Gold Delivery Denied! Paper Gold Is a House of Cards
April 24, 2013 Leave a comment
A rich American man had gold in a segregated account in a Swiss bank. Or so he thought.
When he tried to get delivery of his gold, the bank refused. It said the central bank wouldn’t let them do it, because it was more than 200,000 euros worth of gold. So instead, the bank would settle with cash.
What’s going on here?
I don’t think it’s anti-terrorism and anti-money laundering regulations, as the bank says.
Over the years, banks have borrowed non-interest-bearing gold from gold owners, including central banks, at 1% or so, then sold it to buy higher-yielding bonds. It was a reliable trade for a long time. But as the banks have refinanced those loans, gold prices have climbed and many of those debt instruments have fallen in value. They cannot buy back the gold on the market at today’s prices, and the bonds in which they invested have suffered and cannot be sold without a loss.
The day of reckoning comes when these gold shorts cannot pay back the gold owners. This means many investors, including central banks that lent out their gold, will not get their gold back. Like our American friend who tried to take delivery from the Swiss bank.
Imagine the fallout when this spreads. The paper gold market is like a stick of dynamite. When it blows up, you don’t want to be holding it. Yet when this happens, the holders of actual physical gold will be very happy.
— Read more about this story at King World News —