Gold Leasing: The Case Of The Disappearing Gold

Tyler Durden's picture




 

From Jeff Thomas Of International Man

The Disappearing Gold

During the Cold War, Germany moved much of its gold to New York in case the USSR invaded Germany. It was assumed at that time that the US would be a safer storage location, and of course, they could always ask to have it returned if they wished.

But German citizens have become increasingly worried about the security of the 1,536 tonnes of German gold reputedly held at the Federal Reserve in New York. This has resulted in the Bundesbank pursuing repatriation of the gold, beginning with a request to view it in the basement of the Federal Reserve Building, where it is claimed to reside.

Of course, the German government had received periodic assurances from the Fed that the gold is there; however, the issue began to get a bit sticky recently, when the Fed refused a request for inspection.

The world then raised a collective eyebrow, and, whilst not panicking over this development just yet, closer attention has come to bear, not only on the Fed, but on any institution that is entrusted with the storage of gold for other parties.

Concern spread to Austria, where a question arose in Parliament as to where Austria’s gold is stored. The answer provided was that 80% of it (224.4 tonnes) is in the UK. (It was claimed that the reason for this is that, if a crisis of some kind were to occur, it could be more easily traded from London than from Vienna.)

Seems reasonable enough, except that the return of the gold to Austria, if it were requested, may be a bit difficult, as the gold seems to have been leased out by the UK.

To many, a second eyebrow might go up at this point. Lease out the wealth of another nation? Isn’t this a bit… irresponsible?

The New Gold Shuffle

Not to worry, it’s done all the time. In fact, the practice has been endorsed by none other than Alan Greenspan, former Chairman of the Fed. The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return.

The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee.

In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.”

Both you and the Fed are claiming to possess the same gold bar. The fly in the ointment, of course, is that only one bar can be the actual bar. The other is a receivable and therefore is an asset on paper only. This, of course, means that there is less gold in the world than has been claimed. How much less? That’s anyone’s guess.

The New Risks

But even if it became generally known that the Fed (and others) are holding paper, rather than physical gold, couldn’t we carry on as before? What could go wrong? Here are some immediate possibilities:

  • If there were a dramatic rise in the price of gold and the lessor were to call in the return of the gold by the bullion bank, the bullion bank could easily lose far more than the small two to three percent margin it had been enjoying.
  • If there were a crash in the bond market and hyperinflation set in, the bonds that the bullion bank had purchased could become worthless.
  • If the nations who shipped their gold to London and New York for safekeeping were to request their return, the storage banks could only deliver if they were to purchase gold at the current rate. If that rate were significantly above the rate at which the gold had been leased to the bullion banks, the storage banks would sustain a significant, possibly unsustainable, loss.

That’s quite a bit of risk.

In the present market, there are any number of possible triggers that could cause the people of Germany, Austria, or a host of other nations to demand that their gold be returned home. Indeed, pressure is on the increase. The governments who have shipped out their gold for “safekeeping” would have a lot of explaining to do to their constituents, if the storage banks are not forthcoming.

So, is it time for the odiferous effluvium to hit the fan? Not quite yet. Before that occurs, there will still be some dancing around by the Fed and others.

The Fed has already stated, in so many words, “We’re sorry, but we can’t let you have all your gold at one time, but we’d be prepared to send it to you over a period of years.”

For many observers, the present situation should be well beyond the point of the raised eyebrow. It should be glaringly apparent that the amount of gold presently claimed to be in storage in the world’s banks is, to a greater or lesser extent, overstated.

Continuing the Charade

The Bundesbank should, of course, now say, “I’m afraid that’s not good enough. It’s our gold. We’ve advised you how much of it we want back now, and we must insist that you produce it immediately.”

If they were to take this perfectly logical step and the Fed refused, there could be a run on the banks, and, very possibly, within as short a period as twenty-four hours, a worldwide bank holiday might be declared with regard to gold.

However, this is not what will transpire. Neither logic nor sound banking practices are the object here. The object is to maintain the charade that exists within the banking community. The Bundesbank is just as fearful of a run as the Fed and will be only too willing to accept the Fed’s terms.

What must be borne in mind is the root cause of the request. It was not the Bundesbank itself that originally wanted the transfer to take place; it was the German people who, quite rightly, have become distrustful of the fact that their gold has been in New York for so long and want to see it repatriated. It is not the banks who wish to correct the situation. Not one bank wishes to expose the inappropriate practices of any other bank. Their loyalty is to each other and not to their depositors.

