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| BullionStar - Bullion Star |
| What sets the Gold Price – Is it the Paper Market or Physical Market |
| The following article is arranged in Question and Answer (Q & A) format. Through the Q & A approach, this article raises some important issues about price discovery in the gold markets and aims to explain the view that the gold price is being set by the paper gold markets.
BullionStar’s CEO Torgny Persson and precious metals analyst Ronan Manly are of the opinion that due to the structure of contemporary gold markets, it is primarily trading activity in the paper gold markets which sets the inteThursday, March 30, 2017 |
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 | Chris Powell - GATA |
| How the gold banking system operates for surreptitious price suppression |
| Bullion Star in Singapore this week produced a primer about the international gold banking system, showing how central banks use it to create a vast amount of imaginary "paper gold" for largely surreptitious price suppression in defense of their own currencies.
Bullion Star explains: "Even if the bullion banks have access to borrowed central bank gold stored at the Bank of England, that gold is owed to the lending central banks, and therefore has multiple claims on it. If there was a run on theSunday, December 4, 2016 |
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 | Bron Suchecki - Perth Mint |
| Interview on Precious Metals |
| On Friday I recorded an interview with Kerry Stevenson of Symposium, a firm which focuses on events promoting Australian resource companies and precious metals. The podcast was posted today and you can listen to it here. Kerry asks me how I got into the precious metals business and we discuss the purpose of precious metals in a portfolio. I talk about why I own gold, how banking has changed, money and debt and the Ponzi-like instability introduced into an economy if money is created for non-prodTuesday, September 29, 2015 |
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| Bron Suchecki - Perth Mint |
| Refinery view of the state of the gold market |
| Alex Stanczyk of the Physical Gold Fund has just posted a transcript of an interview with an executive at a Swiss refinery about the state of the market. It is well worth a read or listen to the podcast. Below are some quotes and my take on them.
“How difficult is it to source the metal you need today? … It is truly difficult. This is also reflected by the price. It is getting more and more expensive to get material out of the market, and also there is less liquidity in the physical precious metFriday, September 25, 2015 |
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| Bron Suchecki - Perth Mint |
Fractional Reserve Bullion Banking – Part 3  |
| In our last post we discussed the risks a bullion bank faces when operating a fractional reserve system due to the mismatch between when its assets and liabilities fall due. The main way this risk is mitigated is by borrowing gold from another bullion bank or central bank. To understand how this works in practise, we need to understand how the bullion banks interact with each other.
Clearing
A couple of posts ago I gave an example of the transferring of unallocated gold between accounts. In realWednesday, September 23, 2015 |
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| Bron Suchecki - Perth Mint |
| Fractional Reserve Bullion Banking – Part 2 |
| Fractional Reserve Ratios
In our last post we showed a simple bullion bank balance sheet. In reality, there are many different types of assets and liabilities that mature over a range of different time periods. Below is a more complex gold balance sheet.
I’ve also added in an additional column called Due Date, which shows the date the asset or liability comes due.
In our example above many would say that the bullion bank is running a 10% fractional reserve ratio – 5oz of physical in their vaultTuesday, September 22, 2015 |
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| Bron Suchecki - Perth Mint |
Fractional reserve bullion banking – Part 1  |
| Introduction
Bullion banking is integral to the function of the modern gold market. Unallocated and allocated gold accounts and associated clearing mechanisms centred in London facilitate the efficient transformation of gold from mine to end consumer. However, banking involves risk – for an individual bank should borrowers fail to repay their loans and also at a systemic level.
This series of posts on the fractional reserve bullion banking system explain how bullion banking works and where the rWednesday, September 16, 2015 |
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| Bron Suchecki - Perth Mint |
| Most popular posts for 2014 |
| Looking back over the 74 posts for 2014, these were the top five most popular in terms of what Google calls "view count":
In the land of the goldbugs who choose to be blind, the one-eyed blogger is king - 6128
Coin shortages and rationing are in our future - 5646
GLD amendment refers to "unforeseen reasons" for unallocated failure - 5624
Fractional reserve bullion banking and gold bank runs - how can I default on thee? let me count the ways - 4367
Fractional reserve bullion banking and gold bankWednesday, December 31, 2014 |
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| Bron Suchecki - Perth Mint |
GLD amendment refers to "unforeseen reasons" for unallocated failure  |
| GLD has some amendments to its terms up for vote, one of which is "that creations may only be made after the required gold deposit has been allocated to the Trust Allocated Account from the Trust Unallocated Account" (hat tip I Shrugged; see here for an explanation of the existing creation process). What is interesting is the explanation of why they are making this amendment:
"This amendment provides additional security for Shareholders by eliminating potential risks related to issuing basketsTuesday, July 15, 2014 |
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| Chris Powell - GATA |
| TF Metals Report: Another review of GOFO and the gold price |
| The TF Metals Report's Turd Ferguson today elaborates on his research about gold forward offered interest rates, confirming that negative rates signifying tightness of metal supply have become normal after 24 years of being exceedingly rare. Ferguson concludes:
"I remain convinced that the 'new normal' of negative GOFO is, in fact, symptomatic of extreme physical tightness and empty vaults in London. Knowing this and the clear correlation of GOFO with price, you should adjust your trading strateThursday, May 29, 2014 |
