Gold Repatriation - Gainesville Coins

Gold Repatriation by Everett MillmanGainesville Coins ……
 

For reasons that have to do mainly with security, a number of America’s allies around the world have for decades agreed to store a portion of their national gold reserves — their sovereign gold — in New York. Specifically, at the Federal Reserve Bank of New York.

In the post-WWII world, this made plenty of sense. Not only has the United States been the wealthiest and most prosperous nation on the planet during this period, but it is also exceptionally well-protected from any outside attack. Thanks to the drive of Manifest Destiny in the 19th century, the country is protected on either side by vast oceans.

The same level of safety traditionally has not been true of Europe and the Middle East. However, many foreign powers have been rethinking the logic of this arrangement in recent years.

A Wave Of Gold Repatriation

This April, Turkey became the latest in a string of countries that have physically repatriated their reserves from U.S. vaults. The country reportedly brought 220 metric tonnes  from the New York Fed, according to The Gold Telegraph.

It’s fair to ask: Why is this important, and why is it happening?

A number of other countries, primarily in Europe, started this process about five years ago. Amid the shifting policies of central banks (especially the Fed) in the aftermath of the financial crisis, governments in the Netherlands, Germany, Austria, Belgium, and elsewhere decided it was smarter to hold their precious metals directly rather than relying on the U.S. as a custodian.

Germany started its repatriation in 2013 and has gradually been bringing home its gold stored in New York, which was well over 1,000 tons. A few hundred tons of Germany’s metal remain in Paris and London.

This isn’t merely a story about trust in American institutions — although that is certainly part of it. At the heart of this trend is the almighty U.S. dollar and its long reign as the world’s reserve currency.

De-Dollarization: Diversifying Away From The Dollar

Repatriation efforts actually signal a turn away from the dollar, which has dominated international trade and global monetary policy for the past seven decades.

Back then, when the United States was essentially the “last man standing” after the destruction of WWII, it held the vast majority of the world’s gold reserves. Under the Bretton Woods system, this meant that other central banks who held dollars were really holding claims to a portion of that gold. Until the “Nixon Shock” in 1971, those reserve dollars could (theoretically) be exchanged for gold bullion at any time.

For nearly 50 years, there has been no link between gold and the US Dollar. Its value is derived from mere fiat (government decree) and faith therein.

It’s not entirely surprising that the longer this fiat money regime continues, the more worried foreign governments become about securing their financial stability. Gold repatriation isn’t the only sign of this: Central banks, particularly in the East, have been consistently hoarding more gold bullion in the decade since the last economic crisis. China and Russia have been by far the leaders in this regard, but Turkey greatly accelerated its gold imports last year, as well.

In order to strengthen their own currencies or to diversify their reserves away from the ubiquitous dollar, these other central banks are overwhelmingly choosing gold as the best possible option. It appears that other countries have internalized the lesson that the notorious financier J.P. Morgan tried to impart onto Congress in 1912: “Money is gold, and nothing else.”

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The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.
 

1 COMMENT

  1. Quibble: The tonne IS a metric unit (= 1000 kg) so referring to “a metric tonne” is a bit like saying “a ten-cent dime”.

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