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.
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 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.
Now you are ready to execute your plan.*
Step 1: Let everyone in the futures markets know you are buying gold, speculating in gold, and want to take physical delivery. It helps that China openly announced it wants to increase its gold reserves; the market isn't looking too hard at you. At first, act like you're naïve. Buy on margin and pyramid up by reinvesting your profits when you have them.
Step 2: Get the banks to let you finance your gold.
Step 3: Book up all of the space at gold refiners, so that no one else can do it. Buy as many gold mines as possible.
Step 4: Create credit derivatives contracts that give you the option to ask for your pay-off in gold.
Step 5: Pick the future month to make your big move. You will go long gold futures and demand physical delivery.
Step 6: Secretly and habitually start making some large early purchases in non-U.S. markets. That way, when the U.S. markets open, gold should follow the upward trend.
Step 7: The bullion banks and dealers that have over-hedged their physical gold with short positions will now be squeezed and have to make margin calls. Offer to cancel some of your forward contracts in exchange for early delivery of gold. This will temporarily relieve the bullion dealers' pain on their short positions, and give you control over even more of the gold supply.
Step 8: You and you friends have pinched off the gold supply and control most of the free gold supply having locked it up in your own vaults and warehouses. You are all long a lot of futures contracts, and you will all demand physical delivery. You now have the naked shorts exactly where you want them.
Step 9: Rely on bankruptcy and bailouts to get what you want. Normally, you would be afraid that you would never get paid, because your demands would bankrupt the naked shorts. But the naked shorts are likely to be unwary hedge funds or other sophisticated investors, and no one cares if you bankrupt them. Other naked shorts are likely to be the bullion banks, and they are all being bailed out by the Central Banks who will lend them what little gold they have left and then beg the IMF for whatever they have.
China is a wild card. If it is not part of your scheme and decides to lend its gold, it could dampen your profits or even upset your short squeeze. But China may not want to help out your victims. Why should they? If China buys enough gold mines and increases its reserves enough, it may be in its interest to befriend you. Your combined ownership will have made the futures markets irrelevant. Together you will not only have cornered the gold market, you will have cornered gold.
Note: This post was shortened and adopted from a longer article distributed by Tavakoli Structured Finance, "How to Corner the Gold Market," March 30, 2010.
* The Hunt brothers used a similar earlier strategy in an attempt to corner the silver market in 1979-80 as recounted by Stephen Fay in The Great Silver Bubble (Coronet, 1982).
Janet Tavakoli's book on the causes of the global financial meltdown and how to fix it is Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street.
Update: This commentary was released in long form, "How to Corner the Gold Market (Extra Edition)," Huffington Post, April 13, 2010.
At the recent We The People "continental congress," an extension of the old Posse Comitatus, right-wing constitutionalists are being encouraged to buy gold or silver because they believe, probably quite rightly, that the Federal Reserve (and the Wall Street casinos) are going to suffer another catastrophic financial collapse. They believe deflation or hyper-inflation will result. Obviously, these are two different things, but it depends on which right-wing theorist you read.
It follows from this collapse of the dollar, that social chaos will ensue as the government cannot help the middle class who would impoverished, as well as the working class and the poor.
Can you write on this aspect of buying gold and using gold during a financial crash?
Here are links to probably the best right-wing writer, a constitutional scholar and lawyer. I, as a left-winger, do not agree with his theology, but as a constitutional scholar he is superb.
http://www.newswithviews.com/Vieira/edwin206.htm
http://www.newswithviews.com/Vieira/edwin208.htm
Thanks.
Morgan Stanley was caught selling selling silver to clients and then charging them for insurance on the silver - the only problem is that Morgan Stanley actually didn't buy any silver, and was still charing for insurance on silver that didn't even exist.
If you don't own the physical commodity, you don't the commodity.
The whole purpose of precious metals is because you can't trust our utterly corrupt financial system. If you are going to buy the metals, buy the metals. Everybody should know this.
There is enough gold in the world above ground, to give every human being less than 1 troy ounce. It's rare, it's been money for 5000 years, and every civilization has recognized this. The reason the US dollar is the world's reserve currency is because it was the last currency pegged to gold, until France proved the US was bankrupt in 1971 when they demanded repayment in gold, not more dollars.
The oldest fiat currency system is 40 years old - it's our fiat system.
"Progressives" will not know what hit them when the water blows all the fingers from the dike and there is no government backstop to fall back on - that card's been played and it's the last one in the deck.
But the manipulation is not working so well anymore as more and more people (and nations) are looking to take PHYSICAL POSSESSION of their gold holdings. Eventually it will come out that the ETF's have leased out their holdings - and that many central banks no longer own the inventories in their vaults.......
The fact that so many people are now fleeing to gold as a safe haven - with NO paper currency showing any fundamental strenghth - will force this scheme to collapse. We are only prolonging the inevietable - and making the eventual collapse even worse by continually rolling over unpayable debt.
But I agree with the above poster..... our financial markets are so heavily manipulated it's worse than Vegas..... but the Dems are as complicit as the Republicans with the same players employed by both. The US henhouse is run by foxes.
I'm not sure about corners on markets. Years ago there was a Cotton Broker in Memphis whose business had been in the family since well before the Civil War. He decided to attempt a corner on the bean market and came to serious grief. Lost everything and killed himself. His given name was Ned. The family name I can't recall. I think that a corner would have to be more than a "lone ranger" operation.
I will certainly think over your interesting post. Thanks.