I hesitated yesterday to write about HSBC allegedly deciding to close their London Gold vaults because as of yet, we still do not have public confirmation. As you know by now, Andrew Maguire made the allegation and Ned Naylor-Leyland tweeted several times over the weekend. Gerald Celente followed with King World News and also made comments. It is not my intention to be long winded on this subject because even if true, it is only a small chapter in John Exter’s debt pyramid theory which is what I would like to talk about today. Specifically, the role of gold and “why”. If true, it would however be a very important clue signaling something has changed in the London gold market.
Briefly, if Andrew’s HSBC news is true, more questions are raised than are answered. As for the several theories I have heard, some believe the short notice of only two months would be a way for HSBC to cash settle some customers and obtain some gold. It is believed in this manner, HSBC might be able to cover some of a short gold position. I find several problems with this whole thing. First, wouldn’t some of the customers have paid storage (in advance) for positions being held? Could HSBC just break a contract on their own? Could HSBC really tell GLD they have only two months to move their metal? If I were a director of GLD, my fiduciary responsibility would point me toward engaging lawyers to put a retraining order to buy enough time to ensure an orderly and safe transfer. My next thought would certainly be that of a complete audit!
Another thought of mine is this, why is there no other information on this anywhere to be found? So Andrew Maguire and some of his clients received letters, are they real? The shorts would love nothing better than to discredit Andrew and any other bloggers who write about the alleged HSBC move if it turns out to be false. Is it possible Andrew is being set up? …Along with the rest of the gold blogging world? I believe Andrew to be very thorough in what he does and give him the benefit of the doubt in my own mind. Maybe I am just paranoid but I hate to hear things like this without any other confirmation and particularly nothing from HSBC itself. I will say this, the more time passes without some sort of confirmation of Andrew’s allegations, the more I am inclined not to believe them. Enough said for now and until we have some hard data to look at.
Our topic for today is John Exter’s inverted pyramid which is displayed below.
As you can see, John Exter believed the “foundation” of all things financial rested upon a small foundation of gold. I say “small” because of gold’s rarity in relation to everything else financial and freely created by man’s mechanism. I don’t want to make this an exercise in explaining the pyramid in a primer form. Let me just say I agree with it and believe as you go further up the pyramid (and further away from gold), the asset classes have more and more risk. The further up the pyramid you go, there is more “leverage” involved as each product is “derived” from something which is ultimately derived from “money” itself.
Since 1971, The U.S., followed by governments of most of the rest of the world have wanted us to believe that gold is not money. They have “taught us” that what they print (currency) is money. This is not so and I won’t spend the time here as I’ve covered this many times before. Suffice it to say, the BRICS nations led by China fully understand and believe gold in fact is money as proven by their massive imports of gold.
We will specifically concentrate on the gold triangle at the bottom in this exercise with the assumption you understand the gold “foundation” is what everything financial is “derived” from. If this is so then there is one very basic truth which MUST apply, the rule of law. Why is this? The rule of law applies to gold for several reasons. First and most obvious is ownership, true ownership. Secondly, the law of weights and measures. An ounce, a kilo, a ton or any other measure must be fixed and of course at a specific purity level.
Cutting to the chase, the gold must be where it is supposed to be, in the correct quantities and purity. If it is not, the rule of law is broken and with it will follow a “natural law” being broken called “confidence”. Think about it, even the dullest knife would understand what it would mean if there was an audit of Fort Knox and it turned out all the gold was gone. THIS is what the entire “game” has been about literally since 1971 (and even before)! The Fed and other central banks have done anything and everything in their powers to make gold “look” weak because it is THE competitor to their paper notes, their electronic digits and thus their “power”. For what possible reason would the Federal Reserve NOT have to suppress the price of gold? The answer is none whatsoever!
Following this through, if you are an owner of gold or silver then you probably spent this past weekend in poor spirits because the metals were monkey hammered on Friday. Again, more COMEX contracts hit the market in a few short hours to force price down …than there is total available gold to actually deliver. Did real holders of real gold all of a sudden decide to collectively panic and sell? No, the price was forced down in a psychological operation to scare people away from buying the real metal. One lame explanation given was the Fed will have to raise rates. I will comment tomorrow on the boogeyman of “rising interest rates”. Rising rates it is said will be the death knell for gold and silver because they don’t pay any interest. I will graphically and mathematically show you the U.S. Treasury will bankrupt itself should the Fed EVER decide to raise interest rates. They simply cannot do it!
