Harvey Organ: Get Physical Gold & Silver!

Greetings. I usually don’t spend time here, but was told about the metals commentaries and that my name was being brought up in both good and bad ways.

First, I have to say two things about myself, that relate to the interview with Organ. First, I have been a public critic of the enabliing CFTC legislation since it was written in the mid-1970s, while I was still in college, through now. There is a long, well documented history of me calling for better regulation of commodities markets, and OTC derivatives markets, going back to the mid-1980s, as well as of certain banking practices. For goodness sake: I quit Goldman Sachs to start my own research boutique in 1986. I know banking, and its warts, far better than the outsiders who did not even study basic money and banking, it is clear from their comments. BTW, Andrew Maguire is, in fact, a total fraud, having never worked in the bullion banking industry.

Second, in college I studied journalism and political economics. One of the things I learned in journalism school was to check facts. In fact, most legitimate journalism outlets have fact checkers that will call you and check your quotes and statements before they print it. I bring this up because whoever interviewed Organ clearly is not a journalist, or a professional one. Organ said totally ludicrous stuff like China refines 80% - 85% of the world's silver, and the interviewer neither called him on it nor stopped to think that someone so totally ignorant of the silver market maybe should not be given a public forum to air what clearly are totally ill informed comments.

Now, to the point. Below is an article we wrote, excerpted from our Gold Yearbook released in late March, about the fallacy of the am/pm london gold trade. I am afraid the super-cool distribution chart will not appear here, but the text and table tell the story. It's one example of what real statistics will tell you that [Admin: redacted per our policy regarding ad hominem comments] Organ will not. I hope you enjoy it, and that it helps you.

In The Long Run We Are All Dead: Trading London Gold Price Fixes

Articles have cropped up on the internet and elsewhere over the past few years discussing the perceived phenomenon that the London gold morning fix is higher than the afternoon fix, and that enormous profits could easily be made by buying on the afternoon fix and selling at the morning fix. A new round of such discussions reappeared in late 2011 and early 2012.

The gist of these comments is that the London afternoon fix on average is below the morning fix, so that one could make a fortune by always buying on the afternoon fix and selling the next morning at the morning fix. Others have tried to paint this as evidence suggesting a conspiracy among gold bullion dealers to game the market. Neither set of conclusions are accurate. All of the articles confused the average with the range of daily results that comprise that average.

It is true that on average the afternoon fix tends to be lower than the morning fix. However, that average masks an enormous range of results.

Before analyzing the data, one must realize that there are two ways to make these calculations: The difference between a given day’s morning fix and its afternoon fix, and the difference between a given day’s afternoon fix and the following day’s morning fix. Which of these formulas you use to calculate the differential yields different results.

The average differential between a given day’s morning fix and afternoon fix was 16 cents per ounce between 1968 and 2012. That average masked an enormous spread, ranging from a morning fix $80.00 higher than the afternoon fix and a morning fix $45.00 below the afternoon fix on the same day. The morning fix was higher than the afternoon fix only 49.2% of the time. Another 45.6% of the time the afternoon fix actually was higher than the morning fix. The remaining 5.2% of the time the fixes were the same in a given day. Nearly half the time this trade would have resulted in losses, up to $45 per ounce.

Looking at it only on a more recent time period, from 2000 to 2012, as some of the articles do, the average spread was 35 cents: On average the afternoon fix was 35 cents higher than the morning spread, although the range was between $80.00 and -$42.00.

These data drive home how deceptive averages can be. The accompanying table and chart show that on average the afternoon fix has been 30 cents higher than the next day’s morning fix since 1968 and 79 cents higher since 2000. These averages mask wide ranges, from $81.00 higher than the morning fix to $87.50 lower since 1968.

The table shows that the morning fix has been higher than the afternoon fix only 49.2% of the time since 1968 and 53.6% of the time since 2000. The afternoon fix has been higher 45.6% of the time since 1968, and 44.7% of the time since 2000. The rest of the time the fixes have been the same.

This highlights the large risk to this strategy.  On average, one theoretically could make a fortune on this trade. However, fortunes can be lost just as easily, and nearly half of the time someone trying to make this trade will lose money. Anyone committed to this must have incredible staying power. If he or she is part of an organization, using other people’s money, or reporting to a manager, the institution supporting them must be willing to sustain consistent heavy losses in the expectation that in the long run the average difference between the morning and afternoon fixes will yield handsome profits.

Some institutional investors and others with deep pockets may try this strategy, but it clearly is not the easy money machine that people looking only at the averages suggest it is.

The distribution chart graphically portrays the risks involved in confusing long-term averages with the individual trading days of our lives.

Another misconception is that the relationship between the morning and afternoon fixes means that the price is lower all day long after the morning fix. The articles mistook the differentials between two specific points in time — those of the morning and afternoon fixes — with all of the time in between.

Calculations comparing prices at two specific times of the day in no way provide any insights into how the price changes during the reminder of time between those two points. Prices move up and down continually. That is how markets tend to work when they are free, unimpeded, and relatively efficient.  


