Scott Carter

Earlier this year, the financial world was shocked when Germany asked for the return of its gold.  The request came within 3 months of the Feds refusal to submit to an audit of its gold reserves by Germany’s Bundesbank.  The request itself was unusual in that Germany only asked for 50% of its gold to be returned by year 2020.

Why even ask for your gold back now if you don’t want it for 7 years?  You either want your physical gold or you don’t.  You can either have it or you can’t.  It’s not hard to come to the conclusion that Germany did not ask for their gold now because they believe they couldn’t get it.  And if they believe they couldn’t get it, I find it hard to believe it is for any other reason than they believe it is not there.

Since Germany refused to open that Pandora’s box, and force the return or a public statement as to why that can’t happen, that leaves the door wide open for explanation.  Imagine, breaking news that our Fed did not have the gold reserves that appear on the books.  That news alone could crash the dollar and send gold prices through the roof.

The ramifications for every foreign and domestic investor, who holds dollar backed assets, could be catapocalismic.  Yes, such an event would require the creation of a new word as no other word yet spoken, throughout history, could describe the fallout of such an event.  It would make what happened in Cyprus appear as insignificant as a fit thrown by the Cookie Monster when denied a cookie.

This considered, some gold analysts believe the Fed was caught red-handed – without the goods – thus putting the Fed in a position whereby it has to, get the goods.  The speculation begins.

The recent drop in gold prices has been attributed to massive short-selling.  Naked short selling to be more specific.  That is where the investor sells gold they don’t have, at today’s price, with the promise to deliver at some time in the future.  The plan works if you can actually buy the gold you have promised to deliver, at a cheaper price than what you were already paid.  For example:  You sell it at $1700 and hope to have a chance to buy it for $1500 before it’s time to deliver.


Scott Carter

Scott Carter is Chief Executive Officer of Lear Capital