Reg Howe: Gold derivatives -- GLD and ass backwardation

Section:

9:30p ET Monday, May 24, 2010

Dear Friend of GATA and Gold:

Analyzing the semi-annual report on gold derivatives published by the Bank for International Settlements, Golden Sextant Internet site proprietor Reg Howe finds evidence that the gold exchange-traded fund, GLD, has replaced direct central bank gold sales and leases as a major mechanism for gold price suppression.

Howe writes:

"... the design of GLD is a distinct improvement upon the [gold] carry trade as a vehicle for blunting upward pressure on gold prices from rising investment demand. Gold moves in and out of GLD in 'baskets' of 10,000 ounces created by 'authorized participants.' The list of authorized participants includes all the major bullion banks, which as noted appear free to create baskets with gold loaned or swapped to them by central banks and then to transfer those baskets to GLD in return for shares to be sold to investors.

"In that event, unlike the gold carry trade, official gold is not fully surrendered to the international market by the intermediary bullion banks and subsequently transported to God only knows where. Rather, with GLD as the (presumably bona-fide) purchaser from the intermediary bank, the gold moves to an identified vault subject to the jurisdiction and laws of the United Kingdom. The central banks, as before, can continue to count it in their gold reserves, but now with more practical justification since it also remains within the banking system and their effective control."

Howe's conclusion fits nicely with the recent study written by GATA board member Catherine Austin Fitts of Solari Inc. and her lawyer, Carolyn Betts, "GLD and SLV: Disclosure in the Precious Metals Puzzle Palace" (http://solari.com/archive/Precious_Metals_Puzzle_Palace/), which noted that the custodians of the metal claimed by those exchange-traded funds, J.P. Morgan Chase & Co. and HSBC, are also the major shorts in the gold and silver markets, a practice not disclosed in the GLD and SLV prospectuses. The idea seems to be to concentrate the banking system's possession of the precious metals so they can be allocated most sparingly to markets where delivery is demanded in a fractional-reserve gold and silver banking system. That is, a system where most claims to precious metals can never be backed because so much more in claims has been sold than there is metal.

Howe's commentary is headlined "Gold Derivatives: GLD and Ass Backwardation" and you can find it at the Golden Sextant here:

http://www.goldensextant.com/commentary37.html

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



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