Getting back to the pyramid, what do you believe will happen to everything above the gold base if the gold really is not where it is supposed to be? When answering this question in your mind, please remember that everything and I do mean EVERYTHING is based on “trust”. You trust that when you put your paycheck into a bank this week, it will still be there next week and your bank will be open for you to retrieve or use the money. You trust that when you accept dollars or euros, yen or pounds for your goods or labor, someone will accept them as payment for something else. It’s ALL about trust or confidence and nothing else, which is the “why” part to having a rule of law. A rule of law MUST be followed, adhered to and enforced (for everyone) in order to retain any confidence.
Let’s begin to wrap up with the statement “all roads lead to gold”. I say this because if you look back through history, every single one of man’s “experiments” with money have failed leaving gold as the ultimate money. “Ultimate” meaning last, final or best. Think back to the tulip craze in Holland. These tulips did have at least “some” value as they were pretty and needed to be grown which took some time. How much time is needed for the Fed to create $1 trillion? A hint might be found in the $16 trillion they created overnight and lent all over the world in late 2008 which was not even discovered until a periphery audit of the Fed in 2010! Creating new dollars takes zero time, zero capital, zero labor and in reality is FREE. I hate to point out the obvious but “free” meaning no real cost can also be equated to no real value.
In today’s world, perceived “money” and credit are interchangeable, they are one and the same. In fact, the world has gone so upside down as to believe the more debt one has, the wealthier they are! This is not so, never was and never will be. The potential discovery of empty gold vaults is what steers Western finance and has done so since 1971. The perception of weak gold prices and abundant holdings has been paramount. The realization or truth of empty gold vaults cannot be allowed to happen or confidence in currency will evaporate. China knows this, Russia knows this as do many other nations which is why they have all accelerated their purchases and imports. They are not relying on “the rule of law” being ironclad. They are importing real metal and will not accept “receipts” in lieu of metal.
Even Western central banks like Germany, Belgium, Holland and Austria are no longer so “trusting” of London or New York. Why is this? For one thing, they can do the math of how much gold is being produced versus how much gold is being shipped. They are acting by importing and repatriating because they do not want to “hope” the excess gold is not coming from their stash …because they know it is coming from somewhere it is not supposed to be! And folks, this is it in a nutshell. Gold is moving Eastward to the BRICS and other nations in amounts that do not make any mathematical sense unless the rule of law is being secretly and clearly broken. What do you think? Will gold “remaining” in the West be scarce or plentiful when the truth comes out? If you understand Exter’s pyramid, this is a very valid and all important question! As with any house or structure, the foundation to Exter’s pyramid is more important than anything else and for good reason…”they” want you to believe it is meaningless.
Bill – Another great post. Given the insolvency of the U.S. government I would move the bottom 3 assets (above gold) much higher on the risk curve. There are those who say that the U.S.A has already defaulted to China. This may or may not be a reality. What I love about your analyses is that you walk through the actual evidence related to immutable economic laws to point out that ultimate cause is immaterial as the real effects of fiat debt, derivatives, market manipulation, currency wars, etc. will drive the inevitable reset regardless of who is actually orchestrating the insanity.
When I originally read FOA I did not grasp the concept of the electronic price of gold approaching zero. Now I am seeing it play out in real time. The only thing missing is the point where physical goes into hiding. Thanks for all of your great work.
thanks Scot, FOFOA has posted some of my work in the past.
What bothers me about the entire gold
blogosphere is that too “Many Experts”
are talking their book. You having been
in the financial industry know that when
a trader or broker becomes to vocal it
is time to go the other way. For the
past three years I have listened to
numerous calls about gold to $$$ or
support is in at $$$ and most all of it
has been wrong. I hold precious metals
as part of my portfolio insurance. I
realize that as the dollar loses value
I really won’t care what my metal will be
valued at in dollars. Too many people who
have speculated in metals have been burned.
