Weird Things Are Happening With Gold

Authored by James Rickards

Last week featured two unusual stories on gold - one strange and the other truly weird. These stories explain why gold is not just money but is the most politicized form of money.

They show that while politicians publicly disparage gold, they quietly pay close attention to it.

The first strange gold story involves Germany…

The Deutsche Bundesbank, the central bank of Germany, announced that it had completed the repatriation of gold to Frankfurt from foreign vaults.

The German story is the completion of a process that began in 2013. That’s when the Deutsche Bundesbank first requested a return of some of the German gold from vaults in Paris, in London and at the Federal Reserve Bank of New York.

Those gold transfers have now been completed.

This is a topic I first raised in the introduction to Currency Wars in 2011. I suggested that in extremis, the U.S. might freeze or confiscate foreign gold stored on U.S. soil using powers under the International Emergency Economic Powers Act, the Trading With the Enemy Act or the USA Patriot Act.

This then became a political issue in Europe with agitation for repatriation in the Netherlands, Germany and Austria. Europeans wanted to get gold out of the U.S. and safely back to their own national vaults. The German transfer was completed ahead of schedule; the original completion date was 2020.

But the German central bank does not actually want the gold back because there is no well-developed gold-leasing market in Frankfurt and no experience leasing gold under German law.

German gold in New York or London was available for leasing under New York or U.K. law as part of global price-manipulation schemes. Moving gold to Frankfurt reduces the floating supply available for leasing, making it more difficult to keep the manipulation going.

Why did Germany do it?

The driving force both in 2013 (date of announcement) and 2017 (date of completion) is that both years are election years in Germany. Angela Merkel’s position as chancellor of Germany is up for a vote on Sept. 24, 2017. She may need a coalition to stay in power, and there’s a small nationalist party in Germany that agitates for gold repatriation.

Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and this week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now.

The truly weird gold story comes from the United States…

Secretary of the Treasury Steve Mnuchin and Senate Majority Leader Mitch McConnell just paid a visit to Fort Knox to see the U.S. gold supply. Mnuchin is only the third Treasury secretary in history ever to visit Fort Knox and this was the first official visit from Washington, D.C., since 1974.

The U.S. government likes to ignore gold and not draw attention to it. Official visits to Fort Knox give gold some monetary credence that central banks would prefer it does not have.

Why an impromptu visit by Mnuchin and McConnell? Why now?

The answer may lie in the fact that the Treasury is running out of cash and could be broke by Sept. 29 if Congress does not increase the debt ceiling by then.

But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price. (U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.)

Once the Treasury revalues the gold, the Treasury can issue new “gold certificates” to the Fed and demand newly printed money in the Treasury’s account under the Gold Reserve Act of 1934. Since this money comes from gold revaluation, it does not increase the national debt and no debt ceiling legislation is required.

This would be a way around the debt ceiling if Congress cannot increase it in a timely way. This weird gold trick was actually done by the Eisenhower administration in 1953.

Maybe Mnuchin and McConnell just wanted to make sure the gold was there before they revalue it and issue new certificates.

Whatever the reason, this much official attention to gold is just one more psychological lift to the price along with Fed ease, scarce supply and continued voracious buying by Russia and China.

Comments

Kotzbomber747 (not verified) cpnscarlet Wed, 08/30/2017 - 08:32 Permalink

"Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and this week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now."So in 2013 Merkel could already foresee that she might have to form a coalition with that "small nationalist party," also known as the FDP?

In reply to by cpnscarlet

Kotzbomber747 (not verified) BaBaBouy Wed, 08/30/2017 - 08:37 Permalink

Politicians are too fucking stupid to look at the long term consequences of their disastrous monetary and social engineering experiments, but now Richards is saying that Merkel already in anticipated in 2013 that she might have to for a coalition with the FDP, a "small nationalist party?"By the way Jim, the FDP is hardly "nationalist."

In reply to by BaBaBouy

Manthong tmosley Wed, 08/30/2017 - 09:57 Permalink

 
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That they would bring it all back to Europe gives lie to the proposition that they are worried about Russia. The Russian threat is a straw dog so that the self-serving Eurocrats and their Anglo-American co-conspirators can keep their banking friends, the military industrial complex and NATO prospering at the expense of the populace.

In reply to by tmosley

BLOTTO swmnguy Wed, 08/30/2017 - 11:06 Permalink

Im almost back at par with my gold purchase...waiting 5 years and counting.
.
Who is laughing now? All those people that made money in stocks, bonds and bitcoins are probably crying that they couldve made money like me.

Oh and my silver purchases at 28, 30 and 33?!?! Yessss!

In reply to by swmnguy

Blue Dog BLOTTO Wed, 08/30/2017 - 11:27 Permalink

You can laugh when the stock market tanks. It's trading at 1929 levels right now. Amazon is a typical example. It trades at about $1000 while it's earnings per share is less than $1.50 per quarter. Stock prices are manipulated by the Fed and cheap money. Most likely the Fed is buying up the stock market just like the Japanese central bank is buying up their stock market.Yes, it would be nice if precious metals prices went up 10% a year but they don't. Eventually the US will no longer be able to control the price and we'll see prices rise exponentially. According to usdebtclock.org, the dollar to gold is ratio is $6,455 and the dollar to silver ratio is $783. So if you have about 1300 ounces of silver today you'll be a millionaire when we see a fair market for PM's. 

