Whistleblower Andrew Maguire talks at GATA Gold Rush 2011 London conference with GATA's Chris Powell in the background. (Image and caption from this site)
Andrew Maguire, London gold trader, explains exactly why the gold demand is so high but the gold price is so low. Welcome to the rabbit hole Neo. It gets d-e-e-e-e-e-p.
Preface on Mr. Andrew Maguire. I have personally been following Andrew Maguire’s work since 2011. Maguire is an independent bullion trader with over 40 years of experience. He is based in London and is a whistle-blower who alleged to U.S. government regulators (the U.S. Commodity Futures Trade Commission) that fraud was and is being committed in the international gold and silver markets, and prices in the gold and silver markets were and are being manipulated.
Andrew Maguire and his wife were injured in a hit-and-run car accident (March 26, 2010) just one day after Maguire was identified as the source of the allegations. The driver of the other vehicle was apprehended after a police chase, both on the ground and from the air in helicopters, but the driver’s name was never released. Police informed Maguire that the assailant was known to them, but his name would not be released.
Maguire went public in 2010, alleging with hard, factual evidence and proof that JP Morgan Chase and HSBC were manipulating the gold and silver markets:
“JP Morgan acts as an agent for the U.S. Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JP Morgan is insulated from potential losses (on their paper short positions) by the Fed and/or the U.S. taxpayer.”
From wikipedia: In an interview with CBC aired in April 2013, Andrew Maguire described how mysterious traders, allegedly working for bullion banks JP Morgan and HSBC, waited for most of the major markets from Shanghai to London to be closed then concentrated their dealings on COMEX. He explained how traders were trading virtual or electronic silver anonymously using computer algorithmic trading systems “moving in and out of the futures markets in the blink of an eye. Four hundred contracts per second, each contract represents 5,000 troy ounces of silver.” Maguire described a sudden and massive wave of selling of up to 45,000 contracts which drove the price of silver down. Then the mysterious seller just as suddenly started buying the electronic silver again. The price of silver soared as did the profits for the seller, 45,000 contract with a profit of $80,000 per contract totaled $3,600,000,000 for the mystery seller.
Maguire then predicted a manipulative event in the silver market and gave detailed information in an e-mail to the CFTC (the U.S. Commodity Futures Trade Commission) about what to expect, sending it on February 3, 2010, two days before the event. The event occurred exactly as Maguire had predicted. While the event was occurring, Maguire sent e-mails in real time to the CFTC, pointing out certain details because the CFTC regulators did not seem to know what to look for or how to interpret the data.
GATA chairman, Bill Murphy gave a detailed account of Maguire’s allegations to CFTC, stating how “JP Morgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JP Morgan. [He] explained how there are routine market manipulations at the time of option expiry, non-farm payrolls data releases, and COMEX contract rollover, as well as ad hoc events.” - wikipedia.
So why didn’t CFTC (Commodity Futures Trade Commission) ever respond to Maguire’s allegations? Let’s go back to 1988 and Executive Order 12631 …
In March 1988, five months after the worst one-day stock plunge in history, U.S. President Ronald Reagan signed Executive Order 12631, creating the President’s Working Group on Financial Markets (the WGFM), which was known on Wall Street as the ‘Plunge Protection Team.’ The PPT’s job was to prevent unexpected financial market panic sell-offs or ‘plunges’ in the futur.
But guess who are the members on the Plunge Protection Team? The PPT is headed by the U.S. Treasury Secretary, but includes the Chairman of the U.S Federal Reserve, the head of the Securities & Exchange Commission (SEC), and the head of the Commodity Futures Trading Commission (CFTC). The PPT is responsible for monitoring the derivatives trading (paper gold) on the exchanges.
So it is the job of U.S. government regulators in the Plunge Protection Team to make sure that markets do not plunge (crash).
So does that also mean that Plunge Protection Team’s job is to make sure that the foreign currency exchange market, especially the US fiat dollar market, does not plunge? Of course.
So what would be the major indicator that the US fiat dollar currency is plunging in value? Rising price of gold and silver (the precious monetary metals) of course!
