Fosun, owned by Chinese billionaire Guo Guangchang, fell 0.3 percent to HK$6.79 at the midday trading break in Hong Kong. Photographer: Nelson Ching/Bloomberg

JPMorgan “Sells” Chase Manhattan Plaza HQ in NYC to Fosun for $725 million
by David M. Levitt and Kelvin Wong  Oct 18, 2013

JPMorgan Chase & Co. (JPM) has agreed to sell 1 Chase Manhattan Plaza, the tower built by David Rockefeller, to Fosun International Ltd., the investment arm of China’s biggest closely held industrial group, for $725 million. Fosun, which invests in properties, pharmaceuticals and steel, is buying the 60-story, 2.2 million square-foot, lower Manhattan tower, according to a statement it filed to Hong Kong’s stock exchange. China’s developers and companies are expanding in overseas property markets as the government maintains curbs on housing at home to cool prices. Greenland Holding Group Co., a Shanghai-based, state-owned developer, this month agreed to buy a 70 percent stake in a residential and commercial real estate project in Brooklyn.

“There’s a lot of excess capital in China that needs a way out at the moment,” Simon Lo, Hong Kong-based executive director for Asia research and advisory at property broker Colliers International, said in a phone interview today. “Also, by investing in markets like New York, they believe they can gain from the recovery of the U.S. economy and real estate market.” Fosun (656), owned by Chinese billionaire Guo Guangchang, fell 0.3 percent to HK$6.79 at the midday trading break in Hong Kong. Shares in the Shanghai-based company have gained 37 percent this year, compared with the 2.6 percent increase in the benchmark Hang Seng Index. Over the past year, other Chinese developers and wealthy investors have been buying real estate in the U.S. China Vanke Co., the biggest homebuilder listed in mainland China, said in February it joined a residential real estate venture in San Francisco. The families of Zhang Xin, co-founder of Soho China Ltd. (410), the biggest developer in Beijing’s central business district, and Brazilian banking billionaire Moise Safra this year bought a 40 percent stake in New York’s General Motors Building.

The landmark 1 Chase Manhattan Plaza, designed by architect Gordon Bunshaft and built in the 1950s, was once the headquarters of Chase Manhattan Bank. Rockefeller, as head of the bank’s building committee, selected the site and oversaw its construction. JPMorgan intends to relocate about 4,000 employees, most of the people who work in the 60-story skyscraper, to other New York locations, Brian Marchiony, a spokesman, said in August. JPMorgan occupies about half of its space. Jane Zhang, a Shanghai-based spokeswoman for Fosun, declined to comment on how the company plans to use the building when contacted by Bloomberg News by phone.

China’s Largest Conglomerate “Buys” JPMorgan’s Gold Vault
by Tyler Durden  /  10/18/2013
comment: “Perhaps they bought the vault because they are getting frustrated by the slow rate of withdrawing German gold from Federal Reserve Bank of NY (matched only by the even slower rate at which Germans are permitted withdrawals) –with a tunnel between the two vaults they are no longer constrained by the 5 ton or so limit of an armored car (which are rather conspicuous if you start running them in shifts to speed up withdrawals).”

New York City — In what is the most remarkable news of the day, which has so far passed very quietly under the radar, Fosun International, China’s largest private-owned conglomerate which invests in commodities, properties and pharmaceuticals also known as “Shanghai’s Hutchison Whampoa”, announced in a statement filed just as quietly with the Hong Kong stock exchange, that it had purchased JPM’s iconic former headquarters, the tower built by none other than David Rockefeller, at 1 Chase Manhattan Plaza for a measly $725 million. Here is Bloomberg described the transaction: “Over the past year, other Chinese developers and wealthy investors have been buying real estate in the U.S.”  China Vanke Co., the biggest homebuilder listed in mainland China, said in February it joined a residential real estate venture in San Francisco. The families of Zhang Xin, co-founder of Soho China Ltd. (410), the biggest developer in Beijing’s central business district, and Brazilian banking billionaire Moise Safra this year bought a 40 percent stake in New York’s General Motors Building.

To learn more, we first went to the motherlode: the Landmarks Preservation Commission, whose report on 1 CMP describes everyone one wants to know about this building and then much more, such as that: “One Chase Manhattan Plaza combines three main components: a 60-story tower, a 2½ acre plaza, and a 6-story base, of which 5 floors are beneath grade.” So the old Chase HQ, once the stomping grounds of one David Rockefeller, and soon to be the other half of JPMorgan Chase, has 5 sub-basements, just like the NY Fed. Reading on: “Excavations, said to be the largest in New York City history, reached a depth of 90 feet” Or, about the same depth as the bottom-most sub-basement under the NY Fed. But then we hit the jackpot: “Originally constructed with white marble terrazzo paving and enclosed by a solid parapet of white marble travertine that was personally selected by Bunshaft in Tivoli, Italy, the L-shaped plaza levels the sloping site and conceals six floors of operations that would have been difficult to fit into a single floor of the tower, including an auditorium seating 800 [and] the world’s largest bank vault.”

In other words, the world’s biggest bank vault, that belonging to the private Chase Manhattan empire, and then, to JPMorgan, was so safe, the creators even had a plan of action should it sustain a near-direct hit from a nuclear bomb, and suffer epic flooding (such as that from Hurricane Sandy). So, what the real news of today is not that JPM is selling its gold vault, we knew that two months ago, or that it is outright looking to exit the physical commodities business, that too was preannouncedWhat is extremely notable is that in one very quiet transaction, China just acquired the building that houses the world’s largest gold vault. Why? We don’t know. We do know that China’s gross gold imports from Hong Kong alone have amounted to over 2000 tons in the past two years. This excludes imports from other sources, and certainly internal gold mining and production. One guess: China has decided it has its fill of domestically held gold and is starting to acquire gold warehouses in the banking capitals of the world. For now the reason why is unclear but we are confident the answer will present itself shortly.

TUNNELS between the VAULTS
Why Is JPMorgan’s Gold Vault Located Right Next to the New York Fed’s?
by Tyler Durden  /  03/02/2013

When two weeks ago we exposed the heretofore secret location of JPM’s London gold vault (located under the firm’s massive L-shaped office complex at 60 Victoria Embankment) we thought: what about New York? After all, while London is the legacy financial capital of the “old world“, it is in New York that the biggest private wealth of the past century is concentrated, and it is also in New York where the bulk of the hard assets backing the public money of the world’s sovereigns are located, some 80 feet below ground level in the fifth sub-basement of the New York Fed, resting on the bedrock of Manhattan. That the topic of the gold “held” by the New York Fed – historically considered the gold vault with the largest concentration of gold bars in the world – has become rather sensitive, in the aftermath of the Bundesbank’s request to repatriate it (surely, but very, very slowly), is an understatement. Yet in the aftermath of some of the revelations presented here, we believe quite a few other countries will follow in Germany’s footsteps for one very simple reason: suddenly the question of whether their gold is located at 33 Liberty, or just adjacent to it, in what we have learned is the de facto largest private gold vault in the world, located across the street 90 feet below 1 Chase Manhattan Plaza, doesn’t appear to have a clear answer.

But first, some background. The locations of New York’s commercial vaults, like those of London, are closely guarded. While there is occasional anecdotal speculation of where one may find any given vault, a definitive answer is rarely if ever in the public domain. Luckily, the past few years, which saw a surge in the price of gold and silver, have provided a variety of useful clues, as one after another bank applied to have its legacy precious metal vault certified for commercial use with the CFTC. For those who aren’t easily discouraged, buried deep in the bowels of the CFTC’s website, is a veritable goldmine of data, in the form of supplemental applications from assorted CME members, who one after another, and very quietly, had the CME provide supplements to the CFTC vouching for their approval as “licensed depositories and weighmasters for gold, silver, platinum and palladium.” For those curious (and that should be all who are interested by the precious metals space) what constitutes an approvable vault, we present the fully filed supplement application by Brinks (recently best known for having two of its armored cars captured in a Google Streetview snapshot just outside the JPM office at 60 Victoria Embankment) filed with the CFTC: “The application submitted by Brink’s, Inc. and Brink’s Global Services USA, Inc. for licensing its facility at 580 5th Ave., New York, NY for storage of the respective NYMEX and COMEX Gold, Silver, Platinum, and Palladium contracts meets the requirements of the Exchanges.”

We know where at least one of the world’s largest precious metals depositories is located: deep underground the Diamond Tower located in the heart of Manhattan’s jewelry district. Another such supplement was filed by the Bank of Nova Scotia’s Scotia Mocatta. What many may not know is that it was Scotia Mocatta’s vault that was destroyed in the events of September 11, as SM’s vault was located deep beneath 4 WTC. From the application:

The Bank of Nova Scotia’s Scotia Mocatta Depositary (SMD) is an Exchange-licensed depository for Gold, Silver, Platinum and Palladium. SMD has submitted applications, requesting that a new facility, located at International Airport Center, 230-59 International Airport Center Boulevard, Building C, Suite 120, Jamaica, New York,be approved for the storage of gold and silver deliverable against the COMEX Gold and Silver Futures Contracts, and for the storage of platinum and palladium against the NYMEX Platinum and Palladium futures contracts.

History: The Bank of Nova Scotia, doing business as SMD, is an Exchange Licensed Depository for the storage of gold, silver, platinum, and palladium, and its current facility is located in Manhattan at 26 Broadway. SMD was previously known as Iron Mountain Depository (IMD), its name was changed when it was acquired by the Bank of Nova Scotia in 1997. The IMD/SMD facility has been a COMEX licensed delivery point since 1975. SMD has planned to develop a new facility since the terrorist attacks upon the World Trade Center, which destroyed SMD’s facility at 4 WTC. SM subsequently returned to its existing and former facility as an intermediate measure while the new facility was designed and built. In evaluating this application, SMD’s performance in the wake of the terrorist attacks on the World Trade Center must be noted. SMD’s Licensed Depository was located in a sub-basement of the WTC at the time of the attacks. When the material in this facility was trapped within the debris, SMD acted swiftly, offering to purchase any and all of the warranted material that was buried at the request of any holder of warrants to this material. Scotia further prepared to make replacement material stored in Canada available to offset any potential supply shortage that the destruction of its WTC facility might have caused.

Yet one name is missing. The same name which as we reported back in October 2010, reopened its undisclosed New York gold vault after it had been “mothballed in the 1990s.”  The name of course is JPMorgan. Curiously (or perhaps not at all), when the CME on behalf of JPM submitted the certification filing alongside the comparable such supplements as filed by Brinks above, it requested a FOIA (Freedom of Information Act) confidential treatment. As a reminder, to be eligible for FOIA exemption status the protected information must be of vital importance to the nation’s safety. This is precisely what JPM thought the details surrounding its New York vault are. To wit:

Pursuant to Sections 8 and 8(a) of the Commodity Exchange Act (“CEA”), as amended, and Commission Regulation 145.9(d), NYMEX and COMEX request confidential treatment of Appendix A, Appendix B, and this letter on the grounds that disclosure of Appendix A and/or Appendix B would reveal confidential commercial information of the submitters (NYMEX and COMEX) and of other persons. Pursuant to Commission Regulation 145.9(d)(5), NYMEX and COMEX request that confidential treatment be maintained for Appendix A and Appendix B until further notice from the Exchanges.We also request that the Commission notify the undersigned immediately after receiving any FOIA request for said Appendix A, Appendix B or any other court order, subpoena or summons for same. Finally, we request that we be notified in the event the Commission intends to disclose such Appendix A and/or Appendix B to Congress or to any other governmental agency or unit pursuant to Section 8 of the CEA. NYMEX and COMEX do not waive their notification rights under Section 8(f) of the CEA with respect to any subpoena or summons for such Appendix A or Appendix B. Please contact the undersigned at (212) 299-2207 should you have any questions concerning this letter. Sincerely, /s/ Felix Khalatnikov

Yet oddly enough, the FOIA request letter itself, while also being filed with a request for Confidential Treatment, never got it. As a result it was posted at this address. Ooops. But a far bigger oops, is that on the first page of said declassified confidential FOIA app, in black ink, we get the missing piece:

In addition, the Exchanges are providing the Commission with the application summary of requirements for the JP Morgan Chase Bank N.A. facility located at 1 Chase Manhattan Plaza, New York, NY.

And so, despite the extended attempts at secrecy, we finally hit the proverbial goldmine vault. So what do we know about 1 Chase Manhattan Plaza. Well, aside from the fact that the 60-story structure, built in the 1950s, was the headquarters of the once-legendary Chase Manhattan corporation, and which when it was built was the world’s sixth tallest building, not much. So we set off to learn more.

To learn more, we first went to the motherlode: the Landmarks Preservation Commission, whose report on 1 CMP describes everyone one wants to know about this building and then much more, such as that: “One Chase Manhattan Plaza combines three main components: a 60-story tower, a 2½ acre plaza, and a 6-story base, of which 5 floors are beneath grade.” So the old Chase HQ, once the stomping grounds of one David Rockefeller, and soon to be the other half of JPMorgan Chase, has 5 sub-basements, just like the NY Fed. Reading on: “Excavations, said to be the largest in New York City history, reached a depth of 90 feet.” Or, about the same depth as the bottom-most sub-basement under the NY Fed. But then we hit the jackpot:

Originally constructed with white marble terrazzo paving and enclosed by a solid parapet of white marble travertine that was personally selected by Bunshaft in Tivoli, Italy, the L-shaped plaza levels the sloping site and conceals six floors of operations that would have been difficult to fit into a single floor of the tower, including an auditorium seating 800 [and] the world’s largest bank vault.

And there you have it: the JPM vault, recommissioned to become a commercial vault, just happens to also be the “world’s largest bank vault.” Digging some more into the curious nature of this biggest bank vault in the world, we learn the following, courtesy of a freely available book written by one of the architects:

On the lowest level was the vault, which rested directly on the rock – the “largest bank vault in the world, longer than a football field.” It was anchored to the bedrock with steel rods. This was to prevent the watertight, concrete structure from floating to the surface like a huge bubble in the event that an atomic bomb falling in the bay would blow away the building and flood the area.

In other words, the world’s biggest bank vault, that belonging to the private Chase Manhattan empire, and then, to JPMorgan, was so safe, the creators even had a plan of action should it sustain a near-direct hit from a nuclear bomb, and suffer epic flooding (such as that from Hurricane Sandy). It is no surprise, then, that the street entrance to this world’s biggest vault located under 1 Chase Manhattan Plaza makes the entrance to any medieval impregnable fortress seem like child’s play in comparison.

