The Perils of Paper Gold

“The physical gold market is actually being drained by euro gold buyers. People are converting their euros to gold and there is only a finite amount of physical gold available.” The “London Trader” made this assertion to King World News on January 17, 2012.

He also expressed concern over the amount of “paper gold” being created: “Yes, you will still see games being played and yes you can create paper gold out of thin air. But there comes a point where each time you do that the physical buyers are taking it and it has a lagging effect that will catch up, and eventually it gets reflected in the price.”

What is “paper gold”?

As might be inferred, it amounts to a trick.

“The IMF actually invented what became referred to as “Paper Gold” in 1971 – months before the U.S. severed the tie between the Dollar and Gold.

The IMF knew this step was coming, and so it invented the “SDR” (Special Drawing Right).

It was touted as a Reserve “Currency” that would replace both the U.S. Dollar and Gold in the basements of the world’s Central Banks.” source: The Privateer

This is astonishing: the yellow metal, something solid, something of genuine value was going to be replaced by – paper! It gets worse: in discussing StreetTracks Gold Shares (ticker symbol: GLD), the NYSE-listed exchange-traded fund sponsored by The World Gold Council, James Turk (Founder, Gold Money) explained on March 5, 2007 just how this paper gold “functions”:

“Investments in gold can be nearly anything gold related. For example, they can be gold certificates and other promises to pay gold. Importantly, they do not have to be physical gold”. Therefore, all GLD has to do to satisfy its auditor is to show them the bank statement (i.e., a piece of paper) that says gold is stored in any Subcustodian appointed by the Custodian. The auditors do not have to go to the vault of the Subcustodian to prove that the gold actually exists, is not encumbered in any way, is securely placed in allocated storage, and accurately records the ownership of the fund.

“If GLD declared its asset to be “Gold”, the fund’s auditor would have to substantiate that the gold really exists, which GLD of course cannot do because of the inability to audit or even inspect gold stored in subcustodians and sub-subcustodians, which is a risk noted in the prospectus. This reality just re-confirms what I and others have concluded all along – GLD is just a paper scheme. It should not be considered as an alternative to physical gold ownership because it is not.” source: The Paper Game

This happens because what is being traded is called “Investments in Gold” rather than “Gold” as such. So in effect this is trading on a promise, and a loose one at that. One must wonder why the World Gold Council endorses what looks suspiciously like a fraud: read more of Mr Turk’s article to discover how trades in these “assets” can result in two people owning the same piece of gold!

Friedrich Hayek pointed out that merely putting the word “social” in front of a legitimate concept (e.g. “social justice”) automatically deprived that concept of meaning; the word “paper” clearly fulfils the same function in high finance….!

by Mark Rogers

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The Perils of Paper Gold was first posted on February 2, 2012 at 12:33 am.
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