Skip to comments.Is Germany preparing for future capital controls? The reason why it is bringlng home it's gold?
Posted on 01/31/2013 2:39:00 PM PST by dennisw
The best indicator of a chess player's form is his ability to sense the climax of the game
Boris Spassky, World Chess Champion, 1969-1972
You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.
Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?
You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?
Pawn to A3
On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon one of the original reasons Germany had for storing its gold outside the country the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.
The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).
Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall they can't see the bigger implications and frequently miss the forest for the trees.
What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad it defeats the purpose of owning gold.
But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)
Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."
Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.
We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.
Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.
And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.
If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?
Remember, India keeps tinkering with ideas like this already.
What this means for you and me is that moving gold outside your country especially if you're a US citizen could be banned. Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.
None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.
The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.
Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.
The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller. Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.
The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves.
You only have to see the government's next two moves to "win" this game. I suggest learning what countermoves you can take now are, before your government declares checkmate.
The “game” is not chess, it’s musical chairs. If you’re the last guy, you go home without your gold.
They are moving their gold out of the US and France for the same reason.
“An interesting aspect of this story is that Germany has agreed to allow this transition to take place over the course of 8 years, which is a seemingly inordinate length of time, raising numerous questions ranging from the existence of the gold altogether to the complexity of the long standing gold leasing agreements. In either event, it seems the 8 year buffer is meant to allow as much time as is possible to prevent a complete fracturing of the gold reserve system.”
The terms “gold leasing agreements” and “gold reserve system” and the implications of this statement suggest to me that the custodianship is, at best, a little dicey.
It seems to me that if the gold were simply being held in the equivalent of a safety deposit box, it shouldn’t matter whether that box was in NYC under control of the Federal Reserve or in Germany under control of its owners. Anything more complicated than that raises the hair on the back of my neck.
Anyone with an IQ can see and question about why does it take so long to repatriate Germany’s gold back to Germany? And conclude that maybe we (USA) have to buy bullion on the open markets to give G bullion. Because we are out of it due to fraud
Are you aware that in the 1992 chaos most of the Russian Gov’t gold in reserve was stolen? Or was done previously.
So most USG gold (or does the FR lay claim ownership to it?) has been loaned out in gold leasing agreements. So is tied up and cannot be given to Germany in a timely fashion
I have found this website to be a very useful source of information on the economy, gold, and silver.
Thank goodness I have someone to think 14 moves ahead for me. /s
Correct. The Germans are prudent, they see France and the US going socialist and appropriating their gold. I’d take mine, too.
great link am reading it all!! Yes the great fear of The US Treasury (or is it the Federal Resrve, who owns our gold?) is others will copy Germany and the Dutch and Swiss will be the first
The German announcement mentioned New York, London, Paris.
Paris is the real source of fear. New York and London were noted to cover the moves out of doomed France.
Unmentioned was Switzerland home of the International Bank of Settlements
You should find on the internet how the USSR (Joe Stalin) stole Spain’s gold that was sent by ship to them. That was entrusted to them during the Spanish Civil war
Good read, thanks for posting the link.
Glad you all found it helpful.