http://seekingalpha.com/article/196425-cornering-gold-true-or-false

That could be a problem, right?

Zero Hedge has run a piece on alleged manipulation of the market (specifically, selling short an insane number of contracts - which would obligate you to deliver - when you have no possible way to do so.) This, however, isn't necessarily manipulation per se, nor is the assertion that these are "financial" (that is, we trade 'em for money, not to actually buy or sell physical gold) assets false. They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I'm right (or wrong!)

However, the elements of a scam - which could be the intended outcome - are indeed present. The person buying or selling a futures contract can have either the intent of actually taking (or making) physical delivery or they can be a pure speculator on price, intending to execute the opposite trade prior to expiration (and thus pocketing either a profit or a loss thereupon.) So long as the person executing a futures trade is required to post margin on all underwater positions nightly (and provided the market is honest, they are) the "pressure" on them as the market moves the wrong way tends to force correction toward the mean - and is counter-cyclical against imbalances.

But the buyer of an ETF is likely in a different circumstance. Unlike the sophisticated speculator (like me) who buys and sells futures contracts on things like the S&P 500, currencies, gold and even oil without the intent to take delivery of a thousand barrels of crude in my driveway (that would be kinda messy, especially if the barrels were not included - and they're not!) many if not most ETF purchasers are under the belief that they are buyingactual physical gold or silver that someone is holding for them in a vault somewhere.

The problem, of course, is that the so-called "gold" might not actually exist.

For a futures contract with a time-certain expiration, this is not a terribly large problem, since the "discovery date" of the seller's inability to produce (should you buy a contract and actually notice delivery) has a date on it by which you may demand (and expect) perfected delivery of an actual gold bar. If there's a "fail," there the results would be both dramatic and immediately-recognized.

ETFs are a different matter entirely. These commonly are held for years, dramatically beyond the expiration cycle of the futures markets. They also are often bought and held by people who believe they are actually holding metal - that is, as a hedge against things like currency debasement or even geopolitical collapse.

What happens if Janet's scenario is correct?

Panic, that's what. A global market meltdown in which a handful of huge banks (who are very, very short in the futures market) suddenly get assigned for delivery - and yet they don't have, and cannot acquire, enough physical gold to make delivery, because their open interest (in aggregate) exceeds the free supply available to trade.

This bankrupts these large dealers. It also bankrupts the ETFs, who suddenly are "discovered" as having "leased" out all their gold - that is, they're holding worthless paper promises to replenish their depository, written by someone who has unfortunately become insolvent.

The "gold bugs" (those who hold physical metal) are of course very happy with this course of events, as the "spot" price would go to the moon - instantly.

Is this what's going on?

Who knows.

It certainly is the allegation, and the number of people running stories that lead you to this conclusion over the last few months has reached a fever pitch.

But before buying into this story on either side, be aware that when this was attempted by the Hunt Brothers with silver (and it was nearly the same path that Janet outlines in her article) the CFTC and other "regulators" in the market came in and changed the rules. The danger here can be extreme, as most people with physical metal (the only people who will benefit if there is a monstrous spike in price - if you're holding an ETF you will in fact likely get nothing!) cannot dispose of it fast enough to take advantage before the inevitable collapse on the back side of the cornering attempt occurs.

When the Hunt Brothers attempted this, silver went from $11/oz to nearly $50 in less than four months - but two months later it had collapsed to below the original $11 price, with much if it happening in a literal single day.

I'll stay away from this one - the criminals have proved that they can intentionally falsify the valuation of trillions of dollars in "assets" on balance sheets and otherwise cheat with wild abandon, but nobody will bring charges. There is no reason to believe that you or I will be the ones who are able to get through the tiny little door if indeed this is the game that is being run, and every reason to believe that instead of the starry-eyed profits you dream of you will instead suffer a monstrous loss.

I'll instead grab my popcorn and watch the pretty fireworks.