(Bloomberg) -- An eight-month, 68 percent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system.
Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch.
“The doubt and the pessimism just won’t go away,” says James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “They’re still so shell-shocked by what they went through despite the improvement in the market and the economy.”
Stock markets have slid in the past week after bounding higher since March as the economic outlook improved. The MSCI AC World Index of emerging and developed markets has risen by 68 percent since March. It fell 0.4 percent as of 1:30 p.m. in Tokyo, an eighth day of declines.
The S&P 500 index, which has gained 54 percent since March, closed below its 50-day moving average level for the first time since July yesterday after a 2 percent drop.
Worldwide, investors and analysts now view the U.S. as the weak link in the global economy, with its markets seen as among the riskiest by a plurality of those surveyed. One in four respondents expects an unemployment rate of 11 percent or more a year from now, compared with a U.S. administration forecast of 9.7 percent. The jobless rate now is 9.8 percent, a 26-year high.
Dollar’s Decline
The skepticism about the U.S. is taking a toll on the dollar, with a plurality of respondents saying it will weaken against most other currencies in the next year, the yen being the major exception among the 11 currencies tested. Thirty-seven percent say the dollar should not continue as the world’s reserve currency in 10 years. The yen fetched 90.32 per dollar as of 1:45 p.m. in Tokyo from 90.75 in New York.
The poll is based on interviews conducted Oct. 23-27 with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics on six continents. It has a margin of error of plus or minus 2.6 percentage points.
“The stock market has had quite a run since July when more Bloomberg customers thought the Standard & Poor’s 500 index would rally than predicted a downturn,” says J. Ann Selzer, president of Selzer & Co., the Des Moines, Iowa-based firm that conducted the polls. “That rally may have dampened views of what to expect next. They may also think that there are better markets now for investments than the U.S.”
Emerging Markets
Respondents see China, Brazil and India as the markets with the most potential, and commodities as the asset of choice, replacing stocks as the most desirable investment class in last quarter’s survey. Real estate and bonds are out of favor, with 40 percent saying bonds will have the worst returns over the next year.
“Asia is the best place to put money as there are not mountains of consumer debt, bad mortgage lending, trade deficits or high unemployment,” says Peter J. Emblin, a fund executive at Thai Strategic Capital Management Co. in Bangkok who took part in the poll.
Investors and analysts in Asia are the most bullish, while those in the U.S. are the most cautious. A majority of Asian investors expect their country’s benchmark stock index to rise while a plurality of U.S. and European respondents thought their benchmarks would fall in the next six months.
Equity Rebound
“A lot of people have been surprised by the speed of the equity rebound,” says Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York, adding that the rally has probably been fueled by buying from hedge funds and traders. “It caught them off guard and they don’t believe it.”
Fund manager Paulsen thinks the stock markets rose largely because of the disappearance of panicked sellers. “I don’t think the market has gone up because of heavy buying. You only need a little bit of buying when there are no sellers.”
Asia’s optimism is understandable. The region is leading the global economy out of the worst recession since World War II, according to the Washington-based International Monetary Fund. The IMF said on Oct. 1 that the world economy will expand 3.1 percent next year after shrinking 1.1 percent this year, with China growing by 9 percent and India by 6.4 percent.
Global investors and analysts agree that the world economy is on the mend. Almost 75 percent describe the global economy as stable or improving, up from just over 60 percent in July.
By Rich Miller
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Friday, October 30, 2009
Be Prepared for the Worst
The large-scale government intervention in the economy is going to end badly.
(Forbes)Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
By: Ron Paul
Read Entire Article
(Forbes)Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
By: Ron Paul
Read Entire Article
Thursday, October 29, 2009
Paul Tudor Jones Says Now Is Time, Place for Gold as an Asset
(Bloomberg) -- The time to hold gold is now as faster inflation and increased purchases through exchange-traded funds and by central banks boost demand amid stagnant mine output, Paul Tudor Jones’s Tudor Investment Corp. said.
"I have never been a gold bug,” Jones, whose company manages about $11.6 billion out of Greenwich, Connecticut, told investors in an Oct. 15 letter, a copy of which was obtained by Bloomberg News. “It is just an asset that, like everything else
in life, has its time and place. And now is that time.”
Gold futures gained 18 percent this year in New York and reached a record $1,072 an ounce on Oct. 14, on concern that near-zero interest rates and government spending will debase currencies and spur inflation. Fund manager John Paulson increased his bets on gold this year, while David Einhorn told clients of his $5 billion Greenlight Capital Inc. hedge fund in January he was buying gold for the first time.
The Federal Reserve has kept its target rate for overnight loans among banks between zero and 0.25 percent since December to help stimulate the economy. President Barack Obama increased the nation’s marketable debt to an unprecedented $7.01 trillion
as the government borrows to revive growth. The U.S. economy, the world’s biggest, expanded for the first time in more than a year in the third quarter, the Commerce Department said today.
“As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve,” according to the letter. “Gold appears to be cheap. In our view, gold’s value should increase as its scarcity relative to printed currencies increases.”
Patrick Clifford, an outside spokesman for Tudor in New York, confirmed the letter was sent to investors. Tudor’s Tudor BVI hedge fund gained 14.9 percent this year
through the third quarter, according to the letter. Tudor identified gold, emerging market equities denominated in local currencies and commodity related stocks as among the most likely assets to perform best.
As the metal’s price rallied to a record, so too have bullion holdings in exchange-traded funds. Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, reached an all-time high 1,134 metric tons on June 1, and were at 1,104.43 tons as of yesterday, its Web site showed. Central banks were net buyers in the second quarter for the first time since at least 2000, according to the World Gold Council.
