23 February 2013

Gold Carry Trade – How Central Banks sold peoples wealth always at lowest prices

This week’s headline indicates two subjects in itself, but they are linked
with each other.


First I’d like to explain the Gold-Carry-Trade what it means and how it works and then flow over to the subject of how Central Banks sold our wealth always at lowest price.


The Gold-Carry-Trade is a trade between two partners. First the Central Bank who lends the gold out to a bullion bank. The second partner = bullion bank pays out the agreed interest rate at gold market price in USDollars or a different fiat currency, usually 1% per year. The Central Bank doesn’t have to worry about the safety as the gold is collateral. The bullion bank owes gold to the Central Bank.


The gold now in the bullion banks hand can be sold at market price. The earnings can be invested in ‘safe’ investments such as US-Treasury Bonds. (Please note we don’t look at Treasury bonds as a safe investment.)


Has the bullion bank made a good deal? Let’s look at an example: The Central Bank lends 1 million oz of gold to bullion bank for say $1,000 per ounce at 1%.

Bullion Bank sells the gold and receives 1 billion dollars in return = $1,000,000,000.

This $1,000,000,000 is invested in Treasury Bonds at 5% and on average brings the bank 400% profit as they only have to pay 1% to the Central Bank meaning $40,000,000 net profit.


Now the trick is the gold lend out to the bullion bank is still part of the official statistics of the Central Bank but it’s physically gone. There are two famous stories about gold being lent out from Central
Banks that never came back:


1. Portugal who lend out 300 tons (1 ton = 1,000 kilo = 32,154 oz) to Long Term Capital Management Hedgefund who lost it as the fund went bankrupt.


If Portugal would get their 300 tons of gold back at current market price they could get 12.6 billion Euro.

2. Germany who lent half of their 3,400 tons meaning 1,700 tons to the U.S. Exchange Stabilisation Fund. The U.S. Exchange Stabilisation Fund lent the gold to the Bullion Bank. No one knows til this very day where the gold is. Another big chunk of German gold is stored in New York with the Federal
Reserve. They filed it under ‘deep storage’ gold.


Now let’s summarize the Gold-Carry-Trade. The Central Bank lends out gold, the bullion bank sells it to the bullion markets. The gold is gone as the borrower can’t send the gold back.


The bullion bank makes a big profit in buying a different investment. In economic terms it’s called a ‘non-congruent deal’ as the bullion bank sells something they don’t own.
It’s a bit like this picture…


A museum borrows the Mona Lisa from the Louvre to exhibit the painting in their museum and sells it to the next guy who comes across. And now we have to stare at the wall and pretend the Mona Lisa’s is there. So pretend Central Banks all over the world the gold that was lend out is still in the Central Bank vaults, but it most likely is not.

We are not allowed to go to the main vault and have a look.

The Gold-Carry-Trade started in 1995, when gold was traded at an average of $385 per ounce.
Central Banks that lent out gold took a massive loss as they lent out gold at a much lower price than today. Except the Federal Reserve which is a private company, other Central Banks are owned by the state and the state is the sum of all people.


And that means we lost big time by these lending practices. Second it’s important to know that Central Banks can not only lend gold but also sell gold. Central Banks all over the world have sold gold massively in the time between 1980 and 2000. If we look at the historical chart of gold, we see that Central Banks started to sell after the peak in 1980 in the range of 250 to 450 USD/oz until the year 2000.
As stated before with the Gold-Carry-Trade and the sale of gold at the lowest prices people lost wealth due to the effect of a decrease in the value of the major currencies.


In fact we lost twice; first the gold and then with the paper money assets as the value of a currency decreases ½% with every 1% of gold that is sold. There are four main gold price manipulations tactics from the big banks – two are described here.

The other one is history: The Gold Pool founded in the 1960’s and the other up-to-date one is derivative trading.


Have a watchful eye about this subject as in the near future the grand lies will come out more and more. Imagine what will happen to a major economy like the USA as people find out that all the gold is gone.

Author: celticgold.eu

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