Yet it is not what is on this side of the street, which just happens to be known as Liberty Street, that is what is the most interesting part of this whole story. It is what is on the other:

Or, shown another way…

That’s right, ladies and gentlemen, as a result of our cursory examination, we have learned that the world’s largest private, and commercial, gold vault, that belonging once upon a time to Chase Manhattan, and now to JPMorgan Chase, is located, right across the street, and at the same level underground, resting just on top of the Manhattan bedrock, as the vault belonging to the New York Federal Reserve, which according to folklore is the official location of the biggest collection of sovereign, public gold in the world. At this point we would hate to be self-referential, and point out what one of our own commentators noted on the topic of the Fed’s vault a year ago, namely that: “Chase Plaza (now the Property of JPM) is linked to the facility via tunnel… I have seen it.  The elevators on the Chase side are incredible. They could lift a tank.” … but we won’t, and instead we will let readers make up their own mind why the the thousands of tons of sovereign gold in the possession of the New York Fed, have to be literally inches across, if not directly connected, to the largest private gold vault in the world.

by Koos Jansen, In Gold We Trust: The Big Reset, Part 1

The sole reason why I became interested in gold is because of the book “Overleef De Kredietcrisis” (How To Survive The Credit Crisis), written by Willem Middelkoop – the Dutch equivalent of Jim Rickards – in 2009. This book opened my eyes and interest for economics and I didn’t stop reading and writing about it ever since. Middelkoop had written four books in Dutch when he decided to switch to English, his latest book has just been relesed: The Big Reset. This book is about the War on Gold and the plans behind the scenes to create a new gold-backed world reserve currency. I had the privilege to do a Q&A with Middelkoop about his latest book. The Q&A will be published on this website in two parts.

How did you started to invest in gold?
Because of the books by Indian economist Ravi Batra in the 1990’s I became aware of the anti-cyclical nature of gold. Through my internet research in 1999, when the internet bubble was getting pretty scary, I had learned about GATA and learned a great deal about fiat and hard money. After I took profits on my real estate investments in Amsterdam between 2001 and 2004 I started to invest in physical gold and silver and bought my first shares in precious metal companies in 2002. In the following yearns I experienced that investing in junior mining and exploration companies who worked on new discoveries delivered the best results. This first led to the publication of the Gold Discovery Letter and in 2008 to the start of the Gold Discovery Fund, which was renamed Commodity Discovery Fund in 2010 because some investors like the commodities more than gold. We have some 600 high net-worth Dutch investors and invest in (junior) mining companies. 50% is gold related, 25% silver related. We also have some Rare Earth and base metal investments. Because of the ongoing ‘World Championship Currency Debasement’ we expect much high prices for precious metals in the next few years.

Your new book is named The Big Reset, isn’t our current monetary system sustainable?
No, we now have arrived at the point where it is not the banks, but the countries themselves that are getting in serious financial trouble. The idea that we can ‘grow our way back’ out of debt is naive. The current solution to ‘park’ debts on to the balance sheets of central banks is just an interim solution. A global debt restructuring will be needed, as economists Rogoff en Reinhart recently explained in their working paper for the IMF. This will include a new global reserve system to replace the current failing dollar system, probably before 2020.

So you are not on your own with this call?
Right after the near death experience of the global financial system at the end of 2008 the IMF and others started to study the possibilities for a next phase of the financial system. In 2010 the IMF published a study titled ‘Reserve Accumulation and International Monetary Stability’ for a financial system without a dollar anchor. The United Nations called for ‘a new Global Reserve System’ based on the IMF’s Special Drawing Rights (SDR’s) a year later. The SDR was created in 1969, at the time the London Gold Pool couldn’t hold gold at $35 and the U.S. lost over 10,000 tons of gold because countries like France and the Netherlands returned excess dollar reserves to the U.S. treasury and demanded physical gold. This development led to the end of the gold backed dollar in August 1971, when President Nixon closed the gold window and the first dollar crisis started. It led to the run up of gold towards $880 in 1980. The UN idea is endorsed by China who has publicly stated several times that it is dissatisfied with the present dollar-orientated system. In 2009 China’s Central Bank Governor Zhou Xiaochuan advocated a new worldwide reserve currency system. Late 2013 the Chinese state press openly called to ‘de-Americanize’ the world’. In an official op-ed the idea for ‘the introduction of a new international reserve currency  to replace the dominant U.S. dollars’ was mentioned again. According to the London based think thank Official Monetary and Financial Institutions Forum (OMFIF) it will take many years before the renminbi will mount a credible challenge to the dollar. The euro is not suitable either.

How will this change unfold?
Our financial system can be changed in almost every way as long as the main world trading partners can agree on these changes. Two major problems in the world’s financial system have to be addressed, the demise of the U.S. dollar as the world reserve currency and the almost uncontrollable growth of the worldwide mountain of debts and central banks’ balance sheets. A reset planned well in advance can and probably will consist of different stages. So currently the U.S. together with the IMF seems to be planning a multiple reserve currency system as a successor of the current dollar system. But this system which still include and center around the dollar, but other important currencies will be added at its core. OMFIF has published an interesting study last year. They remarked: ‘This marks the onset of a multi-currency reserve system and a new era in world money. For most of the past 150 years, the world has had just two reserve currencies, with sterling in the lead until the First World War, and the dollar taking over as the prime asset during the past 100 years. The pound sterling  has been in relative decline since the Second World War. The birth of the euro in 1999 has turned the European single currency into the world’s no. 2 reserve unit, but it has been now officially accepted that the dollar and the euro share their role with smaller currencies. The renminbi has attracted widespread attention as a possible future reverse currency. But it’s still be some years away from attaining that status, primarily because it is not fully convertible.’

Some American insiders have even been calling for a return to the gold, isn’t it?
In an open letter to the Financial Times in 2010 titled ‘Bring back the gold standard’, the very well connected and former President of the World Bank Robert Zoellick pointed out he wants to use gold as a reference point in order to reform the current failing financial system. Mr. Zoellick explained an updated gold standard could help retool the world economy at a time of serious tensions over currencies and U.S. monetary policy. He said the world needed a new regime to succeed the ‘Bretton Woods II’ system of floating currencies, which has been in place since the fixed-rate currency system linked to gold broke down in 1971. He said the new system ‘is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.’

According to the famous publisher Steve Forbes, who was also an advisor for some of the presidential candidates in 2012,  ‘the debate should be focused on what the best gold system is, not on whether we need to go back on one.’ So it was at no surprise for me to see an interview with professor Robert Mundell in Forbes magazine, in which he argued for a return to the gold standard. Mundell can be seen as one of the architects of the euro, and has acted as an advisor to the Chinese government as well. Mundell said: There could be a kind of Bretton Woods type of gold standard where the price of gold was fixed for central banks and they could use gold as an asset to trade central banks. The great advantage of that was that gold is nobody’s liability and it can’t be printed. So it has a strength and confidence that people trust. So If you had not just the U.S. dollar but the U.S. dollar and the euro tied together to each other and to gold, gold might be the intermediary and then with the other important currencies like the yen and Chinese Yuan and British pound all tied together as a kind of new SDR that could be one way the world could move forward on a better monetary system.’

And China supports these ideas for a currency reset?
As you know Chinese Central Bank Governor Zhou Xiaochuan advocated a new worldwide reserve currency system as early as 2009. He explained that the interests of the U.S. and those of other countries should be ‘aligned’, which isn’t the fact in the current dollar system. Zhou advised to develop the SDR’s into a ‘super-sovereign reserve currency disconnected from individual nations and able to remain stable in the long run’. According to some experts the IMF needs at least five years more years to prepare the international monetary system for a worldwide introduction of SDR’s to be used worldwide. Some doubt if we will have the luxury to wait that long. The fact China is stopped buying U.S. Treasuries in 2010 and have been loading up on gold ever since tells a great deal. Chinese high level officials have indicated China wants to grow their gold reserves ‘in the shortest time’ to at least 6,000 tons, in anticipation for the next phase of world financial system. A recent report by Bloomberg suggest The People’s Bank of China and private investors has been accumulating over 4,000 tons since 2008. The Chinese are afraid the U.S. could surprise the world with a gold revaluation. Wikileaks leaked a cable sent from the U.S. embassy in Beijing early 2010. The message, which was sent to Washington, quoted a Chinese news report about the consequences of such a dollar devaluation as it appeared in Shanghai’s Business News:

‘If we use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold – we will be dumbfounded.”

Can you explain the love for gold by the Chinese?
They know, even from their own history, gold has been used again and again to rebuild trust when a fiat money system has reached its endgame. As you might know, from your own studies, the main academic journal of the Chinese Communist Party’s Central Committee published an article in 2012 that sheds a light on the Chinese monetary or should we say gold strategy. The article [exclusively translated by In Gold We Trust] was written by Sun Zhaoxue, president of both the China National Gold Corporation (CNG) and the China Gold Association (CGA). Sun stated:

‘Increasing gold reserves should become a central pillar in our country’s development strategy. The state will need to elevate gold to an equal strategic resource as oil and energy, We should ‘achieve the highest gold reserves in the shortest time. Individual investment demand is an important component of  China’s gold reserve system; we should encourage individual investment demand for gold.’

According to my research the Chinese are now in the final stage to grow their gold reserves to 6,000 tons. They want to grow these reserves towards 10,000 tons before 2020. That amount will bring the Chinese on par with the U.S. and Europe on a gold/GPD ratio. This opens the door to a possible joint US-EU-China gold supported financial system like the IMF’s SDR-plan. Such a reset could also be backed by Russia since they have accumulated over 1,000 tons, most of it since the start of the credit crisis in 2008.

Do China (and Japan) have the same debt problems like the western countries?
According to John Mauldin, author of ‘The End Game’ and ‘Code Red’ China is ‘even more addicted to money printing than the US or Japan’. Despite national financial reserves of almost $4,000 billion, China has been confronted with its own debt crisis, after Chinese banking system’s assets grew by $14 trillion between 2008 and 2013. The old Chinese communist leadership still remembers how they succeeded to grab power because of the monetary problems between 1937–1949. Their main goal is to avoid social unrest like China experienced during a period of hyperinflation after World War II.

What do the Chinese know about the War on Gold?
Sun Zhaoxue explained in 2012: ‘After the disintegration of the Bretton Woods system in the 1970s, the gold standard which was in use for a century collapsed. Under the influence of the U.S. Dollar hegemony the stabilizing effect of gold was widely questioned, the ‘gold is useless’ discussion began to spread around the globe. Many people thought that gold is no longer the monetary base, that storing gold will only increase the cost of reserves. Therefore, some central banks began to sell gold reserves and gold prices continued to slump. Currently, there are more and more people recognizing that the ‘gold is useless’ story contains too many lies. Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony.

He then also explained how the US is debasing the value of its currency in a move to get rid of too much debt: “The rise of the US dollar and British pound, and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves.  Especially noteworthy is that in the course of this international financial crisis, the US shows a huge financial deficit but it did not sell any of its gold reserves to reduce debt. Instead it turned on the printer, massively increasing the US Dollar supply, making the wealth of those countries and regions with foreign reserves mainly denominated in US Dollar quickly diminish, in effect automatically reducing their own debt. In stark contrast with the sharp depreciation of the US Dollar, the international gold price continued to rise breaking $1900 US Dollars per ounce in 2011, gold’s asset-preservation contrasts vividly with the devaluation of credit-based assets. Naturally the more devalued the US Dollar, the more the gold price rises, the more evident the function of US gold reserves as a hedge.’

Additional proof of the Chinese knowledge about the gold price suppression can be found in message leaked by Wikileaksfrom the American Embassy in Peking about a Chinese newspaper report: ‘The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.’

The office building of JPMorgan with its largest private gold vaults at Chase Manhattan Plaza, opposite to the New York Federal Reserve building, has been recently sold to the Chinese. This indicates the US and China seem to be working together in advance towards a global currency reset whereby the US, Europe and China will back the SDR’s with their gold reserves so the dollar can be replaced.


Synopsis of The Big Reset: Now five years after the near fatal collapse of world’s financial system we have to conclude central bankers and politicians have merely been buying time by trying to solve a credit crisis by creating even more debt. As a result worldwide central bank’s balance sheets expanded by $10 trillion. With this newly created money central banks have been buying up national bonds so long term interest rates and bond yields have collapsed. But ‘parking’ debt at national banks is no structural solution. The idea we can grow our way back out of this mountain of debt is a little naïve. In a recent working paper by the IMF titled ‘Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten’ the economist Reinhart and Rogoff point to this ‘denial problem’. According to them future economic growth will ‘not be sufficient to cope with the sheer magnitude of public and private debt overhangs. Rogoff and Reinhart conclude the size of the debt problems suggests that debt restructurings will be needed ‘far beyond anything discussed in public to this point.’ The endgame to the global financial crisis is likely to require restructuring of debt on a broad scale.

Reuters / Kacper Pempel

Yuan can become dominant world reserve currency – survey  /  February 27, 2014

The Chinese yuan can overtake the dollar as the leading international reserve currency, a new poll of institutional investors indicates. The authors of the survey, conducted by the Economist Intelligence Unit and commissioned by State Street financial services, polled 200 senior executives at institutional investors with knowledge of their exposure to yuan assets. Half of the respondents were from the firms headquartered in mainland China (including Hong Kong and Taiwan) and the other half were based elsewhere. The report accompanying the survey points out that by the end of 2013, the yuan has risen to become the second-most-used trade financing currency and ninth-most-used currency for payments globally.

Image from

A majority – 53 percent of respondents said that they believe the yuan will one day surpass the dollar as the top currency in international holdings of foreign-exchange reserves. In China 62 percent expressed this opinion, compared to 43 percent of respondents outside the country. Last May International Monetary Fund analysis showed that the dollar had slumped to a 15-year low, heightening concerns that it may lose that status as global reserve. Chinese officials are diligently working on sustaining their national currency, promoting it beyond the frontier. In October 2013, the government of China agreed a pilot program to create a UK based yuan hub that allows London investors to buy up to $13.1 billion (80 billion yuan) of stocks, bonds and money market instruments directly, avoiding Hong Kong transactions. The move gave the yuan a firmer footprint in Europe and helped to overcome the euro in December, becoming the second most widely used currency in global trade. Only 11 percent of respondents have said that they do not expect the yuan to become a major reserve currency, a split between 16 outside China and six onshore, according to the poll. Among the former, the most often cited reasons are that the yuan will never enjoy enough liquidity across all asset classes to offer a viable option as a reserve currency, and that people will not trust the yuan as a store of value, the survey says.

The very few pessimists from China-headquartered institutions, meanwhile, say that people would be“concerned about future policies of the Chinese government and opposition from other economic powers, such as the US, the EU and Japan.” But the consensus is that one day it will be a yuan world, according to the survey. “As China’s economic influence grows, the global importance of the renminbi (yuan) will become magnified. Indeed, while for decades it has been a ‘greenback world’, dominated by the US dollar as the world’s primary reserve currency, many think a ‘redback world’, in which the renminbi enjoys premier status, is increasingly a possibility,” the survey’s authors concluded.


