For years, we have heard about the thousands of tons of gold, which has been leased at 1% interest. Who has leased it? Why the Central Banks, various Governmental Treasuries around the world, and the IMF, of course. If it has all, much, or most been leased out at 1% interest, two questions arise. (1) Will the lessors ever get it back? And (2) If they leased it and may never get it back, why is it still on their books, indicating the still have it?
If you own Smith Auto Lease, you own cars, correct? You lease them, get a rental charge, but still own the cars, and the titles to them. At the end of a period, you should sell the cars and buy new ones, thereby keeping your inventory up to date, and attractive. If you own “Rent-Some-Rust,” you may buy Smith Auto Lease cast offs, and rent them cheaply, but you still have title to them, and own them. Gold has no title, nor paperwork attached to it. Whoever has it, owns it. Gold has no serial numbers on it, with the exception of certain forms, such as the Credit Suisse bars, which are serial numbered.
The entities who leased their gold at a 1% rental fee, may want it back, now that the dollar price of gold has gone up well above $400, and in my opinion, is headed for the stratosphere. Here then, are these smart accountants and advisors who told their bosses, in so many words, “Hey Joe, this stupid gold in the vaults is earning no interest. It just sits there year after year, collecting dust. We’re in a jam, with deficits coming out our ears. Why don’t we sell some of this stuff and pay our bills?”
Joe is smarter than his accountants, and says, “Hell no we won’t sell it. Our currency may not be backed by it, but if we didn’t have it, our citizens would scream, and they’d throw me out of office. You’ve got to think of something else.”
The accountants then come up with a true brainstorm. “OK Joe, we’ll keep it on the books, but we’ll lease it at a 1% interest rate, so it will produce income. How’s that for an idea?” Joe tells them to find someone who would lease gold, and wants assurances that even though it is gone, it will still be on the books as being owned. “No problem,” the accountants say, and they quickly find people who want to rent gold at 1% interest. What would the lessees do with tons of gold? THEY’D SELL IT, USE THE PROCEEDS TO BUY GOVERNMENT BONDS PAYING 5% INTEREST, AND MAKE A 4% PROFIT. Ah the beauty of it all! So it happened.
So to put it as mildly as is possible, the lessors aren’t “Smith Auto Lease” or “Rent-Some-Rust.” They’re not going to get it back to trade in on a new model. They don’t have titles to it. They have a lease agreement. The lessees promptly sold it, and it may be in mine or your hands now, and we aren’t going to sell now anyway. All those Central Banks, Governments, and IMF, still have all those thousands of tons of gold on their books, as owned, and even inventoried. Their financial statements show they own tens of thousands of tons of gold. How much do they have left? Who knows? The US government claims to own, I believe something like 8,000 tons of gold, but the stuff in New York says the US are the caretakers of it, not owners. Years ago, neighbors witnessed heavily loaded, heavily guarded tractor-trailers drive away from Ft. Knox. It can only be assumed that they were full of US gold, bound for who knows where. The last inventory of Ft. Knox was done under the Presidency of Dwight D. Eisenhower. Does anyone believe government figures? Even back in Ike’s day?
What has happened over the years, is that the gold which used to be the true wealth of banks and national governments, has been dissipated to practically zero. They have been “leasing” the national treasure for years, at 1% interest, and those who leased it; sold it on the open market. It’s gone. Vamoosed. Evaporated into private hands, if you please.
The Indians love gold, and the Chinese and Japanese recently have discovered it, and been allowed to purchase it legally. Everyone loves gold except the central banks and national treasuries, that is. Theirs is gone with the wind. When you buy gold and silver, you establishing your own central bank or treasury. When you buy gold and silver, you are expressing your distrust of your government, and actually ’shorting’ its currency. When you ’short’ something in the stock or futures markets, you are betting on its price going down. When one buys gold or silver, you are ’shorting’ the dollar, or whatever currency one uses on a daily basis.
The question then begs itself: Is there any real gold or wealth in the various vaults belonging to those governments, central banks, and IMF? Are those vaults full of lease agreements, paper notes, and other pieces of paper with ink on them? Now that gold is on its way up, is it possible that the lessors might want it back? Were it me, I certainly would. Gold is not like an automobile. When Smith Auto Lease says they still own the cars, they actually do, and when they sell them and buy new ones, they transfer the title and ownership of that particular car, not an unidentified car. Gold hasn’t gone a hundred thousand miles, and doesn’t need a paint job or new transmission. It has the same value as it did when it was leased. It may have gone up in price, but it hasn’t worn out, and it isn’t of a back date. There is no “used gold market,” which sells gold at less than spot price because it’s old. A 1986 Gold Eagle, or a 1972 Krugerrand, may be old, but they are still one ounce of gold. A “used gold” market does not exist, as does a “used car market,” with prices going down all the time.
Those lessors, who disposed of their gold to you and I, still have it on their books as being in the vaults and being owned. Such is not the case. Far from it. Suppose now, that those who leased it, want it back? I am certain that they have lease papers, which require the lessees to return it. Let’s suppose that the economics of the world go down the tubes, which they very well might, and in the not too distant future. Let’s assume that these lessors want the lessees to return what they leased. We know they don’t have it, because they sold it and invested it in paper, which paid more than the 1% at which they had leased it. “Oh Jeeze Mabel, old Joe is demanding his gold back. Where will we get it? Maybe we can talk him out of it. Let’s go on a campaign to pooh pooh it, and make him think our 1% interest is much better. After all, that’s all you can get in a savings account. Maybe we can stall him off for a while. Gold is just an ancient relic, which pays no interest and collects dust. We’re still collecting the 1% interest, after all.” Mabel, who is the chief economist for Joe, says it is worth a try. (Mabel is not to be confused with that trite saying, “Mabel, Mabel get off the table, the quarter’s for the beer.”) (Joe, is Joe Greenspunge, head of the Zimbustme Treasury).
So far it’s working. So far, the lessors don’t seem to being placing the squeeze on the lessees. If it ever gets out that the gold is no longer in the vaults though, the charade is over. The leased gold will have to be replaced, if old Joe and Mabel aren’t absolutely senile. Gold is tangible wealth, historic wealth, and actual value. It is as immortal as Beethoven’s 9th, and just as beautiful. Those lessors may have been doing a wise thing when they leased it, but to make the wise thing complete, they’d better damn site get it back. When the demands are made, and the lessees are required to give it back, they will have to BUY IT. They more they have to buy, the higher the price will be. They would have to buy back all the tens of thousands of tons they leased and sold, and that ain’t hay. If the lessors demanded it back, and the lessees paid it back, by the time the loans were repaid, gold would probably be $5,000 an ounce. Gold has gone from $258 to $420 with no demands by the lessors, even though it appears as if they have stopped selling and leasing. The next logical step, is their wanting it back. You decide.
For those of you who are waiting for it to “go down,” or “correct,” how do you know it will? Who knows what will happen tomorrow, other than mass beliefs that something terrible will happen? If it does, there’ll be no “correction.” A year from now, a few bucks in a “correction,” will be peanuts. Waiting for a “correction,” is going long on the buck, which is a piece of unbacked paper being printed by the billions every week. Protect yourself.