17.02.2020 Author: Vladimir Odintsov

Where Is the Gold Rush Leading to?

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Lately we have, with increasing frequency, been witness to fairly significant events. However, those involved in them usually attempt to hide what is happening behind a wall of secrecy.

For instance, at the end of last year, the process of moving Polish gold reserves from Great Britain back home was completed in secret. G4S plc, a UK security services company, helped Warsaw transport 8,000 bars made of the precious metal (weighing 100 tons). Polish gold was first brought to London during the Second World War. Several dozen tons of the precious metal as well as a collection of gold coins were transported to the UK capital to prevent the Third Reich from getting hold of this treasure. However, once the war ended, Warsaw decided not to repatriate its reserves under the pretext that Great Britain was one of the world’s most reputable storage centers for precious metals. But now Poland’s stance on the issue has completely changed for a number of reasons. The National Bank of Poland has attempted to explain this move with a statement that they needed to “diversify the storage locations of their gold resources in order to limit geopolitical risk, which could result, for example, in losing access to or restriction of the availability of gold resources held abroad”.

Still, Brexit must have had quite a significant effect on Warsaw’s decision, since leaving the European Union meant that the United Kingdom officially lost its status as Europe’s key financial hub. After all, it is well known that gold is usually stored in the vicinity of a financial market where it can be traded in order to save on transportation costs, because insurance for shipping precious metals is extremely expensive. Only during exceptional economic and political circumstances is the decision to spend many millions on moving gold reserves made. Hence, for the past century, many nations of the world chose to store this precious metal primarily in Great Britain and the United States.

It is also possible that Poland’s decision to bring back its gold reserves from London stemmed, to a certain extent, from the European Central Bank’s refusal, on account of the looming Brexit, to renew the Central Bank Gold Agreement with the Bank of England upon its expiry in 2019 (in the past, such deals had been brokered on a daily basis at the London headquarters for Rothschild Bank on St. Swithin’s Lane). Hence, we can predict that such a move will finally free the global precious metals market from a century-long control and manipulation over it by the Bank of England and by the Rothschild’s dynasty.

As for Warsaw’s completed operation to repatriate its gold, it is essential to point out that many other countries had begun to take similar actions more and more often starting in 2012. For instance, at the time, Venezuela announced that it would bring back all of its gold (i.e. 160 tons worth approximately $9 billion) home. This happened after the then President Hugo Chávez stated that the bars had to be returned to Venezuela because they could one day turn into Washington’s “hostages” and thus an instrument of pressure. And six years later, this is exactly what transpired. London and Washington blocked the repatriation of Venezuela’s gold.

It is also important to remind our readers that, in addition to the incident with Venezuela, Western “keepers of gold” have used the precious metal as a political tool on more than one occasion over the past century. For instance, after numerous delays in returning France’s considerable gold reserves (stored in the United States after the start of World War II), Washington was finally compelled to fulfil the French request in 1965 as a result of actions taken by President Charles de Gaulle, who demanded that the gold be exchanged for relatively worthless US dollars which had accrued in the Banque de France. However, we all know what happened next, student protests in France led to the resignation of Charles de Gaulle as President in 1969. At the time, several French analysts believed that the United States was responsible for what had happened.

Then other countries followed in France’s footsteps. Germany, Japan, Canada, Australia and a number of other nations similarly demanded that US dollars be exchanged for their gold. And these countries asked for more of their reserves back in comparison to France. Forced to comply with these demands, the United States was visibly going bankrupt and Fort Knox’s vaults were growing empty by the minute. In March 1968, Americans cancelled the direct international convertibility of the United States dollar to gold. In fact, in June 1971, all of USA’s reserves were worth only 10 billion US dollars!

The West used gold as a political tool and a form of “punishment” yet again in 1982 when the dollar price of this precious metal (a key export for Moscow at the time) mysteriously plummeted from $850 per ounce to $300 per ounce as a result of USSR’s invasion of Afghanistan.

At present, US gold reserves are continuing to be depleted. The reasons for such a state of affairs are obvious: the rising federal funds rate; pressure on the Euro and other currencies; greater geopolitical risks; trade wars initiated by Washington, and U.S. sanctions levelled against the rest of the world. In such a climate, even USA’s allies are trying to reduce their dependency on the US dollar.

In 2014, the central bank of the Netherlands transported 120 tons of gold from New York to Holland, thus leaving 30% of this precious metal in the United States instead of 50% as before. Amsterdam attempted to explain this move with a statement that keeping half of its gold reserves in one place (a prudent step during war) was unwise and impractical in current times. At the same time, a number of analysts are confident that the Netherlands will continue to repatriate its gold from the United States in order to mitigate risks associated with unpredictable actions taken by President Donald Trump.

In 2012, Germany also started removing its gold from the United States (which was stored there since the end of World War II). Approximately 300 tons of this precious metal have already been returned to the vaults of the Bundesbank (the central bank of the Federal Republic of Germany) in Frankfurt.

In 2018, Turkey completed the process of transporting 27.8 tons of its gold from the United States back to its national vault.

It is important not to forget that having gold reserves is an important means of protecting oneself from crises and economic upheavals. 2019 was a year of paradigm shifts that will have far-reaching consequences for global financial markets. The US dollar is no longer the only viable global currency or the preferred means of storing funds for a rainy day. Instead, nowadays, central banks all over the world are beginning to revert to the oldest of currencies — gold, as no one has any doubts about its value.

Fewer nations trust the United States these days since there are absolutely no guarantees that Washington, which has more and more often resorted to the use of financial pressure, will not freeze the assets of “inconvenient” countries.

Hence, practically all the nations with advanced economies have actively begun buying gold on global markets recently.  For central banks of many developed countries savings in gold are a safe haven asset that can be utilized during a global financial crisis. After all, the reason why a nation, in any part of the world, keeps gold reserves is to firmly support its national currency and to ensure its liquidity (reflected by the amount of this precious metal stored in its banks).  The bigger the nation’s gold holdings, the more independent its economy is. After all, the precious metal has always been an effective means of payment world-wide.

According to a survey conducted by PricewaterhouseCoopers (a tax and consulting services network) in preparation for the Forum in Davos, pessimism felt by top managers all over the globe regarding the prospects of economic growth is at record highs. Problems with the global economy become exacerbated faster than hopes rise, and as the number of such issues increases, the trust in the U.S. dollar falls.

Hence, it is not surprising that gold is being accrued all over the world nowadays. The purchase of this precious metal by central banks is a stable trend, lasting for the past 10 years, and it resulted from the global crisis of 2008-2009. And judging by the rate at which nations are accruing gold, we could conclude that the central banks of Germany, France, Italy, Russia, China. Turkey and other countries are expecting the next global financial crisis soon and are preparing for it. In fact, many think tanks and media outlets have been doggedly warning the public about the upcoming economic downturn.

Vladimir Odintsov, expert politologist, exclusively for the online magazine ‘New Eastern Outlook’.


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