week of 5/11

5/11 12:00 ET Goon Bostic speech
5/11 12:30 ET Goon Evans speech
5/12 8:30 ET CPI
5/12 9:00 ET Goon Kashnkari speech
5/12 10:00 ET Goon Quarles speech
5/12 10:00 ET Goon Harker speech
5/12 5:00 ET Goon Mester speech
5/13 8:30 ET PPI
5/13 9:00 ET Chief Goon Powell speech
5/14 8:30 ET Initial jobless claims and import prices
5/14 1:00 ET Another Goon Kashnkari speech
5/14 6:00 ET Goon Kaplan speech
5/15 8:30 ET Retail Sales and Empire State index
5/15 9:15 ET Cap Ute and Ind Prod
5/15 10:00 ET Business Inventories

Key Economic Events Week of 5/4

5/4 10:00 ET Factory Orders
5/5 8:30 ET US Trade Deficit
5/5 9:45 ET Markit Service PMI
5/5 10:00 ET ISM Sevrice PMI
5/6 8:15 ET ADP jobs report
5/7 8:30 ET Productivity
5/8 8:30 ET BLSBS
5/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 4/27

4/28 8:30 ET Advance trade in goods
4/28 9:00 ET Case-Shiller home prices
4/29 8:30 ET Q1 GDP first guess
4/29 2:00 ET FOMC Fedlines
4/29 2:30 ET CGP presser
4/30 8:30 ET Pers Inc and Cons Spend
4/30 9:45 ET Chicago PMI
5/1 9:45 ET Markit Manu PMI
5/1 10:00 ET ISM Manu PMI

Key Economic Events Week of 4/20

4/20 8:30 ET Chicago Fed
4/21 10:00 ET Existing home sales
4/23 8:30 ET Weekly jobless claims
4/23 9:45 ET Markit flash PMIs
4/24 8:30 ET Durable Goods

Key Economic Events Week of 4/6

4/8 2:00 ET March FOMC minutes
4/9 8:30 ET Producer Price Index
4/10 8:30 ET Consumer Price Index

Key Economic Events Week of 3/30

3/31 9:45 ET Chicago PMI
4/1 8:15 ET ADP Employment
4/1 9:45 ET Markit manu PMI
4/1 10:00 ET ISM manu PMI
4/2 10:00 ET Factory Orders
4/3 8:30 ET BLSBS
4/3 9:45 ET Market service PMI
4/3 10:00 ET ISM service PMI

Key Economic Events Week of 3/23

3/24 9:45 ET Markit flash PMIs
3/25 8:30 ET Durable Goods
3/26 8:30 ET Weekly jobless claims
3/27 8:30 ET Personal Inc and Spending

Key Economic Events Week of 3/9

(as if these actually matter)
3/11 8:30 ET CPI
3/12 8:30 ET weekly jobless claims
3/12 8:30 ET PPI
3/13 8:30 ET Import Price Index

Recent Comments

by Turd Ferguson, 2 min 49 sec ago
by AgAuMan, 10 min 58 sec ago
by Southsider, 16 min 24 sec ago
by Turd Ferguson, 26 min 57 sec ago

Forum Discussion