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 - 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 - 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.

treefrog erewenguy
Apr 25, 2014 - 9:50am

pigatha got swine flu?

u.s. dullar lookin' droopy

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."

ancientmoney realitybiter
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 - 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 - 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 - 12:40pm

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 - 12:55pm

100kg Canadian $1,000,000 Maple Leaf

Those are nice Ruskies but the Canadians beat them to the punch. The largest gold coin in the world - a 100kg Canadian $1,000,000 Maple Leaf - during its auction in Vienna, Austria

A Spanish precious metals trading company bought the world's largest gold coin for 3.27 million euros, its exact material worth, from the estate of an insolvent investment firm at a rare auction in Vienna on Friday.

The 100 kg (220.5 lb) piece, one of only five Canadian $1,000,000 Maple Leaf coins the Royal Canadian Mint has ever produced, was snapped up immediately in a written bid from ORO direct, a gold trading company based in Madrid.

Takes two men to lift this baby!

akhutch Patrancus
Apr 25, 2014 - 1:29pm
Apr 25, 2014 - 1:52pm

breath brother breath

about Clive Bundy and the alleged racist comments

Apr 25, 2014 - 2:16pm
Swineflogger tyberious
Apr 25, 2014 - 2:23pm

National Guard to Russia??????

With all due respect, NG --> Afghanistan . . probably. To Russia? WTF?

Motley Fool
Apr 25, 2014 - 3:22pm


The perth mint made a 1-tonne gold coin a while back. Bit more than the canadian one.

AlienEyes ancientmoney
Apr 25, 2014 - 4:51pm

@ ancientmoney

"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."


Reminds me of some lines from an old cop movie.....

Deputy : He's got a lot of politicians in his pocket.

Sheriff : Politicians ??? Hell, boy. The only thing lower than a politician is a child molester !!! 

Apr 25, 2014 - 5:21pm

A corrupt sitting U.S. Senator, Say it ain't so

So from the video I am to understand a sitting U.S. Senator (Harry Reid) is using for his families personal gain (Reid Land Trust, Reid Family Trust, Reid Bunkerville LLC., Harry Reid Profit Sharing Plan) a Government agency to strong arm people off their property ( Bureau of Land Management) and inhibit the use of Public Lands by citizens of the United States of America. This is where the real story is. This information needs to be sent to every single law enforcement officer involved with the Bureau of Land Management that was involved in the recent activities in Nevada. Along with every Law Enforcement Agency. Not just the top brass but the officers on the ground also. These men and women one and all swore an Oath when joining their enforcement teams. The vast majority of these people are good honorable people that take their Oath Seriously. If they knew that they were just advancing the wealth of a sitting Senator in Nevada during the recent events things may have been a little different. I Am Almost Certain The “Honorable”? Senator Harry Reid’s financial interests in the recent events were NOT part of the Officers Briefing before heading out to the Ranch.

Building an email list of lower ranking officers may be a unique approach. Seems the higher up the ranks one goes the more the corruption seems to creep in Just some thoughts

Do a search of the name Reid here on the Clark County Nevada Land Records Site . Interesting

Apr 25, 2014 - 10:17pm

wanna see a libtard go apeshit?

once his/her defense of his/her position turns to, "you're a ......(insert a plethora of -ists and obics)" declare loudly you've won the debate and walk away

SilveryBlue tyberious
Apr 27, 2014 - 5:05am

um Tyberious - how come National Guard

um Tyberious - how come National Guard can be shipped overseas?

Aren't they just that - National Guard? as opposed to international guard aka soldiers? What gives with that?

Clarification most welcome.

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