Opinion: Europeans want their gold back, and why that’s bad for the euro
First, it was Germany. Then Netherlands, Belgium, Austria...
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Right across Europe, over the course of the last year, a series of European countries have been demanding that their gold reserves, which are often stored in different nations, are bought back home.
On the surface, that seems very odd. After all, gold GCG5, -0.39% has no meaningful role in the financial system any more. After a two-year bear market, it is not even worth as much as it was. It hardly seems worth the logistical or diplomatic hassle of bringing it back home.
Europeans are feeling increasingly nervous about their money, and in those circumstances they start to renew their interest in precious metals.
What it reflects, however, is a growing public unease with the single currencyEURUSD, +0.16% . The euro crisis might have seemed patched over for much of the last two years. But austerity and recession are taking a mounting toll.
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The point about having gold on your own soil is that it is an insurance policy against a chaotic return to national currencies. The fact that so many countries seem to want that insurance tells you something important about the euro — and it is hardly comforting. They still think there is a real possibility of collapse.
Austria is the latest country to start discussing bringing its gold home. It has 280 tons of gold, 80% of which is stored in London, with another 3% held in Switzerland. Last week, it was reported that the Austrian Audit Court had ordered a review of the practicality of bringing a lot of that back to Vienna, presumably where the central bank could keep a closer eye on it.
That is part of a growing trend.
In Germany, a high-profile press and public campaign has been under way for years to bring more of that country’s gold back onto German soil. Of its massive holding of 3,400 tons of the metal, much is actually stored in the United States, London, and Paris, but it has now been agreed that much of that will gradually be bought back under the control of the Bundesbank.
Across the border in the Netherlands, there are similar pressures. Last month, we learned that the central bank — De Nederlandsche Bank — had quietly started bringing some of its 600 tons of reserves back to Amsterdam: 51% is currently held with the New York Federal Reserve, but that will come down to 31%, although some will still be kept in Canada and the U.K. Soon afterwards, the governor of the Belgium central bank, Luc Coene, said in a television interview that a repatriation of its gold reserves — much of which are in London, Canada, and Switzerland — was now being investigated.
Some bigger nations could get in on this trend.
France has some of the largest reserves in the world, with 2,435 tons. Last month, the leader of the populist National Front, Marine Le Pen, wrote an open letter to the Bank of France demanding that all the French gold be returned to Paris. For good measure, she urged the bank to take advantage of the fall in the price to buy more of the stuff.
First, it was Germany. Then Netherlands, Belgium, Austria...
Italy has not joined in yet. But with 2,451 tons, it has the fourth largest reserves in the world, and a report earlier this year suggested that half of it may be in New York. If one of Italy’s many firebrand political leaders haven’t called for that to be returned to Rome yet, then it can only be a matter of time.
At this rate, anyone in the high-security metal transportation business looks set for a lucrative few years.
Of course, it is important not to fall for the hyperbole of the gold enthusiasts on this issue. Much is made of the fact of the Dutch transported their gold “in secret.” Well, if I were organizing the movement of an incredibly valuable stash, I’d make sure I didn’t broadcast it too widely either. Gold is easy to steal, and if you melt it down impossible to trace. None of us would want to be the official who allowed the country’s gold reserves to be robbed.
In fact, there is no real conspiracy here. Germany and Austria’s gold reserves were mostly held overseas because those counties were on the front line in the Cold War. If the Red Army tanks had ever moved West, it made sense to have the gold a long way from the front line. Surplus countries like France and Italy accumulated a lot of gold under the old Bretton Woods system of managed exchange rates, and it is still on the books — but much of it, under that system, was merely moved from one side of a bank vault to another, so it made sense to store it in various countries.
And yet, that aside, there is still something interesting going on here.
It can hardly be a coincidence that so many eurozone countries suddenly care a lot about where their gold is kept — whereas in Britain, the U.S., or Japan, no one cares very much. The reason is not hard to figure out. People are feeling increasingly nervous about their money, and in those circumstances they start to renew their interest in precious metals.
There are not many circumstances in which holding a big stash of gold on your own territory matters very much. But one of them is the sudden, chaotic reorganization of your currency. If a country were to introduce a new currency overnight then if it could be backed by some gold right from the start that would give it some instant credibility in the markets. Repatriating gold only makes sense as a way of preparing for that to happen.
Of course, it is a long way off. None of the central banks are drawing up any secret plans to quit the single currency. And yet, the more prepared you are, the more likely it is to happen.
The biggest medium-term threat to the euro is not economic. It is political. If people don’t trust it, it won’t survive — and the movement to bring gold home is one more indicator of how that mistrust is growing all the time.
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