International Forecaster Weekly

ETF Threat to Gold and Silver Rallies

Exchange Traded Funds a threat to gold and silver positions on the markets, You could be buying something that doesnt even exist from naked shorters, positioning for Caspian oil, time to worry about inflation, helicopters coming to Wall Street soon, and so is a depression.

Bob Chapman | June 18, 2008

We now have confirmation of more skullduggery emanating from the custodians of the gold and silver ETF's (Exchange Traded Funds) which are said to hold what can only be characterized as the newly formed central bank precious metal hoards which have been purloined from the public under false pretenses and which have been misappropriated and encumbered contrary to the letter and the intent of the ETF charters.  But before we get into these machinations, we thought we would provide a brief summary of what these new ETF's are really all about in order to give our subscribers some background to assist in their understanding of the latest suppressive efforts of the cartel.

The majority of these new gold and silver ETF hoards are stored by HSBC as custodian for the GLD gold ETF and by Barclays as custodian for the SLV silver ETF.  

Contrary to what some might say, these gold and silver ETF's were created for the express purpose of suppressing gold and silver prices by using the long positions acquired in gold and silver bullion against the purchasers themselves, and also for the express purpose of diverting funds away from resource stocks to keep them from confirming precious metals rallies.

These new ETF entities provided a new means of paper investment in gold and silver which traditionally was provided by resources stocks, and this diversion of liquidity away from resource stocks into gold and silver ETF's has weakened the entire gold and silver sector and has scared investors away from resource stocks into the waiting arms of the gold and silver suppressors at the ETF's.  How do you obtain capital during a credit-crunch when your stock price has been driven into the ground by ETF liquidity diversions and naked-shorting?  This kind of stock price suppression forces producers to issue a far greater number of new shares to obtain a give amount of desired working capital than they would have to issue if prices were not subject to these diabolical suppressions, thus diluting the value of existing shares far more than should be necessary and driving stock prices down even further.  For these reasons alone, these gold and silver ETF's should be shunned as if they were a potent form of depleted uranium.

GLD, SLV and others like them are now being used by the public and by large institutional investors in lieu of potentially more risky resource stocks, thus sucking them into what is, in reality, a trap for the unwary.  This cartel strategy will, in the end, backfire because it will stifle mining production and thereby greatly reduce available supplies of precious metals, which are already in short supply, especially silver.  The cartel knows this and further knows that these ETF diversions are only a delaying tactic.  The fact of the matter is that gold and silver are now unstoppable no matter what the cartel does.

As we have warned now for quite some time, these new gold and silver ETF's are just another shell game to hide bullion manipulations with more paper poppycock through use of "creative accounting."  

The idea behind these new elitist sucker-dupe-traps was to create a publicly funded pool of metals for suppressive use by the cartel's Illuminist elitists whose central banks were quickly running out of precious metals in deliverable form on account of short-covering of futures, leasing transactions and producer hedging by the cartel's web of gold and silver manipulators.  

This is what the Washington Agreement was all about, namely, the rationing of central bank gold reserves (real, physical, bullion reserves as opposed to phony paper reserves) to avoid a bank run situation that could have occurred through overzealous greed and suppressive efforts.

 If their bullion supplies had not been rationed out over the course of many years, the central banks would have been taken out of their gold far too quickly, leaving them with no ammunition to suppress the metals to continue their cover-up of the destruction of our economy through free trade, globalization, off-shoring, outsourcing, and both legal and illegal immigration.

Although these ETF's claim to hold the appropriate amount of gold and silver bullion against their outstanding shares according to the terms of their charters, the fact of the matter is that the possibility is very real, even very likely, that they have hypothecated or encumbered their reserves in much the same way as the Fed and the US Treasury have encumbered the supposed gold held in Fort Knox.  The so-called "gold reserves" in Fort Knox most likely either do not exist, having been stolen, or no longer belong to the US Treasury, having been either swapped or leased out.  This type of hypothecation and encumbrance of gold and silver holdings is done through misdirection by what are called "swaps" and "leasing."  

Remember that elitist insider banks HSBC and Barclays, the main ETF custodians, are international banking concerns and each must use the accounting methods designated by the International Monetary Fund (IMF).  Non-segregated gold and silver bullion, meaning bullion that has not been designated as being owned by a specific customer of the bank, can be leased or swapped and afterward can still remain on the balance sheet of the custodial bank as one line item according to IMF accounting rules.  We do not know whether ETF bullion holdings are added to the banks regular bullion reserves or are kept as a separate reserve or custodial account.  Perhaps you might inquire of them as to how they account for their ETF gold and silver custodial holdings.

