How To Manipulate The Gold Market And Become A Billionaire In 9 Simple Steps (By Janet Tavakoli)
Guest post that Janet sent by email tonight, ostensibly in response to our earlier story on gold. It's an awesome piece of analysis, so take a few minutes to read it closely. For the record, we've already had at least one attempt at cornering the gold market:
And the Hunt brothers tried the same with silver more recently:
Includes video from the unveiling of the world's first gold ATM machine in Abu Dhabi.
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Must See:
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Guest post from Janet Tavakoli
How to Corner the Gold Market
First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities. Stay away from people like me, and fly under the radar, because I'd like to see you thrown in jail.
Most Washington officials, regulators, and Wall Street managers are probably safe to hang around, especially if you cut them in for a piece of the action or give them vague promises of a future lucrative job.
Next, cultivate relationships -- or plant someone -- on as many of the gold exchanges as possible in London, New York, Chicago, Hong Kong, Sydney, and Dubai. Get to know key people at one or more of the bullion banks: JPMorgan Chase, UBS AG, ScotiaMocatta, Barclays Bank, and Deutsche Bank AG. Get to know as many mine producers as possible (China has been buying gold mines), and watch the sales of mines, particularly to China. Get to know all of the refiners.
Set up some new offshore corporations, subsidiaries of existing corporations, and a hedge fund or two of your own to engage in some gold trading.
Get to know as many hedge fund buyers as possible, and encourage everyone to buy physical gold. Remove the gold from custodian banks, and stash it in a vault solely under the control of the hedge fund. Use your network of people with net worth of $1 billion or more to get them to buy gold, too. Then work on the "small" investors with only $100 million or more net worth. Keep the key decision making group as small as possible to make it harder for anyone in your group to try to back out.
Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to naïve retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the "gold" to be commingled with the custodian's gold, and the custodian can lease out the gold. Moreover, the "gold" custodian can give it to a sub custodian that the manager doesn't know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not "allocated" to a particular investor. Since this is an "exchange traded" gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn't. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.
Locate the naked shorts, the bullion dealers whose short positions are greater than their long positions. After you complete your plan, the naked shorts will have to pay whatever you can squeeze out of them to cover the contracts they have with you.
Now you are ready to execute your plan.*
Step 1: Let everyone in the futures markets know you are buying gold, speculating in gold, and want to take physical delivery. It helps that China openly announced it wants to increase its gold reserves; the market isn't looking too hard at you. At first, act like you're naïve. Buy on margin and pyramid up by reinvesting your profits when you have them. This part is legal, but you don't want to draw too much attention to yourself. Your buddies in the market will distract attention from you by buying gold and putting on straddles (selling the near months and buying in future months). No one will suspect collusion.
Step 2: Get the banks to let you finance your gold. They will lend you most of the value of your gold, especially if you do not argue about the interest rates they charge. Since they are borrowing from the Fed or another Central Bank at nearly zero, they consider the difference they get from you (backed by your gold) as gravy. As the price of gold rises, they will lend you more, and you can add to your gold position.
Be careful with the loans, though. In March, 1980, Paul Volcker was Chairman of the Federal Reserve. As the Hunts tried to corner the silver market, Volcker inadvertently (or otherwise) ruined their plans. Volcker raised interest rates to fight inflation and issued a special credit restraint to banks admonishing banks not to provide financing for speculators in gold and silver. Borrowing costs rose, while silver prices dropped. The former billionaires were bankrupted by Volcker's prudence. Fraud is not for sissies. But don't worry too much. No one in Washington is really listening to Paul Volcker today. They just trot him out for a photo-op, and then dilute any "rules" he suggests to render them totally ineffective.
Step 3: Book up all of the space at gold refiners, so that no one else can do it. Buy as many gold mines as possible, and do not hedge (sell gold forward). Since the price of gold is going up, persuade other mines to keep as much of new production as possible off the market, while you execute your plan to push up prices. Keep the part about your attempt to manipulate gold prices a secret. You won't be 100% successful with all the mines, but you don't have to be, and every bit helps. Besides, if these other mines insist on hedging (by selling gold forward), your plan may drive them into bankruptcy, and then you can buy them cheap.
