I am in Munich giving a presentation to our German Safe Money partners on the epic battle between the “real world” and central bank “fantasy land.” So I’ve asked Charles Goyette to fill in for me. I’m sure you’ll find his column eye-opening and it includes an important lesson. — Mike |
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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.
What Have Central Banks
Done with the People’s Gold?
Recently I wrote an article questioning whether or not central banks have the gold they say they do. Even if the bullion is in inventory, there are pressing questions about who may hold actual title to the gold, whether it has been loaned, pledged, swapped, or sold.
The Telegraph alludes to the issue of title as well, reporting the German court’s action “follows claims by the German civic campaign group ‘Bring Back our Gold’ and its U.S. allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or ‘sold short’ much of their gold.”
Asking if gold bars are actually in place is a question of inventory. Questions about title are issues that should be answered by a thorough audit. But there remain equally justifiable concerns about the authenticity of the gold held by central banks, and other depositories for that matter.
Another concerning topic is fake gold. It is by no means a marginal issue, but one that is serious enough that this year, for the first time, some of the U.S. gold held by the New York Fed has been subjected to being drilled for assay samples to test for purity. No results have been released.
Closing Thoughts
Those who showed up after August 15, 1971 with U.S. dollars they hoped to exchange for gold were too late. But de Gaulle knew there was something fishy about U.S. monetary practices well before Nixon defaulted on America’s gold promises. In today’s troubled environment, Germany is acting like its monetary senses are tingling.
There are warning signs aplenty for Americans that monetary conditions are growing more fragile by the day and that the fiat dollar will not last. It would be nice to know that at least the people’s gold assets are secure.
In any case, remember this lesson:
Do not leave your gold in the care of somebody else.
Take physical possession of your gold.
For your Freedom and Prosperity,
Charles
P.S. As you can see, America has reached a tipping point. That’s why I’ve put together a Survival Kit to help you protect your finances, your family, and your future from the turmoil ahead. And I want to get this valuable guide in your hands as quickly as possible.
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So then, you would be against buying GLD, the largest gold ETF?
Hmm……You must have missed the point and final statement! “Do not leave your gold in the care of somebody else.Take physical possession of your gold.”
There is another thing to consider. The gold futures market is subject to a short squeeze. The buyer of a gold futures contract who holds the contract to maturity pays the full amount in cash for the gold and gets a warehouse receipt for the gold. He then can go to the warehouse and get his physical gold. The problem is there are about 100 warehouse receipts for every contract amount of physical gold that could actually be delivered from the warehouse. If even a small fraction of the holders of these receipts demanded their gold at the same time the futures exchanges would have a disastrous failure with another loss of confidence in the financial system. The holders of the warehouse receipts would not be able to get the gold they paid for.
What you describe used to be called counterfeiting.
Once again it has been proven that:
“If you don’t hold it, you don’t own it”… Ponce
Also: Keep in the bank only what you need to pay bills and nothing more
I couldn’t agree more. I do have to say I believe that your message is getting through to the average joe. We’ve seen a huge jump in our business of people having us form the IRA-LLC so that they can take physical possession of the American Eagles and store them at home rather than with a custodian or bank. Thanks to articles like this one and authors like yourself. Many clients of Check Book IRA have told us they never in their wildest dreams thought their gold wasn’t safe unless it was “in hand”. Keep up the good work!
According to the paper below there are non-destructive methods of testing the identity of gold. Since bars are standardized in a few sizes, it should not be difficult do test each bar. The testing of coins because of their variety and large number should be more difficult.
The problem of fake gold bars
By Felix Salmon March 25, 2012
Email Print in Sharegold
You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.
Of course, there are means of testing gold bars beyond just weight and XRF. If you can weigh the bar accurately, then you can test for purity by essentially dropping it in a bucket of water and seeing how much the water level rises: a gold-covered tungsten bar will displace more water than a pure gold bar. Alternatively, for $3,000 or so you can buy a micro ohm meter, which is easily sensitive enough to tell the difference in conductivity between a pure gold bar and one which is largely tungsten.
But as far as I know, these tests are not particularly commonplace among gold dealers, and in any case only a minuscule fraction of the gold bars in the world are physically traded, changing hands from one owner to the next — the obvious point at which tests like these would be conducted. If you own gold — if you’re a central bank, say, or a physical-gold ETF, or even if you’re just a Ron Paul or Glenn Beck type with your own personal stash — then there’s no realistic chance at all that you’re going to go bar by bar through your own holdings, testing each one
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Is silver safe to buy?
What are the silver profit growth predictions?