With continued uncertainty around the globe, today the man who has become legendary for his predictions on QE, historic moves in currencies, told King World News that gold is rallying because Western central bank vaults are running out of physical gold.
Where Is The Gold?
Egon von Greyerz: “We have recently had some significant news about the gold market that makes the situation even less clear. The central banks and the BIS in Basel go to great lengths to tell the world absolutely nothing about their gold dealings. All transactions are carried out covertly and no central bank ever has an official audit of their gold holdings. The last US audit was during Eisenhower’s days in the 1950’s. Ron Paul has been pushing for an audit but to no avail. Will Trump instigate an audit? Well, he might have the intention but when he finds out that a major part of the US 8,100 tonnes of gold is not there, it will all go quiet. There have been pressures for audits in France and Germany in later years but this has had no effect. No country wants to reveal that the gold isn’t there…
Continue reading the Egon von Greyerz interview below…
In Volatile Markets, Is Wealth Preservation King?
Sponsored
Egon von Greyerz continues: “Germany has recently pretended that they are totally open about their gold dealings, but what have they actually told the world? In 2013 Germany announced a plan to repatriate 674 tonnes of gold from the US and France. The first year they only received 37 tonnes back and were told that they would have the rest in 2020. We have now been told that the program has been accelerated. By the end of 2017, out of the 3,381 tonnes that Germany owns, over 50% or 1,713 tonnes will be in Germany, with 1,236 tonnes still in New York, and 432 tonnes in London.
You may wonder why it needs to take 4 years to repatriate 674 tonnes of gold? Listening to interviews with the chiefs of Deutsche Bundesbank, they explained what a major logistical exercise it has been. According to the Bundesbank, they have had major problems with transport, insurance, security, etc. If we take Switzerland as an example, we both receive and export over 2,000 tonnes of gold annually. And that excludes major transfers between banks and private vaults. The same happens in countries like the UK, China, India, and the US. So around the world, many 1,000s of tonnes of gold are shipped annually without any logistical problem. You may wonder then why the normally very efficient Germans have had problems shipping 674 tonnes over 5 years?
The Original German Gold Held At The Fed Was Already Gone
The reason is that the gold wasn’t available because it had been leased or maybe even sold. This is confirmed by comments that the bars received in return were not the same as the original ones.
But the big question now is, if the remaining 1,668 tonnes that are supposed to be stored in the US and France actually exist? If they do, why not bring them back to Germany? Originally the reason for holding gold outside of Germany was the Cold War. Currently there is no Cold War so that is not a valid reason. We know why the gold originally was held in New York and London because that is where the majority of the gold trading takes place. But major central banks like the Bundesbank don’t need to move the gold if they lease it. Anyone trading with these Central Banks believes they are creditworthy. Our view is different. Central banks hold toxic debt that will never be repaid and therefore they are not safe.
WARNING: Do Not Store Your Gold In Banks
So why is the gold not in Germany? Initially it was used for leasing and trading. In the past when gold was leased it was kept within the London or New York bank pools and just shuffled between the banks. But now it is very different because the buyers are mainly China, India, and Russia, and these countries are not interested in paper trading. They want the physical bars delivered. The effect of this is that when a central bank leases the gold to a bullion bank, the bank then sells the gold to China, and China will of course take delivery. So all the central bank now has is an IOU from the trading bank. When the central bank asks for its gold back, it won’t be there and the trading bank will need to borrow gold from someone else like a client. So the bullion banks will hypothecate the same gold many times. That is why investors must never store gold in a bank.
Central banks don’t just lease their gold to the market. They also sell gold covertly. Total central bank gold holdings are supposedly 33,000 tonnes. Of that total, Western central banks supposedly hold around 23,000 tonnes of gold, including the IMF holdings. But no one knows how much of that gold actually remains in the West.
Look at Germany, which by the end of 2017 officially will have 50% of its gold. That still means that 1,668 tonnes is held abroad. If that has been leased and then sold to China, those 1,668 tonnes are permanently gone from the Western central bank vaults. But they are still counted as Western central bank gold on a ledger. And if this gold has been covertly sold by the Bundesbank, it is also permanently gone, of course.
