Better Conspiracy Theories

In Grant Williams’ most recent piece for Mauldin Economics, he offers up a decent case for how the dramatic moves in gold are very much tied up with requests by sovereign nations to take their gold out of the NY Federal Reserve bank vault and ship it home. He spends some time around the request by Venezuela in the fall of 2011 for 99 tonnes, but then spends a great deal more energy focused on the request earlier this year by the Bundesbank to retrieve 300 tonnes from New York and 347 tonnes from France. Oddly, it’s going take 7 years for the Germans to get their gold from the former and 5 years from the latter.

To tie it up, the theory is that the gold leasing program by Central Banks has led to gold that gets hypothecated and then re-hypothecated again. In other words, it’s basically gone, and with demand increasing for the physical stuff, bullion banks now must scramble and put on naked shorts to try and shake out weak hands and buy back ounces. Who knows. I would point out that Williams is not the first to make this case, but only the most recent. And better yet, he offers a really interesting chart that looks at price against the inventories at Comex and GLD since the German request.

The other bit of reading comes courtesy of Ben Hunt, an economist who provides a simply too-long and pretentious take on gold – that those who still view it as money have missed the paradigm shift.  Rather, today it’s all about central bankers and their machinations. So, basically, this guy takes a lot of words to get to the same point that Jim Grant has long made in his simple equation of 1/T – the price of gold is the inverse of “T”, the amount of confidence that people have in the central planners.