There are certain reasons why the morning fix tends to be slightly higher than the afternoon fix. The morning fix is a much less liquid, and a much less traded fix. It occurs when Asia and North America are closed. The afternoon fix occurs after the North American markets are open. It is a much more liquid fix. Much more gold trades at the afternoon fix, and, importantly, based on the afternoon fix, than at or based upon the morning fix.

Much of the gold that trades at the afternoon fix is producer selling. Producers  and refiners tend to sell on the afternoon fix, in part because it occurs during their business hours in North America, because it is a more liquid price, and out of market tradition. The afternoon fix is used in contracts covering the vast majority of gold mine production and refined output. All of that selling tends to lead to the afternoon fix being lower than the morning fix on average over time. It is that simple.

One could say that if it is so simple and obvious, why do not more producers shift their selling practices to the morning fix, or some other time or price mechanism. That is a very good question for shareholders to ask management at mining companies.

There are inefficiencies in the bullion market like those in many other markets, which may be large and simple to fix and still remain in the market.

This article is excerpted from CPM Group’s Gold Yearbook 2012, released 27 March 2012. www.cpmgroup.com. 


Jeff, not sure if you’re reading further replies here, but I just wanted to say thanks for taking the time to post and share some of the content of your Gold Yearbook with us.


I have not yet had time to listen to either podcast yet, so forgive me if the question is misguided.
In your first post is your contention solely to debate the fact that Mr. Organ is making claims purely based on emotional opinion while offering no facts to back anything? Or are you against the entire notion of the precious metals market being manipulated.


Thanks for cross-posting this quote, Jim. By searching out and finding some of the most ignorant commentary on the Internet, you provide the basis for further discussion and debunking of common myths.
Personally, I have a hard time understanding why any investor would even take seriously a self-appointed pundit who hides behind a pseudonym (Turd Furguson) borrowed from a B Movie script. But since so many of you guys seem so-inclined, let’s dig into the commentary and see if we can make sense from nonsense. Yes, I understand this was not "Turd", but rather some other blogger commenting in TurdSpace. You didn’t mention his name (or pseudonym), so I’ll just call him T2 below.

Ok, so we have some pretty highly emotionally charged innuendo here from T2. His reference to "forwards, swaps and general paper crapola that pass for Precious Metals trades" implies that cash-settled a/k/a "Paper" trades are somehow bad or inherently wrong. If I understand the innuendo correctly, he is implying that the price discovery mechanism is being corrupted by the presence of cash-settled trades in addition to trades settled by bullion delivery. But he conveniently fails to offer the slightest bit of rationale, explanation, or substatiation. If he really intends to make this point, would it not make sense to explain why he believes cash-settled transactions are corrupting efficient price discovery? Or could it be that he really doesn’t know himself, and is just another wanker in the blogosphere mouthing off with soundbites he’s heard elsewhere but never quite understood? I have no idea which it is, but I will concede that an intelligent and level-headed conversation about the impact of cash-settled transactions in commodity price discovery might be worthwhile. Since T2 clearly isn’t offering the slightest bit of substantiation or discussion of this common fallacy, let’s have our own discussion here.

A hypothesis that has been suggested by some is that having both cash-settled "paper" and bullion-settled "physical" transactions co-existing in the same price discovery mechanism prevents the price from rising to its true natural level. The fallacious rationale for this argument is that if there were only physical transactions, then there is only so much physical bullion, and all the demand would have to be matched against the amount of metal that really exists. But if there is much greater liquidity of "paper sellers", the buyers can buy a lot more gold without pushing the price up very much. Assuming this was the argument T2 was alluding to, he might have done his readers a better service by explaining it as I have here, rather than making an unsubstantiated allegation by inference, and moving on as he did to his next specious argument (to be debunked below). But I suppose you get what you pay for on a free blog.

Let’s now examine why this popular fallacy is just that - a fallacy. First of all, there is nothing unique to precious metals here. The entire commodity complex trades this way - far more cash-settled paper bets than actual deliveries. It has worked for years, and if the presence of the paper transactions really undermined efficient price discovery, the practice would have been stopped decades ago. Crude oil, grains, etc. form a cornerstone of the global economy. If their pricing mechanism were being corrupted by the presence of paper transactions, we’d know about it by now.

But at first glance, it does appear that the paper transactions increase the size of the pool, so further explanation is warranted. The fallacy lies in the idea that the paper transactions are diluting the buying influence of buyers of physical bullion. It doesn’t work that way. Everyone who wants to buy and take delivery of physical bullion has to buy it from someone who had physical bullion to deliver. And the pricing mechanism reflects this. The fact that traders on both sides of the contract have the option of standing for or accepting assignment for delivery ensures that the paper prices are kept in line with the physical price. For every paper-only buyer, there is a paper-only seller. The increased liquidity argument washes out, because there are paper traders on both sides of the trade.

