Source: Bob Moriarty for Streetwise Reports 03/20/2020
Bob Moriarty of 321gold discusses misunderstandings over the role of banks versus speculators in commodity trading.
I lived in California when I was in the 7th grade. The state led the rest of the US in education. That was before it turned into a socialist paradise. I took an algebra course in the 7th grade; California would let you take any course the teacher would allow you in. I pretty much aced it with one exception. I kept doing the math in my head.
The teacher caught me and showed me that while it was really cool that I could work out the figures in my head, when the numbers got too big, I was going to have to work the problem out using the techniques he taught. That was cool with me.
When my parents moved to Texas in the early 1960s I had the benefit of attending a serious high school in Fort Worth with vigorous course requirements including three years of real math. So I took four, I liked math a lot. It was dead easy for me.
After I left the service in 1970 I started college, after all, everyone knows you have to have a college degree to get ahead. Except for Steve Jobs and Bill Gates. I signed up for all the math courses I could take. It was easy for me after all.
Until I ran into The New Math. It seems that between 1964 and 1970 a revolution in teaching math took place. It has something to do with computers but I never really learned what that relationship was. But all the math I had learned was wrong. I had to learn the New Math. Part of it was something called the Set Theory. I’ve put a link to a description of Set Theory that I read over a couple of times and frankly I still don’t understand it.
I went on to being a systems programmer for Ross Perot at EDS. They were the top computer guys in the US at the time. Nobody ever used or mentioned the Set Theory or New Math. The old math worked just great. Which was fine by me because I didn’t understand it then and don’t understand it now.
I just stumbled across a short clip by Alasdair Macleod who often writes for GoldMoney. I was on a trip to Colombia many years ago with GoldMoney president Roy Sebag. He’s easily one of the top two or three people smartest people I know. We were talking about BitGold way back when. He formed a company, took BitGold public and ended up buying GoldMoney. It’s a wonderful concept.
I wonder if Roy knows that Alasdair is trying to start a new form of mathematics. I stumbled, literally stumbled; I tripped over this little bit of wisdom on one of those sites that plays a one-string banjo badly. It’s such a one-way site I am hesitant to send my readers there.
The short blurb was titled “Bullion Banks and Paper Gold” and Alasdair went on to say,
“By smashing the gold price, bullion banks have reduced their short positions on Comex by $35 to $40 billion. If OI (Open Interest) had continued to rise from mid-Jan some of them would be bust. This is what it is all about. Is the smash over? Maybe. But the paper market game will never be the same.”
You have to read it very carefully and be able to think for yourself to see the multiple fatal flaws in one simple paragraph.
His new math seems to suggest that the bullion banks (actually there is not really any such thing) smashed the price of gold by reducing short positions by $35 to $40 billion. That’s a lot of gold.
Every commodity contract has both one buyer and one seller. Doesn’t matter what the commodity. One buyer, one seller. That’s how we know that anyone talking about “Naked Short Selling” is a fraud because it can’t exist.
You can buy first or you can sell first but before the contract expires, you have to take the opposite position to close. And since the open interest fell out of bed, someone was closing a lot of positions.
So if you were one of these Bullion Banks (Bullion Banks by the way, if they are trading for their own position would be speculators, not commercials), if you were a Bullion Bank exiting $35 to $40 billion worth of gold shorts you would have to purchase $35 to $40 billion of gold.
So Alasdair’s new math means that you smash the price of gold lower by buying up to $40 billion worth of gold. That’s certainly news to me. I was taught that when you bought a lot of a commodity it made the price go up. I guess under the new math you make the price go down by buying a lot of gold. You make it up by quantity.
In my best selling Nobody Knows Anything, where Bill Murphy likes to sneak in a negative review every couple of months under a fake name, I have a whole chapter called Buzz Words that Illuminate. You see there are certain buzzwords that indicate just how much a person knows about their subject or it indicates that they are a fraud, not just ignorant.
You cannot have naked short selling in commodities, it cannot exist, remember, one buyer, one seller per contract. No naked short selling and certainly no naked long purchases. Comex default is another indication you are dealing with a fraud. You cannot have a default of any commodity contract. All commodities call for cash settlement if necessary.
Another of my favorite cons is saying Commercial Signal Failure through it hasn’t been all that popular since I pointed out there was no such thing.
Now I realize that I really do need to add a couple of terms to that book. The use of Bullion Banks indicates someone is trying to BS you. Yes, banks do trade on their own behalf. Those that do would be speculators and if Alasdair wanted to point out accurately that it was the speculators that were covering contracts by massive selling, he would have gotten it dead right. But banks have the same right to speculate as you do or I do or any hedge fund does.
The only time banks of any kind would be in the commercial category would be if they were hedging on behalf of a client. That doesn’t move markets in any form, as it is nothing but a hedge.
The other pet phrase that indicates ignorance is using the term paper gold verses physical gold. If you aren’t a miner, all the physical gold you ever own you paid for with paper. When you sell it, you are going to get paper. You can believe that fiat money is the worst thing in the world and maybe you are right. But you buy with paper and you sell with paper. The idea there is some giant difference is nonsense of the first order.
Alasdair doesn’t understand commodities well enough to get it but the vast majority price movement is based on the actions of the speculators and almost never on the commercials. They are always the most leveraged, the first to panic and the weakest of weak hands. If banks were long gold and got their heads handed to them by dumping contracts, good.
Alasdair will be very popular because he uses the same con words the mob wants to hear. The mob is always happy when their fantasies are fulfilled. But his new math doesn’t make a bit more sense than the New Math of the 1960s and I’m shocked Roy Sebag allows it. He’s a lot smarter than that and I would have believed he fully understand commodities. Alasdair clearly does not.
Bob Moriarty
President: 321gold
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Bob Moriarty founded 321gold.com, with his late wife, Barbara Moriarty, more than 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
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