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China copper trader Liu may be scapegoat for weak risk controls
By James Turk
GoldMoney.com
Monday, November 29, 2005
The following news agency report about Russia's gold reserves
contains interesting information.
* * *
By Peter Lavelle
RIA Novosti News Agency
Monday, November 28, 2005
http://en.rian.ru/russia/20051128/42241821.html
MOSCOW -- The Central Bank may increase the weighting of gold in its
reserves in years rather than months, Chairman Sergei Ignatyev said
Friday.
The comment came after President Vladimir Putin earlier last week
called for the bank to increase the share of the metal in its
reserves.
At present, the central bank's gold weighting of total reserves
stands at 5 percent.
The bank's head of external reserves management, Maria Guegina,
recently stated that gold reserves as a proportion of all reserves
may be doubled. Russia produced nearly 182 metric tons of gold in
2004 and is expected to mine and sell 183 metric tons this year.
Ignatyev said the central bank's gold reserves had not increased in
the past six years and now totaled around 500 tons (17.64 million
ounces) of gold in reserves, which it segregates as monetary gold,
allocated gold, and term deposits worth some $6 billion.
He said that as Russia's foreign exchange reserves had grown
rapidly, up 32.5 percent from the beginning of the year, the share
of gold in the $165 billion total reserve had fallen.
* * *
Note particularly this sentence from the RIA Novosti dispatch:
"Ignatyev said the central bank's gold reserves had not increased in
the past six years and now totaled around 500 tons (17.64 million
ounces) of gold in reserves, which it segregates as monetary gold,
allocated gold, and term deposits worth some $6 billion."
Note the three ways the Russian gold is being used, and therefore
the three ways in which it is being accounted for.
"Monetary gold" means gold coins in the vault.
"Allocated gold" means gold bars stored in vaults, whether in Russia
or other countries.
The revealing information is the "term deposits," which means gold
deposited with banks in order to earn interest. This is what the
market calls "leased gold."
So it looks like the gold cartel has done a helluva job on the
Russians. That $6 billion of Russian gold on term deposits is 377
tonnes, so 75 percent of Russia's gold has been lent out.
The Russians are in the same position as other central banks that
have lent their gold. No wonder President Vladimir Putin wants to
increase his country's gold holdings. He was probably fuming when he
found out what the Russian central bank had done.
We can speculate about the recent chain of events.I wonder if it
went something like this.
Putin's economics adviser attends the Gold Anti-Trust Action
Committee's conference in Dawson City, Yukon Territory, Canada, in
August. Then he tells Putin what GATA knows about the central bank
gold lending that is being done to suppress the price.
Then Putin asks for a report from the Russian central bank about the
status of their gold reserves. He learns that the Russian central
bank has loaned 75 percent of its gold reserves in order to earn
maybe 12 basis points per year, thereby 1) putting $6 billion of
gold at risk in order to earn a relatively insignificant $7.2
million per year; and 2) helping to depress the price of gold,
hurting the gold mining industry in Russia, which remains one of the
world's largest gold-producing countries.
Thereafter Putin becomes very vocal about gold in general and the
need for Russia to increase its gold reserves in particular.
It is a very interesting wonder whether my guess about the recent
chain of events is accurate.
I also wonder if the Russians are now worried about whether they
will ever get their 377 tonnes of gold back.
Remember when Drexel Burnham went under?Portugal's central bank
lost the 32 tonnes of gold it had loaned to Drexel.
I wonder whose creditworthiness the Russians have accepted?Thatis,
with whom did they deposit their 377 tonnes of gold?
Right now there are more questions than answers, and who knows
whether my speculations about recent events in Russia are accurate?
In any case, we do not have to speculate about what the gold market
is telling us with the rising price of gold. It is telling us that
the gold price suppression scheme is unravelling.
GATA has shined the light on central bank vaults, and the vaults
contain only half the gold the banks report having. The RIA Novosti
dispatch is further evidence of that. And the gold market now is
adjusting to that as people learn about the gold price suppression
scheme.
Are GATA's stretchers ready to carry the gold cartel out of the
game?I think we'll need them by the time of Joe Martin's Vancouver
Resources Investment Conference on Jan. 22 and 23.
----------
James Turk is founder of GoldMoney.com, editor of the Freemarket
Gold & Money Report, and consultant to GATA.
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