Money Is Gold, And Nothing Else!
The comments below are an edited and abridged synopsis of an article by Jim Rickards
So much of the gold market is paper gold, not actual gold. This paper gold market is manipulated, and it is well documented. Gold leasing is often conducted through an unaccountable intermediary—the Bank for International Settlements.
The BIS has been used as a major channel for manipulating the gold market and for conducting sales of gold between central banks and commercial banks. It is the ideal venue for central banks to manipulate the global financial markets, including gold, with complete nontransparency.
But the scheme rests on a tiny base of physical gold. The market is inverted, with a little bit of gold at the bottom and a big inverted pyramid of paper gold resting on top.
There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.
Leasing of paper gold by bullion banks allows them to sell the same gold as much as 10 times over to 10 different buyers. It’s like a game of musical chairs, only with more participants and fewer chairs.
Problems have occurred in this market because investors have said “I want my gold, please,” and the custodian has been challenged to meet all those calls for redemption.
What if a major institution wants its gold but can’t get it? That would be a shock wave. It would set off panic buying in gold, driving prices through the roof.
The physical fundamentals are stronger than ever for gold. Peak gold production is already here. There are no more gold fields of any significance to be discovered.
Global demand for gold continues to rise from central banks and sovereign wealth funds. With limited output but massive ongoing demand, it’s only a matter of time before a link in the physical gold delivery chain snaps and buying panic erupts.
If supply is declining and demand is increasing, then gold prices have nowhere to go but up. Meanwhile, the Fed won’t be raising rates for years and is committed to inflation. It’s hard to imagine a better long-term environment for gold.