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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Pemaquid's picture

You would think that gold and gold receivables would be separate line items. But, then, that wouldn't achieve the result the ass clowns want. Can it be that no one notices the deception except us?

DowTheorist's picture

Investors should learn how to tell the difference between physical and paper gold and the cost inherent with storing physical gold.

 

http://www.dowtheoryinvestment.com/2012/10/not-all-gold-is-born-equal-go...

Clesthenes's picture

Great article.

But there’s more that needs to be factored into the gold equation: government guarantees for bank deposits, for example; which then leads to Mortgage Backed Securities (MBS).

Consider: according to the bank deposit guarantees, if a bank fails, it is seized by the FDIC which guarantees deposits up to $250,000; everything over that is lost.

That’s quite a risk for people and companies with cash positions over the limit.

So, how did/do people and companies protect their large cash positions?

Formerly they used so-called zero-balance checking accounts.  During the day, incoming checks would be deposited and checks written would be paid.  At the end of the day, the balance would be swept into US Treasuries; or, if there was a net outflow of money, sufficient Treasuries would be sold to keep the account at zero or positive.

From the beginning of this practice, only US Treasuries were used for checking account surpluses.

Soon, there weren’t enough Treasuries to meet demand from people and companies with large cash positions.  This is where MBS come in.  So now, this surplus cash is kept in Treasuries or MBS.  This is reflected on company balance sheets as “cash and cash equivalents”.  Go ahead, inspect any corporate balance sheet.

The problem: bank reserves, customer deposits, cash equivalents (Treasuries and MBS) are all ultimately collateralized by gold… and no one seems to realize it.

Actually, it’s is a worldwide problem.

BlackVoid's picture

If you have your gold at a bank, then you are a total fool.

Kingkongballs827's picture

PVC Gun Burial Tube. Holds 3 long rifles Ak47, SKS, AR15 plus ammo and gold & silver. Check it out here.

http://www.ebay.com/itm/160965515323?ssPageName=STRK:MESELX:IT&_trksid=p3984.m1555.l2649

 

 

Monedas's picture

How would you like that tube shoved up your ass .... fraudster troll ?

cynicalskeptic's picture

One hell of a mark-up for a piece of PVC and a couple fittings.......  can make your own for far less.

  btw - storing silver in PVC is NOT a good idea.

Monedas's picture

To show their indifference to the "barbarous relic" they treated it as no more than a fistfull of fiat ... look ma .... no hands .... what me care .... I play fast and loose .... with YOUR gold .... sucka !  Monedas is 99+% physical .... the rest is in miners .... kind of a slush fund for condoms !

Coach McGuirk's picture

Who the fuck thinks up these fucking schemes anyway?

If I "lease" a car I cannot then sell the car. For obvious reasons.

If I "lease" an apartment I cannot then sell the apartment. For obvious reasons.

Apparently if you are a bullion bank you can "lease" gold and then sell it, despite the obvious reasons not to.

I'm sure the bullion bank is on the hook if something were to go wrong (like Germany wanting their gold back), but still, if someone was minding the store properly then this couldn't happen in the first place.

FeralSerf's picture

Gold is fungible.  Apartments aren't.  The landlord wants the same apartment back.  The gold owner doesn't care as long as it's really gold (and not radioactive) and in the same form.

 

Monedas's picture

There's no fungus can grow on silver .... it's anti-fungal toe nail .... all the way !

villainvomit's picture

7 Years....hahaha..don't forget about the Swiss....they want phizz too !  FU 33 Liberty !

Monedas's picture

So if you want your gold shipped back .... no can do .... but if someone leases the gold .... it's shipped lickety split .... so the lessee can sell it ?  Germany .... lease 1500 tons of gold from New York .... take delivery .... then default on the lease payments .... problem solved !

francis_sawyer's picture

Now THAT's a thinking man! ~ LOL

Aquarius's picture

Gold has no quantitative Measure; Gold is the Standard for all Value. Gold is Qualitative Measure.

when Gold is measured at USD50k pto - the USD fiat (and the USA ++) is foiked.

Gold is the Standard - Gold represents human survival - Gold will be exchanged for food, medicine and weapons, there will be nothing else except barter.

