another must read...............From Market Oracle
By GoldSilverWorlds
The Crash of Paper Gold
''Here is an assessment of how this is likely to play out:
The demand for allocated gold increases. Traditionally, a large
portion of gold investment has been in ETFs and similar methods. As more
investors get word of rumours that banks are actually holding only a
small fraction of the gold that has been sold, they will decide only to
buy if the gold is “allocated”; that is, that specific numbered bars or
specific boxes of coins are being held for the buyer. (This trend
already exists and is becoming more prevalent.) At this point, there is
no panic, as the allocated gold simply replaces the ETFs. The amount of
money invested in gold with the banks overall remains about the same.
Fear increases that allocated gold is no safer than ETFs. Rumours
surface that the “allocated” gold does not exist. Either it never
existed, or it has been sold without advising the owner. (This stage has
also begun.)
Investors begin to lose faith in the banks. Holders of allocated gold
show up at the bank, demanding to view their gold. They will be shown a
portion of the gold that the bank actually holds. Some owners will
recognise that what they have been shown is not the gold that had been
allocated (incorrect serial numbers). The owners may then demand to
withdraw their gold from the bank. (This has begun in a small way in
London, Zurich and other European centres, but is, at present, a
rarity.) As rumours spread of the above, an increasing number of owners
will show up at their banks to view their gold and will demand to
withdraw it.
The ability of the banks to deliver gold on demand breaks down. At
some point, a given bank will have to deliver more than it has in its
vaults, as very little of what has been sold exists. That bank will then
fail to provide the gold to the owner on that given day. As more banks
reach this point, rumours become rampant.
There is a run on the banks. As word gets around that banks are
failing to deliver, owners panic and make demands upon the banks en
masse. In a very short space of time, all the bullion banks in the world
who rely on a fractional reserve system will fail to deliver, and the
paper gold industry will end abruptly.''
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