With a swap, which is used mainly for gold, the ETF's custodial bank could potentially ask another holder of gold bullion such as another central bank to sell or lease its gold with a promise to deliver gold from the ETF to that central bank seller at some date in the future at the same price as the gold that was just sold.  The ETF custodian, according to IMF rules, could still potentially show the gold as being owned on its books in order to dupe its many ETF shareholders into feeling secure, with no notation on its financial statements about the swap.  This swap arrangement also has the added advantage that no one other than the central bank and the ETF's custodial bank, who are obviously in cahoots, know that the ETF's custodial bank was the real manipulator, since most observers have been led into thinking that the central bank was behind the sales.  As an added bonus, the central bank can use the promise given by the ETF to sell gold back to it at a certain price as a reason to continue to show the gold it sold as part of its reserves.  How's that for some "creative accounting," eh?  It's called "double-counting" of reserves.  But now if the price of gold goes up, we have a real problem, because the gold held by the ETF is already committed at a pre-arranged price, which means that hapless ETF shareholders could get screwed.

With leasing, which could be for silver or gold, the ETF's custodial bank could potentially lease its ETF gold or silver to a bullion bank which could then sell it in the open market to suppress prices.  According to IMF rules, the ETF's custodial bank can still show the bullion as being owned by the ETF's custodial bank because it was leased and not sold outright, thereby once again duping ETF shareholders into a feeling of security.  The ETF's custodial bank could continue to claim ownership as custodian, and even give out bullion serial numbers and other identifying information to inquiring ETF shareholders, but unless a physical audit of reserves is done, evidence of the leasing could be kept hidden by the ETF's custodial bank.  As with swaps, leasing presents a problem in that the gold or silver is gone, having been sold by the bullion bank, and if the price of gold and silver has gone up, the bullion must be bought back by the bullion bank at higher prices and must be returned to the ETF's custodial bank, providing yet another scenario where hapless ETF shareholders could potentially get screwed, especially if the bullion bank and/or the custodial bank are insolvent.

We note that ludicrously low lease rates in gold, and especially in silver, where shorter term lease rates are even negative, are highly indicative that ETF's may be engaging in such practices along with the usual culprits.

Basically, these ETF custodial banks could be counting on using Fed-provided cash and credit to bail themselves out of their bullion losses and depleted bullion reserves to square off their ETF accounts in the event they are exposed, knowing that the SEC will look the other way as usual.  But this assumes that these banks have been able to remain solvent, which is a pretty major assumption, all things considered.   Why invest in anything that has such negative potentialities?

And now we come to the latest in cartel precious metals suppression weapons.

  According to Ted Butler, the latest weapon is the naked shorting of GLD and SLV shares.  Some of the ETF shares being purchased might be shares that do not exist because they have been sold short by someone who does not even own those shares to begin with.  There have been delivery failures.  That means you may have paid for something that technically does not exist, and the SEC could care less.  They will just add you to their list of people getting screwed when the naked seller defaults because the naked fraudster can't deliver.  The naked shorter may not be able to obtain enough shares to make full delivery because more shares have been sold than exist and are outstanding and/or because the price of the shares has gone up to the point where the naked fraudster can no longer afford to purchase and deliver them.  Mr. Butler further estimated that with respect to the number of SLV's shares that have been sold naked, such shares may represent between 25 to 50 million ounces of silver bullion.  That's a lot of freaking silver.  And you can just imagine how much is being sold naked in the gold ETF's.  Add that to your illegal rationing of Silver Eagles by the US Mint, along with the usual suppressive efforts, and there can be little doubt as to why precious metals are not wildly skyrocketing like they should be.  These suppressive efforts shall all soon be in vain.

This naked shorting of GLD and SLV shares is nothing short of creating gold and silver negativity out of thin air and this is precisely what has been done with resource stocks as well.  This nefarious activity is both despicable and completely illegal and violates both the letter and the intent of the ETF charters.  The holders of shares in all precious metal ETF's should immediately start a class action for an accounting to ascertain whether adequate gold and silver bullion reserves are being maintained to support all shares that have been purchased at all times, including a physical audit of all bullion holdings, and to ascertain that all account activity has been in accordance with the terms of applicable ETF charters and has been in compliance with all applicable securities laws and any other applicable laws.  You should include a Temporary Restraining Order freezing all bullion holdings except for necessary sales to liquidate ETF shares and prohibiting any and all naked shorting of ETF shares pending the completion of the accounting.  We can blow the precious metals markets wide open if ETF investors will follow through on this!!!    

