BRexit: Where’s the Gold??



Published on May 15, 2016

Like the recent referendum on Scottish secession from the UK (which failed miserably) a referendum is being held on Thursday, June 23rd to decide whether Britain will leave the European Union or not. Does the LBMA truly feel threatened by this essentially symbolic gesture?

NB: By its charter the IMF may not lease or swap physical gold. However the IMF will accept gold in repayment for an IMF loan. Other means by which the IMF effectively participates in the leasing and swap system will be discussed in a subsequent video. Recall that (usually) the gold lessee immediately sells the gold in a particular LBMA or BNY participant vault, while keeping the lease on the books, then buys back the gold to satisfy the lease at the end of the lease, or may roll over the lease depending on circumstance. Leasing means that the gold is sold when the market is high in anticipation that the lease can be satisfied with a buyback when the market is low. Since the selling of the leased gold results in a buyer’s claim to that vault, the new buyer may then lease out the gold. In other worlds, multiple counter-party claims may be associated with a single vault. Behind the lease will be a sovereign or entity or central bank registered to participate in the system usually via an LBMA bank or may be an LBMA bank (Fed dealer bank) working on behalf of an Exchange Traded Fund or even its own traders. All that really changes is the LBMA/PFRD account number associated with a particular vault, the gold itself seldom moves. All of the above indicates that the system is easily manipulated and riddled with possibilities for implicit fraud and corruption. On that basis a number of sovereigns wanted to fold their bullion bank poker hand, but so far only the Netherlands and Venezuela have been allowed to do so, with disastrous consequences for Venezuela.


Leave a Reply

You must be logged in to post a comment.