So, is that it? Have we heard the last of this issue? I think not. The cat is out of the bag at this point, and the depositors’ distrust and uncertainty will not be quelled by the counter-offer. Tension will continue to mount amongst depositors, and, at some point, the situation will reach an impasse.

All those who presently have gold in a banking institution would be prudent to keep an eye on the present situation. We might consider taking delivery of any gold we have in a bank, wherever it may be. Regardless of what form it is in, from ETFs to allocated gold, we would do well to assess the degree to which we feel our gold is at risk. In doing so, we may determine that a gold account is more at risk in, say, a New York or London bank than a Swiss bank. (Not all banks will be equal in terms of risk.)

If we do resolve to divest ourselves of bank-related precious metal holdings, it would be prudent to take action soon. (Clearly, those who attempt to remove their wealth the day after a run has occurred tend to do less well than those who attempt to remove their wealth the day before the run.)

We might also consider whether a possible run may become systemic, causing a bank holiday on all the bank’s activities, thus freezing any currency that we may have on deposit. We may conclude that it is prudent to only retain in our bank enough money to allow cheques to clear – an amount sufficient to cover a few months’ expenses.

In the near future, we may well find that a significant amount of gold that is claimed to exist in the world will “disappear.” Whilst we cannot control this eventuality, we may be able to save the gold that is being held in our names from disappearing.

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Sat, 02/02/2013 - 15:10 | 3209339 your neighbor
your neighbor's picture

Ray Lewis screams out "They are gonna run the "MF Global play again" then proceeds to cry and mutters "God is good"

Sat, 02/02/2013 - 16:41 | 3209502 francis_sawyer
francis_sawyer's picture

I'm a RAVENS fan... & I admire Ray Lewis... But I wish he'd leave GOD out of it... I can't find the clip, but there was this great scene in 'FOR LOVE OF THE GAME', where Billy Chapel [Kevin Costner] is standing on the mound, in the last inning, of a perfect game that he's throwing, and says:

"Lord ~ I know I promised to never involve you in a baseball game... always seemed silly... you got better things to do... But if I could ask, just this one time, for a favor... Could PLEASE make this pain in my shoulder go away for about 10 minutes"

~~~

All I could find was a partial clip to that scene...

http://www.youtube.com/watch?v=bILiFgWHH78

Sat, 02/02/2013 - 17:07 | 3209551 DosZap
DosZap's picture

sir francis,

Why?

But I wish he'd leave GOD out of it...

The man is a believer in God,please give him the same rights as yourself if you are not a believer,on not to believe.

Sat, 02/02/2013 - 18:38 | 3209685 francis_sawyer
francis_sawyer's picture

I don't mind if Ray Lewis... HIMSELF... believes in GOD... "deer antler spray"... or tarot cards...

~~~

Metaphorically speaking... I do worry about the 'cultists' that follow Jim Jones to Guyana... [Though I suppose I 'shouldn't']... FUCK 'em, I guess... They're no different from:

