Two significant events happened recently in the global gold markets which most people will not have noticed because the world’s media chose not to give them much coverage. One involved outright fraud in China’s supposed gold reserves, and the other involved supply-related chaos in the New York COMEX which threatened the integrity of the gold markets. Let’s first relate the facts about what happened, and then draw some conclusions about the situation in the gold market and what it may portend for the future.
The fraud documented in a Chinese gold repository was extraordinary. A Chinese repository with reportedly 83 tons of gold that was stored as secure collateral supporting a pyramid of loans was found to be entirely fake. That’s right! All 83 tons of the “gold bars” were phony. They were not gold bars at all, but were rather 83 tons of copper bars essentially covered with a thin veneer of gold paint to make the copper bars look like they were real gold. This fraud was so great that this single repository of fake gold constituted over 4% of the total claimed Chinese gold reserves!
Obviously, all the loans that were supported by this “collateral” suddenly had no collateral at all backing them, posing serious risks for parts of the Chinese financial markets. The first three links offer varying perspectives on this scandal and its serious financial ramifications with the first link being the most detailed. The first link asserts this, “may be one of the biggest gold counterfeiting scandal[s] in recent history.” I think that is an understatement. The second link headlines that this Chinese gold scandal “spooked” the global gold markets. (See also the third link). Guess where this large repository of fake gold was located in China? It was in Wuhan, the origination point for the Chinese Covid-19 pandemic. It does beg the question: Will this gold scandal result in a global “pandemic” in the trustworthiness of all gold repositories? More on this later.
Let’s next examine the chaos that recently occurred in the gold futures markets at the New York COMEX market. The fourth link and fifth link describe what happened, and while some of the details get rather technical, the links are worth reading to see how arcane and susceptible to deception the gold futures markets really are. If I may be allowed to offer the briefest of descriptions of what happened in my understanding and in my own layman’s words, here it is. The gold futures markets have very large lots of gold bars that wealthy traders can sell short or buy long in markets that are pegged to outstanding contracts in future months on the calendar. When these targeted months are reached in the ‘futures market,” buyers can demand delivery of their gold bars purchased in the futures markets or “rollover” their positions to future contract months or “take delivery”‘ in cash instead of in physical gold. In recent years, traders have typically rolled-over their contracts or redeemed them by taking cash instead of gold– sometimes at premium cash prices to induce traders to “take delivery” in cash instead of in physical gold. This kind of system can work until a crisis occurs when many traders decide to take delivery of actual gold instead of rolling-over the contracts. This exact kind of crisis occurred a few months ago, roiling the gold market and, no doubt, creating undisclosed panic in the gold markets.
In recent contracts coming due, a large number of traders served notice that they intended to take delivery of actual physical gold to redeem their futures contracts. As the fourth and fifth links reveal, urgent actions had to be taken by the COMEX to ensure its vaults had enough gold on hand to satisfy the demand for contract fulfillments in physical gold. One chart reveals that an immense amount of gold had to be transported from Swiss bank vaults to the USA to enable the COMEX to supply the amount of gold that was being demanded by traders. Think about this for a moment. If the COMEX had enough gold on hand to back all its outstanding contracts on gold, there would have been no need to import a massive amount of gold from Switzerland to fulfill those contracts. This argues the COMEX was running its operations like a gold-market equivalent to the fractional reserve system of modern banks [wherein only a few customers demand cash for their deposits at any given time, enabling the banks to lend the same deposited dollars out to many different customers]. This begs further questions: Since an immense amount of gold had to be imported by the COMEX to satisfy demands for just a few of its outstanding gold contracts–what will happen when a similar wave of demands for physical delivery comes again in future months? How many times can the Swiss gold repositories ship millions of ounces of gold to the COMEX to “bail it out” of its gold shortage difficulties?