The basic and, a priori, fundamentals of the Human condition in correct order:

1. Survival - Sympathetic mode ANS/CNS (Automous Nervous System / Central Nervous System) and valid at cellular levels.

2. Civilization - para-Sympathetic mode ANS/CNS (ditto)

3. To become Self. To become "man the accomplished" aka, to become Man.

Gold is the Universal Principle for Value (qualitative sense) - Gold is the Human qualitative and Natural Stardard given by the Gods.

I paraphrase: 'He who screws with the Gods, will be screwed by the Gods'.

Ho hum

 

 

Mr. Hudson's picture

Great article! Makes one wonder if there is a risk in hoarding gold when the SHTF. Wouldn't the government confiscate gold when all this unfolds?

Monedas's picture

Yeah, at some point, they'll be hungry for the same gold they so long disdained .... cross that bridge later .... for now, the greater risk by far .... is to have no gold .... huddled with the hungry masses .... yearning to pee free .... take your pick .... I'll take my chances with gold !

helping_friendly_book's picture

Hey jew boy.

Israeli Spies Caught Celebrating 9-11

http://www.youtube.com/watch?v=hS89vNH-eeY

Pay back will be harsh on you incestous cousin fucker.

Monedas's picture

I am not a Joo boy .... I'm a Jew lover .... please, let's be precise !  I saw that video of my Yids .... foolin'around .... I think they were celebrating that they protected their fellow Jews from that twin tower holocaust .... their mandate from their government was to protect Jewish ass .... something, our CIA and State Dept. .... can't even do for themsaelves .... let alone American citizens !  BTW .... they were filmed on video .... but, they were not CAUGHT .... stoopid people get caught !   I am not opposed to marriage between first cousins .... the science is on my side !

Monedas's picture

Well, I guess they were deported .... but where is the link to the 5 Jews dancing .... I think I saw it once .... your link to Fox news doesn't show it ?  I'd like to watch it again .... but it seems to have disappeared !  How many Jews died in the 4 airplanes, how many Jews died in the twin towers, how many Jews died at the Pentagon .... on 9/11 .... you're the conspiracy nut .... that is very relevant data .... to see if Mossad warned Jews not to go to work at the Twin Towers or fly on those planes !  If you knew the terrorists would fly a plane into the Capitol or the WH or the Pentagon or the Twin Towers .... who would you warn ?

helping_friendly_book's picture

The dancing Jews were questioned by Police, then released. They were Mossad who claim to be working for a moiving company. That's a great one. Imagine a Jew working. We instantly know they are lying. Jews don't do manual labor.

You approve of incest? Your are creepy! Your probably married to your 1st cousin or your child perhaps?

 

Stuck on Zero's picture

I'm fuzzy on all of this.  If the Fed loaned out $1B in gold five years ago the lessee would have to repay it at a vastly elevated price.  Who would be stupid enough to lease gold and sell it for cash?  Or is the same bank placing huge naked shorts to drop the price?  Someone needs to explain the whole business model.

 

maxblockm's picture

I wonder if it took the same 7 years for Germany to move the same tonnage to the US during the Cold War?  Anyone know the timeline on that?

tony bonn's picture

jeff - your language is too polite and your circumspection too delicate....the german gold is long gone. others have explained this and providing benefit of the doubt is nothing but a display of fucktardery....i agree that no bank cares to see the charade exposed but the germans were bluntly refused by the fed to even inspect their gold - not once but at least 5 times...the fed told them that the gold is gone and that they would deliver it over a period of years, meaning exactly never....

the germans were fucked by their own bank - db and others who played along with the london gold pool and all of the other nazi schemes of the fed.....why did the germans want to protect their gold when it is such a barbaric relic? - they should have given it to the wall street controlled soviets forthwith and given up all of the worry.

the demand for gold was a stage play where the germans request delivery and the fed promises to deliver to give fake evidence of its existence....the truth, however, is uglier. it is gone gone gone with the wind and down the toilet never to be seen again in german hands....

i won't get into the swiss fraud and their announcements to provide segregated gold accounts which is nothing but muppet talk for i am going to steal your gold you stupid fucking fucktard.....major lawsuits according to jim willie going on in switzerland over stolen gold....the investors are screwed...the nazi courts will bury any ruling coming out of switzerland favoring the gold holders....they can kiss their legal fees goodbye...

kchrisc's picture

I nominate "fucktard" as the newest addition to the geo-political and political economy lexicon.

