- The price of gold and gold stocks is sky-rocketing with
Central banks across the world coming in for severe criticism for the way
they have sold official gold reserves, although in a disguised form. Maree
Howard writes.
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- One of the biggest financial scandal stories, on the
level of Enron, is about to break.
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- Central banks are said to have lent their gold for about
1% per annum - the cheapest borrowed money on earth. They have not reported
these loans as sales meaning their official gold reserves remain constant.
But the leased gold is gone.
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- It has been borrowed by large trading companies called
bullion banks. They borrowed at 1%, sold the gold, took the money they
earned by selling the gold and invested it at 5% or more.
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- It was sweet multi-billion dollar deal. But now they
are in a squeeze.
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- They owe billions of dollars of gold bullion to Central
banks but to get it back, they must buy gold bullion in the open market,
which is now a rising market.
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- They are losing money, big time.
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- What has saved them so far is that the Central banks
are not demanding repayment. Meanwhile the public doesn't know that the
leased gold is gone. The Central banks do no publish these figures.
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- Then there are the "direct" sales of gold by
the Central banks. The most recent sales were made by the Bank of England.
It sold off at least half of its gold reserves over a 3-year period ending
in March. The man responsible for the decision to sell the gold is Gordon
Brown, the Chancellor of the Exchequer. He has now come under fire for
having made horrendous investment decisions.
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- The British Independent newspaper published the story
on May 26.
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- In part that paper says "Gordon Brown has "lost"
400 million pounds by ordering the sale of part of Britain's gold reserves
by the Bank of England....."
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- "Figures obtained by the Independent on Sunday also
show that his decision to order the Bank of England to part with some of
its gold reserves and switch into Euro and yen was also not a good bet
for the taxpayer. The value of gold has soared on world markets as investors
have switched to gold."
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- Of course, major Central bankers have a real problem.
When the public learns that the Central bank's gold leasing programme has
turned into an unannounced gold sales programme, with the bullion banks
in cahoots with the Central banks, and the bullion banks can't repay the
central banks, heads are going to roll.
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- A rising price of gold threatens to bankrupt the bullion
banks who dare not go into the market to buy gold for fear if what this
will do to increase gold's price.
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- So it's a waiting game. The bullion banks are hoping
the price will go down and so are the Central bankers, But, at some point,
the Central bankers will have to demand repayment. At that point the gold
leasing game will end.
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- The bullion banks will go bust, the Central banks won't
be repaid and the public will find out - once again - that they might not
be able to trust Central banking.
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- Will gold's price fall back below the bottom of $US256?
This now seems highly unlikely given the head of steam under which gold
is now rising.
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- Of course, this all depends on whether Central banks
go for one last sell-off to again artificially keep the price down.
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- With the Federal Reserve system expanding credit money
in the U.S. to push down short-term interest rates, and with a recession
in capital investing still in force, the question is: Where can I make
a better rate of return than in gold?
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- This year, gold has beaten all other investment categories.
Gold investors have to search long and hard to find a better rate of return.
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- Only if they think the price has peaked would they want
to sell. But there is little evidence yet that gold's price has peaked.
In fact, the scene looks set for a dramatic price increase.
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- Even the predictable threat of the Bundesbank in early
April to sell gold - no amount specified - in 2004 has had no downward
effect on gold's price.
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- Are investors likely to sell now than in the past? No.
Because there are no clear cut alternatives. Not selling, of course, reduces
the supply of available gold at any price.
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- One of the biggest buyers of gold traditionally is the
Indian father (Patel not Tonto) who has been in the market for a thousand
years buying gold for the daughterís dowry. Why would he now want
to sell traditional gold in order to buy conventional rupee "paper-moneyî
investments in such a war scenario which exists on that sub-continent?
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- Then there is Japan with its increasing demand for gold.
And the Central bank of China has been accumulating more gold in recent
months than was believed likely.
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- So the upward pressure on gold's price seems to be from
the supply side - i.e. reduced supplies of ready sellers are leading to
higher prices.
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- Gold mining firms burdened with forward contracts set
at a lower price see losses ahead when they have to sell a commodity on
the back of rising prices. This is really going to hurt those mines that
are loaded up with obligations to sell at a fixed price. They will face
a profit squeeze and are less likely to add to their positions of forward
sales.
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- I don't expect a gold-rush on Wall Street. They are too
conventional and too closely allied to the highest levels of Central banks
and bullion banks. Wall Street is the Establishment. In fact, I expect
to see a propaganda campaign to try and take the head of steam out of gold
and to prop up their ailing financial system.
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- There is a long-term re-education process head because
gold has been under-attack ever since 1914 when European Central banks
ceased to redeem their gold certificates and their Government's authorised
this massive confiscation of private wealth. The U.S. joined in but it
re-established convertibility after the war ended. Europe didn't, except
Britain on 1925, at a pre-war price that could not be maintained without
deflation - which the economy got. Britain went off the gold standard in
1931 and the U.S. followed in 1933.
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- As the truth about the one-way direction of the Central
banks' gold leasing programmes becomes clearer to the public and they recognise
the statistical fraud - that the gold is gone and won't be coming back
- the upward pressure on gold's price will accelerate. The chickens are
finally coming home to roost!
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- (c) 2002 Scoop Media
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