I’ve transcribed the following from an audio interview (14:14 minutes) of Andrew Maguire by Eric King on King World News, November 3, 2013. You may need to have some basic understanding of hypothecations, re-hypothecations, collateral, paper gold, etc., to fully appreciate what Maguire is telling us.
Welcome to the rabbit hole Neo. It gets d-e-e-e-e-e-e-e-e-e-e-p-e-r.
“This week was just typical of a Fed orchestrated market. The bullion banks that act on behalf of the Fed were able to front-run the orchestrated Fed new that we got.
Anyone with half a brain knows FOMC was a non-event, but it’s really their only tool left for the Fed to manipulate gold lower right now. Taper Talk creates a smoke screen for them to step in heavily with the High Frequency Trading programs and algo-rhythms and they force a reaction to news rather than letting the market digest the news in a rational manner. So they set this off. And once you’ve set off an emotion obviously it continues.
And we will remember, prior to the QE even happening, a really similar tool was employed by the Fed. Back then, you remember, they used to threaten to flood the market with IMF gold? And I remember them doing it time and time again. We must have seen that tool being wheeled out over 20 times. And on every single occasion, just like now with Taper Talk, it just creates a similar downdraft effects. But even back then, gold continued year-over-year to rise until this whole IMF thing eventually back-fired on them. And when they finally offered the 400 tons for sale, India bought 200 tons. But we really suspect that was hidden repatriation of leased gold actually. But after India bought the 200 tons, China came in and asked for the balance, as did 2 other accredited interested parties. And what an embarrassment. The Fed and the IMF refused to give them any access to this remaining 200 tons. And it was supposed to be sold at market.
And now we’ve got talk of Taper Talk, but that’s all it is: talk. And it will back-fire, just as the IMF tool failed. So here we are. Taper Talk as a tool.
People say to me: with such strong physical demand, how can the price be going down? The answer is simple.
Physical gold is completely un-leveraged. Synthetic COMEX supply is not gold at all. It’s just fake supply. And it temporarily overwhelms the underlying demand. Temporarily being the key word.
It’s pretty easy to do if you’re the Fed. The Fed has a complete visibility into the books and knows exactly how much synthetic gold is dumped into the market at any time to overcome the (inaudible) and to ignite the algo-driven momentum follow-through selling. It’s pretty easy to do. It’s their game. It allows the 2 primary bullion banks operatives to front-run on the inside information for their own books. And when a single entity instantly dumps, like after FOMC, over 35 tons of synthetic gold into the market, it’s giving the algo-driven market a temporary ability to overwhelm any un-leveraged physical demand.
This is the last vestiges of the tail wagging the dog. And each time they do this, physical buyers take the spot price, they step up to the fix, demanding to convert these paper purchases into real bullion. That could be a producer, or a refiner, over in London.
And speaking of London, the physical market is where the rubber actually meets the road. Converting so much paper gold into bullion is stressing out between a 90 and a 100 to 1 leverage of available supply. This was never ever anticipated to happen. The bulk of all LBMA bank accounts are held in unallocated form. It’s amazing how few institutions even realize this. That includes billions of pension fund holdings. And what amazes me is when speaking to these managers, they actually believe they have access to the physical. Or they can convert these holdings into allocated form on demand. It could not be further from the truth.
When applying for an LBMA bullion account, an investor is steered into the lower-cost, unallocated option, on the premise that it’s much cheaper carrying costs than buying bullion in allocated, serial numbered form. It explains to them that you avoid expensive storage and insurance fees etcetera.
After reading the boiler-plate, unallocated small print, it becomes absolutely clear that there is zero physical to back up these bullion holding. In other words, the bullion account is set up no differently than a regular bank account where you simply receive a ledger receipt for your cash deposits. And by default, you just become a creditor of the bullion bank. And that’s a bank where you have zero visibility into their health. And as we know, these accounts are no more than highly-leveraged, re-hypothecated structure that have for decades have completely distorted true supply/demand fundamentals.
The very well respected John Hathaway was talking about this very subject last week. It’s acceptable in bullion banking, you would contemporarily collateralize some positions … so it is OK maybe once or twice … but to embed positions at least 92 to 100 to 1 creates an incentive to create intentional bias. And there’s a lot of corroborative evidence that this degree of leverage is actually employed.
