Gold Up-Date

In another audacious attempt to steal money from individuals, government leaders’  including the European Central Bank (ECB), the Cypriot government, and the International Monetary Fund (IMF) have concocted some scam to steal from the nation's savers in order to bail out its financial system.

Already much has been said about this, but nevertheless, I would also like to express my own views. On Saturday, the Eurozone leaders agreed on a bailout worth 10 billion euros ($13 billion) for Cyprus, the fifth country after Greece, Ireland, Portugal and Spain to turn to the Eurozone for financial help during the region's debt crisis. But, the catch this time is that Eurozone finance ministers intend to force Cyprus' savers to pay up to 10% of their deposits to raise almost 6 billion euros. The decision prompted a run on cashpoints, most of which were depleted by mid-afternoon, and co-operative credit societies closed to prevent angry savers withdrawing deposits.

Originally they announced levies of 9.9% for accounts above 100,000 euros, and 6.7% for accounts below 100,000 euros.

Almost half Cyprus's bank depositors are believed to be non-resident Russians, but most queuing on Saturday at automatic teller machines appeared to be Cypriots. Since Cyprus' president Nicos Anastasiades didn't want to shut down the island's attraction as a money haven and playground for the Russian jet-set, he agreed to a deposit tax of 6.7% on deposits up to 100,000 euros and 9.9% on deposits above 100,000 euros, to satisfy the EU's demand of 5.8 billion euros ($7.2 billion) part of the bank bailout. But, even if most of the money comes from Russians, what gives the government or any government for that matter the right to simply pillage individual bank accounts.

But, wait-up a second. Under a separate scheme introduced by the EU after the 2008 financial crash, deposits under 100,000 euros are meant to be insured by the Cyprus government. If governments can stick their grubby hands into individuals bank accounts by simply using the words “tax’ or “levy” meaning that they can just seize deposits any time they like, then deposit insurance is not worth much.

Meanwhile, until a final vote is reached, the Cypriot government has imposed a mandatory 'bank holiday' this week to prevent people from withdrawing their savings.

The ramifications of this cannot be overstated. The world's global banking system runs on trust. Depositors trust a bank with their savings in the belief they can access those savings on request. That trust has now been broken. And, it will have severe consequences for the euro and European banks. It will prompt a flight of capital out of Cyprus, as well as a further weakening of the euro. Individual depositors are now at risk for holding money in banks, not only in Cyprus but in the entire Eurozone. Bank deposits everywhere are at risk.

Cyprus is totally broke and as I have mentioned countless times, insolvent governments will do anything, including stealing from their own citizens if they have to.

This is not the first time this has happened. During the financial crisis some ten years ago, in Argentina, the government was in the middle of a debt and currency crisis. In the end, individual savers were totally wiped out.

For those who have the ability to understand this, they will suddenly see the value of owing gold and silver.

Recently, there have been reports that US regulators are considering launching an inquiry into London’s gold and silver markets. According to the Wall Street Journal, the Commodity Futures Trading Commission (CFTC) is discussing whether the daily setting of gold and silver prices in London is open to manipulation.

The news of the potential investigation comes after it was discovered that the process used to determine the London interbank offered rate, known as Libor has been manipulated by almost every major bank. The case resulted in multi-billion dollar fines against a group of banks including, Barclays which was hit with a £290 million fine. The Royal Bank of Scotland is paying fines of £390 million for its role in Libor-rigging, Deutsche Bank, is apparently close to settling its own Libor charges, and HSBC, which is also under investigation in the Libor scandal, agreed to pay $1.9 billion to settle money-laundering charges. As it also happens these banks are all part of the group of five banks that set gold prices on the London fix twice each day! 

The fixing of the gold price in London dates back to September 1919, when the process involved NM Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins.

At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay this price to their customers. Based on orders received from them, the banks declare themselves as buyers or sellers at that price.

Provided there are both buyers and sellers at that price, members are then asked to state the number of bars they wish to trade.

If at the opening price there are only buyers or only sellers, or if the numbers of bars to be bought or sold does not balance, the price is moved and the same procedure is followed until a balance is achieved.

While I am certain that prices are manipulated in London, an allegation about this from the CFTC is absolutely absurd. When it comes to gold and silver, I think the CFTC has not allowed price manipulation occur on these markets but have also been complicit in these actions. Most of the price suppression and manipulation is caused by traders especially the bullion banks such as JP Morgan and HSBC using the futures markets of Comex. Here, despite the fact that these markets are supposedly protected against any monopolistic influences, these banks have been holding most of the net open short positions. And, on some occasions, the number of futures contracts that they sell in one session and with having no intention of ever making physical delivery, have been equivalent to the annual production of gold. And, as the CFTC turn a blind eye to this practice, the CFTC have also interfered in the market. When the price of gold ran up in 2011, and while the likes of JP Morgan were suffering from huge losses on their short positions, the CFTC suddenly imposed a series of unprecedented hikes in margin. So, who are they to make such allegations about price fixing?

But, what really annoys me are the inane laws imposed by banks on honest hardworking individuals. In order to simply open a bank account you are required to provide banks with a whole host of documents to comply with their stupid “Know Your Customer” or KYC. Thanks, to the US Patriot Act, every individual is now deemed a terrorist or money launderer and deposits of cash are almost prohibited.

It is insane especially when you consider all the lying, cheating and thieving that has been going on by banks themselves. A few months ago, it was revealed that they were manipulating LIBOR, and had to pay hundreds of million in fines for their actions. Central banks have manipulated the currency market and no doubt have a hand in the gold and silver markets.  Major banks were involved in selling toxic assets to the clients during the sub-prime debacle. And, recently, it was revealed in a Senate report that JP Morgan Chase misled investors and dodged regulators as losses escalated on a “monstrous” derivatives bet.

The current event in Cyprus is just another example of what I have alluded to many times in the past which is you cannot trust your government. Make sure you protect yourself because things are going to get a lot worse. Add physical gold and silver to your investment portfolio and make sure that you do not store them at a bank.

TECHNICAL ANALYSIS

Gold prices have bounced from their recent lows and look set to push higher.

ABOUT THE AUTHOR

David Levenstein is a leading expert on investing in precious metals. He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He He is also a regular commentator on www.kitco.com andwww.mineweb.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

For more information go to: www.lakeshoretrading.co.za

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.