Derivatives Collapse and the China Gold and Silver Markets

by Bob Chapman, September 10, 2009

PREFACE NOTE:  Bob Chapman is the Editor of the International Harvester and a rare straight-talking economist who is
                                 more interested in the truth of the economic house-of-cards rather than politically correct deception. ~CR


"For my part, whatever anguish of spirit it may cost,
I am willing to know the whole truth;
to know the worst and provide for it."
- Patrick Henry of “Give me liberty or give me death” conviction

--------- article follows by Bob Chapman:
In 2009, China opened up various exchanges for investment in both gold and silver to the Chinese public, which previously was not allowed to invest in gold and silver. The opening of silver exchanges to the Chinese public is the most recent development and was accompanied by a ban on silver exports. The Chinese government is actively touting both gold and silver as an investment to the Chinese public, and with good reason. The yuan, like the dollar and virtually all other paper currencies, with the exception of the euro, are one hundred percent fiat currencies backed by absolutely nothing but government promises which aren't worth the powder to blow them to hell. Even the euros gold backing is pathetic at best. Initially it was a respectable 15%, but the backing is probably now about half of that due to Washington Agreement gold sales and surreptitious gold leasing.
Chinese government officials are now attempting to protect themselves by dumping large portions of their dollar denominated reserves for gold and silver.

 The Chinese government knows that if they do not allow the public to protect their new wealth with gold and silver, a decline in the yuan due to hyperinflation caused by massive government stimulus and an ongoing bailout and subsidization of mass failure in their banking and corporate sectors due to declining exports and trillions of dollars worth of spurious loans undergoing increasing rates of default, loans which often were given to Chinese communist party members, could very well lead to revolution.
Chinese government officials are now attempting to protect themselves by dumping large portions of their dollar denominated reserves for gold and silver, as well as for commodities such as copper and oil, and they want the Chinese public to be able to do the same with gold and silver, for maximum possible protection -
 and, more importantly, for avoidance of revolution. We believe that the Chinese government has acted far too late, but it's better than doing nothing. We also applaud their attempt to protect the wealth of their people, even though it is self-serving.
On the other hand, our Shadow Government, which runs our official government, is doing precisely the opposite, discouraging the US public from owning gold and silver. This contrary position of our Shadow Government, which is run by the Puppet Masters who pull the marionette strings attached to Obama & Company, and to our totally bogus Congress, who collectively now sport the lowest approval ratings in American history, is due mainly to two factors. First, they lack the ancient wisdom of the Chinese acquired over several millennia. Chinese survival skills are far better than those of our illustrious Illuminists. And second, the Puppet Masters are actively seeking to destroy the US middle class to pave the way for a one world Orwellian police state of feudality. Remember, a strong and vibrant US is the main obstacle to world government. Our evil Shadow Government would do well to follow the Chinese example, but they won't.
Apparently, the sound of a guillotine, or of a trap door opening, fascinates them.
Now, suddenly, we hear that China is considering walking away from responsibility on certain OTC derivative contracts held by foreign banks as counterparties, which contracts cover various commodities, in the event that those contracts result in losses to their sovereign wealth funds. You may recall from prior discussions in the IF that these unlisted OTC derivative contracts include massive short positions in both gold and silver, but especially in silver, and are used to back the listed COMEX short positions of the large commercials in both gold and silver.

