Chris Martenson
by
Chris Martenson
Executive Summary
- The U.S. may have a lot less gold than widely believed
- Replacing these missing reserves would be extremely costly and disruptive
- Understanding this, the recent market manipulation begins to make sense (in a tradable way)
- Why physical ownership is of paramount importance now as supply is increasingly tenuous
If you have not yet read Part I: Unintended Consequences Are Increasing World Demand for Gold, available free to all readers, please click here to read it first.
Exactly How Much Gold Do We Have?
There's growing concern that a lot of official gold has been leased out into the market and that sooner or later, as happened back in the late 1990s, one or more parties, perhaps bullion banks or a metals exchange, would run into difficulty trying to meet a physical gold delivery commitment.
For a short video on the mechanics of gold leasing, click here.
If a lot of gold has been leased out, someday it will have to be rebought, and difficulties may emerge if the gold cannot be rebought in sufficient quantities without creating mayhem within the financial system by causing a very large hike in the price of gold.
Important: The amounts of gold leased by central banks is a very closely guarded secret, and we do not have direct information on them, which means we have to try and back-calculate these amounts by other means.
A recent and thought-provoking study regarding gold leasing was done by Sprott Asset Management in March. After accounting for all known flows of gold into and out of the U.S. over the past 22 years, the Sprott team arrived at a figure of nearly 4,500 tonnes of gold that cannot be accounted for.
Here's the summary flow chart…
Why There May Be a Lot Less Gold Than We Realize
PREVIEW by Chris MartensonExecutive Summary
- The U.S. may have a lot less gold than widely believed
- Replacing these missing reserves would be extremely costly and disruptive
- Understanding this, the recent market manipulation begins to make sense (in a tradable way)
- Why physical ownership is of paramount importance now as supply is increasingly tenuous
If you have not yet read Part I: Unintended Consequences Are Increasing World Demand for Gold, available free to all readers, please click here to read it first.
Exactly How Much Gold Do We Have?
There's growing concern that a lot of official gold has been leased out into the market and that sooner or later, as happened back in the late 1990s, one or more parties, perhaps bullion banks or a metals exchange, would run into difficulty trying to meet a physical gold delivery commitment.
For a short video on the mechanics of gold leasing, click here.
If a lot of gold has been leased out, someday it will have to be rebought, and difficulties may emerge if the gold cannot be rebought in sufficient quantities without creating mayhem within the financial system by causing a very large hike in the price of gold.
Important: The amounts of gold leased by central banks is a very closely guarded secret, and we do not have direct information on them, which means we have to try and back-calculate these amounts by other means.
A recent and thought-provoking study regarding gold leasing was done by Sprott Asset Management in March. After accounting for all known flows of gold into and out of the U.S. over the past 22 years, the Sprott team arrived at a figure of nearly 4,500 tonnes of gold that cannot be accounted for.
Here's the summary flow chart…
by
Chris Martenson
Executive Summary
- The current gold slam has *nothing* to do with the fundamentals for precious metals, which are very favorable right now
- How bad would deflation be?
- Evidence that deflation is arriving
- Why our current monetary system has become so compromised by the banks
- How to best protect your wealth from both deflation and the banks
If you have not yet read Part I: This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks, available free to all readers, please click here to read it first.
About Those Wealth Transfers
The biggest news of the recent past is the flow of gold from West to East.
(Source)
With China importing 835 tonnes of gold in 2012 – that we know about (and they may well be doing more under the table for official purposes) – and also standing as the number one producer of gold, with ~360 tonnes of domestic production, none of which is exported, China is consuming at least 44% of total yearly world gold production.
Connect that with India importing between 200 and 300 tons per quarter (2011 imports were 967 tonnes, and 2012 was 864 tonnes), and this represents another 33% of total world mine output. Add in Russia buying more official gold, and you suddenly find that a commanding proportion of the newly mined gold in the world is headed East, where it used to stay largely in the West.
To be clear, I view gold as money and therefore wealth itself. Everything else that can be manufactured out of thin air is merely a claim on wealth. In these terms, the West is slowly but steadily bleeding control of wealth to the East, something I thought our leaders were both aware of and focused on.
Knowing the lower prices will only exacerbate this West-to-East flow, I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further. But apparently – no, obviously – I was wrong, which pains me on several levels.
Add to this the various things going on in the world today, and I honestly thought we were in the most gold-favorable landscape of my life.
Consider:
- Negative real interest rates (powerfully gold- and commodity-friendly throughout history)
- North Korea threatening nuclear and conventional war
- Open confiscation of wealth in Europe from bank accounts
- Japan doubling their monetary base in a brazenly desperate bid to stoke inflation by attacking Japanese trust in their own currency
- Extremely unfavorable bond yields up and down the yield ladder
- Continued European stress and discord with the possibility of a Eurozone disintegration
Taken together, this level of system, sovereign, and institutional uncertainty is about as gold-friendly a situation one could concoct…
Protecting Your Wealth from Deflation
PREVIEW by Chris MartensonExecutive Summary
- The current gold slam has *nothing* to do with the fundamentals for precious metals, which are very favorable right now
- How bad would deflation be?
- Evidence that deflation is arriving
- Why our current monetary system has become so compromised by the banks
- How to best protect your wealth from both deflation and the banks
If you have not yet read Part I: This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks, available free to all readers, please click here to read it first.
About Those Wealth Transfers
The biggest news of the recent past is the flow of gold from West to East.
