Something about taking possession of your gold..

I attach here a lead in to a story posted on Drudge Report this evening. I did not write this, it is quoted. Personally, I believe in holding my own gold/silver for this type of reason.

Any thoughts or comments, bullion people?

Lucy

"The recent bankruptcy of financial stalwart and Wall Street casino failureMF Global in the US, has claimed a new and unlikely victim. Following the company’s glorious collapse, Trends Research founder Gerald Celente had his own six figure gold investment account completely looted by chapter 11 trustees, and he is fighting to get it back."
(From Drudge Report, 11-15-2011)

 

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I do not think they can "loot" an account that is physical PM and no financial derivatives attached to it. I seriously am betting there is much more to this story than is being reported, (nothing new).

Having said that, taking physical possession of PM I believe in if your position is long term.

Chris

 

Are you thinking that this story is just not true, then?

 

I am just saying I personally believe there is more to the story, that there is some reason why the bankruptcy trustees believe they had a claim to the assets that this story is not reporting. Without the whole story, I am not in a position to comment on the validity of their claim. I am fairly familiar on priority of claims and the nature of assets seizable, and I simply believe that this is one side of the story, but have to believe the trustees have some basis for believing the account is an asset of the firm, (at least to an extent).

Bottom line I would withhold judgment until I heard the full story.

Chris

 

Thank you for explaining that. We probably won't hear any of those details. Scary, otherwise!

Thanks again.

 

I, also, don't know the full story behind this, but I do know that Celente's account was a futures account, not a physical metals account.

Edit: It _might_ have been a standard brokerage account that held futures, not a futures account, per se. This came about because of a margin call.

Now, to the point of the trustees seizing the assets, that's not THAT unusual. If he received payments that would have otherwise gone to creditors, the trustees can seize first and prove later. This way, the money can't be spent while they're trying to prove ownership.

 

"Account" implies that it is on paper. If you had the physical gold in your possession, there nothing to account for, nobody has a record of it, it's not in any bank records, etc. It's one of the primary advantages of having it. Take possession of your physical gold, tell no one that you have gold, and certainly don't let anyone know where you keep it.

They can't take something that no one knows that you have.

 

Agreed. The only downside to physically taking possession is security and transaction costs. Both of these are solved by secrecy and long term holding horizons.

 

Could it have been and IRA as I cannot find the story you can have physical PM's within a qualified "account"

 

Did you catch how he said "I was gambling" with that money? As a lawyer I cringed at that comment, because his damages claim, if he has a claim beyond just return of his initial investment, just became speculative.

 

Gerald Celente had paper gold, and he like thousands of other traders now has his funds locked up because they don't actually exist. Sure he had enough paper to request physical delivery on his contract, but he was playing the paper game nonetheless. Even though he had 6 digit funds, he was still told he needed to put up more money to cover his margin calls because that money just wasn't there.

$600 million went missing, some would speculate due to the Greek bond haircuts, but regardless these people are not going to get their money back any time soon, if at all. The SIPC does not cover losses in this case because of a technical loophole differentiating stocks (covered) from futures contracts (not covered). What we do know is that customer funds were usurped (which is illegal) to make bets on Eurozone bonds, and that bet failed. Best case scenario would be after all the litigation pans out, but even then the money is gone and nobody knows where it went except for Mr. Corzine so even if they do get paid back it will be at the expense of the tax payer. It should come as no surprise that JPM and Goldman were able to get their money out.

I don't think people quite realize the gravity of this situation. MF Global was a Federal Reserve authorized primary dealer for big time traders on the NYMEX which sets futures pricing for the regular traders, so they can have some sense of stability in their price forecasting. Farmers and miners use this price forecasting in their models as well as these futures as a hedge against risk. Unlike the dissatisfied speculators who can go elsewhere, the people who depend on this market functionality have no alternative. These are not your average day traders that got screwed over.

Not only that, but MF Global was audited a week prior to their bankruptcy, and nothing was found. This highlights the inept regulation abilities of the CME Group of their customers, of which MF Global was one, as well as the lack of enforcement of the CFTC which was trusting of a private company (CME) to do what they should have been doing. The Fed says it's not their responsibility either even though they put MFG into a position for this to happen. There's no reason to think this can't happen again. Existing regulations are more than sufficient to prevent this sort of thing, but they are not being enforced, and nobody is taking any responsibility. This is yet another reason why physical gold and silver are the only safe recourse. Even though this was the paper market, the fact that delivery of physical metal could have been demanded is noteworthy IMO.

