The American Empire in a Changing World


Wednesday, September 26, 2012

''Manipulation of the Gold Price and the Crash of Paper Gold''

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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