American Bonanza Gold Corp ABGFF

RE: RE: Predicting a gold default?

[Antennae1]

The entire amount of gold mined since the beginning of recorded history -- all of the above-ground gold in the world today -- would barely fit into an Olympic-sized swimming pool. So the amount of gold in circulation today, considering steady increases in demand (for physical, not paper), can be labeled "negligible". And it's been rightly speculated, and in some cases proven beyond speculation, that the gold holdings of certain bullion banks have begun to dwindle, so much so that they are unable to satisfy their paper obligations and contracts to return gold to rightful owners, or to redeem paper contracts for physical gold.

One gold default from a bullion bank occurred just a few weeks ago at ABN Amro.  And ABN Amro had been using a facility of Deutsch Bank to exchange their clients' paper contracts for gold.  Deutsch Bank shifted the responsibility over to Warburg, by the way, after that default, and all of ABN's clients were forced to settle for cash instead of receiving the gold for which they had paid.

What this implies, and the underlying fact, is that a facility of Deutsch Bank was unable to obtain physical gold to fulfill obligations to their clients.  Rather than extend this to the point of pure speculation about the amount of unattached physical gold remaining in vaults, etc., this default event simply encourages us to remember that even a small snowball can create an avalanche.  So if this sort of event happens a second or third time, then the world may see a stampede to the doors of bullion banks, and many thousands of gold paper investors would be demanding to hold physical gold in their hands.  Paper contracts would then be relatively meaningless to the process of buying and/or owning gold.

"If you don't have physical gold in your hands, you don't own gold" may become a common mantra.