Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Corner the Gold Market

Commodities / Gold and Silver 2010 Mar 30, 2010 - 01:29 PM GMT

By: Janet_Tavakoli

Commodities

Best Financial Markets Analysis ArticleFirst, 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 as 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 retail suckers 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.

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 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 very 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. The suckers 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 suckers 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 make 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 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.

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).

By Janet Tavakoli

web site: www.tavakolistructuredfinance.com

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). 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 (Wiley, 2009).

© 2010 Copyright Janet Tavakoli- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

By Janet Tavakoli

web site: www.tavakolistructuredfinance.com

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). 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 (Wiley, 2009).

© 2010 Copyright Janet Tavakoli- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in