The Illusion of Gold Reserves - Deep Storage, Deeper Holes, Deepest of TroublesCommodities / Gold & Silver Mar 31, 2007 - 08:43 PM GMT
I'd like everyone to take a look at the U.S. Treasury's most recent accounting of its gold:Current Report : January 31, 2007
Department of the Treasury
|Summary||Fine Troy Ounces||Book Value|
|Gold Coins, Blanks, Miscellaneous||2,857,047.831||120,630,844.95|
|Mint-Held Gold - Deep Storage|
|Fort Knox, KY||147,341,858.382||6,221,097,412.78|
|West Point, NY||54,067,331.379||2,282,841,677.17|
|Subtotal - Deep Storage Gold||245,262,897.040||10,355,539,085.76|
|Mint-Held Treasury Gold - Working Stock|
|All locations - Coins, blanks, miscellaneous||2,783,218.656||117,513,614.74|
|Subtotal - Working Stock Gold||2,783,218.656||117,513,614.74|
|Grand Total - Mint-Held Gold||248,046,115.696||10,473,052,700.50|
|Federal Reserve Bank-Held Gold|
|Federal Reserve Banks - NY Vault||13,376,961.126||564,804,727.98|
|Federal Reserve Banks - display||1,993.319||84,162.40|
|Subtotal - Gold Bullion||13,378,954.445||564,888,890.38|
|Federal Reserve Banks - NY Vault||73,808.979||3,116,377.47|
|Federal Reserve Banks - display||20.196||852.74|
|Subtotal - Gold Coins||73,829.175||3,117,230.21|
|Total - Federal Reserve Bank-Held Gold||13,452,783.620||568,006,120.59|
|Total - Treasury-Owned Gold||261,498,899.316||$11,041,058,821.09|
*Deep Storage: Deep-Storage gold is the portion of the U.S. government-owned Gold Bullion Reserve that the U.S. Mint secures in sealed vaults, which are examined annually by the Department of Treasury's Office of the Inspector General. Deep-Storage gold comprises the vast majority of the Reserve and consists primarily of gold bars. This portion was formerly called "Bullion Reserve" or "Custodial Gold Bullion Reserve."
*Working Stock: Working-Stock gold is the portion of the U.S. government-owned Gold Bullion Reserve that the U.S. Mint uses as the raw material for minting congressionally authorized coins. Working-Stock gold comprises only about 1 percent of the Reserve and consists of bars, blanks, unsold coins, and condemned coins. This portion was formerly listed as individual coins and blanks or called "PEF Gold."
I would particularly like to draw everyone's attention to the highlighted part of the table above and then to consider the ‘genesis' of the definition of Deep-Storage gold – as it's explained in the accompanying notes at the bottom of the data.
I'd like everyone to take note that sovereign U.S. gold stocks used to be titled, “ Bullion Reserve .”
As James Turk points out, early in the year 2001 – these stocks were initially renamed “Custodial Gold Bullion Reserve.” In his article titled, What Is Happening to America's Gold , Turk points out the ‘then discrepancy' between the gold accounts on the Treasury's versus the Federal Reserve's balance sheets were NECESSARILY due to clandestine activity [trading of gold] by the Exchange Stabilization Fund [ESF]. In Turk's own words at the time,
“We know that the ESF is active in the gold market because the Federal Reserve says so in its report of the US Reserve Assets.”
Additionally, despite the Treasury's continued denials - Turk reported that previously published reports were changed,
“The US Reserve Assets report now excludes all reference to the ESF, and previous reports already published have been changed. Not only were the figures adjusted, but all reference to the ESF has been eliminated.”
In citing an essay by Reg Howe , it was further explained,
"… the figures could not be changed without a change in description , proof that the earlier discrepancies were indeed on account of gold held by the ESF."
Turk then documents the queerest development of all – in June of 2001 - all of U.S. sovereign gold stocks were reclassified – adopting the moniker of “ Deep Storage Gold .”
Put Down the Shovels or Dig Deeper?
So there you have the ‘short and sweet' of it; numbers were altered, previously published reports were changed – all by officialdom - with nary a mention by the mainstream financial press.
To think; folks have wondered how Enron, World Com or Parmalat could have ever possibly happened? I would offer that these guys were merely “pikers” compared to the REAL DEAL – their role models in fanciful fraud over at the Fed and Treasury.
I revisit and bring all of this up for a very good and important reason. Last October – I penned an essay, A SWAP STORY: BORROWED FROM THE BANK OF ENGLAND , where I documented that the U.S. has undoubtedly been engaged in gold quality swaps with the Bank of England.
I am now going to pose the question; what is Deep Storage Gold? While I have no real expectations of a sudden gust of honesty flowing from either the Fed or Treasury in this regard – let's just stop and think about this for a moment – and apply a few grains of logic – shall we?
deep (d p) KEY
deep·er , deep·est
- Extending far downward below a surface: a deep hole in the river ice.
