Gold News: Dude, where's my gold? By Jan Skoyles
| Mar 9 2012
Amid 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:
The gold of the Swiss National Bank
must be stored physically in Switzerland
The SNB does not have the right to
sell any more of its gold reserves
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…