This article is from previous articles featured in the Gold Forecaster weekly issues. [Subscribe: www.GoldForecaster.com ]
The subject of gold’s confiscation has come onto our screens again, but this time, being described as a “Myth” in the future. This thought comes from Canada, a favorite place for U.S. citizens to store their gold in the hopes that it will be outside the reach of the U.S. Federal Reserve.
We respond to the article that described it as a myth, because we are firmly of the opinion that as we move from dollar hegemony to a multi currency, world currencies will find themselves competing against each other [race to the bottom] and increase the prospects for the confiscation of gold held in storage companies and by dealers as well as making such dealing illegal again.
This makes the confiscation of gold and eventually silver, a future reality. It is impossible to give a date when this will happen making now a prudent time to act.
a) Covered in the first part: In this article we will look at the real reasons why the U.S. confiscation took place and its broad objectives as well as the underlying principles behind the confiscation and how they can apply in the future.
b) Covered in the first part: We will show how the confiscation of gold in 1933 was not a money supply issue, nor will it be in the future.
c) We will highlight why such underlying principles are beginning to appear now, as this new global monetary system arrives on stage.
d) We will explain why gold is becoming an increasingly important reserve asset and will become needed by governments in the future.
e) We will explain that holding gold outside ones country will not guard it from your government’s hands unless structured properly to protect you and your gold [and in the future silver] from them.
f) We will also explain why important trading nation partners to governments confiscating gold in the future may well act in support of those confiscators.
g) We will look at the need for governments, through the banking system, to control money flows internally but will need to maintain confidence in their currency, to permit it to be used internationally.
h) We will look at how gold can be an anchor for currencies and how its price can be raised against their currency to maintain its acceptance.
i) We will look at how the slow move towards a cashless society being seen in the future must extend to gold and silver.
c) The underlying principles for the case for gold’s confiscation are beginning to appear now!
- In the last few years we have seen relative turmoil in currency markets as currencies ‘race to the bottom’. Nations are trying to lower their exchange rates against other currencies, so as to make their goods cheaper in international markets. It is a game that the G-20 group of nations vilified, but is being pursued by some of its members.
Looking back to the time when Fixed Exchange Rates were the order of the day under Bretton Woods, these ensured that capital moved to where Balance of Payments surpluses were achieved, coming from countries that had deficits.
For instance, today sees Germany with a surplus against all its trading partners. Within the E.U. this means that both capital and skills move to Germany away from the weaker member states of the E.U. because of the common currency, the euro.
Germany states it is a provider of U.S. jobs at the plants in the U.S. where cars are assembled. Of course, the same would be true if U.S. carmakers were to sell cars into the German car market in the U.S. because of German cars being too expensive with heavy tariffs.
‘Floating’, ‘dirty floating’ and the ‘race to the bottom’ and quantitative easing
That’s why the world adopted floating exchange rates in the past. These adjusted exchange rates, in line with Balance of Payments differences and were supposed to adjust exchange rates to ‘level the playing fields’ for all.
But that didn’t suit many countries such as Germany [hence the creation of the euro] so we saw another monetary change in that ‘floating rates’ which turned into ‘dirty floating’ rates. This meant that central banks would intervene in exchange rates to keep them at their most competitive levels. This has morphed into the current system of ‘racing to the bottom’ by different central banks.
Now this has hit an obstacle, in that if one country succeeds in moving its exchange rate down, the stronger currency will embark on similar policies to cheapen its currency. In the end therefore, when a country feels its exchange rate is too high we have to ask ‘against what?’
Hence, quantitative easing in the U.S., E.U. and Japan! The net effect has been a massive increase in government debt and a loss of credibility in the main global currencies.
No longer is there a ‘safe haven’ currency because of this.
Looked at from a monetary point of view, President Trump’s ‘protectionist’ policies are now a future certainty.
In the U.S., the same happens with Germany but generally does not see skills depart for Germany.
More importantly with U.S. corporations being driven by the profit motive, U.S. corporations moved their production facilities to cheaper China heavily contributing to the U.S. Trade deficit, only to find in many cases Chinese companies were then set up producing the same products in competition to U.S. corporations.
U.S. corporations had created competition and a cheaper set at that. Now the U.S. Trade deficit with China is its largest. Trump believes by considerably increasing the cost of importing from China, U.S. companies will rebuild their production facilities back in the U.S. He may well improve the situation, but at the expense of global free trade. This we see as a future inevitability!
Right now, confidence in the euro is slipping as France and Italy are soon to call for a return of their old currencies. In such a situation, can the euro continue to be the effective currency of the Eurozone?
