Post by ukipa on Feb 7, 2012 7:44:57 GMT 4
Where a Nation’s Gold and Your Gold Should be Held – Part I
Purpose of Holding Gold
Most central banks hold their nation’s gold in the vaults of the world’s leading financial centers’ central bank vaults. These include New York, London, and Canada among others. In a peaceful, cooperative world, this is sensible as one of the prime purposes of central banks holding gold is to cover the nation’s international trade payments when their own currency becomes unacceptable and their reserves of foreign exchange are depleted. By positioning the gold outside the country, it’s instantly accessible for payments or guarantees of payments.
Dangers of a Nation Holding Gold in Another Nation’s Central Bank
In the last week we have heard the announcement that Iran has (according to them) 907 tonnes of gold. The developed world has just outlawed Iran dealing in gold and silver (there are other places, where if they wished to do so they will be able to trade). With their gold inside Iran, it is outside the reach of the developed world though. If they had held their gold in the world’s main, developed world vaults that would have been frozen along with Iran’s other overseas assets. We may not agree to Iran’s politics and attitudes, but there is a lesson to be learned here.
Ownership implies the freedom to do what you want with an asset. In this case we are talking about a nation’s assets. The handling of Iran’s assets by freezing of their assets shows that other nations can interfere with that freedom. Governments feel free to impose restraints on other people’s assets within their jurisdiction. It is this concept of a right to restrain the rights of ownership that will prove a growing issue.
With the world changing from an under-developed world with a developed world to an emerging world drawing down power and wealth from the developed world, there are many changes taking place which will lower the levels of international cooperation in the days ahead as political, religious, monetary and economic pressures rise.
One nation that has foreseen these pressures coming is Venezuela. Their 160 tonnes of gold was held in Canada, the U.S. and European vaults and out of their full control. Their policies –including the nationalization of gold mining and export—have proved unpopular in the developed world too. With Venezuela being an oil exporter primarily, the unpopular President (outside the nation) felt it prudent to ship his nation’s gold back home. The process began a few months ago.
Venezuela’s Gold Comes Home
Venezuela has now succeeded in bringing its 160 tonnes of gold from the developed world’s central bank vaults (i.e. Canada, U.S. and Europe). There’s no doubt that such a move does secure the nation’s monetary sovereignty. Now, Venezuela’s gold cannot be subject to the political wishes of the U.S., Canadian or European governments.
Furthermore, there’s a potential 3,000 tonnes of gold under the ground in Venezuela and the likelihood that the government will take that into their vaults over the time it takes to mine it. They will then be in a position to take the U.S. dollars they receive for their oil and pay their miners for the gold, so diversifying their reserves away from currencies and into gold. If they do that, then this is one more source of supply that will be removed from the gold market.
Whatever the nation’s politics, it is a central banker’s duty to do all in its power to protect its nation’s gold and foreign exchange reserves in terms of control and value. With dollar hegemony, a great deal of that power remains in the hands of the issuer of that currency. As sovereignty issues grow, it is becoming incumbent on central bankers to do more to protect nation’s reserves. The most vulnerable nations are those whose politics differ drastically from the developed world or those whose international trading is not dependent on the major developed world. After all, if you are a kind of economic colony of a major nation it will exercise its influence far more effectively through other routes.
The conclusion that best suits vulnerable nations logically is to hold as much of its gold at home. Its dollars have to be held in New York and its euros in Europe –something they can do little about. But a nation like Venezuela with its reserves of gold at home and a ‘natural’ diversifier in the gold under the ground, is acting in that nation’s interests in building up its gold reserves at home.
Purpose of Holding Gold
Most central banks hold their nation’s gold in the vaults of the world’s leading financial centers’ central bank vaults. These include New York, London, and Canada among others. In a peaceful, cooperative world, this is sensible as one of the prime purposes of central banks holding gold is to cover the nation’s international trade payments when their own currency becomes unacceptable and their reserves of foreign exchange are depleted. By positioning the gold outside the country, it’s instantly accessible for payments or guarantees of payments.
Dangers of a Nation Holding Gold in Another Nation’s Central Bank
In the last week we have heard the announcement that Iran has (according to them) 907 tonnes of gold. The developed world has just outlawed Iran dealing in gold and silver (there are other places, where if they wished to do so they will be able to trade). With their gold inside Iran, it is outside the reach of the developed world though. If they had held their gold in the world’s main, developed world vaults that would have been frozen along with Iran’s other overseas assets. We may not agree to Iran’s politics and attitudes, but there is a lesson to be learned here.
Ownership implies the freedom to do what you want with an asset. In this case we are talking about a nation’s assets. The handling of Iran’s assets by freezing of their assets shows that other nations can interfere with that freedom. Governments feel free to impose restraints on other people’s assets within their jurisdiction. It is this concept of a right to restrain the rights of ownership that will prove a growing issue.
With the world changing from an under-developed world with a developed world to an emerging world drawing down power and wealth from the developed world, there are many changes taking place which will lower the levels of international cooperation in the days ahead as political, religious, monetary and economic pressures rise.
One nation that has foreseen these pressures coming is Venezuela. Their 160 tonnes of gold was held in Canada, the U.S. and European vaults and out of their full control. Their policies –including the nationalization of gold mining and export—have proved unpopular in the developed world too. With Venezuela being an oil exporter primarily, the unpopular President (outside the nation) felt it prudent to ship his nation’s gold back home. The process began a few months ago.
Venezuela’s Gold Comes Home
Venezuela has now succeeded in bringing its 160 tonnes of gold from the developed world’s central bank vaults (i.e. Canada, U.S. and Europe). There’s no doubt that such a move does secure the nation’s monetary sovereignty. Now, Venezuela’s gold cannot be subject to the political wishes of the U.S., Canadian or European governments.
Furthermore, there’s a potential 3,000 tonnes of gold under the ground in Venezuela and the likelihood that the government will take that into their vaults over the time it takes to mine it. They will then be in a position to take the U.S. dollars they receive for their oil and pay their miners for the gold, so diversifying their reserves away from currencies and into gold. If they do that, then this is one more source of supply that will be removed from the gold market.
Whatever the nation’s politics, it is a central banker’s duty to do all in its power to protect its nation’s gold and foreign exchange reserves in terms of control and value. With dollar hegemony, a great deal of that power remains in the hands of the issuer of that currency. As sovereignty issues grow, it is becoming incumbent on central bankers to do more to protect nation’s reserves. The most vulnerable nations are those whose politics differ drastically from the developed world or those whose international trading is not dependent on the major developed world. After all, if you are a kind of economic colony of a major nation it will exercise its influence far more effectively through other routes.
The conclusion that best suits vulnerable nations logically is to hold as much of its gold at home. Its dollars have to be held in New York and its euros in Europe –something they can do little about. But a nation like Venezuela with its reserves of gold at home and a ‘natural’ diversifier in the gold under the ground, is acting in that nation’s interests in building up its gold reserves at home.
