All in one spot gold news pt3 Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust.
Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1.
Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers.
The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases.
Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery.
Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world.
Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD or CEF. GLD and CEF are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded firm), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold.
At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation.
In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers.
The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days.
Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers.
The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand.
Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation.
When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet.
Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.
What we are witnessing is our central bank pulling out all stops on integrity and lawfulness in order to serve a small handful of banks that financial deregulation allowed to become “too big to fail” at the expense of our economy and our currency. When the Fed runs out of gold to borrow, to rehypothecate, and to loot from ETFs, the Fed will have to abandon QE or the US dollar will collapse and with it Washington’s power to exercise hegemony over the world.
Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
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And finally another great commentary from Bill Holter
(courtesy Bill Holter/Miles Franklin)
Mega default? They don't care!
Forbes has reported of a potential (probable?) "mega default" out of China. They even tell us "when", Jan. 31st and "who", China Credit Trust company. https://www.forbes.com/sites/gordonchang/2014/01/19/mega-default-in-china-scheduled-for-january-31/ This is hardly "mega" anything as it's only in the $500 million ballpark...but it is a "thread" that if pulled on hard enough or long enough could spread like an infection. I must admit, when I saw the headline my interest piqued only to see the actual meat not even being a ham sandwich.
If you notice in the article, this debt (trust) came about as a loan to a coal company and the author speculates that 12% or there abouts is the interest rate...I would urge you to take a broader view. The broader view being "this is China". Their economy is hugely leveraged and they have built, rebuilt and over built. They have even built entire cities that are empty. I'm not talking about sparsely populated, I'm talking about empty as in NO ONE lives there! Are they crazy? Or stupid?
No I don't think so, follow this through. They have accumulated stockpiles of copper, lead, zinc, etc. etc. not to mention gold...for free! They have built bridges, highways and even complete cities...for free! Free? Yes, I'll explain in a moment. They have worked, produced and "traded" to accumulate "dollars" over the last 10-15+ years at a pace not even seen by the U.S. in the late 1800's and early 1900's. It has been a marvel to watch. They have as I mentioned also accumulated gold. They have probably now accumulated a stack that rivals what the U.S. supposedly has (had). And yes, much of the building and "business" was performed (or funded) by the use of credit, crazy amounts of credit!
So how does this make them any better off than any other country in the world if their financial system collapses just as fast or even faster than the West? I believe that going all the way back to August 1971 that they "knew". They knew that when we went off of the gold standard the "end game" was then carved in stone. I believe that they completely knew where this would all end up...in a paper heap collapsed into a black hole of zero value. So what did they do? They "played the game".
They played the game and "helped" the U.S. go bankrupt by funding their debt needs. They also "built"...for their own future. You see, the Chinese look 100's of years to the future rather than to the next "quarter". I think that they fully knew that "when everything is worth nothing"...they would "have something". "Something" as in a brand new infrastructure. Infrastructure that the West can only marvel at. Who cares about the banking or financial system? Who cares if everything paper collapses..."we'll just start a new one"!
Do you see? They now have a modern country and it only took 10-15 years to build it (not to mention the small problem of poisonous smog). They knew that the financial system would ultimately come down so why should they go through a "re boot" to the system with rickety bridges and grass huts? Not only have they "modernized", they have also provided themselves with a place at the table...the HEAD of the table when it comes to currencies. They have in my opinion accumulated more gold than any other country in the world now has. They have created their own future and one that is bright because they have "money" (gold) while the West was "spending their past".
Will China just skate through a financial collapse...and one that may even start from an internal default? No, of course not but they are not looking at next year or the next 3-5 that it will take to pick up the pieces, they are looking out for generations to come! I have absolutely no idea "what" the event will be that turns the financial system upside down because there are just too many choices to pick from, I do suspect however that it will not be something "huge" and will be missed by most for several days. The Chinese however don't even care "what" it is because it doesn't matter. What matters is that their work is done, they have built infrastructure, modernized production, signed trade deals for the raw materials necessary for the future and accumulated "cash". Crazy or stupid? No, they have outsmarted the world while we watched...while they "helped us help them"! The last 10 or 15 years of work is viewed by the Chinese as virtually "free" when set alongside the next 100-200 years! Regards, Bill H.
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and here is Bill Holter talking to Lars Schall of Germany:
Lars Schall
7:41 AM (8 hours ago)
to : me
friends, romans, countrymen!
Bottom line of Deutsche Bundesbank gold: The fingerprints are gone
January 21st, 2014
Independent German financial journalist Lars Schall talked with Bill Holter, who works for Miles Franklin, a precious metals investment firm in the United States, about the main driver of the price of gold; the current problems of the Bundesbank with “its” gold; and China’s heavy buying of physical gold.
https://www.larsschall.com/2014/01/21/bottom-line-of-deutsche-bundesbank-gold-the-fingerprints-are-gone/
all the best,
lars schall.
https://www.youtube.com/watch?v=qviVX0xDH5s
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your early morning market sentiment/ your important paper stories which influence gold/silver)
Notes:
Monday's overnight markets from Asia and Europe