UBS and other precious metals traders on how to wreak havoc in silver markets
Written by Allan Flynn, specialist researcher in aspects of gold and silver.
“An avalanche can be triggered by a pebble if you get the timing right”
Earlier this year at April’s hearings for London Silver and Gold Fix lawsuits, the judge and defendant’s attorney quipped about trader chats named “the mafia” and “the bandits” published in prosecutors findings of Forex investigations but conspicuously absent from precious metals investigation findings, and the silver and gold antitrust lawsuits under consideration.
THE COURT: “Those were bad facts for the defendants.”
LACOVARA: “I think, your Honor, that if we had chat rooms that said “The Cartel”, we might be having a different focus to oral argument today.”
THE COURT: “I think that is correct.”
Given the judges skepticism of the allegations described in an earlier article, it came as a surprise early October when the banks listed were ordered by magistrate Valerie E. Caproni to face charges. More surprising perhaps was the exemption granted Swiss bank UBS, which despite having been found guilty and fined for “precious metals misconduct” by the Swiss Financial Market Supervisory Authority FINMA in November 2014, was granted motion to dismiss from both silver and gold lawsuits.
All that may be about to change according to documents filed in a New York district court December 7th, where plaintiffs claim that transcripts showing conspiracy to manipulate silver, provided by Deutsche Bank as part of an April settlement agreement, includes extensive smoking gun evidence involving UBS and other banks. Plaintiffs describe a “multi-year, well-coordinated and wide-ranging conspiracy to rig the prices of silver and silver financial instruments that far surpasses” that of the previous complaint, including potentially incriminating evidence of UBS precious metals traders allegedly conspiring with other banks.
Five additional banks to the remaining defendants HSBC and Bank of Nova Scotia are mentioned including Barclays Bank, BNP Paribas, Standard Chartered Bank, Bank of America and Merrill Lynch. The Memorandum of Law signed by Vincent Briganti on behalf of Lowey Dannenberg Cohen & Hart for plaintiffs on Wednesday 7th December seeks leave to amend the existing complaint filed with the United States District Court Southern District of New York.
Included in the memo are numerous astounding transcripts indicating coordination between UBS and other banks of “pushing,” ”smashing,” ”bending,” ”hammering,” ”blading,” ”muscling,” and “ramping” the prices of silver and silver financial instruments.
In support of claims of conspiracy to manipulate the price of silver downward the following gem is attributed to UBS Trader A: “so we both went short” “f*cking hell it just kept going higher” “63,65, then my guy falls asleep, it goes to 69 paid!” “then finally another reinforcement came in.”
Discussions supposedly of coordination between UBS and their competitors about fixing the price of physical silver by offering only wide spreads between the bid and ask (where a “lac” is reference to an Indian measure equaling 100,000 units) go like this:
UBS Trader B: “what did u quote let me check”
Deutsche Bank Silver Fix Trader-Submitter A: “44/49”
UBS Trader A: “just quote wider if they call me in 1 lac I will quote 7-8 cents”
Deutsche Bank Trader B: “how wide u making 1 lac today 5 cents?”
UBS Trader A: “silver actually steadier than gold i would make 5-6 cents wide in silver”
UBS Trader A: how wide would you quote 5 lacs silver?”
Deutsche Bank Trader B: “10cu>?”
Deutsche Bank Trader B:”how wide u quote for 3 lacs?”
UBS Trader A: 10 cents”).
Manipulation of the Silver Fix price to benefit their silver trading positions in derivatives by UBS is claimed in the following exchanges:
Deutsche Bank Trader B: “u guys short some funky options” “well you told me to no one u just said you sold on fix”
UBS Trader A: “we smashed it good.”
Deutsche Bank Silver Fix Trader-Submitter A: “UBS boring the market again”…”just like them to bid it up before the fix then go in as a seller…they sell to try and push it back.”
It’s further alleged by plaintiffs that UBS implemented an “11 oclock rule” where both UBS and Deutsche Bank would short silver at 11A.M.
As examples of the comparative ease by which UBS moved the silver market the memo reveals Deutsche Bank Trader B added UBS Trader A to a chat with HSBC Trader B, which UBS Trader A deemed “the mother of all chats,” and leading to the trader’s own analysis:
UBS Trader A to Deutsche Bank Trader B: “if we are correct and do it together, we screw other people harder”
UBS Trader A: “an avalanche can be triggered by a pebble if you get the timing right” and “silver still here, u can easily manipulate silver”, and in reference to UBS supposed manipulative influence by an unnamed party: “u guys WERE THE SILVER MKT.”