A month ago we reported that according to much delayed TIC data, China had just dumped the second-largest amount of US Treasurys in history. The problem, of course, with this data is that it is stale and very backward looking. For a much better, and up to date, indicator of what foreigners are doing with US Treasurys in near real time, the bond watchers keep track of a less known data series, called “Treasury Securities Held in Custody for Foreign Official and International Accounts” which as the name implies shows what foreigners are doing with their Treasury securities held in custody by the Fed on a weekly basis. So here it goes: in the just reported latest data, for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.

This brings the total Treasury holdings in custody at the Fed to levels not seen since December 2012, a period during which the Fed alone has monetized well over $1 trillion in US paper. So is this the proverbial beginning of foreign dumping of US paper? Could Russia simply have designated a different custodian of its holdings? No, because as of most recently it owned $139 billion in US paper, or well above the number “sold” and a custodial reallocation would mean all holdings are moved, not just a portion. For another view, here is what the bond experts at Stone McCarthy had to say:  “We don’t have a ready explanation for the plunge in custody account holdings. One thing that is striking about the drop is that the last several days was not a period of heavy market buzz about “central bank selling” of Treasuries, at least to the best of our knowledge. China and Japan are by far the largest holders of Treasuries, with holdings of $1.269 trillion and $1.183 trillion in holdings at the end of December, respectively. China’s holdings are more skewed to central bank holdings. Selling of Treasuries would appear to be at odds with China’s recent effort to depreciate its currency, although on March 5 and 6 there was a brief correction in that trend.”

Meet The Brand New, And Shocking, Third Largest Foreign Holder Of US Treasurys
by Tyler Durden   /  03/18/2014

Something hilarious, and at the same time pathetic, happened earlier today: at precisely 9 am the US Treasury released its delayed Treasury International Capital data (which was supposed to be released yesterday but was delayed because it snowed) which disclosed all the latest foreign Treasury holdings for the month of January. Among the key numbers tracked and disclosed, was that China’s official holdings increased from $1.270 trillion to $1.284 trillion, that Japan holdings declined by a tiny $0.2 billion, that UK holdings increased by $7.8 billion to $171 billion, and that holdings of Caribbean Banking Centers, aka hedge funds, declined by $16.7 billion. Here is Reuters [10]with the full data summary (save it before this article is pulled [10]).

So why is it hilarious and pathetic? Because just three short hours later, the Treasury – that organization that has billions of dollars at its budgetary disposal to collate, analyze and disseminate accurate and error-free data – admitted that all the previously reported data was in effect made up! Of course, it didn’t phrase it as such. Instead, what TIC did was release an entire set of January numbers shortly [11]after it had released the “old” numbers, which differed by a small amount but differed across the board – in other words, not a small typo here and there: a wholesale data fudging exercise gone horribly wrong. For example:

  • Instead of a $14 billion increase, China’s revised holdings were only $3.5 billion higher.
  • Instead of unchanged, Japan’s holdings suddenly mysteriously increased by $19 billion in January.
  • Instead of plunging by $17 billion, the Caribbean Banking Centers were down by a tiny $1 billion.
  • And instead of the previously reported increase of just under $1 billion, the all important Russia was revised to have sold $7 billion, bringing its new total to just $132 billion ahead of the alleged previously reported dump of Fed custody holdings in mid-March.

That this glaring confirmation that all TIC data is made up on the fly, without any real backing, and merely goalseeked is disturbing enough. For what it’s worth, thelatest TIC data is here [11]. Feel free to peruse it before it is revised again. However, what was perhaps more disturbing than even that was the revelation that as of January, the US has a brand new third largest holder of US Treasurys, one which in the past two months has added over $100 billion in US Treasury paper, bringing its total from $201 billion in November, to $257 billion in December, to a whopping $310 billion at January 31. The country? Belgium

The same Belgium which at the end of 2013 had a GDP of just over €100 billion, or a little over one-third what its alleged UST holdings are. And somehow the Treasury expects us to believe that tiny Belgium – the center of the doomed Eurozone which is all too busy running debt ponzi scheme of its own –bought in two months nearly as much US Treasurys as its entire GDP? Apparently yes. However we are not that naive. So our question is: just who is Belgium being used as a front for? Recall that for years, the “UK” line item on TIC data was simply offshore accounts transaction on behalf of China. Of course, since China hasn’t added any net US paper holdings in the past year, the UK, and China, are both irrelevant in the grand scheme of things. But not Belgium. Because with Russia (or someone else) rumored to have sold or otherwise reallocated $100 billion in US Treasurys in March away from the Fed [13], we wouldn’t be surprised if the Belgium total holdings somehow soared to over $400 billion when the March data is revealed some time in May. Courtesy of the excel goalseeking function of course. Needless to say, this all ignores the initially confirmed fact that all the data presented above is made up gibberish, goalseeked by a bored intern at the Treasury, and whose work got zero error-proofing before its released to the entire world earlier today. So… just what is going on with this most critical of data sets – official foreign holdings of US paper, and how long before an Edward Snowden emerges from the depths of the US Treasury building and reveals that behind all the data manipulation and unaudited figures was none other than the Fed, whose holdings, far greater than represented, are all that matter, and everything else is merely one grand, theatrical plug?

A graphic for “China’s Red Nobility,” from a 2012 investigative series on corruption among the country’s leading families.

Another Bloomberg Editor Explains Why He Has Resigned, Over Its China Coverage
“For the international press, there are many reasons for crimped ambitions.”
by James Fallows / March 25 2014

Four months ago, The New York Times ran a big story contending that Bloomberg editors had quashed an investigative report about corruption among leaders in China. The Times story was clearly based on informed comment from people inside Bloomberg who were unhappy about the result. It said that higher-ups at Bloomberg were worried that the story would hurt the company’s sales of financial terminals—the mainstay of its business—inside China, since the main purchasers would be directly or indirectly subject to government control. Like the NYT and some other Western news organizations, Bloomberg was already “on probation” with the Chinese government, because of some very brave and probing official-corruption stories the previous year—including the one on “Red Nobility” that is the source of the graphic above. As a reminder, here are the main story steps since then:

  • The FT did a similar report (here, but paywalled), also clearly based on inside-Bloomberg sources and also saying that Matthew Winkler, Bloomberg’s editor-in-chief, had ordered the story killed, for fear of ramifications inside China.
  • Bloomberg denied the reports, in categorical but not specific terms. I.e., variations on: Of course we didn’t bow to political pressure, and the story was just not ready yet.
  • Amanda Bennett, a long-time editor and reporter with experience in China (she was co-author of Sidney Rittenberg’s book, The Man Who Stayed Behind), promptly resigned as head of Bloomberg’s investigative unit. She did not explicitly address the controversy but made her feelings clear in her resignation statement. It said: “I am totally proud of the work of the Bloomberg Projects and Investigations team over the past five years….  I’m also most proud of the groundbreaking June 2012 story that the team led, that for the first time exposed the wealth of the relatives of China’s top leaders. I’m proud of the courage it took from top to bottom in Bloomberg to make that happen.”
  • Michael Forsythe, the Bloomberg reporter who had worked for decades in China and was involved in these corruption-investigation stories, was quickly suspended by Bloomberg. He later joined the NYT staff.
  • Bloomberg continued to deny the allegation of knuckling-under but refused to address any specifics. The story that reportedly was underway has not yet appeared. Soon after the flap broke, I received several calls from people inside Bloomberg, all of them insisting that I say nothing that could identify them, or even about the fact that we had talked. One was from a person who warned me that it would be a big mistake to put too much faith in what this person said were competitively motivated attacks by Bloomberg rivals. The other calls were from Bloomberg reporters or staffers, who said that the NYT and FT reports were essentially accurate. I wrote to the man who reportedly gave the spiking order, editor-in-chief Matthew Winkler, and did not hear back.
  • Then, last week, the chairman of Bloomberg L.P., Peter Grauer, seemed to confirm the original accounts by saying that it had been a mistake for Bloomberg ever to deviate from its business-oriented coverage.

All this is prelude to the latest news, which is Ben Richardson’s resignation as a Bloomberg editor. Jim Romenesko had the story yesterday, followed by this from Edward Wong of the NYT, who also had the story about Michael Forsythe back in November. After I saw the item on Romenesko, I wrote to Richardson asking if he would say more about the situation. This may be the time also to share something I received from a person inside Bloomberg at the time the news first broke, which is a useful complement to what Ben Richardson says. This Bloomberg employee said:

There is a bigger contradiction for the company than most people perceive. Outsiders think the worst explanation for this controversy is that it’s concerned about selling terminals within China. It’s bigger than that. Really it’s about continuing sales all around the world, if Bloomberg can’t promise having the fastest inside info from China.


Everyone knows that it’s a company that exists on the terminals. But now that they have saturated the US market, all of the growth will come from areas with these deep contradictions between the company’s financial-business interests and its journalistic aspirations.


Gold Finger – Operation Grand Slam With A Tungsten Twist

I’ve already reported on irregular physical gold settlements which occurred in London, England back in the first week of October, 2009.  Specifically, these settlements involved the intermediation of at least one Central Bank [The Bank of England] to resolve allocated settlements on behalf of J.P. Morgan and Deutsche Bank – who DID NOT have the gold bullion that they had sold short and were contracted to deliver.  At the same time I reported on two other unusual occurrences:

1] –   irregularities in the publication of the gold ETF – GLD’s bar list from Sept. 25 – Oct.14 where the length of the bar list went from 1,381 pages to under 200 pages and then back up to 800 or so pages.
2] –   reports of 400 oz. “good delivery” bricks of gold found gutted and filled with tungsten within the confines of LBMA approved vaults in Hong Kong.

Why Tungsten?
If anyone were contemplating creating “fake” gold bars, tungsten [at roughly $10 per pound] would be the metal of choice since it has the exact same density as gold making a fake bar salted with tungsten indistinguishable from a solid gold bar by simply weighing it. Unfortunately, there are now more sordid details to report. When the news of tungsten “salted” gold bars in Hong Kong first surfaced, many people who I am acquainted with automatically assumed that these bars were manufactured in China – because China is generally viewed as “the knock-off capital of the world”. Here’s what I now understand really happened: The amount of “salted tungsten” gold bars in question was allegedly between 5,600 and 5,700 – 400 oz – good delivery bars [roughly 60 metric tonnes]. This was apparently all highly orchestrated by an extremely well financed criminal operation. Within mere hours of this scam being identified – Chinese officials had many of the perpetrators in custody. And here’s what the Chinese allegedly uncovered: Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes].  Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.  I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.

The balance of this 1.3 million – 1.5 million 400 oz tungsten cache was also plated and then allegedly “sold” into the international market. Apparently, the global market is literally “stuffed full of 400 oz salted bars”. Makes one wonder if the Indians were smart enough to assay their 200 tonne haul from the IMF?

A Slow Motion Train Wreck, Years in the Making
An obscure news item originally published in the N.Y. Post [written by Jennifer Anderson] in late Jan. 04 has always ‘stuck in my craw’:

DA investigating NYMEX executive – Manhattan, New York, district attorney’s office, Stuart Smith – Melting Pot – Brief Article – Feb. 2, 2004

A top executive at the New York Mercantile Exchange is being investigated by the Manhattan district attorney. Sources close to the exchange said that Stuart Smith, senior vice president of operations at the exchange, was served with a search warrant by the district attorney’s office last week. Details of the investigation have not been disclosed, but a NYMEX spokeswoman said it was unrelated to any of the exchange’s markets. She declined to comment further other than to say that charges had not been brought. A spokeswoman for the Manhattan district attorney’s office also declined comment. The offices of the Senior Vice President of Operations – NYMEX – is exactly where you would go to find the records [serial number and smelter of origin] for EVERY GOLD BAR ever PHYSICALLY settled on the exchange. They are required to keep these records. These precise records would show the lineage of all the physical gold settled on the exchange and hence “prove” that the amount of gold in question could not have possibly come from the U.S. mining operations – because the amounts in question coming from U.S. smelters would undoubtedly be vastly bigger than domestic mine production. We never have found out what happened to poor ole Stuart Smith – after his offices were “raided” – he took administrative leave from the NYMEX and he has never been heard from since. Amazingly [or perhaps not], there never was any follow up on in the media on the original story as well as ZERO developments ever stemming from D.A. Morgenthau’s office who executed the search warrant. Are we to believe that NYMEX offices were raided, the Sr. V.P. of operations then takes leave – all for nothing? These revelations should provide a “new filter” through which Rothschild exiting the gold market back in 2004 begins to make a little more sense: “LONDON, April 14, 2004 (Reuters) – NM Rothschild & Sons Ltd., the London-based unit of investment bank Rothschild [ROT.UL], will withdraw from trading commodities, including gold, in London as it reviews its operations, it said on Wednesday.”

Interestingly, GATA’s Bill Murphy speculated about this back in 2004;
– “Why is Rothschild leaving the gold business at this time my colleagues and I conjectured today? Just a guess on my part, but suspect:”

Coincidentally [or perhaps, not?], GLD Began Trading 11/12/2004
In light of what has occurred – regarding the Gold ETF, GLD – after reviewing their prospectus yet again, it becomes pretty clear that GLD was established to purposefully deflect investment dollars away from legitimate gold pursuits and to create a stealth, cesspool / catch-all, slush-fund and a likely destination for many of these “salted tungsten bars” where they would never see the light of day – hidden behind the following legalese “shield” from the law:

Excerpt from the GLD prospectus on page 11:

Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards, the standards required by the Trust. If the Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to satisfy its obligation to credit the Trust the amount of any deficiency, the Trust may suffer a loss.

The Fed Has Already Been Caught Lying
Liberty Coin’s Patrick Heller recently wrote, Earlier this year, the Gold Anti-Trust Action Committee (GATA), filed a second Freedom of Information Act (FOIA) request with the Federal Reserve System for documents from 1990 to date having to do with gold swaps, gold swapped, or proposed gold swaps. On Aug. 5, The Federal Reserve responded to this FOIA request by adding two more documents to those disclosed to GATA in April 2008 from the earlier FOIA request. These documents totaled 173 pages, many parts of which were redacted (covered up to omit sections of text). The Fed’s response also noted that there were 137 pages of documents not disclosed that were alleged to be exempt from disclosure.

GATA appealed this determination on Aug. 20. The appeal asked for more information to substantiate the legitimacy of the claimed exemptions from disclosure and an explanation on why some documents, such as one posted on the Federal Reserve Web site that discusses gold swaps, were not included in the Aug. 5 document release. In a Sept. 17, 2009, letter on Federal Reserve System letterhead, Federal Reserve governor Kevin M. Warsh completely denied GATA’s appeal. The entire text of this letter can be examined at The first paragraph on the third page is the most revealing. Warsh wrote, “In connection with your appeal, I have confirmed that the information withheld under exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.”