I think instead of focusing on where gold
and silver will be worth in dollars, the
emphasis should be on having some in your
portfolio. I’m not directing this specifically
at you Bill, it just seems chronic in the
industry.
I personally have been all in metals in one shape or form since late 1997 and have written publicly since 2007. My message is the same as it was and has not changed except the reasons to own gold and silver have never been greater than they are now.
If you look up the do/gold ratio it was screaming back in 2000 to own gold. Now that gold made its run last decade, that’s closed considerably to more historic norms. In any other time I’d say to sell the gold based on this alone, but we are not in normal times. The whole dow/gold ratio will become meaningless when the dollar dies.
I believe it will again go to “1”.
Thanks for good article Bill!
Isn’t it that they can raise interest rates, but they should simultaneously print and repurchase faster?
Thanks, Al
please see my piece for tomorrow and most probably also Thursday.
Andrew Maguire update…http://kingworldnews.com/andrew-maguire-stunning-update-hsbc-london-gold-vault-closures/
we’ll see. I would like to see something from HSBC.
Bill,
Many thanks for your insightful commentaries. Question: why do you think Kitco has ceased publication of the Gold Lease rates in the last month? The last published data was dated January 30 with a blank screen now where it used to always be filled with the previous month’s plotted data. Has leasing suddenly stopped? (I certainly doubt it).
simple, because London ceased quoting them.
Bill, while I appreciate your skepticism and wanting proof from HSBC, you’ll never get it. You see, this isn’t the first time these two- Andrew Maguire and NNL, have come out together stating they know something everybody else does not. 3 years ago they did a podcast with Turd Furgeson of TF Metals report (which has since been deleted) stating that they had “inside information” and were actually part of a new “fully backed silver exchange in China that was being set up to rival the west’s ‘paper exchanges'”. They had the silver community frothing at the mouth with all of this “personal” and “inside” knowledge which NEVER came to materialize. My contention was the same then as it is now, “how are these two the ONLY ones who know about this and talking about this?”. These are PAPER-TRADING Brits who have made such numerous, dubious claims over the last 5 years they should have ZERO credibility left.
there were plans for a physical exchange in 2012 which got squashed. As I understand it, HSBC is preparing a statement and it is “retail” vaulting they are discontinuing. We will have to wait and see what they say.
Bill, I follow the tweets between Macquire and others and they never said the GLD vaults were being closed. That was Celente on King World News that brought that subject up.
Maguire sure as hell said HSBC’s vaults were closing, by inference GLD comes into question because HSBC is the custodian. We will have to wait and see exactly what HSBC says. I am now hearing it may only be retail customers. This whole thing is pissing me off because people on both sides are giving me crap for not saying “yes I believe it” or “no I don’t”. I am not willing to commit either way until we have hard proof, then I will fully make comments. I have zero interest in “breaking this story” and will sit back and watch as it unfolds.
Bill, If you have a twitter account you can follow their tweets, mostly from Ned Naylor-Leyland showing documents, pictures etc. He did say and is standing by HSBC customer (7) vaults being closed, but never said or thought the GLD HSBC vault was involved. Like you said it was inference only, and these 2 people were clear it was not HSBC GLD vault. I really blame anyone else who assumed that the HSBC vault closures were in any way connected to HSBC GLD vault and Gerald Celente and Eric King fall into that category. You showed your character by wanting proof and never fell for the GLD vault thing. Do you have a twitter account? I just bring this up, because this was something that I was able to follow from the get go and I am relatively new with twitter. The only question that I have on this issue is how much of these storage (vaults) were used for gold, and how much potential tonnage could be involved. That is what has my interest, but obviously we will never know. It is like Miles Franklin storage/vault services. If they closed with a 60 day window with only a letter to notify people, how much of their customer storage could get taken or moved before the deadline came? Would they gladly buy back at these prices?