UBS intended to reap financial rewards by manipulation of the price of physical silver and associated financial instruments, the memo says as UBS Trader A suggested: “go make your millions now jedi master…” “pls write me a check when u aer a billionare,” and “i teach u a fun trick with silver” to which Deutsche Bank Trader B replied: “show me the money.”
Confident of their ability to manipulate UBS made bold predictions according to the following alleged extracts:
UBS Trader A: “gonna bend this silver lower”; “i will bend it lower told u”; ”hah cool its gonna get ugly”; “use the blade on silver rg tnow it’ll hold it up,”
Deutsche Bank Trader B: “yeah,”
UBS Trader A: “gona blade silver now.”
Of course all the secrecy in the world about the operations was required of the chat groups by UBS Trader A stating: “pls keep all these trick to yourself,” “btw keep it to yourself…,” and “ok rule of thumb EVERYTHING here stays here.”
Examples of other banks alleged transcripts are included in the following:
Deutsche Bank Trader B instructing Barclays trader A: “today u smash,”
Barclays Trader A: “yeah” and “10k silver” “im short.”
It’s alleged that Barclays and Deutsche Bank shared information so often that Barclays Trader A remarked “we are one team one dream.”
Materials in the memo even include the Deutsche Bank and Barclays precious metals traders agreeing at one stage to “stay away” from silver for a week.
The traders of course knew it was terribly wrong with Barclays Trader A responding to Deutsche Bank’s Trader B instruction to “push silver”: “HAHAHA lol i don’t think this is politically correct leh on chat.”
Allegedly fixing the bid-ask spread they offered clients on silver:
Merrill Lynch Trader A: “How wide r u on spot? Id assume 10 cents for a few lacs?”
Deutsche Bank Silver Fix Trade-Submitter A: “im getting ntg but stops”
…Merrill Lynch Trader A: “we had similar” “I sweep them…Fuk these guys.”
Showing disregard to global regulators even after noting their activities the two continued to “sweep” the silver market, allegedly observing at one stage: “Someone got stopped messily.”
BNP Paribas Fortis
Fortis Bank Trader B allegedly conspired with Deutsche Bank to manipulate silver prices, using what he termed a “bulldozer” on the silver market.
Conversations between Deutsche Bank Silver Fix Trade-Submitter A and Standard Chartered Trader A as follows:
“Yeh” “small long out of the fix…” “ok where to sell sivler then?”
“23.40 thru that use it as a stop profit and let it runnnnnnnnnnnnn”
“were on the same wavelength”
“im long silver”…”ilke both [silver and gold] to get the absolute sht squeezed out of them” “im longer silver than i am gold”
Assuming the transcripts submitted are accepted and plaintiffs are permitted to file their Third Amended Complaint, the possible pending “avalanche” of settlements in silver lawsuits will speak volumes for the investigative prowess of the CFTC and the DOJ, both of which were commissioned to investigate long running allegations of silver and precious metals market manipulation over recent years, and came up completely empty.
It appears Judge Caproni, former FBI General Counsel, was on the money when considering the potential of ineptitude in government investigations of precious metals markets at April’s gold hearing: “I don’t put a lot of stock in the fact that there are investigations because I was a government lawyer for a long time and I know what you need to open an investigation. By the same token, the fact that they closed it without charging anybody doesn’t mean that everybody is innocent. So I don’t put a lot of stock in it one way or the other.”
The CFTC proudly announced in September 2013 they had spent five years and seven thousand enforcement hours investigating complaints of manipulation in the silver market, including with assistance by the Commission’s Division of Market Oversight, the Commission’s Office of Chief Economist, and outside experts, but yet found nothing.
The Department of Justice Antitrust Division which were so confident of their investigation of collusion in precious metals they went to the extraordinary lengths in January of this year of providing a letter to silver and gold lawsuit defendants advising they had closed their investigation without findings of wrongdoing.
The Swiss Financial Services watchdog FINMA investigated, published and prosecuted UBS for forex and precious metals trading misconduct but yet said so little about precious metals findings in their November 2014 investigation report, it was impossible for the court to withstand UBS motion to dismiss in both metals.
And finally of the ability of authorities to reign in rogue banks in the precious metals or any other markets, the memorandum flags a fact that should draw the attention of those trying to figure out if they can indeed trust that their bullion bank has their best interests at heart simply by banning participation in trader chat rooms.
“The chats contained in the DB material are just the tip of the iceberg, as evidence suggests that Defendants intentionally communicated in undocumented ways to keep their manipulation hidden.”
For example the memo includes the salient reminder that banks willalways find a way “to evade detection,” in this case where two traders are described as also communicating “via email and personal cell phone.”
The above article was first published at Allan Flynn’s website here.