While metal exploration expenditure has increased, mine
production has been “stagnant” the past decade and new output
is “marginal” in terms of available supplies, according to the letter. “Any incremental demand for gold must be met through sales from current owners,” the company said in the letter. “They just aren’t making that much of it anymore.”
By Nicholas Larkin
Read Entire Article
"I have never been a gold bug,” Jones, whose company manages about $11.6 billion out of Greenwich, Connecticut, told investors in an Oct. 15 letter, a copy of which was obtained by Bloomberg News. “It is just an asset that, like everything else
in life, has its time and place. And now is that time.”
Gold futures gained 18 percent this year in New York and reached a record $1,072 an ounce on Oct. 14, on concern that near-zero interest rates and government spending will debase currencies and spur inflation. Fund manager John Paulson increased his bets on gold this year, while David Einhorn told clients of his $5 billion Greenlight Capital Inc. hedge fund in January he was buying gold for the first time.
The Federal Reserve has kept its target rate for overnight loans among banks between zero and 0.25 percent since December to help stimulate the economy. President Barack Obama increased the nation’s marketable debt to an unprecedented $7.01 trillion
as the government borrows to revive growth. The U.S. economy, the world’s biggest, expanded for the first time in more than a year in the third quarter, the Commerce Department said today.
“As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve,” according to the letter. “Gold appears to be cheap. In our view, gold’s value should increase as its scarcity relative to printed currencies increases.”
Patrick Clifford, an outside spokesman for Tudor in New York, confirmed the letter was sent to investors. Tudor’s Tudor BVI hedge fund gained 14.9 percent this year
through the third quarter, according to the letter. Tudor identified gold, emerging market equities denominated in local currencies and commodity related stocks as among the most likely assets to perform best.
As the metal’s price rallied to a record, so too have bullion holdings in exchange-traded funds. Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, reached an all-time high 1,134 metric tons on June 1, and were at 1,104.43 tons as of yesterday, its Web site showed. Central banks were net buyers in the second quarter for the first time since at least 2000, according to the World Gold Council.
While metal exploration expenditure has increased, mine
production has been “stagnant” the past decade and new output
is “marginal” in terms of available supplies, according to the letter. “Any incremental demand for gold must be met through sales from current owners,” the company said in the letter. “They just aren’t making that much of it anymore.”
By Nicholas Larkin
Read Entire Article
Wednesday, October 28, 2009
Gold to Rise to $2,000 Amid ‘Massive’ Inflation
(Bloomberg) -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.
“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”
The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.
“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”
Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.
Gold Forecasts
Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.
Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.
The ratio of silver to gold, currently at 62.35, will be “cut in half” in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 percent this year to $16.65 an ounce.
Read Entire Article
“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”
The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.
“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”
Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.
Gold Forecasts
Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.
Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.
The ratio of silver to gold, currently at 62.35, will be “cut in half” in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 percent this year to $16.65 an ounce.
Read Entire Article
Tuesday, October 27, 2009
Is Your Safety Deposit Box Safe?
More than 500 officers smashed their way into thousands of safety-deposit boxes to retrieve guns, drugs and millions of pounds of criminal assets. At least, that's what was supposed to happen. Adrian Levy and Cathy Scott-Clark investigate
The Finchley Road is one of the busiest thoroughfares heading out of London. It leads traffic north past Lord's Cricket Ground and the multimillion-pound houses of some of the country's richest hedge-fund managers all the way to the M1. At three in the afternoon it's always pretty slow going, but on this particular summer Monday the traffic was almost at a standstill.
This was partly because the normal three lanes going north had been cut down to one. But it was also because of drivers slowing down to a crawl so they could gawp at the massive police operation unfolding on a busy corner of the road.
Police vehicles - both cars and menacing armoured trucks - jammed up two lanes. Dozens of armed officers in bulletproof vests were standing ready, waiting to be called inside an anonymous-looking building. From the sheer manpower and weapons on display it looked like the capital was under another terrorist attack.
But while this was the Metropolitan Police's most ambitious operation in its 180-year history, it had nothing to do with national security. Only hours before, at a special briefing, teams from SCD6 (the Economic And Specialist Crime unit) and C019 (Specialist Firearms Command) hunkered down with technicians armed with angle grinders and drills. Also present were dog handlers, their animals trained to sniff out guns, drugs and explosives.
In all, more than 500 officers had gathered to receive orders to raid smart addresses in well-heeled parts of the capital. The locations included three of Britain's largest and most well-established safety-deposit box depositories in Edgware, Hampstead and Park Lane as well as an office and the homes of the three directors of Safe Deposit Centres Ltd, which owned the vaults - two in Hampstead and one in Barnet.
For most of those at the briefing, arriving just before 3pm on June 2 last year, this was the first they had heard of the operation. Secrecy had been paramount and, with so many involved, keeping the operation 'airtight' had been one of the largest headaches in the pre-planning for what was codenamed 'Rize'.
The police rolled through London in a convoy: scores of patrol cars, armed-response vehicles, outriders on their bikes, vans with their windows shielded by metal cages. With a Met film unit recording everything, detectives forced their way past startled security guards, demanding receptionists open the secure doors that led to the normally hushed strong rooms, which in the three centres housed 6,717 safety deposit boxes.
Cash found in deposit boxes
Cash found in deposit boxes. More than £53 million in cash was impounded, some of it stuffed into supermarket bags
Over the next few hours, the three depositories were transformed into makeshift evidence-sorting centres, decked out with tables to bear the contents of the safety-deposit boxes that were soon to be forced open. Within a day, the first stage of the operation was finished but it would take over ten more to complete the next intricate and prolonged phase.
