One of the buyers is a commodities trader with buyers that are all world renowned licensed bullion officers and master assayers. They mostly report to the US Treasury every month and are for the most part on the board of the Swiss banking consortium (UBS, Credit Suisse, SBC) and represent several of the G-7 countries with anything involving IMF gold settlements and/or disputes.
Below are some issues that need to be respected for anything successful and/or efficient to occur.
Backwards Proposal/Offer Demands
It is common for brokers to bring forth offers that initiates a proposal that attempts to be an offer but fails to meet the definition of an offer. The common broker statement “I want to sell to you, but before I identify myself to you, you must identify and prove yourself to me” is a non-starter. In spite of these deficiencies their proposal demands that prospective respondents reply with a valid counter-offer. No valid buyer will comply with such a backwards out-of-sequence demand.
It is the proposing party’s responsibility to make a valid offer. A valid offer includes, at minimum, the full seller identity, the full product specifications, warranties as to product quality, warranties as to clear transferable title, and the desired transaction terms and conditions. For gold held on deposit, the full product specifications must include the certificate or safekeeping receipt numbers.
Failure to Recognize Buyers’ Legal Responsibilities
The “provenance” (how the gold was acquired and its chain of custody) is of greater importance than the gold’s assay as later proven. This means that all gold offered for sale has a history. That history must be verified and found genuine and legally acceptable. A failure to conduct this preliminary due diligence is not only irrational and a violation of buyers’ policy and procedures, it is also illegal. The various international and national anti-terrorism, anti-money laundering, anti-fraud, and banking laws and regulations all demand that buyers actively validate the seller’s background as a condition precedent to transactions. In practice, they are preconditions to entering into negotiations.
The only buyers for the gold in the quantities some sellers purport to have for sale are banks and perhaps some governments. None of these buyers will comply with a seller’s demands that are in conflict with the buyer’s legal responsibilities.
A valid prospective buyer respondent will verify the seller’s bona fides and the certificate or safekeeping receipt numbers. This verification serves two purposes:
1) Determine if the buyer can legally transact with the seller.
2) Verify the provenance of gold offered.
Only legally acquired gold presently held with clear and transferable title may be legally bought and sold. If these pre-conditions are met, a valid buyer may elect to respond. Absent these pre-conditions, there will be no response.
Unwarranted Reliance on Hallmarks and Misunderstanding of GLD bullion
The two kinds of gold bullion:
A) “Good London Delivery” (GLD) qualified gold
B) All other “said-to-be-gold”
If your seller states that the gold has “internationally accepted hallmarks” and that it is “GLD.” There is no such thing as an internationally accepted hallmark. It is a internationally recognized hallmark. It is not the hallmark that is accepted. It is the chain of custody that is accepted.
For GLD gold, the chain of custody begins when the following steps are completed:
1) A GLD qualified refinery refines the metal to a certification of 999.5+% by a master assayer. 2) The master assayer’s assay is accepted by a GLD qualified depository (might be the refinery itself or a GLD bank depository).
3) Assayer registers the bar serial numbers with the GLD registry taking full faith and credit responsibility for the assay of and the clear title to the metal.
The GLD certifying entity, be it the GLD authorized refinery or the GLD authorized bank depository, impresses its hallmark and serial numbers into the bar to facilitate inventory control. There is no value in the hallmark. All value resides in the GLD authorized depository’s certification. Saying that the gold has “internationally accepted hallmarks” says nothing as to provenance and says nothing that can be relied on as to the material’s current true assay.
All reliance is placed on the chain of custody, not on the hallmark of the GLD originator. If the chain of custody is such that the present custodian is a GLD authorized depository that certifies in the present instant and circumstances with responsibility to its full faith and credit that the gold is at present GLD, then the gold remains GLD. In any other circumstance the gold is no longer GLD.
GLD gold is gold that the Buyer has an affirmative warranty from the immediately preceding GLD authorized depository. If, in the very rare circumstance that the GLD certified gold turns out to be adulterated, then the present owner is compensated to the full faith and credit of the immediately previous GLD certifying custodian. That custodian may have a reversionary claim against prior GLD custodians IF the last certifying custodian can prove that the adulteration occurred while in a specific prior GLD custodian’s possession. In all cases the buyer looks to the GLD certifying entity for protection, not to the gold itself, or to the party whose hallmark appears.
Hallmarks can be easily forged. Gold can be adulterated after being hallmarked. The GLD certifying entity’s full faith and credit responsibility is the source of reliance, not the hallmark.
All non-GLD gold is “said-to-be-gold”, hallmarks notwithstanding. All non-GLD gold must be re-refined to prove the metal. The bullion banks buy only proven gold, either proven by re-refining and assay, or by the full faith and credit of the immediately precedent GLD authorized certifier.
Failure to Recognize Market Realities—Buyers
For quantities of many metric tons of GLD gold, only banks or governments are buyers. There are many more sellers than bank or government buyers. Banks and government buyers can buy at any time in any amount. A purchase by them is merely a reclassification on their balance sheet from “Currency on hand” to “Gold on hand.” They are not motivated to purchase. They are not motivated to sell. Banks rarely buy or sale on their own volition. What banks do is make a market. They stand ready to buy or sell as their customers may wish. They will do so for properly validated customers, requesting to transact in legally owned clear title gold, taxes paid, all in accordance with bank policy, law and regulation, if the transaction brings an adequate profit to the bank. Otherwise, no deal.
All valid gold transaction offers will eventually land at the banks’ doorsteps. They can and will wait for valid transactions. They will not, and are prohibited by law, regulation, policy, and long-standing tradition from chasing deals as many brokers often demand.
Failure to Recognize Market Realities—Sellers
Most “Sellers” of gold are not actual sellers of gold. Under international law a seller who offers to sell a product not already in his possession and control with free, clear, and transferable title, such that the product may be immediately transacted for its intended purpose IS COMMITTING A FRAUD. Most purported sales offers are fraudulent. A plain and simple tip-off is a demand that the buyer prove himself first. This is a direct indication that the “Seller” does not have the gold to sell. Instead the “Seller” wants to use the buyer’s purchase commitment to buy the gold from someone else. These attempts are illegal and are actively avoided by all valid buyers.
Failure to Recognize Market Realities—Irregular Transaction Attempts
Many brokers and many of their purported “Sellers” complain about the many invalid “Buyers” out there. There are no invalid buyers for large gold transactions. There are valid buyers (banks and governments). There are people who attempt but who will fail to be buyers. These “wanna-be buyers” are those that play along to demands such as included in incomplete offers. A party that attempts to buy with the gold product to be purchased collateralizing the purchase financing will fail. This does not work. It is a rare bank (and a dumb bank) that will accept non-GLD gold as collateral to support a purchase. The “wanna-be buyer” will eventually fail to obtain purchase financing and the deal will fall through.
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