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Our friends Lee Quaintance
and Paul Brodsky at QB Asset Management in New York have just written a
brilliant report, titled "Your Gold Teeth," on the hidden and
suppressed value of gold and the manipulation of the gold market. They
maintain, in part:
"The amount of gold ounces represented on
futures exchanges vastly exceeds the amount of deliverable gold in the world,
and the perpetual rolling of front-month contracts insures that very little
physical gold actually changes hands. Further, claims for gold represented by
other derivative vehicles off futures exchanges but priced off futures, such
as ETFs, gold swap agreements, and even fully-paid-for yet unallocated gold
held in storage, cannot be satisfied.
"We do not have a problem with gold futures per
se (in contrast to many gold fans who decry naked shorting), because for
every seller of gold claims there must be a buyer. But it is important to
recognize that the leverage inherent in gold futures changes its character;
physical gold is a real asset while gold futures are financial assets. Like
other financial asset markets, the paper gold market is grossed-up with
leverage but its open interest nets out at equilibrium pricing.
"This does not mean that equilibrium pricing in
gold futures necessarily represents 'fair pricing.' We believe participants
in gold futures include: 1) speculators at every level of sophistication who
buy and sell them seeking financial gain from either price changes or, at
times, positive carry; 2) banks that create unreserved credit denominated in
baseless money, that short gold futures because they have incentive to
sustain the current monetary system and maintain control over credit
distribution, and 3) sophisticated international purchasers of physical gold
that short futures to keep the benchmark price low so they can amass more
physical bullion.
"If the preponderance of sellers of gold
futures enjoys far better funding terms than do their buyer counterparties,
then it would seem logical there would be great advantage to sellers to
maintain prices lower than they would otherwise be if funding of futures were
equitable."
QB Asset Management has graciously consented to
GATA's sharing its report with you here:
http://www.gata.org/files/QBAMCO-YourGoldTeeth2-08-2011.pdf
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