Allan Flynn is a specialist researcher in aspects of gold and silver. He is currently investigating for future publication on the same topic and works in property and commercial architecture when he needs to eat. He holds shares in precious metals producers and banks.
Anyone with even a passing interest in US official gold reserves will probably recall that the US Treasury claims to hold its gold (8,133.5 tonnes) over four locations in continental United States, namely at three US Mint facilities in Fort Knox (Kentucky), West Point (upstate New York), Denver (Colorado), and at the New York Fed (Manhattan, New York City).
This report states that 4,583 tonnes of US Treasury gold are stored in the US Mint’s bullion depository in Fort Knox, 1,682 tonnes at the West Point bullion storage facility, and 1,364 tonnes in the US Mint facility in Denver, for a total of 7,628 tonnes of gold. The US Treasury further claims that 418 additional tonnes of its official gold reserves are held at the Federal Reserve Bank vault in New York. An additional 87 tonnes, a working stock figure (which never changes), comprises the balance.
While Fort Knox and the NY Fed vaults regularly take the limelight in terms of volume of media coverage, and to a lesser extent the West Point vaults do so also, there is very little if anything devoted to coverage of the US Treasury gold supposedly held in Denver. It is therefore of interest that none other than the US Mint on its own website recently ceased claiming that it stores gold bullion at its Denver facility.
“Today, the United States Mint at Denver manufactures all denominations of circulating coins, coin dies, the Denver “D” portion of the annual uncirculated coin sets and commemorative coins authorized by the U. S. Congress. It also stores gold and silver bullion.”
“Today, the United States Mint at Denver manufactures all denominations of circulating coins, coin dies, the Denver “D” portion of the annual uncirculated coin sets and commemorative coins authorized by the U. S. Congress. It also stores silver bullion.”
At the very least this change in wording between August and September 2014 is very unusual. Why would the Mint have authorized and made such a wording change and deleted the reference to gold bullion? I asked the US Mint to clarify but the query went unanswered:
Given that the Denver Mint does not produce any gold or silver coins, the Mint does not have a need to store either gold or silver bullion working stock in Denver, so the above wording cannot be referring to metal being stored for fabrication supplies. The only commemorative coin produced in Denver is an uncirculated clad half dollar made of copper and nickel. While the above change of wording on the US Mint’s website could have an entirely different explanation, it does raise the possibility that there isn’t any US Treasury gold bullion stored in Denver. This possibility would also subscribe to a view that has been expressed for quite some time now by well-known gold author and commentator James Rickards. Since at least 2010, and probably prior to that, Rickards seems to think that the US gold reserves are nearly exclusively stored at West Point and Fort Knox. Some tweets of his illustrate the point:
Almost all U.S. #gold is either in Ft. Knox or West Point, both Army bases. So U.S. gold is effectively controlled by the military. — Jim Rickards (@JamesGRickards) September 1, 2010
@cetarro Right, but to put a finer point on it, #gold is really controlled by the military because it’s all at Ft. Knox and West Point
This view, that the US gold is kept at West Point and Fort Knox, actually makes quite a lot of practical sense and is entirely logical. It also makes Denver look like the odd man out.
The US Mint facilities at Fort Knox and West Point are located adjacent to US military installations, namely the US Army base, Fort Knox, and the US Military Academy, West Point. The Fort Knox bullion depository, which opened in 1936, was actually built on land that was previously part of the Fort Knox military base, and that had been deeded to the Treasury Department. The West Point bullion facility, which opened two years later in 1938, was built on land formerly occupied by the West Point military facility, and that had also been deeded to the Treasury Department.
Having large quantities of gold stored in facilities next door to US military facilities is a natural security advantage for protection and also as a deterrent against any would be gold heists. In contrast, the US Mint facility in Denver is located on a city block at 320 West Colfax Avenue, between Delaware St and Cherokee St. It’s near a court-house and a police station but no sign of any US military facilities in the immediate vicinity.
The US Mint in Denver is also the odd one out (of the three) in that it offers public tours of the facility, something unheard of at Fort Knox and West Point. Arguably, the NYFed offers a gold vault tour, but out of US Mint facilities that the Treasury claims to store gold at, Denver is the only one with a public tour. The supposed location of the gold vaults in Denver is also a complete mystery with no photos or images of any vaults or contents of vaults (as far as I can see) ever on the web. A review of the Denver Mint tour (here) mentions supposed gold storage in the lower decks of the building but this seems to be merely supposition as it is inferring that 3 gold bars on display in Denver came from the building’s vaults. However, they did not. These three gold bars actually came from West Point, as CoinWeek stated in May 2012:
“Denver Mint plant manager David Croft pointed out that the three bars were shipped in from the U.S. Mint’s working gold supply at West Point and did not come from the gold that is in deep storage in Denver.“
Which begs the question, why? The US Mint would probably answer, so as not to ‘break the seals’ on the Denver vault doors, but this shipping of 3 gold bars from upstate New York to Denver would seem completely unnecessary if Denver was storing a couple of tonnes of gold, let alone 1,362 tonnes. The more accurate answer may be that the US gold, if it even exists to the extent to which the US Treasury claims, is held adjacent to US military bases at West Point and Fort Knox.