Huh? Bluntly, none of this makes any sense. Of course big buyers want as much liquidity as possible so that their trades don’t "move the needle" any more than necessary. But what does that have to do with dark pools, which are privately settled trading systems for equities that allow large transactions to occur without public disclosure? The two concepts are completely different, and I see no direct connection. It appears to me that T2 is just throwing about a phrase, dark pool, that he probably doesn’t comprehend, because it sounds good and helps sell the story. Here again, if he believed that dark pools were in play, why doesn’t he elaborate and explain what role he thinks they play?

Ok, now it’s clear this guy is just plain clueless. Spot is the physical bullion market. There is quite obviously ZERO leverage there, because if you want to take the metal, you have to pay for it. Sounds to me like T2 has been suckered by Andrew Maguire, who has cleverly (and I am convinced intentionally) encouraged investors to confuse the ratio of cash- to physical-settled transactions as having something (anything) to do with leverage. Leverage is a very precise and well understood term. Speficially, it refers to assets over collateral. If there is 300:1 leverage built into the spot market, that means I can buy $300,000 worth of gold for only $1000 (300:1 leverage), then just take the metal, and (I guess) just owe the seller for the rest? This is absolutely ludicrous, and clearly reveals that T2 doesn’t have the foggiest notion what he’s talking about.

Well, I do have to credit T2 for efficiency. He packs an amazing amount of nonsense into only a couple of sentences. First he states that neither COMEX or LBMA have credibility. He offers exactly zero explanation or substantiation for these ludicrous statements. He refers to COMEX as un "unregulated joke", an absurdity considering the fact that CFTC’s greatest challenge is the criticism that U.S. markets are MORE regulated than others in International jurisdictions. Then we get the 0.3% backing nonsense, confirming that this guy - whoever he is - has clearly been snowed by Andrew Maguire’s efforts to mislead investors, and now he’s regurgetating and argument he obviously never understood himself. For the record, folks, the 0.3% backing nonsense would be true if the ratio of cash- to bullion-settled transactions on LBMA had something to do with leverage. It doesn’t. The bullion in LBMA vaults does not serve as collateral for cash-settled transactions, and has nothing to do with leverage.

Huh? This guy is just spewing sound bites that I doubt he understands the first thing about. What are "real longs", and how would this force shorts to unwind their positions? More to the point, why would anyone take seriously an author who makes one assertion after another, without ever backing a single one of them up with a logical argument or evidence to support his contentions?

Jim, moving on to your own comments now…

You’re mistaken, Jim. Ironically, the shortcomings of unallocated accounts are actually worse than you imply, but your statement clearly evidences to me that you’ve accepted the nonsensical ramblings of GATA and company as fact, without questioning them. An unallocated account is a credit relationship. It’s not backed by ANY bullion. So there is no legitimate issue of "multiple claims against the same bullion". Unallocated account holders don’t have any claim against any bullion. They have an unsecured credit receivable only. The multiple claims stuff is just GATA rhetoric that imparts fear and perception of conspiratorial wrongdoing in the minds of investors. It is not part of reality.

Now you’re following T2’s lead, and making significant allegations without a single word of substantiation or logical support. Why do you believe that deliverability of COMEX contracts affects anything, and what "Ponzi" are you referring to? The word Ponzi is universally accepted in finance to refer to a specific characteristic of a fraud committed by Chalres Ponzi many years ago. Specifically, the phrase is now used to refer to a scheme where an investment vehicle does not really own its advertised assets, and incoming investments from new investors are used to pay exiting investors, creating the illusion that investments can and are being redeemed, when in reality insufficient assets exist if all investors were to redeem simultaneously. The reason COMEX contracts are so rarely delivered is that they are principally used by hedgers and speculators who don’t need or desire physical settlement. Everybody who wants physical settlement gets physical settlement. The "what-if" scenario often cited by GATA and the like where all the longs stand for delivery at the same time and the system breaks is utter hogwash, and its fallacies lie in the fact that the longs don’t have sufficient equity to stand for delivery, plus the fact that the price discovery mechanism would automatically elevate the price to a market-clearing level if such a run on physical delivery ever began. Jim, you’re allowing GATA’s ignorance of how commodity markets function to come into your mind as if it were reality. It isn’t. It’s pure, unadulterated nonsense, and I sincerely wish I could get through to you on this.

First, I never represented myself to have any formal credentials. But I do think rationally and objectively, and I fact-check things that I read and hear. Jim, if you did the same I think you’d quickly realize that people like Harvey are charlatans who don’t have the foggiest clue what they are talking and writing about. Please ask yourself why you feel inclined to think Harvey has "an intuitive grasp" of the market or anything else. His style is very clearly revealed in this interview - he’s a guy who make a LOT of really BIG allegations, frequently cites the existence of corruption and conspiracy, but never backs his allegations and innuendo with verifiable, factual arguments. Ever. Jim, I really mean this - please stop and take a moment to ask yourself why you take this guy seriously. He certainly talks a very alluring story - corrupt markets, evil conspirators, and poor innocent investors like you are made out to be the victims. But he could just as easily be writing about how millions of humans have been livingin colonies on Mars for 20 years! That sounds exciting too, and if you have an audience that never expects you to back anything you say with fact or even logical rationale, why not!

