In a recent comment on this blog, Belgian asked Ender, "Is there already enough goldmetal within Chinese borders to let freegold break free ?"

This got me thinking. Back in 2001 there was some discussion of "who is Big Trader?" I believe that Belgian took the position that it was probably Saudi Arabia. But then it was pointed out that Another had said "Big Trader" was "HK people", meaning Hong Kong.

Big Trader - circa 1997

MK: "As implied by ANOTHER's own words, his motivation for these postings was the discovery by "big traders" in the Far East of this opportune facility to buy gold at ever lower prices."

Another: "When everyone that has exchanged gold for paper finds out it's real price, in oil terms they will try to get it back. The great scramble that "Big Trader" understood may be very, very close."


"The problem is, "if the CBs don't expand their roll as "primary suppliers" LBMA will implode and in the process create the greatest bull market in oil and gold the world has ever seen. That is why some "Big Traders" are holding ONLY gold as events unfold. Interesting, don't you think?"


"That's why "Big Trader" and his bunch closed out all paper and pulled in bullion. Don't worry about the CBs selling everything, the market is huge compared TO WHAT THEY HAVE! And Comex is nothing, if "only a silly game". Worldwide trading in gold could be cut in half and still equal all the metal in existance!"


"Well a funny thing happened right after the Gulf war ended. What looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered. The rub was that they only bought low, and lower and cheaper. They never ran the price and they never ran out of money. Seeing this, some people ( middle east ) started to exchange their existing paper gold for the real stuff. From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer."

And one more from JTF (Oct. 12, 1997): "My assessment is the following: The Central banks began the gold market manipulation by offering private gold to brokers. Since they could use their own real gold as "insurance", they did not need to sell their own gold. As the paper gold (the derivative gold?) became popular, all the trading of US$/oil/US treasuries became based on the paper gold method. Eventually "Big Trader" or some other individual stepped in and started pushing down the "paper" price of gold. Other traders, possibly those selling oil decided that they wanted to go back on the gold standard, and wanted real gold. Now however, the paper trading volume was so high that the Central Banks could not possibly maintain control of the markets, let alone supply enough real gold to cover all demands. If we are now talking about the CB selling of 1/3 to 1/2 of their gold, the public will find out, with catastrophic consequences, regardless of how "worthless" that gold they were told is. Looks like the choice between the proverbial rock and the hard place! Is there really any gold in Fort Knox?"

One interpretation could be that the exposition of the daily trading volume of the LBMA on January 30, 1997 was driven by massive Hong Kong buys, in essence, busting open the gold for oil charade of the paper markets. What followed were posts by "Big Trader" (HK?) and Another (BIS?) explaining what had happened, in their cryptic way, the only way they safely could.

The logical question that follows is "did these HK purchases require the physical transfer of gold to HK in 1997, or just the 'paper cornering' of it?"

Another clearly said that the CB's would have to step in as primary suppliers or the whole thing would fall apart.

The Day Backwardation Came

Well, two years later on May 7, 1999 we had the BOE announcement and "Browns Bottom" where the Bank of England became a primary supplier of 400 tonnes.

This action was followed four months later on September 26, 1999 by the 'Washington Agreement on Gold' during the IMF meeting in New York. Under this agreement, the 15 European CB's agreed that no more than 400 tonnes of gold (between the lot of them) would be sold in any given year. This agreement was in direct response to "Brown's Bottom" (and I'm guessing to prevent rogue politicians from doing what Gordon Brown had done with "the people's gold").

Three days later, on Sept. 29th, the paper gold market almost imploded. On this one day, gold went into "backwardation"!

Please CLICK HERE and look at the GOFO rates on Sept. 29, 1999 (and those just before and after).


And here is a graph showing the downward spike of "backwardation" on that day:


It is also interesting to follow the comments from that day in the USAGold forum archives. If you read the whole day you can see how sentiment changed within the period of one day. Something must have happened behind the curtain on that day. Click here and read from the bottom up. You will witness a shift from the early morning before the markets opened, through the trading day, and ending on a different note at the end of the day. Interesting in hindsight, knowing that was the day that backwardation came!

2009

Now jump forward 10 years to 2009.

April 24 (Bloomberg) -- China boosted its gold reserves by 76 percent since 2003 and has the world’s fifth-biggest holding by country, said Hu Xiaolian, head of the State Administration of Foreign Exchange.

Then, September 3, 2009, Hong Kong announces its wish to recall its physical gold:

Hong Kong recalls gold reserves, touts high-security vault
In a challenge to London, Asian states invited to store bullion closer to home

HONG KONG (MarketWatch) -- Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday.

Also in 2009, we have the IMF announcement that it will sell 403 tonnes of gold. (There's that 400 tonne number again!) We also hear that China might like to buy that gold from the IMF. And it is also interesting to note that IMF gold is actually the "membership fee" of its member nations. It is even possible that the IMF gold vault only contains the paper promises of its member nations. But that is a subject for another day.

Recap

So let's recap our scenario. Prior to 1997 we have an "oil for gold deal" that is run through the paper gold market. It is a means of price suppression so that private gold will be sold to "buyers in the know" at ridiculously low prices. Then right at the beginning of 1997 we have Hong Kong entering this market - as a buyer - "to get in on the deal".

Then, on January 30, 1997, the monstrous paper volume is exposed under mysterious circumstances. We then have the appearance of "Big Trader" and "Another" on the only internet gold message board of the time, explaining what is happening and how individual gold investors should react.

The events that followed over the next 12 years, including the price rise from $265 per ounce to $1015 per ounce (383% rise so far), seem to confirm that something happened in 1997 to change the gold market.

My Question

Back to Belgian's question to Ender: "Is there already enough goldmetal within Chinese borders to let freegold break free ?"

Something else happened in 1997 that may be relevant in the context of all of the above.

From Wikipedia: "Beginning as a trading port, Hong Kong became a crown colony of the United Kingdom in 1842. It was reclassified as a British dependent territory in 1983 until the transfer of sovereignty to the People's Republic of China in 1997. <--

"Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong, "The Government of the People's Republic of China declares that to recover the Hong Kong area (including Hong Kong Island, Kowloon and the New Territories, hereinafter referred to as Hong Kong) is the common aspiration of the entire Chinese people, and that it has decided to "resume" the exercise of sovereignty over Hong Kong with effect from 1 July 1997."

BBC: On this day in 1997
July 1, 1997: Hong Kong handed over to Chinese control

Hong Kong has been handed back to the Chinese authorities - ending more than 150 years of British control.

So my question to all of you is this: Do you think the 1997 Chinese recovery of Hong Kong from the British was related to a substantial 1997 shift in Hong Kong's accumulation of gold metal from the West?