On Friday 31st July 2015, I released an article discussing the sale of Swiss gold refiner Valcambi to Indian jewellery company Rajesh Exports. In my report, in a section about Valcambi’s annual gold refining capacity, I made passing reference to 2013 gold refining production statistics that had been published by the London Bullion Market Association (LBMA) on 1st May 2015. These same gold refinery production statistics had also been quoted by the LBMA as recently as July 2015 in the news section of Issue 78 of its ‘Alchemist’ magazine, (published on 21st July 2015, just a week before my article).
The reference in my article to 2013 LBMA gold refiner production statistics discussed the unprecedented 6,601 tonnes of gold that was refined in 2013 by gold refineries on the LBMA’s Good Delivery List. My reference to this 6,601 tonnes on 31st July, including a short table of LBMA data, was as follows:
“Rajesh Exports just revealed in its press release that over the last 3 years, Valcambi has refined an annual average of 945 tonnes of gold and 325 tonnes of silver (2835 tonnes of gold and 975 tonnes of silver over 3 years). Presumably the last 3 years that Rajesh mentions refers to the last 3 calendar years of 2012-2014.
The London Bullion Market Association (LBMA) doesn’t reveal annual production data of its refinery members on an individual level, however, the LBMA recently published high level totals of the refined gold production of its accredited refiners (LBMA Good Delivery List) over the years 2006 to 2013. What was striking about the data was that total refined gold production of its refinery members reached 6,601 tonnes in 2013, which was 42% higher than total refined gold production in 2012, and also more than double global mine production of 3,016 tonnes of gold in 2013. See table below from LBMApublication:
Total annual refined gold and silver production by LBMA refiners 2006-2013 (tonnes)
So with Valcambi being the largest gold refinery in the world, it would be realistic to suggest that its annual average of 945 tonnes of refined gold output over the last 3 years probably hides the higher refined gold production that it too experienced in 2013 versus 2012.”
In the first quoted paragraph, above the table, I had hyperlinked the word ‘publication’ to a LBMA source document URL which pointed to a pdf document named ‘LBMA Brochure Final 20150501.pdf’.
The ‘LBMA Brochure Final 20150501.pdf’ filewas a 4 page document titled “A guide to The London Bullion Market Association”, with the refinery production statistics appearing on page 3 under a page title “The LBMA Good Delivery List”. The file ‘LBMA Brochure Final 20120501.pdf’ was created on 2015-05-01 at 10:09:50 using the applications Adobe InDesign CS 5.5 (7.5) and Abode PDF Library 9.9.
In the refinery section of the LBMA Brochure Final 20120501.pdf’ document, the LBMA’s commentary first explained what the Good Delivery ‘List’ refers to, as well as listing the number of gold and silver refineries on the List, and then proceeded to comment on the ‘Total refined gold production of the refiners on the List‘ in 2013, which it stated was 6,601 tonnes. The LBMA commentary also highlighted that this 6,601 tonnes of refined gold production by the refiners on the List was ‘more than double‘ 2013 world mine production of 3,061 tonnes.
The ‘List’ specified 72 refineries which refined gold, and 83 refineries which refined silver. It also showed that 16 refineries which refined gold were in Europe, 43 in Asia, 11 in the Americas, and 1 each in Africa and Oceania. So the 6,601 tonnes of gold statistic for 2013 represented 72 refineries on the Good Delivery List which refined gold. And the LBMA made clear in its commentary that refiners on the Good Delivery List represent 85%-90% of world gold production:
As mentioned above, the LBMA also printed the same 2013 gold refining figure of 6,601 tonnes in Issue 78 of its magazine, ‘Alchemist’, which was published on 21st July 2015. Alchemist is published in both hard copy magazine format and on-line. In the ‘LBMA News’ section of Issue 78, viewable here and here(Alch78LBMANews), the LBMA Chief Executive, Ruth Crowell, provided a news update on the Association’s Physical Committee, stating:
“Total refined gold production represented by the accredited refiners on the LBMA’s Good Delivery List was 6,601 tonnes in 2013, more than double mine production of 3,061 tonnes. For silver, refined production by listed refiners was 24,570 tonnes, marginally below the 25,494 tonnes of mine production in the same year.”