Looking at the Reserve Bank of India, January 2013 report, studying gold imports and loans … They source their data from the CPM Gold Yearbook from 2011, and it totally evident that it’s 92 to 1. Their actual words on this is, quote:
“In the financial markets, the traded amounts of paper-linked gold exceeds by far the actual supply of physical gold, the volume on the London Bullion Market Association (LBMA) over-the-counter market and at major futures options exchanges was over 92 times that of the underlying physical market.”
End of quote. So you can’t argue with that kind of facts. The bullion banks though, they ought not to be trading their own books. They should be in the straight-forward business of financing and hedging, not creating a directional position where they are forced to defend the price rises. And when a pension fund comes in (for example) and buys say 10 million of gold, the bullion bank provides the client this ledger entry for 10 million. But they take that cash and invest it in instruments everything other than gold.
So 2 things happen at that point, and this helps to understand how this thing perpetuates. So let’s say the bank didn’t go out and buy 10 million dollars of physical gold that day, in allocated serial numbered form, and so supply/demand dynamics are immediately distorted because the price of gold would have risen had they done so. And secondly, as the bank is now indexed to the price of gold, it now has an incentive to suppress the price from rising.
In fact, there is such good historical evidence that the bullion banks, operating these unallocated accounts, instead of buying gold, they will actually use those very funds to actually short gold against that pension fund, using synthetic supply to drive the prices below the original ledger entry. It’s been a highly profitable business.
For decades, and I say WAS, for decades, it WASa profitable business. But something major has happened. China is now poaching, financing these forward agreements away from these traditional LBMA bullion banks, limiting their ability to roll forward many of these leveraged positions that kept this Ponzi scheme going. People have to understand this is a game changer.
It forces the bullion banks to pay the piper. And they have to mark, long-standing, over-collateralized, re-hypothecated gold and silver positions to market. This means buying physical to do so. The simple fact, it forced to bring supply/demand fundamentals to the forefront. And when these positions were put on, and I know the time, they were rolled again and again and again, allowing them to be collateralized a hundred times over. And the bullion banks, they have full control of the London and the US markets. However, this unanticipated physical demand is removing this underlying physical out of their control. THIS IS A BIG DEAL. And hence, the high leverage employed in the paper markets is based upon having actually 1 ounce available for every re-hypothecated 100 ounces employed in the markets. This anchor has now come loose. And unfortunately for the bullion banks, leverage works in two ways. And what we’re seeing now is the start of a forced unwind of these re-hypothecated positions.
There is simply not enough physical for them to cover positions. And that’s why we will see a default. And when I say default, I put it in inverted brackets …
Now how this will actually be resolved, is with an electronic key stroke, at one market close, and leaving someone like this pension fund (we gave an example for)and all unallocated gold position holders completely on the sidelines, settle way below a very large gap up price, possibly hundreds of dollars higher.
So where are we in this evolving story? The gold ETF’s have now been drained of a vast amount of speculative money. And they’ve reached the point, where there is really only about 1900 tons left globally. GLOBALLY. This is increasing and leaving the balance of physical holdings in very, very strong hands.
Theses ETF outflows have through the bullion banks, been utilized and fly-wheeled by the Fed and BIS, you know the Bank of International Settlements, to meet physical demand from China and the emerging market economies looking to hedge their dollar exposure. They‘ve got an insatiable appetite for any bullion they can exchange their dollars for. And the trouble is, due to this increased demand, new mine supply is just simply notsufficient to replace this physical outflows at a lower price.
We’re reaching the critical inflection point that will influence just how much Bank of International Settlements or Fed can actually intervene in the gold foreign exchange markets any longer.
And I believe James Turk (goldmoney.com) is right when he likened gold to the shore and fiat currencies to boats, rising and falling against this fixed horizon. Gold is a 5,000 year benchmark. And paper gold is going to be forced to appreciate against it.
So Neo, do you still really think that this game isn’t rigged? By the fiat currency paper printers themselves? Think again. Now do you understand why gold demand has remained so strong, but why gold “prices” have remained so artificiallylow? - Oracle.
Andrew Maguire is forecasting that a default will soon occur at LBMA.
See you at Nubex.