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| Bron Suchecki - Perth Mint |
| Fractional reserve bullion banking and gold bank runs: a run or stroll |
| The fact that Australia's Prime Minister referred to the global financial crisis as a "shitstorm" will probably just reinforce Americans' Paul Hogan/Steve Irwin view of Australians. Shitstorm is also the title of a book about that Prime Minister's first term and how close Australia came to financial disaster. In that book they cover the bank run that was developing at the time:
"It was a silent run, unnoticed by the media. Across the country, at least tens and possibly hundreds of thousands oSunday, February 16, 2014 |
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| Bron Suchecki - Perth Mint |
| Fractional reserve bullion banking and gold bank runs: bank run theory |
| A key question in bank run dynamics is whether the information/event points to one specific bank. George Kaufman notes that if people just "switch their deposits to other banks [and] their concerns about the bank’s solvency are unjustified, other banks in the same market area will generally gain from recycling funds they receive back to the bank experiencing the run." As we have seen with the interconnectedness between the key BBs via the LPMCL and also the role of the central banks who can stepFriday, February 14, 2014 |
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| Chris Powell - GATA |
| Bron Suchecki: Fractional reserve bullion banking and gold bank runs: a run or a stroll |
| Bron Suchecki of the Perth Mint today continues his series about bullion banking and its vulnerabilities to a rush out of "unallocated" gold, "paper" gold, into real metal, and from GATA's perspective it's most interesting for acknowledging that the primary safeguard against such a panic is gold lending by central banks. Suchecki's commentary is headlined "Fractional Reserve Bullion Banking and Gold Bank Runs: a Run or Stroll?" and it's posted at his Internet site, Gold Chat, here:
http://goldchFriday, February 14, 2014 |
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| Bron Suchecki - Perth Mint |
| Fractional reserve bullion banking and gold bank runs – Frankenstein Free Banking |
| The bullion banking and inter-BB clearing system described yesterday has a lot in common with free banking, which is "the competitive issue of money by private banks as opposed to the centralised and monopolised issuance of currency under a system of central banking."
That quote comes from George Selgin's 1988 paper The Theory of Free Banking: Money Supply under Competitive Note Issue, which provide a good explanation of it. It is 192 pages however, so I would only recommend it to the most deTuesday, February 11, 2014 |
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| Bron Suchecki - Perth Mint |
| Fractional reserve bullion banking and gold bank runs – inter-bank buddies business |
| A couple of posts ago I gave an example of the transferring of unallocated gold between accounts. In reality the sender and recipient would likely bank with different BBs. If our Refiner banked with BB#1 and our Miner banked with BB#2, this is what would happen if the Refiner requested a transfer to the Miner’s account:
The Books of BB#1
Asset – 10 oz Loan to Refiner
Liabilities – 10 oz of Unallocated to BB#2
The Books of BB#2
Asset – 10 oz of Unallocated with BB#1
Liabilities – 10 ozTuesday, February 11, 2014 |
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| Bron Suchecki - Perth Mint |
Fractional reserve bullion banking and gold bank runs - how can I default on thee let me count the  |
| A crude view often promoted in the gold blogosphere is that a gold run will result in a default when on call depositors ask for delivery/physical. The reality is more complex.
The composition of a BB's gold balance sheet has many different assets and liabilities but when looking at a gold run our interest is only in on call (or to use accounting terms, current) assets and liabilities versus those assets and liabilities which have committed maturities or terms (non-current). As an example conTuesday, February 11, 2014 |
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| Chris Powell - GATA |
| Bron Suchecki: How bullion banks work together to minimize their need for bullion |
| London bullion banks have developed a pretty convenient system for rotating gold liabilities among themselves to minimize the need to move actual gold around or even to have gold on hand as they conduct our business. Further, we can fairly assume that if the system ever runs into difficulties, central banks, as former Federal Reserve Chairman Alan Greenspan told Congress in 1998, still "stand ready to lend gold in increasing quantities should the price rise." The London bullion banks' system is Monday, February 10, 2014 |
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| Bron Suchecki - Perth Mint |
| Fractional reserve bullion banking and gold bank runs - unallocated as real (gold) bills |
| I must apologise for jumping around a bit with these posts on fractional reserve bullion banking. I haven’t planned this series out and each day I think of additional things worth noting if one is to have a more nuanced understanding of how a gold run would play out. I’ll get there in the end.
So another slight diversion. I forgot to mention in this post that BBs can create gold credit (ie unallocated) just like with fiat currencies. So their gold balance sheet can consist of unallocated liabSunday, February 9, 2014 |
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| Chris Powell - GATA |
| Bron Suchecki's primer on bullion banking's fractional-reserve nature |
| The Perth Mint's Bron Suchecki today provides a good primer on the bullion banking business, explaining how the unallocated nature of much of the business is tempered by the timing of the maturity of its obligations. While Suchecki's commentary doesn't really get into GATA's issue, surreptitious intervention in the gold market by central banks, often conducted through intermediaries like bullion banks, maybe it will encourage people to aim their complaints about market manipulation more accurateFriday, February 7, 2014 |
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 | Jesse - Le Cafe Américain |
| Gold Daily and Silver Weekly Charts - Word for the Day: Rehypothecation |
| "The commercial world is very frequently put into confusion by the bankruptcy of merchants that assumed the splendour of wealth, only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them."
Samuel JohnsFriday, February 7, 2014 |
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