- Bernanke

- Greenspan

- Blankfein

- Dimon

- Adelson

- Bloomberg

- Feinstein

- Schumer

- Paulson

- Geithner

- Emmanuel

- Netanyahu

- Summers

- Krugman

- Rubin

- Kissinger

- Wolfowitz

- etc. followers

I guess they deserve a FULL ULTIMATE SHOWERING of benefits from the entity of their worship ~ THE MONEY GOD... 

~~~

For the record ~ I DO BELIEVE IN GOD... My problem is with RELIGIONS... I'll give Ray the benefit of the doubt because he doesn't come out as REPRESENTING a particular religion... But people are pretty stupid [& are therefore likely to 'fold in' his GODSPEAK into their creed of choice]...

Sat, 02/02/2013 - 14:46 | 3209295 battle axe
battle axe's picture

Fort Knox? Is the gold really there or?

Sun, 02/03/2013 - 05:16 | 3210594 e_goldstein
e_goldstein's picture

How much tungsten does it take to build x amount of monofiliment light bulbs?

 

Sat, 02/02/2013 - 14:52 | 3209308 cardis
cardis's picture

Page NF.

Sat, 02/02/2013 - 18:29 | 3209683 bobthehorse
bobthehorse's picture

I don't understand the concept of leasing gold.

It baffles my mind.

I just don't get it.

http://www.angrysinner.blogspot.kr/2013/02/yesterday-morning-i-had-hankering-for.html

Sun, 02/03/2013 - 15:10 | 3211333 orez65
orez65's picture

It's simply FRAUD.

You loan what you don't own.

It's a crime that has been legalized for banks by the Government.

Sat, 02/02/2013 - 14:02 | 3209216 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

All gone!

Sat, 02/02/2013 - 14:27 | 3209258 DoChenRollingBearing
DoChenRollingBearing's picture

Not mine!

Sat, 02/02/2013 - 14:40 | 3209279 mr_T
mr_T's picture

You forgot to mention Mexico's gold.. This will be the 2nd time they get jacked for their gold by Europa. Pinche wheys.....

Sat, 02/02/2013 - 14:05 | 3209221 Handful of Dust
Handful of Dust's picture

My money is safely invested in FB, GRPN and MFGlobal.

Sat, 02/02/2013 - 15:00 | 3209317 kill switch
kill switch's picture

Corzine,, I've been looking for you, cough it up..

Sat, 02/02/2013 - 14:09 | 3209223 glenlloyd
glenlloyd's picture

Being first at the door has, in this case, a huge benefit....

Sat, 02/02/2013 - 15:00 | 3209315 Cognitive Dissonance
Cognitive Dissonance's picture

I wonder if that is so. For some strange reason I think a different outcome may present.

Remember Bernie Madoff? And remember all those poor investors who were left out in the cold when the withdrawal window closed? How is that being resolved? Anyone remember?

Simple! Those who were first out the door received an unwelcome letter in the mail stating that since they 'benefited" from a Ponzi scheme, regardless of if it was unwittingly, they must now cough up a large percentage of what they withdrew over the years (or just recently) which is then put back into the 'collective' pot and 'equitably' redistributed to the less fortunate who never made it out of the burning building alive and with their money.

I suspect this might also be what happens when various vaults, private or public, are found empty of their 'stored' Gold.

Sat, 02/02/2013 - 15:12 | 3209344 Raymond Reason
Raymond Reason's picture

Wow.  That is total perversion of bankruptcy law.  Preferred payments in bankruptcy are not allowed, but anyone who received payments in a normal agreed upon manner keep them, or that's the way it used to be.

Everything is getting hazy, flaky.  I noticed that many banks will not cash cashier's checks immediately now, but need to sit on them for several days. 

Sat, 02/02/2013 - 15:23 | 3209368 Cognitive Dissonance
Cognitive Dissonance's picture

"Wow. That is total perversion of bankruptcy law." 

Yes. My condolences to the GM bondholders as well for the corn holing they took during that bankruptcy.

Sat, 02/02/2013 - 23:58 | 3210343 Karlus
Karlus's picture

Which is exactly why I will never buy another GM product again. Its a shame I will send my money to the Germans or Japanese, but the idea of giving a company half owned by UAW and screwed bondholders is simple theft.

Too bad too, because i buy high end cars and they coulda snagged me for that cadillac w the big engine or the new vette. Not now

Sat, 02/02/2013 - 15:32 | 3209379 wee-weed up
wee-weed up's picture

Yep... For total perversion of bankruptcy laws, one need look no further than our illustrious Dear Leader and how he handled the auto industry bailouts/takeover. Laws are for thee - not for me!

Sat, 02/02/2013 - 15:15 | 3209351 kaiserhoff
kaiserhoff's picture

 

Let's Get Physical, Physical....

Sat, 02/02/2013 - 20:02 | 3209868 Tango in the Blight
Tango in the Blight's picture

Watch me getting physical...

http://www.youtube.com/watch?v=A68j28KQaik

Blondes love physical.

And diamonds are their best friend.

And yet they're the ones who are being called dumb.

