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Read more: ERIC SPROTT ON ALL THAT GOLD IN THE CENTRAL BANKS... ER... WELL...MAYBE NOT....
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ERIC SPROTT ON ALL THAT
GOLD IN THE CENTRAL BANKS… ER… WELL…MAYBE NOT….
November 26, 2012 By Joseph P. Farrell Leave a Comment
The
past couple of days I’ve been blogging about our old friend, the Bearer Bonds
scandals, and yesterday I happened to mention once again the curious amount of
gold in the world, or rather, the curious fact that no one seems to know an
exact figure. Well, I ran across this article and a few of you here found it as
well, and I find it curious for any number of reasons, not the least of which
is the amount of gold it mentions, which is yet another new
figure. What made me sit up and take notice however, is that its author,
Eric Sprott, is the manager of a ten billion dollar fund… so when someone like
that writes an article saying the central banks have no gold, I tend to sit up
and take notice:
Now,
in this article I intend on indulging in not only some high octane speculation,
but perhaps even in tropospheric speculation, so before we get to that, I want
to point out three paragraphs from this important article. First, there’s this
one:
“Over
the past several years, we’ve collected data on physical demand for gold as it
has developed over time. The consistent annual growth in demand for physical
gold bullion has increasingly puzzled us with regard to supply. Global annual
gold mine supply ex Russia and China (who do not export domestic production) is
actually lower than it was in year 2000, and ever since the IMF announced the
completion of its sale of 403 tonnes of gold in December 2010, there hasn’t
been any large, publicly-disclosed seller of physical gold in the market for
almost two years.4 Given the significant increase in physical demand
that we’ve seen over the past decade, particularly from buyers in Asia, it
suffices to say that we cannot identify where all the gold is coming from to
supply it… but it has to be coming from somewhere.”
Then there’s this one:
“Then there are all the private buyers whose purchases go
unreported and unacknowledged, like that of Greenlight Capital, the hedge fund
managed by David Einhorn, that is reported to have purchased $500 million worth
of physical gold starting in 2009. Or the $1 billion of physical gold purchased
by the University of Texas Investment Management Co. in April 2011… or the
myriad of other private investors (like Saudi Sheiks, Russian billionaires,
this writer, probably many of our readers, etc.) who have purchased physical
gold for their accounts over the past decade. None of these private purchases
are ever considered in the research agencies’ summaries for investment demand,
and yet these are real purchases of physical gold, not ETF’s or gold
‘certificates’. They require real, physical gold bars to be delivered to the
buyer. So once we acknowledge how big the discrepancy is between the actual
true level of physical gold demand versus the annual “supply”, the obvious
questions present themselves: who are the sellers delivering the gold to match
the enormous increase in physical demand? What entities are releasing physical
gold onto the market without reporting it? Where is all the gold coming
from?“
And finally this one, in which Mr. Sprott provides his answer to
the question: where is all this gold coming from?
“There is only one possible candidate: the Western central banks.
It may very well be that a large portion of physical gold currently flowing to
new buyers is actually coming from the Western central banks themselves. They
are the only holders of physical gold who are capable of supplying gold in a
quantity and manner that cannot be readily tracked. They are also the very
entities whose actions have driven investors back into gold in the first place.
Gold is, after all, a hedge against their collective irresponsibility – and
they have showcased their capacity in that regard quite enthusiastically over
the past decade, especially since 2008.”
And then, for those of you who have been following my hyopthesis
of rehypothecated gold reserves – both hidden and “less hidden” – there’s this
mind-boggling paragraph:
“If the Western central banks are indeed leasing out their
physical reserves, they would not actually have to disclose the
specific amounts of gold that leave their respective vaults. According to a
document on the European Central Bank’s (ECB) website regarding the statistical
treatment of the Eurosystem’s International Reserves, current reporting
guidelines do not require central banks to differentiate between gold owned
outright versus gold lent out or swapped with another party. The document
states that, “reversible transactions in gold do not have any effect on the
level of monetary gold regardless of the type of transaction (i.e. gold
swaps, repos, deposits or loans), in line with the recommendations contained in
the IMF guidelines.”6 (Emphasis theirs). Under current
reporting guidelines, therefore, central banks are permitted to continue
carrying the entry of physical gold on their balance sheet even if they’ve
swapped it or lent it out entirely. You can see this in the way Western
central banks refer to their gold reserves. The UK Government, for example,
refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”. That’s
the verbatim phrase they use in their official statement. Same goes for the US
Treasury and the ECB, which report their gold holdings as “Gold (including gold
deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits
and gold swapped)”, respectively (see Chart B). Unfortunately, that’s as far as
their description goes, as each institution does not break down what percentage
of their stated gold reserves are held in physical, versus what percentage has
been loaned out or swapped for something else. The fact that they do not
differentiate between the two is astounding, (Ed. As is the “including gold
deposits” verbiage that they use – what else is “gold” supposed to refer to?)
but at the same time not at all surprising. It would not lend much credence to
central bank credibility if they admitted they were leasing their gold reserves
to ‘bullion bank’ intermediaries who were then turning around and selling their
gold to China, for example. But the numbers strongly suggest that that is exactly
what has happened. The central banks’ gold is likely gone, and the bullion
banks that sold it have no realistic chance of getting it back.(Boldface
emphasis in the original article, bold and italicized emphasis added here)”
Now, reading between the lines a bit, I hope you caught the phrase
“leasing out their physical reserves,” for this implies that they remain the
ultimate owners of said gold no matter how many times it is “sub-leased,” i.e.,
re-sold. But that isn’t what ultimately disturbs me.
What disturbs me is that, if Sprott is correct, then the
“sell”-off of gold by these banks is, from one point of view, a seeming act of
financial irrationality during a time of rapid currency devaluation through
quantitative easing; not enough gold could be sold to keep the gold price down
and thus keep the value of the currencies high, so form a certain point of
view, the activity makes no sense.
But on to the high octane tropospheric speculation. In one sense,
yes, the central banks are the likely sources of some of this gold, but
that leaves the question of just how much gold there really is essentially unanswered;
to this day, we know next to nothing of just how much gold, actually,
was looted by the Axis powers nor, really, where it wound up and who really controls
it. (And yes, before all of you write me about the Black Eagle Fund and
Yamashita and all the rest, save yourself the time….I’m aware of it). So
we have yet another possible source in that…
Still, that would seem to me to fall short of an explanation of
what is possibly going on, with all due respect to Mr. Sprott… which leaves two
explanations so outrageous, so ludicrous, that I hesitate to mention them, save
for the fact I have mentioned one of them, the technological one, already:
alchemy… the transformation of base metals into gold. In The
Philosophers’ Stone I noted that in both Germany and Japan there were
discoveries of such transformations between the wars, precisely of mercury into
gold. What if such technologies had been perfected, and were used on an
industrial scale?
But there is yet another possibility…. also technological,
and in part, paradigm changing: what if an entirely new energy technology were
known and perfected, and what if this was known by the banks? controlling
interest in such a technology would transform the nature of money itself,
especially if somehow it could be collateralized, or better, made the backing
of money.
Whatever one thinks of these high octane speculations, Sprott’s
basic thesis remains sound: the banks are selling off massive amounts of gold.
And this explains why they do not want audits: either they do not want the
empty cobwebbed spaces of their gold vaults discovered, or, they do not want
all those piles of gold in them to be discovered, for either way, the
alchemical transformation of the financial system is the result.
Read more: ERIC SPROTT ON ALL THAT GOLD IN THE CENTRAL BANKS... ER... WELL...MAYBE NOT....
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