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“All that Glitters is Not . . .” Oh, Never Mind!

COMMENT: One can but won­der if the polit­i­cal and eco­nom­ic real­i­ties set forth by Peg­gy and Ster­ling Sea­grave in Gold War­riors are hav­ing an effect on the indi­vid­u­als and insti­tu­tions mak­ing their moves in the gold mar­ket.

Per­pet­u­al­ly in the shad­ow of World War II era polit­i­cal and eco­nom­ic manip­u­la­tion, the gold mar­ket is, to say the least, capri­cious.

Anoth­er sign of how stressed out things are get­ting in the euro­zone:  Cen­tral banks have switched from being heavy sell­ers of gold to net buy­ers.  It’s the heav­i­est cen­tral bank gold buy­ing since the col­lapse of Bret­ton Woods 40 years ago and the first time since 1985 that cen­tral banks have been net gold buy­ers.  A min­ing indus­try rep­re­sen­ta­tive char­ac­ter­izes the move as being in response to the US’s fis­cal sit­u­a­tion (i.e. too much debt) but that may well be spin since the arti­cle also notes that most of the buy­ing was relat­ed to the Bank of Esto­nia buy­ing a bunch of gold to join the Euro­pean mon­e­tary union.

“Cen­tral Banks Return as Gold Buy­ers” by Jake Farchy; Finan­cial Times; 9/19/2011.

EXCERPT: Euro­pean cen­tral banks have become net buy­ers of gold for the first time in more than two decades, the lat­est sign of how the tur­bu­lence in the cur­ren­cy and debt mar­kets has rev­o­lu­tionised the bul­lion mar­ket.

The pur­chas­es are minus­cule com­pared with the size of the glob­al gold mar­ket, but high­light a remark­able turn­around from a wave of heavy sell­ing by Euro­pean cen­tral banks.

The role of cen­tral banks in the gold mar­ket will be a cen­tral top­ic of debate at the annu­al Lon­don Bul­lion Mar­ket Asso­ci­a­tion con­fer­ence, the largest gath­er­ing of the gold indus­try, in Mon­tre­al this week. The switch from large sell­ing to buy­ing has helped pro­pel the gold price more than 25 per cent high­er so far this year, hit­ting a nom­i­nal record of $1,920 a troy ounce this month. The shift in Europe comes as cen­tral banks in emerg­ing mar­kets are also load­ing up on gold.

Mex­i­co, Rus­sia, South Korea and Thai­land have all made large pur­chas­es this year, in a move to reduce their expo­sure to the dol­lar. Glob­al­ly, cen­tral banks are set to buy more gold this year than at any time since the col­lapse of the Bret­ton Woods sys­tem 40 years ago – the last time the val­ue of the dol­lar was linked to gold. . . . .

COMMENT: An alle­ga­tion orig­i­nat­ing with [alleged­ly] leaked [osten­si­bly] State Depart­ment cables has sur­faced cour­tesy of Al Jazeera.

The alle­ga­tion weighs the pos­si­bil­i­ty that Chi­na’s mas­sive pur­chas­es of gold may be aimed at reduc­ing their expo­sure to a weak­en­ing dol­lar. The Wik­iLeaks cables spec­u­late that the Chi­nese are aim­ing at replac­ing the dol­lar as the reserve cur­ren­cy of choice.

In this con­text, one should remem­ber that Wik­iLeaks itself was found­ed on an anti-Chi­nese ide­o­log­i­cal plat­form, as well as the more or less overt anti-Amer­i­can ori­en­ta­tion evi­denced in recent Wik­iLeaks releas­es.

It is also worth bear­ing in mind John Lof­tus’ analy­sis of “two CIA’s and two State Departments”–one of each iden­ti­fied with the Democ­rats and Amer­i­can inter­ests on the one hand and the GOP and multi­na­tion­al cor­po­rate inter­ests on the oth­er.

In past dis­cus­sion of Wik­iLeaks, we’ve con­sid­ered the pos­si­bil­i­ty that the “leaks” of State Depart­ment cables orig­i­nate with the GOP fac­tion of CIA and State, work­ing to com­pli­cate the Oba­ma admin­is­tra­tion’s already daunt­ing task.

