GOLD & FRACTIONAL RESERVE BANKING OF UNALLOCATED BULLION.

GOLD & FRACTIONAL RESERVE BANKING OF UNALLOCATED BULLION.

I have listened to "The Great Gold Debate" on the Financial Sense Newshour with Jim Puplava & try to draw a reasonable conclusion from the statements of both Adrian Douglas and Jeffrey Christian. The paragraphs below are direct quotes from articles written by each. The Debate: http://www.financialsense.com/fsn/2010.html

Adrian Douglas: How much imaginary gold has been sold?


In the last 14 years the supply of dollars has increased from $4 trillion to $15 trillion (+275 percent) while the gold price has risen from $400 in 1995 to $1,000 in 2009 (+150 percent).


….”There has to be an alternative massive supply of gold to make the price rise slower than the influx of dollars.”

……. “When the GLD trading characteristics are applied to the OTC daily trading volume, it gives an implied minimum inventory stock level of 64,000 tonnes. Given that the actual inventory cannot be more than 15,000 tonnes, this tells us that 49,000 tonnes of imaginary gold has been sold. That is to say "unallocated gold.”

…………….”This lends credibility to at least the ballpark level of our estimate. It means that about 50,000 tonnes of gold has been sold that is in excess of actual real stocks. This does not include all the lookalike scams of pool accounts, gold certificates, unallocated brokerage sales, ETFs, etc., which might be another 10,000 tonnes.



So the order of magnitude of the net short position of gold in the world is 60,000 tonnes. This is against a total possible claimed gold supply of 30,000 tonnes from all central banks, a figure GATA believes is now less than 15,000 tonnes."
--------------------------------------------------------------------------------------------------
CPM Group Jeffrey Christian's Final Response to GATA



…..However, “Gold also is a financial asset that is banked. In bullion banking jargon, this is called an unallocated account. Just like cash deposited in a checking account, the bank represents that it has enough assets to service the expected volume of withdrawals, but it doesn’t necessarily have enough bullion to allow all the depositors to withdraw all their gold all at once. many gold “certificate programs” are unallocated bullion accounts.”


“This is well understood by professionals in the industry and by most investors involved in these assets. Again, it should come as no surprise to anyone with bona fide credentials as an expert of any kind in the gold bullion marketplace. Yet GATA has tried to portray the fact that banks are required to hold only a portion of their gold assets, as they do money, as somehow being scandalous."

(Emphasis added, David) "END QUOTES"

----------------------------------------------------------------------------------------------------------
CONCLUSION:

To my non-Accountant mind, Christian states that Banks treat Unallocated Gold as they would ‘unallocated money’, the probability of Fractional Reserve Banking of Gold is 100%. The question remains one of what the ratio is 4:1, 12:1 or would they be even more irresponsible based on past experience.

I find it hard to believe Bankers could resist the temptation to exploit the asset and use the paper to manipulate prices when opportunity arises.

Personally I bet its about 12:1 or 180,000 Tons. 5,787,134,382 Billion Oz @ $1000 per Oz that’s ah? 5.7 Thousand Billion or $5.7 Trillion give or take a billion.

Thinking from the Banks point of view, would it be logical that the ‘Paper’ funds deposited with the Bank for unallocated Gold the money received from the Investor would be added to the Banks bottom line of assets. From that point on the paper for the Gold turns back into a Ledger entry. The Banks lend money based on their Capital multiplied by the Fractional Reserve method over time.

The Banks are not doing anything out of the normal from their point of view, keeping only enough Gold to meet Allocated Redemptions and a few demanding customers would be sufficient.

This lends credence to the theory that Banks act to suppress the price of Gold to:

1) Discourage people from redeeming Physical Bullion not in existence.
2) Keep the price from costing their bottom line by having to pay more to meet redemptions. (Do they act in a manner that stretches the Law or is their no Law to prevent them using the Gold on their books as they would with a cash deposit.
3) Prevent a feedback loop in the Gold price if Gold was considered a ‘Hot’ investment and the demand on their supply of Physical Gold was to escalate.

Plenty of logical reasons that explain how both parties believe they are right and the primary questions are.

??: IS ‘FRACTIONAL RESERVE GOLD BANKING’ REAL AND DO THE BANKS AND FUNDS ACT ILLEGALLY TO MANIPULATE THE MARKET BY VIRTUE OF SIZE AND OPACITY?

At 12:1 and $5 Trillion at stake, greed might allow standards to slip a bit? Even at 2:1 its about a half a Trillion. The Banks have a lot of motivation to keep a nice balance of incoming funds for Paper Gold, a slowly rising volatile price to keep the funds coming and allow for big profits regardless of the Market direction. Meanwhile investing the Trillions of Funds Assets into other profit markets.

As always please check my Math and post re any false assumptions I may have made.

The Ultimate argument in favor of holding Gold and Silver is the evolution of the GFC , now a 'Sovereign Debt Crisis' soon to become a 'Global Currency Crisis'. This will occur when people who have spent lifetimes accumulating wealth see no safe haven, Cash is only as good as the country behind it. Real Estate is on a downward sloap, Bonds, Stocks etc all have uncertainty and the fear generated by uncertainty.

Sooner than later investors will go to basics, almost a racial memory of holding the only real store of wealth. (Forget profits just holding your wealth will be #1 priority). Gold and Silver are the only investments that make any sense.

Considering the fundamentals of Silver (low supply above ground, critical Industrial use, perception of value as currency. Personally I believe Silver will reach $100 an ounce in 3 to 5 years. Depending on how long the Financial System can keep standing on ever increasing amounts of paper money.

With a Quadrillion of Derivatives floating around and Trillions of created money entering the system an end is inevitable. What we avoided after Lehman Brothers will come back as a Credit Crisis of Global Proportions. Not only will Banks not trust each other, they won't trust the paper money from the USD to the Euro or UK Pound.

Now will the average person, finding themselves at closed ATM's, or more probably restrictions from Government on withdrawing your money. We will have an Inflating Currency

parallel to a Deflating Economy the real Economy separating from the paper backed and Electronic systems.

The Kaos will be proportional to the time it takes to purge the system and create a new one backed by a basket of real assets.
World Governments have been doing everything they can to push the time further down the road. Like a Bulldozer pushing soil it will take more to move less.

What mystifies me is that there are intelligent people in Government that must know where this will lead (Quantitative Easing, Stimulus etc) we cannot attribute it to Keynesian and Austrians thinking a bit differently. I would propose the Powers That Be are simply sucking the system dry while they can, robbing the Museum during the War no ones able to see past the smoke.

When they have taken all that can be got...they walk away and leave the world to sort itself out. If you don't believe Conspiracy Theory relating to the Financial world and the evolution of systems to remove Legislation and oversight, create the federal Reserve Banks, all to enable the very few to exploit the majority. You would be ignorant of a long history of these events.

There has been no fundamental improvement of the Human Nature, we are in WW3 and have been since 911 when the present unending War was created. "Beware the Military Industrial Complex" Eisenhower was telling us something, he knew that few would listen.