Clearly, a lot of gold traders on earth are asking themselves the aforementioned and other questions about the safety and reliability of the global gold markets. If over 4% of the entire Chinese inventory of gold has just recently been proven to be fake gold, how much of the rest of China’s claimed gold reserves are also faked? Indeed, how many gold bars all over the world (not just in China) consist of fake gold, not real gold? This problem of faked gold bars in gold repositories has been around for at least a decade. The sixth link is a post I did in 2009 about scandals in the Canadian and Ethiopian gold reserves. That post also addressed another scandal present in the global gold markets. While the faked Ethiopian gold bars were composed of steel with a thin veneer of gold painted on them, a more sophisticated crime in the gold markets is to have a thin layer of gold, painted over bars made of tungsten. Tungsten has such a close atomic weight to real gold that it can pass external tests as if it were real gold, that, copper or steel bars can’t pass. A tungsten-based faked bar would need a core boring test to see if it was real gold all the way through it. Given the immensity of the fraudulent gold bars found in an official repository in China as well as fake gold found in an Ethiopian repository a decade ago, the authentication of all gold bars in the world’s vaults is long overdue. One can’t just look at “gold bars” in national vaults like Ft. Knox, central bank vaults, trading repositories, etc. and assume that it is real gold. The only way to determine if the claimed gold is real gold is to do painstaking core-boring tests of every gold bar in all vaults, and be sure that witnesses from many nations, clients, certification companies, etc. are present to observe the borings (which should all be video-taped). Digitally-recorded depictions of tests may not be reliable due to how easy it is to photo-shop or alter digital images. Given the huge amount of fake gold found recently in official Chinese reserves, it is likely that many national vaults have fake gold bars in them as well. Until their gold bars are fully tested, all gold repositories are now suspect.
Periodically, we hear rumors that some nations are planning to issue gold-backed currencies. Now that the authenticity of gold bars is in global doubt, the likelihood of a new gold-backed currency has lessened due to the above scandals. If any nation or group of nations now attempted to issue a gold-backed currency (or one with silver, platinum and palladium backing as well), the world would react with understandable skepticism about whether the gold backing such a currency actually existed in an unencumbered status. Gold that is present in a national or central bank storage vault may not actually be owned by the nation or bank storing it. It may be “owned” by or “loaned” to another nation or entity which is merely storing its gold in a secure facility–such gold is considered “encumbered” and is not available to the storing entity to use. This brings me to my final point: hypothecation and rehypothecation. These are long and obscure words, but all should understand what they mean as they describe a reality that has the potential for collapsing not only gold markets but the entire global economy.
Hypothecation and rehypothecation are explained in the seventh link. It describes a practice that is sometimes perpetrated on unwary investors. Many investors who think they “own” gold actually own no more than a piece of paper which may or not be honored in the future. The reason is that “hypothecation” means the entity storing “your” gold has also sold it or lent it out to other parties as well. This means that each ounce of gold being stored in gold vaults may have several different owners who all think they own the same gold. Obviously, the person who first demands to have the gold shipped to him/her will receive the gold and “own” it. The others who thought they owned that gold will be left “holding the bag.” Rehypothecation is when the party supposedly storing your gold essentially seizes your gold without your knowledge or permission and sells, uses, or loans it to others. This is all very dishonest, but, as the sixth link relates, you may have no recourse if it happens to you. This can happen to nations as well as individual investors. The eighth link reports that Venezuela recently tried to get several tons of its gold back from an English repository, and was told it could not have it back. This may have been due to politics and the understandable desire of the western world not to enrich or underpin the socialist Maduro government that is wrecking Venezuela, but it could also mean Venezuela’s gold has been subject to “rehypothecation” and no longer exists except on paper. If you read through the cited links, you will understand that the global gold market can be described as a “riddle wrapped in an enigma.” Activities within the gold market can be very opaque, and that is how the insiders want it.
Due to the current instabilities within the global gold market, the possibility of a delivery default by the COMEX, the London Metals Exchange or the Shanghai Metals Exchange has risen. A comprehensive forensic examination of all large gold bars is badly needed everywhere to see how many other bars in storage vaults are merely copper, steel or tungsten bars with a thin layer of gold painted on them to deceive viewers. However, I suspect a large segment of the financial world doesn’t want such an examination to occur because they are terrified of what will be discovered. This crisis in the gold markets means that we can add a global gold and precious metals market scandal to the list of possible triggers that will cause the global collapse in all financial markets that is prophesied in Revelation 17-18 to occur in our latter-day period of time. We do not know what the trigger will be, but the entrenched insiders who have controlled the global financial/monetary markets for a very long time are prophesied to be overthrown by a new cartel which will install their own political and religious leaders over the new global system to be put into place. This new system is called the “beast” system in the book of Revelation’s prophecies, and it will have Orwellian monitoring and control over all global financial matters and transactions (Revelation 13:16-18). This type of global control could only happen in a globally-interconnected, digital system–which is already in the process of being implemented in our modern world.
For greater examination of what the Bible’s prophecies reveal about the events in the years ahead of us, please read my articles, Are We Living in the Biblical Latter Days?, Is Babylon the Great about to Fall…Ushering in a New Beast System? and The Babylonian Origin of the Modern Banking System. The second article mentioned was written in the aftermath of the near-global meltdown of the banking system which occurred in 2008, but many of its points are just as applicable today.
My thanks to a reader for sending me one of the cited links.