The  only verifiable fact here is that Harvey writes every day. The rest is innuendo that lacks factual support, and reveals to me that Harvey’s understanding of how commodities markets funtion is possibly even less complete than the other charlatans at GATA. Jim, you have credited Harvey for writing every day, and I do not question his work ethic. But you’ve yet to explain to us - or more importantly, to yourself - why you believe one word of the nonsense he writes.

Nobody here has said or implied that credentials=truth, and FWIW I’m a strong believer in the idea that formal credentials have almost nothing to do with truth. That’s why I never take them seriously.

These statements don’t make any sense, and further reveal to me that Harvey is lost in outer space. First, most futures transactions are cash-settled. He’s not making any sense here. He seems to be saying that the decline in OI should be matched by delivery notices, but it isn’t because there are 30 less delivery notices than the decline in OI. That makes no sense, and I have no idea what point he’s even attempting to make here, so it’s hard to refute it. This further reveals to me that Harvey, despite probably meaning well, is completely clueless as to how futures markets function, and is performing an amateur analysis on data he doesn’t understand.

As to the innuendo that "nobody in their right mind" would put up 100% then roll anyway, the answer to that one is that daring traders on the short side sometimes hold their positions beyond the cash settlement deadline, knowing that they are risking assignment for delivery, but also knowing they stand a good chance of not being noticed, allowing them a staying power advantage over the corresponding long traders. It’s a daring game of chicken to play if you don’t have the metal to deliver, but some do and that easily explains why some traders could be short beyond the cash settlement date and still roll the contract, after risking having to pay the delivery fail penalty if they got assigned. Even so, Harvey’s description of the interplay between OI and cash settlement just plain doesn’t make sense.

Jim, you seem like such a nice guy. It really pains me to see you falling for all this crap. I sincerely wish you well, and hope you’ll eventually recognize that you are falling for the work of charlatans.

All the best,



For the very detailed reply… I will reread and digest.  My point about Harvey is that, when you spend so much time analyzing vault movements, COT reports, delivery reports, etc… you get an intuitive feel for that which you are observiing.  A simple example is the fact that Harvey knows that Good delivery bars have exact weights… that are not fixed… they vary… so when he sees a transfer of 6500 oz (just to make up an example)… then he observes that is probably some kind of paper transfer… vs. real bars moving. 

Dear Erik T,thanks - I agree with most of what you wrote. I think one of the causes of the misunderstanding by Ted Butler and others is that gold and silver are traded over the counter (OTC) between the banks and bullion traders. This is commonly referred to as the ‘London gold market’, and many of these institutions are members of the London Bullion Market Association (LBMA). What is traded is actually not physical gold and physical silver, but rather two currencies. Each has cash (=allocated gold), credit money (=unallocated gold), swaps and forwards. The OTC market is many times bigger than COMEX, and so price discovery mainly happens in the OTC market, and the price is transmitted to the COMEX by arbitrage.
People whose background is commodities futures trading see the funny behaviour of the gold and silver COMEX and cry manpulation. What they complain about, however, is not manipulation but rather the arbitrage that transmits the OTC price to the COMEX. Note that gold and silver are the only underlyings of COMEX/NYMEX/CME futures that are traded as currencies OTC, and so, of course, corn or soybeans don’t behave like that.
I am also a bit frustrated by the abundance of misinformation in the goldbug internet and ofen comment about it.  See the comments on

Further, on the book by Rickards. I give him a lot of credit for getting the role of gold in the monetary system across to a huge audience and for pointing out the achilles heel of the dollar. I also have some criticism about his idea to return to a gold standard (i.e. an institutionalized undervaluation of gold). This won’t work, and it is the Europeans who have made sure the U.S. cannot do this. Perhaps you are interested in the argument:




Hi Victor,Thanks for the support. It’s immediately obvious that you’re a professional in this space, and know more than I do about these markets.
I was aware of the role of LBMA, and the fact that its nickname "The Physical Market" is a misnomer because far more cash-settled forwards are traded there than actual bullion deliveries. I was also aware that LBMA is much bigger in volume than COMEX, and so therefore it is logically implied that LBMA should set the price, which as you describe is then transmitted via the arbs to the COMEX.
But I was not aware of the existence of a real-time electronic quotation system for LBMA’s OTC market. I therefore came to the inferred conclusion that LBMA traders used the global futures market (which is really not just COMEX but also GLOBEX when you think about it) as their price discovery mechanism. As noted in an earlier reply, my guess was that LBMA traders were using the futures market to set the basis for their quotes, negotiating OTC contracts priced at some margin to the futures front month. In a sense, the LBMA traders, being the big players, are still transmitting price into the futures via arbitrage, but they are doing so thru their reliance on the futures price as their pricing mechanism, and presumably gaming the futures market to their perception of fair value.
But your post implies that LBMA has its own price discovery mechanism, and that it is the LBMA price that is transmitted to COMEX thru the arbs. That actually makes more sense, but I was unaware that LBMA had a real-time electronic price discovery mechanism. Sounds like you are saying they do. I’d love to learn more. Is this mechanism electronic? Is it quoted on Bloomberg (I don’t have one, sadly)? Is it 24/7, or only London trading hours? Do you have to be an LBMA clearing member to participate, or can non-member banks and dealers bid in this LBMA price discovery mechanism? Enquiring minds want to know…
To Jim H and others following this thread: Did you notice how I was able to instantly recognize Victor as being legit, while I was equally instantly able to recognize Harvey as a charlatan? That’s the skill you need to hone if you want to be successful investing. That probably sounds arrogant as hell, but it’s the best investment advice you’ll ever get from anyone.