[The full issue of Issue 78 of The Alchemist can be viewed here (large file)]
According to the LBMA, the ‘Physical Committee is made up of industry experts from the physical bullion market“, therefore this physical committee is well aware of the 6,601 tonnes of gold refinery production figure in 2013, not least because it’s printed in the committee’s news section in the latest edition of the Alchemist.
The explosion in gold refining activity in 2013, and the huge throughput of Good Delivery bars being transformed into smaller higher fineness bars for the Asian gold market was without doubt one of the biggest stories in the gold world during 2013. I had cited the 6,601 tonnes figure to help support a calculation about Valcambi refining capacity, and my reference wasn’t really central to the main topic of my Valcambi article. But it was a topic that I was planning to re-visit, and I tweeted about it on 4th June when I first read the LBMA report that contained the 6,601 tonnes data:
LBMA said “Total refined gold production by refiners on List was 6601 tonnes in 2013, more than double world mine production of 3061 tonnes”
All of the above seems logical and easy to understand. It was therefore surprising to notice that on Wednesday 5th August 2015, three business days after my Valcambi articles was published, the LBMA substantially amended the gold refinery figures in the file ‘LBMA Brochure Final 20150501.pdf‘, and dramatically lowered the 2013 refined gold production figure from 6,601 tonnes to 4,600 tonnes, while substantially altering the wording and meaning of the paragraph commenting on the refined tonnage. The document content was amended and re-saved with the same file name LBMA Brochure Final 20150501.pdf‘, and left in the same web directory. So anyone viewing the LBMA document for the first time would not know that the gold refining figures in the report had been altered and substantially reduced. The file directory in question is here, and contains the altered report:
Let’s look at what was changed between the two versions. Here is the exact updated LBMA text and data table after the Wednesday 5th August changes, including the matrix displaying the number of gold and silver refineries on the ‘List’. The number of refineries remained unchanged. However, notice the 2013 gold refining figure became 4,600 tonnes:
Page 3: changed version of ‘LBMA Brochure Final 20120501.pdf’ 5th Aug
If you compare the original and altered versions of this LBMA report, you will see substantial differences. Here is a description of the changes, which I have highlighted using italics, underline and bold in various places, and the LBMA’s text is indented:
a) For gold, the LBMA reduced the 2013 total refinery production figure from 6,601 tonnes to4,600 tonnes, a reduction of 2,000 tonnes of gold. To put the sheer magnitude of 2,000 tonnes of gold into perspective, 2,000 tonnes of gold is nearly twice as much gold as the Swiss National Bank (SNB) officially reports that it holds. [The SNB claims to have 1,040 tonnes of gold].
The LBMA added that words ‘estimated to be‘ in front of the 4,600 tonnes figure, and the words ‘owing to recycling of scrap material‘ were added after the figure. The ‘more than double‘ reference to the 6,601 tonnes of gold being more than double world mine production, was deleted and replaced by the word ‘above‘. The words ‘source Thomson Reuters GFMS‘ were added in brackets at the end of the sentence. The wording of “total refined gold production by the refiners on the List‘ was retained and not altered.
“Total refined gold production by the refiners on the List was estimated to be4,600 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes (source Thomson Reuters GFMS).”
b) For silver, the 2013 total refinery production figure of 24,570 tonnes was increased to 29,984 tonnes, an increase of 5,500 tonnes. The words ‘estimated to be‘ were also added in front of the 29,984 tonnes figure. Unlike gold, no wording was added about recycling of scrap material. Since the LBMA upped the 2013 silver total so much, it was now far above mine production, so the previous words ‘marginally below‘ were replaced by the word ‘above‘. Again, the words ‘source: Thomson Reuters GFMS‘ were added in brackets at the end of the sentence.
“For silver[,] refined production by listed refiners in 2013 was estimated to be29,984 tonnes, above the 25,981 tonnes of mine production in 2013 (source: Thomson Reuters GFMS).“
c) The altered text still retained all of the references to the Good delivery refiner ‘List’, and still stated that the figures in the table were for ‘estimated annual refined gold and silver production by the refiners on the List’.
“The Gold refined by refiners on the List make up about 85-90% of world production. Total estimated annual refined gold and silver production by the refiners on the List are shown in the table below (tonnes).”
d) The years 2006 and 2007 were removed entirely from the table in the changed version from 5th August, with the revised version only covering the years 2008 – 2013 and not 2006 – 2013 as per the original.
As the number of gold refiners in the ‘List’ above remained the same in this altered version as in the original version, there can be no doubt that this refers to the same group of gold refiners which had combined production output of 6,601 tonnes of gold in 2013 yet also, simultaneously (and impossibly) according to this altered version of the report, had a combined 4,600 tonnes of gold production output in 2013.
