Thursday, September 01, 2016

Precious Metals News

In my last Precious Metals Investing video I described two scenarios where a dip in the supply of gold could happen.  Author James Rickard mentioned in his latest book, The New Case for Gold, that his contacts in the industry were reporting shortages, and that shortages would in turn drive the price of gold up.  Here is my review of his book.

One scenario would be at the consumer level and would be a signal, albeit a minor and temporary one.  We saw that happen three times with Silver, where the US Mint could not keep up with demand for Silver Eagle coins. It was news for a few days, then supply returned.  I suggest this should be ignored because of logistical and other factors rather than supply.

I suggested the sign to watch for - scenario two - is when a gold order by a government goes unfulfilled.  These suppliers deal in large volumes and are aware of the pace of mining operations.  They are directly connected to the supply, or lack of supply, of gold.  If this were to occur, it would be the signal that Mr. Rickards' predictions of a run on gold were coming true.

ZeroHedge has posted two articles in as many days on a middle scenario I hadn't considered.  I'll call it the Institutional Level.
Deutsche Bank Refuses Delivery Of Physical Gold Upon Demand
Deutsche Boerse Responds To Deutsche Bank's Failure To Deliver Physical Gold
This summary is based on how I understand it (which means go read those articles yourself):

Apparently there is a bank, Xetra-Gold, in Germany that, for a fee, sells vouchers for physical gold.  A voucher is sold, the equivalent in gold is added to the bank's vaults.  Moreover, voucher owners may claim their physical gold rather than sell their vouchers for cash and the bank will deliver the gold.  The voucher fees cover both the storage and, if requested, delivery of the gold.

In my Gold Standard studies I learned this bank would be called a Deposit Bank.  A name for a deposit bank in the US could be: "First Libertarian Bank of the United States."  Or, "Ron Paul Deposit Bank."  The Deposit Bank is the banking model Libertarians want for banking in the US.  We'll never know what the name would be because a deposit bank would never fly in the US - so long as we have the Fractional Reserve Banking.  Fractional Reserve Banking may be a misleading dishonest model as few people are aware that when they deposit money in their bank, it legally becomes the bank's money. And if bad times come, the bank will decide how much of their money they will give to their customers.  People are used to free, or near free, banking services because our banks use the deposits to fund loans.  How could a deposit bank, which charges for everything, compete with that?  Hence no Libertarian banks in the US.  Yet.

So Xetra-Gold is backed by Deutsche Bank.  And 900 Xetra-Gold customers have, over the years, requested and received delivery of a total of 4.5 tonnes of gold.  But #901 recently made that request, and he was told to pound sand.  Not by the bank he contracted with, but from the bank behind the bank - Deutsche Bank.

Deutsche Bank breaks their contract with Xetra-Gold without telling Xetra-Gold.  And Xetra-Gold essentially breaks its contracts with its customers because delivery can't occur without the cooperation of Deutsche Bank.

And we're not supposed to notice?  A Google News search shows this story is only in the blogs at the moment.

Is the Xetra-Gold story a gold supply issue?  If so, I'd say it is at the Institutional Level as it concerns a mojor bank and big-dollar investors.  If so, this is a significant signal and one I would consider in line with Mr. Rickards' prediction.

But it may not be a supply issue.  Did you know that Deutsche Bank is not carrying its required reserves?  Did you know there are suggestions that Germany nationalize Deutsche Bank to 1) provide the reserves required and 2) continue the illusion that all is well?  A merger with Germany's other large bank has also been suggested.

We'll know soon enough.


In other news, Rickards posted on his blog a few days ago that he now predicts the price of gold to reach $10,000.  (Up from $5000)  Up until now, only old men trying to get media attention, or people trying to sell gold or gold-related services have suggested that number.  And year after year they have been completely discredited.  (See my video about Peter Schiff)  Since Rickards' post shows no real math or other factors other than Brexit(!), I'm afraid he may be joining the others in discreditland.

UPDATED 9.2.16 8pm:

ZH reports that Deutsche Bank has responded to this story with no actual response.  It is if Hillary's attorneys wrote the statement for the bank.  Let me know if you can figure it out:
And so another non-response, because in the same press release Deutsche Bank both admits that it has an obligation to deliver the gold "as a matter of course", and then tacitly confirms that it failed to do so, by first saying that it evaluates the "economic efficiency of physical delivery", something it should have no right to do since the Xetra prospectus explicitly mandates that it should release gold on demand, and then adds that "should an investor’s request for the handover of physical gold not have been complied with immediately in individual cases, this will be reviewed and an individual solution will be found with the client."


Fred said...

The dollar used to be a voucher for gold. Now it is a voucher for debt.

Glen Filthie said...

If you don't have your gold in your physical possession - you don't own it. It's that simple. A piece of paper is a promise, and that promise is only as good as the people making it.

Buy silver. It's easier to own and spend.