“[B]anks have been managing their paper gold books with one assumption, which is that [Nation] states would ensure gold wouldn’t come back as a settlement medium.” -Zoltan Pozsar
Before we go any further, we read ZeroHedge’s report on this letter Dec 7th entitled: Zoltan Pozsar: Gold To Soar…When Putin Unveils Petrogold (ZH Prem) and have been thinking on it since. Here is one of those thoughts pertaining to Gold’s evolving market structure
The statement at top is arguably the most important sentence in Zoltan’s recent post entitled: Oil, Gold ,and LCL(SP)R. It is how he closes that note.
If you have read his letter (excerpt below) you may prefer quotes pertaining to Gold’s price jump from $1800 to $3600 or Pozsar’s follow up statement to the price of Gold potentially doubling where he wrote: Crazy? Yes. Improbable? No.
Those statements certainly are nice to read for real-money advocates; especially coming from one of the most respected economists on the street these days. We cannot lie it makes us smile as well.
However, for anyone with precious metals exposure, like a bank or presumably you reading this piece (thank you for that), the quote at top should rule them all. Here’s why…
Why Banks Short Gold
Zoltan, possibly inadvertently, gives readers the rationale by which banks have been profitably shorting Gold since the 1990s. Here is our translation of that same sentence at top.
Translated from the original Zoltanese:
Banks have been using rehypothecation for decades fearlessly with approval of global governments who promised them Gold would never be used as a settlement medium—i.e. have a practical use — again.
…click on the above link to read the rest…