With this week’s reports that Germany repatriated 1,000 tons of its gold reserves from the Bank of England between 2000-01, and is repatriating 150 tons of its gold reserves from the NY Fed over the next 3 years, clearly the awake participants have realized the music stopped long ago, and are grabbing their physical gold chairs.
It is now inevitable that an avalanche of central banks, hedge funds, and wealthy investors worldwide will begin to emulate Venezuela and Germany and request physical delivery of their unallocated (rehypothecated) ‘gold’.
In an amazingly weak and futile attempt to stem the inevitable onslaught of delivery and repatriation requests, CNBC’s senior editor John Carney has released an editorial claiming that it matters not whether the gold held at the NY Fed and the BOE is filled with tungsten, has been leased or swapped, or that it even exists- all that matters is the Fed’s bookkeeping ledger that states the gold is there.
CNBC begins by attempting to claim that it doesn’t matter whether Germany’s gold reserves held at the NY Fed are actually there and tungsten free, as long as the Fed says it’s there:
In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank’s gold or whether the gold is pure. As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities and counted as bank capital just the same whether it exists or not.
Carney then attempts to claim the gold serves no actual purpose unless the Bundesbank wants to go into the gold watchmaking business:
The actual presence of the gold wouldn’t make a lick of difference unless, say, Germany’s central bank decided it wanted to start using the gold for some practical, non-monetary purpose like making watches.
CNBC would love investors to believe it’s not the actual physical Central Bank gold reserves that matter, it’s their book ledgers!
For almost all imaginable operational purposes, the actual existence of the gold in Fort Knox or in the vault beneath the FRBNY’s Liberty Street headquarters is irrelevant. The bookkeeping is what really matters here. So long as the Fed says Bundesbank owns X tons of gold, the Bundesbank can act as if it did own the gold—even if the gold had somehow been swallowed into a gold-eating galactic worm hole.
At least Carney is rational enough to acknowledge what happens when the jig is up:
I’m sure the Bundesbank officials understand this quite well, even though the German Audit Court does not. There is nothing to be gained by inspecting the gold. If it is all there and pure, there is no difference from an undiscovered absence. But if the gold isn’t there, well, calamity could follow as trust in the central bank gold depositories evaporated instantly.
Where there is smoke, there is always fire. Rather than investigating the source of the smoke, CNBC goes into overdrive MOPE denying the existence of the smoke.
Unfortunately for the Fed and the BOE, Hugo Chavez & now the German Audit Court have triggered a coming avalanche of physical gold delivery and repatriation requests.