In other words, the CFTC is allowing COMEX commercials to justify their ludicrously concentrated short positions in both gold and silver by backing those positions with contracts about which the CFTC has no direct knowledge, over which they have no regulatory authority thanks to the Commodity Futures Modernization Act, and which the CFTC knows are backed by foreign governments outside the jurisdiction of the US who can renege on those contracts with impunity!!! How's that for reckless regulation of commodities by the CFTC?! And now everyone's worst fears are about to be realized as China announces its intention to renege!!!
The majority of the massive concentrated short position in COMEX silver, which short concentration vastly exceeds that of any other commodity on the COMEX in its degree and scope, was first held by the now defunct and eternally bailed AIG, which was little more than a CIA and Mossad bucket shop and money laundering operation. After a totally justified public protest spearheaded by Ted Butler and Eliot Spitzer, the AIG short position in silver was next transferred to Bear Stearns of subprime derivative fame, and then JP Morgan Chase acquired the Bear Stearns silver short legacy in the now famed and nefarious Bear Stearns takedown that was orchestrated by the Buck-Busting-Ben-Bernanke-led Fed and JP Morgan Chase in cahoots with our Hanky-Panky-Paulson-led Treasury Department, which at that time guaranteed loans made by the NY Fed to JP Morgan Chase -  without recourse. We wonder if these miscreants did not also arrange for the surreptitious taxpayer guarantee of the imploding position in silver shorts inherited by JP Morgan Chase from Bear Stearns??? No wonder silver got blasted last year! Paying off on such a guarantee would have been very embarrassing to say the least, and you can bet the Chinese communist party members with their massive sovereign wealth fund holdings of OTC silver shorts were on the sidelines calling for a silver takedown after suffering a massive collective coronary as silver blew through $20 an ounce! It all makes perfect sense now.
These two developments, namely the Chinese government's promotion of gold and silver to its public as an investment, along with its intention to renege on its OTC derivative contracts covering certain commodities, are obviously interrelated. If you are going to ask your public to invest in gold and silver in a massive way in order to save both your and their bacon, while at the same time diversifying a goodly portion of your trillions worth of dollar-denominated paper assets into physical gold and silver, you might expect that this would put massive upward pressure on gold and silver prices. But if you also had massive holdings of short positions in OTC derivative contracts covering both gold and silver, would you not be shooting yourself in the foot?!!! So now we can understand why the Chinese have decided to renege. Otherwise, they are caught in a trap!
If the Chinese government pushes to bail out of dollar-denominated paper assets by plowing these assets into purchases of physical gold and silver, and then proceeds to ask their public to do the same, they will suffer massive losses on the OTC derivative contracts, totally defeating the whole purpose for diversifying into precious metals. This trap was intentionally set for them by the Illuminati in their never ending battle to suppress gold and silver prices. Your government, both shadow and official, lured the Chinese into writing OTC gold and silver short contracts ostensibly to hedge domestic precious metals production, but most likely to take advantage of planned gold and silver takedowns, and then used those contracts as a form of extortion against them to prevent them from diversifying out of the dollar and into gold and silver, among other assets. They probably told the Chinese that they were going to do a big takedown of gold and silver, and that they could greatly profit from these short positions and at the same time protect the value of their domestic precious metals production. Then Meredith Whitney pulled the plug on Citibank subprime assets, and the great bailouts and monetizations began, along with hyperinflation and a commodity boom powered by massive injections of money and credit by the Fed to the big legacy banks, the 'anointed,' in order to save bank balance sheets.
Apparently the US government forgot to mention these upcoming events and salient facts to the Chinese and now the Chinese have understandably decided to renege. Basically, the Chinese are saying: Up your nose with a rubber hose!
So now the COMEX gold and silver commercial shorts, the owners of the COMEX exchange, and all the past CFTC officials who allowed this nefarious paper fraud in gold and silver to rise to new criminal heights based on bogus backing by unregulated derivative contracts written and guaranteed by an often contentious and even hostile foreign government, are all doing double shots in their knickers. If the very angry, and very duped, Chinese renege, the entire COMEX is going down, big-time baby!!! The whole system is about to blow if the Chinese renege on these contracts!!! We wonder what the Chinese want in return for not reneging! Whatever it is, we can guarantee you that the US government is not going to like it very much.
Without the Chinese OTC derivative backing, all COMEX gold and silver positions would be totally naked. That is because COMEX inventory reports for both gold and silver are a total fairytale fraud. Despite many hundreds of requests for physical delivery which were satisfied over the course of many months, the gold and silver inventories reported by COMEX have remained unchanged. The COMEX even had to enlist the help of the ECB and the Canadian mint to satisfy those requests for delivery, thereby demonstrating that what the COMEX reports as inventory is nothing but a phantasm. We recommend that any and all COMEX gold and silver positions be abandoned as being outright naked and fraudulent.
Take physical delivery of your gold and silver bullion from COMEX if they have any, or take your ETF share in lieu of physical delivery and convert it into bullion immediately, and take physical possession of it. Do not trust any bank, any mint or any ETF or pooled fund to hold your gold and silver. Otherwise you potentially face a total loss of principal.
When the COMEX goes down in a blaze of glory, which is now inevitable, everyone who owns any ETF gold and silver shares, and especially those who have received these shares in settlement of their imploding COMEX contracts, are going to ask for physical delivery from the ETF's because all confidence will be lost in the system. Then comes the implosion of the ETF Ponzi schemes as everyone finds out that not only did the COMEX have no gold or silver to back its contracts, but that all the gold and silver ETF's were nothing more than gold and silver naked-shorting, leasing and price suppression schemes. We now predict that the requests for physical delivery from the ETF's will far exceed what they planned for, and further that the whole nefarious scheme will be exposed as being a Madoff-like Ponzi scheme, because their touted gold and silver bullion holdings have all been sold off, leased or otherwise encumbered.
In fact, the gold and silver being promised as backing for the holders of ETF shares may be the same gold and silver that is used to back COMEX futures contracts. The ETF's may well be leasing their gold and silver to the COMEX, which may then be handing it out to settle COMEX physical demands for delivery. Well guess what -  you cant both own the same gold and silver at the same time!
Now the COMEX has dropped that pretext, after sucking the ETF's dry, and they now hand you ETF shares backed by what may well turn out to be non-existent gold and silver! The cartel couldn't screw the ETF shareholders any further, so now they are screwing the COMEX investors as well.
We therefore recommend the abandonment of all pooled accounts held by ETF's, mints and any gold and silver dealers that are not on our recommended list, as being potential investment scams. If any dealer offers to hold your gold and silver for you in return for a paper promise instead of physically delivering it to you, just tell them thanks, but no thanks. Many dealers may be depending on paper gold and silver themselves to cover their gold and silver promises to their customers, so if this paper gold and silver evaporates, so will your dealer's promises.

