Wednesday, January 22, 2014

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.


  1. I'm looking to buy some mining stocks. What do you think of Caledonia and Dynasty? Also, do you have any favorite Australian miners? Which do you prefer in regards to GDX, HUI, and XAU? Thank you for your work.

  2. Hi Dave,

    Good article stating the need to differentiale between paper and the metal. Only one part in this piece made not sense to me.

    ''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 u ask me, one sells real gold or not. To me, the seller of real gold sells real gold, not face the '' the other side might demand delivery'' risk as you put it (my humble opinion).

    If I recall well, shanghai is 60ish% delivery (and non of the delivered bars come back in by rule...... ofc there is fraud.....). Comex 2-3%?

    I notice the premiums between China and Comex are around $16 an ounce. You know how and if, physical arbing becomes profitable? Or is that why the Chinese bought the JPM vaults? Wondering minds.......

    just my 2 cents and regards,

    1. re the seller of real gold. Historically, when an investor takes delivery of gold via futures contracts or LBMA forwards, the more than likely opt to leave that gold in the Comex or LBMA vaults rather have the bars delivered from the vaults to him. This behavioral pattern enables the bank to use the bars being "safekept" in client accounts for its own purposes. However, there's always the risk that the owner of the bars might eventually ask for delivery. That is what is happening now.

    2. Thanx for the elaboration Dave

  3. I think I have it straight, but I'm not 100% on the concept of re-hypothecation. Can anyone, using easy to understand words or a simple example, explain it? I think it means multiple claims to the same physical gold, which has occurred because one entity after another has used the same asset as collateral, but I'm not sure. Or perhaps it is similar to the goldsmiths of old, issuing far more paper claims than there was physical gold. Or maybe it's something in between, or something entirely different. I'm not sure. Anyone?

    1. Technically, when you hypothecate an asset, you are pledging it all collateral, like for a margin account. A bank will "rehypothecate" that asset when it turns around and pledges it as collateral in another part of its business.

      Let's say you are a wealthy dude with an investment account at JP Morgan. As part of your portfolio you are invested in bullion that JP Morgan safekeeps. It is likely that you signed a "blanket" margin agreement which is secured by your assets, including the gold. JPM then turns around and leases that gold out or uses it to meet delivery requirements.

      Historically wealthy dudes would buy gold and keep it at the bank and then sell it, without ever seeing it or taking possession. JPM could use that gold for its own purposes without much risk that the wealthy dude would ever ask for it be delivered.

    2. Now I'm straight. Thank you, Dave!

  4. How is it that "...Venezuela was able repatriate 160 tonnes of gold..." and Germany can't even get a fraction of theirs??? Because, in the Big Leagues, one must abide by the '2 Rules'. Firstly, 'Don't Panic'. Secondly, If you do...make sure you are first. And that is the answer to the above question.

  5. You really should Bron Suchecki's blog.

    This is beyond laughable...Logistics problems? Shipping too much gold at the same time would attract public attention?

    1. He's either a complete idiot or he's a sleazy schill for the entities manipulating gold. Given that the Perth Mint has had legal issues in the past with "fractional" bullion practices, my guess is it's the latter

    2. The complete narrative of the BuBa is that they had to recast the bars to make them LGDB conform not that they weren’t the original, “everything else is conspiracy theory”.

      They even implied that the “Numbers were struck off a list as they were received”, trying to make out that they REALLY were the original bars!!!!
      The numbers of course could be just the numbers of any bars stolen from any allocated customer account, some mug who thinks he has gold an some banks vault, hey the even charge me storage fees so it must be there, right!

      The miniscule 5 tons is explained that they had to set up al the logistics first and keep it all top secret, but “next year it’ll all be set up and more can be repatriated”!
      All is top secret and the location of the recasting, in Switzerland’ is also top secret. LOL
      Yep, that’s the words from the top Banksters, top officials, to managers of our Currency system!
      If you’re thinking; Puerile, pathetic, insulting, infantile, fallacious, pusillanimously then you’re not alone!

  6. I immensely enjoy reading your insightful and invaluable articles Dave.
    Many thanks.

  7. Great Blog and insights, keep up the good work!

    Venezuela was ‘paid’ by looting Gaddafi’s Gold!
    The Libyan Gold has disappeared and the only conclusion is that it was shipped to pay Chavez. Remember that the “Rebels” in Libya established a new Central Bank while Gaddafi was still in power and fierce fighting was going on by the West’s backed, armed, funded, controlled “Rebels”.

    The war in Libya was foremost about the Gold; Gaddafi’s proposal of a gold backed Dinar and his holdings of 146.8 tons of Gold!

    Yep, the West has an impeccable record of crimes against humanity, war crimes and terrorism on a grand scale, but hey if you own the entire world Zio Media, all the Zio CBs, all the Zio controlled Govs from the US, UK France to Germany, you don’t have to worry about being held to account.

    Gold rules, but if you don’t have the military power, the Mind Control Media and the UN in your pocket and upset the ones who do have it you’re a goner: Saddam, Gaddafi, Assad.

    What do North Korea, Cuba, Sudan, Libya, Iraq, Syria, Iran all have in common?
    They’re all ‘our enemies’!
    They don’t have/had a Zio controlled CB!