This paragraph will likely be one of the most important news stories of the year. Though not stated in plain English, this paragraph is an admission that the Fed has in the past and may now be engaged in trading gold swaps. Warsh’s letter contradicts previous Fed statements to GATA denying that it ever engaged in gold swaps during the time period between Jan. 1, 1990 and the present. [Perhaps most importantly], this was GATA’s second FOIA request to the Federal Reserve on the issue of gold swaps. The 173 pages of documents received for the 2009 FOIA request all pre-dated the 2007 FOIA request, which means they should have been released in the response to the earlier FOIA request. This establishes a likelihood that the Federal Reserve has failed to adequately search or disclose relevant documents. Further, the Fed response admitted that it had copies of relevant records that originally appeared on the Treasury Department Web site, but failed to include them in its response.

Now that Federal Reserve governor Warsh has admitted that the Fed has lied in the past about the Fed’s involvement with gold. It should now be very clear to everyone why the Fed is lying and the true nature of what they are hiding / withholding. An important footnote to consider is the inter-twined-ness of the U.S. Federal Reserve and the U.S. Treasury [can anyone really tell them apart?] as well as this duopoly’s two principal agents – J.P. Morgan-Chase and Goldman Sachs.  When one truly grasps the nature of these highly conflicted relationships it gives a fuller meaning to words recently uttered by Goldman head, Lloyd Blankfein, who claimed, “I’m doing god’s work”. Does this really mean that Mr. Blankfein believes that the Federal Reserve is god?  You can judge for yourself.  While the Fed prints money like no one else could – except god almighty himself [or Gideon Gono, perhaps?] – I really doubt that was the intent back in 1864, when the U.S. adopted “In God We Trust” as their official motto.

SWEAT of the SUN

The original story was not about passing fake gold jewelry or fake gold bars to fool uniformed, public buyers (which is always a possibility).  Moreover, the original report was about 400-ounce bars and not 500-gram bars.  Last, the original tale alleged that the US produced and stored some 640,000 bars of this stuff at Fort Knox and transferring another 800,000 bars or so to central banks and others around the world.  This original story was really far out; though I admit that Clinton was a gross liar; and he and the US government were both fully capable of such dishonesty.  I wouldn’t put anything past either of them.

Back on Oct 1, 2008, published the Goldsmiths XVII with a story citing the work of Edward Durrell and Peter Beter that questioned the presence of the alleged US gold supply at Fort Knox back in the 1970s.  After this story came out on Oct 1, 2008, there was a surge of other articles (some from the same source of the later tungsten story) that the alleged gold in Fort Knox was not there, in fact.  Frankly, I took it that the tungsten gold story was simply one more along the same line trying to prove that Fort Knox didn’t have the gold it was supposed to have (as I had broached earlier on Oct 1, 2008). The original story about the US using and storing gold plated tungsten bars at Fort Knox and passing them off to central banks around the world has no merit whatsoever.  Alternatively, could dishonest people try to pass gold-plated tungsten bars (or other mineral fillers) as being real to unsuspecting lay buyers?  The answer here is whether a cat has got a tail or not.  Yes, dishonest crooks could try to pass gold-plated tungsten, steal, brass, iron and you name it bars to unsuspecting buyers.  I allowed this in my article on the subject at I also told the movie story of the Maltese Falcon and how a lead copy of it was covered in black paint to try to make people think that under the paint one would find the gold falcon.  Well, like Sidney Greenstreet immediately did (when he scraped off some of the paint to find out what was under the paint); I too would make some effort to verify any gold bar or gold jewelry I buy.  It might not be so bad to be swindled with a small fake gold ring, but I would hate to be swindled with a large, 400-once, fake bar worth $400,000 on the market.

The question in this original tungsten story is not whether there has been or could be fake, gold-plated tungsten bars floating around in the world, in the hands of private persons; but correctly the story was actually about the US government producing some 1.3 to 1.5 million of these to store some 640,000 of them at Fort Knox and to distribute the remaining 800,000 or so of them to central banks around the world.  This original story never had and still has no worthwhile merit.  My take is that it was wrong and being passed out for reasons other than to inform and educate the public. It boggles my mind how people can now latch onto a story that a refinery found a 500-gram, fake, gold-plated, tungsten bar and claim that that find in some way proves the validity of the original story about the US government and its alleged 640,000, 400-ounce, fake bars in Fort Knox and the remaining 800,000 or so 400-ounce bars being transferred to central banks around the world.  It blows my mind on how in the world can people connect the two stories and say that they link or are the same.

The Bottom Line
Despite the bad information and confusion associated with the tungsten story, there are at least four other fall-outs over it which deserve mention—one positive and three negative.  The good positive fact is that the huge publicity over this apparently false, original story provoked much follow-up in the gold media to cause buyers to at least acknowledge that they could be swindled by so-called gold sellers.  This is a good thing, despite the conflict/inconsistency between the original story and the follow-up stories.  Yes, gold fans like me need to take some positive steps to be sure that when I buy gold that I am buying the correct quantity and quality of gold. But there are also at least three really bad negative features.  The first big negative feature crops up from the advice of the Coin Update News with words to buy and hold gold coins, etc physically in one’s possession and checking them out when purchased.  This sounds good; but it contrasts sharply by all would be purchasers of ETF gold and even investors in the Central Fund of Canada.  Per the generated fear, the ETF and Central Fund of Canada could be stuck with large quantities of fake, gold-plated, tungsten bars.  While there are negative features for both of these entities, I would suggest that they shouldn’t necessarily be tainted with the tungsten story.

In a second negative feature, this Coin position also contrasts shapely with what I have been saying for my own account for years.  My take is to get my gold purchases out of this country completely.  If I can buy it and inspect it here and then get it out—fine.  But in many cases, I may find it difficult if not impossible to buy it here and get it out.  Often I will find it more practical to buy it overseas and leave it there.  But obviously, wherever I might buy some gold, I would insist that I obtain a valid authentication or insurance agreement protecting against it being a fraud.  This is common sense and I believed in it long before the tungsten story surfaced. For my part, I will gladly take some risks in buying gold from a good dependable source overseas in comparison with sitting on my duffs and facing the prospect of the state confiscating my gold in the US.  And I don’t believe for a minute that buying gold and storing it in nearby Canada is a good proposition for me.  I must hasten to say that when the Cabal strikes with confiscation, the arms of Big Brother will reach out to seize it in Canada, Britain, Australia and New Zealand as well as in the US. There is still one more bad feature about the original gold-plated tungsten tale.  I must suggest that it supports and plays directly into the hands of the Cabal manipulating the price of gold worldwide.  There is no question about it whatsoever; many persons thinking about buying gold will now back off for fear that their purchases might be fakes.

HOW to KNOW if your GOLD BARS are FAKE
Charlatan Exposed: Gold and Tungsten / February 13, 2010
We know this is coming really late after the debate has mostly died down, but we wanted to memorialize Metal Augmentor’s thinking on the subject of tungsten-filled gold bars. We also know we said that we wouldn’t officially address this issue because it is too silly, but something tells us that the tungsten bugaboo will rear its ugly head again so it’s probably worthwhile to go ahead and thoroughly debunk it.

Not surprisingly, our take on the topic is that it is almost entirely pure BS, and below you will find how we arrived at that conclusion.

First, here is how this rumor burst on the gold scene, with Rob Kirby proclaiming: “…reports of 400 oz. “good delivery” bricks of gold found gutted and filled with tungsten within the confines of LBMA approved vaults in Hong Kong.

Why Tungsten? If anyone were contemplating creating “fake” gold bars, tungsten [at roughly $10 per pound] would be the metal of choice since it has the exact same density as gold making a fake bar salted with tungsten indistinguishable from a solid gold bar by simply weighing it. Unfortunately, there are now more sordid details to report. When the news of tungsten “salted” gold bars in Hong Kong first surfaced, many people who I am acquainted with automatically assumed that these bars were manufactured in China – because China is generally viewed as “the knock-off capital of the world”. Here’s what I now understand really happened: The amount of “salted tungsten” gold bars in question was allegedly between 5,600 and 5,700 – 400 oz – good delivery bars [roughly 60 metric tonnes].

This was apparently all highly orchestrated by an extremely well financed criminal operation. Within mere hours of this scam being identified – Chinese officials had many of the perpetrators in custody. And here’s what the Chinese allegedly uncovered: Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes].  Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.  I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.

Now let’s examine reality, shall we? First, let’s note the excellent if incomplete work that has already been done on this subject. For example, Doug Hornig, Senior Editor of Casey’s Gold & Resource Report, has concluded: “That tungsten was cited as the culprit is no surprise, because it’s the metal of choice if you want to imitate a big chunk of gold. Put some gold plating on tungsten and it will fool all the cheap, non-invasive tests, such as specific gravity, surface conductivity, scratch, and touch stone. For a conclusive result, you have to drill into the bar, take a core sample, and submit it to more sophisticated verification techniques – fire assay, optical emissions spectroscopy, or X-ray fluorescence – and that involves a lot of time, trouble, and expense.

The market, of course, long ago realized it wold be a hassle to fully assay every large gold bar every time it changed hands. That would create bottlenecks all over the place. Thus, to facilitate liquidity and protect large traders, the London Bullion Market Association (LBMA) came up with the good-delivery bar system, otherwise known as the “good delivery circuit.” The system begins with a group of accredited refiners, all of whom have been certified by equally accedited assayers. The refiners manufacture the 400-oz. bars, applying their stamps and serial number before sending them out. Requirements for making and remaining on the LBMA’s good-delivery list are stringent, and those on it zealously guard their status. It’s of great importance to them because most of the vaults to which they ship product – the next step in the circuit – won’t accept anything but good-delivery bars.

This thing isn’t foolproof, nothing is, but it ensures a pretty decent paper trail, a formal, recorded history of who held the bars, when, and in which approved facility – all the way from refiner to end user, whether that be an individual, a central bank, or an ETF. No buyer wants something from a non-accredited seller, and no one else in the chain wants to get fingered for supplying phony gold. That would get them kicked out of a very lucrative loop, and sued into the bargain. What about gold bars that come from a non-accredited source or are otherwise circulating outside the good-delivery circuit? That could mean you. You’re not part of the circuit to begin with. And yes, if you bought something that wasn’t good-delivery certified, the possibility that you have acquired some fake gold exists.

If you’re concerned about the source, you might want to have your gold assayed in order to alleviate your worries. This will become an issue when you choose to sell. In that instance, a dealer will almost certainly require an assay as part of the bargain, even if you have the chain of custody paperwork and it all checks out. And you can’t blame him. There’s no way he can be certain of what you did to it while it was in your possession. The only exception might be if you have a long-standing, mutually trusting relationship with him, originally bought it from him, and are selling it back to him. But even that’s no guarantee. What you most emphatically want to avoid is the worst-case scenario: arranging a sale, then having your gold flunk an assay, laying you open to charges of fraud.

If you sell to another private owner, rather than a dealer, he will surely ask for an assay, and you shouldn’t be offended if he does. Nor should you hesitate for an instant to demand one if you buy from a private party. Although this is not a recommended way to acquire gold bars, it may be possible that something comes along that you can’t refuse. Just be very careful. If someone has a gold bar for sale but is in too much of a hurry to wait for an assay, walk away.

Your takeaway from all the hoo-hah about tungsten bars should be that whenever a sensational rumor like this hits the Internet, and it doesn’t immediately graduate to Bloomberg, you always have to ask why. Financial reporters read blogs, too. You can be sure they’ve seen the rumor and asked the obvious questions: What’s the source? Who are the people who reported the appearance of the tungsten bars named? For that matter, why aren’t they raising holy hell if they’ve been ripped off? Where are the lawsuits? No serious journalist who can’t turn up the answers is going to give the story credence. If it were true, the appearance of several thousand tungsten bars, for each of which someone has been suckered into paying a hundred grand or more, this would be big, big news. It wouldn’t stay confined to a few websites for long. This isn’t to say that someone good isn’t digging deeply into this story right now. Nor that they won’t be able to prove it out. It is to say that, more than likely, the rumor is false.

In summary, there’s no reason to believe that there is a real issue with counterfeit bullion coins at the moment. That doesn’t mean they don’t exist, nor does it mean that evolving technology might not make them more profitable in the future than they are now. If you’re at all worried, simply deal with someone you trust. Establish a relationship with a gold dealer who has built a strong reputation, preferably over a matter of decades. Buy from them even if you stumble across some mail order supplier who is charging less of a premium. Another excellent piece of analysis comes from Adrian Ash of BullionVault:

Non-investment use accounts for well over three-quarters of demand each year, and a big chunk of that is met in the form of Good Delivery bars. Yet there are no reports from jewelers, chip fabricators, dental suppliers or any other end users of the bullshit currently trying to pass as “insider news” on the web. Bottom line? Good Delivery does what it says on the tin. The wholesale market is liquid and cost-efficient precisely because it’s warranted by the chain of integrity. The question of full re-assay is redundant. And on top of that, we guarantee every gram of BullionVault gold.

So, here is what Metal Augmentor would like to add to this discussion. First, we would note there are relatively cheap devices for non-destructive verification of gold coin purity and authenticity, for example the Fisch detector, which is a simple (if precisely engineered) device to measure the dimension and weight of popular bullion coins. Even this is probably overkill because the odds of you buying gold-clad tungsten coins is extremely low given that the only practical method of manufacture involves an easy-to-detect thin electroplate of gold on a pure tungsten core (see below). The electroplate of gold would obviously need to be a precise alloy such as gold-silver-copper for American Ealges, gold-silver for Kruggerands, etc. in order to produce an exact color and hue match, but this would work only with bullion coins that are (supposed to be) pure gold since for gold-alloy bullion coins a pure tungsten core would actually mean the counterfeit coin is too heavy. In other words, the counterfeiter’s job is much more difficult then it first appears.

Combined with the fact that most modern bullion coins issued by national mints such as the Royal Canadian Mint or U.S Mint are expertly struck with very expensive and sometimes one-of-a-kind minting equipment — if you look using a jeweler’s loop at the “field” or unadorned surface of mint-struck bullion coins compared to privately-struck rounds, you will clearly see the difference — that would be incapable of properly striking an extremely hard metal like tungsten (or depleted uranium), counterfeiting modern bullion coins becomes a very expensive and perhaps nearly impossible proposition for the enterprising crook-to-be.