This whole group of cartel henchmen-con-artists from the Illuminist cabal could easily get caught in a failure to deliver known as a commercial signal failure. The gold and silver shorts will completely implode if this occurs, and the Chinese strategy to renege on its OTC gold and silver shorts could well be the catalyst that brings such a cataclysm to fruition. Then, when gold and silver skyrocket as the shorts implode, only those who took physical possession of gold and silver, or who own gold and silver producer shares, will profit, while those holding futures contracts, ETF shares, mint certificates and precious metal derivatives will watch their contracts and shares go up in smoke like a Mission Impossible tape. That is because the major exchanges, sponsors and counterparties will go bankrupt, and you will have nothing left to go after to satisfy your paper promises.
The magnitude of this paper gold and silver scam will even exceed that of the Madoff Ponzi scheme. The Stanford scam will look like chump change by comparison. You should own only physical gold and silver, which is in your possession. The only paper gold and silver you should own are the producer shares, period. All futures contracts, ETF shares and mint certificates are now potentially bottomless capital loss pits.
We note how the Chinese gold and silver OTC shorts have hardly been mentioned by the fane-stream media outlets. The fane-stream media outlets are only talking about the OTC oil longs that the Chinese placed to lock in, and place a ceiling over, the cost of the oil they import as oil skyrocketed last year, on which they are now losing their shirts in the aftermath of the cartel-orchestrated oil takedown. The Illuminati, much of whose power lies in their big oil ownership interests, hammered oil down from $147 dollars a barrel to $32 a barrel in order to suppress alternative, greener and more efficient sources of energy, as well as to kill off the smaller producers who don't enjoy the same economies of scale as the big oil companies. Even today, oil is still less than half of its previous high more than a year later, and this has the Chinese hopping mad.
The media has focused on the Chinese long side of OTC oil derivatives, and has suppressed the news about their short side of OTC gold and silver derivatives, because the Illuminati, who own all the fane-stream media outlets, know just how explosive this news could be for gold and silver, and for them and their cabal, a gold and silver rally is the biggest of all no-no's. The Illuminati allowed the news to leak on the oil derivatives, because they believe they can patch up the resulting problems for the much larger oil market, but the gold and silver markets are far too small and volatile for the cartel to be able to control the potential fallout, and as far as the US branch of the Illuminati is concerned, gold and silver must be suppressed at all costs because rallies in gold and silver expose the vulnerability of their seat of power, namely, the reserve status of the US dollar and the status of the US treasury bond as the ultimate safe-haven.
The implications of the Chinese abandonment of their responsibility under derivative contracts are nothing short of tremendous and the entire derivatives market could collapse.
Once derivative players understand that any person or entity powerful enough to thumb their noses at the owner of the other end of a derivative contract can do so with impunity, the whole derivative market will go into a major uproar and will become completely unviable.
Everyone, including most of the major sovereign wealth funds, has figured out that they have been played for suckers by the big Illuminist legacy banks, who sell them these derivatives under false pretenses, and then via the Plunge Protection Team, financed with tens of billions of dollars worth of liquidity from the Fed's repo pool, manipulates the markets worldwide such that the Illuminist legacy banks end up on the profitable side of the derivative contracts.