We all in the gold community are getting tired of sensational headlines. King World News has started to even get to me. Several weeks ago it was going to be major riots in the streets of Greece because of the bailouts. How many people in the past two years called for a dollar collapse by now? and yet it is unbelievable at what level it is at. The interesting thing is that gold is actually holding up rather well considering the dollar rise.
no twitter or any social media. Maguire said “all 7 vaults”, who would not infer this included GLD? Did he specifically say “not GLD”? We are splitting hairs here. I wait to see some statement that says at least SOMETHING coming from HSBC themselves. Very squirrelly this situation is.
Bill, If I knew how to copy the tweets with pictures I would. On the tweets they were clear never thought the GLD vault involved, but the 7 customer vaults were. Now after hearing your concerns, and not having access to the tweets and hearing by others that it was the GLD vault, Maquire maybe should have said on the interview that the GLD vault was not involved because everyone knows HSBC is vaulting the GLD gold. I do not tweet myself, but find it very useful to follow who I want. Maquire barely tweets, but Ned-Naylor does a lot. You can add and delete who you want to follow at will on twitter. I am a Maquire follower on twitter like I follow you here. Andrew has done very well trading these markets, because he goes short at times even though he is as bullish as you and me. I know that bothers a lot of people but Andrew also does not mention that on the interviews either. Hedging is something that I personally wish I had done, but believe it is to late to do now.
King World immediately followed Andrew with Gerald Celente who clearly spoke of GLD if I recall.
Bill
HSBC must not object to the confusion over what they are doing, or in a New York Minute they would clarify things, So the point of speculation is why would they like us to see muddied waters at this time? Clarity does not suit their purpose.
the question still remains whether or not the vaults are closing and for whom.
Thanks Bill for the great article. I can understand why gold is leaving western vaults today and going east, but I’m I correct to understand that basically gold has been leaving New York as early as the 70s?
the late 50’s or early 60’s during the London Gold Pool which is why Nixon was forced to close the window in 1971 and let gold float, to ration supply by allowing higher prices.
I believe HSBC responded to this “vault” closure today and called it a “closure of “retail safe deposit facilities”.
OK?
yes, I have heard this but …again, still no formal statement.
Bill,
Great article. I am really interested in seeing graphical and mathematical proof of effect of interest rate rise on treasuries. May be I am a beginner to this market but always failed to understand how interest rate hike (which is fed fund rate) have an effect on treasury. Treasuries are auctioned in market. Where is the correlation? Please help me understand as I am learning these markets.
it used to be the way you are thinking now, the Fed is in all markets “making” prices now.
Makes sense. But, If fed is in all market, wouldn’t it be possible for them to control treasury rates? That way they can still raise rates without having any burden on governments. I am really looking forward to your graphical representation on this topic.
Also thanks for prompt response.
please understand that it all began with the Fed in the Treasury market and all of their actions center on the dollar and Treasuries.
Put it this way, I would rather be owning a small business, owning my house,having some diamonds and gems as well as some gold plus some cash for the oncoming crisis, ahead of everything else on that pyramid. In fact that is where I am at.
I figure we are approximately at the muni bond stage.
when this thing goes, it will not be about “stages”.
FWIW…Reader comment posted in connection with most recent article written by FOFOA, “The Big Picture”.
http://fofoa.blogspot.com/2015/03/the-big-picture.html#comment-form
Rob said:
I wrote to ETF Securities who run the PHAU fund and have HSBC in London as Custodians about the vault closures.
Here is their reply
Dear Robert,
Thank you for your email.
Please note that HSBC PLC have informed ETF Securities that the rumours suggesting that HSBC vaults based in London would be closing are incorrect. HSBC have confirmed that they remain fully committed to its precious metal vaulting operation in London and worldwide.
We can therefore confirm that arrangements for the storage of precious metals used to back securities issued by ETFS Metal Securities Limited remain unchanged.
If you have any further questions regarding this matter please do not hesitate to contact us.
Kind regards,
ETFS Client Support
March 10, 2015 at 2:09 PM
thanks, saw this earlier but I still want to see a statement come from HSBC.
