Where is Mexico's gold, and is it really gold at all?
1:03p ET Sunday, September 25, 2011
Dear Friend of GATA and Gold:
In the essay appended here, the Mexican journalist Guillermo Barba reports that the Bank of Mexico refuses to disclose where it is keeping the 93 tonnes of gold it claimed to have purchased this year, apparently doesn't even know the form of the gold it claims to have purchased, and thus for its new gold reserves may be only an unsecured creditor of banks that are members of the London Bullion Market Association, home of fractional-reserve gold banking and primary mechanism of the gold price suppression scheme.
Barba thus has demonstrated how easy it is for basic journalism to expose the gold price suppression scheme -- just by putting simple and obvious questions to central banks and publicizing their refusal or inability to answer. With his essay Barba has done more journalism on this issue than The New York Times, The Wall Street Journal, the Financial Times, and all the world's mainstream news agencies combined. If only one of those news organizations would emulate him. But perhaps at least some Mexican news organizations will pursue his work now.
GATA's thanks go once again to the president of the Mexican Civic Association for Silver, Hugo Salinas Price, who spoke at GATA's Gold Rush 2011 conference in London this month and who translated Barba's essay into English.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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And Where Is Banco de Mexico's Gold?
By Guillermo Barba
Friday, September 23, 2011
The title of this article should have an obvious reply, but that is not the case.
Thanks to two requests for information made to the Banco de Mexico (Banxico), Mexico's central bank, based on the Federal Law for Transparency, we can say that it is probable that the gold in Mexico's international reserves is not in the country.
The requests were made by someone who never imagined how complicated it would be to obtain an answer to the question: How many bars of gold make up the recent acquisition of 93 tonnes of gold made by Banxico in the first quarter of 2011?
The bank's first denial of information was not long in coming: "We inform you that the information that you request is classified as reserved."
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Two months later, after posing a request for revision, besides a procedure for remedying the non-compliance of a request for delivery of information, the Unit for Liaison of Banxico responded in August with written communication OFI007-4632, which increased doubts: "The gold that composes the reserve in question is made up of bars that may have a minimum and maximum of gold. The bars with minimum content weigh approximately 10.9 kilos, while those with maximum content have an approximate weight of 13.4 kilos. The information is published by the London Bullion Market Association. ... Due to the variability of the content of gold in the bars, it is not possible to specify with certainty the exact number of bars purchased."
Having received this reply, we asked the central bank: In what country or countries is the gold that forms part of the international reserves of Mexico physically located?
The answer, coded OFI007-4934 (documents of which this writer possesses copies), dated September 19, is extraordinary: "The Information Committee of Banco de Mexico ... confirms the classifications made by the Administrative Unit and, therefore, access to the requested information will not be granted, since it is classified as reserved."
If Banxico doesn't even know how many bars it purchased, it is possible that it also does not have certain knowledge of where the gold is located. In the last communique we mention, Banxico sought shelter under Subsection III of Article 13 of the Law on Transparency, which states that information whose disclosure may "harm the financial, economic, or monetary stability of the country" may be classified as reserved.
It is evident that information about physical gold, if maintained as an asset without counterparty risk and kept within Mexico itself, could not present any threat at all to the nation's financial stability.
On the other hand, the reference made to the London Bullion Market Association (LBMA) is disquieting. The LBMA brings together the main companies specializing in the purchase and sale of precious metals -- bullion banks, producers, refiners, etc. -- and it is the center of the international market for gold and silver. Among its principal clients are most central banks with gold reserves, including Mexico's. For this reason Mexico's gold now might be located in the United Kingdom.
The big problem is that the bullion banks operate under a system of fractional reserves, and thus may sell or lend with interest the same lot of gold several times over to maximize their profits at the cost of all their ingenuous clients who, thanks to a promise on paper, believe themselves to be the legitimate owners of their gold. For the fractional-reserve gold banking system to function, there is a serious condition: that the majority of those to whom gold has been sold shall never demand its delivery. For if delivery should be demanded, it would be impossible to satisfy all buyers.
In other words, this system is a Ponzi scheme, a time bomb.
Thanks to their fractional-reserve system, the bullion banks are gifted with a false power: that of creating gold out of nothing and selling it as real. Among the largest implications of this fraud is, naturally, of course, the suppression of the prices of gold and silver, for this fractional reserve operation generates a false sensation of greater supply.
The Gold Anti-Trust Action Committee has studied and denounced this practice for years. As an indispensable reference we can cite an analysis carried out in 2010 by GATA Board of Directors member Adrian Douglas (http://www.gata.org/node/8627) of an essay published by the CPM Group (a company that specializes in commodities and is an apologist for the fractional reserve system of the bullion banks) in which it is explained how the bullion banks create so much fictitious gold. The author of the essay, CPM Group Managing Director Jeff Christian, last year testified to the U.S. Commodity Futures Trading Commission that "the precious metals are financial assets like currencies and Treasury bonds; they are interchanged at multiples of one hundred times their physical backing."
This should invite the interest of the governor of the Mexican central bank, Agustin Carstens.
Amid such evidence, it is obvious that it would be inconvenient to have Mexico's gold reserves located outside Mexico. Far from reducing our risk, this storage outside Mexico heightens our risk. Moreover, based on the replies of Banxico, we can infer that the bank has only an "unallocated" account for its gold -- an account in which, according to LBMA, there is no possession of specific bars of gold but only a simple "general right" to the metal, where the customer is an uninsured creditor.
So how many other parties might claim the 3.4 million ounces of gold that belong to Mexico? For the moment this is impossible to know. What is certain is that in such a stormy financial sea as we have now, each day that passes without our having our gold here at home is a day when we are unnecessarily exposed to default.
We draw attention to this because it is of the greatest importance for Mexicans. We hope there is prompt action.
Guillermo Barba is a journalist in Mexico. He can be e-mailed at firstname.lastname@example.org. This essay was translated from Spanish to English by Hugo Salinas Price, president of the Mexican Civic Association for Silver.
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