Erik T,
yes, that sounds arrogant as hell indeed. As for electronic trading, this FT Alphaville article


has a screenshot of how GOFO (the gold forward offered rate) looks on a Reuters screen. I guess when you want to trade with them OTC, your company should be a member of the ISDA. I remember some individual investors wanted to short mortgage bonds in 2006-2008, and this usually failed because they didn’t have enough capital and not the lawyers to get all the paperwork done. But as far as I remember, there was a real estate guy in California who managed to trade OTC as a private investor. But then, at that time, Wall Street didn’t care about counterparties at all.



PS: Not a professional.


Thanks Victor, that’s very helpful. I wasn’t aware of the GOFO quote, which makes perfect sense. I can’t trade it anyway.I actually looked into trading CDS directly on the OTC market myself as a private investor back in 2008. I was able to find desks in NYC willing to deal with me, but it was instantly clear that they smelled blood. I don’t think it’s possible for a private investor (unless you’re retired from serious wall street experience) to deal with those guys directly without being taken to the cleaners. I opted not to proceed, and instead invested in a hedge fund that was long CDS against subprime CDOs - the 2&20 was cheaper than what I could tell the sharks on the OTC desks had in mind for me.
On the non-professional thing, you had me fooled. You clearly know what you are talking about, and that led me to an errant assumption.

Indeed it does. Not to mention pompous. But it’s still the best investment advice these guys will ever receive. Do you concur? :slight_smile:


You wonder how a market which doesn’t have a real-time auction process or exchange can set prices. Let me answer by saying it is the same way the price of cheese or second-hand car prices are "set". The funny thing is, with all this talk of manipulation, the operation of the over-the-counter (OTC) spot physical market is one which is very much free market and unregulated and thus close to the capitalistic ideal.

Note I prefer to use OTC rather than LBMA, which are often used interchangabily. References to LBMA are better understood as "OTC trades which will be settled in London via http://www.lpmcl.com/". OTC is wider and refers generally to trades negotiated and settled counterparty to counterparty instead of on an exchange. The majority OTC gold trades are settled in London but OTC trading can occur outside the LBMA/LPMCL system.

The best way I can explain it is by discussing how we "trade" gold at the Perth Mint, as that’s what I have first hand experience with. Before I start, I’d just like to clarify that the Perth Mint has never traded on any futures market, nor GLOBEX or any other exchange. We refine around 10% of the world’s new mine and scrap supply. That is about 7 tonnes, or $370 million, a week of physical we sell/supply. So this is not a theoretical exposition below.

Because there is no LBMA real-time electronic quotation system/trading platform for spot unallocated or spot physical prices, professional bullion market counterparties need an indicator of where the market is. We use Reuters, others Bloomberg. However the price displayed on these information services is just an indicator. It is updated by the bullion desks of the big banks and is in effect, a bulletin board or forum where banks can publish their prices in the hope other dealers will call them up to do a trade. Sort of like an advertisement. Unlike a stock market, it is not a commitment to deal at those prices, but most times you can. However there are many times, especially when the market is moving quickly, when the dealers don’t have time to update their quotes on Reuters and so when you ring them up, they say "Sorry, Reuters off the market, my current price is $5 below the screen".

Many trades are done over the phone, but some bullion banks also have trading platforms for use by their clients which provide price quotes - often used for small trades (a few thousand ounces or less).

How does a bullion bank set their prices on Reuters or their trading platform? Well consider a bank’s bullion desk as a little stock exchange except they are the only ones quoting a bid and ask price. They get a constant stream of calls from buyers (eg jewellers) or sellers (eg mines). If they are lucky, the buying and selling will match but this is unlikely, so if they find they are selling more than they are buying from their clients, they will have to go and find another counterparty to buy from. This other counterparty is often another bullion bank, but could also be another market like COMEX.

So a bullion desk keeps an eye on what prices are being quoted on Reuters, on COMEX etc and what sort of deal flow they are getting (how many ounces and whether it is net buying or selling) and, since Reuters is just an indicator, what actual prices previous deals have been executed at in the past to set their price and bid/ask spread.