Those foreign nations who are in an economically, politically and militarily strong position are going to renege on any significant losses they suffer in the derivatives market because such losses are the result of fraud, deceit, illegal manipulation and Illuminist blundering. These foreign nations are as mad as hornets and could very well tell the Illuminati's anointed legacy banks to take their derivatives and stick them where the sun don't shine!!! We don't think the Illuminists counted on this happening so soon.
The US branch of the Illuminist cabal has been trying to keep Chinese losses on their OTC commodity derivatives under control with lots of price manipulation in gold, silver and oil in an attempt to make up for past fraud and blundering. In any case, the Chinese don't care if their derivative losses were the result of Illuminist fraud, or just plain blundering. They simply are not going to pay!

No wonder Bernanke, Paulson and now Geithner have been running back and forth to China so often. And you can bet there are a host of other nations with the same issues who were sold a bill of goods. Wait until interest rates skyrocket and the carnage starts on the interest rate swaps and the parties on the losing end of these derivatives tell the big 'anointed' legacy banks to stuff it, to the tune of tens of trillions of dollars. The evil Illuminati, our would-be masters of the universe, are about to get bagged, stuffed and mounted!
If the Chinese government and the Chinese public go on a gold and silver investment binge, and Americans sit idly by like bozos as dumb as a box of rocks and continue to ignore gold and silver, all we can tell you is that you had better start learning Mandarin and teaching it to your children as well. China will recover very quickly from this disaster if it avoids revolution, as will the other major gold holder, India, and you will be in depression for two decades, if you do not end up living in FEMA detention/reeducation/death camps first.

If you want to survive the coming disaster, turn off the boob tube, put the beer down and run to your phone to order some gold and silver. This will turn up the heat on the Fed as rising gold and silver prices will show them for the frauds they are, and add impetus to the movement to audit the Fed and end its reign of terror forever.
And we might add the reminder that Fort Knox is freaking empty and your dollars are 100% fiat, so don't sit there watching NFL games. Get off the couch, order some gold and silver, and start making up for the loss of our national gold!!!
Always remember, he who has the gold makes the rules.
Speaking of which, we thought that we would comment on two situations that illustrate this principle perfectly.
First case in point:
You might note that although Germany wants out of the euro in the worst way, they have a really big problem. They entrusted their national gold to the US government. What a monumental mistake that was. And now its national gold is freaking gone, along with the rest of the US gold, which has all been stolen, sold, leased or otherwise encumbered. That means that Germans would be forced to leave the euro, which has at least some measure of gold backing, for the old German mark, which due to the theft of all of Germany's gold, would now be totally fiat except for the gold which Germany has on deposit with the ECB, some of which may have been sold as well, which is small compared to what they had on reserve with the US Treasury. So now we see what is holding the European Union together. Until Germany gets its gold back (fat chance),
 if they revert to their previous currency, the mark, it would be little better than the euro. This is why Germany asked for their gold back and were told to take a hike.
Otherwise, the bogus European Union would be immediately dissolved, and the Illuminati will certainly not allow that. This is also a potential reason why the ECB, which takes its lead from Germany and France, has been reticent to increase money and credit in the same fashion as the US Fed.
They are deathly afraid of hyperinflation for historical reasons, and now Germany has come to the realization that they are naked and that they lack any protection against the ravages of a profligate monetary policy whatsoever. Talk about international monetary extortion! We may end up in a replay of World War II if this continues. How is the German government going to explain this boner to the German public? Perhaps the German people will end up having their own version of the Nuremberg trials, where the current and past German politicians who allowed their gold to be stolen by the US government get to play the part of the Nazi prisoners on trial, complete with a walk to the gallows.
Second case in point:
You might note that the Gulf Cooperation Council (GCC), which is comprised of the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, in recent years attempted to break their pegs to the dollar and to start a new common central bank which would issue a new single currency that would be pegged to a basket of currencies, with a 2010 deadline.
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