Hip, hip fucktard!

I even added it to the spelling dictionary.

The first definition should be: Anyone that believes an investment in a gold ETF is an investment in gold.

hujel

kchrisc's picture

The funniest part of this whole thing is that the Chinese have used the worthless tokens (Dollars & Euros) that we sent them to purchase said gold.

The Chinese must just laugh their asses off sometimes.

 

hujel

 

scattergun's picture

How safe is

Central Fund of Canada Limited (CEF)
FreeMktFisherMN's picture

I haven't looked into it much, but I remember Silver Doctors had something about it being dicey. Sprott's PSLV, PHYS seem like the safest way to get exposure to gold/silver if one is not going to take phyzz but wants to feel secure about the actual metal backing the trust, but even then to actually redeem stock for phyzz bars seemed like an arduous and expensive proposition with premiums and the sheer amount needed to be eligible to redeem for phyzz. I would just buy phyzz, as having phyzz possession that you can grab and go with is a big part of why it is owned. For trading, I play USLV if I have a good conviction about the price movement as at most a few day trade, then redeem some of those profits for phyzz. I laugh at those who buy SLV then say they are going to exchange their profits made on that ETF for phyzz, as they would have done just as well to not even be playing with fire with paper silver products. They can see first hand that even though it went up, they didn't make any (real) money. 

jonjon831983's picture

Aside from the guarantees on their website and prospectus I don't see anything (with my limited knowledge) that would hint at the Central Fund of Canada not being safe.

http://www.centralfund.com/

(I have owned some in my retirement accounts for a couple years.)

 

I tried looking up SilverDoctors and nothing is said against CEF.  They did post up one contributor's support: http://silverdoctors.blogspot.ca/2012/01/ranting-andy-on-shortage-of-phy...

I did locate this 2008 posting in favour of CEF: http://www.goldstockbull.com/articles/central-fund-of-canada-cef-safest-...

 

You can peruse the CEF annual report for detailed information here: http://centralfund.com/annualreport/annualreport%202012%20with%20MDA.pdf

The first paragraph summarizes in % how much bullion and how much is in paper certificate form and cash.  Bullion + Certificates = 99.1% of assets, and of this 99.1%, 99.6% is in Bullion and 0.4% in Certificates.  The claim for certificates and the cash is for liquidity purposes and to pay expenses and a $0.01USD annual dividend (that apparently allows the fund to be held in retirement accounts).

Second paragraph summarizes how it is held allocated and fully segregated with various vaults across Canada owned by a major bank: Canadian Imperial Bank of Commerce (CIBC).  Audited twice annually.

 

Now, if something happens and CIBC goes down, I don't know what exactly would happen to the gold held in storage, but so far the annuals seem pretty clear and safe... Though I think the banks in Canada are pretty much protected by the government, so not as likely something will happen.

 

Hmm...

scattergun's picture

Thanks jonjon. I hold some in my retirement account for the same reasons you mention. I liked the idea of them actually holding 99% + of the value of my investment in physical bullion, and doing it in Canada. Times change, and I just wanted a second opinion.

cynicalskeptic's picture

If you're a US cit owning CEF you need to file a specific form with the IRS - someting to do with foreign trusts.....

silverdragon's picture

As the US has no Gold, the Germans are forcing the US to go buy gold in the market and then deliver it. The price will go through the roof.

If there is a problem ref delivery, I'm sure there are more than enough US assets to seize in Germany or Europe if the US doesn't pay up.

Only upside for Germany and Gold.

helping_friendly_book's picture

They can just repo all the Abrahms Tanks and other military gear to use as scrap for their new Panther tanks. 

Volaille de Bresse's picture

"NY will continue to be a financial centre. And the gold is safe there. So why not leave it there?"

 

Because Germany understood this is THE END of the globalization!!! It's dead.

Everyone will return to their homes and lock the door so to speak. 