All of us can readily look up the dictionary definition of the word ‘deep'. I've taken the liberty of doing so [above]. As for me, I'm led to the conclusion that ‘deep' – as it pertains to storage and gold – can only mean that this gold is located beneath or in the ground.
Now, if we ‘factor in' the evidence that the U.S. is already involved in gold quality swaps and we then consider this little “nugget” supplied to us by none other than the Bundesbanks' Axel Weber [pg.7],
Bundesbank's Weber Comments on Central Bank Gold Reserves
2006-10-05 By Simon Kennedy
Oct. 5 (Bloomberg) -- Bundesbank President Axel Weber comments on the central bank's plans for its gold reserves. Weber, who didn't comment on monetary policy, was speaking to reporters in Paris. ``We are not envisaging gold sales for the third year'' of the current agreement with other central banks, Weber said. `` We have been asked to negotiate with other central banks'' about potential swap deal involving gold . He refused to discuss which central banks may be interested.
If we add all of the above to the position outlined in, A Tale in Three E-Mails , where I presented a plausible case that all sovereign U.S. [above ground] gold stocks have, indeed, already been squandered or sold – one can only conclude that the U.S. Treasury or Fed is or has been conducting gold quality swaps – exchanging deliverable bars for gold that has yet to be mined.
The Very Deepest of Do-Do
So what does all of this really mean?
If the Treasury's gold reserves are, in fact, ‘yet to be mined' or deep storage gold - this has ENORMOUS implications for the gold equity markets. If significant amounts of ‘yet to be mined gold' have been sold forward by the Fed and/or U.S. Treasury – this raises SERIOUS questions as to priority claims on yet to be mined gold. Specifically, would any Fed or Treasury claims [via swap agreements] pre-empt gold company equity shareholders?
Stockholders – folks who own equity in gold mining concerns – always [too quickly, perhaps?] point out that their shares represent “ownership or de facto” claims and hence a direct [leveraged] call on gold. Most proponents of share ownership would argue - absent hedging – share ownership represents indirect but unencumbered ownership on gold through ownership of a producing entity.
But consider for a moment, if the amount of ‘yet to be mined gold' sold forward by Central Banks or Treasury – in aggregate - exceeds the callable inventory of the gold hedgers?
What do we mean by callable inventory? Let us first consider the notion of inventory – in a physical sense - and whether or not any exists, because I'm questioning its very existence.
The U.S. Treasury claims to have physical gold bullion inventory. They either do – or they do not.
A third party audit would solve this dilemma – but none will be forthcoming.
Moving on; the U.S. Treasury and/or Federal Reserve has entries on their books which we are told are physical gold.
Yet we know, for a fact, that Central Banks do ‘double count' swapped gold – gold which has left the vault is accounted for as still being gold on hand, like it never left the vault. This has been documented – beyond a shadow of a doubt - as acceptable Central Bank Accounting . The I.M.F. has told us this is fact.
This raises the question as to the veracity of Treasury's/Fed's claims to possess physical gold. It raises questions as to the make up of any gold held on the books; is it custodial - if any is physically present at all - or is it simply paper promises? If one supposes the Treasury does not have any physical gold inventory and, in fact, has swapped promises to deliver gold at a future date – this could pose a systemic problem if miners' collective ability to produce gold over a given time period was exceeded by Treasury's promises to deliver.
Such a case would beg the question; who really owns gold all the gold being mined then? I would suggest that all of the gold currently being mined in much of the world – might possibly have been sold twice. That would quite possibly infer that at least one class of owners has actually been sold a bill of goods [or down the river, perhaps?].
U.S. monetary authorities have confiscated their nation's gold in the past. This is a fact.
What makes everyone so sure they haven't effectively already done so again – utilizing derivatives [gold quality swaps] with a planned “nationalization” of mining concerns when their cover is finally blown?
This would go a long way to explaining exactly why – after years of conjecture whether or not it would EVER happen – precious metals ETF's were finally allowed to form. Could it be they served as a convenient means of aggregating metal for just such a purpose?
Treasuries National and Central Banks have been involved in swindles from Roman times to the Napoleonic misadventures of John Law to the fiasco in Weimar, Germany right up to the failure of the London Gold Pool and the closure of the gold window by President Nixon in August of 1971. So ask yourself this; do serial criminals re-offend?
If monetary authorities were really on the ‘up and up' – they could debunk everything presented here in a N.Y. minute - by simply opening the vaults of Ft. Knox and West Point to a proper, independent, third party audit.
But I'll say again; they won't do that, will they? Everyone should and deserves to know that this has not occurred since the Eisenhower Administration in the 1950's.
That's why I prefer my metal physical – in hand.
By Rob Kirby
Rob Kirby is the editor of the Kirby Analytics Bi-weekly Online Newsletter, which provides proprietry Macroeconomic Research.
Many of Rob's published articles are archived at http://www.financialsense.com/fsu/editorials/kirby/archive.html , and edited by Mary Puplava of http://www.financialsense.com
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