So while none of these bullion banks or their systems are interlinked computer wise to a central exchange, they are interlinked informationally. Consider the case of the Mint where we call a bullion bank and ask for a price. We’ll compare it to say the price on Deutsche’s Autoban trading platform and Retures before deciding if we’ll take it. Say the Autoban price was better and the bullion bank’s dealer wasn’t willing to match it. Well they have just got information on where the "real" physical spot market is from our refusal to deal with them. If they are consistently over quoting compared to their competitors they won’t get business.

It is this interaction between bullion banks and bullion banks and their clients that is the spot price. Dealers are in constant contact with each other, doing deals, talking and exchanging information on what they are seeing in the market, watching the Reuter’s and COMEX price movements. They use all this information to set their prices.

The OTC market is therefore best thought of like a network of free agents. But as described, because of no central exchange, you can’t put your finger on exactly what the spot price was at any point in time.

But then you can’t put your finger on exactly what the price of cheese is either at any point in time because supermarkets and independent grocers and farmers markets all quote different cheese prices and do physical cheese deals at these various prices and don’t report them on any central exchange nor settle them through centralised clearing houses.

Yet you don’t see anyone worrying about the lack of a reference spot cheese price and what the premium of physical cheese is to the cheese spot. It is a case of the shopkeeper saying "you don’t like my cheese price, then buy from someone else". Somehow this system works. I think it is called a free market (which doesn’t imply it isn’t manipulated, BTW). Precious metals works the same in the OTC market.

Yet you don’t see anyone worrying about the lack of a reference spot cheese price and what the premium of physical cheese is to the cheese spot. It is a case of the shopkeeper saying "you don’t like my cheese price, then buy from someone else". Somehow this system works. I think it is called a free market (which doesn’t imply it isn’t manipulated, BTW). Precious metals works the same in the OTC market.[/quote]
Cute metaphor, but physical cheese won’t be called upon to perform its hedging role in extremis. Unallocated gold holders may understand physical price discovery when cash settlement in hyperinflating dollars isn’t a palatable option.
It’s fine to demolish a fraudulent argument, but not at the expense of the bigger picture. Even though unallocated holders have no claim on physical, do fiduciaries believe their holding hedges them against a government money crisis? If they do, then fractionally-reserved bullion banking is effectively diluting real physical demand, and GATA’s argument rings true.

Indeed it does. Not to mention pompous. But it’s still the best investment advice these guys will ever receive. Do you concur? :slight_smile:
I somehow have doubts that your overbearing words will be the "best investment advice I will ever receive." You need to understand, the problem I have with your words has nothing to do with your argument, and has everything to do with your delivery. You claim to desire an "intelligent and level-headed conversation" and yet you are the only person I see calling names: "self-appointed pundit" (aren’t you, too?),"wanker…mouthing off," "charlatans," etc., and generally ascribing various nefarious motivations to others. Makes it difficult to hear your argument Erik, when you spend so much time denigrating those you disagree with. We little peons here at CM may be "falling for crap" as you say, but your tone doesn’t help anyone understand the facts as you present them. And generally slamming people for ignorance doesn’t encourage anyone listening to you, to learn.
An obsession with being "right" isn’t always the best way to teach.

Jim Sinclair knows a thing or two about Gold… and he kinda runs a Gold exploration company (TRX) (see his name here:  http://finance.yahoo.com/q/pr?s=TRX+Profile) … and he does not think Harvey is full of it;

Am I to discount Jim Sinclair’s opinion of Harvey?  Is Jim a charlatan?  Or is he just another really dumb rich guy like Eric Sprott?  Or a misguided ( but well meaning) semi-solvent guy like Jim H?    

April 22, 2012, at 4:23 pm by Jim Sinclair in the category In The News | Print This Post Print This Post | Email This Post Email This Post
Jim Sinclair’s Commentary

This is a scenario that you need to know about because it cannot be wholly discounted as a possibility.

Harvey Organ: Get Physical Gold & Silver!
Friday, April 20, 2012, 6:10 pm, by Adam Taggart

Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to have earned him an invitation to testify before the CFTC on position limits for precious metals back in 2010.

And he minces no words: Gold and silver prices are suppressed. With extreme prejudice…


I have read your commentary and agree with you in some respects and respectfully disagree in others.  I have some questions/observations that I am hopeful that you can address for me.