This cable might do both.

Al Jazeera, of course, has pro­found con­nec­tions to the Mus­lim Broth­er­hood.

“Chi­na Buys Gold, Chal­lenges U.S. Dol­lar” by Chris Arse­nault; Al Jazeera; 9/12/2011.

EXCERPT: Chi­na is shift­ing some of its mas­sive for­eign hold­ings into gold and away from the US dol­lar, under­min­ing the dol­lar’s role as the world’s reserve cur­ren­cy, accod­ing to a recent­ly released Wik­iLeaks cable.

“They [the US and Europe] intend to weak­en gold’s func­tion as an inter­na­tion­al reserve cur­ren­cy. They don’t want to see oth­er coun­tries turn­ing to gold reserves instead of the US dol­lar or Euro,” stat­ed the 2009 cable, quot­ing Chi­nese Radio Inter­na­tion­al. “Chi­na’s increased gold reserves will thus act as a mod­el and lead oth­er coun­tries towards reserv­ing more gold.”

The cable is titled “Chi­na increas­es its gold reserves in order to kill two birds with one stone”. Tak­en togeth­er with recent pol­i­cy announce­ments from Chi­nese bank­ing offi­cials, it may sig­nal moves by Chi­na to even­tu­al­ly replace the US dol­lar as the world’s reserve cur­ren­cy.

Last week, Euro­pean busi­ness offi­cials announced that Chi­na plans to make its cur­ren­cy, the yuan, ful­ly con­vert­ible for trad­ing on inter­na­tion­al mar­kets by 2015. Zhou Xiaochuan, gov­er­nor of Chi­na’s cen­tral bank, said the off­shore mar­ket for the yuan is “devel­op­ing faster than we had imag­ined” but there is no defin­i­tive timetable for mak­ing the cur­ren­cy ful­ly con­vert­ible. Present­ly, the yuan can­not be eas­i­ly con­vert­ed into oth­er cur­ren­cies, because of gov­ern­ment restric­tions. . . .

. . .In March 2011, Chi­na held $3.04tn US dol­lars in reserves, Xin­hua news agenecy report­ed. It is the largest hold­er of US trea­suries, or gov­ern­ment debt, with $1.166tn as of June 30, 2011, accord­ing to the San Fran­cis­co Chron­i­cle. Thus, major deval­u­a­tion of the dol­lar would hurt Chi­na, as it would be left hold­ing wads of worth­less paper.

“If you owe the bank $100, that’s your prob­lem. If you owe the bank $100m, that’s the bank’s prob­lem,” Amer­i­can indus­tri­al­ist Jean Paul Get­ty once remarked, in a para­ble that sums up Chi­na’s predica­ment.

“Chi­na is locked into a posi­tion where they can­not sell a big por­tion of their dol­lar reserves overnight with­out hurt­ing them­selves,” Aizen­man said. “It is too late for now to diver­si­fy rapid­ly the stock they have already accu­mu­lat­ed.”
The answer: Buy gold. Every­one seems to be doing it. The val­ue of the glis­ten­ing com­mod­i­ty, use­less for most prac­ti­cal pur­pos­es, increased almost 400 per cent, from less than $500 an ounce in 2005 to about $1,900 in Sep­tem­ber.
“Gold has risen in val­ue because of uncer­tain­ty in the world econ­o­my,” said Mark Weis­brot, the co-direc­tor of the Cen­tre for Eco­nom­ic and Pol­i­cy Research, a think-tank in Wash­ing­ton. “Nor­mal­ly, gold would rise due to high infla­tion. It is a store of val­ue that increas­es if there is infla­tion. But in this case it is going up because nobody knows where else to put their mon­ey.”

In the Wik­iLeaks cable, Chi­na alleged that “the US and Europe have always sup­pressed the ris­ing price of gold”, but nei­ther Weis­brot or Aizen­man think such a pol­i­cy is tak­ing place or even pos­si­ble. . . .