Second, for larger items of bullion including kilo and up gold bars, there are “secret” proprietary tests out there that are non-destructive and do not require drilling the bar for assay. These methods generally involve measuring specific gravity by weighing the gold bar in water combined with a simple thermal conductivity test (gold absorbs and releases heat at a different rate compared to tungsten) or a very thin needle probe that is inserted into the bar in several places to check for the much harder tungsten, depleted uranium or gold-tungsten-uranium-iridium alloy core. At least one “do it yourself” gold bug has figured out how to do this:

Your fake gold is cute. So is my hydrolic press with a properly tempered steal needle with which I intend to put a hole in all of the gold bars that I receive. The holes will not devalue the gold. The non holes in the titanium will certainly degrade it’s value. Isn’t it amazing what you can buy at the local tool company. The gold bars can be punched many times before they need recasting.

Third, here is probably where the whole “tungsten gold bar” rumor/scam probably originated from. These are “soft gold tungsten alloy” bars sold as thermal or electrical conductors for advanced electronic or military applications. You will also note that the alloy is almost entirely gold (83.3% or 20 karat), which is why it is relatively “soft” (compared to pure tungsten, which has a Mohs hardness of 7.5, besting any other metal except chromium).Others have claimed it might have been from here instead. I assure you, however, that the products being churned out by China Tungsten Online (Xiamen) Manu. & Sales Corp. are rather easily distinguishable from the real thing. Simply put, tungsten electroplated with gold is never going to look or feel just right if used to “simulate” bullion. The electroplate is quite thin so there will be no characteristic bumps, dents or scratches on the surface as there would be with .995+ fine gold bullion bars that have seen even the barest minimum of handling, and the classic “bite test” will fail spectacularly with the tester very likely suffering a broken tooth on account of tungsten’s hardness. If the gold-plated tungsten is meant to “simulate” gold jewelry, it might look visually convincing (18K gold is relatively hard and 14K is even harder) but a very simple “file and acid” test as employed by every pawn shop and jewelry store on the planet is going to detect the item as a fake. If you don’t believe me, we urge you to contact China Tungsten directly:

Besides, if you don’t know how to identify true gold or gold-plated tungsten alloy products, you can consult us directly by email: or call us by 86 592 5129696.

In conclusion, there is very little risk that you might end up with tungsten-filled coins or gold bars, but if you are buying in large quantity then it will be worthwhile to employ some of the non-destructive tests noted herein.



The Gold Fix originally took place at the offices of N M Rothschild & Sons, 1919

London Gold Fix Calls Draw Scrutiny Amid Heavy Trading
by Liam Vaughan, Nicholas Larkin and Suzi Ring / Nov 26, 2013

Every business day in London, five banks meet to set the price of gold in a ritual that dates back to 1919. Now, dealers and economists say knowledge gleaned on those calls could give some traders an unfair advantage when buying and selling the precious metal. The U.K. Financial Conduct Authority is scrutinizing how prices are set in the $20 trillion gold market, according to a person with knowledge of the review who asked not to be identified because the matter isn’t public. The London fix, the benchmark rate used by mining companies, jewelers and central banks to buy, sell and value the metal, is published twice daily after a telephone call involving Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA. The process, during which gold is bought and sold, can take from a few minutes to more than an hour. The participants also can trade the metal and its derivatives on the spot market and exchanges during the calls. Just after the fixing begins, trading erupts in gold derivatives, according to research published in September. Four traders interviewed by Bloomberg News said that’s because dealers and their clients are using information from the talks to bet on the outcome. “Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge,” said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. “That is the great flaw of the London gold-fixing.”

Gold Capital
The U.K. capital is the biggest center for gold trading in the world, according to the London Bullion Market Association, which said more than $33 billion changed hands there each day in 2012, exceeding the $29 billion of futures traded on Comex, the New York commodities exchange, data compiled by Bloomberg show. Financial instruments including cash-settled swaps and options are priced off the London fix, according to the LBMA website. In private meetings this year, the U.S. Commodity Futures Trading Commission, which regulates derivatives, discussed reviewing how gold prices are set, according to a person with knowledge of the talks. The FCA review is preliminary and not a formal investigation, another person said. The people wouldn’t say what’s being looked at or if regulators suspect wrongdoing. Participants on the London call can tell whether the price of gold is rising or falling within a minute or so, based on whether there are a large number of net buyers or sellers after the first round, according to gold traders, academics and investors interviewed by Bloomberg News. It’s this feature that could allow dealers and others in receipt of the information to bet on the direction of the market with a high degree of certainty minutes before the fix is made public, they said.

‘Trickles Down’
“Information trickles down from the five banks, through to their clients and finally to the broader market,” Andrew Caminschi, a lecturer at the University of Western Australia in Perth and co-author of a Sept. 2 paper on trading spikes around the London gold fix published online in the Journal of Futures Markets, said by phone. “In a world where trading advantage is measured in milliseconds, that has some value.” Pat McFadden, an opposition Labour lawmaker who sits on Parliament’s Treasury Select Committee, said British regulators need to probe any possible abuses by dealers. “The gold market is hugely influential, and there needs to be public trust in the gold price,” McFadden said in an interview. “Question marks have been raised about the benchmark price of gold, and it’s important that regulators investigate.”

Benchmark Probes
Scrutiny of the gold market is taking place as the price of the metal has fallen 26 percent this year, heading for the first annual drop since 2000. Barrick Gold Corp. (ABX), the world’s biggest gold producer, plans to sell, close or curb production at almost half of its mines, and billionaire John Paulson’s PFR Gold Fund lost $630 million since the end of December, according to a person briefed on the returns. The price of gold at today’s London afternoon fix was $1,247.50 an ounce, down from $1,693.75 on Jan. 2. Regulators are looking into how benchmarks are set and governed across the financial system after five firms including Barclays and Royal Bank of Scotland Group Plc were fined a combined $3.7 billion for rigging the London interbank offered rate, or Libor. Investigators from Switzerland to Hong Kong are probing currency markets after Bloomberg News reported in June that traders communicated with each other and timed trades to influence foreign-exchange benchmarks and maximize profits.

‘No Oversight’
There’s no evidence that gold dealers sought to manipulate the London fix or worked together to rig prices, as traders did with Libor. Even so, economists and academics say the way the benchmark is set is outdated, vulnerable to abuse and lacking any direct regulatory oversight. “This is one of the most concerning fixings I have seen,” said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business whose 2008 paper, “Libor Manipulation?” helped spark a global probe. “It’s controlled by a handful of firms with a direct financial interest in where it’s set, and there is virtually no oversight — and it’s based on information exchanged among them during undisclosed calls.” London Gold Market Fixing Ltd., a company controlled by the five banks that administers the benchmark, has no permanent employees. A call from Bloomberg News was referred to Douglas Beadle, 68, a former Rothschild banker, who acts as a consultant to the company from his home in Caterham, a small commuter town 45 minutes south of London by train. Beadle declined to comment on the benchmark-setting process.

London Bullion
Spokesmen for Barclays, Deutsche Bank, HSBC and Societe Generale declined to comment about the London fix or the regulatory probes, as did Chris Hamilton, a spokesman for the FCA, and Steve Adamske at the CFTC. Joe Konecny, a spokesman for Bank of Nova Scotia, wrote in an e-mail that the Toronto-based company has “a deeply rooted compliance culture and a drive to continually look toward ways to improve our existing processes and practices.” Stewart Murray, chief executive officer of LBMA, which represents the gold and silver markets and publishes the results of the fix on its website, declined to comment, saying the group has “no jurisdiction or responsibility” for the process or its administration. A spokesman for the association, Aelred Connelly, said Nov. 22 that the group is reviewing its own benchmarks to see whether they conform to guidelines set by the International Organization of Securities Commissions in July. Those include making prices based on “observable” deals where possible. The LBMA oversees gold forward offered rates, which reflect bullion borrowing costs for different durations and are used in loan agreements.

Rothschild Office
The fix dates back to September 1919, less than a year after the end of World War I, when representatives from five dealers met at Rothschild’s office on St. Swithin’s Lane in London’s financial district. It was suspended for 15 years, starting in 1939. While Rothschild pulled out in 2004 and the discussions now take place by telephone instead of in a wood-paneled room at the bank, the process remains much the same. At the start of the call, the designated chairman — the job rotates annually among the five banks — gives a figure close to the current spot price in dollars for an ounce of gold. The firms then declare how many bars of the metal they wish to buy or sell at that price, based on orders from clients as well as their own account.

Gold Bars
If there are more buyers than sellers, the starting price is raised and the process begins again. The talks continue until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other. The procedure is carried out twice a day, at 10:30 a.m. and 3 p.m. in London. Prices are set in dollars, pounds and euros. Similar gauges exist for silver, platinum and palladium. The traders relay shifts in supply and demand to clients during the calls and take fresh orders to buy or sell as the price changes, according to the website of London Gold Market Fixing, which publishes the results of the fix. Bank of Nova Scotia (BNS) provides clients with updates as the fixing proceeds through a page it makes available through Thomson Reuters Corp. terminals. Thomson Reuters itself only receives and publishes the official fixing price after the call has finished, said Kate Reid, a spokeswoman for the company. Konecny, the Nova Scotia spokesman, didn’t provide any details about the bank’s service. Caminschi, the University of Western Australia professor, said the information on Nova Scotia’s feed is delayed and often incomplete. Bloomberg LP, the parent company of Bloomberg News, competes with Reuters in providing news and information as well as currency-trading systems.

‘Very Efficient’
David Govett, head of precious metals at Marex Spectron Group Ltd., a closely held commodity broker in London, said the benchmark gives clients an opportunity to buy or sell large amounts of gold in a single transaction anonymously, without having to turn to the futures market. “The fix is a very efficient way of doing it,” he said. “It’s very open, it’s very transparent and it’s a good thing.” A trader at one of the banks that sets the price defended the process, saying it’s structured to minimize opportunities to exploit the difference between the spot and fixing price of gold. He asked that neither he nor his firm be identified because he wasn’t authorized to speak publicly. Caminschi and Richard Heaney, a professor of accounting and finance at the University of Western Australia, analyzed two of the most widely traded gold derivatives: gold futures on Comex and State Street Corp.’s SPDR Gold Trust, the largest bullion-backed exchange-traded product, from 2007 through 2012.

Trading Surges
At 3:01 p.m., after the start of the call, trading surged to 47.8 percent above the average for the 20-minute period preceding the start of the fix and remained 20 percent higher for the next six minutes, Caminschi and Heaney found. By comparison, trading was 8.7 percent higher than the average a minute after publication of the price. The results showed a similar pattern for the SPDR Gold Trust. “Intuitively, we expect volumes to spike following the introduction of information to the market” when the final result is published, Caminschi and Heaney wrote in “Fixing a Leaky Fixing: Short-Term Market Reactions to the London P.M. Gold Price Fixing.” “What we observe in our analysis is a clustering of trades immediately following the fixing start.” The researchers also assessed how accurate movements in gold derivatives were in predicting the final fix. Between 2:59 p.m. and 3 p.m., the direction of futures contracts matched the direction of the fix about half the time. From 3:01 p.m., the success rate jumped to 69.9 percent, and within five minutes it had climbed to 80 percent, Caminschi and Heaney wrote. On days when the gold price per ounce moved by more than $3, gold futures successfully predicted the outcome in more than nine out of 10 occasions.

Information Dissemination
“Not only are the trades quite accurate in predicting the fixing direction, the more money that is made by way of a larger price change, the more accurate the trade becomes,” Caminschi and Heaney wrote. “This is highly suggestive of information leaking from the fixing to these public markets.” For derivatives traders, the benefits are clear: A dealer who bought 500 gold futures contracts at 3 p.m. and knew the fix was going higher could make $200,000 for his firm if the price moved by $4, the average move in the sample. While the value of 500 contracts totals about $60 million, traders may buy on margin, a process that involves borrowing and requires placing less capital for the bet. On a typical day, about 4,500 futures contracts are traded between 3 p.m. and 3:15 p.m., according to Caminschi and Heaney.

‘Be Amazed’
The trader at a fixing bank said there’s little money to be made from buying and selling gold derivatives during the process because information from the call is disseminated into the wider market so quickly. Arbitrage opportunities also are limited because the chairman will adjust the price during the call if there are moves in the spot and futures markets, he said. Govett, at Marex Spectron, said it’s common for people to try to exploit the difference between the current price of gold derivatives and the final fix. In terms of timing and money available from such arbitrage, “it is quite small, but you’d be amazed at the amount of people who try to do it,” said Govett, a trader for 30 years. Abrantes-Metz, who helped Iosco formulate its guidelines, said the gold fix’s shortcomings may stretch beyond giving firms and clients access to privileged information. “There is a huge incentive for these banks to try and influence where the benchmark is set depending on their trading positions, and there is almost no scrutiny,” she said. Abrantes-Metz said the gold fix should be replaced with a benchmark calculated by taking a snapshot of trading in a market where $19.6 trillion of the precious metal circulated last year, according to CPM Group, a New York-based research company. “There’s no reason why data cannot be collected from actual prices of spot gold based on floor or electronic trading,” she said. “There’s more than enough data.”

Bill Murphy, Chairman of the Gold Anti-Trust Action Committee delivers his testimony about a whistle-blower in the gold price suppression scheme to the Commodity Futures Trading Commission on 3/25/10.

UK regulator launches currency-rigging probe
by Harry Wilson / 16 Oct 2013

The Financial Conduct Authority (FCA) confirmed it was at the “early stage” of an inquiry into potential rigging of the $5.3 trillion (£3.3 trillion) daily global trade in currencies as part of an international probe into what could be the next scandal to hit the banking industry. In a statement the FCA responded to mounting speculation that it had launched a probe, admitting it had started “gathering information from a wide variety of sources including market participants. Our investigations are at an early stage and it will be some time before we conclude whether there has been any misconduct which will lead to enforcement action,” said a spokesman for the FCA. The statement follows an articles by Bloomberg that highlighted alleged currency manipulation by banks. According to the newswire, British regulators have looked at instant messages written by US investment bank JP Morgan’s chief London-based dealer, Richard Usher. These communications are purported to include details of Mr Usher’s trading positions. Mr Usher, who formerly worked at Royal Bank of Scotland before joining JP Morgan in 2010, has not been accused of any wrongdoing. JP Morgan declined to comment. A spokesman for RBS said: “We can confirm that we were contacted by the FCA on this matter. Our ongoing enquiry into this matter continues and we are cooperating fully with the FCA and our other regulators. We can provide no further comment.” The Wall Street Journal reported that traders held chat discussions in which they dubbed themselves “The Bandits Club” and “The Cartel”.