The dollar rally has petered out as the ECB called Buck-Busting-Ben out on the carpet.  They are serious about raising rates while Big Ben will buckle at the first sign of trouble.  Bets on future Fed hikes are absolutely ludicrous and are not based on any reality that we know of.  Perhaps the fraudsters actually believe the tripe being issued by their fane-stream media.  They lie so much and so often that they have lost track of the truth.  The USDX futures have now been partly rolled over from June to September, and the dollar will get crushed as soon as the transition is completed.   There are still over 46,000 contracts of open interest on the USDX, which is very high, and the dollar is still faltering.

We can't wait until oil is hit in an attempt to hit gold and silver.  All the oil money will unload into precious metals as gold and silver producers enjoy a huge cost reduction that will send resource stocks flying.  Then come the bank failures and killer official inflation numbers, followed by the next round of the real estate derivative debacle and possibly a false-flag attack, a war and/or a new theater of conflict.  The Fed and the cartel are trapped and they cannot get out.

The stimulus package is about to give us the greatest yearly budget deficit on record, while little if nothing gets stimulated.  Perfect.  Just perfect.

Ben Bernanke, Chairman of the Federal Reserve, believes he is the master of misdirection. This past week he informed us that, “Incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly.” He thinks, “…although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

Mr. Bernanke has to be looking at a different economy than we are. We are in our 11th month of bailout for lenders and borrowers in the credit and real estate crisis. The credit problems are 15% contained and $300 to $500 billion a month is being fed into the economy to keep it from collapsing. As we forecast the bond market has taken a dive and yields are headed higher. The first phase of unwinding of market hedges has supported the marketplace and liquidity and credit availability mostly in the mortgage and corporate sector. It allowed in part banks to fund corporations for some $450 billion as they were shut out of the commercial paper market, because their collateral was CDOs, SIVs, and ABSs. This market benefit has now run its course.

The economy has entered a substantial downturn and that downturn will now accelerate, as inflation staked by higher energy and food costs take their toll. Market destabilization has begun just like it did in the mid-1970s. The upward movement of interest rates by some central banks, although a year or more too late, has put bonds, particularly Treasuries from a number of nations, under pressure driving yields higher as we forecast their moves some time ago.

What has resulted is a standoff between deflationary and inflationary forces. The 10-year US Treasury not yield has moved from 3.31% to 4.26% in just several weeks and MBS yields have risen to levels seen last August. This is causing another round of speculative deleveraging, which is further tightening the credit crisis. A stranglehold if you may. The result has been an outpouring of money and credit of some $300 billion or more monthly, and an increase of about 18% in M3. This situation will persist and worsen and the Fed and other central banks will be forced to further increase money and credit. If they do not domestic economies will collapse and deflation will overcome economies. They will increase M3 and hyperinflation will grow in intensity as gold and silver move higher. Is it any wonder interest rates are moving higher, inflation is 12-5/8%, unemployment is 14% and consumer confidence over the past five months has fallen from 112 in January 2000 to 78.4 in this past January to 56.7 today. This is a 50% loss of confidence over 9-1/2 years of absolutely dreadful government and monetary policy.

The massive injection of money and credit not only feeds inflation 1-1/2 years down the line, but this abundance of cheap US and global liquidity is further destabilizing all monetary regimes. Again, weakening economies and higher inflation. We wrote about this scenario almost four years ago when we began to see the process getting underway. All higher costs as a result of monetary inflation have taken firm hold. They will continue to increase until the inflationary bubble bursts 2 to 3 years from now. Essentially Wall Street is broke and the titanic struggle goes on as monetary forces attempt to save the American and world monetary system. As this transpires, more massive debt is being accumulated by governments, corporations and individuals – hoping, hope against hope, the Fed knows what it is doing. The Fed knows what they are doing, but they know they are only buying time because in the end it is going to collapse anyway. Higher yields are a symptom of the problem. Bondholders want to be paid for assuming the additional inflationary risk. Most believe official inflation figures. If they knew the truth they would sell all their bonds and buy gold and silver. They do not have a clue as to how much purchasing power they are losing. When gold passed $850 an ounce we entered stage 2 of a 4 or 5 stage bull market in precious metals. At the same time we entered stage 2 of an economic, financial and monetary crisis. The leverage and money and credit creation is still working but in time that will end and the great purging of the system will begin.

