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What's the central bank endgame in gold?
11:55a ET Saturday, April 7, 2012
Dear Friend of GATA and Gold:
Our friend R.V. writes:
"If the naked short position in gold on behalf of the Federal Reserve through its intermediaries is so big that it can drive down the bullion markets with mere paper (and I believe that it is), then what is the likely strategic endgame that these evil people have in mind?
"They obviously know that they are fighting a losing battle against market forces, as Russia, India, and China have no intention of reducing their acquisition of real metal while unloading U.S. treasuries and dollar reserves (though they do that on the sly to avoid crashing the markets). So these guys must have an endgame strategy. But what is it?
"-- The U.S. government suddenly 'requires' contract settlement in infinite amounts of digital fiat currency?
"-- The Fed allows the intermediaries to 'default' without penalty?
... Dispatch continues below ...
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"-- The intermediaries are forced into collapse (in stages) by the markets but are planned to be resurrected via Fed-forced mergers and contract defaults?
"This is the underlying question about which I am not seeing any commentary.
"So I think it is somewhat counterproductive for GATA's experts to discuss the obvious as they try to encourage the good guys about the inevitable collapse of the scheme while not also taking their analysis to the next logical step and unravel the plans the bad guys have for that eventuality."
A reply R.V.:
This question does come up occasionally and a few options are plain from the U.S. Treasury Department's candid admission to GATA in 2005 that the U.S. government claims the power to seize control of all markets and all financial assets in any emergency the government itself declares:
Among the options:
1) Prohibition of gold ownership and confiscation of privately owned gold by the U.S. government. Geopolitical analyst Jim Rickards speculates that, in a crunch, the United States might confiscate even the gold it vaults in trust for its allies. (What are friends for?) Shorts won't have to deliver what has been made illegal.
2) Cash settlement in place of delivery through a declaration of "force majeure" by commodity futures exchanges. I believe that all the major futures exchanges provide for such declarations when product unexpectedly becomes unavailable. In such circumstances shorts don't have to deliver product, just cash, which, of course, the U.S. government can print to infinity and distribute to its agents in the markets -- which, of course, is not to say that the cash will hold its real value. But its nominal value will be sufficient for the discharge of obligations.
3) A declaration by central banks of a much higher gold price, a price at which they will be buyers of gold. At a gold price high enough relative to other assets, nearly everyone will sell to government. This would be another form of cash settlement, a voluntary one.
As these options, while rather totalitarian, are always available to them, I don't think the Western central banks worry much about their short position in gold. I think their primary concerns are about maintaining the value of their currencies, government bonds, and general equity and real estate markets while gradually inflating their unpayable debts away and keeping the mere rabble of their citizenry from figuring out what's really going on, which would be the end of Western central banking.
This is a huge challenge and its implication is that there may be some advantage to investors in moving assets outside the reach of aspiring totalitarians. As was written in GATA's preface to the Treasury's statement cited above: "GATA is not an investment adviser, but if we were, we might suggest that you accumulate all the gold and silver you can and then find a safe planet to keep it on. And when you do, please let us know what it is."
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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