Step 4: Create credit derivatives contracts that give you the option to ask for your pay-off in gold. Make the reference credit the United States or the United Kingdom and create extra triggers like credit downgrades or other events that make it easier for you to demand payment in gold. The steps you use here to manipulate the gold market can be adapted to the credit derivatives market, so even if you can't trigger the event, you can make the spreads move in your favor and demand collateral in gold. Hide the credit default swap contract from the eyes of the clearing exchanges by embedding them in a securitization, a credit-linked note, or a sovereign fund product. Most investors that invest in these products never read the documentation, so when you trigger the event, they won't realize they are caught in a short squeeze--scrambling for your gold at the high prices you set--until it is too late.
Step 5: Pick the future month to make your big move. You will go long gold futures and demand physical delivery. Your buddies will all go long, too. Mix it up a little by buying some straddles to make it appear you are just a regular speculator, and throw everyone off the scent. Balance your straddle so it is relatively neutral, and the initial long position continues to apply pressure. When the long side of your straddle becomes due, demand physical delivery (this will be before your other long position) to keep up the pressure.
Step 6: Secretly and habitually start making some large early purchases in non-U.S. markets. That way, when the U.S. markets open, gold should follow the upward trend. Create chaos by doing as many as the following as possible in the shortest time possible. Move any remaining gold you have in trading depositories to private storage. Get some banks to issue research reports on how the bullion banks don't have enough gold to cover their massive short positions, and talk about the tight gold supplies. Trigger some of those credit default swaps. Inform the investors in non-allocated "paper" gold ETF's just how stupid it is to give their money to a "manager" that doesn't audit the gold, insure the gold, prevent leasing of the gold, allocate the gold, or otherwise prove the gold is backing the fund.
Step 7: The bullion banks and dealers that have over-hedged their physical gold with short positions will now be squeezed and have to meet cash margin calls. You and all of your speculator friends will look bad, so now is the time to use a ruse. Offer to cancel some of your forward contracts at favorable prices in exchange for early delivery of gold. This will temporarily relieve the bullion dealers' pain on their short positions, and give you control over even more of the gold supply.
Step 8: You and you friends have pinched off the gold supply and control most of the free gold supply having locked it up in your own vaults and warehouses. You are all long a lot of futures contracts, and you will all demand physical delivery. You now have the naked shorts exactly where you want them.
Step 9: Rely on bankruptcy and bailouts to get what you want. Normally, you would be afraid that you would never get paid, because your demands would bankrupt the naked shorts. But the naked shorts are likely to be unwary hedge funds or other sophisticated investors, and no one cares if you bankrupt them. Other naked shorts are likely to be the bullion banks, and they are all being bailed out by the Central Banks who will lend them what little gold they have left and then beg the IMF for whatever they have. In lieu of that, you can set a very high cash price and take cash. In the gold feeding frenzy you have created, you can gradually unload some of your physical gold. If you managed to bankrupt any gold mines, circle back and see if you can scoop them up for a song.
China is a wild card. If it is not part of your scheme and decides to lend its gold, it could dampen your profits or even upset your short squeeze. But China may not want to help out your victims. Why should they? If China buys enough gold mines and increases its reserves enough, it may be in its interest to befriend you. Your combined ownership will have made the futures markets irrelevant. Together you will not only have cornered the gold market, you will have cornered gold.
* The Hunt Brothers used a similar earlier strategy in an attempt to corner the silver market in 1979-80 as recounted by Stephen Fay in The Great Silver Bubble (Coronet, 1982). It was also released under the title Beyond Greed (Viking, 2002).
Janet Tavakoli's book on the causes of the global financial meltdown and how to fix it is Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street.
