US Repositories: All that Glisters is not Gold
By Ann-Marie de Veer
Saturday 12 July 2014
The Gold Standard, in its various forms and guises, has been around for thousands of years assuming the role of a monetary system and an economic unit of account for people all over the world. That is until the 20th Century, or so we were led to believe.
In a conference that ran from the 1-22 July 1944, as World War II was drawing to a close, the delegates of forty-four allied nations met in a hotel in Bretton Woods, New Hampshire, US to establish the future rules of monetary management for commercial and financial relations among the world's major industrial powers. The key requirement of the agreement was an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and for them to lodge their gold reserves with the US Federal Reserve to facilitate foreign currency payments in the new reserve currency, the US dollar. It was known as the Bretton Woods System.
The rationale behind the adoption of this system was multifaceted. In short, it was acknowledged that the need for a world monetary policy had been learned from the ravages of World War I, the inadequacies of the global de facto, if not de jure, British gold standard in 1925 and the Great Depression of 1929 that followed soon after. Thus, in 1945 when hostilities ceased and World War II was at an end, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) started operations as more and more countries ratified the agreement in their national governments.
Thereafter, the gold standard ceased to exist, or did it?
Fast forward to 1971, when the US dollar plummeted in value against other currencies primarily because of fiscal mismanagement and the costs of its warmongering in Vietnam, former West Germany left the Bretton Woods System as it was unwilling to revalue its Deutsche Mark. As the US dollar continued to fall other countries began to redeem their dollar holdings and both Switzerland and France demanded, and received, the repatriation of US $50m and US $191m in gold respectively.
On the 15 August 1971, the US Nixon regime announced its departure from the Bretton Woods System and promptly devalued the dollar to protect its economy. The de facto monetary system that emerged, a conglomeration of freely floating fiat currencies, remains in place to the present day.
And so, returning to the issue of gold.
During the Cold War (1946-1991), Germany lodged the majority of its gold reserves abroad, in France, London and New York in case of attack by the former Union of Soviet Socialist Republic (USSR). However, as the perceived threat diminished and the stability of the region became more assured civic groups within Germany began to call for the repatriation of their gold reserves.
Moving forward again, this time to the 21st Century.
In October 2012, the German Court of Auditors ordered the Deutsche Bundesbank (DB) to secure access to its gold reserves held in London, Paris and New York to carry out an audit of its holdings and for the repatriation of 150 tons over the next three years to test its quality and weight. The reasoning was simple: the gold had never been physically verified and neither the auditors or the DB had a register of the numbered gold bars. However, the underlying subtext of the banks statement, as voiced by various civic groups, was that the official data could not be trusted and repatriation and verification was the only recourse available to satisfy the public.
The DB went on to issue a statement in January 2013, saying:
- It had full trust in the integrity and independence of its custodians, and is given detailed accounts each year.
While hinting at further steps to secure its reserves.
- This could also involve relocating part of the holdings.
On the 16 January 2013, the DB went on to issue a formal statement and a new storage plan (Page 17) for the nations gold reserves. They envisaged the movement of 300 tons from New York and 374 tons from Paris over the next 8 years:
|Germany's Gold Reserves (3,391 Tons)|
|Deutsche Bundesbank Plan||de Veer Calculations||Receipts/Despatched|
|Location||2012||2020||Av.%/Yr.||Av.Tons/Yr.||Tons - 2013|
|Frankfurt||31%||50%||2.375%||80.53625||(Total Receipts) 37|
|New York||45%||37%||1||33.91||(Despatched) 5|
Why it should take 8 years to repatriate the gold is a good question and neither the DB or the repositories involved offered an explanation.
Of course, there are some who believe that the phased return of the gold reserves is to prevent a run on the repositories reserves and send a signal to other countries who may also wish to repatriate their gold that if they should ask they are likely to get a similar response. While there are others who think that the gold is simply not there, that it has been sold many times over in what is known as a Ponzi scheme.
Whatever the reason, while London and Paris appear to have been more accommodating, neither the Federal Reserve Bank of New York, nor the United States Bullion Depository, aka. Fort Knox, will allow any depositor to independently verify its own reserves, let alone submit to a full external audit.
Returning to the German dilemma; one year later, in an update on the DB website dated 20 January 2014, the bank states that only 37 tons have been returned, 32 tons from Paris and 5 tons from New York as shown in the table above.
As Oscar Wilde may have said:
- To lose 14 tons may be regarded as a misfortune; to lose 28 tons looks like carelessness.
What is interesting here is that between 2000 and 2001, soon after the launch of the European Euro currency in 1999, DB reduced its London holdings of gold from 1440 tons to 500 tons, allegedly because of storage costs but more likely as a monetary reserve when the value of the Euro dropped significantly in 2000. That 940 tons were shipped in less than one year by air freight from London to Frankfurt is notable.
Further, Germany is not alone in its wish to repatriate its gold reserves. Venezuela recently demanded, and received, the return of its gold from London while Romania, Ecuador, Switzerland and Holland are also interested in the return of some, or all, of their holdings from abroad.
Clearly these events posit two key questions that have yet to be answered:
- Do the US repositories actually have the gold thay say they have?
- Is this a de facto return of the gold standard?
The only rational response to the former is that until depositors holdings are independently verified and accounted for in a simultaneous audit they should assume their 'bars' are nothing more than lead ingots sprinkled with pixie dust. As for the latter. the gold standard, whether it was a de facto implementation, or of de jure legal standing, has never really been in question, as the demise of the Bretton Woods System proves. The fact that gold has been, is now, and always will be for the foreseeable future a hedge against whatever fiat monetary system is in play is patently obvious.
That the US repositories are bereft of gold is not in dispute. Just how much longer they can fool their depositors remains to be seen but it appears that the list is diminishing fast.
- All that glisters is not gold;
- Often have you heard that told:
- Many a man his life hath sold
- But my outside to behold:
- Gilded tombs do worms enfold.
- Had you been as wise as bold,
- Young in limbs, in judgment old,
- Your answer had not been inscrolled.
- Fare you well. Your suit is cold—
- Cold, indeed, and labor lost.
- Then, farewell, heat, and welcome, frost!
- Portia, adieu. I have too grieved a heart
- To take a tedious leave. Thus losers part.
- William Shakespeare, The Merchant of Venice