Discussion

One comment for ““All that Glitters is Not . . .” Oh, Never Mind!”

  1. http://www.zerohedge.com/news/2012–10-24/why-did-bundesbank-secretly-withdraw-two-thirds-its-london-gold

    Why Did The Bun­des­bank Secret­ly With­draw Two-Thirds Of Its Lon­don Gold?
    Tyler Dur­den’s pic­ture
    Sub­mit­ted by Tyler Dur­den on 10/24/2012 20:51 ‑0400

    Two days ago we report­ed that the Ger­man Court of Audi­tors demand­ed that the Ger­man Cen­tral Bank, the Bun­des­bank, ver­i­fy and audit its offi­cial gold hold­ings con­sist­ing of 3,396 tons, held most­ly off­shore, name­ly New York, Lon­don and Paris, at least accord­ing to offi­cial doc­u­ments. It also called for repa­tri­a­tion of 150 tons in the next three years to per­form a qual­i­ty inspec­tion of the tung­sten gold. Today, in a sur­pris­ing devel­op­ment, via the Tele­graph we learn that none oth­er than the same Bun­des­bank which is caus­ing end­less night­mares for all the oth­er broke Euro­pean nations due to its insis­tence for sound mon­ey, decid­ed to vol­un­tar­i­ly pull two thirds of its gold hold­ings held by the Bank of Eng­land. Accord­ing to a con­fi­den­tial report ref­er­enced by the Tele­graph, Buba reclaimed 940 tons, reduc­ing its BOE hold­ings from 1,440 in 2000 to 500 in 2001 alleged­ly “because stor­age costs were too high.” This is about as idi­ot­ic an excuse as the Fed can­celling its report­ing of M3 in 2006 because “the costs of col­lect­ing the under­ly­ing data out­weigh the ben­e­fits.” So why did Buba repa­tri­ate its gold? Ambrose Evans-Pritchard has an idea.

    The shift came as the euro was at its weak­est, slump­ing to $0.84 against the dol­lar. But it also came as the Bank of Eng­land was sell­ing off most of Britain’s gold reserves – at mar­ket lows – on orders from Gor­don Brown.

    Peter Ham­bro, chair of the UK-list­ed gold min­er Petropavlovsk, said the Bun­des­bank may have with­drawn its bul­lion in self-pro­tec­tion since it did not, appar­ent­ly, have its own specif­i­cal­ly allo­cat­ed bars in Lon­don. “They may have decid­ed that the Bank of Eng­land had lent out too much gold, and decid­ed it was safer to bring theirs home. This is about the iden­ti­fi­ca­tion. Can you iden­ti­fy your own allo­cat­ed gold, or are you just a gen­er­al cred­i­tor with a met­al account?”

    The watch­dog report fol­lows claims by the Ger­man civic cam­paign group “Bring Back our Gold” and its US allies in the Gold Anti-Trust Com­mit­tee that offi­cial data can­not be trust­ed. They allege cen­tral banks have loaned out or “sold short” much of their gold.

    The refrain has been picked up by Ger­man leg­is­la­tors. “All the gold must come home: it is pre­cise­ly in this cri­sis that we need cer­tain­ty over our gold reserves,” said Heinz-Peter Haustein from the Free Democ­rats (FDP).

    Spec­u­la­tion aside, the fact that cen­tral banks, and even banks of cen­tral banks (i.e., the BIS), have long lent out gold, is no secret to any­one, tra­di­tion­al­ly to sat­is­fy short-term phys­i­cal gold con­fir­ma­tion claims upon a spike in demand, usu­al­ly asso­ci­at­ed with a liq­uid­i­ty short­age (when the val­ue of gold as mon­e­tary col­lat­er­al tru­ly shines). The prob­lem with this rehy­poth­e­ca­tion scheme is what hap­pens when the coun­ter­par­ty sud­den­ly finds them­selves insol­vent, the gold has since been re-re-rehy­poth­e­cat­ed, and nobody real­ly knows whose gold it is any more. This becomes a dras­tic prob­lem when a coun­ter­par­ty in a col­lat­er­al chain sud­den­ly goes broke... like MF Glob­al did last year, and the law­suits start­ed fly­ing try­ing to deter­mine whose gold is where. Need­less to say, it was the Lon­don office of MF Glob­al that was at fault for breach­ing a rehy­poth­e­ca­tion chain (because only in Lon­don was there no col­lat­er­al hair­cut lim­it on rehy­pote­hca­tion), and once phys­i­cal deliv­ery demands arose, nobody could locate bar XYZ with a giv­en ser­i­al num­ber.