(Source)
With China importing 835 tonnes of gold in 2012 – that we know about (and they may well be doing more under the table for official purposes) – and also standing as the number one producer of gold, with ~360 tonnes of domestic production, none of which is exported, China is consuming at least 44% of total yearly world gold production.
Connect that with India importing between 200 and 300 tons per quarter (2011 imports were 967 tonnes, and 2012 was 864 tonnes), and this represents another 33% of total world mine output. Add in Russia buying more official gold, and you suddenly find that a commanding proportion of the newly mined gold in the world is headed East, where it used to stay largely in the West.
To be clear, I view gold as money and therefore wealth itself. Everything else that can be manufactured out of thin air is merely a claim on wealth. In these terms, the West is slowly but steadily bleeding control of wealth to the East, something I thought our leaders were both aware of and focused on.
Knowing the lower prices will only exacerbate this West-to-East flow, I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further. But apparently – no, obviously – I was wrong, which pains me on several levels.
Add to this the various things going on in the world today, and I honestly thought we were in the most gold-favorable landscape of my life.
Consider:
- Negative real interest rates (powerfully gold- and commodity-friendly throughout history)
- North Korea threatening nuclear and conventional war
- Open confiscation of wealth in Europe from bank accounts
- Japan doubling their monetary base in a brazenly desperate bid to stoke inflation by attacking Japanese trust in their own currency
- Extremely unfavorable bond yields up and down the yield ladder
- Continued European stress and discord with the possibility of a Eurozone disintegration
Taken together, this level of system, sovereign, and institutional uncertainty is about as gold-friendly a situation one could concoct…
by
Chris Martenson
Executive Summary
- The three main signs presaging a bond-bubble collapse are now evident
- Why the Fed will fail to get new credit debt growth at the rate it needs
- The return of CDOs and other risky tactics that show market participants have returned to reckless thinking
- How a bond market collapse will play out
- How to product yourself and your wealth during the extreme pain of a bond market collapse
If you have not yet read Part I: Investors Beware: Market Risks Today Are Higher Than Ever, available free to all readers, please click here to read it first.
The dangers growing in the bond market are, of course, all the result of the Fed, et al., cramming the real rate of interest on Treasury bonds into negative territory, starving investors for income, and forcing them to chase yield whenever and wherever it can be found. Given a long enough time without a serious disruption in the markets, you eventually find yourself exactly where we are, with everyone chasing yield because they have to. Hey, everybody else is, and nothing bad has happened yet, right?
Of course, the odds of this ending well are practically zero.
How ridiculous has it become? How about a company currently in bankruptcy proceedings able to sell bonds at investment-grade yields?
AMR Bankruptcy Yields Record-Low Bond Coupon
Mar 13, 2013
American Airlines is selling investment-grade debt even as it spends a 15th month in bankruptcy while bond buyers look ahead to the merger with US Airways Group Inc. (LCC) that will create the world’s largest carrier.
The AMR Corp. (AAMRQ) unit issued $663 million of so-called enhanced equipment trust certificates yesterday that included a portion paying 4 percent, matching the record low coupon for similar airline debt, which was first awarded to United Continental Holdings Inc. in September, according to data compiled by Bloomberg. American is also seeking to refinance about $1.3 billion of bonds backed by aircraft after receiving court approval to do so in January.
By the time you have 'investors' offering money to a perpetual basket-case like AMR – a company that also happens to be in bankruptcy proceedings at present – at investment-grade 4% yields, you know you are in the midst of a crazy bubble. Consider this anecdote to be the bond market equivalent of a hairdresser from Las Vegas buying her 19th house…
How to Survive the Mother of All Bubble Burstings: A Collapse of the Bond Market
PREVIEW by Chris MartensonExecutive Summary
- The three main signs presaging a bond-bubble collapse are now evident
- Why the Fed will fail to get new credit debt growth at the rate it needs
- The return of CDOs and other risky tactics that show market participants have returned to reckless thinking
- How a bond market collapse will play out
- How to product yourself and your wealth during the extreme pain of a bond market collapse
If you have not yet read Part I: Investors Beware: Market Risks Today Are Higher Than Ever, available free to all readers, please click here to read it first.
The dangers growing in the bond market are, of course, all the result of the Fed, et al., cramming the real rate of interest on Treasury bonds into negative territory, starving investors for income, and forcing them to chase yield whenever and wherever it can be found. Given a long enough time without a serious disruption in the markets, you eventually find yourself exactly where we are, with everyone chasing yield because they have to. Hey, everybody else is, and nothing bad has happened yet, right?
Of course, the odds of this ending well are practically zero.
How ridiculous has it become? How about a company currently in bankruptcy proceedings able to sell bonds at investment-grade yields?
AMR Bankruptcy Yields Record-Low Bond Coupon
Mar 13, 2013
American Airlines is selling investment-grade debt even as it spends a 15th month in bankruptcy while bond buyers look ahead to the merger with US Airways Group Inc. (LCC) that will create the world’s largest carrier.
The AMR Corp. (AAMRQ) unit issued $663 million of so-called enhanced equipment trust certificates yesterday that included a portion paying 4 percent, matching the record low coupon for similar airline debt, which was first awarded to United Continental Holdings Inc. in September, according to data compiled by Bloomberg. American is also seeking to refinance about $1.3 billion of bonds backed by aircraft after receiving court approval to do so in January.
By the time you have 'investors' offering money to a perpetual basket-case like AMR – a company that also happens to be in bankruptcy proceedings at present – at investment-grade 4% yields, you know you are in the midst of a crazy bubble. Consider this anecdote to be the bond market equivalent of a hairdresser from Las Vegas buying her 19th house…
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