  1. Bart Chilton - Commissioner with the CFTC says that the silver market is manipulated frequently (paraphrased) and that the perpetrators (unnamed) should be prosecuted under existing commodity laws. The assumption I draw is that he is in a position to know.
  2. One of Ted Butler's core themes is the level of concentration in the silver shorts - i.e. that a small group of entities holds a very high percentage of the overall shorts in silver.  He posits that it is inherently manipulative for this to occur and that in its absence that the price of silver would be far higher (of course it would be impossible to provide a specific $$ amount of how much higher).
  3. You have Blythe Masters recently appearing on CNBC essentially stating that JPM doesnt have any naked shorts - they are all "hedges" put on for their "clients".  Considering the size of those "hedges" it stands to reason that their "clients" could easily hedge their own positions (they dont need JPM to be the intermediary) and secondly - if their clients are hedging their own positions - JPM doesnt have any risk anyways since they are simply acting as the agent.  Finally - if the client has physical positions (stored by JPM) and are hedging (courtesy of JPM) and if JPM wanted to hedge that - wouldnt JPM be long as a hedge against the short instituted on behalf of their "cleints"?
  4. There have been numerous statements by various central banking folks over the years about how gold can and will be leased (in increasing quantities - if needed) in order to control the price of gold.  Volcker admitted that their failure to do so during the 70's was a mistake.
  5. You had the Gordon Brown sell 1/2 of Englands gold reserves - he even announced this intention in advance which practically guarantees the price will be less - something that anyone trying to sell for "best value" would be an complete moron to do - unless the motive was something other than "best value".
  6. There are frequently MASSIVE sales of gold/silver in very, very short timeframes (dumping of contracts - hitting all bids) which is something that someone selling for profit would be stupid for doing.
  7. You have the cap on gold typicall at 1% but RARELY (if at all) in excess of 2% in a day.  No other commodity has this upside limitation in price movement.  This has been consistent over the entire duration of this gold bull market.
Now - I am not providing references or a bibliography with this post so I am hopeful that you wont put me in the same category as Harvey Organ, Andrew MacGuire, GATA, et al... I trust that you are sufficiently cognizent of the "goings on" in this market that what I am referencing is factual and without hyperbole.

I would be interested in your analysis/conclusions based on the above data points and any speculation/theories you have that fit the facts as described above.

Very Respectfully,


Dear Steve,
I know you asked Erik T., but perhaps I may jump the line. Many of your questions are commented on or even answered in the comments section to






 Excellent questions, Steve. I’ll take a stab at them below.

I have to confess to a bit of dismay on this one myself. To be frank, Chilton strikes me as a bit of a quack in the interviews I’ve heard. He has clearly bought into the GATA argument. I concur that he’s in a senior position where he should know better, but he doesn’t seem to. I don’t know anything more than that.

This is always Ted’s central argument, but he NEVER offers any explanation as to WHY he thinks the PRESENCE of a large short interest would hold the price down, or why this is "inherently manipulative". It’s certainly true that one very large player can corner a thinly traded market, because that player is in a position to BUY or SELL in size to bump the price back where they want it, without changing their own holding’s size on a percentage basis nearly as much as a small player would have to. But just keeping a constant large short position open without doing any more selling does nothing to suppress the price. In short, Ted has never fleshed his argument out to a logical conclusion so far as I am aware, and as he states it (i.e. just the existence of a large position is inherently manipulative) the argument lacks merit so far as I’m concerned.

No, that doesn’t stand to reason. That’s what the bullion banking business is - big banks making a big markup to provide their "skill" to do something you could have done yourself, but might not have known how to. Remember that mining companies’ management are not finance gurus. Hedging forward and rolling positions every month is not totally obvious - you have to understand end-of-month effects on price as contracts near expiry, etc. The banks sell their clients on the idea that this is such special work that they should trust the bank to do it. My understanding is that a big part of Jeff Christian’s business at CPM Group is teaching mining companies exactly what you said - that they don’t need the big bullion bank middlemen and their fees, and can learn to do this themselves, with his help. To your last point, no, if clients have physical in JPM’s vault (a long), and are hedging that position forward with JPM, the client is short the hedge, and JPM is long, as the counterparty. To neutralize that long exposure, JPM goes short in the open futures market to delta hedge their long against their client’s short.

[quote=Strawman]There have been numerous statements by various central banking folks over the years about how gold can and will be leased (in increasing quantities - if needed) in order to control the price of gold.  Volcker admitted that their failure to do so during the 70’s was a mistake.
You had the Gordon Brown sell 1/2 of Englands gold reserves - he even announced this intention in advance which practically guarantees the price will be less - something that anyone trying to sell for "best value" would be an complete moron to do - unless the motive was something other than "best value".[/quote]
Good points, and the reason why I never say manipulation fears are completely misplaced. I’m simply pointing out that people like Ted and Harvey don’t know what they are talking about. There is still good reason to be concerned about the actions of central banks, and not just the more obvious ones like these examples!

Not necessarily. First, one possible explanation is an actual short-term manipulative "stop clearing run" intended to fleece the weak hands out of their positions. This kind of short-term manipulation happens all the time in all thinly traded markets, not just PMs. Another possibility is that a natural move in the market (no manipulation) triggers a big cluster of stops during thin liquidity hours. But your statement that someone selling for profit would "be stupid doing" this is not correct. If someone wants to sell a lot but has no reason to expect others to be selling a lot, it’s in their interest to slowly and carefully make their sales with little fanfare, to avoid moving the market. But if a big seller has reason (as was the case on Feb 29) to expect OTHER big sellers to also be selling in size, the whole move in reaction to news can happen in seconds, because it becomes a race for the door scenario.

