Are Banks Raiding “Allocated” Gold Accounts?

Beware: “Allocated” Gold May Not Really Be There

In 2007, Morgan Stanley paid out $4.4 million to settle a class-action lawsuit by its clients after Morgan Stanley charged them to buy and “store” precious metals for them,  but neither bought or stored the metals.

(Similarly, a 2011 class-action lawsuit filed in federal court in New York accused UBS Financial Services of misleading silver investors and charging them storage fees for metal that was never actually purchased,  segregated, and stored for them.)

Avery Goodman points out that Morgan Stanley has once again just launched a similar scam, offering “allocated” metals, but gaming the definition so that the holdings are not really allocated.

On May 21st, Matterhorn Asset Management’s Egon von Greyerz alleged that Swiss banks are trading physical gold bullion which is being held in special “allocated” accounts for its customers:

We are stressing to investors to take their gold out of the banking system, not only because there are runs on banks that will continue, but the risk of being in the banking system is major. So you should take the additional step of not just owning physical gold, but also owning it outside of the banking system.

We (just) had an example of a client moving a substantial amount (of gold) from a Swiss bank to our vaults, and we found out the bank didn’t have the gold. This was supposed to be allocated gold, but the bank didn’t have it. We didn’t understand why there was a delay (in our vaults receiving the gold), but eventually we found out why there was a delay (the bank didn’t have the gold). It’s absolutely amazing, but not surprising.

This confirms what I’ve always thought. Not only should you not have gold in banks or even unallocated gold, but even allocated gold. It seems that some banks don’t even possess that. So the risk of having gold in the banking system is major.”

On May 23rd, John Embry – Chief Investment Strategist of Sprott Asset Management, with $10 billion under management – added:

When the customer finally got his gold, it was 2011 minted bars. This made no sense because he had been holding the allocated gold for years. That’s just another example that even the allocated gold in the banking system has probably been loaned out. Many of these customers will wake up one day and realize they entrusted their gold to the wrong people.”

Jim Willie claims that:

Swiss face hundreds of $million lawsuits, for refusal to deliver Allocated gold.

Similar reports have come from Canada and other countries.

Indeed, Jim Willie alleges today:

Allocated Gold accounts across the Western world have been confiscated, sold, and replaced with shabby paper gold certificates illegally…. The account raid practice has been widespread in Europe, London, and United States.

Seizure of Allocated Gold to Pay for Other Debts

Another danger of letting big banks or other large financial institutions hold your gold: the gold might be seized to pay for their other debts.  For example, Barron’s reported last December that MF Global’s trustee raided “allocated” gold and silver accounts … while continuing to charge storage fees:

It’s one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It’s something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.

That, in essence, is what’s happening to investors whose bars of silver and gold were held through accounts with MF Global.

The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words,while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold “warehouse receipts” to prove it—they’ll have to forfeit 28% of the value.

That has investors fuming. “Warehouse receipts, like gold bars, are our property, 100%,” contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. “We are a unique class, and instead, the trustee is doing a radical redistribution of property,” he says.

Roe and others point out that, unlike other MF Global customers, who held paper assets, those with warehouse receipts have claims on assets that still exist and can be readily identified.

The tussle has been obscured by former CEO Jon Corzine’s appearances on Capitol Hill. But it’s a burning issue for the Commodity Customer Coalition, a group that says it represents some 8,000 investors—many of them hedge funds—with exposure to MF Global…

At stake is an unspecified, but apparently large, volume of gold and silver bars slated for delivery to traders through accounts at MF Global, which filed for bankruptcy on Oct. 31. Adding insult to the injury: Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities…

Taking Matters Into Your Own Hands

Given the numerous reports of supposedly “allocated” gold not being there, it should not be entirely surprising that wealthy investors are taking matters into their own hands … literally.

Kirby Analytics notes:

We are hearing anecdotal accounts that beneficial owners of “allocated” gold bullion in London and other European centers have showing up at bullion banks and demanding their physical metal be a] viewed and assayed, and then b] withdrawn from the vaults of banks.

And as we pointed out in 2010:

Omnis’ Jim Rickards, GATA’s Adrian Douglas and others have demonstrated that the big bullion dealers and ETFs don’t have nearly as much as physical bullion as they claim.

Should a substantial portion of investors in these vehicles demand physical delivery at the same time, it could cause a panic in the gold market which would cause a huge run up in gold prices.

Does this mean you shouldn’t own gold?

No … It just means that you should only buy physical gold, and store it somewhere you can actually get your hands on it.

