The Golden Rule

"He who owns the gold makes the rules"

Please note:  the "Golden Rule" refers to actual physical gold in one's possession and not futures contracts, GLD shares or even the gold that you have "invested" in via products marketed to wealthy bank clients that claim to have the gold sitting bank vaults (please see this:  ABN Amro Halts Gold Delivery and this:  Rabobank Halts Gold Delivery).

Based on several inquiries in response to the article I co-authored with Dr. Paul Craig Roberts - LINK - I wanted to clarify a couple points.

It is of critical importance to distinguish between paper gold and physical gold.  The majority of gold commentary generically references the trading of gold, without differentiating between "paper gold" - Comex gold futures and other paper-derived products like GLD or bank investment accounts marketed to wealthy clients - and actual physical bars.  The difference is crucial because paper gold contracts can be printed in unlimited quantities and dumped on the market.  But the seller of real gold takes the risk that his buyer on the other side might demand delivery of the physical gold.  If the seller of a futures contract or a bank investment product like the ones marketed by JP Morgan et al is selling security interest in gold that is not really in the vault, the buyer of that product does not own gold.  He does not get to make any rules.

The issue is that historically big buyers of physical gold would leave their gold in bank and Central Bank vaults rather than paying the cost of taking delivery in their own possession for safekeeping (cost of transporation + insurance).   But China as well as other big buyers now require all purchases to be delivered to their own safekeeping because they no longer trust the western banks and Central Banks.  The Fed and its banks have been leasing and borrowing gold from all the vaults in the west in order to have enough gold to deliver to the Asian/Indian buyers.  This has kept the price down in order to support the U.S dollar and the euro. The ratio of paper gold products to actual physical gold is at least 90-100:1.  At least.

But this gold Ponzi scheme is coming to an end and all signs indicate that the Fed, BOE and ECB are out of physical gold other than some gold in the GLD Trust and scrap remnants sitting at the back of bank vaults that has to be melted and recast in order to deliver to Asia.  We know for a fact that the scant 5 tonnes of gold shipped from the NY Fed vault to the German Bundesbank had to melted and recast.  And now Germany is left holding 5 tonnes of the 1500 tonnes it gave to the U.S. after WWII for safekeeping.

The bottom line is that the Fed does not have Germany's gold and there will eventually be consequences.  This is how sacred the German public considers gold:  Imagine that Germany came to this country, took over all the Starbucks, shopping malls and reality tv production studios.  Next imagine that they shut them all down and forbid any access to them at all.  None.  Imagine the response of the U.S. public. That is what is starting to foment in Germany over the missing gold issue.

As I mentioned in the article linked above, Venezuela was able repatriate 160 tonnes of gold in four months.  Why is it going to take the U.S. 7 years to ship back 300 tonnes to Germany when it would require just two trans-Atlantic cargo shipments via air?  The cost of shipping and insurance is miniscule compared to the value of 300 tonnes.  It's because the gold is not there.  It's gone.  No public official is willing to state the obvious and mostly oblivious Americans have no clue it's even an issue.

But it is an issue and the severity of that issue will grow with time.  Already German politicians are preparing legislation that will demand the repatriation of ALL of Germany's gold from the U.S. and France.  That will be fun to watch our Government if the legislation passes.

But the bottom line is that the U.S. gold being held by the Fed - all of it - is gone.  And soon the U.S. will not be making any rules in the global geopolitical arena.