In reply to by BLOTTO

Eman Laer Kotzbomber747 (not verified) Wed, 08/30/2017 - 09:41 Permalink

So in 2013 Merkel could already foresee that she might have to form a coalition with that "small nationalist party," also known as the FDP?

Why would that need to be true? The simple answer is that during an election year she observed a popular movement that she could endorse to get votes. No future outcome other than the election at the time is important. She may have hoped that the issue would just fade from public attention. Then, the movement still had energy in 2017, so she climbs back on the bandwagon to once again aquire votes. This explanation doesn't require claivoiance on her part, just basic political strategy....

In reply to by Kotzbomber747 (not verified)

fockewulf190 Eman Laer Wed, 08/30/2017 - 10:30 Permalink

I believe Rickards actually ment the AfD, not realizing that the political class of all the other parties want nothing to do with them because they are deemed to be infiltrated with right-wing nationals and popularists. The FDP doesn't stand much of a chance getting back into the Bundestag, being that they are mostly made up of wealthy semi-socialists with a heavy streak of Ferengi in their blood, and have proven over and over they're nothing but political whores who will sleep with almost anyone just to get the slightest scraps of power. The German public got sick of them for the most part, and they voted them out and smashed them down to a single digit political party.

In reply to by Eman Laer

Okienomics mayhem_korner Wed, 08/30/2017 - 11:25 Permalink

The dollar is not valued in anything except Yen, Euros, Pounds, etc.  So what if Treasury says it's worth $35/oz, $1,200/oz or $1,000,000/oz?  The gold (allegedly) would still just sit there on shelves in Fort Knox.  The external debt would not be eliminated this way, but the debt held by the Fed (the largest holder) would be paid in full, and the Treasury would "pay off" that Social Security filing cabinet full of IOUs.  Would it matter outside the beltway?  Let's consider... China, Russia, Germany would be delighted.  In fact, who would be damaged, as a rising tide lifts all boats.  In the end, it's just accounting.  The "market value" of gold would have a new datapoint as meaningful as the $42.22 datapoint present today. Chubbar is on to something here.

In reply to by mayhem_korner

mayhem_korner Okienomics Wed, 08/30/2017 - 15:12 Permalink

Maybe math is just a word in the dictionary to you. What you are talking about is just another means of counterfiet credit creation (aka "printing").  Inflate the debt away.  Sure.  No ramifications.  Except that $1900 dollar loaf of moldy bread at the 7-11 (because the supermarkets stocked out). There is no free lunch.  You can't adjust a currency in a vacuum. Go revisit the meme about the $1 Trillion platinum coin.  Could wipe out all debts with just a handful of shinies.  Nevermind that if it were accepted for debt settlement it would render the dollar as worthless as your theory.

In reply to by Okienomics

Steve1179 cpnscarlet Thu, 08/31/2017 - 09:49 Permalink

I've been investing in Gold since 2008 - the height of the financial crash. And, without question, the gold price always sky rockets when there are surprises or there is massive uncertainty in the world.  EVERY TIME.  The banking crash ten years ago?  People start buying gold and the price goes up.  The UK votes to leave the EU and the price goes up as more people buy gold.  The same happened when Trump won the US election and we have even seen rises after North Korea fired a missile over Japan.  Economic and Political uncertainty seem to be the key drivers.    You can see the gold price here: https://www.bullionbypost.co.uk/gold-price/

In reply to by cpnscarlet

Justin Case VinceFostersGhost Wed, 08/30/2017 - 09:56 Permalink

This weird gold trick was actually done by the Eisenhower administration in 1953.This is why the treasury has no gold. The FED owns it all. The treasury has certificates that the FED issued for the gold. All the treasury will do is revalue the asset the FED holds already, and the treasury will get moar fiat. Just an accounting trick. They took Trumps gold long time ago. They also took Gaddafi's 140 tons of gold, Poroshenko's 34 tons, Manduro's gold1.45 million ounces from Venezuela. Notice they didn't accept Bitcoin, which is so EZ to move money around? Why oh why all the hassele with physical movement when it can be all done over the internet?

In reply to by VinceFostersGhost

Hard Assets VinceFostersGhost Wed, 08/30/2017 - 14:35 Permalink

I was repatriating my $1.2 billion of precious bullion from the Fed as well.  Halfway across the St. Lawrence, heading back to Canuckistan, the barge I had rented sank. A major boating accident. But to my further chagrin, a herd of whales began to swallow the bars whole. I could see the massive shadows circling the bars like a school of baitfish. Fuck... the gold is gone for good ! I hold my last gold coin, a lonely, proverty stricken, old man. 

In reply to by VinceFostersGhost