Investigators wearing gas masks and blue overhauls used power tools to chop away at the locked doors that protected the boxes themselves. They had rehearsed this bit for many hours, on mockups, trying numerous methods to get quickly and safely at the deposit boxes.
Forged passports found in deposit boxes
Forged passports found in deposit boxes
Diamond drill bits forced down into the locks proved disastrous, potentially damaging evidence inside. Instead, they settled on Makita angle grinders, with which they now effortlessly hacked at the hinges, allowing them to slide out the individual strong boxes, some as small as an A4 pad. Larger ones required a more bullish approach - strong-arm tactics that the police maintained were essential as key-holders would have been unlikely to co-operate.
As the first of the boxes was opened, detectives began probing the contents. Many were spilling over with bank notes and jewellery. Each was given a rough designation - for instance, 'cash' or 'gun' - and the words scribbled onto labels before they were placed in sealed evidence bags that were loaded into vans and given an armed escort to their final and secret destination, a secure counting house.
Here, every one of the thousands of boxes was to be intimately scrutinised. Not only did detectives have to itemise what they had found but match the contents to a person.
A few of the box-holders' identities had been acquired through months of police surveillance. Others were revealed in vault registers seized by police during the raid. Some used aliases and would be hard to track down; more still would be identified by scrutinising the vaults' CCTV cameras. Sixty officers would sift, analyse and count until November 2008 and beyond, racking up £1.4 million in overtime bills alone.
There was a lot at stake. Never before had the British police been granted a warrant as broad as this. The raids had been made possible under a controversial law, the Proceeds Of Crime Act (POCA), which came into being in 2002 and introduced an array of wide-ranging new powers to seek out and confiscate dirty money - the houses, cars and boats bought by criminals.
However, lawyers watching the police operation unfold were quick to warn that the strong-arming of these vaults and the crashing into each and every box was tantamount to the police having obtained permission to smash down the doors of an entire housing estate.
David Sonn, of Sonn Macmillan Walker, one of the largest criminal defence practices in London, says, 'POCA was never intended for this. No one objects when criminals are caught and their assets seized - but shaking down everyone to get to them is specifically not what lawmakers wanted.'
A handgun belonging to a suspected drug dealer
Items seized include police riot gear, guns and swords
A handgun belonging to a suspected drug dealer(left) and items seized include police riot gear, guns and swords (right)
Aware of the controversy, Scotland Yard went on a charm offensive, with Assistant Commissioner John Yates giving a series of briefings.
'This is a huge operation to tackle criminal networks who we believe are using safe deposit facilities to hide assets,' he reassured the media.
The raids had come after 18 months of scrupulous intelligence gathering that had led detectives to suspect the vault owners were turning a blind eye to the worst kinds of criminality, enabling major villains to conceal, transport and launder their ill-gotten gains, said Yates. Brushing aside concerns about the invasion of privacy, he asserted that 'the majority' of the boxes seized belonged to criminals.
Evidence was soon put on show that seemed to underscore his position. More than £53 million in cash was impounded, some of it stuffed into supermarket bags. Most of the money, said the Met, was 'the proceeds of armed robberies and international drug trafficking'.
Unnamed Yard sources speculated that some had come from the 2006 Securitas depot robbery in Tonbridge, Kent, and that a mysterious haul of gold grains wrapped in plastic and squashed inside suitcases could be linked to the Brinks Matt heist of 1983. There were sufficient diamonds and pearls to string up as bunting for a street party.
CCTV footage of Gavin Leon
CCTV footage of Gavin Leon, whose box held a Glock handgun
In one box in Edgware, bags of white powder when tested turned out to be 140g of 81 per cent pure cocaine. Lying next to it was £62,500 in cash. Another box, crammed with notes, was identified as belonging to a Russian woman whose boyfriend was the son of a convicted major-league drugs dealer.
A semi-automatic Glock 9mm, the weapon of choice for British gangsters, was lodged in Box 1653 at the Hampstead depository, rented by 44-year-old Gavin Leon, who was jailed for five years last March. A Brocock firearm and nine rounds of ammunition, together with £20,000 in cash, some heroin and weighing scales had been deposited in a box belonging to John Derriviere, a 47-year-old who is now wanted by police.
A £100,000 stash left in a box in Edgware turned out to belong to convicted drug dealer David Wilson, 38, from Dagenham, a nest egg he intended to collect after completing a 24-month sentence. Scrutinising the vault's CCTV, police also identified drug trafficker Yaset Berhane, 27, whose box contained £122,000 in cash, some of it marked by Sussex Police in an earlier drugs sting, leading to Berhane's jailing in March 2009 for drug trafficking and money laundering.
When vice-squad detectives raided five premises connected to a southeast Asian businesswoman who had more than £100,000 in cash in one box, they found brothels worked by girls who had all potentially been trafficked to the UK, as well as a string of foreign bank transactions showing £800,000 flowing out of the UK. In the months after Rize there were more than 40 arrests and 11 prosecutions.
However, by talking to scores of box-holders, none of whom have spoken before, Live has uncovered a different version of Operation Rize, one that shows how the vast majority of those caught up in the raids were innocent. They have had their lives turned upside down over the past 17 months. Many have struggled to recoup their money and possessions, been forced into legal trench warfare with police lawyers and told they must prove how they came by the contents of their boxes.
This is also a story told through secret legal papers, including confidentiality agreements struck with some vault depositors whose cases threatened to topple the entire operation. Although the police told a judge that 'nine out of ten' of all of the thousands of box-holders were probably criminally minded, criminally connected or felons, the paper trail reveals that perhaps only as few as ten per cent of the boxes have any connection to serious crime.
