09 July 2013

William Kaye: The German Gold Is Gone

Inspector Gregory: "Is there any other point to which you would wish to draw my attention?"
Sherlock Holmes: "To the curious incident of the dog in the night-time."
Inspector Gregory: "The dog did nothing in the night-time."
Sherlock Holmes: "That was the curious incident."

Arthur Conan Doyle, Silver Blaze

There is some speculation in this interview excerpted below, but I think it raises important issues that need to be addressed more fully and frankly to eliminate the need for speculation.

The leasing of gold, and the disposition of it by the central banks, including of course the Fed and the Treasury, is remarkably opaque considering that they do not own this gold, but merely hold it in custody for other parties, primarily the people of the nation that claims ownership.

As you know I have wondered if it was the realization that the German gold was not readily obtainable that triggered the heavy handed market operation, a stealth confiscation if you will, to free up gold from the ETFs, from the beginning of the year, when the Bundesbank presented a formal request for repatriation on behalf of, and furthermore at the insistence of, the German people.

The Fed has been resolutely and somewhat obtusely silent on this subject, even in the face of such absurd statements that the German people may have their gold back, but must wait seven years for it.  And this is a relatively nominal amount of gold given the flows in the world markets!

Also as you may recall, there were reports earlier this year of large quantities of gold leaving New York en route to refiners in South Africa for reprocessing.  They were large enough to show up in official reports.  They were attributed to slack capacity in that country because of the gold mine strikes.  And the amounts seemed to be far in excess of the normal 'scrap market.'

One might wonder if this was to change the nature of the gold from New York and London, to remove any existing hallmarks of ownership, and to convert it to the 400 oz. sizing and quality demanded by the Asian market.

This may or may not be the case. But the intransigence of the Fed, the Treasury and the Bank of England to submit to meaningful audits by independent parties in the face of such repeated claims of crony dealings with the bullion banks is almost incredible to otherwise understand.  A seven years delay to return property held in trust? 

I do not feel the need to impute a motive such as Mr. Kaye does that the leasing is intended to cap the price of gold, although it is certainly possible.  Current bank practices are sufficient.   I think making a cheap source of rehypothecated collateral available for the favored TBTF banks is fully in line with current central banking practices, even to the extent of reusing the same asset multiple times so that ownership often becomes a somewhat vaguely philosophical concept. 

When does a custodian deny legitimate and official requests from other governments and domestic bodies for an audit of assets held in custody?   Is the government imitating Bernie Madoff or Jon Corzine now in refusing to disclose the details of its transactions and potential rehypothcation of customer assets?  The lack of inquiry on behalf of the media is bewildering.

Kaye raises some serious questions in this article below which I would suggest you read in its entirety.   And they are easily addressed, if they can be done so openly and honestly. 

An answer is owed to the people of Germany at the least.  And it is a shame to their politicians that they will not ask it, and even demand it, on their behalf.  As Sophie Scholl once said, a people deserve the government which they are willing to tolerate.

"...once JP Morgan and Goldman Sachs get the gold they sell it into the market. So these bullion banks then become net-short gold. And the Fed says, ‘Well, we still have a contract where in theory we can claim the gold. So we’re going to report that we still own it in the official documents.’

But in reality the gold has been sold into the market. That gold winds up in places like Beijing. But before it gets to Beijing it frequently goes through Hong Kong. And when it goes to Hong, it goes to our refiner, the same people we use...'"

Read the entire interview with William Kaye at KWN here.