Apparently, the Perth Mint managers are gluttons for punishment. Not deterred by being proven to have run a fractional reserve physical gold system, their CEO Richard Hayes went on Kitco to talk numbers. The problem is, he left the truth at the door.
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Daniel and I explain how his opinions on Perth physical holdings are refuted by the facts of their own audited, published financial statements. Perth has lent customers gold for interest and does not have enough unallocated gold to cover customer positions. A dangerous situation for its customers, the Perth Mint has chosen to accept the risk and transfer it to the taxpayers in Australia.
You see, The Perth Mint is backed by the Australian government. That means any scheme that loses money will likely get paid back with taxpayer money. So while the Perth Mint doesn’t have to worry about the risks it takes, it’s bullion customers do. They are likely to be without access to their safe-haven gold at just the time it’s needed.
When the next financial crisis comes, the run on gold and silver will prevent the Perth Mint from sourcing enough metals in the market to make their customers whole. And who knows whether customers will have time to wait, during dire times, for the slow government system to make them whole eventually.
Lastly, the question remains as to who the counterparty is in the Perth Mint lent metals. Only a large bank or an exchange would have the cash to fund interest payments. Dealers don’t make enough margin to pay for it. Likely, the Perth Mint has provided liquidity to the market that has been used to meet current demand, essentially with twice sold gold. How this plays out, in the long run, is anyone’s guess. But, it’s Buyer Beware with the Perth Mint in Australia!
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