    That, or the Bun­des­bank mere­ly fore­saw the ulti­mate unwind of the failed Euro­pean mer­can­tilist exper­i­ment at the start, and refused to leave its most pre­cious asset in the hands of the banker oli­garchy which it knew would do every­thing in its pow­er to pro­cure said gold once the feces hit the fan. Sure enough, BUBA’s ‘non-denial’ denial con­firms this too:

    The Bun­des­bank said it had full trust in the “integri­ty and inde­pen­dence” of its cus­to­di­ans, and is giv­en detailed accounts each year. Yet it hint­ed at fur­ther steps to secure its reserves. “This could also involve relo­cat­ing part of the hold­ings,” it said.

    Yet what is left unsaid in all of the above is that Ger­many has done noth­ing wrong! It sim­ply demand­ed a recla­ma­tion of what is right­ful­ly Ger­many’s to demand.

    And here is the crux of the issue: in a glob­al­ized sys­tem, in which every sov­er­eign is increas­ing­ly sub­ju­gat­ed to the cred­it-cre­at­ing pow­er of the glob­al­ized “whole”, one must leave all thoughts of sov­er­eign inde­pen­dence at the door and embrace the “new world order.” After all this is the only way that the glob­al­ized sys­tem can cre­ate the shad­ow cloud of infi­nite repoable lia­bil­i­ties, in which we cur­rent­ly all float light as a bina­ry feath­er, which per­mits instan­ta­eous cap­i­tal flows and mon­e­tary fun­gi­bil­i­ty, and which guar­an­tees that there will be no sov­er­eign bond issue fail­ure as long as nobody dares to defect from the sys­tem in which all col­lat­er­al is cross pledge and ultra-rehy­poth­e­cat­ed... for the greater good. Until the Buba secret­ly defect­ed that is.

    And this is the whole sto­ry. Because by doing what it has every right to do, the Ger­man Cen­tral Bank implic­it­ly broke the car­di­nal rule of true mod­ern mon­e­tary sys­tem (nev­er to be con­fused with that social­ist acronym fad MMT, MMR or some such com­pa­ra­ble mum­bo-jum­bo). And the rule is that a sov­er­eign can nev­er put its own peo­ple above the glob­al cor­po­ratist-cum-bank­ing oli­garchy, which needs to have access to all hard (and oth­er­wise) assets at any giv­en moment, on a momen­t’s notice, as the sys­tem’s explic­it lever­age at last check inclu­sive of the near­ly $1 quadrillion in deriv­a­tives, is about 20 times greater than glob­al GDP. This also hap­pens to be the rea­son why the entire world is always at most a few key­strokes away from a com­plete mon­e­tary (and trade) paral­y­sis, as the Lehman after­math and the Reserve Fund break­ing the buck so apt­ly showed.

    We are con­fi­dent that lit­tle if any­thing will be made of the Buba’s action, because dwelling on it too much may expose just who the first coun­try will be (or already has been) when the tide final­ly breaks, and when it will be every sov­er­eign for them­selves. Because at that point, which will come even­tu­al­ly, not only Buba, but every oth­er bank, cor­po­ra­tion, and indi­vid­ual will scram­ble to recov­er their own gold locat­ed in some vault in Lon­don, New York, or Paris, or at your friend­ly bank vault down the street, and instead will mere­ly find a recent­ly emp­tied stor­age room with humor­ous­ly writ­ten I.O.U. let­ters in the place of 1 kilo gold bricks.

    Posted by Qevets | October 25, 2012, 10:31 am

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