When Trust And Confidence Collapse

Reports from Turkish media outlet Yeni Safak suggest that the country brought back all of its gold stored in the U.S. Federal Reserve.

The reports published Thursday indicate that the country repatriated 220 tons of from the U.S. sometime last year. At the time of publication, Kitco News was unable to confirm the news.

The country’s gold reserves currently rank eleventh in the world, behind India, with about 526 metric tons, according to the data compiled by the The Statistics Portal.

Earlier this week, Erdogan called for the International Monetary Fund (IMF) loans to be paid in gold and not U.S. dollars.

Turkish media reported Erdogan as saying, “These debts should be in gold. Because at this point the karat of gold is unlike anything else.

The world is continually putting us under currency pressure with the dollar. We need to save states and nations from this currency pressure.”

The gold repatriation trend was kicked off by Germany last summer when the central bank completed the move of 674 metric tons from the vaults of the Federal Reserve Bank of New York and the Banque de France three years ahead of schedule. And prior to that, Germany had repatriated 940 tons of gold from the Bank of England.

Hungary followed in March when the country’s central bank said that it is planning to bring back 100,000 ounces of gold back from London.

 My view:

Since 2012, the drumbeats of gold repatriation have been beating steadily louder. 

The country to kick off this event was Venezuela, which had its own reasons to repatriation as its socialist policies drove the country into hyperinflation and insolvency. 

Nevertheless, the fact that Venezuela did not trust the custodianship of their gold in London vaults, spoke loudly regarding the state of confidence in the current global money system. 

Over the last few years the Netherlands, Belgium, Germany, and now Turkey have repatriated their gold from American vaults.  Now Hungary has also joined the club of doubters.

What can we expect the future to look like in a world that is losing trust in the present monetary system?

Certainly, higher government bond yields will be required to attract buyers of government debt as sovereign debt loads continue to spiral upward.  But this sets up a vicious cycle as government deficits continue to add to the total debts, and higher interest rates compound the borrowing problem.

The United States is now spending as much on interest payments on its debt, as it does on annual military spending!

When the bond market finally breaks down, we will see a monetary reset and a new system put in place as insolvent governments will be unable to pay their obligations (think pensions and healthcare benefits in particular).

In a reset environment, ownership of physical precious metals will be of utmost importance, in my view as confidence in Central Banking declines to near zero.

As John Exter clearly showed in his inverse liquidity pyramid years ago, gold is the pivot on which the financial system is constructed even if it is officially “fiat”. 

In my view, the IMF will likely rise in prominence with gold as a foundation for any new currencies that arise in the wake of the collapse of the existing monetary system.