Western Central Banks Vaults Running Out Of Physical Gold
If we look at the purchases of the ‘Silk Road’ countries (India, Turkey, Russia and China), we see that since 2009 these countries have purchased nearly a jaw-dropping 20,000 tonnes of gold. That is just under 3,000 tonnes annually, which is more than world mine production during those years. So just 4 countries have absorbed annual mine production in the last 7 years. In addition, there has been substantial buying by other countries and by investors, which means that a major part of the supply of gold has covertly come from Western central bank activities and therefore Western central bank vaults. We have already seen the price of gold rallying in 2017, and this is most likely taking place because Western central bank vaults are simply running out of physical gold.
Approximately 4,500 tonnes of gold is refined every year. Of that total, 3,000 tonnes is mine production and 1,500 scrap gold. Since 2011 when gold made a peak of $1,920, there seems to have been little interest and demand for physical gold, especially judging from the price decline. But that is certainly not the case. During the last 6 years, 4,000-4,500 tonnes have been refined annually and all of that has been absorbed by the market. There are no stockpiles of gold anywhere.
Therefore, the price decline from the $1,920 top in 2011 to the bottom $1,050 low in December 2015 has nothing to do with a decline in physical demand. As most gold investors know, the gold price is not determined in the physical market, the size of which dwarfs the paper trading. It is in the paper market that sustained price manipulation takes place. I have discussed many times that the gold paper market as it exists today is unlikely to survive for very much longer. When the holders of paper gold realize that there is no gold to settle their paper claims, the gold price will go up not only by $100s but probably also $1,000s in a very short time.
Until then investors are continuing to buy paper gold and also ETF gold. Some ETFs are gold backed. The problem is that the ETFs are within the financial system and it is impossible to know how many times the same gold has been used or counted. Gold that is bought for wealth preservation purposes should not be held within the banking system.
Currently there are 2,670 tonnes or $106 billion in ETF gold.
As the fear within the financial system increases, a major part of the ETF gold will be transferred to private ownership and vaults. A few companies, like ours, who operate outside the banking system, can offer physical gold at the same cost as an ETF with direct ownership of insured individually owned bars and with instant liquidity.
It is of vital importance to store gold in a safe jurisdiction. There were fears of Switzerland not being safe after the US authorities attack on UBS due to undeclared US accounts. Many thought that a lot of the gold held in Switzerland would move to Singapore. We offer vaulting in both places but have seen very little migration from Switzerland to Singapore or other places. Many investors are concerned about the risk of confiscation in several countries. My personal view is that gold ownership today is so widespread that confiscation is not practical. It is much easier to tax assets like gold than to confiscate them. Generally, taxes are likely to increase substantially in coming years, especially for the wealthy. Therefore, tax planning is as important as investment planning.
It is imperative to store gold in a country that has a tradition in owning gold. The Swiss have for a very long time saved money in gold. Every month they would buy the Swiss gold coin called Vreneli.
Also, the one factor that few people understand about Switzerland is the strategic importance of the Swiss gold refiners. Switzerland refines more gold than any country in the world and around 2/3rds of the annual mine production. Gold is also a very important export item for the country. In 2016, gold exports accounted for as much as 29% of the total Swiss exports or Swiss Francs 86 billion (1 Swiss Franc equals 1 US$). For this reason alone, Switzerland will never kill the goose that lays the golden egg.
Thus, I can never see gold confiscation in Switzerland. Instead, I believe that Switzerland will become an even more important gold hub than it is today both for storing and trading gold. In addition to the bank vaults (where gold should not be stored), there are now many private gold vaults in Switzerland with considerable capacity. There are also very big mountain vaults in the Swiss Alps. Some of these keep a very low profile and are not advertised.
Finally, the precious metals have now entered a very important phase in this bull market. As paper money continues to be debased, gold and silver will soon start reflecting all the risks in the world economy and the financial system.
Just looking at the dollar, the 41-year chronic trade deficit is sufficient to take the dollar to zero. Once the dollar loses its reserve currency status, there is nothing that can save it.
The tight supply situation for the precious metals, combined with the paper market imploding, favor a major rise in coming years. We are now at a point when investors can acquire physical gold and silver at extremely advantageous prices. There could soon be a time when there will be major shortages of precious metals. An investor who buys gold and silver today just needs to store it safely and then go away for 4-5 years without looking at the price. When he returns a few years later, he will not believe the price he sees.
***KWN has now released the remarkable audio interview with Peter Boockvar and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: A Shocking Admission From Trump And One Of China’s Most Important Government Officials CLICK HERE.
© 2017 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.