The investigation is said to be focusing on the so-called “WM/Reuters” rates that are used by investors as a benchmark to work out what they pay for currencies and the day-to-day value of their portfolios. Due to the size of the foreign exchange market, even tiny changes in the recorded rates could affect the value of investment funds, as well as pensions and savings. The US Department of Justice has already confirmed it is investigating potential currency market manipulation, while the European authorities have launched their own antitrust review. If proved, the misconduct would follow a long line of industry scandals uncovered since the financial crisis. Last year, Barclays became the first bank to settle claims over its attempts to rig Libor. Since then RBS, UBS and ICAP have all reached similar settlements. An international investigation is also underway into the potential manipulation of the ISDAfix benchmark that is used to price hundreds of trillions of dollars of derivatives.

All That Glitters
by Matthew Hart / November 11, 2013

Where does the desire for gold come from? The oldest gold artifacts date back 6,000 years. Unearthed by accident in 1972 in the town of Varna, Bulgaria, near the Black Sea coast, when a backhoe operator digging a foundation struck a Neolithic tomb, the treasure includes a miniature breastplate, tiny, exquisitely fashioned antelope with curled horns, and a delicately curling helix, like a snippet of gold ribbon. All perfectly useless. Why did people make them? In The Golden Constant, a classic study that tracked gold’s purchasing power through time, the University of California, Berkeley, economist Roy Jastram confessed to a “nagging feeling that something deeper than conscious thought, not an instinct but perhaps a race-memory,” was behind our attachment to gold. In other words, we loved it because we always had.

Two years ago I set off into the gold world, at a time when the gold price was smashing records. Bullion trades were flying around in London like one-ton chunks of hail. Sixty centuries after our distant ancestors had hammered out their ravishing little objects, we, their descendants, staggered through a tempest of assets, a world immeasurably richer than the one glimpsed at Varna. I had written about gold and diamonds on and off for 30 years but had never seen a fever like the one then sending drillers out to ransack the planet for gold. On assignment for Vanity Fair, and to write a book, I set out to take its pulse.

Every weekday morning at 10:30, a bullion dealer in the precious-metals trading room of HSBC Bank in London picks up the phone and punches in to a special line. The dedicated line connects him to four other bankers—the members of a powerful and self-policing group called the London Gold Fixing. They set one of the best-known asset prices on earth: the price of gold. “There are loads of different places in the world to buy gold,” said Jeremy Charles, a trim, tough-looking native Londoner who started out at 19 as a tea boy in the gold rooms of the N. M. Rothschild bank. “But at 10:30 you find things sort of stop, while the whole market watches London.”

Charles would know. From taking care of the tea-things at Rothschild’s, he went on to run HSBC’s global bullion operations. He became chairman of the London Bullion Market Association, the group that oversees the world’s biggest gold market. He saw that market expand in 10 years from a sedate trade, tucked into the tangle of lanes behind the Bank of England, into a hairy, trillion-dollar casino. The only thing that hasn’t changed is its secrecy. Of the five banks that run the fixing (the others are Deutsche Bank, Barclays, Societe Generale, and ScotiaMocatta, the gold-trading arm of Canada’s Bank of Nova Scotia), HSBC was the only one that would even let me in the door.

The fixing starts with the “nomination” of a price by the bank holding the rotating chair. Often, this opening number is midway between the last recorded London buying and selling prices. The chairman asks who would buy and who would sell at the suggested figure. If the numbers of buyers and sellers fail to match, the figure is adjusted up or down, until it hits a point where both are equally enticed into the market. When the banks locate that point of equilibrium—buyers matching sellers—the price is “fixed” and flashed out instantly around the world. They repeat the process in the afternoon.

London has been the world capital of gold since 1671, when Moses Mocatta bought 75 ounces from the East India Company and founded the first bullion bank. Some of the firms dealing gold in London have been doing it for centuries. When Jeremy Charles started in the business, in 1975, Rothschild still banked from its old stone building at 1 King William Street. The daily gold fixing took place in a paneled room hung with portraits of deceased grandees. In those days, a small Union Jack flag lay on its side on the desk in front of each banker. As the fixing got under way, bankers would raise their flags and shout, “Flag!” when they wanted to draw the chairman’s attention to a change in their position. The price was not fixed until all the flags lay on their sides again, signaling that sellers finally matched buyers. Today, most of the banks have moved downriver to the towers of Canary Wharf, yet the bankers still bark, “Flag!” into the phone as the action of the fixing surges to and fro, and the gold they trade in has not changed. Market makers deal only in bars refined to the standard known as London Good Delivery. When central banks and hedge-fund billionaires want gold, that’s the kind they want.

The world’s top gold bazaar hides behind an impenetrable curtain. No outsider is allowed to watch the fixing. When I spoke to Charles, we had our interview in a meeting room on a high floor at the bank, with a view of the Thames flowing past Greenwich and winding out to sea. He had tightly cropped gray hair and an easy manner, sitting there in his charcoal pinstriped suit, pale blue shirt, dark tie, and toe-capped oxfords. He clearly enjoyed describing the vast network of buyers and sellers connected by the fixing: a far-flung web of the bank’s customers and the customers’ customers, linked by phone around the world so that “every man jack and dog who wants to buy gold is on the line.” And as he showed me out, and I thought we’d become a bit chummy, what with the tea-boy reminiscences, I asked if we could stop by the precious-metals trading room so I could peek inside and see what it looked like. “Oh, that’s strictly forbidden,” he said, sucking in his breath and shaking his head. “Jeremy,” I protested, “it’s guys with phones.” “Sorry, mate. Can’t be done.”

The opacity of the fixing has a consequence: it’s impossible to know if the price is being rigged. Because the banks own bullion, it’s fair to wonder about this, and people do. The Commodity Futures Trading Commission, in Washington, D.C., began looking at the fixing early this year. According to The Wall Street Journal, the C.F.T.C. wanted to see if prices were being manipulated. The gold price determines the value of such derivatives as the $198 billion of precious-metals contracts held by U.S. banks last year. The London fixing does not really “fix” the price but, rather, expresses the consensus of bullion players in light of market action. In that way, it supports the market by conferring a sort of senatorial stamp on the proceedings. The market itself immediately sweeps aside the fixing and resumes the business of thrashing the gold price around according to the passions of the moment. For a decade those passions pushed up the price. An ounce of gold cost $271 in 2001. Ten years later it reached $1,896—an increase of almost 700 percent. On the way, it passed through some of the stormiest periods of recent history, when banks collapsed and currencies shivered. The gold price fed on these calamities. In a way, it came to stand for them: it was the re-discovered idol at a time when other gods were falling in a heap of subprime mortgages and credit default swaps and derivative products too complicated to even understand. Against these, gold shone with the placid certainty of received tradition. Honored through the ages, the standard of wealth, the original money, the safe haven. The value of gold was axiomatic. This view depends on a concept of gold as unchanging and unchanged—nature’s hard asset. Yet gold had changed. It was not the same as it had always been. If it was, the price could not have gone up like a rocket. For that to happen, gold would have to be unhooked from its own physicality, from its metallic mass, and its value allowed to surge through the asset world propelled by the fitful winds of human emotion. As it was.

Considered as a single lump, there’s not that much gold in the world. All the gold ever mined in history would cover a tennis court to a depth of 35 feet. At today’s price it would be worth about $6.5 trillion. That doesn’t sound like such a big sum for 6,000 years of hoarding. The world oil market creates that much value every week. But oil eventually gets used up. Gold is never destroyed; it sits there forever in its imaginary block, glowing on the tennis court and growing by a few more inches each year. But while it sits there, people are buying it and selling it and buying it again. Billionaires like George Soros and John Paulson piled into the action, helping to convert the London market from a sleepy trade into a frenzied trillion-dollar bazaar, where a volume of bullion equal to all the gold ever mined in history turned over every three months. There was one main reason for this: buying gold got easy.

Historically, gold has been a cumbersome asset. It’s one of the densest elements. A standard gold bar is the size of a box of Kleenex, but it weighs 27 pounds. Even when ownership changed hands, people didn’t often move the gold, or if they did, not far. In the basement of the Federal Reserve Bank of New York, in lower Manhattan, is the biggest gold stash in the world. It has more bullion than the United States Bullion Depository in Fort Knox, Kentucky, because it contains gold belonging to many countries. When a nation settles up a trade imbalance in gold, the bullion doesn’t leave the Fed. It gets loaded on a trolley and then trundled from one part of the vault to another. But, unless you’re a country, who wants to trundle? Today, stupefying volumes slosh back and forth on the London market. In a single quarter surveyed by the industry, 10.9 billion ounces of gold changed hands—125 times the combined annual output of all the world’s gold mines. The wedge that opened up the market and made such trading possible was a product that appeared for sale in the United States in 2004 and swept away impediments to gold ownership.

Official hostility to private gold went back decades, to one of the first acts of Franklin Roosevelt’s administration. The edict, Executive Order 6102, “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States,” made it a crime for anybody to own gold. Roosevelt wanted to protect the government’s reserves, and the order forced owners to sell their bullion to the Treasury. The prohibition against private bullion ownership was not repealed until 1974, three years after President Nixon killed the old gold-standard system by ending the convertibility of the dollar into gold. Still, gold remained an awkward asset to buy and store. Buyers had to negotiate commissions, and find and rent a place to keep it. At the same time, there was more available. New technologies were making gold mines more productive. When George Milling-Stanley, an executive of the World Gold Council, surveyed potential investors to ask why they were not buying, they told him the process was too complicated. They wanted something easy to trade that did not have to be vault-stored, and Milling-Stanley set about inventing it. In the gold world, they always call the product that resulted by an epithet: the Spider.

The Spider is an exchange-traded fund, or E.T.F., an investment composed of a basket of assets that trade with the ease of trading stock. In this case the asset is a single one—gold bullion. The nickname Spider derives from the fund’s full name, SPDR Gold Shares. (The first-ever E.T.F. was called Standard & Poor’s Depositary Receipts—SPDR.) In its way, the Spider has advanced bullion ownership more than any measure since the creation of gold money in the seventh century B.C. Before it could do that, Milling-Stanley had to convince the Securities and Exchange Commission to license it. “They hadn’t a clue how the gold market worked,” he said. “I would go down to Washington with a lawyer and a gold trader and someone who had dealt in E.T.F.’s, and we’d be ushered into a cavernous conference room and sit around an enormous table. We’d start to talk about how the gold market worked, and you’d notice that people were filtering into the room, and at the end I’d be addressing 40 or 50 people. There was a tremendous interest in how this exotic product worked.”

To license the E.T.F. for sale, the S.E.C. had to be convinced that every share would represent real gold bullion in a vault. It took four years to subdue the complicated transactions that accomplish this into a system the regulators could approve. The Spider went on sale in November 2004. For the American gold believer, the warm feeling of bullion ownership was now a phone call away. In four days the Spider took in $1 billion. The idea that gold is a secure store of wealth has survived much evidence to the contrary. Gold has gone up but also plummeted. Toronto’s Barrick Gold Corporation, the largest gold-mining company in the world, grew from a $14 million gold mine in northern Ontario into a $50 billion international colossus under the guidance of a man who understood the futility of trying to outguess a commodity price. With a scheme that sprung from the bitter lessons of his own past, he found a way to circumvent price fluctuations and create a stable revenue stream from which to water his ambitions. He was a silvery, immaculate, dashing, and indefatigable tycoon. He rose from his own ashes, and, more than anyone, he created the scale of the modern gold supply.

Peter Munk was born in 1927, heir to a Hungarian Jewish banking fortune. In 1944, when the Nazis started rounding up Hungary’s Jews for shipment to the death camps, the 16-year-old Munk and his family were among the 1,684 who escaped on the Kasztner train, a transport arranged by the Jewish lawyer and activist Rezso Kasztner in exchange for the payment of a bribe in cash, gold, and diamonds to the death-camp architect Adolph Eichmann. Munk reached safety in Switzerland and later immigrated to Canada. I met Munk at Claridge’s in London, in a fifth-floor corner suite. A spray of white blossoms blazed on the mantel of an orange marble fireplace, and gauzy curtains stirred in the open window. He had silver hair, dark blue eyes, and a hawkish gaze. Munk was 84, but his motions were precise and quick. He paced the little sitting room with rapid steps and spoke about the struggles of his life, including an ill-timed venture into oil in 1980 and his catastrophic losses when the price collapsed. He retreated to his house at Klosters, the Swiss resort where fellow residents included the financier Nathaniel Rothschild, and where Prince Charles likes to ski. It was there that Munk hit upon a business where the underlying commodity price was not rising but falling. The world’s leading supplier of this commodity, South Africa, was in a countdown to political upheaval, and, what’s more, companies that mined this metal held their value even when the underlying metal price was falling.

“Gold, sir,” Munk declared, flashing up a forefinger, “gold! It carried the highest multiples. Gold shares sell at a very high value in relation to their earnings, because a gold share is perceived to be not just a share but an option or a call on gold as well. If you buy Swatch watches, if you buy Nestlé, you buy the earnings. If you buy gold shares, you buy it because—hey! This company has two million ounces of gold, and I think that gold will go up in five years! “We had only a few million dollars left in the kitty [after the oil debacle], not more than $20 million. I said, ‘Guys, let’s find a gold mine.’ ” By “find” Munk meant locating an existing operation that he could improve. This strategy led to such successes as the Goldstrike mine—one of the richest gold mines in history. When Barrick bought the Nevada property in 1987, Goldstrike had defined reserves of 600,000 ounces; by 1995 it had almost 30 million.

From the beginning, Munk anchored Barrick’s growth in North America, stressing to investors the security of the United States against the risk of South Africa. Investors call political uncertainty “country risk,” but another risk also engaged Munk’s thoughts: price. With his previous oil losses in mind, Munk seized on a system that protected Barrick from a falling price and guaranteed the flow of cash the company would use to buy more mines, expand them, and become the biggest gold source in the world. The system is called “forward selling.”

Gold is sold forward when a miner contracts with a commercial bank to deliver an amount of gold at a future date. The commercial bank then borrows that amount of bullion from a central bank and sells it in the market at the spot price. The money then goes into an interest-bearing account. When the miner delivers the promised gold, he gets the money and most of the interest. The commercial bank keeps a share of the interest and returns the gold to the central bank, with a small amount of interest.

Forward selling made Barrick bulletproof to a falling price. Even if the price rose, Barrick could extend the hedge at its own option until the price returned to a favorable level. By the company’s own reckoning, Barrick’s forward selling added $2.2 billion to its profits over 15 years. Other miners also sold forward, but Munk mastered the strategy to an unmatched degree, growing his company into a colossus big enough to withstand what happened next. The forward game went sour.

A single input demolishes the forward seller’s math: a gold price that keeps rising. Finally, the miner must deliver gold for less than it is worth. When that happens, the hedge is said to be “under water.” By 2003, Barrick’s massive hedge—already reduced from 24 million ounces to 16 million—was dragging the company down. In a year that saw the gold price climb 18 percent, Barrick’s share price fell 11 percent. The hedge preoccupied Munk and his managers. “They spent a tremendous amount of time defending the hedging program,” a source close to the company told me. “Investors want exposure to metal prices. Even if Barrick could roll the contracts forward, people were always skeptical.” Four years ago, Barrick bought out its forward contracts for a bruising $5.7 billion. In doing so, it made a different bet: that expensive gold was here to stay.

