Friday, June 27, 2014

Theme collision...

This is a wonderful collision of major themes on this blog, namely:

1.  Gold is not a "safe" investment or necessarily negatively correlated to recessions, currency weakness, etc.

2.  China has little to no control over its internal credit procedures, which are largely politically directed, thus resulting in one of the biggest economic bubbles in history.

And so now we "discover" that an amount equal to the GDP of Iceland (15 Billion dollars or so) is the result of falsified transactions...and with "owners" of gold having to deal with multiple collateral claims in various jurisidctions, it again begs the question of "what do you, precisely, own when you have claims on precious metals in storage somewhere".

And what do the correspoding banks in China "own" when they list these loans as assets?

China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.
Twenty-five bullion processors in China, the biggest producer and consumer of gold, made a combined profit of more than 900 million yuan from the loans, according to a report on the National Audit Office’swebsite.
Public security authorities are also probing alleged fraud at Qingdao Port, where copper and aluminum stockpiles may have been pledged multiple times as collateral for loans. Steps by the Chinese government to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion.

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