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Video: Gold ATM machine unveiled in Abu Dhabi
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Oct 5, 2010 at 7:31 AM
Reader Comments (57)
http://www.tavakolistructuredfinance.com/videos.html
http://www.huffingtonpost.com/janet-tavakoli/nassim-taleb-kills-20-bil_b_571633.html
tavakoli on taleb...
http://www.cbsnews.com/stories/2010/09/30/world/main6914308.shtml
U.S. Strikes Cell in Pakistan amid Terror Alert
Missiles Kill 5 Suspected German Militants in Area Believed to be Location of Cell at Heart of Terror Alert for Europe
http://www.cbsnews.com/stories/2010/10/04/world/main6927247.shtml
Exotic Dancer at Atlanta Strip Club Told Authorities Judge Used Cocaine, Marijuana and other Illegal Drugs with Her
http://www.cbsnews.com/stories/2010/10/04/national/main6927281.shtml
Corruption at all levels...i wonder how many he sentenced to federal prison for drug offenses...
Justice Department Says 3 Largest U.S. Credit Card Companies Engaged in Anticompetitive Practices
http://www.cbsnews.com/stories/2010/10/04/business/main6926403.shtml
This is good news...
http://www.alertnet.org/thenews/newsdesk/LDE62O1TE.htm
Check this out...
http://www.huffingtonpost.com/2010/10/03/jon-stewart-rick-sanchez_n_748348.html
"Corruption at all levels"
Just remember, corruption is party specific depending on which side you talk to. All ill gone deeds are "other party lies" if the allegations are about someones specific herd.
http://www.huffingtonpost.com/2010/10/05/clayton-holdings-financial-crisis-inquiry-commission_n_750039.html
http://www.huffingtonpost.com/2010/10/04/rachel-maddow-bill-oreill_n_748877.html
Cat fight...
http://www.cnbc.com/id/39510784
Ask Janet who really owns the ETFs gold? (hint - it's not the holders of GLD shares).
Ask Janet if the rich in Zimbabwe ever tried to switch their gold holdings back to paper.
There are more human beings on Earth than there are ounces of gold ever mined - ask Janet how many people actually own physical gold.
The notion that anybody is trying to drive up the paper price of gold is insane, and completely backward. The joke isn't how much paper you can get for gold, it's that there's still people willing to part with gold for the paper of a government that literally spends two dollars for every dollar it collects in taxes, and is promising to accelerate that deficit.
Have you seen these "WE BUY GOLD" stores? I stopped in one - all they do is buy - they don't sell at all.
Janet may be well-intentioned, but she needs to face the fact that the paper assets she's been struggling to understand her whole career are about as real as pro wrestling.
"Inform the investors in non-allocated "paper" gold ETF's just how stupid it is to give their money to a "manager" that doesn't audit the gold, insure the gold, prevent leasing of the gold, allocate the gold, or otherwise prove the gold is backing the fund."
She hasn't read the prospectus to see how shares are created - the very SAME banks that sell contracts on the Comex for gold that doesn't exist, have supposedly put gold on deposit to create the GLD shares.
They can still sell contracts against that gold and if the whole thing blows up they reclaim the gold, giving GLD shareholders Whatever paper number they feel appropriate. In other words the metals ETFs help in suppressing prices - not inflating them.
The Hunt brothers actually succesfully cornered the silver market, a flood a "paper" silver dropped the price (read non-existent, phantom silver).
Janet doesn't seem to understand that the ongoing suppression of the gold price is the main reason she's not flipping burgers somewhere. People still want to believe our economy is more than smoke and mirrors.
Spoiler Alert: It's not.
And DB, you should understand that the gold market is accomplishing what you and I have not been able to. It is exposing every criminal that you and I despise for the lying frauds they are.
It's simply meant to demonstrate how a group of hedge funds could work to corner the gold market...and the steps they would take in order to do so...
