Don’t Invest In Ridiculously-Rigged (And Thin) Markets
by ilene - March 31st, 2010 7:14 pm
Here’s Karl Denninger’s must-read take on the gold market rigging story. – Ilene
Don’t Invest In Ridiculously-Rigged (And Thin) Markets
Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:
First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.
….
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 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.
That could be a problem, right?
Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.) This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are "financial" (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false. They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)
However, the elements of a scam – which could be the intended…