Adrian Douglas: Financial system creaking under rising gold offtake

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By Adrian Douglas
Thursday, June 10, 2010

The London Bullion Market Association statistics reported today by Platts --

http://www.platts.com/RSSFeedDetailedNews.aspx?xmlpath=RSSFeed/HeadlineN...

-- showed a 56 percent jump in the gold trades in May, to 24.7 million ounces per day. This is clearly causing stress in the physical market and is why the International Monetary Fund is selling gold almost secretly out its back door.

I suspect that the comment by the HSBC metals trader reported by MineWeb today --

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=106063&sn=D...

-- about the supposed confiscation danger in storing gold in the United States is propaganda. What a good reason for keeping "virtual" gold in an unallocated account with HSBC in London instead of asking for delivery of the real stuff -- which the London market doesn't have enough of.

Why would fund managers suddenly worry about confiscation? I can't think of a reason. But I can think of a reason why HSBC would like to have an excuse for investors not to demand physical gold.

The financial system must be creaking with such a massive increase in the gold trade. The volcano is rumbling. To confirm it there is the usual response when gold is being sold hand over fist in London -- that the bullion banks have to hedge those sales by shorting the heck out of the Comex, as explained by CPM Group's Jeff Christian in his famous Freudian slip during his testimony at the March 25 hearing of the U.S. Commodity Futures Trading Commission. Christian later said he "misspoke."

The action on the Comex today was consistent with the desire of the bullion banks to discourage buying gold.

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Adrian Douglas is publisher of the Market Force Analysis letter (www.MarketForceAnalysis.com) and a member of GATA's Board of Directors.



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