Signs of a Greater Role for Gold In the Global Monetary System, Silver Bull Market Begins
"Gold symbolizes the strength of the country."
"Gold is the perfect piggy bank – it's the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again."
"Gold... is not an asset ‘issued’ by a government or a central bank and so does not depend on the issuer’s solvency."
"Gold has grown in importance over the course of history, first as medium of payment, later as the bedrock of stability for the international monetary system."
One could be forgiven to attribute the above quotes to pro-gold analysts or sound money proponents of the Austrian School. Besides the mention of gold, the four quotes have something else in common.
They were conveyed by European central bankers within the last few years.
The first quote was the reply from Poland’s central bank Governor Adam Glapinski to reporters when asked about the country's repatriation of about 100 tons of gold from the Bank of England in late 2019.
The second and third quotes are written on the websites of the Dutch National Bank and the Central Bank of Italy respectively. The last quote belongs to the President of the German central bank, Jens Weidmann.
When viewed individually, these quotes may not stand out much but they begin to paint a clear picture when viewed collectively. Gold analyst Jan Nieuwenhuijs posits that Europe is preparing for a new international Gold Standard.
This line of thought is also supported by the actions of European central banks in the last decade. The central banks of Germany(2013), Netherlands(2014), Austria(2015), Turkey(2017) and Poland(2019) have repatriated gold from the Federal Reserve Bank of New York and Bank of England, preferring to store a larger portion of the country's gold reserves within their own borders. In addition, Romania, Slovakia and Serbia have been considering move gold home from England too. Italy's gold reserves have also been the subject of political tussles in recent years.
It is also interesting to note that diversifying the storing of central banks' gold reserves in New York and London was once considered an astute strategy given the potential geopolitical risks after World War II. For Europe, the threat from Soviet Union weighed heavily on European governments' decisions to move substantial gold reserves abroad.
While the Soviet Union has broken up, Russia is still an influential and powerful nation today. So why the decision to repatriate more gold homeward? What risks could outweigh or be considered more real than fears of the past?
Record levels of money printing by the Fed to monetize government debt? Calls to reduce dependence on the dollar for trade? Use of the dollar by the US government as a weapon to strong-arm trading partners? Fear of a breakup of the Euro monetary union? There are many possible reasons given the myriad of risks facing the global economy today.
Some things are certain though. The first is that the U.S is no longer considered an ideal jurisdiction to hold gold - sizable central bank gold is fleeing what could be viewed as the epicenter of a coming currency crisis. Secondly, there is growing recognition that the current monetary system is unsustainable. Finally, gold is increasingly seen as part of the answer for the next monetary system.
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