Total refined gold production of the refiners on the List
Question: How does the LBMA know that “Total refined gold production of the refiners on the List” was 6,601 tonnes in 2013?
Answer: Because the Good Delivery refiners provide annual refinery production figures to the LBMA. It’s as simple as that.
Every refiner on the LBMA’s Good Delivery list is required to provide production data to the LBMA on an annual basis. This information is required by the LBMA as part of its obligatory Pro-Active Monitoring (PAM) programme of Good Delivery refiners. The PAM programme is defined by the LBMA as follows:
“The PAM programme reviews the assaying competence of refiners on a three-yearly basis. In addition, it checks that they continue to meet the minimum requirements for refined production and tangible net worth on an annual basis.”
This production data was supplied to the LBMA on a three-yearly basis until 2011, but the rules were changed in 2011 to an annual basis. From ‘Alchemist’ issue 65, December 2011:
“Some important changes in the Rules have been agreed recently. The first is that refiners will have to provide data on their tangible net worth and productionon an annual, rather than a three-yearly, basis.”
“All current Good Delivery refiners are also required to submit their production and audited financial data on an annual basis to the Executive. “
Annex A of the same document, clarifies the compliance date and states:
“With effect from 1st January, 2012, all current Good Delivery refiners are required to submit their refined production and audited financial data on an annual basis to the Executive.”
Additionally, refiners applying to be accepted on the LBMA’s Good Delivery list need to submit a three year operating history with three years of production figures as part of the application. Annex A (Application Form), addressing what to include with an application, states that required documents include:
Figures for the last three years’ annual production of refined * gold/silver in tonnes.
Estimate of next two years’ annual production of refined * gold/silver in tonnes.
The asterick (*) states that ‘refined’ refers to “metal which has gone through a refining process, such as electrolysis, Miller Process or Aqua Regia refining“. These processes would apply to Good Delivery bars that were being converted into 9999 fineness kilobars for the Asian gold market.
Therefore, the LBMA knows exactly, down to the exact tonne, the figure for “total refined gold production of the refiners on the List” in 2013.
In issue 74 of the LBMA’s ‘Alchemist’ published in June 2014, when the LBMA’s Physical Committee was providing a news update on ‘Pro-active Monitoring’, and reviewing the 2011 refinery production statistics which had just been finalised at that time, the Committee highlighted the following:
“A number of issues arising from proactive monitoring of refiners on the list have also been discussed….Two very interesting numbers arising from this work are the figures for total refined production represented by the accredited refiners. Although it takes time to complete this data collection, the figures for 2011 are now complete. The total for gold is 4,695.8 tonnes and for silver is 28,395.5 tonnes, in both casessignificantly above the respective world mine production of 2,838.1 tonnes and 23,545 tonnes.“
It appeared that the writer of that paragraph thought that the two refining numbers were interesting enough to be comment worthy because the numbers were ‘significantly above‘ the world mine production figures.
The LBMA also administers a ‘Responsible Gold Audit Programme’ for gold refiners on its Good Delivery List. The audit seeks to determine whether a refiner complies with the LBMA’s ‘Responsible Gold Guidance’. The actual audits are carried out by independent auditors that have been approved by the LBMA, but the audit results are passed back to the LBMA. For example, in February 2014, the LBMA issued a press release announcing that 4 refiners had successfully passed the audit. The announcement mentioned that:
“the audit reviewed the refiners’ production over a 12 month period. The LBMA received a large volume of reports in late 2013, and will continue to report in the coming weeks as each batch is reviewed.”
Therefore, the audits are another way in which the LBMA keeps track of the refiners production, in addition to the reporting coming in from the Pro-active Monitoring programme. Either way, the LBMA knows the refinery production statistics of the Good Delivery refiners and does not need to get estimates from GFMS or any other body.
Thomson Reuters GFMS
Given the above, then why the sudden need by the LBMA on 5th August 2015 to include a reference to “source Thomson Reuters GFMS“? By including the reference to “owing to recycling of scrap material”, it is clear that the intention was to solely relate the 4,600 tonnes of gold quoted to just two sources, namely, gold mining and gold scrap recycling. Furthermore, why had the figure suddenly become an ‘estimate’ and who was responsible for the estimate? There is no need for estimates of refinery production when every refinery on the Good Delivery ‘Lists’ provides the exact real production figures to the LBMA.
Additionally, what was the reason for suddenly throwing a perfectly logical paragraph out the window which had referred to gold refinery production statistics for 2013 collected by the LBMA, and replace it with an estimate about gold mining and scrap recycling from a company, GFMS, which does not specialise in collecting gold refinery production statistics?
