Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
Students, It’s Time to Prepare Your Finances for the Years Ahead - 25th Jul 17
Stock Market and Gold Stocks Trend Forecast Update - 25th Jul 17
Saving Illinois: Getting More Bang for Its Bucks - 24th Jul 17
3 Stocks Sectors That Will Win in The Fed’s Great Balance-Sheet Unwind - 24th Jul 17
Activist Investors Are Taking Over Wall Street, Procter and Gamble Might Never Remain the Same - 24th Jul 17
Stock Market Still on Track - 24th Jul 17
Last Chance For US Dollar To Rally - 24th Jul 17
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Dude, Where’s my Gold?

Commodities / Gold and Silver 2012 Mar 09, 2012 - 09:22 AM GMT

By: Jan_Skoyles

Commodities

Best Financial Markets Analysis ArticleAmid reports of Germany and Switzerland requesting their gold from the United States, Jan Skoyles asks why do they want it back considering their monetary policies?  The repatriation of gold is a growing topic of interest since Venezuela demonstrated how much value they place on their gold reserves. With escalating gold prices, growing gold investment demand and faltering Western economies is it any wonder German and Swiss politicians are asking where their gold is.


At the end of January Venezuela received the last of their 160 tonnes of repatriated gold reserves. Many, including some of the country’s own economists thought Chavez was mad to bring back the gold; that it was an expensive and unnecessary operation.

But now it seems distance makes the heart grow fonder for other countries as well with reports of both Germany and Switzerland on the verge of requesting the return of their gold from the United States. This is not surprising considering both countries were at the forefront of the increased gold demand in Europe in 2011. Germany particularly saw an increased demand for physical bars in allocated accounts.

It is interesting that whilst governments and their central banks choose to implement Keynesian-based policies when trying to quickly fix their economies, they cannot bring themselves to rid their country’s reserves of the barbarous relic. No domestic prices, in the West, are currently tied to gold, ‘nor does gold sit in reserve for any of the West’s currencies. So why are they so concerned?

The people’s gold

In Switzerland, as in Germany, it is the citizens who seem to be most concerned as to the location of their gold. It is, after all, theirs as the four parliamentarians presenting the ‘Gold Initiative’ point out. The Initiative stated the Swiss people should vote on the following:

i)                    The gold of the Swiss National Bank must be stored physically in Switzerland;

ii)                   The SNB does not have the right to sell any more of its gold reserves;

iii)                 The SNB must hold at least 20% of its assets in gold.

In Germany a Parliamentary Budget Committee is set to investigate how the country’s gold reserves are managed. At present the gold reserves represent 42% of money held in reserves. The investigation has come about as a result of the German Federal Audit Office’s criticism of Bundesbank’s management of the country’s 3,396.3 tonnes of the yellow metal. The Audit Office is said to have buckled to the pressure of German citizens and politicians interested to know where their gold is.

It is believed 60% – 70% of the country’s gold reserves are kept at 33 Liberty Street, the Federal Reserve Bank of New York. The official line is; it is kept here to facilitate trade and payments. German newspaper, Bild, report that Germany’s gold reserves in the US have not been audited by the Bundesbank since 2007 – a clear breach of the law. Bundesbank President Jens Weidmann, is reported to have said that the gold bar list is kept secret and any demands on the New York Federal Reserve bank would ‘endanger the trust between alliance bank and the Fed.’

Untouchable gold

When Germany’s economy minister Philip Roesler, was asked why Germany’s gold reserves couldn’t be used to boost the Eurozone’s bailout funds he responded by saying the country’s gold must remain ‘untouchable’ perhaps he hadn’t realised just quite how untouchable.

But why the worry about the country’s gold now? Why have the Federal Audit Office only just started asking questions as to where the country’s gold is?

In 2009, the ECB’s director of market operations stated “there are four ideas behind those gold holdings [of the Eurozone]: The economic security; the capacity to face unexpected needs; the question of confidence; and the risk diversification issue.” So have one of these issues now become relevant?

Gold possession

Many are commenting online as to what the countries’ motives are for (almost) making such a move. Some question if it’s because they don’t trust the US government for keeping the gold where they say it is, or if it is there, how do they know it’s theirs?

Charles de Gaulle famously sent air freight carriers, between 1962 and 1966, to New York to collect France’s $3 billion worth gold. President de Gaulle wanted the gold back because he did not trust the US government’s motives in the monetary system. The Frenchman wanted an international monetary system which did not “bear the stamp of any country in particular.”

One man very close to the American government also doesn’t believe the gold is there – Congressman Ron Paul. In 2011 he a sponsored a new Bill, ‘The Gold Reserve Transparency Act of 2011’ in the hope of directing the Treasury to ‘conduct a full assay, inventory, and audit of federal gold reserves, including an analysis of the sufficiency of the measures taken for their security.’ But once again, if governments don’t see a role for gold, as Keynesian economics states, then why worry if it is there or not?

Weak dollar, strong gold

The other concern is obviously the weakness of the US dollar, particularly with the increasing amounts of QE alongside record levels of low interest rates. The US’ s sovereign debt downgrade last summer and the rumoured new plan ‘reverse repo’ or its MOPE plan (Management of Perspective Economics), have most likely got other countries asking if the Americans really have got this under control.

Warren Buffet recently explained to investors that the dollar has lost between 80-90% of its value in the last 30-50 years. Inflation figures, according to Congressman Ron Paul last week, sit at 9%, day after day the US dollar loses value, and Americans are feeling it. It’s an election year, with several of the GOP candidates calling for a review into the use of gold in the monetary system. That extra gold in the US’s vaults could come in very handy.

Other reasons for the growing concerns for Germany’s gold are due to the fact that they are effectively backing the Euro. Should the ECB and Euro collapse, the gold, held by the US, could easily transfer into US ownership as collateral for the previously agreed dollar swap arrangements with the ECB. The World Gold Council has long cited the euro area sovereign debt crisis as the reason for the net gold buying activities by Central Banks, but this may not be much use if your gold isn’t in your own vault.

Believe in gold

Whatever the reason for Germany’s new found interest in its gold it goes to show that the security gold offers us, is a feeling intrinsic to us all. The thought of a country losing its gold feels like a threat to national security – unsurprising as this is a common event during warfare.

Throughout years of economic lessons I was taught that gold no longer circulates as money due to the restrictions it places on the central banks when it would like to inflate the money supply. We were basically taught that the Central bank would be a much more successful steward of our monetary system than something which has successfully been in the job for two thousand years. So why do governments even keep gold?

The possession of gold implies that central bankers and governments are unable to fully support the idea that treasury bills and bonds, or the value of the PIIGS’ sovereign debt really are of any value to a country’s monetary system. It seems as though those at the top have forgotten the serious lesson of mainstream neoclassical economics – gold is of little use to a country (apparently).

Or have they purposefully forgotten this? Have they now realised that gold is safer than fiat money, or a country is trusted if it holds gold, or a country is seen as more reliable should it hold gold? Most of all, they seem to have purposefully forgotten that a gold backed monetary system is a barbarous relic. Economists from the Austrian school are having a good laugh…

Protect yourself from bankers and politicians. Buy gold bullion safely and securely with The Real Asset Company.

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife