Russia and Gold

I went out for coffee and when I got back, Microsoft had riddled windows with spyware, a deadly virus was released on the world, Australian police used drones to enforce lockdowns, Antarctica had heatwaves, plastic became a plague, artificial intelligence is ruling our lives and Russia invaded Ukraine result-of-which we're on the verge of WW3. Hoorah!

It is worth attempting to scrape some value from the extreme situation we find ourselves in. Ukraine 2022 provide a unique opportunity to stress-test one of the bigger precious metal theories from the recent decade - the notion that a sudden massive demand for real physical gold would collapse the western banking system.*

Being immune from direct experimentation has allows this concept to thrive and mutate over the years. Here are some of the big variants:

- The 'paper gold' derivatives system would explode

- The United States Dollar would 'collapse'
- The major bullion banks would be crashed

- The Freegold era would be ushered in
- The COMEX would bust from individuals standing for delivery

This myth is officially busted. Here is the test in all it's simplicity: all Putin needs to do is to demand gas and oil payments in physical gold and hey-presto the economic system of his adversary would be on its knees without even firing a shot. Russia has the means, the motive and the opportunity - surely this apparently very-obvious vulnerability would have been exploited already if it were real? Or maybe Putin didn't get the memo on 'buy silver, crash JP Morgan'?

I raised an eyebrow when reading they had 'pegged' the Rouble to Gold starting 28th March 2022 giving the initial impression they were selling energy for gold using the Rouble as a proxy.  As I understand it, the arrangement wasn't a true gold standard because exchanging Roubles for central bank gold at a fixed price wasn't a feature - and in any case by 7th April 2022 Russia's central bank ended the fixed price arrangement so whatever they were experimenting with ended nearly as abruptly as it began.  The price of gold showed nothing noteworthy during that time period (my highlight).

In March, six Russian gold refineries had their accreditation temporarily suspended from The London Bullion Association (LBMA) which means they can't sell newly refined bars into the London market however 'Gold and silver bars produced by the refineries while they were accredited remain valid to trade, according to LBMA rules', which is why Russian bars are still present in the GLD bar listing. At first I thought this might choke the physical gold supply but article explains it away: "Bankers and traders have said the removal of Russian refiners would have little impact on the market and Russian metal would still find buyers in places such as China and the Middle East". Quite, since Russia's supply is quoted at ~330 tonnes/year. No disruption so far - could it be the physical gold market is robust?

Personally I still favour the idea of Freegold - having Gold as the ultimate neutral global reserve asset ** floating against all other currencies would limit the ability of governments to wage war and reduce their capacity for totalitarian measures against the general public. But until that happens we owe it to ourselves to abandon childish mythology in our understanding of the world.

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* Market 'manipulation' is a separate topic - in 2022 we know regular collusion and manipulation of futures markets by the big players are very real and are well documented thanks to the myriad fines issued (link).

** At some point in history the US Dollar will no longer be the global reserve currency.  On this topic I recently came across an exposition by Ray Dalio (43 minute animated summary of his book - link).

[thoughts] On Predicting when Bullion will Return to GLD (FAILED PREDICTION) PLUS a new permanent spreadsheet resource

A number of months ago I predicted the return of some specific GLD bars, and I'm sorry to say they haven't yet returned and statistically there is now less than a 5% chance that they will. So that is a FAIL; my method for detection of unusual GLD withdrawals did not create an accurate prediction. I'm disappointed and it's back to researching that area. I will of course update this article if I ever see them back on the ledger, but because it's outside the three to four month range expected, I'm admitting defeat.

GLD Trade Spreadsheet vs GLD Bar List (Updated)

a quick question:

"Are there any significant discrepancies between the numbers in the GLD trade settlement spreadsheet and the GLD bar list?"

GLD Inventory Large Addition Analysis

Just like the gold price itself, the inventory of GLD was incredibly boring for the last few months then it got some excitement all in a hurry with 668 gold bars being added to the inventory on the 30th May bar list (shown three days earlier on the trade settlement spreadsheet). That's a big increase for one day, let's take a look at the bars themselves.

I was expecting a large percentage of the add event to be from gold bars previously seen in the inventory (dark bullion). I wasn't disappointed. 487 bars were previously dark ... i.e. 23% new, 73% old.

Defragmenting GLD

This article presents some recent bar list work and shines that spotlight even deeper into the darkness of the vault. Does anyone remember the old 'defrag disk' programs we had before solid-state-drives? The screens were beautiful to watch as they worked! Seeing the individual blocks of data move around gave a better idea of what our data was doing and showed a different side to the disk drive we only ever saw the outside of.

A typical defrag program - showing data allocations on a computer file system.
The software would remove blocks from one location and write them in another.
Some files did not move at all (and you could see which blocks stayed).

The mechanic shares some similarity with a gold vault, an analogy close enough that we can take advantage of - a specific fixed area filled with lots of small (identical) units which take up space and are easily moved around.

GLD Added 7½ Tonnes in January 2013

A quick follow-up to the GLD bar list, which had a large 600-bar addition last week, I wanted to shed some light on the inner mechanics. Inventory additions in GLD are noteworthy because the trend is currently inventory removal. This is a followup from this post when 6½ tonnes got added late last year.

The inventory addition on 17th January 2014 from the SPDR GLD trade spreadsheet finally showed up in the bars list data on 23rd January 2014 (delayed because of the US holiday). I was mildly surprised to see that all the bars added (i.e. 100%), had been seen before, i.e. they were dark bullion for a time before being 'added' back to the ledger. The average rate for dark bullion discovery is typically 30% of added gold so this is unusual. For most of the time, these bars have been sitting in the vault, from as far back as 2009, this is the breakdown by refiner:

Below is a method I am developing for GLD inventory visualization, sorry for the crudity - bear with me, I will explain it.

The Earliest Known GLD Bar Lists

This article will only be of interest to fanatic bullion bar list historians - I am pleased to announce that with the help of some great individuals, we now have copies of some of the earliest known bar lists for the GLD ETF.

I am grateful to the collective efforts of FOFOA and Ro' on this one - they knew I had an interest and applied a better approach to researching the topic than I did. Prior to this discovery our earliest bar list was from October 2009. As a quick reminder : we're interested in the GLD bar list because it is the biggest and best data source for public weight lists - it constitutes 80% of the bullion bar information we have in the database (currently over 54 million rows of data).

GLD Added 6½ Tonnes in October 2013

Late reporting on this ... Last month (October), there was a substantial addition to the GLD inventory (523 bars), the size of which stood out because it was the first 'add' after a sequence of 'removes' but compared by amount to other 'adds' for this year, it only ranked 6th largest.

Quick comparison charting all currently known 2013 GLD additions.

An avid reader of "Harvey Organ's Daily Gold & Silver Report" (who shall remain unnamed) brought to my attention an interesting Harvey Organ footnote (my bold emphasis):

A different view of GLD (part 2 of 4) updated

This is part 2 of a perspective on GLD's inventory you won't find anywhere else on the internet; an edutainment series using the ETF bar list data as a base. In Part 1 we looked at what occurs when we look at a specific set of inventory, here is the updated graph (using the data from July 2013). This time I have added some extra data points to help accentuate that the line indicates the measurement between two chosen points only. The additional measurements show bullion for a shorter 2-year range.

The last few months of removals has started cutting into GLD stock originally accumulated more than two years ago (i.e. this is shown where the corner meets the inventory curve), whereas that wasn't the case in February. For our 'overall' measurement, the dark yellow line has moved DOWN (from dotted line) since last month, so we can say that over 1,000,000 ounces of gold removed in the last month, was taken from stock present prior to June 2011. But while this is interesting, it is no particular conspiracy as it just reflects the fact a lot of gold is being de-listed.

Also bear in mind this chart summarizes a lot of detail. Don't read into the figures too much.

A different view of GLD (part 1 of 4)

GM has charts sewn up nicely, but in the land of the bar list, what's new? Everyone knows about the decline in GLD inventory but not much attention is given to increases in inventory, so let's talk about it some. There were only three 'Add Events' in GLD during June 2013, with the largest add (214 bars) on the 13th June. In my bid to make the information more digestible, here is the summary as a handy info-graphic (yeah, I've got a new version of photoshop):

A quick GLD Dark Bullion Post (updated)

During the last week we mapped the Dark Bullion in GLD, similar to our SLV study. I've always been curious about what was happening with the inventory during August 2011 during that magnificent price peak, and here is an interesting look at that month. If you haven't already seen the mechanic and terminology, please have a read of SLV Database #5. The black band is bullion which was removed from the bar list, but which we confirm has been added back at a later time. Additionally, there is some color to show which of the inventory has a 'history' of being dark, for both visible and lost. The scale (measured in Fine Oz) has been adjusted to highlight the movements, but bear in mind the dark band only represents a small percentage of the total inventory held.

August and September 2011, clearly showing that the inventory from
the big million-ounce removals were actually returned to the GLD
inventory at a later date.

An example of the Dark Bullion Effect (GLD)

The GLD inventory the other week had a small uptick of inventory - just 96 gold bars - not much in the scheme of things but enough to do an analysis of 'where did those bars come from?'.

I consider the dark bullion effect significant because it invalidates more than one general thesis out there (about the metals). For anyone new to the discussion, I am defining dark bullion as 'A bar previously known and registered, re-appearing on a list after an absence.' I stand resolute on this topic simply because the signal (of the dark bullion effect) is unmistakeably clear and provides a different view of metal inventories - I have been pursuing this ever since I first detected the effect in 2011, and I want to talk about it more, with the hope that with enough discussion we might be able to squeeze some secrets out of the data.

On Estimating Population of Gold Bars

I owe reader Michael H an answer to the question of "how many of the 200,000 bar signatures we see, are from GLD?". The answer is 158,289 i.e. roughly 80% of all bar signatures we know about, have appeared in GLD at least once, the other signatures are known from 18 other ETF's. Now I need to explain why I thought this worthy of sharing in a post.

Catching up on SLV and GLD (and other observations)

I was hijacked by my day job for about two months! During that time however I managed to keep track of most of the conversations going on. If only I could have bought shares in 'opinions about what gold is doing', for this is surely reaching into bubble territory. I don't want to add to that, rather just bring a few brief updates from the bar lists study corner - these are the low hanging fruit while I get myself reorientated.

Database confirms Max Keiser Guest statement (updated x 2)

Untitled

The biggest challenge of the BullionBars database is knowing what questions to ask of the data warehouse; at any given time there are a number of research streams in progress - but these do take time to build and mature. The biggest advantage (of having a huge chunk of data there) is the ability to run very quick random checks on anything bar-related. Today, Screwtape Files bolsters support for a particular story. Brought to my attention by Bron Suchecki this morning was a Max Keiser interview where guest Dominic Frisby makes a comment regarding Chinese gold bars (ref 20:30-21:15):

Dominic Frisby, Author/Writer

(edited for clarity) "... I had dinner about a year or two ago with the head of Gold at HSBC and one of the things that he described — and most of the world's gold goes through HSBC, at some stage — looking at the gold in his vault ... despite the fact that China is the biggest producer - he never sees bars, with Chinese stamps on them ..."

THIS OBSERVATION IS SUPPORTED BY THE DATA WE HAVE ON RECORD.

Zero Hedge ZJ6752

An interesting article at Zero Hedge today, which has a story about Bob Pisani’s visit to the GLD vault. The thrust of the story is that the Rand Refineries bar with serial number ZJ6752, does not appear in the GLD bar list. Our database has records from 20th June and I can confirm that the bar does not appear in the last 45 published documents. Eagle eyed Zero Hedge reader ‘The Grifter’, located an old copy of the GLD bar list from November 2009 on way back web with a bar from a similar number range, but not the bar itself (thanks Grifter, we’ve added this file to our data library).

We’re happy to announce that we found the bar, but just not in the GLD data. The bar currently belongs to ETF Securities. For those wanting to relieve their angst about the mystery identity of the bar, can check the following (zipped) spreadsheet, specifically work-sheet “MSL Gold”, row #10590 (Website bar list 2011-08-31.xls).

Note that the fineness for this bar is 0.9989, which we get a glimpse of that just briefly in the video (click for large version / close up).

As far as we have dug, this bar first appeared in the ETF Securities list on 21st July 2011, which at least gives a window for the timing of Pisani’s mini-documentary – however in all likelihood the bar had been in the vault since it was cast in 2009. The HSBC vault holds gold for other funds, so basically what happened is that the bar which was picked up, just happened to belong to ETF Securities (and not GLD) and no one on the TV crew bothered to check.

This find was a bit of an anti-climax for me, since it dispels the main conspiracy thrust so sought after by most of the commenters at Zero Hedge. The article is not completely without merit, since the gold bar shown did not belong to GLD – so in terms of ‘proving’ the GLD holdings, that’s really sloppy work by Pisani and HSBC. Maybe they showed him the wrong vault? But - the article was great because I would not have seen that video clip otherwise – it reveals a lot about the way HSBC work with that massive repository (for example, it looks like there is not too much physical segregation going on). On a frame-by-frame sequence with the video there are actually a bunch of other serial numbers seen and if I get the time I might match these up as well, but overall we get the picture – namely that HSBC hold a whole stack of gold bars and they don’t all belong to the same fund.

Watching the video sequence a few times, I do think he flips that bar around a bit too quickly though ... 400 ounces is actually really heavy. That thing looks really light :)

P.S. For anyone interested in the Rand Refinery numbering system, according to my book the two-digit and four-number system was first introduced in 1921, and the two letters are chosen at random and get changed once the full 9,999 bars are manufactured for that sequence.

P.P.S. This article was followed up a year later with more detail. (link)

GLD ETF Mechanics 101 (Updated x2)

We have an automated download for the GLD Serial Bar list as part of the database project, and when today's file didn't get processed I went to see what the reason was. Somehow, the normal bar list was replaced with an internal fax. For the last 30 hours, it has been sitting at the following location:

[Update November 2012 - to anyone using this link from Scissorspaperockstar's post on TFMetalsReport, please be aware that this fax (in my opinion) does not prove Andrew Maquire's interpretation of GLD+SLV mechanics, and this article does not attempt to address that particular area. regards, Warren]

[Update x 2 November 2012 - recommended read is THIS PIECE by Bron Suchecki of the Perth Mint, which addresses Andrew Maquire's argument head-on !!!
http://www.perthmintbullion.com/au/blog/blog/12-11-30/ETF_Price_Suppression_Mechanics.aspx
plus, additional personal perspective post-analysis:
http://goldchat.blogspot.com.au/2012/11/etf-price-suppression-mechanics.html
]

[[ *** another update - the PDF issue on the spdrgoldshares site seems to have been resolved. This link now shows the normal PDF bar list, which is regular. ]]

http://www.spdrgoldshares.com/assets/dynamic/GLD/file/barlist/Barlist.pdf

[ my archived location of the fax is here: ]
http://bullionbars.blob.core.windows.net/gld2011/GLD.20110816.145355.finanaid.pdf

And I assume the HSBC custodians will fix it up once they realise they screwed up, but in the meantime let's have a look at the contents. Please note that even though the fax is an internal fax, I am placing a copy here on the grounds that it has been exposed publicly to the entire world (at the above URL) for more than 24 hours - but I will take it down if asked by a HSBC representative. I have blurred out the phone numbers, but until they replace the file, it's accessible by anyone (they'll want to change their letterhead after this incident too).

The fax highlights some of the boring mundane mechanics of how the bullion banks operate (yep, no conspiracy here folks).

This is basically how the banks can get gold so quickly - essentially a bunch of ledger entries.

In basic terms (confirmed by precious metals experts), the 'de-allocated' means converted to allocated unallocated ... HSBC takes control of (title to) 1907 physical bars* and gives 759,618.457 oz to the trust's unallocated account. So then, the 759,618.457 oz of unallocated are are effectively 100% backed by the 1907 bars. Then the trust is able to transfer (from the unallocated account) a total of 759,562.242 oz to the three Authorised Participants (AP), leaving 299.086 oz in the trusts unallocated account. Note that the balance here is treated to handle whatever rounding error is required on the day - the difference (addition) on the 16th is 59.215 oz, so the balance from the previous day must have been 239.871 oz).

