Will There Be A Central Bank Gold Run?…”Get ready”

Is a Central Bank Gold Run at Hand?

by Charles Goyette
Money and Markets

Recently by Charles Goyette: Presidential Debates, Round 2: The Third-Man Theme

On learning that French gold was being held by the U.S. Federal Reserve, French President Charles de Gaulle is reported to have said, “I could hardly sleep easily with such an arrangement.” So in 1965 he ordered French navy ships to cross the Atlantic to pick up $150 million in gold held in the Fed’s New York vaults and deliver it to the Banque de France in Paris.

It was a prudent move by de Gaulle. And it was consistent with the advice I have long given: Do not leave your gold in the care of somebody else. Take physical possession of your gold.

De Gaulle realized the United States was running an international con. It had promised that holders of U.S. dollars would always be able to redeem them for gold at the official rate of $35 per ounce. But like someone writing bad checks, it was clear that the U.S. was printing more dollars than it could possibly redeem at that rate.

De Gaulle was ahead of the pack. But before long other nations figured out the same thing and began demanding gold for the dollars they held. Soon Washington began to hemorrhage gold as it faced demands to redeem tens of billions of its paper dollars.

It was nothing less than a run on the U.S. gold bank …

On a single day in March 1971, 400 tons of gold were taken from the exchange mechanism, the London Gold Pool, forcing it to close. By August, President Nixon closed the gold window entirely, essentially defaulting on America’s explicit promise of dollar convertibility.

Germany Demands Accountability

Like France, Germany has had bitter national experience with the hyperinflation of fiat currency. It should not be surprising if both nations are sensitive bellwethers when funny money business is afoot. Now we are beginning to learn about steps Germany has been taking consistent with troubling questions today about the world’s central banks and the gold entrusted to their vaults.

In the (U.K.) Telegraph, Ambrose Evans-Pritchard reports a German court has ordered an inquiry into gold purportedly held for Germany in London, Paris, and New York:

The German Court of Auditors told legislators in a redacted report that the gold had “never been verified physically” and ordered the Bundesbank to secure access to the storage sites.

It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.

The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.

It may be that an audit will prove all of Germany’s gold in foreign central banks can be accounted for. It may have been that France’s gold would have been safe for decades in the hands of the Federal Reserve. But an environment like ours, toxic with monetary risk, demands good stewardship.

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