Sat, 02/02/2013 - 16:13 | 3209465 Room 101
Room 101's picture

"Those who were first out the door received an unwelcome letter in the mail stating that since they 'benefited" from a Ponzi scheme, regardless of if it was unwittingly, they must now cough up a large percentage of what they withdrew..."

To which said investors would have been wise to return a letter saying, in effect: go fuck yourselves. 

Sat, 02/02/2013 - 17:55 | 3209628 Cognitive Dissonance
Cognitive Dissonance's picture

I suspect I didn't make myself clear above.

I was imply that if you had your Gold stored at a public or private vault and "got out early", meaning before it was discovered that the vault was essentially empty of Gold, that it is likely, though not certain, that this might be handled in the same way as they are handling the Madoff mess. But with an additional twist. It you got out early and simply "sold" your stored Gold and received a check from the vault company the dissolution might be that you would have to cough up some if not most of that cash. They can't take physical Gold you never had in your hands.

But if you took your distribution in the specie itself, meaning you received Gold in any form, then I suspect they will come after most of that Gold. It will only become clear that many of these vaults are empty when the price has already risen much higher than it is now for whatever reason, possibly because so much Gold is 'missing'. If they were to demand cash from you instead of the Gold what price do they use, the price of the Gold at the time you received it or the price of the Gold now?

The fact that the Gold price will most likely have risen will make your physical that much more valuable to whomever is sorting out this mess. Remember, if the GM mess taught us one thing it is that there are no rules. Or that the rules are whatever they say the rules are. 

Sat, 02/02/2013 - 18:57 | 3209736 shovelhead
shovelhead's picture

I'm not a lawyer but I think there would be a real problem with trying to claw back gold in that manner.

The gold holder would have had his lawful contract fulfilled while the latecomer would have claim to a lawsuit both civil and criminal for fraud.

GM nonwithstanding, I don't see how someone who has a full legal claim could be held responsible (suffer partial loss) because at that point in time there was no criminal act. The crime of fraud only occurs when the promiser cannot deliver to the second party.

Call it the Early Bird defense.  :)

It would look different , natch, on an allocated account with a bar number, I'm sure, as the first buyer on the list could be made whole, as that was a legal title, with subsequent titles listed as being fraudulent.

My reasoning being that the buyer is purchacing a fixed asset and not a owner of a share of a liquidated business asset.

An interesting legal question for someone with tort experience to expand on.

Sun, 02/03/2013 - 11:30 | 3209856 Cognitive Dissonance
Cognitive Dissonance's picture

Sadly the various rules and laws are there to protect the predators from the prey. This is always the primary rule and only when the primary rule has been satisfied will the rules and laws be used to sort out 'legal' issues among the prey......just as long as this activity doesn't violate the primary rule.

A failing socioeconomic system is extremely dangerous to the predators. So they will revert back to the primary rule, which is that there are no rules when it comes to protecting the predators from the prey.

We need only carefully examine the complete lack of bankster prosecutions and other assorted skullduggery to recognize that the primary rule is being enforced. If and when the majority finally recognizes this truth, then things will begin to change.

Sat, 02/02/2013 - 18:34 | 3209687 jerry_theking_lawler
jerry_theking_lawler's picture

My daddy always taught me that if you ain't first, your last....the misses really like this concept but other than that it usually works out.

Sat, 02/02/2013 - 14:14 | 3209230 Lets_Eat_Ben
Lets_Eat_Ben's picture

Gold is money. It is the money of kings and cocksuckers alike. Use it wisely my friends.

Sat, 02/02/2013 - 14:15 | 3209236 Rusty Shorts
Rusty Shorts's picture

pffft, Gold...backed by nothing.

Sat, 02/02/2013 - 15:03 | 3209324 RockyRacoon
RockyRacoon's picture

It does prompt one to do a mental double-take about "full faith and credit", no?

Gold bugs, to non-gold-bugs, seem to be fully in control of one of the various lunatic fringes.

Too bad they're wrong!   Bwuahahahaha (he cackled madly...)

Sat, 02/02/2013 - 15:44 | 3209399 AE911Truth
AE911Truth's picture

The phrase "Full Faith and Credit" is a Barbarous Relic.

Sat, 02/02/2013 - 19:00 | 3209739 FeralSerf
FeralSerf's picture