The transfers to the three APs in the document may have been to the APs account with HSBC (in which case the 759,562.242oz in those 3x unallocated accounts are 100% physically backed - hooray) or maybe to the APs accounts with other bullion banks (in which case HSBC has a clearing balance with those bullion banks through http://www.lpmcl.com/ **).

At this point the unallocated bars become part of the bullion banking system, liabilities and the rest - the mechanics I'm still a bit hazy on despite having had a lot of stuff explained to me. The main point (for me) is that the 1907 bar entries involved will have been removed from the GLD bar listing (which is a spread sheet), and that the gold bars themselves didn't necessarily have to leave the vault at all. Which is a good thing since the amount is about 21 tonnes of gold. I will have more to say about this in another article.

It's a really interesting insight and thank you HSBC for making that file available to the public. Take it with a grain of salt since it could have just been a very deliberate plant since one must assume these kind of mistakes don't happen by accident, but then it looks like a genuine screw up.

* which previously would have been part of the normal GLD shares system.
** according to my industry contact.

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---- edited for Clarity - Kid Dynamite (comment #2 below) is correct, in the above sentence I got my allocated/unallocated mixed up, was a little late at night and I was rushing.

It is also worth noting that FOFOA has written a note (last half of that post, below the videos) about the GLD outflow (which was kind of a big movement of gold) - with a reference to Lance Lewis' GLD puke indicator, with the theory of the outflows being in a quasi correlation to the movements of FIAT pricing of gold. That is one avenue for the database that I'm interested in identifying - seeing if there is a way to predict paper gold price based on bar movements (but I think it would be way too complex).

As for the bars themselves, I will be looking at the data interested to see whether these same bars flow back into GLD holdings again soon. @GM - yes I haven't completely handed in my conspiracy badge just yet - but you're right I have been approaching this with an 'innocent until proven guilty' standpoint. I'm fascinated by these mechanics of wealth movement, where a single page of GLD entries represents more wealth than I'll see in the next 10 years.

This of course gets us into a whole new area of research - basically whether those serial number entries are fictitious or real. That is the key, since the entries themselves represent the gold and are TREATED AS money and wealth. But more on this in another article :)

My Book Arrived

Delivered in this morning's mail, my most recent purchase: "Gold Refiners and Bars Worldwide" by Nigel Desebrock, and I am quite pleased.

The database work continues and now includes the GLD bar list (which is published daily) and I confess my attention has been turning to gold recently, simply because the signficance of the stock to flow ratio is starting to hit home for me.

The book was published in 1991, so although 20 years old - it contains a wealth of information on 50 major refiners, and specifically their numbering systems for their bullion bars. Most of these bars described will still be in circulation possibly with a whole chunk in the ETF's, so this gives us the opportunity to match approximate DATE OF MANUFACTURE RANGES for the bars, as well as identify any changes to the numbering sequence. In theory this can be mixed and matched with more recent information, but the upshot is that this information will be used to tag the numbering sequences in the database. Because there is so much freaking data to sift through, we simply flag the sequences which look legitimate and then focus on the areas where the numbering doesn't make sense - getting a kind of 'rating' in the database (between 1 and 100) for the legitimacy of each bar. It may take a while, but any discrepancies should then show up and we'll be able to then chart the percentages involved. A low percentage of suspect serial numbers is hoped for and means that all is well, but a high percentage will warrant special investigation.

This is based on my theory that the easiest way to introduce 'imaginary' inventory into the system would be to falsify a production run of serial numbers and then 'hide' it in the ETF, making sure that the items are never in any danger of being delivered (like those plentiful Russian and Chinese bars .. perhaps?).

Here is what the book looks like. The book is quite large at 476 pages with quite a lot on each of the 50 refiners. It is normally purchased by gold dealers [link to publisher]. I do realise I'm probably overdoing it, but it's fun. By the way, JPMorgan - I am happy to halt my research if you pay out my home mortgage for me ;p.