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edjerider | 04-15-2004 08:23 AM
An old saying, long forgotten From the pages of http://www.goldensextant.com/comment...l#anchor341719 A nice article on Where the world's gold has gone into hiding. ...... Under this regime, largely on the basis of deposit liabilities by the central banks and others amounting to something like 10,000 tonnes, the bullion banks have built a gold lending business of equal size, to which they have added a net short derivatives position of another 6000 tonnes. All this has been done at gold prices in the $300/oz. neighborhood. And so far as can be told, almost all the gold deposited with the bullion banks has been sold into the market and disappeared from the gold banking system to India and other parts of the Middle East and Asia. Accordingly, where by traditional standards the bullion banks should be holding in their own vaults on the order of 5000 to 6000 tonnes of gold reserves, under the new gold banking paradigm they are apparently almost completely naked to about this same amount of gold liabilities. On an individual basis, perhaps, the gold derivatives business of some bullion banks may look like commodities trading. But taken as a whole, the gold derivatives business of all these banks has evolved into nothing less than full-scale gold banking, which done prudently has always required immediately available gold reserves equal to 35% to 40% of deposits. This situation is ironic testimony to the true nature of gold as permanent, natural money. Bankers and governments could not abide the discipline of the gold standard, even in watered down forms such as the gold exchange standard or Bretton Woods. But even after expunging from the banking system any formal role for gold, neither the central banks nor the private banks capable of acting as bullion banks could resist the temptation to engage in gold banking. As money just lying around, the allure of gold proved too strong for the bankers, who now calling it a commodity, proceeded to reestablish an enormous gold banking business while disregarding all the prudential rules that several hundred years of gold banking experience had taught. In the process, they fostered the illusion that low gold prices demonstrated confidence in their paper money system whereas in fact these low gold prices reflected only the reckless abandon with which they were creating paper gold liabilities in lieu of physical gold. These low gold prices had two further deleterious effects. First, they encouraged the flow of physical gold to parts of the world where gold's true value is still appreciated, and from which only much higher prices will cause it to return. Second, they decimated the gold mining industry worldwide An old saying, long forgotten, is about to take on new life: "There's no rush like a gold rush, and no run like a bank run." In these circumstances, the safest gold is not in bank storage of any variety. It rests in more imaginative places: the snake pit, the closet with the black widow spiders, or buried in the backyard near the Doberman's bone and well-within range of his leash.

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