QB Asset Management's report on gold's hidden value and price suppression Submitted by cpowell on Mon, 2011-09-12 00:46. Section: Daily Dispatches 8:44p ET Sunday, September 11, 2011
Dear Friend of GATA and Gold:
Our friends Lee Quaintance and Paul Brodsky at QB Asset Management in New York have just written a brilliant report, titled "Your Gold Teeth," on the hidden and suppressed value of gold and the manipulation of the gold market. They maintain, in part:
"The amount of gold ounces represented on futures exchanges vastly exceeds the amount of deliverable gold in the world, and the perpetual rolling of front-month contracts insures that very little physical gold actually changes hands. Further, claims for gold represented by other derivative vehicles off futures exchanges but priced off futures, such as ETFs, gold swap agreements, and even fully-paid-for yet unallocated gold held in storage, cannot be satisfied.
"We do not have a problem with gold futures per se (in contrast to many gold fans who decry naked shorting), because for every seller of gold claims there must be a buyer. But it is important to recognize that the leverage inherent in gold futures changes its character; physical gold is a real asset while gold futures are financial assets. Like other financial asset markets, the paper gold market is grossed-up with leverage but its open interest nets out at equilibrium pricing.
"This does not mean that equilibrium pricing in gold futures necessarily represents 'fair pricing.' We believe participants in gold futures include: 1) speculators at every level of sophistication who buy and sell them seeking financial gain from either price changes or, at times, positive carry; 2) banks that create unreserved credit denominated in baseless money, that short gold futures because they have incentive to sustain the current monetary system and maintain control over credit distribution, and 3) sophisticated international purchasers of physical gold that short futures to keep the benchmark price low so they can amass more physical bullion.
"If the preponderance of sellers of gold futures enjoys far better funding terms than do their buyer counterparties, then it would seem logical there would be great advantage to sellers to maintain prices lower than they would otherwise be if funding of futures were equitable."