What is GFMS?
GFMS was a metals analysis consultancy firm, that was acquired by Thomson Reuters in August 2011. GFMS was formerly known as Gold Fields Mineral Services. The group within Thomson Reuters is now known as Thomson Reuters GFMS. GFMS gathers supply and demand figures for gold and other precious metals, and publishes an annual gold survey and related update reports.
GFMS’s supply data for gold mine production and gold scrap is notthe same metric as gold refinery production output, and is not even close to being the same metric, especially in 2013 when there were huge amounts of Good Delivery gold bars re-smelted and re-cast into smaller gold bars in Switzerland and other places for onward shipment to Asia.
‘LBMA Overview Brochure.pdf’
The LBMA also makes reference to annual gold and silver refinery figures in another document on its website, in a file named ‘LBMA Overview Brochure.pdf‘. This document is located in a ‘presspack’ directory, presumably for use by the LBMA’s Fleet Street press contacts. This document has, in its various iterations, included a paragraph with identical phraseology about refinery production statistics i.e. ‘Total refined gold production by the refiners on the List‘, and has also included a similar table of gold and silver production statistics of LBMA accredited refineries.
On Saturday 1st August, the version of this other file, the ‘LBMA Overview Brochure.pdf‘ document on the LBMA web site, had also been altered with some very strange temporary alterations inserted for 2013 gold and silver refinery production statistics. All of the annual refinery figures in the entire table had been blanked out of the table with the shorthand ‘n/a‘ substituted in each row. The text had also been changed, and 4,848 tonnes had been inserted as the gold refineries’ production figure for 2013, and 30,934 tonnes for silver, with the word ‘above‘ added before world mine production for both metals. The overwritten figures and text appeared in a slightly scrawled text font (see below). GFMS was not mentioned in this file. The file, on 1st August, in its web directory (http://www.lbma.org.uk/assets/downloads/presspack/) rendered in a web browser as follows, when this image was recorded:
Why 4,848 tonnes?
So, where did this 4,848 tonnes figure for gold, and 30,934 tonnes for silver come from? These numbers are another entirely different set of figures for 2013, a third set if you will. To answer where these numbers came from, we need to turn to a presentation given by Stewart Murray, former LBMA CEO, at the LBMA’s Assaying and Refining Conference held in London between 8th – 10th March 2015. In a presentation titled ” The LBMA Good Delivery List, Recent and Future Changes“, on 9th March, Murray utilised slides which, on page 9 showed the following:
Notice, that for 2013, the figures are 4,848 tonnes for gold, and 30,934 tonnes for silver. This dataset also only goes from 2008 to 2013.
GFMS also makes another appearance in this slide, with a GFMS combined mine production and recycled scrap figure for 2013 being quoted as 4,302 tonnesfor gold, and 31,460 tonnesfor silver, respectively.
The next slide in that presentation, slide 10, even gives a regional breakdown of the 4,848 tonnes and 30,934 tonnes figures, attributing 1,790 tonnes of gold refining to Europe in 2013. Keep these figures in mind as we go through this maze of numbers.
Slide 6 of the same presentation showed a line graph of the Good Delivery gold refiners that were referred to in the production figures in slide 9. You can see that the numbers of refiners in each line as at 2014 equate to the numbers of gold refiners in the ‘List’ of the original ‘LBMA Brochure Final 20150501.pdf‘ file, i.e. 16 gold refiners in Europe, 43 in Asia, 11 in the Americas, 1 in Australia (which was Oceania in the List – the Perth Mint), and 1 in Africa (Rand Refinery). So again, there can be no doubt that they are the same refiners being referred to here that had a production output of 6,601 tonnes of gold in 2013, and at the same time 4,848 tonnes. So the same refiners have been at work in 3 parallel universes during 2013, or so it may seem.
By Wednesday 5th August, the ‘LBMA Overview Brochure.pdf‘ file had also been updated and re-saved, and contained the exact same commentary text and the exact same table of refinery production output figures as the altered ‘LBMA Brochure Final 20150501.pdf‘, i.e. the 4,848 tonnes figure was gone and was replaced by 4,600 tonnes, and the file was re-saved by the LBMA with the same file name, and left in the same file directory that it had been in, i.e.
Again, a first time viewer would not know by looking at the report that the gold and silver refinery production figures had been altered and the text edited.
What do the document properties of the re-saved ‘LBMA Brochure Final 20150501.pdf‘ and ‘LBMA Overview Brochure.pdf files, saved on Wednesday 5th August tell us?
