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Gold - Dispelling (Or Confirming) The Urban Legends

|Includes: SPDR Gold Trust ETF (GLD)


Is the price of gold driven by 'supply and demand'?

Is the price of gold a 'rigged game'?

Is there enough gold (above ground) to satisfy the obligations to repay debts that are obligated to be repaid in gold?

One story-line has it that, while there is no monopoly on physical gold, there is a large enough percentage of physical gold in the hands of the global banking community to fix its' price. That gold's price is fixed daily by the London bullion market is not disputed. The questionable areas involve who owes what to whom, in terms of physical gold.

You can drive yourself insane, reading the history of the London Bullion market - - how it evolved, and the rules that govern its' oversight of physical gold, as well as contractual obligations for 'borrowing' gold, with (or without)  actually taking delivery of the dense, yellow stuff- - . The recurring theme is that all loans made in gold, must be repaid in gold. Is the gold ever physically moved from one place to another? Sometimes. Sometimes it is a paper transfer, and the physical gold stays in a gold depository, or one of six "bullion banks" (

- - and there's the rub - - -

One Urban Legend has it that at one point Germany requested (or demanded, based on your point-of-view) the Federal Reserve Bank release its' holdings of German owned bullion that was held in trust in New York. The Fed's response? 'Not only "no", but "hell no!" If we let you demand your bullion deposits, everyone would want to do it!'

While some might find that strange, the Fed's position was that they were independent bankers, and while they may or may not have charged a custodial fee to look after Germany's gold, they were, after all, bankers! - - So "loaning" Germany's gold to interests requiring physical gold (like loaning cash to someone who wants to buy a house) should come as no surprise. Germany didn't get their gold (no surprise), and shut-up about it (big surprise).

So in today's computer-managed world, why is it difficult to determine who-owes-who, what? It seems easy enough to do, and someone surely knows. Urban Legend has it there is not nearly enough physical gold above ground to satisfy debt obligations that must be repaid in physical gold.

Like sovereign debt, interest payments are paid according to manipulated market dynamics, but the underlying obligation to repay bullion for bullion received, is never reduced. Bankers simply keep track of who-owes-who-what, and collect their interest and handling fees.

So why run-out this charade? The Urban Legend Fantasy scenario has an answer - - - To keep alive the myth that there is 'value' in fiat currency. Why is the daily gold "fix" (perfect description) set in US dollars? Because that is the international medium of trade. Why is that? Because the US was one of the few places on earth that emerged from WW II with both cheeks of their financial butt intact - - No longer true - - the US is $20T in debt, and has a monthly $40B trade deficit. Why is the US dollar used as the benchmark against which the price of gold is set? Ah - - - yes - - - that - - -

Oh, did you think you might get answers to the questions posed in the header? Not at all. I'm just looking for a rational explanation why gold is not $5,000/ounce. Any suggestions?   

Disclosure: I am/we are long GLD.