Central Banks’ Paper Gold vs Physical Gold: Is The Dust Settling?

Much has been written lately with regard to the central banks’ gold holdings. One of the triggers was the news out of Germany, where the debate about Germany’s real gold holdings became very hot this week. Among others, financial journalist Lars Schall came out with the results of his “field research”. His findings were that institutions like the German Bundesbank, the Bank of England, the US Federal Reserve and the IMF, refuse to reveal figures about  their real physical gold holdings. It’s a confirmation of what was already known, but it caught the attention of mainly the alternative media as well as GATA and increases the pressure for transparency.

The “good news” from earlier this week was that Germany’s Court incited the Bundesbank to bring clarity with regard to their real gold holdings by providing access to their storage sites. Furthermore, a German Court of Auditors reported that the gold had “never been verified physically” up until now. It remains to be seen if and when light will be shed on this situation, but the pressure for clear answers keeps on increasing.

It is more and more believed that the physical gold holdings from the central banks are simply not there in the quantities as they officially appear in their books. GATA even strongly believes that double counting takes place in the bookkeeping of central banks, their intermediaries (the bullion banks) and other large financial institutions. The method that allows this to happen, is based on leasing gold from the central banks into the market (among others). The net effect is a higher supply in the market and hence an artificial setting of the price. Let’s bring this one step further: if that’s true, then it’s  a form of “gold printing” and logically it’s falsifying the accounting.

Eric Sprott came to a similar conclusion recently, based on in-depth analysis of data about the gold market. He wrote the following: “Under current reporting guidelines, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves. The UK Government, for example, refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”. That’s the verbatim phrase they use in their official statement. Same goes for the US Treasury and the ECB, which report their gold holdings as “Gold (including gold deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits and gold swapped)”.”

The trigger for Eric Sprott to carry out the analysis, was the worldwide exploding demand for gold which wasn’t reflected in the gold price action. Logically “other forces” would be at work, be it some kind of invisible hand or an entity with a lot of power. In fact it’s almost a combination of both: the invisible actions of powerful entities.

Back to Germany’s gold holdings. The Telegraph revealed an interesting insight about an unknown event that took place a decade ago. Nearly one third of Germany’s total of 3400 tonnes gold was withdrawn from the vault in the UK (Bank of England). It happened exactly at the time the euro was introduced and when the UK was selling 60% of its gold holdings (Gordon Browne affair).  That’s a remarkable revelation given the mystery around the real physical holdings of central banks. Furthermore, it could show that Germany was preparing for a worse case scenario with Europe. For sure, it reveals that Germany considers their physical gold backings as important!

In the meanwhile, it seems that in Mexico the dust has settled. Their central bank revealed information regarding their gold holdings.

By contrast, the Netherlands joins the movement as a group of 1300 people started to ask for clarity about their countries’ gold holdings.

And of course the main stream media needs to voice their opinion as well. In an attempt to downsize the importance of the real gold holdings, a CNBC editor published the following statements (see below). Is the conclusion here that accounting based on assumptions and potentially incorrect figures is “the new normal”?

“The actual presence of the gold wouldn’t make a lick of difference unless, say, Germany’s central bank decided it wanted to start using the gold for some practical, non-monetary purpose like making watches.

The actual existence of the gold in Fort Knox or in the vault beneath the FRBNY’s Liberty Street headquarters is irrelevant. The bookkeeping is what really matters here. So long as the Fed says Bundesbank owns X tons of gold, the Bundesbank can act as if it did own the gold—even if the gold had somehow been swallowed into a gold-eating galactic worm hole.”

 


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