It is really to sad that gold has so stupid promoters, they looks really like “news of the world” pumpers…
Bill, I don’t remember Andy saying anything about GLD vault being closed. But that’s up to you, of course. We all have our “perceptions” 😉
Anyway, why do you think that HSBC have to do any public announcement? They were offering gold storage facilities to their retail banking clients as one of their services, as an option, one of many. And so, it’s their contract (agreement) with their private banking clients, right? It’s not a PM buy-sell business for the public with an option to store their gold in vaults, as your firm does. It’s a bank. It was for their retail BANKING clients. Any bank has in its contracts with clients that it can discontinue some services, like deposit boxes for example, anytime, giving them a notice. They could have some facilities but not enough retail customers using this service (I wouldn’t leave my gold with HBSC anyway), so it is possible that it wasn’t really a profitable business for them right now. They can issue a PR statement, but they don’t have to, as I see it.
KWN had Celente on immediately following and it was he that spoke of GLD. Is closing a business a “material business event”? Do companies, especially financial institutions normally report “material events”?
thanks as always for a common sense approach. Your position on the “vault closings” of course is the correct one.
Since reading many decades ago Heinleins “Stranger in a Strange Land” when he introduced the concept of “Fair Witnesses”,I have appreciated that type of unbiased and rational observation.
Thanks for reining in this speculation over the vault closures, your position is of course, pure.
Dr. Spock would approve.
thank you Patriot.
Regarding the closing of HSBC vaults it was Ned Naylor-Leyland who was informed by his bullion dealer that HSBC would be closing seven vaults in London. He referred to this on his twitter account. HSBC is now claiming that they are closing their UK Safe Depositary Business but that these are not apparently vaults because they do not store institutional bars.
https://twitter.com/NedNL
More to the point Bill, wouldn’t HSBC have immediately denied such damaging and dangerous “News” if it were untrue?? It should be easy for them to deny the closings and provide proof. TT???
Just wanted to add to the comments that the HSBC vault closing story is nonsense.
1) HSBC do not have 7 “Gold Vaults” in London. I believe they only have one LBMA approved vault. Closing this would be headline news.
2) HSBC do have 7 “retail safety deposit” locations in the whole of the UK. These are the LAST of the basement vaults in their 1000+ retail bank locations. They are not “gold vaults”; they are simply safety deposit box facilities where people over here put deeds, jewelery, cash and other valuables.
3) HSBC, like all UK retail banks, have been closing these vaults for years and wrote to customers starting in January saying that the last of these facilities were closing.
So, NOT gold vaults and not even all in London!
For more information see – https://uk.finance.yahoo.com/news/end-bank-safe-deposit-boxes-104530032.html
FWIW – CNBC actually filmed inside the (single) HSBC London Gold vault in 2011. This is BIG BUSINESS for HSBC and not something they are likely to abandon!
http://www.cnbc.com/id/44343442/Gold039s_Secret_Hiding_Place
yes, and they showed a bar that was not even GLD’s. I would be pretty pissed if he had his grubby paws on one of my 400 ouncers!
Sorry Mark, I did not break or report the story, only a few comments on what Maguire and Celente have said.
Bill – I did not mean to sound annoyed with you! I think you did a great job being cautious about that “news”. I just don’t understand what Maguire is up to though? Surely he must realise that HSBC only has a single “Gold Vault” in London. How on earth can he believe (and be shouting that) they are closing 7 there?
FWIW John Exter was a very interesting man. Sadly very little is written about him or his thoughts on sound money. There are just a few good articles around the internet. My favourite, which you may already know, is here – http://www.goldmoney.com/research/research-archive/a-banker-for-all-seasons-the-life-and-times-of-john-exter-champion-of-sound-money
Best wishes
Mark
John Exter understood the end game …as did Von Mises.
I believe that Exter and Von Mises were good friends and frequently debated the consequences of excessive credit? Whilst they shared many views on sound money I believe their conclusions were somewhat different about how it would all end. Von Mises believed in inflation and Exter in deflation. I think both men would have been VERY interested to see the current situation developin (essentially a build up of both effects in tension) and keen to witness how it ends. It is such a shame that two of the most pragmatic monetary academics of modern times are not better known/respected and are not alive to witness the biggest money experiment of all time.
Thank you for your various thoughts on this site. Always interesting and educational.
thanks Mark, a fiat currency can never “end” in deflation.