Wednesday, 01 May 2013 at 02:44
Mufti Mubashir
History says Gold goes to where it is respected. 98 percent of Gold at Federal Reserve Bank of New York is owned by central bank of foreign nations and 2 percent is owned by United States of America.
Germany holds more than 3,000 tons of gold bullion, which represents more than 75 percent of its foreign currency reserves.
Germany build its gold reserves as trade surplus after Second World War. Much of world’s gold is stored in vaults underneath central bank, eighty feet below street level across the bedrock of Manhattan at New FED, and ancient vault’s of Bank of England. The vault was built in early 1920 and is in the basement floor of building. The total value of the New York Federal Reserve’s gold bullion trove of 6700 tones is a staggering $368.5 billion.
Germany accepted payments in the form of gold for its goods and services it sold overseas. During the Cold War, Germany moved large amounts of its gold holdings to the United States, the United Kingdom and France in order to protect its reserves from the growing Soviet military threat. Now Germany is in the process of moving that gold back within its border. Holdings in vault increased when United States of America suspended convertibility of Dollars into gold for foreign governments in 1973.
The fact that Germany is recalling some of its gold back is a serious blow to the Federal Reserve. Whatever the motives German central bankers may have, the fact of the matter is that this sends a sign of no confidence in the Fed’s services. This has triggered a wave and other nations are in a bee line.
Germany’s decision to repatriate part of its gold has sent a cold shiver into the gold and forex markets. This made people panicky in forex markets and Gold prices plummet in international market.
The German Federal Court of Auditors has recently called for an official inspection of German gold reserves stored at the New York Federal Reserve, “because they have never been fully checked.”
New York Fed acts as the guardian and custodian of the gold riches on behalf of account holders, which include the US government, foreign governments, other central banks and official international organizations. Federal Reserve is not an American government bank but is an amalgam of twelve private banks.
The Fed runs its operation ‘with other people’s gold’, using this huge treasure as ‘collateral’ to back its various financial undertaking. United States banks on sustaining the US Dollar as a global reserve currency. America wants to maintain its hegemony as it holds the gold bullion of almost 100 countries.
China and Russia are dumping their US Dollars and building their Gold reserves, and have boosted their domestic production. David Marsh, chairman of think tank OMFIF, foresaw growing importance of gold due to rise of China’s Yuan as an alternative to Dollar.
Why is Germany repatriating its gold? It is believed that Fed does not have the gold to return as gold held for governments is usually not allocated. Central bank monetary reserves should be held in an allocated format to evidence to whom they belong.
There have been reports that Fed has siphoned out the gold as Gold held for governments is not “allocated.” Ordinarily, central bank monetary reserves should be held in an allocated form to identify the country to which it belongs. Conversely speaking, in case the Fed fails, foreign central Bank holding their Gold would be unsecured creditor.
The three central banks, [the Fed, Bank of England, Banque de France] has seven years for maturation of lease, and after that they have to enter gold market as buyers of gold.
In common parlance, the function of gold reserves is to ensure the flow of trade in critical times, it is the last remaining asset a nation has which is acceptable to overseas creditors. It is money in Extremis as pointed out by Greenspan. We are all aware of confiscation of gold in 1933, with the stated objective of expanding money supply through devaluation of dollar.
This confirms the move of gold to the monetary system. Devaluation of dollar was done in terms of gold. Dollar was not devalued against foreign currencies. Confiscation of private Gold has become a possibility in the future also. The result was Gold was trading outside of US in equivalent of $20.
It is the fear of future crisis behind the move to take back gold to Germany. According to the current situation, Dollar will weaken and gold will come back with a vengeance.
The author can be mailed at mmubashir64@yahoo.co.in
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