"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, October 25, 2014

The GIAMATT Crowd and Perpetual Motion

For hundreds of years, dreamers, theorists and inventors, along with a huge assortment of quacks, hucksters and con men, have sought to either create or to peddle to the unsuspecting, a machine that when once set in motion, would continue moving without the application of any outside energy to feed it. Of course science has long ago disproved that this is possible because of what are widely acknowledged and irrefutable laws that govern our universe - namely the first and second laws of thermodynamics.

This is not a site dedicated to the exposition of those laws nor is this post directed at refuting the theory of perpetual motion.

What it is directed at this time around is yet one more novel theory concocted by the GIAMATT crowd. For newer readers this is the  short-hand abbreviation I have assigned to the "Gold is Always Manipulated All The Time" crowd.

That perpetual motion has been disproved has not stopped some from promoting it in order to create an income. Same goes for some in the GIAMATT group - that their wild and logic-twisting theories have been disproven time and time again, does not stop them from coming up with yet another and another and another. One must hand it to them - they seem to never grow weary, shame-faced or at a loss in their ingenuity at devising one more scheme to justify substantially higher gold prices.

I have chronicled some of these in the past three years and have written many refutations in an attempt to provide some balance that has hopefully spared some of their victims from losing a substantial portion of their hard-earned wealth.

Please see this previous post for a laundry list and note that this is not all of the theories that I have seen over this time period but only the more prominent ones.


I would like to focus in on the latest.  I am forced to admit this is one that stretches the ability of those whose minds work in a logical manner to conceive of anyone falling for such a twisted example of convoluted and contradictory assertions.

I referenced this the other day in that post linked above but here it is in a nutshell.

The big gold ETF, GLD, is being drained of its gold inventory in order to meet insatiable demand coming out of the East and that this is BULLISH for the metal.

Let's start with a brief history of GLD, ACCORDING to some of the very same people promoting this latest theory.

Remember, in their mind, it is a contest between the PAPER gold markets here in the WEST and the REAL ( their word) gold market, which is in the far East.

Their claim is that were it not for manipulation of the gold price here in the West, that gold would be substantially higher because the true price would be set in the East by the physical market there. According to their new priests and prophets which lead this gold cult, once all of the gold is finished being drained from GLD, it will liberate the metal from the constraints being placed upon it in the West and the price will soar. Therefore, according to this view, FALLING GOLD INVENTORIES in GLD is ultimately WILDLY BULLISH!

( Please note that every single one of these theories is ALWAYS wildly bullish and PROOF POSITIVE that sharply higher gold prices are imminent).

Let's proceed to dismantle this latest theory by taking a trip back in time. When GLD was first introduced, a large number, if not an outright majority of those in the gold bug community swore up and down that its introduction was further evidence that the powers that be in the West were intent on siphoning true demand for gold AWAY from the physical gold market ( remember - in their mind that is the real gold market ) by creating another PAPER vehicle, just like the Comex. This paper vehicle would divert millions, tens of millions and hundreds of millions of dollars into an entity which could be manipulated by the "evil bullion bankers" and thus serve as a sort of Trojan Horse ( remember that phrase because it was extremely popular back then- Trojan Horse).

The big case against it however was its auditing process and specifically the point that the custodian for GLD was none other than HSBC, one of the noted "conspirators" in rigging the gold and silver prices (their claim - NOT mine). In other words, it was a case of the Fox guarding the chicken coop as far as they were concerned.

Additionally, they railed against the Authorized Participants of GLD - Bear, Stearns, Lehman, Citigroup, Merrill Lynch, Goldman Sachs, JP Morgan, UBS and Morgan Stanley as being unfit to be associated with anything the least bit related to gold, since they could not be trusted ( again - THEIR claim; NOT mine).

I distinctly recall the mockery and vociferous criticism raised by many of the ringleaders in the GIATMATT crowd when referencing the reported holdings of gold in the ETF. They screamed again and again that the auditing process was "a joke", and could not be trusted as they sarcastically put the following words in the mouths of those who managed the ETF:


Do some of you remember this as well?

They cited the fact that the Trustee had no right to visit the premises of any subcustodian for the purposes of examining the Trust's gold as evidence that NO ONE COULD BELIEVE the REPORTED GOLD HOLDINGS in the ETF.

In other words, the GIAMATT crowd was reeking with disdain for any numbers coming out of GLD as unfit to be trusted.

Thus, they LOUDLY claimed that the gold was not there at all and that which was there was rehypothecated, subject to COUNTER-PARTY risk. This counter-party risk was something that they made a big deal about at that time.

Remember that other wild and popular claim that many of the gold bars were fake, being filled with tungsten?

All of their claims AGAINST GLD were to specifically DISCREDIT it as a viable gold investment vehicle that no one who really wanted to own gold should have anything to do with.

Here is the point - many of the same people who were mocking GLD back then and pooh-poohing the gold numbers it was reporting as its holdings, are NOW NEW BELIEVERS, NEW CONVERTS and have SUDDENLY had a REBIRTH of FAITH in the numbers coming out of GLD each day.

Now, some few years later, all of that Gold, Yes, the Gold that was NOT THERE in the ETF ( just trust us, the gold is there they said mockingly), the Gold that was rehypothecated, the Gold that had huge counter-party risk, and the Gold that was not really gold, but rather tungsten-filled bars is all being "RAIDED" and heading to the EAST to supply the insatiable demand from that corner of the globe.

I am not sure what world that many of my readers live in but in the world in which I live, this is what is referred to as hypocrisy. It is also one of the most egregious examples of illogic, inconsistently and blatant disregard for sound reason that I have ever seen in the arena of financial matters.

I guess these people who promote this sort of idiocy think we all have very short memories.

Then again, I suppose we should expect this sort of perverse reasoning when it comes to the gold cult. After all, this is just a sort of mirror image of the same "logic" that asserts that when gold experiences a sharp selloff at the Comex it is proof of "price suppression by the gold cartel banks". However when it experiences a sharp, blow your socks off sort of rally, that is normal, just, and righteous price action. Thus when it comes to the reported holdings of GLD, when they are rising, it is evidence that the numbers are bogus and should not be believed but when they are falling, it is incontrovertible evidence that the East is draining the ETF of all our gold.

Reductio ad absurdum perhaps???

To those readers who are actually serious-minded and are who are attempting to make fact-based investments or trades, rising GLD reported holdings are bullish for the gold price. Falling GLD reported holdings are bearish for the gold price. It really is that simple.

Don't fall for yet another hoax coming out of the GIAMATT cult. They see what they WANT TO SEE and not what is supported by the obvious facts. That is called "Observer-Expectancy Effect".

In closing here are two charts that illustrate perfectly what I stated in this last paragraph.

Here is the chart of GLD showing the rise and the fall in reported holdings.

And here is the gold chart:

Notice how closely the price of gold corresponds to the rise and fall of the reported holdings in GLD. Please note that I am NOT saying that there is a perfect correspondence in the daily price movement of gold in response to the reported holdings. What I am saying is that the general trend in the price of gold very closely mirrors what is happening in GLD holdings. When holdings rise, so too does the gold price. When holdings fall, so too does the gold price.

Keep that in mind when you come across yet another theory coming out of the GIAMATT crowd.