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The hypocrisy of Goldman Sachs

Aug 11, 2015

It appears that Goldman Sachs is about to fleece its clients again.

Back in 2006/7 they deceived their clients while taking an opposite strategy for themselves. Now they are doing it again, telling their clients that gold prices are weak, while at the same time purchasing 3.2 tons of physical gold for their own vaults. At the same time, HSBC took delivery of 3.9 tons of physical gold. Between them, the total delivery was 7.1 tons of physical gold.

Big banks like this do not take delivery of physical gold unless they believe it is a good investment. After all, it takes money to provide secure storage for such quantities.

Senator Carl Levin, writing in a Congressional Report, used Goldman Sachs as an example of everything that went wrong in the banking system. According to him, before the subprime crisis, Goldman Sachs secretly built up a massive short position in credit default swaps, convincing customers to take the other side of the trade. The bank ended up paying a record fine of $500 million for one instance of the trade. However, overall, they profited to the tune of tens of billions of dollars.

Are Goldman and HSBC now creating a "Big Long" in gold? If not, what are they doing? But, if so, why are they taking delivery on a regulated exchange? By using a public exchange, the banks opened their activities to advance scrutiny. Why not buy physical gold the way they bought credit default swaps? Why not use secretive two-party transactions?


Now Goldman Sachs appears to be ready to do it again. Apparently, the $500 million fine was considered to be a good price to pay as a fine for making billions of dollars.

According to HSBC strategists, there has been a:

"drift towards Fed tightening and the associated USD strength, low global inflationary pressure, weak gold demand from India and China and market positioning and momentum."

This statement was made a few days before we all learned about the 61% increase in gold imports to India in the period, April to May. As one of the biggest players in the import market in India, how could have HSBC strategists not known about that? HSBC executives were certainly savvy enough to authorize this huge purchase of physical gold for the bank.

They bought 3.9 metric tons at COMEX, no doubt at rock bottom prices, and it was just delivered into the bank's house account. Note that we are NOT talking about paper-gold. Both bought physical gold bars! Apparently, top Goldman and HSBC executives are "gold bugs." They do not, apparently, believe in the promises made by the gold trust (NYSEARCA:GLD), or at least they are not willing to use the trust's shares as a substitute for hard metal bars.

Like Indian newlyweds, the banks buy gold trinkets hand over fist even as their "strategists" tell everyone it is a bad investment. Reports do indicate that the London market is caught in a historic backwardation, the likes of which have never been seen before in history. Arbitragers won't sell gold now, in exchange for a forward or futures promise of delivery. That illustrates an extreme level of market tightness.

If investors do as Goldman does, rather than as Goldman says, they will do as well as Goldman does, whatever that is.

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Category: Financial
Blog Author: Dr. Stephen Jones