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Pulling the Plug: Taking Delivery of Gold

Written by Gary North on January 28, 2014

In 2011, the University of Texas investment committee took delivery of what was then just under $1 billion worth of gold. It had held the gold in the form of gold futures contracts. Kyle Bass persuaded the committee to take delivery.

This video is worth viewing. Bass explains why he recommended this decision.

The statement that only 1% of futures contract holders (“longs”) ever ask for delivery is significant.

Most people trade futures to make fiat money. They do not trade as hedgers who plan to take delivery. They are speculators. They want leverage. Futures give them this.

It is clear that if 4% (20% of 20%) ever want delivery, they will not be able to get it — not at the agreed-upon futures price.

The rules will be changed, as they were when Bunker Hunt threatened to take delivery in 1979. That change bankrupted him.

At some point, speculators will see that they can make a lot more money by taking delivery. The ones who ask early will get delivery. Those who wait to the last minute will not get delivery. They will get fiat money instead.

In a time of mass inflation, this will happen. That is when speculators will want physical gold. They will move from being speculators to being hedgers. That will mark the great crisis for the Federal Reserve. It will warn the FED that hyperinflation beckons. The FED will have to decide: hyperinflation or tapering (recession).

The Austrian theory of the business cycle teaches that the choice between recession or price inflation is inescapable, once a central bank adopts monetary inflation as a way to stimulate the economy. By artificially lowering short-term interest rates, the central bank sends erroneous signals to market participants. These participants allocate capital on the assumption that consumers have begun to save more and consume less. But this shift from consumption to thrift has not taken place. Falling rates are the product of the banking system’s newly created fiat money.

When the central bank ceases to inflate the monetary base, or even reduces the rate of growth, it creates the next recession. In the recession, capitalists re-allocate their capital in terms o the new conditions. The central bank’s stimulus is reduced or removed entirely. The stimulus goes away. This is what happened to Bernanke in 2008.

(For the rest of my article, click the link.)

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2 thoughts on “Pulling the Plug: Taking Delivery of Gold

  1. I have a family member who is good friends with an ATF agent in the Dallas/Fort Worth area. He responded to a call from a large gun shop who had a "suspicious" guy driving a Bentley and towing a trailer. The guy walked in and bought dozens of rifles, pistols, other gear, and thousands of rounds of ammunition. He whipped out his American Express Black Card which is a very rare credit card for the very wealthy to pay for it. The agent never found anything on the guy and let him go. He never did mention the customer's name, but after reading about Kyle Bass (who lives in the Dallas region) and seeing him quoted in a few articles and books where it is revealed he is more or less "prepping" for a complete economic collapse by arming himself fortifying his compound out in the country I am convinced that this particular individual that this agent responded to was very likely Kyle Bass.