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Sure, there's probably still gold in central bank vaults, but how many claims to it?

Section: Documentation

1:18p CT Saturday, October 27, 2012

Dear Friend of GATA and Gold:

In his otherwise spectacularly obtuse commentary the other day about the clamor to audit Germany's gold reserve --

-- CNBC Senior Editor John Carney stumbled onto a point often made by GATA about the unreliability of central bank claims about gold vaulting. In reference to the foreign gold vaulted at the Federal Reserve Bank of New York, Carney wrote:

"The compartments do not have labels reading 'Germany's gold' and so on. They are instead numbered, and only a few people at the Fed know what numbers correspond to which country. The Fed says it does this to protect the privacy of the depositors. But this also makes actual inspection less reliable. There's no way for Germany to know that the gold it is being shown is Germany's, as opposed to some other depositor's. In an extreme case -- which I have no reason to believe is true -- miscreants at the Fed could just show everyone who came to visit the same pile of gold."


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Of course mere "miscreants" at the Fed are hardly the problem; the problem is policy throughout Western central banking that, in support of the gold price suppression scheme, facilitates the double-counting (or multiple-counting) of gold reserves.

For example, the International Monetary Fund long has allowed central bank members to count leased gold as if it is still in the vault of the bank leasing it. Thus multiple claims develop to the same gold and the world's gold supply is perceived to be larger than it really is, suppressing the gold price.

The same thing happens with the major gold and silver exchange-traded funds when their shares are allowed to be borrowed and shorted -- multiple claims develop to the same gold. There is much suspicion about the major gold and silver ETFs, GLD and SLV, because of the grotesque conflicts of interest on which they operate, the custodian of GLD's gold being HSBC, the world's biggest gold shorter, and the custodian of SLV's silver, JPMorganChase & Co., being the world's biggest silver shorter.

The London Bullion Market Association runs a fractional-reserve gold banking system in which claims are issued against gold that is not in the possession of the issuer of the claim. This too increases the perception of the world's gold supply and suppresses the price.

The great disparagement about gold in recent years has been that even with its strong price appreciation it has not kept up with inflation over the longer term. The most likely explanation for gold's failure to keep up with inflation is the creation by bullion banks, backstopped by central banks, of a vast imaginary supply, "paper gold." The fear of paper gold is behind the growing belief in Germany that the country should repatriate its gold reserve.

As central banks are the issuers of currencies that compete with the natural currencies, gold and silver, they have a powerful interest in controlling and weakening their competitors. As the issuers of claims to monetary metal they don't possess, bullion banks have an identical interest.

GATA long has documented secret transactions in gold by central banks and their refusal to answer specific questions about their custody of national gold reserves:

So the scenario raised but disbelieved by CNBC's Carney wherein a stash of gold might stand in for multiple stashes is hardly farfetched. That is almost certainly why the major gold and silver ETFs were created -- to corner the investing public's gold and silver so it might be applied in emergencies, against their investors' interest, for price control. Evidence of this cornering was produced inadvertently last year when HSBC invited CNBC's Bob Pisani to visit the secret GLD gold vault and, when he arrived, presented him with a GLD gold bar to display for his audience -- only for the bar later to be identified as being registered to a different ETF. One gold stash was standing in for another stash:

No one seriously doubts that there is some gold in the basement vaults of the New York Fed. But merely inspecting it would not prove anything. The serious questions here are about ownership title -- questions that can be answered only by a full disclosure of central bank gold records. How much gold is there and how many ownership claims are there to it?

If central banks are merely vaulting their gold and not using it to manipulate markets, if there are no secret schemes being undertaken with official gold, there should be no problem with disclosing these records.

But of course, as was demonstrated by GATA's recent lawsuit against the Federal Reserve for access to its gold records, particularly records involving gold swaps --

-- and by GATA's recent questioning of other central banks about their gold reserves --

-- this examination of title to gold is exactly where central banks become most secretive. Thus this is also where serious financial journalism about gold would start, if any was ever permitted and undertaken.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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