The important message below was sent to Q Bytes readers a week ago, but due to its extreme relevance and timing we are reposting it here on the blog. If you are not yet a Q Bytes subscriber, remember it is absolutely free, and you can be the first to get info like this in the future. What are you waiting for? Sign up here today for your free Q Bytes subscription.
Q BYTES – 21 November 2009 – WHY THE GOLD MARKET COULD BE A BIG SCAM!
In this newsletter:
… WHY THE GOLD MARKET COULD BE A BIG SCAM!
… EVIDENCE THAT THE GOLD MARKET OPERATES ON A FRACTIONAL RESERVE BASIS
… CUSTOMERS HOLDING UNALLOCATED GOLD ARE NOTHING MORE THAN UNSECURED CREDITORS
… AN EASY WAY TO BUY AND STORE REAL GOLD BULLION
WHY THE GOLD MARKET COULD BE A BIG SCAM!
Fascinating stuff this week, with another bull market in gold. As I write, gold is hovering around $1,150. (update – a week later – about $1,180) People are certainly freaked out by the declining dollar, as the US government try harder and harder to support the bankrupt greenback.
But further evidence has recently emerged of how the whole gold market is operating on a fractional reserve basis. We’ve long said (and advised in our Gold Report) that if you want gold as a safe haven hedge, you must buy real physical gold and not ETFs, certificates or anything else that is not literally solid gold.
Our “Swiss Mountain Guide” friend Frank Suess recently brought a new report to our attention, and now seems like an excellent time for me to bring this to YOUR attention…
EVIDENCE THAT THE GOLD MARKET OPERATES ON A FRACTIONAL RESERVE BASIS
“Alternative I: on average there is more than one ownership claim on each gold bar conforming to London Good Delivery. Essentially, the (gold) market operates on a fractional reserve basis. If it is true, the next phase in the gold bull market will be a religious experience for anyone unfortunate enough to be short of gold.”
Paul Mylchreest, ‘Thunder Road Report´, October 15th 2009
by Frank Suess, BFI Group, Switzerland
Gold has recently started behaving bullish beyond our short-term expectations. At BFI, we have been watching this phenomenon with interest. Obviously, there are the fundamental reasons that we and others have discussed at length: The medium- to long-term trend of gold certainly has much to do with ‘Easy Money´ liquidity and the related fears of future inflation.
However, inflation is currently on few peoples´ minds and, in my opinion, it is the lesser of two imminent evils. My primary concern is for deflation, or a Deflationary Phase II, if you will. But the reasons for gold´s current strength are possibly a result of more technical reasons. In his Thunder Road Report of October 15th, analyst Paul Mylchreest asks a simple but very important question: how many ‘London Good Delivery´ gold bars are there?
Just like us, Mr. Mylchreest believes that there are fundamental reasons for the surge in gold, amongst them growing fears by individual, institutional and sovereign investors about the real value of fiat currencies, most notably the US dollar. The supply of gold is finite; the supply of dollars is infinite. Certainly, US authorities are printing dollars as if they were going out of style. But Mr. Mylchreest has also researched two more technical scenarios worth consideration:
“On average there is more than one ownership claim on each gold bar conforming to London Good Delivery (LGD) standard on the ´pool´ of gold which acts as liquidity for the massive OTC gold trade based in London. Essentially, the market operates on a fractional reserve basis, but if a sufficient number of market participants become concerned about this and there is a stampede to take delivery of physical bullion, there is a risk of market failure. Such a process could be delayed by central banks lending gold to the market, although this would likely be obvious by a spike in gold lease rates, or by a much higher gold price in order to encourage holders to sell bullion. In this scenario, the gold price could soar at any time and the gold market, which is subject to little regulation, is basically an accident waiting to happen;
“There is far more gold bullion held in private hands than is acknowledged by current industry estimates. It is the large amount of additional gold on top of known gold stocks which provides sufficient liquidity to support the high volumes traded through London. The most likely source for this gold dates back to the Japanese conquest of Asia from 1894-1945 when Japan is alleged to have looted the gold and valuables of 12 nations – it is best known as the story of Yamashita´s Gold. If true, my analysis shows that particularly heavy volumes of this gold may have been laundered into the London market during 1986-90 and the mid/late 1990s. In this scenario, the continued evolution of the gold bull market could be more protracted, if supplies of this gold continue to enter the market periodically.”
At the following link, we have uploaded the full Thunder Road Report of October 15th, 2009, titled “Gold market – accident waiting to happen or crime scene? Don´t shoot the messenger”. I recommend you take the time to study this excellent report.
I recently had a group of clients ask me why I was putting so much emphasis on holding precious metals, and why I was so adamant about holding at least a substantial part of it in physically allocated format and in a safe jurisdiction outside of your country. Well, I hope that Paul Mylchreest´s report will give those of you who have the same question a solid answer.
CUSTOMERS HOLDING UNALLOCATED GOLD ARE NOTHING MORE THAN UNSECURED CREDITORS
Here is how he puts it:
- “Customers holding unallocated gold are nothing more than unsecured creditors from the bank´s perspective – they have even less protection than a holder of a typical current bank account. If the bank became insolvent, the holder of unallocated gold could lose some or all of their money – this is perverse when one reason for holding gold is protection from financial crises;
- “The unallocated gold is nothing more than a financial liability for the bank (not a liability to be paid in bullion unless demanded by the customer). The gold, if it´s there, is the property of the bank (part of its working capital) which can do what it wishes with it, e.g. keep it in the vault, lend/swap it, or even sell it – while retaining a financial liability to the holder of the unallocated account; and
- “From the bank´s perspective, the gold can be used as an interest free loan, since the banks can sell, lend or structure derivative trades with the gold. One could argue that there is an incentive, therefore, for banks to operate unallocated gold accounts on a FRACTIONAL RESERVE basis in the belief that it is highly unlikely that most holders of unallocated gold will suddenly demand either physical delivery or conversion to allocated gold accounts.”
AN EASY WAY TO BUY AND HOLD PHYSICAL GOLD IN SWITZERLAND OR AUSTRIA
For more guidance on WHY and HOW you can privately and safely keep your PHYSICAL precious metals, you need to talk to Frank Suess. Frank’s firm BFI Wealth Management has a solution. Under strict Swiss privacy laws, his firm can sell you actual physical bullion that can either be stored for you in secure, insured Swiss vaults, or you can have it physically shipped to you almost anywhere in the world.
For more details of the program, check this link…
Kind regards, until next week,