[e-gold-list] Re: Another in the series: "Will the media deign to notice?"

[Pete Chown]

Patrick Chkoreff wrote:

> ... the gold market has essentially become a fractional reserve
> system through the process of bullion banks leasing gold, which gets
> sold, and then deposited again in a bullion bank, where it is leased and
> sold again, ad nauseum.

Which is okay if that's what you want, I suppose.  You get exposure to 
the gold price without paying for the storage and security of the actual 
bullion.  It works the same way with lots of commodities, after all.  If 
you want to bet on the price of coffee or something, you don't actually 
want a warehouse full of the stuff, that you would then have to look 
after.

(I once heard a story about a bank that invested in pork futures.  The 
idea was that they would hold the futures until near the maturity date, 
then sell them to someone who actually wanted the pork.  Unfortunately 
they forgot to do this, so a number of lorries arrived at the bank's 
headquarters...  Of course now all these things are cash settlement, but 
it wasn't always so!)

At the same time, if you want security against a deterioration in the 
economy, it's true that you would want physical metal.  It's no good if 
you were promised gold by someone who then goes bust.

> So I view the current "spot price" as an opportunity to lay my hands on
> actual physical gold, i.e. make a "run on the bullion bank" just as
> there is a run on the fiat bank in the UK right now.

That's interesting isn't it...  If enough people demanded physical metal, 
it would force the unwinding of all these positions, causing the price to 
go up (a lot).  The trouble is, it would need an enormous amount of money 
to make it happen.  There may not be enough gold to back all the 
investment in gold, but there is still around a trillion dollars worth...

Apparently people were still queueing to get their money out of Northern 
Rock yesterday.  http://i4.tinypic.com/67eg4f8.jpg  I'm just glad my 
money wasn't there...  I think I'll be spreading my savings out a bit, 
though, I'd hate to be waiting for a government bank bailout that never 
came.

Pete



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