Friday, November 4, 2011

Central Banks Quietly Accumulating Gold - Declared Purchases of 206 Tons Through September 2011

Here's the thing:  official gold holdings are probably overstated.  The recent gold purchase by the Mexican government may be nothing more than a bookkeeping entry.  Are the gold bullion bars actually stored in HSBC vaults in London or New York--or is it merely a paper claim?  Even if the physical bullion exists, is it unencumbered?  Or are there other claims against said gold inventory?  Where are the official audits, complete with serial numbers?

None of these questions have been answered by central banks and the custodian banks.

Gold trading has historically been opaque.  We do know that for troy ounce of physical gold, there are 100 claims against it.  In other words, 99 out of 100 people who believe they own the physical gold, actually do not.  When the market comes to this realization, there will be a mad dash into the physical, while the paper and futures markets will collapse from the default.  Bullion banks selling inventory that doesn't exist will not end well.

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