More worryingly, according to eminent lawyers and barristers, Operation Rize has seen the Yard employ unethical tactics, driving a coach and horses through the new POCA legislation, leaving the Met facing a raft of legal actions that could potentially cost taxpayers millions of pounds.
Police raid at Hampstead
The police raid at Hampstead. Never before had the British police been granted a warrant as broad as this
'Rize is a juggernaut veering out of control,' said one barrister who helped advise on POCA during its passage through Parliament, 'and now a sharp tool that we badly needed to drain criminal cash has been tarnished, potentially damaging it and inhibiting its use'.
Within days of the raids, the police set up a helpline to deal with potential inquiries. They were overwhelmed by the response. One detective told Live: 'Everyone presumed we had bagged a load of villains who would not dare claim their iffy property. But thousands of the box-holders complained.'
Some of the box-holders contacted lawyers. These were people far removed from the criminal underworld. Many had been with the company from the beginning, drawn to the likeable Jewish businessman who ran it. Leslie Sieff founded the company in 1986, although by the time Operation Rize unfurled he'd been bought out by developer Milton Woolf.
In one box there was 140g and cocaine and £62,500 in cash beside it... In another, a Glock 9mm, the weapon of choice for British gangsters
Many of the clientele were families who had fled turmoil, pogroms, coups and wars and long had a cultural preference for locking away money and jewels, building up a vehement distrust for the integrity of traditional banks. Here, stepping down the spiral staircase at the back to the darkened boxes below, they felt reassured that their most important possessions were safe.
One survivor of Nazi Germany in his seventies told us how he had placed a bag of diamonds there - security if ever he or his descendents needed to run again.
'My wife and I had escaped from Germany with nothing but these gems,' he said. 'She sewed them into our clothing before we crossed occupied Europe, reaching Britain by ship when the jewels were snipped out and locked up.'
There was a rabbi too, Yitzchak Schochet, of Mill Hill Synagogue, who said: 'Safety deposit boxes are supposed to be confidential. The whole situation was very unsettling and an intrusion of privacy.'
Another client, an Indian millionaire entrepreneur with connections to the House of Lords, described how he was 'treated like a convicted man just because I had wealth in cash'.
A Hindu priest described to Live how his family's valuables had been carried in the Sixties from Madhya Pradesh, India, to London 'in a gunny sack'.
Among the possessions seized by the police were elaborate handcrafted bracelets, gold rings set with uncut stones, and a bejewelled wedding tikka ornament to be draped on the forehead of a new bride. 'These items had always been in our family,' the priest said, 'We had cash in there too. But now we had to prove how we bought them and where that money, saved over the years, had come from.'
Officers painstakingly record the contents of the safety-deposit boxes
Officers painstakingly record the contents of the safety-deposit boxes
Under POCA, the burden of proof lay with the box-holders. Finding evidence for wartime treks across Europe, or charting migration stories from the Partition of India and beyond, would cost many of the box-holders tens of thousands of pounds.
Mark Richardson, a former military intelligence officer and now a forensic accountant, who has been employed by several box-holders to explain their wealth, told us: 'We had to get one family's diamonds carbon-dated at great expense to demonstrate to the police that they had been cut in the Thirties, which tallied with their story of fleeing Germany before World War II.'
Lawyer Sara Teasdale, of City practice Roiter Zucker, whose client had kept more than £900,000 in his box at the vaults in Edgware as cash flow for his business leasing black cabs, said: 'The police are "deep-pocketing" - hauling people through a protracted legal process that they know is so costly that most will roll over.'
One angry box-holder rented Box 73 at the Park Lane depository. Alexander Temerko, formerly a vice president of Russian oil giant Yukos, whose billionaire boss Mikhail Khodorkovsky had fallen foul of President Putin, had fled to London as Khodorkovsky was jailed for eight years in Russia.
When I got my box back, £9,000 cash and some smaller items of jewellery were missing - a gold baby's bracelet and a gold ring
On his arrival in the UK, Temerko had locked five crates of legal documents into his safety-deposit box. However, as a result of Rize, the papers were now in the hands of the Met, which claimed they were evidence of an alleged criminal conspiracy whose participants were British, obliging the police to investigate. Incandescent, Temerko hired an expensive lawyer, Ian Burton, of BCL Burton Copeland. Burton recommended Clare Montgomery, a barrister from Cherie Blaire's chambers, Matrix.
Within weeks of Operation Rize, Temerko's team set about applying for a Judicial Review of the judge's decision to grant the controversial Rize warrant and demanded the return of Temerko's files, which they claimed had been taken unlawfully.
Montgomery and Burton highlighted case law that specifically stipulated 'fishing expeditions' were barred to the police, even under POCA. In other words, the police were not allowed to seize property in the hope that it would later prove to be criminal. The legal team also demanded sight of the police evidence that had convinced the judge to issue the warrant in the first place.
Across town, in Camden, some less high-profile but equally infuriated welltodo box-holders did the same. John and Estelle Selt, aged 62 and 73, wealthy retired shopkeepers, had rented a box for 15 years. Inside it was £150,000 and three valuable bracelets. Determined to clear their names, the Selts put up the £50,000 needed to launch their own Judicial Review that also focused on the lawfulness of the original warrant.
Following seven months of legal fencing, with the police guarding its Rize file, the twin Judicial Reviews finally succeeded in prising from the Yard a startling 32-page 'skeleton discussion'. This document - which we were able to obtain after being given a case number by a senior source in Customs and then trawling through court records at the Royal Court building - provides an extraordinary insight into how the police managed to obtain a warrant for Rize.
