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Hmmm – is the gold really there?

According to Grant Williams, the central bank trend toward gold repatriation risks starting a dangerous game of musical chairs.

Following on from our recent article on China’s gold reserves – and everyone else’s for that matter – (see: Can we trust China’s gold reserve figures – or anyone else’s either)  we were fascinated to read the most recent issue of Grant Williams’ (no relation) Things that make you go hmmm report which covers some of the same ground and much more – but in hugely more detail.  This not only broadly comes to some of the same conclusions, but many more as well, coupled with supporting charts and data, all of which have to be disturbing for those who still believe that Central Banks and governments are truly open in their pronouncements on the levels of their gold reserves – and in particular regarding the gold held in the big U.S. Fed and U.K. Bank of England gold repositories. Williams also makes a number of these points on Mineweb.com’s Gold Weekly podcast, this week.

There have indeed been a number of very prominent, and vociferous, gold commentators who have put forward many of these theories in the past – indeed almost anyone who subscribes to GATA’s views and research on gold price suppression.  But Grant Williams’ views as expressed in the newsletter go a long way to pulling together much of the analysis and data which makes a strong case not only for Central Banks being less than transparent in their reserve data (which few probably doubt), but also that some, or indeed much, of the reported reserves held in the major depositories, may not actually be there – or if it is may have been leased to other financial entities with the implication that title to the gold may not be entirely as it is reported.

Williams draws on the Agatha Christie play The Mousetrap – the longest running theatrical production ever – where by and large the identity of the killer was kept secret for more than 50 years, through exhortations to the audience at the end of each performance not to reveal it so as not to spoil the twist in the tale for new audiences.  This was adhered to by critics and audiences alike until eventually it was published in Wikipedia (reminiscent perhaps more of Wikileaks).  Williams’ point being that the secret of the true state of Central Bank gold reserves is still being kept – but eventually will come out.

The possible stimulus though for the unravelling of the true reserve data may have already been set in motion by the recent German proposals to audit the country’s gold reserves held in New York, London and Paris where just under 70% of German gold reserves – officially the world’s second largest – are held. Although perhaps the precursor of this was Venezuela’s repatriation of its gold from foreign repositories to Caracas in 2011, and Ron Paul’s ‘audit the Fed’ moves in the U.S.

Since the German moves to have the volume and tenor of its gold in the major repositories audited, other countries are also beginning to get nervous about their holdings too.  If this trickle turns into a flood, the secret – if there is one – will ultimately have to be revealed.  If the conspiracy theorists are correct, which can’t be outside the bounds of possibility given the huge resistance to any detailed auditing by the repositories (what do they have to hide?) and some – or perhaps a large proportion – of the gold is seen not to be there, or has multiple ownerships, then what that might do to the gold price is anyone’s guess.  As Williams noted speaking to Mineweb’s Geoff Candy on this morning’s Gold podcast ” Either way, clarity is all that investors want; if all the gold is in fact where it is supposed to be that is great, we can all process that and move on. But, if it does turn out that there is a shortfall then all hell is going to break loose.”

One of the other points made in Williams’ newsletter is that of the big known migration of gold from the West to the East over the past few years.  While western Central Banks were selling gold, Eastern ones were buying and while China’s reserves remain officially static most believe it is buying too – indeed Williams notes that the fact that China is voraciously accumulating gold is staring the world in the face.

As Williams also comments: The West sees gold as a means to hide the existence of inflation while the East sees it as protection from inflation. That means the West is selling gold whilst the East is buying it. The longer the price of gold is kept as low as possible by Western central banks, the more bullion will flow from West to East, and the more gold emerging nations accumulate, the more they are likely to want custody of that gold. The more central banks ask for audits and repatriation of their gold, the faster that trend will accelerate; and the faster that trend accelerates, the less gold will be left in the “safe” confines of the Federal Reserve and the Bank of England.

Anyone interested in the gold market should read Williams’ commentary – even if you are a firm non-believer in Central Bank manipulation of the gold price and of gold reserve data.  Some of his arguments are compelling.  To read the latest issue of his newsletter click here.

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