"Move any remaining gold you have in trading depositories to private storage. Get some banks to issue research reports on how the bullion banks don't have enough gold to cover their massive short positions, and talk about the tight gold supplies. Trigger some of those credit default swaps. Inform the investors in non-allocated "paper" gold ETF's just how stupid it is to give their money to a "manager" that doesn't audit the gold, insure the gold, prevent leasing of the gold, allocate the gold, or otherwise prove the gold is backing the fund."
And she doesn't claim that the etfs inflate prices...she makes no such statement...it's about using the etfs as a pawn in the plan to corner as much of the actual metal as possible...after your comment she sent an email in response which i'm not posting to avoid a prolonged fight...but suffice to say that she has read all the prospectuses...
Or maybe they saw what happened to Andrew Maguire when he blew the whistle on silver manipulation and thought twice:
http://www.nypost.com/p/news/business/jpmorgan_chase_story_in_uk_DsMN4PnXFoQG5KdevIsQ7N
Or maybe they fear the pandemonium that will greet the U.S. within minutes of having its fake currency exposed in a physical market.
Who knows? In any event, it's good to see someone as high-profile as Janet T. take up this issue.
You get the treatment Mark...
http://www.youtube.com/watch?v=b4VvBynKsM0
Ex-trader Kerviel sentenced to 3 years in jail
http://news.yahoo.com/s/nm/20101005/bs_nm/us_socgen_kerviel_verdict
In Europe, this is actually a pretty harsh sentence (now on appeal).
The idea that SocGen has no responsibility for his actions is a sure sign that this is all a show trial for the masses.
I hope that this guys boss got the ax or at least a smaller year end bonus.
I am making a guess that if Soros and I both asked for the physical delivery of our ETF gold, the trucks would arrive at Soros' house without delay and I would be patched through to India to talk to Bahadra who will keep saying to me..."Sir, pleeze colm dowun and talk slowur".
Okay, now I am a Obama Birther and a Mossad Agent Residirther?
http://www.nbcchicago.com/blogs/ward-room/rahm-residency-chicago-diversey-bowl-104319364.html?dr
It doesn't matter because the people want him, hmmm, that sounds familiar.
Watch the video, he is such an ass.
http://www.youtube.com/watch?v=vuDgW_Trppw
Look citizens - you can still but physical gold at what many of us believe to be a suppressed price, so don't cry when you can't get it anymore.
Go read the title again - Janet still only understands wealth in terms of US dollars. The Zimbabewe dollar was worth more than the US dollar in 1980, the Zimbabwe government made everyone TRILLIONAIRES!
How'd that work out for them?
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Mark i'm afraid that blames fall on me...i wrote the title...her title was simply "how to corner the gold market"
I added "and become a billionaire in 9 easy steps"...
i was just adding the extra phrase for google search value...there is nothing in her story about how much money you could make...it's simply a step-by-step plan for cornering the gold market...
Um, news flash, Janet, private hands control the gold market now. Of course they use it to pretend Keynesian economics works by naked shorting it, driving down the price and calling it "The relic." They've been doing it for at least thirty years now.
Distorting prices to the downside to make it look like you know what you're doing is a dangerous game - sooner or later someone's gonna call your bluff. You don't need to conspire, you just buy what's on sale. China doesn't need credit to wipe out the Comex, they'll do it when we piss them off enough (like when Congress starts calling THEM currency manipulators).
How many stories do you need to hear about how people who accept paper promises for gold (or anything else for that matter) get screwed in the end before you believe them?
I read this post a second time, and it's still gibberish.
Businesses argue that the high costs often prevent Denmark from being competitive internationally.
http://www.cphpost.dk/business/119-business/50154-denmark-tops-europes-water-tables.html
She's spent her career in structured finance - she's the disease masquerading as the cure.
Now she thinks she "gets" what's going on in the gold market? Trust me on this: She doesn't.
This post is a paranoid tale of alleged crooks cheating other crooks. Seriously WTF?
Care to step into the Thunderdome with me, Janet?