The document provides a summary of two confidential meetings between the Met, its legal advisors and the judge who signed the Rize warrant in May 2008. The document revealed the Met had begun targeting Safe Deposit Centres Ltd in January 2007, in an operation led by DCI Mark Ponting.
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The Finchley Road is one of the busiest thoroughfares heading out of London. It leads traffic north past Lord's Cricket Ground and the multimillion-pound houses of some of the country's richest hedge-fund managers all the way to the M1. At three in the afternoon it's always pretty slow going, but on this particular summer Monday the traffic was almost at a standstill.
This was partly because the normal three lanes going north had been cut down to one. But it was also because of drivers slowing down to a crawl so they could gawp at the massive police operation unfolding on a busy corner of the road.
Police vehicles - both cars and menacing armoured trucks - jammed up two lanes. Dozens of armed officers in bulletproof vests were standing ready, waiting to be called inside an anonymous-looking building. From the sheer manpower and weapons on display it looked like the capital was under another terrorist attack.
But while this was the Metropolitan Police's most ambitious operation in its 180-year history, it had nothing to do with national security. Only hours before, at a special briefing, teams from SCD6 (the Economic And Specialist Crime unit) and C019 (Specialist Firearms Command) hunkered down with technicians armed with angle grinders and drills. Also present were dog handlers, their animals trained to sniff out guns, drugs and explosives.
In all, more than 500 officers had gathered to receive orders to raid smart addresses in well-heeled parts of the capital. The locations included three of Britain's largest and most well-established safety-deposit box depositories in Edgware, Hampstead and Park Lane as well as an office and the homes of the three directors of Safe Deposit Centres Ltd, which owned the vaults - two in Hampstead and one in Barnet.
For most of those at the briefing, arriving just before 3pm on June 2 last year, this was the first they had heard of the operation. Secrecy had been paramount and, with so many involved, keeping the operation 'airtight' had been one of the largest headaches in the pre-planning for what was codenamed 'Rize'.
The police rolled through London in a convoy: scores of patrol cars, armed-response vehicles, outriders on their bikes, vans with their windows shielded by metal cages. With a Met film unit recording everything, detectives forced their way past startled security guards, demanding receptionists open the secure doors that led to the normally hushed strong rooms, which in the three centres housed 6,717 safety deposit boxes.
Cash found in deposit boxes
Cash found in deposit boxes. More than £53 million in cash was impounded, some of it stuffed into supermarket bags
Over the next few hours, the three depositories were transformed into makeshift evidence-sorting centres, decked out with tables to bear the contents of the safety-deposit boxes that were soon to be forced open. Within a day, the first stage of the operation was finished but it would take over ten more to complete the next intricate and prolonged phase.
Investigators wearing gas masks and blue overhauls used power tools to chop away at the locked doors that protected the boxes themselves. They had rehearsed this bit for many hours, on mockups, trying numerous methods to get quickly and safely at the deposit boxes.
Forged passports found in deposit boxes
Forged passports found in deposit boxes
Diamond drill bits forced down into the locks proved disastrous, potentially damaging evidence inside. Instead, they settled on Makita angle grinders, with which they now effortlessly hacked at the hinges, allowing them to slide out the individual strong boxes, some as small as an A4 pad. Larger ones required a more bullish approach - strong-arm tactics that the police maintained were essential as key-holders would have been unlikely to co-operate.
As the first of the boxes was opened, detectives began probing the contents. Many were spilling over with bank notes and jewellery. Each was given a rough designation - for instance, 'cash' or 'gun' - and the words scribbled onto labels before they were placed in sealed evidence bags that were loaded into vans and given an armed escort to their final and secret destination, a secure counting house.
Here, every one of the thousands of boxes was to be intimately scrutinised. Not only did detectives have to itemise what they had found but match the contents to a person.
A few of the box-holders' identities had been acquired through months of police surveillance. Others were revealed in vault registers seized by police during the raid. Some used aliases and would be hard to track down; more still would be identified by scrutinising the vaults' CCTV cameras. Sixty officers would sift, analyse and count until November 2008 and beyond, racking up £1.4 million in overtime bills alone.
There was a lot at stake. Never before had the British police been granted a warrant as broad as this. The raids had been made possible under a controversial law, the Proceeds Of Crime Act (POCA), which came into being in 2002 and introduced an array of wide-ranging new powers to seek out and confiscate dirty money - the houses, cars and boats bought by criminals.
However, lawyers watching the police operation unfold were quick to warn that the strong-arming of these vaults and the crashing into each and every box was tantamount to the police having obtained permission to smash down the doors of an entire housing estate.
David Sonn, of Sonn Macmillan Walker, one of the largest criminal defence practices in London, says, 'POCA was never intended for this. No one objects when criminals are caught and their assets seized - but shaking down everyone to get to them is specifically not what lawmakers wanted.'
A handgun belonging to a suspected drug dealer
Items seized include police riot gear, guns and swords
A handgun belonging to a suspected drug dealer(left) and items seized include police riot gear, guns and swords (right)
Aware of the controversy, Scotland Yard went on a charm offensive, with Assistant Commissioner John Yates giving a series of briefings.
'This is a huge operation to tackle criminal networks who we believe are using safe deposit facilities to hide assets,' he reassured the media.
The raids had come after 18 months of scrupulous intelligence gathering that had led detectives to suspect the vault owners were turning a blind eye to the worst kinds of criminality, enabling major villains to conceal, transport and launder their ill-gotten gains, said Yates. Brushing aside concerns about the invasion of privacy, he asserted that 'the majority' of the boxes seized belonged to criminals.