‘LBMA Brochure Final 20150501.pdf‘ was saved at 15:49:48 on 5th August by author name Aelred Connelly. Then 29 seconds later at 15:50:17 on 5th august, file ‘LBMA Brochure Final 20150501.pdf‘ was also saved by author name Aelred Connelly. Aelred Connelly is the LBMA’s Public Relations Officer, ex Bank of England for more than 25 years, where he was a gold bullion analyst and a relationship manager for the Bank’s central bank and government customers.
So, what is going on here?
Could it be that the LBMA’s original figure of 6,601 tonnes of refinery gold production in 2013 should not have been published for some reason, and needed to be quickly changed, for example, that the publication of this metric breached refiner confidentiality, or that it just made the GFMS supply numbers look way out of line with reality?
Previous LBMA documents discussing refined gold production
There are a number of other slightly older LBMA reports, brochures and other documents which discussed and recorded Good Delivery refinery annual production statistics. The interesting aspect of these other files, apart from the numbers, is that the syntax and wording is identical to the version from 1st May 2015 which I had quoted and which disappeared by 5th August. Furthermore, none of the older versions match (in style) the new versions that use ‘estimates’ and that refer to Thomson Reuters GFMS.
The previous syntax also seemed totally adequate for use by regulatory agencies such as the US SEC, and the UK Treasury’s Fair and Efficient Markets Review.
“Total refined gold production by the refiners on the List was more than 4,000 tonnes in 2009, well above world mine production of 2,611 tonnes. For silver, refined production by listed refiners of 22,800 tonnes was marginally greater than the 22,342 tonnes of mine production in the same year.”
Then there is another version that was saved as 23rd May 2014 but refers to 2011. It was also used in January 2015, in a letter from the LBMA to the Fair & Effective Markets Review, Bank of England:
“Total refined gold production by the refiners on the List was 4,695.8 tonnes in 2011, well above world mine production of 2,838.1. For silver, refined production by listed refiners of 28,395.5tonnes was greater than the 23,545 tonnes of mine production in the same year.”
“Total refined gold production by the refiners on the List was estimated to be 4,579 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes (source: Thomson Reuters GFMS). For silver, refined production by listed refiners in 2013 was estimated to be 28,013 tonnes, above the 25,981 tonnes of mine production in 2013 (source: Thomson Reuters GFMS). The Gold refined by refiners on the List make up about 85-90% of world production. Total estimated annual refined gold and silver production by the refiners on the List are shown in the table below (tonnes).”
In this version, a refinery in China (Daye Nonferrous Metals Company) was accredited to the Good Delivery List for gold in June 2015, and so it was moved from the silver only category to the gold and silver category on the List. Why the 2013 gold production figure was then reduced again from 4600 tonnes to 4579 tonnes is unclear, and even more mysterious is why the 2013 silver production figure became 28,103 tonnes,when in the two report versions from 5th August LBMA , the 2013 silver production total had been 29,984 tonnes. That’s a reduction of 1,871 tonnes of silver between 2 LBMA reports that were published a week apart.
Table: Comparisons – LBMA refinery production (1st May vs 5th August vs 9th March)
It is not just 2013 where the refinery production statistics deviate significantly for both gold and silver. For gold, the altered figures were applied to 2012, 2011 and 2010 also. For 2009 and 2008, the revised data is actually higher for gold than the 1st May 2015 published version. The differences in 2010, 2011, and 2012, and indeed, 2008 and 2009 require explanations also.
For silver, the altered figure for 2013 is, as mentioned earlier, more than 5000 tonnes higher in the newer version. This article has focused on gold. I have not looked at the silver angle. Other people may wish to explore the silver angle.
The figures in the newer LBMA documents of 5th August are very close to the figures used by Stewart Murray in his 9th March presentation, except for 2013 in gold and silver, and in silver in 2012. There is still however, a 248 tonne difference between the 4,848 tonnes 2013 gold production figure quoted by Murray on 9th March, and the lower 2013 gold figure of 4,600 tonnes added into the LBMA documents on 5th March.
There are 2,300 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the 6,601 tonnes figure that was removed from the LBMA’s reports on 5th August 2015.
Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?
The objectives of HM Treasury’s Fair and Efficient Markets Review (FEMR) include transparency and openness. It would appear that altering already published gold refinery statistics, especially for 2013, seems not to be in the spirit of these FEMR objectives.
Part 2 of this analysis of the LBMA’s 2013 gold refinery statistics looks behind the 6,601 tonne number at the phenomenon of Good Delivery bars being processed through the Swiss gold refineries in 2013, the gold withdrawals from the London-based gold ETFs, and the huge shipments of gold from the UK to Switzerland in 2013. Part 2 also examines the 2013 withdrawal of gold from the Bank of England, and how GFMS and the World Gold Council tried to, or tried not to, explain the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013.
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