Secure Gold Investment Vault

Dude, where’s my gold?

Jan Skoyles asks why Germany and Switzerland are requesting their gold from the United States 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…

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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles

  • http://www.westcoastladybugs.com RUSS SMITH

    Hi!, Fellow Americans:

    There’s a very simple solution to the dilema of any given government that proposes that gold is only a barberous relic with no use in our monetary system. They can let me know where to pick it up and take the no good stuff off their hands by truck. When, raaders, do you suspect that will happen to me? Enough said!!

    RUSS SMITH, CALIFORNIA

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  • JLS

    I don’t understand-why do other nations have physical gold stored in the US in the first place?

    • http://therealasset.co.uk/ Jan Skoyles

      In answer to your question, I point you in the direction of GATA, who state Germany keep their gold in the US ‘partly for international security reasons but more so now for ease of trading and general subservience to the United States.’

    • Axis-of-See-No-Evil

      If you found your country on someone’s list of “Axis-of-Evil” or “Alleged IAEA violator” and discovered that your foreign bank assets had been seized with no recourse, you would begin to understand. With each passing day, in one nation after another, the traditional rule of law goes out the window. Pre-trial asset seizures are now routine in the U.S. , and the nation was still officially on the gold standard (meaning citizens were paid in gold or a paper receipt for same) when FDR issued an Executive Order making ownership of gold illegal for U.S. citizens (foreigners were still allowed the privilege of exchanging their receipts- dollars- for gold though.)
      So if a republic is subject to rule by Executive Order, is it still a republic, or a dictatorship?
      And would a citizen not be better off if the gold reserves were held in their own country, where they might have some hope of holding their governments accountable?

  • Soshul Just Us

    The US should refuse to give Germany and Switzerland the gold. It belongs to the president of the United States. We are in the post-constitution era now. I’m sure the Swiss and Germans will accept this once they realize they are going to be targeted as threats to US national security under the new post-constitution legislation.

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  • http://socialeconomicspace.co.uk charles allcock

    The issue of paper money only represents the amount of gold (or silver) required for circulation of commodities. If more is put into circulation it still only represents the amount of gold required. Double the amount of paper would double prices. Only in so far as paper money represents gold, which like all other commodities has value, is it a symbol of value.
    so says Karl Marx in Das Capital

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