muses of the moment

January 31, 2013

And this is why Central Banks are worried about the gold price

Click here for the whole sorted story.

The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return.

The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee.

In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.”

The problem for the Global Central Banking System is not that the same physical gold is on two (or more) balance sheets, it is that the loss of the “money” created by the leasing used to buy Treasury bonds.

Nations want to make sure they hold their gold if the bond markets collapse/contract. Nations in possession of their own gold can refuse to give it up to any leasers. Gold held by the trusted central banking system may be moved without a nations knowledge. They have a perfect right to be nervous. I would be.

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