It’s time to ask for our gold back

Posted by – 18 January, 2013

The Germans are asking for their gold back from the US and France:

So what the heck is Germany doing? It is a nation with a deep-seated fears about the stability of its currency, no doubt in part the legacy of the Weimar hyperinflation of the early 1920s. The fixation on its gold comes at a time when the world of finance seems in chaos. Germans are being asked to help rescue Greece and other European nations with troubled finances. The European Central Bank has bought bonds from some of those nations, which Germans widely view as tempting enormous inflation. Against that backdrop, it is perhaps not shocking that there is political resonance to the theory that the New York Fed and Banque de France may be putting one over on the Bundesbank and that some of Germany’s gold might actually be missing.

I actually think it has more to do with the lack of trust in the socialists running the show in the US and France at the moment, as well as some geopolitical realities.

The RBA’s dealings with gold have been monumentally bad over the years. When the price for gold hit rock bottom in the 1990s, the RBA and Treasury decided to off load most of our gold holdings.

The RBA revealed in July 1997 that over a six-month period, it had sold 167 tonnes, reducing Australia’s reserves to just 80 tonnes. At this time, the value of its gold assets fell from $3.6bn to about $1.1bn.

The RBA’s sales pushed the world gold price down to an 11-year low, returning just $2.4bn for the gold that was sold via a single broker engaged without a tender.

The same amount of gold would be worth about $7.4bn today.

The paper justified the decision to dramatically reduce the bank’s holdings by arguing that gold had been a poor investment, and that Australia need not worry about access to financial markets during another economic crisis.

Since this decision, the world financial system has suffered severe stress, first with the dotcom bust in 2000, then the 9/11 attack the following year and, more recently, the near collapse of the global financial system in 2008.

Apparently nearly all of the RBA’s gold is in London, for the purposes of urgently raising foreign exchange. Well, given the strength of the Australian banking sector and the less than stellar performance of the UK and their ongoing exposure to the EU, I’m not so certain that keeping nearly all of our gold holdings in the UK is such a smart idea.

Some might argue that Australia’s gold deposits are all in the ground; however, they won’t last forever. Certainly not while our gold deposits are being shipped to China at break neck speed to hedge against US economic collapse – a real possibility under Obama’s cavalier attitude to fiscal matters.

  • Futureproof

    There is no way that the dunderheads running the RBA should be paid the salaries they are currently getting. They have constantly misread many economic events. I assume, like many, that these guys are the very best economists in the country. Sadly, I think a stay at home parent would know more about economic forecasts than these dopes.

    On another matter, does the job description of the RBA governor include “must speak really slow and put audience to sleep?” Compare the monotonous drivel of Glenn Stevens with that of former Governor, Bernie Fraser. They must be father and son.