Why do I get the impression that she's told clients, "Oh yeah....the GLD is safe." And now evil people are spreading evil rumors that the GLD isn't safe.
Yeah, evil people encouraging gold investors to actually take physical posession of their gold as part of evil scheme for someone else to corner the gold market.
It's downright hilarious!
google search for her and blankfein and david viniar...you'll see some of her battles with them over synthetic cdo fraud...
I'll have to take your word on that. The first I ever heard of her, it was kind of a jealous, "How come Meredith Whitney's famous and I'm not" rant. But fine, I'll back off.
http://www.huffingtonpost.com/janet-tavakoli/goldman-sachs-bullies-on_b_713908.html
In the fall of 2009, I uncovered the fact that Goldman Sachs had a much larger role in the mortgage bets that nearly toppled AIG than the Treasury, the Fed, or Goldman itself publicly disclosed in September 2008, when AIG was first bailed out. Then Treasury Secretary Henry Paulson was Goldman's CEO at the time the deals were done with AIG. He was also CEO when Goldman underwrote other value destroying CDOs against which foreign banks bought protection. Stephen Friedman, a former Chairman of Goldman Sachs and then Chairman of the New York Fed, concurrently sat on Goldman's board. These men had serious conflicts of interest, and events played out very much to Goldman's benefit at the expense of taxpayers.
By September 2008, AIG was drained of cash and close to imploding. At the time Fed Chairman Ben Bernanke testified AIG had to be saved lest AIG's failure trigger a Great Depression. (In March 2010, Treasury Secretary (and ex-President of the NY Fed) Timothy Geithner and ex-Goldman CEO and ex-Treasury Secretary Hank Paulson also testified to this.) Instead of allowing AIG to fail with minimal intervention, Washington protected culpable bankers.
In September 2008, David Viniar, CFO of Goldman Sachs, said Goldman's exposure to AIG was "immaterial whatever the outcome at AIG." Goldman CEO Lloyd Blankfein would later testify to Congress in that Goldman "facilitates customer transactions." After analyzing new information, on October 28, 2009, I issued a commentary, "Goldman's Lies of Omission," stating that in my opinion, David Viniar, Goldman's CFO, had lied.
Intimidation Tactics and Cover-Ups
Goldman's response was to initiate an hour long phone conversation: a combination of a veiled threat (I don't have a problem...but our lawyers might) and obfuscations. In response, I issued an "apology" to David Viniar. Viniar may not technically have lied; perhaps he is just unimaginative about risk. Either way, shareholders might ask why Goldman's officers sucked tens of billions in bonuses out of the Goldman as they "hedged" value destroying CDOs with AIG--an entity that nearly collapsed, while it still owed billions to Goldman.
Goldman said it was only involved in AIG trades as an "intermediary." That wasn't true. As a further response to Goldman's pressure, I revealed Goldman's key role in AIG's crisis. At the time, I was confident that within a week, an expected SIGTARP (Special Inspector General for the Troubled Asset Relief Program) report would have similar findings, but inexplicably, it did not. My findings were sound, however. When Goldman blew smoke about only being an "intermediary," it didn't know that I had information that had been suppressed by the Fed, AIG, Goldman, Treasury, and the SEC. [See: Goldman's Undisclosed Role in AIG's Distress, TSF, November 10, 2009.]
http://dailybail.com/home/janet-tavakoli-where-were-the-drama-pundits-when-it-mattered.html
I will admit that she sometimes sounds like she's pissed that certain people are getting credit when they were nowhere to be found before the crisis hit...but that's not her point...and honestly i don't blame her sounding that wat considering that she was out there warning and she was IGNORED for years...take a look at this one...it's short...and discusses her battle with viniar and blankfein in more detail...
http://www.tavakolistructuredfinance.com/GS.pdf
Goldman's Lies of Omission...