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  • Steven Rowlandson

    Just as I suspected allocated and unallocated are distinctions without a difference in the real world.
    Therefore there is no assurance that there is as much above ground silver bullion as some have stated. Mike Maloney may be correct when he stated that there is 14 people on earth for every ounce of silver bullion and may be bullion coin. Almost every ounce entrusted to financial institutions may be a fiction or leased out ,sold off and used up . Next to financial assets and currency silver is trading for almost nothing in a rigged market.

  • gozounlimited

    Keeping an eye on your “Stuff” ……. see video: http://www.youtube.com/watch?v=MvgN5gCuLac

  • high plains drifter

    you are not a gold bug, unless you have your stash within your eyesight at all times. you have to be able to reach out and touch it whenever you want. kyle bass makes noises like he is a gold bug. but in reality he is a member of the system and still trust the system, despite his sometimes seemingly paranoid activities. i remember a while back seeing him speaking somewhere and he was telling the story of how one day he decided to go and look at his gold stash in some bank vault in new yick city. well he said he went down there and they couldn’t show it to him because he said they told him it was scattered all over the place in various places. case in point. so they tell him , they have it, yet they cannot show it to him when he goes to see it. hello mr bass, are you smelling the coffee yet? i guess not.

    • Veyron Bugatti

      ” unless you have your stash within your eyesight at all times.”

      Not practical at the scales we are talking about. Sounds like an opportunity for a fee-based gold storage (with regular audits) …

  • http://apostlesteaching.net Malcolm

    I am not aware that Morgan Stanley was ever charged with a criminal offence.
    “O Brave New World that hath such people in it” to quote an author.

    They merely hide behind some statement such as: “We neither deny nor accept
    any wrongdoing”. In truth they are so crooked they could not lie straight in bed.

    Those responsible should be tried and jailed – as would happen to you and I
    had we done something wrong.

  • CaptD

    Sad that NOBY is ever jailed, I guess all the INSIDERS know so much that the Powers to be are scared of them bringing down the financial hose of cards we call our monetary system! I’ve often wondered why these theves are not brought to justice because of the taxes that they are not paying but I forgot that the super rich don’t have to pay any taxes…

  • Trent

    Why anyone would own an allocated account at UBS, Morgan Stanley, or MF Global nowadays is beyond me. It’s not as if there aren’t better options. Sprott has his physical ETFs, Turk has GoldMoney, not to mention CEF or the Perth Mint. There’s just no good reason to hold physical anywhere besides at your house, on your person, or with one (or more) of these companies.

  • lilbear68

    they are still scrambling to cover all the bullion that venezuela/chavez recalled this year that had been sold at 100/1 fractional rate. sold but not delivered, all customers that bought only got a receipt saying they owned a certain amt of gold that was being held in their acct

  • http://williamseavey.com Bill Seavey

    I have a SPDR gold account, basically an indexed ETF, but within my brokerage account with MORGAN STANLEY Smith Barney (soon to be Morgan Stanley “Wealth Management.” I’m not stupid, that’s not the only place I have precious metals, but still these posts suggest perhaps even such an ETF may be suspect. I’d be curious if others have a situation like this, and what they are doing about it. I’m tempted to cash it out and get the proceeds, which could then be convertible to metals. For other preparedness ideas, see thecoolestideas.com.

  • ddearborn

    Hmmmm
    When is a contract not binding? when it is written by a bank………..Which of course begs the question: If bankers are not obligated to honor their contracts why should its customers have to honor their contracts with the Bank?

    • 1hopelessoptimist1

      Answer: because bankers wrote the banking laws that their lackeys in the legislature adopted.

  • QEternity

    History repeats…

  • Dave_Mowers

    When you buy gold all you buy is a paper certificate and digital entry just like stocks, nothing actually exists. Get used to the fact that in capitalism; everything is a scam. You are buying the belief that when you want to sell your broker will find another sucker willing to buy your junk. America is a fraud.

  • http://twitter.com/paoligarcy Paolina

    This explains why gold has been artificially kept low in price!

    No wonder! If 80% of the demand for gold has been tricked into buying nothing, that is more than enough to keep the price down!

  • http://twitter.com/paoligarcy Paolina

    But I would also mention, holding gold is stupid for Americans to do at home.

    Why? FDR. During WW2 FDR seized gold from all Americans and gave them a fraction of it’s value as reimbursement. This sets a precedent that is easy enough to understand.

    Holding SILVER is the best alternative. Gold holders are easy to demonize as “gold hoarders” and they are too small a percentage of the population. But EVERYONE owns silver already (silverware, etc.) and seizing it would be a logistical nightmare and far more unpopular with the public.

  • Anne

    Excellent post!! I had a great read. Thanks for the details. http://www.primebullion.co.nz

 

 

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