When the gold price rises, it waves a magic wand over the earth. Ground that was worthless is suddenly transformed. The definition of ore is rock that can be profitably mined. God does not create ore; a rising price creates it. As the gold price rose and the bullion market boomed, and headlines recorded the astonishing hordes of such avid bullion players as the hedge-fund billionaire John Paulson, who had almost $5 billion in a single fund, explorers swept out into the far corners of the world. In the wastes of Mongolia and the deserts of western Mauritania, the air trembled to the sound of drills. Prospectors uncovered staggering deposits, and on a February night in London I boarded a British Airways jet and flew to Uganda on the first leg of a trip to visit a sensational discovery.

I arrived in Uganda late and spent the night at a hotel on the shore of Lake Victoria, battling a relentless cloud of gnats. I had a history of gold with me, and as I leafed through the pages, I spotted a reference to the Queen of Sheba bringing gold to King Solomon. I was on my way to a discovery much richer than the fabled queen’s mines. In the gold world, everyone was talking about Kibali, a breathtaking target in one of the most benighted countries in the world: the Democratic Republic of Congo. Like the country itself, the deposit had a tortured past and a tantalizing future. In the morning, I went back to the airport and squeezed into a single-engine Cessna Caravan stuffed with overheated mining-stock analysts. They had come straight from a grueling tour of gold mines in the Ivory Coast and Mali. And except for a cheerful, fresh-faced young woman from California, they were all damp and grumpy. We took off for El Dorado.

The Kibali gold project lies in the Congo’s northeastern Orientale province, a formerly war-torn region lately pacified by the United Nations. Even so, the Lord’s Resistance Army, a killing machine of drug-addled child soldiers based in Uganda, had been murdering and raping their way through the region. We cleared Congolese formalities at Bunya, an airport bristling with the machine-gun nests of the U.N. force. From Bunya it was a short flight to Kibali. The main ore body sat in a desolate valley scarred by exploration tracks. From a hilltop vantage point beside the cell phone tower we could see the crumbling huts of a village on the far slope. A drill rig rattled on the hillside. The equatorial sun beat down through a layer of thin gray cloud.

Belgians mined the valley in colonial days. At the time of the Congo’s independence they abandoned it. Artisanal miners then worked the site with picks. The people lived on what they got for the gold from itinerant buyers after the pit boss took his cut. In 1998 Ugandan soldiers seized the digs, forcing local miners into servitude. One of the worst outbreaks on record of Marburg hemorrhagic fever followed the arrival of the Ugandans. In the local villages, 95 percent of the children suffered from malaria. Nothing thrived in the valley but misery and goats.

In the U.N. peace that followed the expulsion of the Ugandans, a small exploration company, Moto Goldmines Ltd., optioned the Kibali property and started to drill. “We began to watch them in 2006,” Rod Quick told me. Quick was the head of exploration for Randgold Resources, a Channel Islands–based gold miner largely run by South African gold veterans. “I tracked their data hole by hole,” said Quick. “I plotted it. I visited the site. Each time we got a result from them I’d put it into the mix.” After three years of exploration, Moto had outlined a five-million-ounce deposit, and Randgold moved to capture it. “The first thing we did,” said Mark Bristow, Randgold’s chief executive, “was to get the [Congolese] government to buy in. I told them, ‘If you are not supportive of our bid, we will not go ahead. We promise we’ll build a mine; here are our plans. We are launching a hostile takeover. Are you behind us? We don’t want a fight. We don’t want an auction. We want to kill it.’ ”

Bristow is a burly, 54-year-old South African, with a Ph.D. in geology and a weakness for such diversions as hurling himself out of airplanes for a 30-second free fall before deploying his parachute; shooting Grade 5 rapids on the Zambezi River; and bungee-jumping at Victoria Falls, where you drop 95 feet before you reach the end of the cord. He has homes in London, Johannesburg, Mauritius, and Jackson Hole, but mostly he lives in a succession of airplane seats, crisscrossing Africa to visit his gold mines. In early 2009, with the Congolese government on board for a piece of the action, Randgold began its run at Moto. Then a competitor appeared: Red Back Mining, a Vancouver-based company that had made a discovery in Mauritania and wanted to build a portfolio of reserves.

Red Back made an all-paper offer (its own shares in exchange for Moto stock) that effectively valued Moto at $486 million. But Randgold had already lined up critical support among investors with large blocks of Moto stock. This enabled Randgold to respond to the Red Back offer with a “blocking stake”—a share position that enabled it to block Moto’s board from accepting the Red Back offer. Nevertheless, the ability to stave off Red Back would last only up to a point. That point would be another Red Back offer, tendered quickly, and higher than the one that Randgold’s Bristow was contemplating. At such a level, Randgold’s support would probably dissolve. It was a gold-hungry world, with the gold price streaking upward. A ferocious competition for reserves was driving a feeding frenzy of industry consolidation. To get more gold, big miners swallowed smaller miners. Red Back itself would vanish into the jaws of a larger company not long after the events we are describing. But at the time, the company was still controlled by Lukas Lundin, the scion of a billionaire Swedish mining family, and Bristow had to act fast.

Bristow worked on his counterbid while roaring northward through Africa on a 49-day motorcycle trip from Cape Town to Cairo with three of his best friends and his two sons. “We had a huge intercom system on all the bikes,” said Grant Bristow, a 22-year-old aerospace engineering student at the University of Texas. “The helmets were wired so we could take phone calls individually by satellite. But if you used the intercom to talk to somebody else, you overrode any incoming call. So there were these long periods when Dad was doing business and no one was allowed to talk.”

They were riding high-endurance BMW F800GS bikes with special aftermarket shocks to handle the brutal roads. In spite of this, the potholes and washboard surfaces destroyed the shocks on four of the bikes. On the stretch through northern Kenya they also had to keep an eye out for the Sudanese bandits who were raiding the truck convoys headed for the border. Still, business was business. “Moto’s shareholders were not happy with the Red Back paper,” Mark Bristow said. “It was a time when everybody was shit scared of the Congo. So we launched an offer at a slight premium, and half of it in cash.” By the time Bristow and his party roared into Addis Ababa, they had Kibali in their pocket.

One moonless night in eastern Senegal, I drove into a bamboo forest. We made our way along a twisting track until we reached the fantastic scene where the drill rig hissed and roared. Covered in white rock powder, the Ghanaian drillers looked like ghosts. They wore bandannas to keep from breathing dust. The drill was white and the men were white and the ground was white, and all around was the thick, black night. A quartz bed outcropped there. Gold-bearing veins—“pay veins”—ran through the quartz. One vein was 30 feet thick at its widest. The quartz plunged into the earth at an angle of 50 degrees for about a mile. It also tilted, or “dipped,” as geologists say. Think of an angled plane threaded with gold descending into the ground. The deeper they drilled, the more they found. On the night I was there, the drills had outlined 70,000 ounces. At that night’s gold price, the deposit was worth $100 million. A few months later they had more than doubled the estimated gold to 156,000 ounces. Now it’s 374,000 ounces—more than a half a billion dollars worth of gold.

The Senegalese gold property belonged to Teranga Gold Corporation, a Toronto miner with a 400-square-mile exploration package on the Mali border. The first modern gold discovery in the region came in the late 1980s, on the other side of the frontier, when an explorer looking for the lost gold mines of Mali’s imperial past found one. Other discoveries followed in Mali, and when Senegal changed its mining code in 2004, making the country more attractive to foreign companies, explorers moved across the Faleme River border. They found gold there, too, and, more than that, people who knew how to mine it.

One morning I returned to the bamboo forest with a geologist named Michel Brisebois, a Quebecer who had started out as a lumberjack. He’d developed a taste for roaming the world, and decided that the profession of geology offered the best way to finance his wanderlust. We rode up with a camp employee, a South African army veteran who droned on and on, like a radio that could not be turned off. The subject that morning was Horrible Things that Different Kinds of Ammunition Can Do to Your Body. He dwelled long and lovingly on the holes made by certain bullets—tidy hole at entry, messy hole at exit. Then the program switched to Snakes and Scorpions. In that part of Senegal they have the emperor scorpion and the black-necked spitting cobra. “But the worst is the puff adder,” he said cheerfully as Brisebois and I piled out at our starting point. “The toxin of the puff adder is a cytotoxin. It attacks your cells. People do not always die, but they are never the same again.” He gave us a smile like a bandolier loaded with white bullets. Brisebois shot him a sour look and struck off into the bamboo. His tan vest bristled with pens, and a compass dangled from his neck. The day was fresh, and the woods suffused with a straw-colored light. The smell of woodsmoke lay on the air. Local farmers clear the forest with fire. “The burned area is very efficient because you can walk quickly through it and see the rock,” Brisebois said when we reached a quartzite ridge. He picked up a stone and opened it with a tap of his pick. “You see these boxlike shapes? They are an iron sulfide called pyrite—the fool’s gold that many people recognize. In this deposit, the real gold is associated with the pyrites.”

On the ridge, the bamboo broke the sunlight into splinters. A drill roared nearby. A trench excavated with a backhoe had exposed a slot in the hill we were exploring. At the bottom of the trench gaped a deeper hole, about a yard square, but this one had been dug by hand. A well-made buttressing of logs protected it from collapse. The shaft penetrated too far down to see the bottom. The people who made this deeper hole were descendants of miners who had been digging in the region for a thousand years. They saw the backhoe trench as a free head start. Also, they reasoned that if the geologists thought there might be something there, it was worth a look. Sometimes the reverse happens, and the explorers sample where the local people have been digging. In the trench, human history has narrowed to this single quest.

Gold is its own country. One morning, on the bank of the Faleme River, I watched a motorcycle buzz into view from the bush on the Mali side. The rider descended the muddy slope, bounced across the shallows, and tore off into Senegal, headed for the sprawling artisanal mine site at Soreto. Miners commute to it from Mali every day, citizens of an entity that supersedes the boundary: the Commonwealth of Gold.

The mine itself was a fairground of men and women, laborers and vendors, miners, children, dogs. The women and girls blazed with gold earrings. People greeted us with shouts. “Bonjour! Ça va?” A woman sipping from a glass of yellow liquid raised it to us in a toast and scorched us with her smile.

They were mining a strike that ran for half a mile. They had trenched the length and screened it with bamboo shades. From the floor of the trench, shafts went down to the mining galleries. Some of the shafts reached depths of 100 feet. Sometimes they hit water, and the miners clubbed together to rent pumps. On a rough head count, about 300 people were working in the mine. Many more supported it.

Mechanics serviced the pumps and blacksmiths made tools. The smiths pumped their bellows with one foot while hammering at iron implements on their anvils. Vendors sold ice pops and water, cigarettes and candy. A small solar array powered a battery-charging station for cell phones. Masses of bicycles and Chinese motorcycles leaned together under a thorn tree. A man with an air pump between his knees sat in the scanty shade repairing tires.

The whole site, and others like it, belonged to the village of Diabougou on the Faleme River. The chief levied “license fees” on miners who were not native to the village, which was most of them. The hamlet had swelled from a population of 1,000 to about 10,000—a rapid influx of outsiders drawn by the gold boom. Diabougou was a boomtown. In stalls along the widest thoroughfare you could buy shoes and shirts, blankets and mattresses, plastic toys, vegetables, fish, televisions. Two cell phone dealers competed head-to-head across the street. On one side of the town stood the old village of round mud houses with thatched roofs; on the other, dwellings bashed together out of anything at hand—mud, tin, planks, cardboard, vinyl sheets. Scooters buzzed through a labyrinth of lanes, and boys toiled up from the river with handcarts loaded with plastic water jugs.

Inexorably, the gold rush was erasing an old way of life. On the way to the town, we’d met a large herd of goats filling the road. The goatherd was a young man in outlandish costume. He wore a round black hat with a narrow brim and a loose, ragged skirt almost to his ankles. Tall and thin, he looked at us with profound astonishment. He emitted a series of short, low whistles, like a sentence of code, and the goats surged off the road. He stopped in the grass and gaped at us in bafflement as we went by. I was told these herders have roamed immemorially through Mali and Senegal, following the grass, and are now disappearing. They mine gold instead.

On the flats beside the river stood a line of sluices fed by water pumps. To recover gold, the miners directed water down a sluice and shoveled ore in at the top. The water carried the ore over strips of carpet nailed to the bottom of the channel. Light soils flowed away while the heavier, gold-bearing gravels snagged in the carpet. They would use mercury to concentrate the gold, handling the toxic substance with bare hands. According to Moussa Bathily, a Teranga geologist, Friday was the day reserved for this gold recovery. No one would work at the mine site on Friday. I asked him if that had anything to do with Friday being the Muslim holy day. “Oh, no,” he said. “They leave the mine because they say that Friday is the day the devil comes to put back the gold.”



Francis Bacon’s triptych of Lucian Freud, sold by Christie’s at auction for $142 million

Global art market sizzles with $142 million Bacon sale
by Patricia Reaney / Nov 13, 2013

“The record breaking $142.4 million sale of Francis Bacon’s “Three Studies of Lucian Freud” shows confidence in the art market and that the very wealthy see it as a safe haven for their money, experts said on Wednesday. Bacon’s 1969 three-panel painting, the most valuable ever sold at auction, was one of 10 world record prices set at Christie’s Tuesday evening sale of post-war and contemporary art. The New York event achieved the highest auction total in art market history with $691 million in sales. The Bacon work sold after six minutes of fierce bidding, easily surpassing the previous record of $119.9 million set in May 2012 for Edvard Munch’s “The Scream.” Jeff Koons’ sculpture, “Balloon Dog (Orange)” fetched $58.4 million, the highest auction price for a work by a living artist.

“What we are experiencing now is a kind of melt-up in the market. It is a combination of tremendous surplus capital, and the need of this small band of ultra-high-net-worth individuals to invest all that surplus cash in assets that will appreciate,” said art advisor Todd Levin, the director of Levin Art Group in New York. “Art, for better or worse, is one of these places that they feel is a safe haven to put their money to work,” he added. Art collectors with deep pockets from 42 countries registered for Christie’s sale, with Americans, Europeans and Asians among the strongest bidders. Three lots fetched more than $50 million each, 11 sold for over $20 million and 16 achieved in excess of $10 million. Colin Sheaf, deputy chairman and head of Asian Art at Bonhams in London, said the sale was not only proof of confidence in the art market at the highest level but also a reflection of the quality of art on sale. “But the fact is when exceptional objects come to market in times when people have got a lot of liquid cash, and when interest rates are low, that’s often an incentive to put their money into something which is absolutely magnificent in its own right … and continue to be exceptional,” he said. Bacon’s triptych, showing his friend and fellow painter Lucian Freud on a chair with side and face-on views, had never been offered at auction before, making it very appealing for high-end buyers. “It just reflects that this is one of the greatest Bacons in private hands and now it is in a different pair of private hands,” said Sheaf.

Levin added that the high end of the art market is very strong because the people who have tremendous amounts of capital to spend are speculating in the market. “You can’t invest in art, but you can speculate, and they view art as a commodifiable asset that they are comfortable putting a significant portion of their net worth into,” he said. “If significant fresh-to-the market work of extraordinary quality come up, it will continue to sell for very high prices to this very slim, narrow margin of ultra-high-net-worth buyers,” he added. Brett Gorvy, Christie’s head of postwar and contemporary art, believes it is not a bubble. “Our top collectors bid very, very aggressively for the best of the best,” he said after the sale, adding that many collectors were coming into the market. The state of the art market will be put to another test on Wednesday when Sotheby’s holds its sale of post-war and contemporary art.”

Jean-Michel Basquiat, Untitled (Yellow Tar and Feathers), Estimate: $15-20m. Sold: $25.9m


“Some argue that the sale is giving us a message about inflation that investors aren’t getting from the action in gold, the Dollar Index, or the government’s official consumer price index data. “Asset inflation took another leg higher last night,” wrote Peter Boockvar in a Wednesday morning note. “Thank you Federal Reserve, and thank you Bureau of Labor Statistics for not including art in the consumer price index.” The traditional measures of inflation have shown little decrease in the value of a dollar. The Dollar Index, which tracks the dollar against a basket of four other currencies, is barely higher on the year. Gold, which is thought to track inflation, is 24 percent lower. And the consumer price index produced by the Bureau of Labor Statistics shows only a small increase in 2013.

But Francis Bacon inflation is booming. In May of 2008, another Bacon triptych (meaning a three-panel piece of art) was sold for a mere $86 million. And while every work is different, the fact that the more recently sold triptych garnered 66 percent more money is notable. By contrast, the CPI has only increased by 9 percent since then (though it may be worth noting that the price of actual bacon, a CPI component, has risen by 56 percent). “It’s indicative of the time,” Boockvar, the chief market analyst at the Lindsey Group, told “Stocks and bonds and rare comic books and high-end New York City apartments are all doing the same thing. What we’re seeing is massive asset price inflation generated by what the Fed is doing. And while they continue to want us to look at the lack of consumer price inflation, asset price inflation is just inflation under a different name.”

Sotheby’s as Bubble Indicator

Of course, art might tell us even more than those other asset classes do. “There’s a great line that goes back to the first expansion of the art market in the 1980s, where someone says ‘Gee, art is getting expensive!’ And an artist says ‘No, the dollar is getting cheap.’ And that, to me, kind of summarizes what investing in art is all about,” said Nicholas Colas, the chief market strategist at ConvergEx Group. “If the dollar loses value over time, that’s going to leave collectibles in a pretty good spot. Anything that is rare or scarce and that people want is going to go up in value a lot.” Colas says the art inflation is a repercussion of the Fed’s $85 billion per month bond-buying program, which is known as quantitative easing or QE.

“QE has some major unattended consequences,” he said, “and income inequality and wealth inequality is one of them. It hasn’t filtered down to people who don’t own stocks. But it has made a handful of people not just wealthy, but extremely wealthy. And at a certain point they say, ‘I don’t need any more stocks, I don’t need any more bonds.’ So they buy art.” But while Colas says that the work is probably a good buy, Boockvar believes it will end badly for the unidentified bidder. “Those that are paying $142 million for a painting are not going to be able to sell it for that price when the Fed is out of the game,” Boockvar said. “Of course, we’re not going to cry for the owner of that painting. But the point is that the Fed is only influencing one small portion of the economy. And selling a painting for $142 million doesn’t give the person looking for a job a job.”

Warhol Silver Car Crash. Sold: $105m

Finance Lessons, From the World of Art Auctions
by Richard Beales / November 13, 2013

“Easy money delivered by central banks pushes up asset prices, ensuring the wealthy feel even better off, while making interest rates on financial holdings unattractive, encouraging investment in things like paintings. There are more and more potential buyers for multimillion-dollar artworks. Seven bidders chased the Bacon, according to The New York Times. The Christie’s sale bears out hedge fund activist Dan Loeb’s contention, in criticizing strategy at Sotheby’s, that contemporary art is where the plutocratic action is. On Wednesday, Sotheby’s is selling a giant Andy Warhol car crash painting, the only one of a series of four still in private hands, estimated at up to $80 million. Sotheby’s will want the Warhol, along with the rest of its lots, to prove it has enough clout in contemporary art to keep Mr. Loeb at bay.”

Why Dan Loeb is targeting Sotheby’s
The activist investor wants auction house Sotheby’s to change its CEO and its strategy. He may have a point.
by Jeroen Ansink / October 7, 2013

“How does a company that outperforms the S&P index by a factor of three become a target for an activist shareholder? At first sight, the battle between auction house Sotheby’s and Third Point, the hedge fund of financier Daniel Loeb, which has a 9.3% stake in Sotheby’s, seems puzzling. In a recent letter, Loeb demanded the immediate ouster of CEO and Chairman William Ruprecht, who in his 13-year reign has grown revenues at Sotheby’s by almost 75%. Sotheby’s shares are up more than 50% for the year. Despite these successes, results could even have been better, says Oliver Chen, luxury analyst at Citigroup.

Compared to its privately held competitor Christie’s, Sotheby’s is lagging behind in Asia and in the contemporary art market. “Those are the places where buyers from emerging markets are gravitating towards, and where the biggest opportunities are.” Sotheby’s recent five-day, 3,571-lot auction in Hong Kong, which scored $23.3 million for an oil painting by Chinese artist Zeng Fanzhi on Saturday night, a record for Asian contemporary art, has done little to strengthen its market position, says Jeff Rabin of Artvest, a New York-based advisory firm. “Christie’s is still absolutely dominant in Asia, both in the high end and the midlevel of the Chinese sector.” On top of that, Sotheby’s made a “critical error” by not focusing on lower end art sales, says Rabin. While the 269-year old auctioneer has achieved some spectacular results in high-end art, including fetching $120 million for Edvard Munch’s “The Scream” last year, margins in this market are under pressure. “A buyer’s premium starts at 25% for sales up to $100,000, but drop to 20% for lots between $100,000 and $2 million, to 12% for anything above that,” says Rabin.

To get prestigious works under the auction hammer, houses will often rebate a portion of the buyer’s premium back to the seller, a practice known as an “enhanced hammer.” Since Sotheby’s and Christie’s compete so aggressively at the high end of the market, margins are squeezed, says Rabin. “Whereas on the low end, there is no rebating, and auction houses are earning a full commission. That is the kind of business that keeps the lights on in difficult times. It is also a part of market that Sotheby’s has virtually abandoned.” According to Rabin, Sotheby’s has focused mainly on high-end properties. “It is a strategy that doesn’t work.” A focus on lower end auctions will not cheapen Sotheby’s brand, which is one of the oldest and most respected in the art world, says Rabin. “It didn’t for Christie’s, which has a sterling name as well. Focusing on cheaper lots is a good way of attracting new customers. Wealthy people don’t start buying at the highest end, no matter how much money they have. They will have to develop a taste for collecting art first, for instance by starting at the $150,000 level and moving up from there. That’s what makes Christie’s so strong: It caters to every segment of the market place.”

With the recent adoption of a poison pill that prevents an investor from acquiring more than 10% of its shares, the battle lines between Sotheby’s and Third Point seem to have been drawn. “Ruprecht and his board of directors have bought themselves some time to align themselves with the other shareholders,” says Citigroup’s Oliver Chen. “The problem is that there is a variety of interests, both long-term and short-term, as well as starkly different views of the intrinsic value of the company. I don’t know who is right, but Sotheby’s should have probably been thinking about these challenges even without getting forced.” Sotheby’s declined to offer comment. The poison pill has not deterred Third Point, which, in an official statement, called the move “a relic from the 1980s.”

“Loeb is not the kind of guy who would pick a fight unless he is confident he can win,” says Josh Black, an analyst at Activist Insight, a London-based research firm that tracks the performance and campaigns of nearly 200 activist shareholders. Black describes Loeb, who was instrumental in replacing former Yahoo CEO Scott Thompson with Marissa Mayer last year, as “a fine tuner. He intends to get on Sotheby’s board with the intention of staying there for a significant period of time,” Black says. “There is a distinct possibility he will look within Sotheby’s and find an insider to take Ruprecht’s place.” Third Point declined to comment for this article. By bringing Sotheby’s challenges into the open, Loeb has already forced the auction house into the defensive position, says Rabin. “Collectors with a property for sale will still call Sotheby’s and try to negotiate a deal, but they probably will feel not as confident about it as they used to be. The question of what is going on at Sotheby’s, and what its future will be, will definitely linger in the back of their heads. In the battle for control between Sotheby’s and Third Point there is probably one sure winner though: the shareholder. “On the whole, the involvement of a shareholder activist does very well for the company’s stock,” says Josh Black from Activist Insight. “In these kinds of battles, the removal of a CEO leads to an average annualized share price increase of about 7%.”

The new ‘bling’: Rare coins and collectibles
by Ken Smaltz | November 3, 2013

“The savviest realize the power of investment, and are learning that rare coins, fine art and wine, instead of wasting money on traditional “bling,” provide a way to enjoy a luxurious life with beautiful objects and collectibles that accrue in value. Not only do commodities like coins increase in value, but they can pose less risk in terms of investing than stocks. Items like coins, wine and fine art can provide a safe haven from the volatility of the stock market. They may not be totally portable, but they can always be enjoyed in an appointed home, another asset likely to increase in value if purchased wisely.

The stock market is a great investing tool, but not without its challenges. Stock investors saw unusual market volatility in 2008 following the savings and loan crisis. There were record 100-point swings in both directions on the S&P 500 index, with the market finally petering out at a 45.5 percent loss near the year’s end, the greatest year-to-date loss since 1931. The index reached a 13-year low by March 2009. Meanwhile, fine wine investors saw their share of peaks and valleys in the wine market, but the changes were far less volatile in 2008 than in the stock market, according to data from the Liv-ex Fine Wine Investables Index. Since December 2008, the wine index has steadily climbed. With a fluctuating economy and the devaluation of the U.S. dollar, rare coin investing, likewise, is one of the best ways to ensure wealth protection during monetary, economic and social crisis. Although the number of serious coin collectors in America is under debate, since 1999, the U.S. Mint reports that more than 136 million Americans collect coins to some extent.

Among other advantages, the rare coin market is the most private and thinly traded of all financial markets. One can conceivably become a market player with about a $1 million investment. Rare coins provide numerous financial benefits to investors. Consider the following: There are no forms to fill out when you buy or sell investment rare coins. They can be easily traded and gifted. There is no annual dividend tax to pay because coins do not pay dividends. The capital gains on your rare coins can only be taxed at time of liquidation. Rare coins have entered a new renaissance with thousands of new collectors entering the market and vying for a limited number of rare coins. During a recent Sotheby’s auction, a 1933 St. Gaudens rare gold coin sold for $7.59 million. One of only five 1913 Liberty Head V Nickels sold for $3 million dollars in 2001. Experts predict the Liberty Head V Nickel will sell for more than $10 million before the end of the decade.”

Gerhard Richter, A.B. Courbet [616], 1986. Owned by Steven Cohen. Estimate: $15m-$20m. Sold $26.48m

by John Aziz / August 7, 2012

“Expansionary monetary policy constitutes a transfer of purchasing power away from those who hold old money to whoever gets new money. This is known as the Cantillon Effect, after 18th Century economist Richard Cantillon who first proposed it. In the immediate term, as more dollars are created, each one translates to a smaller slice of all goods and services produced. How we measure this phenomenon and its size depends how we define money. This is illustrated below. Here’s GDP expressed in terms of the monetary base:

Here’s GDP expressed in terms of M2:

And here’s GDP expressed in terms of total debt:

What is clear is that the dramatic expansion of the monetary base that we saw after 2008 is merely catching up with the more gradual growth of debt that took place in the 90s and 00s. While it is my hunch that overblown credit bubbles are better liquidated than reflated (not least because the reflation of a corrupt and dysfunctional financial sector entails huge moral hazard), it is true the Fed’s efforts to inflate the money supply have so far prevented a default cascade. We should expect that such initiatives will continue, not least because Bernanke has a deep intellectual investment in reflationism. This focus on reflationary money supply expansion was fully expected by those familiar with Ben Bernanke’s academic record. What I find more surprising, though, is the Fed’s focus on banks and financial institutions rather than the wider population. It’s not just the banks that are struggling to deleverage. The overwhelming majority of nongovernment debt is held by households and nonfinancials:

The nonfinancial sectors need debt relief much, much more than the financial sector. Yet the Fed shoots off new money solely into the financial system, to Wall Street and the TBTF banks. It is the financial institutions that have gained the most from these transfers of purchasing power, building up huge hoards of excess reserves:

There is a way to counteract the Cantillon Effect, and expand the money supply without transferring purchasing power to the financial sector (or any other sector). This is to directly distribute the new money uniformly to individuals for the purpose of debt relief; those with debt have to use the new money to pay it down (thus reducing the debt load), those without debt are free to invest it or spend it as they like.

Steve Keen notes:

While we delever, investment by American corporations will be timid, and economic growth will be faltering at best. The stimulus imparted by government deficits will attenuate the downturn — and the much larger scale of government spending now than in the 1930s explains why this far greater deleveraging process has not led to as severe a Depression — but deficits alone will not be enough. If America is to avoid two “lost decades”, the level of private debt has to be reduced by deliberate cancellation, as well as by the slow processes of deleveraging and bankruptcy.

In ancient times, this was done by a Jubilee, but the securitization of debt since the 1980s has complicated this enormously. Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a “Modern Debt Jubilee” should take the form of “Quantitative Easing for the Public”: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public — but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.

Without a policy of this nature, America is destined to spend up to two decades learning the truth of Michael Hudson’s simple aphorism that “Debts that can’t be repaid, won’t be repaid”.

The Fed’s singular focus on the financial sector is perplexing and frustrating, not least because growth remains stagnant, unemployment remains elevated, industrial production remains weak and America’s financial sector remains a seething cesspit of corruption and moral hazardwhere segregated accounts are routinely raided by corrupt CEOs, and where government-backstopped TBTF banks still routinely speculate with the taxpayers’ money. The corrupt and overblown financial sector is the last sector that deserves a boost in purchasing power. It’s time this ended.”