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The paper gold marketer is afraid to look in the vault

Section: Daily Dispatches

11:52p ET Friday, June 12, 2009

Dear Friend of GATA and Gold:

The Gold Report newsletter today interviewed Sprott Asset Management's chief investment strategist, John Embry, who remarked that he expects gold to reach $1,500 by the end of the year as hyperinflation begins. But amid the consternation about the gold that may be missing from the Royal Canadian Mint, the interview may be most worthwhile for Embry's reminder about the fundamentally dishonest structure of what passes for the international gold market.

"If you look at the short positions that the commercials, that the bullion banks -- which are the agents of the U.S. government -- are running, it's a complete fraud," Embry says. "Because they couldn't possibly deliver on their paper promises if they were called by the people on the other side of the trade. The gold isn't there to deliver."

That is, the world's gold is, to put it politely, grossly oversubscribed. That's what derivatives are all about, what derivatives were invented for -- to divert investment and speculative demand away from real things, where such demand would be reflected in public price indexes, into mere promises of those things, so that central banks more easily might increase the money supply and their power without being held to account for the ordinary consequences.

The British economist Peter Warburton, author of the treatise "Debt and Delusion," was among the first to figure this out, explaining it in 2001 in his essay "The Debasement of World Currency: It Is Inflation, But Not as We Know It," which you can find at Gold-Eagle here:

So even government counterparties -- no, especially government counterparties, the instigators of the oversubscription of the gold supply -- must be regarded skeptically.

Yes, there well may be plenty of gold left at the Royal Canadian Mint, as was insisted upon, with great agitation and anxiety, by the paper gold marketer quoted in today's Ottawa Citizen story, dispatched to you a little while ago --

-- just as there may be plenty of gold left at Fort Knox. But those are not the most compelling questions. No, the most compelling questions are: Who really owns that gold? And how many people have claims to it?

While, for example, the Federal Reserve Bank of New York sometimes offers tours of the gold vault in its basement and gold is sometimes seen there, its ownership is never specified. It is supposed to be enough that the gold at the New York Fed is understood to be mostly the gold of other countries, held for safer keeping than those countries themselves could provide. Such a practice made some sense long ago when the whole world was at war. Today this practice would seem to have other purposes.

And of course the gold purportedly kept by the U.S. government at both Fort Knox and the depository in West Point, New York, is never seen at all and never publicly audited. For all that is known by that agitated and anxious paper gold marketer quoted by the Ottawa Citizen, and for all that is known by anyone else outside the government, on Mondays an assistant secretary of the treasury may take the German ambassador to Fort Knox and show him around and say, "Take a look at your gold," and on Tuesdays the assistant treasury secretary may take the French ambassador to Fort Knox and show him around and say, "Take a look at your gold." Wednesdays may be reserved for the Swiss ambassador, Thursday for the Italian ambassador, and Friday for the British ambassador, who is almost surely in on the joke and just making a social call.

Last year the Federal Reserve and Treasury Department formally denied GATA's requests to inspect their records of the U.S. gold reserve. It is impossible to imagine any good reason for those denials. They are powerful evidence that the U.S. government -- the main custodial government for international gold reserves -- is playing games with the gold market, games that, in fact, have been openly admitted by various authorities from time to time. (See

Now the games may have reached the Royal Canadian Mint. At best the mint's gold accounting system is badly flawed, even if the mint may be ahead of some others for having an accounting system at all. But even as the gold games multiply and become more brazen, there's the paper gold marketer, standing outside and declaring that nothing possibly could be wrong even as he refuses every urging to try going inside. In this the paper gold marketer resembles the bumbling police detective played by Leslie Nielsen in the "Naked Gun" movies, for whom even an exploding fireworks shop presented nothing of interest:

You can find The Gold Report's interview with Embry here:

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

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