Thursday, January 9, 2014
"The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only." - The disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013.
How would you like to get your bank statement in the mail from JP Morgan or Bank of America and see this disclaimer added at the bottom: "The information in this account statement is taken from sources believed to be reliable; however, JP Morgan Chase & Co. disclaims all liability whatsoever with regard to its accuracy or completeness. This account statement is produced for information purposes only." What would go through your mind if that was stamped clearly on your next account statement?
The CME "believes" the inventory reports are "reliable" but will not back up the accuracy. Do you trust those numbers? Before you answer that question, keep in mind that the big banks have already been accused and successfully prosecuted for reporting and business fraud in several other areas of their operations. Also keep in mind that the numbers produced by the CME on a daily basis come from reports generated by the banks themselves. The numbers ARE NOT subjected to the scrutiny of any regular independent physical audit.
With that said, there has been a lot of discussion lately about the amount of gold inventory on the Comex in relation to the amount of futures contracts. The imbalance in paper vs the total amount physical gold as reported is catastrophic to the Comex should enough accounts who are long gold demand delivery.
The debate and illustration of the situation with the Comex inventory reports lately have ranged from the sublime to the absurd. Earlier this week a blog post appeared out of Australia that tried to sound knowledgeable and authoritative in justifying and explaining why the distinction between "registered" stock and "eligible" stock is irrelevant. Well, if you know enough about the facts and are not too lazy to look up the actual CME published rules, you know that the CME gives the banks latitude deeper than the Mariana Trench in their accounting and reporting rules. The distinction between "eligible" and "registered" is indeed irrelevant. It's the reliability of the reports that are questionable - just ask the CME attorneys.
There's another well-known newsletter proprietor who makes a healthy living selling his analysis of the CME weekly Commitment of Traders gold and silver report. He's willing to lash out at bank corruption and fraud openly and freely. And yet, for purposes of his analysis, the numbers generated to produce all Comex, CME and CFTC reports - numbers, mind you, that are generated by the banks themselves - are 100% accurate and bona fide. And he's adamant about that. Go figure.
The CME completed its acquisition of the Comex in August 2008. Yet, that legal disclaimer above did not appear on the Comex gold and silver inventory reports until June 2012. Everything happens for a reason and the lack of disclaimer was not an oversight - as said silver analyst has stated. Furthermore, the only role served by the analysis produced by said Australian blogger (who happens to work for the Perth Mint which has been scrutinized in the past for its own inventory issues) is a theoretical discussion of how the banks can play a "shell game" with the inventory that they do report.
The real discussion needs to focus on the legitimacy of the reports themselves. Banks by design use fractional asset/liability management and there's no reason to believe that they treat their gold holdings, whether custodial or owned, any differently. What needs to happen is we need to have an accountability system in place that is based on frequent independent audits and NOT reliant on bank generated reports.
"Faith" is defined as "belief without evidence." If you want to believe that the numbers being reported by the banks which are used to produce all public reports generated and published by the Comex, then you are doing nothing more than placing faith in the banks. The only real evidence we have is that the CME will not legally backstop the numbers that are produced.
How much faith do you have in the banks?
Posted by Dave in Denver at 8:27 AM