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For Prime Minister Cameron Re. LBMA Gold Trading
Dear Prime Minister Cameron,
I am writing about gold trading at the London Bullion Market Association (LBMA) in London which is the preeminent Western gold trading exchange.
The LBMA trades 290 million oz. of gold per day or, by another measure, trades 350% of annual global gold mine production each day.
LBMA gold trading is largely based upon highly leveraged gold instruments that are only notionally backed by gold but, in reality, these gold instruments can be created without limit thereby flooding the trading market with fictitious gold.
Creation of these gold instruments on the LBMA permits its extraordinarily high daily trading volume of gold that does not exist and allows application of high frequency algorithm trading which can be used to force down the price of gold.
The impact of the LBMA's gold trading is that the price of gold can be systematically manipulated down by the bullion banks that trade on this exchange in their short term self interest.
In effect, the LBMA with its dominant gold market position exerts price control on the world physical gold market.
The ultimate result of price controls is that items which have their prices controlled disappear from the market.
Please consider this news piece from Bloomberg as to the disappearance of gold from London vaults.
The implications of this price control and disruption of the gold market's proper function goes well beyond ordinary commodity price manipulation.
Former member of the US Federal Reserve's Board of Governors John Exter ( https://en.wikipedia.org/wiki/John_Exter ) originated the inverted pyramid showing gold being at the core of the financial system.
Because gold is an asset unto itself (it is nobody's liability) and because gold lies at the heart of the financial system, the disappearance of gold liquidity or gold flows due to continued price control will signal financial system crisis causing a subsequent rush to secure other real assets, disruption of both the global bond markets and of currency functionality.
Mr. Cameron, you must act quickly to reform the LBMA. Consequences of not acting are world financial system turmoil.
Individuals worldwide are watching and noting the activities in the UK gold markets and their consequences to the world's financial system.
Physical gold is, as we speak, being rapidly withdrawn from the financial system and, because there is limited gold available, you have only a limited time to act to disallow levered gold instruments and ensure only real trading of gold on the LBMA so that gold flows are maintained in the financial system.
In 2014, physical gold exchanges are, in addition to the already extant Shanghai Gold Exchange, scheduled to start trading in Moscow, Dubai, Singapore, Thailand and South Korea. These markets will provide a further source of demand for Western gold given continued containment of gold's price and this essential financial asset will be further stripped from the West's financial markets and disappear into the East depriving the West of this critical stabilizing asset from our financial system.
I have attached summary slides from my corporate presentation profiling the global gold market. [Editor's Note: Slides are in this PDF file: Corporate Presentation]. Please note that during 2013, which was a year of unprecedented global physical gold demand with the largest refineries reporting gold supply disruptions, the manipulation of the price of gold reached the point that gold is now priced at 75% of the total cost of production of the major global gold miners and additional gold supply will be withdrawn from market by these miners due to this diseconomy.
Prime Minister Cameron, I would like to close with a re-emphasis of the importance of this matter, your central responsibility for addressing this matter, and the limited time that you have to act to avert financial system crisis.