Evidence was soon put on show that seemed to underscore his position. More than £53 million in cash was impounded, some of it stuffed into supermarket bags. Most of the money, said the Met, was 'the proceeds of armed robberies and international drug trafficking'.
Unnamed Yard sources speculated that some had come from the 2006 Securitas depot robbery in Tonbridge, Kent, and that a mysterious haul of gold grains wrapped in plastic and squashed inside suitcases could be linked to the Brinks Matt heist of 1983. There were sufficient diamonds and pearls to string up as bunting for a street party.
CCTV footage of Gavin Leon
CCTV footage of Gavin Leon, whose box held a Glock handgun
In one box in Edgware, bags of white powder when tested turned out to be 140g of 81 per cent pure cocaine. Lying next to it was £62,500 in cash. Another box, crammed with notes, was identified as belonging to a Russian woman whose boyfriend was the son of a convicted major-league drugs dealer.
A semi-automatic Glock 9mm, the weapon of choice for British gangsters, was lodged in Box 1653 at the Hampstead depository, rented by 44-year-old Gavin Leon, who was jailed for five years last March. A Brocock firearm and nine rounds of ammunition, together with £20,000 in cash, some heroin and weighing scales had been deposited in a box belonging to John Derriviere, a 47-year-old who is now wanted by police.
A £100,000 stash left in a box in Edgware turned out to belong to convicted drug dealer David Wilson, 38, from Dagenham, a nest egg he intended to collect after completing a 24-month sentence. Scrutinising the vault's CCTV, police also identified drug trafficker Yaset Berhane, 27, whose box contained £122,000 in cash, some of it marked by Sussex Police in an earlier drugs sting, leading to Berhane's jailing in March 2009 for drug trafficking and money laundering.
When vice-squad detectives raided five premises connected to a southeast Asian businesswoman who had more than £100,000 in cash in one box, they found brothels worked by girls who had all potentially been trafficked to the UK, as well as a string of foreign bank transactions showing £800,000 flowing out of the UK. In the months after Rize there were more than 40 arrests and 11 prosecutions.
However, by talking to scores of box-holders, none of whom have spoken before, Live has uncovered a different version of Operation Rize, one that shows how the vast majority of those caught up in the raids were innocent. They have had their lives turned upside down over the past 17 months. Many have struggled to recoup their money and possessions, been forced into legal trench warfare with police lawyers and told they must prove how they came by the contents of their boxes.
This is also a story told through secret legal papers, including confidentiality agreements struck with some vault depositors whose cases threatened to topple the entire operation. Although the police told a judge that 'nine out of ten' of all of the thousands of box-holders were probably criminally minded, criminally connected or felons, the paper trail reveals that perhaps only as few as ten per cent of the boxes have any connection to serious crime.
More worryingly, according to eminent lawyers and barristers, Operation Rize has seen the Yard employ unethical tactics, driving a coach and horses through the new POCA legislation, leaving the Met facing a raft of legal actions that could potentially cost taxpayers millions of pounds.
Police raid at Hampstead
The police raid at Hampstead. Never before had the British police been granted a warrant as broad as this
'Rize is a juggernaut veering out of control,' said one barrister who helped advise on POCA during its passage through Parliament, 'and now a sharp tool that we badly needed to drain criminal cash has been tarnished, potentially damaging it and inhibiting its use'.
Within days of the raids, the police set up a helpline to deal with potential inquiries. They were overwhelmed by the response. One detective told Live: 'Everyone presumed we had bagged a load of villains who would not dare claim their iffy property. But thousands of the box-holders complained.'
Some of the box-holders contacted lawyers. These were people far removed from the criminal underworld. Many had been with the company from the beginning, drawn to the likeable Jewish businessman who ran it. Leslie Sieff founded the company in 1986, although by the time Operation Rize unfurled he'd been bought out by developer Milton Woolf.
In one box there was 140g and cocaine and £62,500 in cash beside it... In another, a Glock 9mm, the weapon of choice for British gangsters
Many of the clientele were families who had fled turmoil, pogroms, coups and wars and long had a cultural preference for locking away money and jewels, building up a vehement distrust for the integrity of traditional banks. Here, stepping down the spiral staircase at the back to the darkened boxes below, they felt reassured that their most important possessions were safe.
One survivor of Nazi Germany in his seventies told us how he had placed a bag of diamonds there - security if ever he or his descendents needed to run again.
'My wife and I had escaped from Germany with nothing but these gems,' he said. 'She sewed them into our clothing before we crossed occupied Europe, reaching Britain by ship when the jewels were snipped out and locked up.'
There was a rabbi too, Yitzchak Schochet, of Mill Hill Synagogue, who said: 'Safety deposit boxes are supposed to be confidential. The whole situation was very unsettling and an intrusion of privacy.'
Another client, an Indian millionaire entrepreneur with connections to the House of Lords, described how he was 'treated like a convicted man just because I had wealth in cash'.
A Hindu priest described to Live how his family's valuables had been carried in the Sixties from Madhya Pradesh, India, to London 'in a gunny sack'.
Among the possessions seized by the police were elaborate handcrafted bracelets, gold rings set with uncut stones, and a bejewelled wedding tikka ornament to be draped on the forehead of a new bride. 'These items had always been in our family,' the priest said, 'We had cash in there too. But now we had to prove how we bought them and where that money, saved over the years, had come from.'
Officers painstakingly record the contents of the safety-deposit boxes
Officers painstakingly record the contents of the safety-deposit boxes
Under POCA, the burden of proof lay with the box-holders. Finding evidence for wartime treks across Europe, or charting migration stories from the Partition of India and beyond, would cost many of the box-holders tens of thousands of pounds.