The good news is that Bart Chilton is still a lone voice of reason in all this:
http://sgtreport.com/2011/11/cftc-commissioner-bart-chilton-suspects-nefarious-mf-global-activity/

Other info at:
http://www.youtube.com/watch?v=WJ65-9X4SdQ
MF Global, Fraud, Debased Currencies & Precious Metals : Jeff Nielson Update (SgtBull07 channel)

http://www.youtube.com/watch?v=Pj1NwVE2h4U
In depth analysis by BrotherJohnF (very long video with a massive amount of details)

 

Stories such as the one is just a reminder of additional risks of playing with paper trading and also a reminder of what can happen with a customer account when a major firm goes belly-up. I read that story on another gold and silver forum and there seems to be a lot of confusion about if/when the customers will get their money back since their accounts were frozen and they could not access the cash that was in their account after MF Global filed for BK. Medoraman is right in that there is more to this story than what is being told.

 

A slightly more detailed account:
http://www.businessinsider.com/the-truth-behind-how-gerald-celente-got-screwed-by-mf-global-2011-11

If I'm reading this article correctly, Mr. Celente transferred dollars into his MF account as collateral for his positions in gold. He was planning to take physical delivery of gold in December.

 

My takeaway is "he was building up" cash in the account to be able to take possession in Dec. In other words he bought on margin, and due to the bankruptcy and missing funds his positions were closed out. It stinks, I understand, but he never owned that gold, he contracted to buy it but was leveraged and was borrowing MF's money. Therefor, when MF went bankrupt his account got caught up in the bankruptcy. This is the type of information I was telling Lucy would be reported later.

While I do not wish ill to the man, its not like he bought gold and somehow it was taken from him. He contracted for more gold than he could pay for, and unfortunately the firm he did this through ended up bankrupt. If he had simply bought gold he could afford he could have taken delivery and would have that gold today. Instead, (again not faulting the man), he borrowed money to buy more than he could afford and before he could raise additional money got caught up in MF's bankruptcy.

It happened to me once with real estate, firm went bankrupt in the middle of a transaction. Bad luck, but not what I would characterize as "a gold account being looted" as the frequently sensationalistic Drudge Report said.

Chris

Edit: Btw thank you benveniste for the link.

 

I guess I believed, in error, that he actually lost something he owned. (Physically owned.) Buying on margin (?), positions (?), leveraging (?) are all beyond the scope of my simple brain! Why are these things all so complcated? Buy it, pay for it, and put it some where.. The rest of this all sounds like gambling, going to the casino..to me.
Drudge, I have always believed was just 'news'. Frequently sensationalistic you say...hmmm. Spin. Everyone has a spin it seems. THIS is probably more important for me to learn, for it reinforces my belief, no wait, it expands my belief that there are very few (views and people) to trust.

So the guy lost his money that was sitting there waiting to swap for gold? No need to explain it much further..this is really very complicated for me!

Thank you.
Lucy

 

From what I understand, MF Global's demise included criminal actions by the firm. They made very risky bets on the European mess, the bets went bad, and they then used their customer's money to cover the losses. This is against the law. They filed for bankruptcy once it became apparent they couldn't meet their commitments. A trustee has now taken control of the firm, laid off 100% of the employees, and the remaining accounts will be transferred to another firm. Where it stinks is the customers are locked out of their accounts so are subject to changes in the market, and if they do not meet margin requirements at the new firm, their account will be liquidated. It's hugely bad.

Where were the regulators?

Lucyray, you are 100% correct. It's nothing more than gambling and the common investors always have the odds set to "you lose". The only safe paper investment anymore are insured accounts (like FDIC), and these days, I'm not even sure about that. The biggest reason for buying physical and holding it, is that it insulates you from these criminals.

 

If you don't trust paper assets, why would you want a paper warehouse receipt or account entry for your gold?

 

I would accept a paper warehouse receipt in the case of metal stored with Comex. To my knowledge, they have a spotless record for safety -- better than home storage or even a safe deposit box.

 

I agree completely. Besides the buy/sell spread if you buy physical PM, the second greatest problem with PM is security. Where would you keep this PM? In a SDB its safer, but not perfectly safe as the bank does not insure the contents and bank robberies have been known to happen. At home the incidents of thefts are MUCH higher, even in safes with home invasions happening now. Just how do you protect your life savings if its in PM? If I wished to have my retirement in PM I would trust a facility like the CME more than any other place, since they are insured, have a full time staff to ensure security, and have a reputation to uphold.

Truth be known this is the greatest advantage of "paper assets", and why the financial world has moved that direction. People forget how many people have had their entire life ruined by a theft in years past. How quickly we forget how easy it used to be for a couple of outlaws with guns to completely destroy a family's fortunes in 5 minutes, and after a lifetime of work and savings make them destitute. Having a few hundred thousand sitting in US Treasuries in your account prevents this from happening.

Chris

 

One could argue this spotless record is only intact because MF Global, which the CME Group who runs the COMEX is in charge of regulating, went bankrupt and did not have to deliver physical metal on any of MF Global's paper contracts, which has now ballooned to over $1.2 billion from the original $600 million, and could be larger. Had they had to deliver, I have a feeling we would see just how empty those vaults are.