Connecting Dots: Fort Knox, Egon Von Greyerz,
and Zoltan Pozsar
Vincent Lanci

A Bold Claim from the Comex Trading Floor

Years ago, a floor broker with deep ties to major bullion banks made a startling statement: Fort Knox holds "nothing but moths and half-eaten IOUs." We all laughed back then. But as time passed, I realized he was right. Recently, something Egon von Greyerz said brought that old memory rushing back:

"In reality, a central bank only holds an IOU issued by a bullion bank. If the central bank attempts to reclaim its gold, it will never get it back, as the gold has likely been sold to buyers in China or India, who have purchased it outright with no obligation to return it."

Bold claim right? He's not wrong. We'll get to that in a moment.

Circling back to  Ms. Shelton's call to monetize our Gold by throwing it out on the yield curve (with which we agree) and Senator Lummis' call to audit and liquidate US Gold (Buy BTC, don't sell Gold), there is no way you can do either honestly if you wanted to  We'd wager no Gold is  in Fort Knox at all. Any gold the USA did manage to hold on to was moved out long ago.. You cannot see how much is missing if it's been relocated, can you? 

Anyway, there is much less Gold in Fort Knox than people think.  Which brings us to Pozsar's predictive analysis

Recalling Zoltan Pozsar's Gold Warning

Putting Egon's statement in context of something Zoltan had said in late 2022  about Gold-- trading $1800 then-- in our write-up entitled: Zoltan's Gold-mageddon Deconstructed: "Banks have been using rehypothecation for decades fearlessly with approval of global governments who in turn promised them Gold would never be used as a settlement medium—i.e. have a practical use — again." 

Here's some more context in terms of how little gold we have compared to how much Gold banks have shorted.

"Zoltan is telling us indirectly what Banks and Nations fear about this Gold-as-settlement-medium concept.  Ultimately the root of banking's short Gold bias is the fact that noone needs Gold in hand for anything that cannot be delayed3 until later. This was accomplished by the combination of permitting rehypothecation, changing tax status, and replacing it as the preferred MOE. Once these were done its remaining value as an SOV was an abstraction they could handle. They probably thought: Let it remain an SOV, like art and ceramic figurines. We don’t care. And that is how it has been for decades" 

Stated as a bank trader once said: Gold? We can short it until the cows come home. Why? Because not only is it unconsumed/indestructible, it isn’t used for anything anymore. Its price is how much more USD money we have to pay you to delay delivery. It’s a collectible, a pet rock, and nothing else. Short it. Government1 can’t let it back in as an MOE. If they did it would destroy them. If we go under, they go under. 2

Which brings us back to Pozsar's statement:

[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.

Remember, he is telling us banks use gold rehypothecation as a profit centerpredicated on the assumption by governments, gold would never come back as a medium of exchange for settlement between countries8. The monetary market-structure needed to support fiat made sure of it. This was all true, Until Now.

Gold is coming back as an MOE in one half the world. That probably made western banks with paper gold risk a little nervous. if banks are nervous, Central Banks might be petrified of an audit.  Egon is looking very correct in his opinion. 

The Vanishing Gold Reserves

It's true. The Fed, the Treasury, and most central banks, when it comes to Fort Knox gold, only hold IOUs issued by bullion banks that have already sold the borrowed metal. Over the years, that gold has found its way into more patient hands. There's simply not as much investable gold available as there was decades ago, even with new production.

IOU Expansion Under Clinton and Greenspan

This IOU process ramped up during the Clinton era, with Greenspan encouraging bullion banks to borrow gold for carry trades. Goldman Sachs and Citigroup led the charge back then. But why did this happen?

In reality, a Central Bank only holds an IOU issued by a bullion bank. If the central bank attempts to reclaim its gold, it will never get it back, as the gold has likely been sold to buyers in China or India, who have purchased it outright with no obligation to return it.

— Egon von Greyerz (@GoldSwitzerland) November 13, 2024

They did this because it benefited both parties. 

Mutual Benefits and Suppressed Gold Prices

The U.S. earned a small yield on their gold IOUs as the gold was "borrowed," providing a way to keep purchases from directly impacting the pricing system. The bullion banks got dollars for carry trades, and together they kept gold prices lower, as much of the borrowed gold was sold into the market publicly at times.

Greenspan was thrilled. The suppression of gold prices kept fears of inflation at bay and satisfied the bond vigilantes. 

Demand for Monetary Gold Dies

What they didn't anticipate was that nations storing gold with the U.S. would eventually want it back. Frankly, why would they want it back? Gold's value was priced in dollars. Anyone wanting their gold could be bought off with a yield for deferring delivery.

"I'll give it back to you next month; here's 1% yield on it. You don't need it; you need the cash it can give you anyway."

And this worked for decades because everyone trusted the U.S. As long as this continued, gold deliveries could be delayed indefinitely with USD interest payments. Gold was effectively demonetized in this way.

The Erosion of Trust and Limited Supply

But over time, trust in the U.S. eroded, especially after events like the Global Financial Crisis sounded alarm bells worldwide.

In a September 2021 interview that was the subject of an early GoldFix post, John Paulson was asked, "Do you think that gold is a good investment today?" His response from Paulson: Gold Goes Parabolic This Time Around

"Yeah, we do. There's a very limited amount of investable gold. It's on the order of several trillion dollars, while the total amount of financial assets is closer to $200 trillion. People [will] try and get out of fixed income. They try and get out of cash. And the logical place to go is gold."

That was a wake-up call to pay closer attention. 

The Russian Confiscation and Its Aftermath

Shortly after, the Russian confiscation in 2022 shattered the already diminishing trust in a heartbeat. It sealed gold's fate as the only logical replacement for nations selling U.S. Treasuries to avoid confiscation.

One by one, countries wanted their gold returned from U.S. coffers and could no longer be bought off with USD. Now, they actually have a use for their old and newly acquired gold—to secure their own wealth (replacing Treasuries) and back their local trade.

But Gold has been shorted in carry trades using futures for bullion bank profits since 1993. This is why, if you opened Fort Knox now, you'd find nothing but moths and half-eaten IOUs. Which brings us to Germany's repatriation request in 2013-2014.

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