Illuminist propaganda never ceases. Top Illuminist thinker Zbigniew Brzezinski tells us Russia is destabilizing Georgia to take control of the Baku-Ceyhan pipeline, when in fact the current crisis is being planned and fomented by Georgia, the US and the UK in another effort to outflank and isolate Russia. Again the Illuminists have outsmarted themselves and in the end may lose Baku and the Caspian outlet for oil.

As a result Mr. Brzezinski has recommended construction of a net of alternative pipelines in Europe and Asia. What is very interesting is that he recommends a pipeline from Central Asia via Afghanistan. Now you can see it just wasn’t opium production and natural resources that was the objective of war and occupation in Afghanistan, it also was an alternative pipeline.

It is not Russia, which Brzezinski blames that wants to consolidate a monopoly over Eurasia markets, it is the US and European Illuminist who want to control the economic levers of the region and be able to control energy supplies, economy and outflank Russia at the same time. Whoever controls those energy sources controls the energy lever to Western Europe and the Baltic states.

Russia does not intend to isolate the Asian region, it is the western powers that do.

Mr. Brzezinski has gone so far as to recommend that once the direct connect from Russia to Germany is made that Germany share profits from the pipeline to EU member-states to the east of Germany. This is a reflection of the arrogance of the Illuminists.

If you are not deeply concerned about inflation you should be. Officially overall inflation is up 4.9%, energy inflation is up 28% and food inflation 6.2% over the last three months. They make up 24% of CPI, but were responsible for more than 60% of recent inflation.

Over the past 18 years North America has had ideal growing conditions, yet our food reserves are at record lows and it is more important to the elitists that we have ethanol than adequate reasonably priced food, never mind the starving millions in the third world. Torrential rains have hit and inundated corn growing in Iowa putting corn yields much lower than normal. If they have an early frost it would be a disaster. Such an event would drive other grains, bean and meat costs ever higher.

US gasoline consumption is off 4%. The race is on for fuel economy. As you know, a sinking dollar and energy demand are the real culprits. Speculation is an afterthought.

Rent costs are up 3.5% and if that figure falls to zero we can assure you we are into deep recession, because of very serious unemployment.

Some people are looking for higher interest rates and they will be wrong. Besides, higher rates would take 1-1/2 to 2 years to filter through the economy. The real key is to cut back money and credit growth to 3-1/2%, but the elitists can’t do that. The economy would then collapse.

As we have said over and over the Illuminists are in a box and they cannot get out.

Saudi Arabia says it will increase oil output by 500,000 barrels a day next month. We quite frankly doubt if that is possible. Supposedly the Saudis are becoming nervous about both the political and economic effect of high oil prices.

The morons in Washington want to pass a law to address record energy prices.

The Saudis are going to have to deal with other OPEC members who just last week said there is no reason to raise production.

If the US banking system isn’t insolvent it is close to being so. Our debt has to be written off, our dollar officially devalued, our housing problem and banking problems solved. Congress has to end the Federal Reserve and our energy base has to be expanded and our infrastructure rebuilt. Our foreign wars and occupations have to end. What the Fed is doing is extending the time line for collapse to save as much of Wall Street as possible and allow the dollar to fail as a consequence. This is being accomplished by giving banks unlimited funds, which the US taxpayer is responsible for. This is killing the US overall, economically. These funds are going to the very same people who committed colossal fraud and got our economy in the mess that it is in. The scenario is called helicopters over Wall Street. As a result both two year and ten year Treasury yields are rising at a threatening rate. When the 10’s yielded 3.50% we told you by the end of the year they’d be 4.50%. They are already at 4.26% only 6 weeks later. They are telling you foreign investors want a substantially higher yield to hold US dollar denominated paper and it also tells you this yield has to rise in order to reflect the erosion from inflation. This time the short end, the 2-year is rising with velocity as well. Asset deflation is being offset by the massive creation of money and credit. This is the worst of all worlds. The values of assets of an entire nation are falling, as wage gains are miniscule and inflation rages. As the long end yield climbs the Fed monetizes the short end. As yet inflation is winning and will continue to do so until borrowers stop borrowing. That is when deflation will gain the upper hand and we believe that is 2 to 3 years away, but it will come. As we said before what the Fed and other central banks are doing insures a depression.