How to Corner the Gold Market
Comment of the Day

April 14 2010

Commentary by David Fuller

How to Corner the Gold Market

My thanks to a subscriber for this tongue-in-cheek report by Janet Tavakili which is both fun and informative. Here is the opening

David Fuller's view First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities. Stay away from people like me, and fly under the radar, because I'd like to see you thrown in jail. Most Washington officials, regulators, and Wall Street managers are probably safe to hang around, especially if you cut them in for a piece of the action or give them vague promises of a future lucrative job.

Next, cultivate relationships-or plant someone-on as many as the gold exchanges as possible in London, New York, Chicago, Hong Kong, Sydney, and Dubai. Get to know key people at one or more of the bullion banks: JPMorgan Chase, UBS AG, ScotiaMocatta, Barclays Bank, and Deutsche Bank AG. Get to know as many mine producers as possible (China has been buying gold mines), and watch the sales of mines, particularly to China. Get to know all of the refiners.

Set up some new offshore corporations, subsidiaries of existing corporations, and hedge fund or two of your own to engage in some gold trading.

Get to know as many hedge fund buyers as possible, and encourage everyone to buy physical gold. Remove the gold from custodian banks, and stash it in a vault solely under the control of the hedge fund. Use your network of people with net worth of $1 billion or more to get them to buy gold, too. Then work on the "small" investors with only $100 million or more net worth. Keep the key decision making group as small as possible to make it harder for anyone in your group to try to back out.

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail suckers investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the "gold" to be commingled with the custodian's gold, and the custodian can lease out the gold. Moreover, the "gold" custodian can give it to a sub custodian that the manager doesn't know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not "allocated" to a particular investor. Since this is an "exchange traded" gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn't. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

Back to top