While many cling to the disproven notion that gold is irrelevant to modern finance, mysterious dealings in the global gold market suggest that gold still matters to some very powerful entities.

According to former Federal Reserve Chairman Alan Greenspan, "gold still holds reign over the financial system as the ultimate source of payment." World Bank President Robert Zoellick has advocated a new global currency regime that employs gold as "an international reference point of market expectations about inflation, deflation, and future currency values." Central banks around the world, most notably China, are actively expanding their gold holdings, as the major fiat reserve currencies continue to signal long-term structural weakness.

Gold is like a pancreas: Few people seem to know what it does, yet it's indispensible to a properly functioning system. So just imagine that your doctor told you your pancreas could not be examined.

That's precisely where gold is today. The global financial system isn't exactly known for its transparency, but gold may be its most shrouded and secret aspect.

Witnessing the veil
Chris Wood, of brokerage firm CLSA Asia-Pacific Markets, broke a significant story recently when he reported that Belgium's central bank admitted to having loaned out 41% of bank's gold reserves as of the end of 2010. The bank reportedly earned only 0.3% on those loans -- which also raises legitimate questions about why it made them. More importantly, we now have proof that at least one central bank practices what many gold market observers like the Gold Anti-Trust Action Committee (GATA) have long suspected.

Though the media didn't cover this story much, John Embry, chief investment strategist for the gold gurus at Sprott Asset Management, noted:

When they (western central banks) report having 30,000 tons, that is not true.  They may say they still maintain ownership, but they do not have it and they will never get it back.  It’s been sold, it’s gone into the market and it’s gone.  Ultimately I assume that gets settled up with cash, but for Belgium to admit it the other day, yeah I was taken a bit by surprise because it confirmed my thoughts on the subject.

Occasionally, the gold market gets so odd that even the general public notices. The Bank for International Settlements, the umbrella bank for central banks, sent ripples through the gold market last July when a footnote within its annual report revealed swaps involving 380 tonnes of gold. Since no details of the transaction were provided, except for a subsequent clarification that the transactions were conducted with commercial banks, that item stands as further corroboration that complex gold swap arrangements likely propagate outside the realm of public knowledge. More recently, the BIS revealed that gold held in swap operations increased 18% for the year ending March 31, 2011.

When a central bank loans much its gold reserves to unknown parties, and the BIS conducts gold swaps with commercial banks, I believe it's more than reasonable to check up on the world's largest reported official gold hoard: that of the United States. As GATA pointed out in this 2008 full-page advertisement in The Wall Street Journal, "the gold reserves of the United States have not been fully and independently audited for half a century."

Requiring more than a simple inventory at Fort Knox and other key depositories, only a full and independent audit can confirm that the entire reported stockpile is not only present, but also free from any manner of encumbrance by competing claims to the gold. To that end, Rep. Ron Paul (R-Texas) has sponsored H.R. 1495, the Gold Reserve Transparency Act of 2011. This bill parallels Paul's better-known effort to force an audit of the Federal Reserve. Frankly, both efforts could help make the global gold market much more transparent.

What lies beneath?
Would true transparency reveal a coordinated scheme to suppress gold prices, as GATA strongly suspects? Has much of the U.S. gold reserve been leased, swapped, or otherwise claimed by outside parties? Are major financial institutions able to build powerful positions within futures and derivatives markets by leveraging competing claims to an insufficient physical supply in a high-stakes twist of fractional reserve banking?

People whose business depends on knowing the gold market have asked all these questions, and more. Until gold's secrecy ends, they may never get answers. Remarkably, the U.S. has reportedly pledged 17% of its gold reserves to the International Monetary Fund, yet even Rep. Paul isn't sure whether that gold's included in the official U.S. gold tally.

What we do know
For all that we don't know about gold, I encourage investors to stay focused on what we do know. Whether or not U.S. gold reserves are 100% unencumbered (a key word to look for when evaluating physical gold stockpiles), my own due diligence leaves me satisfied that the bullion holdings of Central Fund of Canada (AMEX: CEF) and the Sprott Physical Gold Trust (NYSE: PHYS) meet that important standard.

Furthermore, while none of us are likely to receive an invitation to personally inspect the vaults at Fort Knox, the companies that mine gold of their own operate far more transparently. The myriad hoops a miner must jump through before reporting NI 43-101-compliant proven and probable reserves of gold offers investors substantial peace of mind.

China may have managed to grow its official gold reserves clandestinely during the last decade, but when Brigus Gold (AMEX: BRD) encounters 4,165 grams per ton of gold within an exploration drill sample, those findings quickly enter the public record. When Northgate Minerals (AMEX: NXG) supplements 2.8 million ounces of existing gold reserves at the Young Davidson deposit with 4.31 gpt of gold over a 79.6-meter interval within a new discovery zone, I'm not sure I'd trade my shares for all the gold in Fort Knox.

Claims can certainly exist against an underground asset, as with the formerly common practice of hedging future production through derivatives, but miners still disclose such deals. Likewise, the gold market fully knows that Royal Gold (NYSE: RGLD) holds an interest in Goldcorp's (NYSE: GG) Penasquito mine through a 2% net smelter return, and adjusts asset valuations accordingly. The same is true of Thompson Creek Metals' (NYSE: TC), which owes 25% of payable gold production from the pending Mt. Milligan mine to Royal Gold.

In a global gold market full of unknowns, I seek shelter in the parts of the market that I do know. I think gold prices must trend higher, and that gold miners as a group offer lots of great ways for bargain-priced exposure. In the meantime, I can only hope that more transparency will one day make gold an even better barometer of global financial distress.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.