Mark Richardson, a former military intelligence officer and now a forensic accountant, who has been employed by several box-holders to explain their wealth, told us: 'We had to get one family's diamonds carbon-dated at great expense to demonstrate to the police that they had been cut in the Thirties, which tallied with their story of fleeing Germany before World War II.'
Lawyer Sara Teasdale, of City practice Roiter Zucker, whose client had kept more than £900,000 in his box at the vaults in Edgware as cash flow for his business leasing black cabs, said: 'The police are "deep-pocketing" - hauling people through a protracted legal process that they know is so costly that most will roll over.'
One angry box-holder rented Box 73 at the Park Lane depository. Alexander Temerko, formerly a vice president of Russian oil giant Yukos, whose billionaire boss Mikhail Khodorkovsky had fallen foul of President Putin, had fled to London as Khodorkovsky was jailed for eight years in Russia.
When I got my box back, £9,000 cash and some smaller items of jewellery were missing - a gold baby's bracelet and a gold ring
On his arrival in the UK, Temerko had locked five crates of legal documents into his safety-deposit box. However, as a result of Rize, the papers were now in the hands of the Met, which claimed they were evidence of an alleged criminal conspiracy whose participants were British, obliging the police to investigate. Incandescent, Temerko hired an expensive lawyer, Ian Burton, of BCL Burton Copeland. Burton recommended Clare Montgomery, a barrister from Cherie Blaire's chambers, Matrix.
Within weeks of Operation Rize, Temerko's team set about applying for a Judicial Review of the judge's decision to grant the controversial Rize warrant and demanded the return of Temerko's files, which they claimed had been taken unlawfully.
Montgomery and Burton highlighted case law that specifically stipulated 'fishing expeditions' were barred to the police, even under POCA. In other words, the police were not allowed to seize property in the hope that it would later prove to be criminal. The legal team also demanded sight of the police evidence that had convinced the judge to issue the warrant in the first place.
Across town, in Camden, some less high-profile but equally infuriated welltodo box-holders did the same. John and Estelle Selt, aged 62 and 73, wealthy retired shopkeepers, had rented a box for 15 years. Inside it was £150,000 and three valuable bracelets. Determined to clear their names, the Selts put up the £50,000 needed to launch their own Judicial Review that also focused on the lawfulness of the original warrant.
Following seven months of legal fencing, with the police guarding its Rize file, the twin Judicial Reviews finally succeeded in prising from the Yard a startling 32-page 'skeleton discussion'. This document - which we were able to obtain after being given a case number by a senior source in Customs and then trawling through court records at the Royal Court building - provides an extraordinary insight into how the police managed to obtain a warrant for Rize.
The document provides a summary of two confidential meetings between the Met, its legal advisors and the judge who signed the Rize warrant in May 2008. The document revealed the Met had begun targeting Safe Deposit Centres Ltd in January 2007, in an operation led by DCI Mark Ponting.
Read Entire Article
Gold Blast-Off Starts Friday?
(Numismaster) There are two significant events this week that could exert pressure for higher gold prices. Because of this, I expect to see major behind-the-scenes actions to try to suppress gold (and silver) prices until the middle of Thursday afternoon.
First, the U.S. government’s Treasury debt auctions will sell the greatest amount of debt ever sold in one week. The net debt increase of $153 billion is so high it will exceed the current authorized federal debt limit. Flooding the financial markets with so much debt is a sign of weakness for the U.S. dollar. As the dollars declines in value, the price of gold in U.S. dollars invariably rises.
Second, we will also see the expiration of options contracts in two days. If the spot price at the close of trading on the day that gold (and silver) options contracts expire is higher than the contract price on a call option, the owner will exercise the option to demand immediate delivery of physical gold. The higher the price of gold, the more call options that will be exercised. Conversely, a lower gold spot price will reduce the demand for gold for immediate delivery. There is a major block of call options at $1,050, so expect prices to stay below that level through Wednesday night.
As we have seen previously in 2009 with large Treasury debt auctions and options expirations, the price of gold was clobbered before these events, and not allowed to rise quickly until after the last Treasury auction closed on Thursday afternoon. I see no reason to expect a different pattern this week.
H.R. 1207, the bill in Congress calling for an audit of the Federal Reserve System (that would also likely result in an audit of the U.S. government’s gold holdings) is under current consideration in the House Financial Services Committee. Hearings began last month. With over 330 co-sponsors of this bill and of the Senate’s companion bill S. 604 (over 75 percent of all members of Congress), there would be reasonable prospects of enactment.
A couple of months ago, the Fed hired a government-relations lobbyist to combat H.R.1207. Various Fed officials have tried to intimidate Congress and the public by stating that enactment of this legislation would result in higher interest rates, higher consumer prices and a falling value of the U.S. dollar. None of these threats seemed to have stopped H.R. 1207 from moving along.
On Oct. 20, a new tactic to combat H.R. 1207 was implemented. Senators Jeff Merkley, D-Ore., and Bob Corker R-Tenn., introduced S. 1803, the Federal Reserve Accountability Act. This alternative bill pretty much guts any attempt at Federal Reserve accountability by allowing only limited audits of the Troubled Asset Relief Program and similar high profile bailouts. I expect to see Fed officials pushing for this bill as a way to sidetrack H.R. 1207.
Last Friday, Bloomberg reported an interview with Shayne McGuire, director of global research at the Teacher Retirement System of Texas, the nation’s seventh largest pension fund. McGuire noted that his retirement fund has now invested $250 million of its $95 billion in total assets in precious metals, mining stocks, and exchange traded funds. McGuire further predicted that pension funds were going to have to significantly increase the percentage of their portfolios devoted to precious metals.