    The only way to re-establish Liberty, Sovereignty and Prosperity is to abolish all Zio owned CBs, end Private Fiat Currencies and go back to Honest Money: Gold/Silver!

    Not a GS, but just simply Gold as Money.
    Can be electronically divided into micrograms or whatever to make payments, but taken out of the hands of the Zio Banksters Gangsters and the Zio Govs.

  8. Dave, why wouldn't Germany sell its "gold" held by the Fed, then use the proceeds to buy physical bullion for immediate delivery? There would be some transaction costs and such a large buyer could drive the price up a bit (but not too much given how China is purchasing far more) even with the manipulation. At the end of the day, 1200 tonnes in Bonn is worth far more than an IOU for 1500 at the Fed's NY vault! Does Germany want actual gold or just Schroedinger's gold?

    1. Here's why: they wouldn't be able to find 300 tonnes at a reasonable unless they wanted to disrupt the flow being made available to China. The U.S. Govt pressured India to stop imports in order to avoid disrupting that flow. Also, what happens if the entity they "sold" the gold to asked for it?

    2. Not 300 all at once, but why not 100 tonnes per year? that does not seem like much given that China is expect to announce that its official holdings have increased from around 1000 tonnes to 2700 tonnes in just a couple of years. As for your question re: the potential buyer, They'd have to wait 7 years for the Fed to deliver, right? More to the point, who would buy gold stored at the Fed vault expecting to get delivery after the whole world knows about Germany? I would expect any such buyer to be a part of the paper game like a bullion bank or GLD.

  9. The Financial Media Has Let You Down

    Underwriters are obliged to follow securities laws. They must perform due diligence, and make honest disclosures. Among other things, they cannot conceal illegal conduct, affirm false representations or allow them to go unchallenged, distribute materially misleading information, fail to disclose red flags, or fail to disclose suspicions of potential fraud.

    Unfortunately, regulators connected to the banking system have looked the other way, and the past and current Washington administrations have turned a blind eye to fraud. Most of the remedies have come from civil litigation.

    Negligence by the SEC, failure to investigate, failure to initiate criminal prosecutions, ridicule from those directly and indirectly benefiting from malfeasance, snark from so-called reporters on on so-called business television, apologias from on-the-payroll academics: none of these things change the obligation of underwriters to obey the law.

    thank god for blogs like this one:)

  10. Great post Dave, thanks. As stated I think the purpose of the paper gold markets was to lend "old money" credibility to unconstrained printing of pure fiat. This game ends when physical gold (in size) cannot be found for delivery. I disagree with you on the German gold, however, I think we will just have to wait and see how this plays out. Thanks as alwaya!


  11. How Bitcoin Plays Into the Hands of Central Bankers and Will Facilitate the Use of Negative Interest Rates

    Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…

    Bitcoin has helped to de-stigmatise the concept of a cashless society by generating the perception that digital cash can be as private and anonymous as good old fashioned banknotes. It’s also provided a useful test-run of a digital system that can now be adopted universally by almost any pre-existing value system.

    This is important because, in the current economic climate, the introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible, it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.

    Consequently, anyone who believes Bitcoin is a threat to fiat currency misunderstands the economic context. Above all, they fail to understand that had central banks had the means to deploy e-money earlier on, the crisis could have been much more successfully dealt with.

    When racketeering is legalized in the form of "banking" why would anyone trust fiat? Bitcoin-- me thinks the authorities are just a little too supportive for something that is supposed to be in opposition to them. is a pretty good article for making one go hmmmmm? about Bitcoin.
    Comes down to it, tangible assets with no counterparty (read: PM's in your possession) is the only thing you can count on to hold its value.
    Justin from Canada

    At the present time, the prospects for our project are poor, because the world “leaders” are really not independent men or women; they are under the control of their respective Central Bankers, who form an international fraternity whose leaders are the Fed, the IMF, and the BIS. Whenever anything “monetary” is presented to these supposedly top world leaders, they all refer the question to their Central Bankers. These, of course, are completely against anything that will devolve real power to the population, real protection for individuals and their families. They are against all forms of SAVINGS; their whole interest lies in promoting more DEBT, and NOT more savings. They one and all consider that savings are simply a drag on GROWTH, and they want people to spend, not to save. And the silver coin promotes savings, which in fact are the fountainhead of all prosperity.

    Mr. Salinas, why is it important to go back to sound money (gold and silver)? You know, “modern” economist like Nouriel Roubini call gold a “barbarous relic” and others name silver the “poor-man´s gold”.
    Mr. Barba, everything in our modern world is a lie. Look wherever you will, and you will find lies. Our civilization is living on borrowed time, because you cannot deal with Reality and the problem of finding sustenance for life in Fiction or Lies; you have to deal with Reality by means of Truth, and not by Lies. If we go on pretending that we can avoid Reality by means of Lies, we are going to end up in a barbarous state.
    The world is attempting to live by means of the great lie of fiat money. It will not work. You deal with Reality by means of Truth; Truth is thinking that checks with Reality. Gold is money, and if we refuse to face that fact, we are lying.