The
best indicator of a chess player's form is his ability to sense the climax of
the game.
–Boris Spassky, World Chess Champion, 1969-1972
You've likely heard that the German central bank announced it will
begin withdrawing part of its massive gold holdings from the United States as
well as all its holdings from France. By 2020, Bundesbank says it wants half
its gold reserves stored in its own vault in Germany.
Why would it want to physically move the metal from New York? It's not
as if US vaults are not secure, and since Germany already owns the gold, does
it really matter where it sits?
You may recall that Hugo Chávez did the same thing in late 2011,
repatriating much of his country's gold reserves from London. However, this
isn't a third-world dictatorship; Germany is a major ally of the US. So
what's going on?
Pawn to A3
On the surface, it may seem innocuous for Germany to move some pallets
of gold closer to home. Some observers note that since Russia isn't likely to
be invading Germany anytime soon – one of the original reasons Germany had
for storing its gold outside the country – the move is only natural and no
big deal. But Germany's gold stash represents roughly 10% of the world's gold
reserves, and the cost of moving it is not trivial, so we see greater import
in the move.
The Bundesbank said the purpose of the move was to "build trust
and confidence domestically, and the ability to exchange gold for foreign
currencies at gold-trading centers abroad within a short space of time."
It's just satisfying the worries of the commoners, in the mainstream view, as
well as giving themselves the ability to complete transactions faster. As evidence
that it's nothing more than this, Bundesbank points out that half of
Germany's gold will remain in New York and London (the US portion of reserves
will only be reduced from 45% to 37%).
Sounds reasonable. But these economists remind me of the analysts who every year claim the
price of gold will fall – they can't see the bigger
implications and frequently miss the forest for the trees.
Check
What your friendly government economist doesn't reveal and the
mainstream journalist doesn't report (or doesn't understand) is that in the
event of a US bankruptcy, euro implosion, or similar financial catastrophe,
access to gold would almost certainly be limited. If Germany were to actually
need its gold, regardless of the reason, any request for transfer or sale
would be… difficult. There would be, at the very least, delays. At worst such
requests could be denied, depending on the circumstances at the time. That's
not just bad – it defeats the purpose of owning gold.
But this still doesn't capture the greater significance of this
action. First, it reinforces the growing recognition that gold is money.
Physical bullion isn't just a commodity, a day-trading vehicle, or even an
investment. It's a store of value, a physical hedge against monetary
dislocations. In the ultimate extreme, it's something you can use to pay for
goods or services when all other means fail. It is precisely those who don't
recognize this historical fact who stand to lose the most in an adverse
monetary event. (Hello, government economist.)
Second, here's the quote that reveals the ultimate, backstop reason
for the move: Bundesbank stated it is a "pre-emptive" measure
"in case of a currency crisis."
Germany's central bank thinks a currency crisis is really possible.
That's a very sobering fact.
We agree, of course: history is very clear on this. No fiat currency
has lasted forever. Eventually they all fail. Whether the dollar goes to zero
or merely becomes a second-class currency in the global arena, the root cause
for failure is universal and inevitable: continual and perpetual dilution of
the currency.
Some level of currency crisis is inescapable at this point because
absolutely nothing has changed with worldwide debt levels, deficit spending,
and currency printing, except that they all continue to increase. While many
economists and politicians claim these actions are necessary and are leading
us to recovery, it's clear we have yet to experience the fallout from
spending more than we have and printing the difference. There will be serious
and painful consequences, sooner or later of an inflationary nature, and the
average person's standard of living will be greatly reduced.
And now there are rumblings that the Netherlands and Azerbaijan may
move their gold back home. If this trend gathers steam, we could easily see a
"gold run" in the same manner history has seen bank runs. Add in
high inflation or a major currency event and a very ugly vicious cycle could
ignite.
Checkmate
If other countries follow Germany's path or the mistrust between
central bankers grows, the next logical step would be to clamp down on gold
exports. It would be the beginning of the kind of stringent capital controls
Doug Casey and a few others have warned about for years. Think about it: is
it really so far-fetched to think politicians wouldn't somehow restrict the
movement of gold if their currencies and/or economies were failing?
Remember, India keeps tinkering with ideas like this already.
What this means for you and me is that moving gold outside your
country – especially if you're a US citizen – could be banned.
Fuel would be added to the fire by blaming gold for the dollar's ongoing
weakness. Don't think you need to store gold outside your country? The metal
you attempt to buy, sell, or trade within
your borders could be severely regulated, taxed, tracked, or even frozen in
such a crisis environment. You'd have easier access to foreign-held bullion,
depending on the country and the specific events.
None of this would take place in a vacuum. Transferring dollars
internationally would certainly be tightly restricted as well. Moving almost
any asset across borders could be declared illegal. Even your movement outside your
country could come under increased scrutiny and restriction.
The hint that all this is about to take place would be when
politicians publicly declare they would do no such a thing. You could quite
literally have 24 hours to make a move. If your resources were not already in
place, even the most nimble of us would have a very hard time making
arrangements.
Once the door is closed, attempting to move restricted assets across
international borders would come with serious penalties, almost certainly
including jail time. In such a tense atmosphere, you could easily be labeled
an enemy of the state just for trying to remove yourself from harm's way.
The message is clear: storing
some gold outside your country of residence is critical at this point, and
the window of time for doing so is getting smaller. Don't
just hope for the best; do something about it while you still can. The minor
effort made now could pay major dividends in the future. Besides, you won't
be any worse off for having some precious metals stored elsewhere.
If you're moved to take action, know that you're not alone. The Hard Assets Alliance had
its busiest month to date in December, and January is on pace to set another
sales record. International storage options are very attractive and include
Zurich, Melbourne, Singapore, and London. If you're unfamiliar with the
program, learn about this breakthrough
service. Even if you choose another method to store
precious metals internationally, it's critical that you take these first
steps now.
The best chess players in the world aren't that way because they can
see the next move. They're champions because they can see the next 14 moves.
You only have to see the next two moves to "win" this game.
I suggest making those moves now before your government declares checkmate.