Also last Friday, Dennis Gartman, the analyst who writes the Gartman Letter, said that he expects gold to become the world’s largest reserve currency. Gartman is not fan of gold and rejects any possibility that the price of gold has been suppressed. His gold trading recommendations over the past five to 10 years have almost always lost money. There are gold traders who have made profits by trading the opposite of Gartman’s recommendations.
Analyst Adrian Douglas is publisher of the Market Force Analysis and now serves as a member of the board of directors of the Gold Anti-Trust Action Committee. He issued an essay Saturday where he argues that the volume of gold traded on the London bullion exchange could not be supported by the reported sales of 15,000 tons (482 million ounces). By Douglas’s calculations, the London market needed a minimum of 64,000 tons (2.05 billion ounces) of gold to be sold to support its reported trading volume. He believes that any disclosure that this much extra gold has been sneaked onto the market, leaving less inventory available to cover open contracts in London, could cause a panic in the gold market.
Bill Murphy is the chairman of GATA. He reported late last week the latest scoop from a London trader who has been his source of secret information since the early years of this decade. This source has an extremely accurate record on trends. For instance, he was the first to tell Murphy that it looked like the Chinese government was regularly buying gold reserves, including information on quantities, back in 2003. This same source says he has recently added two American clients, one a very wealthy individual and the other a large corporation, with instructions to execute major physical gold purchases. His source told Murphy that he is having extreme difficulty locating any sizeable quantities of physical metal to fill the orders.
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First, the U.S. government’s Treasury debt auctions will sell the greatest amount of debt ever sold in one week. The net debt increase of $153 billion is so high it will exceed the current authorized federal debt limit. Flooding the financial markets with so much debt is a sign of weakness for the U.S. dollar. As the dollars declines in value, the price of gold in U.S. dollars invariably rises.
Second, we will also see the expiration of options contracts in two days. If the spot price at the close of trading on the day that gold (and silver) options contracts expire is higher than the contract price on a call option, the owner will exercise the option to demand immediate delivery of physical gold. The higher the price of gold, the more call options that will be exercised. Conversely, a lower gold spot price will reduce the demand for gold for immediate delivery. There is a major block of call options at $1,050, so expect prices to stay below that level through Wednesday night.
As we have seen previously in 2009 with large Treasury debt auctions and options expirations, the price of gold was clobbered before these events, and not allowed to rise quickly until after the last Treasury auction closed on Thursday afternoon. I see no reason to expect a different pattern this week.
H.R. 1207, the bill in Congress calling for an audit of the Federal Reserve System (that would also likely result in an audit of the U.S. government’s gold holdings) is under current consideration in the House Financial Services Committee. Hearings began last month. With over 330 co-sponsors of this bill and of the Senate’s companion bill S. 604 (over 75 percent of all members of Congress), there would be reasonable prospects of enactment.
A couple of months ago, the Fed hired a government-relations lobbyist to combat H.R.1207. Various Fed officials have tried to intimidate Congress and the public by stating that enactment of this legislation would result in higher interest rates, higher consumer prices and a falling value of the U.S. dollar. None of these threats seemed to have stopped H.R. 1207 from moving along.
On Oct. 20, a new tactic to combat H.R. 1207 was implemented. Senators Jeff Merkley, D-Ore., and Bob Corker R-Tenn., introduced S. 1803, the Federal Reserve Accountability Act. This alternative bill pretty much guts any attempt at Federal Reserve accountability by allowing only limited audits of the Troubled Asset Relief Program and similar high profile bailouts. I expect to see Fed officials pushing for this bill as a way to sidetrack H.R. 1207.
Last Friday, Bloomberg reported an interview with Shayne McGuire, director of global research at the Teacher Retirement System of Texas, the nation’s seventh largest pension fund. McGuire noted that his retirement fund has now invested $250 million of its $95 billion in total assets in precious metals, mining stocks, and exchange traded funds. McGuire further predicted that pension funds were going to have to significantly increase the percentage of their portfolios devoted to precious metals.
Also last Friday, Dennis Gartman, the analyst who writes the Gartman Letter, said that he expects gold to become the world’s largest reserve currency. Gartman is not fan of gold and rejects any possibility that the price of gold has been suppressed. His gold trading recommendations over the past five to 10 years have almost always lost money. There are gold traders who have made profits by trading the opposite of Gartman’s recommendations.
Analyst Adrian Douglas is publisher of the Market Force Analysis and now serves as a member of the board of directors of the Gold Anti-Trust Action Committee. He issued an essay Saturday where he argues that the volume of gold traded on the London bullion exchange could not be supported by the reported sales of 15,000 tons (482 million ounces). By Douglas’s calculations, the London market needed a minimum of 64,000 tons (2.05 billion ounces) of gold to be sold to support its reported trading volume. He believes that any disclosure that this much extra gold has been sneaked onto the market, leaving less inventory available to cover open contracts in London, could cause a panic in the gold market.
Bill Murphy is the chairman of GATA. He reported late last week the latest scoop from a London trader who has been his source of secret information since the early years of this decade. This source has an extremely accurate record on trends. For instance, he was the first to tell Murphy that it looked like the Chinese government was regularly buying gold reserves, including information on quantities, back in 2003. This same source says he has recently added two American clients, one a very wealthy individual and the other a large corporation, with instructions to execute major physical gold purchases. His source told Murphy that he is having extreme difficulty locating any sizeable quantities of physical metal to fill the orders.
Read Entire Article