The gold market is a beast, to be sure. The only (unpaid--I hear good stuff about LeMetropole, but I don't pay for pussy or financial knowledge) writers I trust are Harvey Organ and Arthur Cutten, aka Jesse. Down a notch from them are Eric deCarbonnel and Jim Willie. For gold philosophers, I turn to FOFOA and someone whose name eludes me. Gold is so fucked up that even longs like me are bewildered by the action, except for one thing--I smell smoke in a physical market that's been gamed by paper for 39 years.
To someone like you, yeah, whatever, Tavakoli might have made a mis-step. I don't know, and I don't care. She's got the forest right, just like me. Gold won't go parabolic until avg. Joe starts to get it. I've been on the 79 train for damn near 3 years--without a single convert. Sadly, friends and fam are completely brain-washed by TV. Janet Tavakoli, who I've seen on on that foul desecration from time to time. She thus has untrammeled access where I have FAILED.
Consider JT's audience and count your blessings. Mon Dieu.
To me, Janet is the ultimate "Drama Pundit" Like the jack-holes who wrote about how obvious the Madoff fraud was after Madoff confessed. Hey, thanks for nothing!
What she is witnessing (but misunderstanding) in the gold market is the Darwinian flush that will make both Goldman Sachs and herself of no use to anyone. If she truly understood the crisis, she would have understood the threat that players like Goldman posed to her sooner. This article reeks of desperation; grasping at straws, because you have no idea what's going on.
But that said, I'd link to discuss a couple points from the article you linked to:
"Now that the crisis is over...." What a foolish thing to write. The "crisis" hasn't even started yet, maybe that's why Janet has no clue what's going on with gold. DB, do you think the crisis is over?
"Goldman received a cash payment worth more than $10 billion from the U.S. Treasury—via AIG—during a system‐wide liquidity crunch."
and
"If AIG had gone under, the already illiquid market would have frozen. Collateral requirements for all trading would have increased (just as they did the week Bear imploded), and Goldman would have had problems collecting from many trading counterparties, if not the exact counterparties “hedging” its exposure to an AIG disaster."
Hasn't Dr P. thoughly debunked this myth?
http://www.youtube.com/watch?v=FgCevpO18t4
http://www.youtube.com/watch?v=06Cbl_KwXuo
I respectfully disagree. Harry Markopolous (sp.?) wrote about Madoff's fraud for nearly a decade before Bernie, uh, turned himself in. I didn't read any, or even know about, of that shit 'til Madoff turned himself in. (Thanks, Cox & Shapiro, you nozzles.).
Tavakoli's piece, by contrast, is a free seminar to buy actual real money BEFORE the train leaves the station. That happens maybe what--once in a real good lifetime?
Put your chips on JT now that she's sorta big, you'll get paid well. The Madoff episode offered no such opportunity, it was just more bullshit "news.l
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Mark, IF AIG had "gone under," I imagine collateral requirements would have increased. No question there. But AIG was not going to go under. The Fed had already rescued them...er, their counterparties. My argument has been that TARP didn't save the world because a host of lender of last resort-type actions by the Fed had already ensured the world would not end. If the man who makes the money says I'll get you the money, you know you're going to get the money. All TARP did was panic people, throw up a smoke screen and entangle taxpayers into the bank's capital structure. TARP, by accident or design, kept the bailouts going and probably ensured that we did all the wrong things in 2009 after the panic had subsided.
If AIG had gone down, would Goldman and MS, along with all those people with whom Goldman bought CDS on AIG, also have gone down? I'd like to think so! In that event, interbank lending would have had serious problems, but it wouldn't much matter if the Fed acted as lender of last resort -- which it did. I still don't know what TARP was intended for. The effect is what I just mentioned -- panic, smoke, tangles. Maybe DB is right -- Paulson and BB just got scared and didn't know what they were doing. That's the most plausible KNOWN scenario. But then there's what Rumsfeld said.
2003, hmmm, what party controlled Congress and the Presidentcy then, wasn't it a perfect world prior to 2006 and 2009? I remember the Bernie alarms years before he turned himself in, but everyone knows it was a perfect world...