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.
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 government's next two moves to "win" this game. I suggest
learning what countermoves you can take now are, before your government declares checkmate.
