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Friday, February 7, 2014

Where is the world's gold going?

Epoch Times: Where is gold going?
Mr. Rickards: One of the big movements right now is gold moving from places like UBS, Credit Suisse, and Deutsche Bank to private storage such as G4S, ViaMAT, and Brink’s. That doesn’t increase the supply of gold at all. But what it does do is it decreases the floating supply available for trading.
If I have my gold at UBS, UBS typically has the right of rehypothecation. But if I take my gold and move it over to ViaMAT, it’s just sitting there and it’s not being traded or rehypothecated.
So, if I move gold from UBS to ViaMAT, there’s no more or less gold in the world. I’m still the owner, and it’s the same amount of gold. But from a market perspective, the floating supply has decreased.
The biggest player in that is China. China is buying thousands of tons of gold secretly through deception and using military intelligence assets, covert operations, etcetera.
Epoch Times: So why will gold rally then?
Mr. Rickards: There is a total supply of gold in the world. But to corner a market or squeeze a market, you don’t need to buy all the gold, you just need to buy the floating supply. Think of all the gold in the world, it’s about 170,000 tons. Think of a little sliver on top of it that is the floating supply available for trading.
Gold that’s in the Comex or JPMorgan or GLD vaults is available for trading. Gold purchased by the Chinese will not see the light of day again for the next 300 years, and is not available for trading. So with the gold going from West to East, and from GLD to China, the total amount of gold is unchanged, but the floating supply is declining rapidly.
This means that the paper gold that sits on top of the floating supply is becoming more and more unstable and vulnerable to a short squeeze, because there is not enough physical gold to support it. So that’s likely to collapse at one point and lead to a short squeeze and heavy buying.
Epoch Times: Mr. Rickards, thank you very much for the interview.
James Rickards is the author of the national bestseller “Currency Wars” and the forthcoming book “The Death of Money.” He is a portfolio manager at West Shore Group and an adviser on international economics and financial threats to the Department of Defense and the U.S. intelligence community.

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