Dewey Cheatum Howe's picture

I'd imagine the swrhtf big time if too many people call in their paper shares of gold on the COMEX at the same time. Chaos and hilarity would ensue come delivery time.

tkobi's picture

I'm surprised that some of the larger traders that want a physical gold position don't buy the futures contract and begin to take delivery of physical gold from COMEX.  It's been widely advertised that COMEX holds less than 10% of the outstanding gold in the futures contract.  If you wanted to influence the price of gold and know that physical gold is in short supply, why aren't any large holders taking physical delivery on gold futures?

Dewey Cheatum Howe's picture

Yeah exactly. I don't know the fine details but if I am correct in my understanding, if enough people holding physical gold group together in a concerted effort to buy a large share of futures then demand delivery on them, it should put some serious strain on the central banks basically forcing them to sell off a sizeable chunk of their reserves or get called out for not having it when deliveries don't come. The shortage forces the price higher on the physical or you wind up hoovering out more physical at the current depressed prices from the speculators market. Wash, rinse, repeat.

hooligan2009's picture

rehypothecation is a fundamental tenet of the banking system.

how can anyone posiibly make money if "sleeping" assets aren't set free to sponsor the bubbles from which all bankers bonuses and without which politiicans couldnt skim off cream for themselves and their buddies in the pork barrel?

zipit's picture

The question about this "gold bank run" (or whatever term finally gets used for it) is when it will occur, not if it will occur, right? And then maybe what will trigger it and who will blink in advance of that trigger, thereby fulfilling the prophecy. 

helping_friendly_book's picture

You have a beautiful avatar.

helping_friendly_book's picture

The USA/Wall Sreet/FRBNY will steal gold and silver by duping people to buy shares in GLD and SLV. This will accomodate the accumulation of all the PM, by the FRBNY, in one place for ease of confiscation.

The US gov't, through guise and treachery, will allow the NYFRB to, again, take total control of all PM assets; for a fee of course, and solve the dilemma by giving GLD holders $42.222 per ounce for their, supposed holdings and seize the vaults conveniently filled with gold gather from around the planet as they buy gold when dupes buy shares in GLD.

The price of $42.222 per ounce of gold is the notional value as stated by the Treasury Dept, an arm of the NYFRB as outlined in this gov't, Treasury, website:

 

http://www.fms.treas.gov/gold/index.html

Status Report of U.S. Treasury-Owned Gold Overview

The Status Report of U.S. Treasury-Owned Gold (Gold Report):

    http://www.fms.treas.gov/_images/bullet.gif);">
  • Reflects gold bullion and gold coins owned by the federal government
  • Summarizes the fine troy ounces and the book value of gold held by various facilities
  • Identifies the value of gold coins and bullion on display at Federal Reserve banks; coins and bullion in reserve at the Federal Reserve Bank of New York; and gold held by U.S. Mint facilities

The book value of gold is currently $42.2222 per troy ounce. The information used to compile this reporting is received from the U.S. Mint, Federal Reserve banks, and FMS.

Current Report: December 31, 2012

Contacts:

If you have questions about this report, please call (202) 874-9866.

I suggest you sell your shares of GLD while you can.

 

cynicalskeptic's picture

It's far easier for government to confiscate the gold and silver held by PM dealers, bullion banks and ETF administrators - what's to stop ANY government from doing so?  Next step is nationalizing mining companies - then grabbing private holdings in safe deposit boxes (Homeland Security has the right to inspect all boxes in cases of national emergency).

It's  lot harder going after individuals - even if you have records (and despite specific NON-reporting language written into the law authorizing production of gold and silver eagles, youreally don't believe they aren't keeping track, do you?).  Might be like going after guns - same demographic - people not too thrilled at seeing property rights violated.....     But then how much is really left in private hands after you've grabbed the big stores?   Easier to control and limit sales driving it into a black market - where 'illegal' sales can be prosecuted and confiscated.   But if you get to that point I expect you're in a civil war......

helping_friendly_book's picture

My point was:

People buy GLD and SLV ETFs.

GLD and SLV buy PMs and concentrate holdings in one place for gov't/FRBNY/Treasury i.e. Jew confiscation.

I think you are trying to restate my point in a confusing way or you don't get it?

Or perhaps you are a shill trying to try and confuse the public for your Jew masters?

Nussi34's picture

Germany did not move its gold to the US. It was accumulated as a result of the trade surplus. The US just did not ship it to Germany every year.