Dude, Where's My Gold?

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by Jan Skoyles The Real Asset Company

     

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:

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?

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