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The Role of Goldman's J.Aron and Co. Metal Division in Capping Gold Prices

MP3: Interview with Jay Taylor taped September 8, 2014.


Topics

1. LBMA GOFO positive with 1 month GOFO at .094%

2. Increasing Shanghai Gold Exchange and Shanghai Metal Exchange physical metals premia vs. LBMA pricing:

SGE Gold: $1,267.83 /oz & premium of $ 9.83/oz. = +0.8 % premium vs LBMA vs. +0.2% last week

SGE Silver: $21.22 /oz & premium of $2.18 /oz. = +11.4% premium vs LBMA vs. +9.3% last week

SME Palladium $1,038.58 /oz & premium of $159.58 /oz. = +18.2% premium vs LBMA vs. +16.6% last week

SME Platinum $1,499.61 /oz & premium of $103.61 /oz = +7.4% premium vs LBMA vs. +7.1% last week

  • The above Shanghai prices include a 17% VAT tax. It is important to look at this entire price as that is what is payed in Shanghai for metal.

  • This price premium creates a strong pull for metal from the west in the 'off exchange' market.

  • In 2013 only 40% of China's 1.8 million ounce palladium consumption registered as imported metal yet China has negligible production of palladium.

  • Shanghai Futures Exchange silver inventory at 93 tonnes and Shanghai Gold Exchange inventories at 75 tonnes.

  • China produces ~ 9,000 tonnes of silver p.a.

3. Update - Indian silver price at 13.5% premium vs LBMA (14.5% if 1% silver VAT tax is added) on September 9, 2014 and India, with latest 2014 figures through May 2014, ran an implied 6,100 tonne silver importation run-rate in the first 5 months of 2014 (h.t. Koos Jansen for importation figures). There is a 10% import tax on gold and silver imports to India.

China's silver consumption of ~ 9,000 tonnes p.a. + India's 6,100 tonne p.a. importation is ~ 50% of annual global silver production - these are of visible metal flows. There are also invisible, off-market exchange metal flows and smuggled imports of which nobody knows the full amount. We can only track inventories and price premia.

With dropping Asian inventories and increasing global consumption, physical silver appears to be increasingly in shortage (vs. 50,000 tonnes of silver instruments traded on the LBMA each day).

4. Goldman's J.Aron & Co. and Capping Gold and Silver Prices

A quote from pg 123 - 124 of Ferdinand Lips' book Gold Wars: The Battle Against Sound Money as Seen from a Swiss Perspective

Ferdinand Lips was a former banker for Rothschild Bank in the 1980s who then went on to become a lifelong sound money advocate.



"Was it the Central Banks?

On February 6, 1996, I visited J. Aron & Co., a well-established bullion firm in London (Jensen: J.Aron was purchased by Goldman Sachs in 1981). It is a subsidiary of the prestigious Wall Street firm Goldman, Sachs and Company. Robert Rubin, its former CEO, was serving as U.S. Secretary of the Treasury at the time. Rubin has since resigned from his post. A Johannesburg stockbroker, Merton Black of Ivor Roy Jones, now owned by Deutsche Bank group, introduced me to J.Aron & Co. I had a meeting that day with Neil R. Newitt, Managing Director, and Philip Culliford, Executive Director.

Although I had never met these gentlemen before, they knew my name and were very open with me. Culliford saw a strong demand for bullion on the part of US funds, but little demand from the Middle East. Newitt was outright bearish on gold and said that the central banks would stop any increase in the price of gold. Having been active in the gold market since 1968, he was in regular contact with central banks and seemed to know what he was talking about. However, he thought that of the 35,000 tonnes of central bank gold holdings only a small portion, approximately 3,500 tonnes, could be loaned out or sold. The conclusion drawn from the discussion was that there could be no doubt that the central banks were controlling the price.

I left quite puzzled and still wondering why central banks would have an interest in keeping down the price of their only asset of value? Afterwards, I visited Deutsche Morgan Grenfell, where Robert Weinberg told me that teh firm of J.Aron was very active in the gold lending business. For this reason they were very interested in forward sales by gold mining companies. Weinberg also mention that Newitt was known for being notoriously bearish about the price of gold. This was understandable since he knew what was happening. (Jensen: remember this article where in 1991 J. Aron received an exemption from the CFTC to speculate in commodities it did not possess http://www.washingtonsblog.com/2013/06/the-big-banks-and-commodities-future-trading-commission-conspired-to-hide-speculation-from-congress.html. Of course Newitt was bearish on gold because he would know J. Aron's (Goldman Sachs') activities in the markets as well as the central bank leasing program which they were facilitating even inciting).

After leaving the Goldman Sachs subsidiary, it was still not clear to me why the central banks should want to keep the price of gold low. As sellers, it would appear to be normal to try to sell at the highest possible price. in the business world, it is the buyer who is interested in a low price for goods he wants to acquire. (Jensen: the bullion banks and their associates have likely been accumulating bullion over the last 20 years. The bullion banks interest in keeping the price of gold low harks back to Larry Summers paper on Gibson's Paradox. Interest rates are forced up by the price level of gold. If gold is kept down, interest rates can be kept down so that monetary and market bubbles can be blown without the average market participant being the wiser.)

Because central banks are responsible for managing assets belonging to the people of their respective countries, such irresponsible behavior is hard to understand. One result of my visit, however, was, that I realized that the gentlemen at J. Aron, who were acting for central banks, undoubtedly had better information and advanced knowledge that easily could be exploited. What I did not yet realize was that these were the people who actually advised the central banks.


It is Not Only the Central Banks!

And so I found out, unfortunately belatedly, who had the biggest interest in keeping the gold price down, or at least unchanged. It was not the central banks - it was the bullion banks. Commission business had become more important to them than a stable currency system..."



Note: The commission generated from gold sales would not be nearly so valuable to Goldman Sachs as the ability to globally cap the prime indicator of monetary inflation - the price of gold. Having a pliable Fed would allow excessively loose monetary policy to be run and an extraction of $ trillions of wealth by the financial sector with a series of financial bubbles.

Two components would be essential for the success of a gold capping / loose money scheme:

  • The support and coordination of the Bank for International Settlement (BIS) of central bank gold leasing with G7 central bank cooperation
  • LBMA being able to create infinite gold liquidity by trading unallocated gold contracts

5. Scottish independence referendum and control of North Sea oil.

Referendum is days before Shanghai Free Trade Zone gold exchange goes live allowing foreign yuan holders to convert Yuan to gold bullion.

Scottish Independence referendum being held at a time just before an increased role of gold in oil payment settlement (petrogold) and currency gold convertibility appears to be incipient.

 

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