Adrian Douglas: Is discovering the gold fraud worse than the fraud itself?

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By Adrian Douglas
Saturday, June 26, 2010

Friday's commentary by MineWeb's Lawrence Williams, "Now China Sources Newly Mined Gold from the USA" (http://www.mineweb.co.za/mineweb/view/mineweb/en/page33?oid=106850&sn=De...), cited in a GATA Dispatch yesterday (http://www.gata.org/node/8767), incensed me, for it was disingenuous for Williams to suggest that China's buying gold assets off-market could be construed as manipulating the gold price up.

If it wanted to manipulate the market, China would need only to buy 30,000 gold contracts on the Comex and stand for delivery.

I was so upset by Williams' nonsense that I went looking for other recent articles written by him.

... Dispatch continues below ...



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I came across a comment Williams made on Twitter of May 10:

http://babybulltwits.wordpress.com/2010/05/10/lawrence-williams-what-gol...

In this commentary, in a reference to my expose of the unallocated metal accounts maintained by London Bullion Market Association members, Williams endorses the view that the bullion banks have sold much more bullion than they have.

Williams wrote: "It does also seem that the feeling that the bullion banks -- and even reserves held by central banks -- may not be all they are held out to be is gaining credence. While some of the wilder theories are almost certainly wide of the mark, suggesting that the banks are trading far more gold than they hold title to may well be correct. Banks have nearly always operated in this manner with cash. While they probably feel that they have the collateral to cover their potential commitments at current gold prices, it may not be quickly available. Thus a run on physical gold would leave them very exposed indeed and likely unable to meet the demand -- or so the theory goes! A run would also inevitably drive the yellow metal to huge heights as the banks struggle to cover -- indeed perhaps to the extent that even the best-financed institutions would be bankrupted. The financial turmoil which would accompany such a run could be bloody indeed, so one has to hope that it never happens."

It is comical that Williams hopes that, for the benefit of humanity, the fraud being committed by the bullion banks is never exposed. Perhaps Williams also wishes that Bernie Madoff's scam had never been exposed, or that Enron had been better at lying and we had never discovered that the company was a sham, or that we had never learned about the toxic derivatives of AIG.

Of course Williams is not alone in thinking that the huge financial scandals are best left alone because they are so damaging when exposed. After all, this seems to have been the attitude of the U.S. Securities and Exchange Commission, some of whose employees preferred to watch Internet pornography than to regulate, and the U.S. Commodity Futures Trading Commission, which has taken almost two years to investigate silver market manipulation in a classic example of how to whistle in the wind.

Williams then has the audacity to intimidate the smart investor who tries to protect himself from the corruption of the bullion banks and the complicity of the regulators. He writes:

"Even the slightest prospect that such a circumstance could materialise might lead again to political confiscation of gold similar to that instituted by Roosevelt in an attempt to pre-empt the turmoil which would ensue."

So according to Williams not only are the bullion banks corrupt in selling gold they don't have and the regulators are asleep, but if investors ask for enough of the real stuff that it exposes the scam, the government might take the real stuff back and give investors a piece of paper gold instead.

And then Williams has the temerity to accuse China of manipulating the gold market?

The Chinese government is encouraging its people to buy gold. But nothing the Chinese can do to buy real gold could be remotely close to the manipulative effect of selling more gold than there is gold left to be mined.

Williams has missed his vocation as a defense trial lawyer in coming up with the wonderful justification for allowing the gold market manipulation to continue because the consequences of stopping it are just too tumultuous.

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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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