Tuesday, October 30, 2012

Turk - Central Banks Now Scrambling For Physical Gold

Gold is not a barbarous relic.  The real barbarous relic is central banking when it perpetrates State control of money.  This control impedes the market process that is an essential part of any free society.  Controlling money is like controlling free speech.  If a government controls a country’s money, it controls its people.

So consider what happened, for example, in the 20th century.  Gold was taken from the people by Lenin in Russia, Mussolini in Italy, Hitler in Germany and Roosevelt in the United States. Why did they do it?  It was to increase the power of the State by taking money that government can't control – namely gold – out of the hands of the people.

Governments can't control gold any more than they can control the value of a Picasso painting or any other tangible asset, but of course that doesn’t stop them from trying to manipulate the gold price.  But they will fail this time, just like they failed in the 1960s.

But let’s turn away from the geopolitics to a more important point here, Eric.  We are witnessing the same thing I have touched on time and again since 2009 when one of the world's top hedge funds called Greenlight Capital reported that it had switched its huge holding of GLD into physical metal.  Gold was about $920 at the time.  This switch highlighted the difference between paper-gold and physical gold.

Since then we have seen an ongoing scramble to turn paper-gold into physical metal.  But here’s the important point, this scramble for physical metal has grown because it has now moved from the hedge fund community to central banks.  Look, for example, at how long it took Venezuela to have its 200 tons of gold returned.  They had to wait 3 months just to receive the first shipment, so it had probably been leased out.  There is a good possibility that it had to be bought in the open market.  So can you imagine how long it will take Germany to collect 10-times that amount?

The repatriation of gold out of secretive central banks that have controlled the gold reserves of most countries since WW II back to the countries that own it is, I expect, going to be a major force driving gold higher in the months ahead.  The reality is finally being recognized that central banks have less gold in their vaults then people think. This deception is a result of the IMF policy which allows central banks to hide the true weight of gold stored in their vaults.”

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