One needs the Gift of Faith to be completely comfortable with that concept.  Most Americans still have it apparently.

Sat, 02/02/2013 - 23:52 | 3210336 Titan Uranus
Titan Uranus's picture

Is "Full Faith and Credit" about the same thng as "Hope and Change"?

Sun, 02/03/2013 - 15:17 | 3211348 orez65
orez65's picture

The US financial system and Federal Government are a total and absolute FRAUD.

We need to go back to basics: 1. Thou shall not steal, 2. Thous shall not kill ...

Follow the US Constitution, stop violating it.

The present situation is so damn depressing, a fucking illusion of wealth.

Fuck it all!

Sat, 02/02/2013 - 14:17 | 3209238 Poor Grogman
Poor Grogman's picture

It's an odd feeling to realize you might have purchased gold that some nation thinks they still own?

Exiting the ponzi early is the only answer...

Sat, 02/02/2013 - 14:46 | 3209287 Gold Dog
Gold Dog's picture

Grogman,

I was just thinking the same thing! How long will it take the auditors to track the course of some of my Eagles and declare them "stolen property" that I have no right to own. WTF??!!

Dog

Sat, 02/02/2013 - 15:15 | 3209353 A Nanny Moose
A Nanny Moose's picture

If you can't hold it, you don't own it.

Sat, 02/02/2013 - 15:34 | 3209381 donsluck
donsluck's picture

I do hope you had the forsight to purchase with cash.

Sat, 02/02/2013 - 16:57 | 3209516 francis_sawyer
francis_sawyer's picture

Don't be so fucking stupid... Just MELT the goddamned shit... [which is probably EXACTLY what the fucking FUCKS that are stealing the gold AS WE SPEAK are doing ~ thus leaving a 'dead end' trail in the process for when TS REALLY HITS TF]... Oh ~ but make sure you JUNK francis_sawyer for being a 'jew hater' while you contemplate your next move... It'll get you inside the velvet ropes of the politically correct "IN" crowd... You'll never be wanton for a party invitation...

PLEASE bring back the 'math question' at ZH...

Sat, 02/02/2013 - 18:06 | 3209646 Poor Grogman
Poor Grogman's picture

My point is that the sovereign governments are allowing their so called independent central banks to fleece their own citizens in a clandestine manner in order to keep the "market" under control.

This game has almost run it's course, unfortunately for the governments of the western world there will not be a rematch...

Sun, 02/03/2013 - 05:31 | 3210599 bunnyswanson
bunnyswanson's picture

Purchasing gold with US dollar?  Could this be what China and others are doing?  Saturating the market with greenbacks at the same time as buying up the gold at a bargain price thanks to gold manipulation.

Sat, 02/02/2013 - 14:47 | 3209300 FeralSerf
FeralSerf's picture

Perhaps the PTB will say that the gold you "purchased" was not really owned by the one that sold it to you and therefor you do not have legal title to it so they must therefor confiscate it from you.  You will, of course, be told that you can get reimbursed for your loss by the ones that sold the gold to you.

Livestock aren't supposed to own gold anyway.  Gold is the money of Kings.

Sat, 02/02/2013 - 17:23 | 3209582 Acidtest Dummy
Acidtest Dummy's picture

The leafs belong to the trees and the souls are the property of the state.

Sat, 02/02/2013 - 18:11 | 3209651 Poor Grogman
Poor Grogman's picture

Gold is the money of kings.

Are you referring to Mervyn?

Sat, 02/02/2013 - 19:10 | 3209757 shovelhead
shovelhead's picture

No. Gordo saw to that.

Archduke of Ponzi might be closer to the truth.

Sat, 02/02/2013 - 15:45 | 3209406 AE911Truth
AE911Truth's picture

When it comes to the Fiat Ponzi currency, the only winning move is not to play.

Sat, 02/02/2013 - 17:16 | 3209567 hmmmstrange
hmmmstrange's picture

Honey, I need to return your engagement ring. Apparently it belongs to Germany.

Sat, 02/02/2013 - 17:43 | 3209613 misnomer
misnomer's picture

I came upon this article on a report of Wartime Gold Transactions while researching on the Bank of Canada website...

"On 11 July 1997, the Bank of Canada launched a search of its wartime gold records. This search was a direct response to reports in a recently declassified U.S. government document that a 1942 transfer of ownership of gold held for safekeeping in its vaults in Canada may have facilitated a separate, parallel transfer in Switzerland of looted Nazi gold between the central banks of Switzerland and Portugal.

 

http://www.bankofcanada.ca/1997/11/press-releases/final-report-wartime-g...

Just thought it was interesting...

Sun, 02/03/2013 - 02:08 | 3210481 jonjon831983
jonjon831983's picture

hm interesting

Sun, 02/03/2013 - 05:19 | 3210596 e_goldstein
e_goldstein's picture

Not much beats an acetylene torch, borax and a crucible.

Best of luck anyone can make a legal claim to a molten puddle of metal.

 

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