I’m not clear on whether you are referring to an actual cap (i.e. daily price limits in futures trading), or observed max moves over time (not really a cap). In any case, I’m not clear what point you are arguing here. I would think extreme manipulations would yield higher volatility, not lower. In short, I don’t understand your point.

Of course I don’t put you in the category of Maguire, Organ et al. You are asking intelligent questions based on logical deduction, and seeking explanations for things that don’t add up, using logic and reason to form your views. Contrast with someone like Ted who is constantly posing idiotic rhetorical questions like "If a small number of banks have most of the short interest, how can it be anything other than a manipulation?"
Sir, if you really can’t see the tongue-in-cheek humor intended when I crack a joke about my own post as being "arrogant and pompous", and you still feel inclined to interpret my endorsement of Rickards work despite not yet having had time to read his book  as "dismissive", then I’m afraid I can’t help you. I do admit that my tone becomes quite intense when I discuss this subject, because I find the perponderance of charlatans to be so overwhelming, and frankly the harm they do to retail investors financial wellbeing makes me angry. If you find my comments so offensive, there’s always the "Ignore User" button to save you from ever seeing them again.

Erik - let me try again on my price cap on gold statement.
During the course of the bull market in gold (nominally speaking in USD) you can count on 1 hand the number of times that gold has been allowed to increase in price by an amount greater than 2% using the London PM fix from one trading day to the next.  And - you probably wouldnt have to use all the digits on that one hand either.  The vast, vast majority of the time the price rise in gold is limited to 1%.

There is no other commodity market that trades like this - with those observed price rise caps.

Of course the same doesnt hold true on the downside losses in gold when price is falling - there is no 2% "rule" when price is falling.  (Use of the term "rule" is derisive).

Pertaining to your comments on concentrated positions not inherently being manipulative - I would differ in this respect.  When an entity the size of JPM is allowed to sell x number of contracts anytime they want to - irrespective of what their current position sizing is - that is manipulative.  The analogy I would use is the casino and blackjack.  The reason that casinos have limits on bet sizes at the blackjack table is to prevent someone from continually doubling down their bets every time they lose.  The casinos know that eventually - the person that is able to double down with no limitation will eventually earn back their losses.

By not having position limits - an entity with essentially unlimited resources to draw upon (JPM) can push down the price of silver whenever it suits them by selling however many contracts are necessary to start triggering stops - which then take over and further push price down.  Of course JPM does periodically cover some of their shorts from time to time to keep things manageable - but, they never have the impetus to completely cover their shorts because they dont have to.  If there were position limits - they wouldnt be able to do this and your statements regarding this point would make more sense to me.

please see the link I included above.

I think the "big short position" is grossly misunderstood by Ted Butler & Co. The issue with gold and silver is that the banks and bullion dealers trade them as currencies over the counter, i.e. with cash (=allocated), credit money (=unaloocated), swaps and forwards. This market is about 8-10 times bigger than COMEX. So you would expect that the OTC market is where the price discovery happens, and then this is transmitted to the COMEX by arbitrage. So the large short positions that Ted Butler and friends complain about is one side of the arbitrage position. The other half is invisible to the public because it happens in the OTC market.

When GATA & Co talk about  "the central banks", I also think they get the teams wrong as well as the timing. Right now, all those central banks who can only use the OTC market in order to accumulate gold (BRICs, developing countries), must be interested in a low price because then they get more physical for their dollars. On the other hand, the U.S. may hate an uncontrolled rise of the gold price, but eventually they may want to take the paper price higher because this provides life support for the bullion banking system that might lose too much physical reserve if the price is too low. Finally, there are those central banks such as the ECB (and several oil states) who already own a huge amount of gold and who would love its price to rise. All this was different ten years ago before the introduction of the Euro. You have to be very careful when you take these Greenspan quotes out of their context.



I’m not so sure we differ, but I do get the sense you didn’t understand my intended point in the last post.
As I said in my earlier post, we agree that big players who have the ability to sell more metal in size whenever they want to move the price can manipulate a market. But it is their buying and selling that moves the market. Ted has repeatedly asserted that the very presence of a large short position - without any further buying or selling - is inherently manipulative. It is that contention that I reject as bogus.
If your hypothesis is that JPM is manipulating markets, it is their buying and selling activity - not the size of a constantly maintained short position - that you would look at to prove the thesis.
You also have to go back to the question of motive. All of Ted’s ramblings are based on his central contention that JPM has this huge short on as a directional bet, or that they are secretly doing the non-economically motivated trading work of the NY Fed. If you examine how banks have historically made their money for the last several hundred years, you realize it’s very unlikely that JPM would make a directional (prop) bet themselves, especially in the current "Volcker Rule" political climate. If you instead conclude, as I have, that Blythe was telling the truth on TV, and that the large shorts on the COMEX are just delta-neutral hedges, you realize that JPM has no motive to manipulate the market.