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Old 11-07-2011, 08:14 PM   #1
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When nations buy gold

This thread is a spin off from two recent threads:
Where is all that gold?, and
Central banks buying gold.

When a nation buys a large amount of gold (tons), they don't really take delivery of it, correct? Don't they really get a receipt stating that they own so much gold?

It sounds like to me that this is no better than people that buy paper GLD and paper SLV shares.

Last edited by PMBug; 11-08-2011 at 08:19 AM. Reason: add links for reference
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Old 11-08-2011, 12:45 AM   #2
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Gold may soon be unobtainium! Yes, in at least some cases where I have tried to follow what exactly happens when a nation buys gold, it looks like a paper-shuffle takes place.

IIRC, when India (about two years ago) bought their 100 (200?) tonnes of IMF gold that the Bank of International Settlements (BIS, Switzerland) shuffled some papers and maybe moved the gold across the floor... I have not heard of any country ACTUALLY TAKING PHYSICAL DELIVERY of gold bought from other central banks or from the IMF, at least since I started paying more attention to gold.

In another prominent kind-of similar case, the University of Texas bought a $1 bn amount of gold, but left it in storage there in NYC. I would have probably buried it under the 50 yard line at UT's stadium in Austin... Leaving it in New York seems crazy, I am sure that they could build a very robust vault somewhere there in Texas...

China is buying, but probably from the "open market" not from other central banks, so I would be pretty sure that they are taking physical delivery.

And, Chavez (Venezuela) wants his 100 tonnes back, we'll see how that goes.

Last edited by DoChenRollingBearing; 11-08-2011 at 12:46 AM. Reason: spellnig!
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Old 11-08-2011, 05:43 AM   #3
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This then opens the door wide open for the BIS and the IMF banks to oversell their physical gold, just like is done on the Comex, no?
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Old 11-08-2011, 08:12 AM   #4
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Originally Posted by Unobtanium View Post:
...
When a nation buys a large amount of gold (tons), they don't really take delivery of it, correct? Don't they really get a receipt stating that they own so much gold?
...
Correct. There was a pretty widely publicized story about Eric Sprott trying to buy 191 tons of gold from the IMF when he was starting his PHYS gold bullion ETF and they would not sell to him (March/April 2010). They justified it with a bunch of weak jedi mind trick hoo ha, but the bottom line is that Eric would have taken physical delivery and the gold interests they sold to India, et. al. at the time were never going to move from whatever vault they sit in today.

A timely article on German gold:
Quote :
...
Much of Germany's gold would appear to be still in America, where it was held during the Cold War to ensure it never would fall prey to invading Soviet forces.

Although the Second World War had left Germany in ruins, the economic miracle of the 1950s which was largely based on exports, quickly built up enormous gold reserves. By 1968 Germany had 4,000 tonnes, the most it has ever held, the paper said.

Yet most of this was never moved to German soil - such a transport would be a logistical nightmare to organize, while insurance cover would be impossible to get. The gold changed hands on the trading floors of New York, London and Paris, while the metal bars themselves never moved.
...
http://www.thelocal.de/national/20111108-38731.html
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Old 11-08-2011, 07:27 PM   #5
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Amazing, just amazing.

That puts a lot of power into the hands of those that hold the gold.

I guess Chavez never got his gold then?
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Old 11-08-2011, 08:37 PM   #6
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Chavez gold supposedly being transfered between now and the end of the year: http://www.pmbug.com/forum/f13/tin-f...ex-75/#post429
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Old 11-08-2011, 08:47 PM   #7
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Keep working on the Chavez angle, PMBug! I have already seen that you do your HOMEWORK very well. Keep up the great work!

Everyone: check out FOFOA's new piece "Moneyness" there at his blog, most interesting, but long!

http://fofoa.blogspot.com/2011/11/moneyness.html
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Old 11-09-2011, 04:36 AM   #8
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Thanks for the link DoChen, but it will take me a few days to read it, with my schedule.
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Old 11-28-2011, 10:11 PM   #9
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Update - Chavez and his gold:

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Old 11-29-2011, 04:39 AM   #10
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Venezuela brings home gold reserves
http://www.aljazeera.com/news/americ...744164125.html


Cheering crowds line streets as first batch of bullion, previously held in UK, is deposited in central bank in Caracas.
(Last Modified: 26 Nov 2011 08:28)

Up to 160 tonnes of gold, worth more than $11bn, is expected to be repartriated back to Venezuela [Reuters]


A shipment of gold has been deposited in Venezuela's central bank in Caracas after President Hugo Chavez ordered the repatriation of most of the country's bullion reserves from overseas banks.

Cheering crowds lined the streets on Friday as the shipment was escorted by armoured trucks to the bank from the Venezuelan capital's Maiquetia airport, beginning a process that will eventually see up to 160 tonnes of gold, worth more than $11bn, brought home.

Chavez ordered the repatriation of 85 per cent of the country's bullion, which has mostly been held in European and US banks, saying the move would protect Venezuela's reserves from global economic turbulence.
"Here it's going to be safe

- Nelson Merentes, Central Bank president, Venezuela


"It's coming to the place it never should have left. ... The vaults of the central bank of Venezuela, not the bank of London or the bank of the United States. It's our gold," Chavez said on national television.

Nelson Merentes, the president of the central bank, said the gold had come from the UK but did not say how much was in the first shipment, citing security concerns.

'It's a guarantee'

The gold had been held abroad since the late 1980s as backing for loans requested from the International Monetary Fund by prior governments, he said.

Merentes called the repatriation of the gold a "guarantee" for the country.

"If there's some problem in the international markets, here it's going to be safe," he said.

Chavez's opponents have called the plan costly and ill-advised, while some suggested Chavez was acting out of fear that Venezuela's overseas assets could one day be frozen by sanctions, as happened to those of his ally, the late Libyan leader Muammar Gaddafi.
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Old 11-29-2011, 09:25 AM   #11
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Originally Posted by Unobtanium View Post:
... while some suggested Chavez was acting out of fear that Venezuela's overseas assets could one day be frozen by sanctions, as happened to those of his ally, the late Libyan leader Muammar Gaddafi.
No shit. There is also a concern, IMO, that there are multiple claims on the physical gold and it's going to be "musical chairs" trying to claim it once the stampede starts.
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