The subject is never mentioned in the media, but it is clear that the fundamental reason that the dollar became the global reserve currency was because it was the only currency used with which to pay for oil since 1973.
This is changing as the dollar oil price is used to gauge the price of the Ruble and the Yuan. We have no doubt that China may still be using the dollar reserves to pay for oil but is preparing the way for a Yuan oil price paid to its suppliers. This will severely lessen the use of the dollar in oil transaction [by nearly all countries on the planet].
Even Saudi Arabia is being courted by China, we believe, with that objective in mind. Once other currencies are used to pay for the bulk of the world’s oil, dollar hegemony will have passed into history. This move has started.
Then the U.S. dollar must be able to stand on its own on a balanced or surplus Balance of Payments, or it will fall heavily.
Then China will demand payment of its exports and for its imports in the Yuan!
Rupture and volatility
With such turmoil developing it is inevitable this will rupture the currency markets making them far more volatile and unpredictable.
As the gold price gyrates in the different currencies, as they change their values against each other, gold will return to being a ‘measure of value’ against which a currency is valued.
d) This is why gold is becoming an increasingly important reserve asset and will become needed by governments in the future.
Swiss Gold Industry removed from foreign influence
In Switzerland, after the UBS debacle, Swiss Banks, Vaults, dealers and refiners distanced themselves from the U.S. dollar and U.S. clients, as far as they can. This essentially removes them from the ‘dollar Jurisdiction’ and takes them into the Swiss Jurisdiction. This is largely due to the predatory intrusion by the U.S. IRS into the Swiss Jurisdiction over UBS and its clients.
Swiss companies have done what they can to lessen their vulnerabilities to such pressure inside the U.S. by removing U.S. clients from their books. More importantly we see the Swiss gold trade as no longer vulnerable to foreign pressures.
Now Switzerland is the center of the world’s gold refining and in a position to maintain a market in gold globally, so long as they are permitted by their relative governments.
Swiss banks no longer entertain new U.S. clients so as never to find themselves in UBS’ situation.
But this does not mean they will cave into pressure from the U.S., quite the contrary, they are in a stronger position to maintain Swiss Banking Secrecy laws.
We see Switzerland as being the only nation that will mount a credible defense when foreign governments mount an attack against Switzerland and the foreign assets held in the country. We do not believe that Singapore, Hong Kong or the U.K. or U.S. or Canada will act to protect client’s gold or silver in the event of pressure from the U.S.
How has gold been used in times of stress in the past because we know it will only ever be actually handed over when there is absolutely no alternative.
Since 1999 gold was used in one way or another. In particular, the strains on the financial sector caused by huge liquidity constraints across many markets since 2008 have led to new roles being found for gold in reserve requirements.
1) As the euro was established it was sold to prevent Europeans from retreating to gold as an alternative to the euro. Ostensibly, both the members of the E.U. and the European Central Bank backed the euro with their gold.
Gold is described as “an important Reserve Asset” in all the Central Bank Gold Agreements since 1999. And yet they were selling gold. That was for entirely different reasons:
- It was at a time when the euro was being established as a currency.
- It ‘coincided’ with a rising gold price as the major gold miner’s [which had assisted central banks in crushing the gold price at the end of last century by selling massive amounts forward] were forced to buy back the gold they had sold [over 3,000 tonnes over 2005-2009]as gold prices went above the prices they had sold at.
- While these agreements were made to sell limited and disclosed amount of gold, such selling terminated in 2009 after which Russia and China became large buyers of gold.
2) In the last quarter of the last century, it was sold to the IMF by Mexico and Brazil, when they needed bailing out of their financial crises.
3) It was used to set up Gold/Currency swaps through the Bank of International Settlements, during the European Sovereign Debt crises.
4) As China follows the road to internationalize the Renmimbi [Yuan] the Chinese have integrated gold into their growing financial system. The bulk of Chinese gold is held by either the People’s Bank of China or the Shanghai Gold Exchange [owned by the PBoC]. As the PBoC say, “We hold gold through the people.” It is of course immediately accessible to the PBoC. None of the privately held gold or gold withdrawn from the SGE is out of the reach of the PBoC as no gold is allowed to be exported from China.
5) In Turkey, gold is also integrated into their financial system. The dual objective of this policy was “to strengthen the build-up of gold reserves and to provide more flexibility in the banking system’s liquidity management”. On 16th August 2012, the upper limit for gold reserves that can be used to meet Turkish lira reserve requirements was raised to 30%. This is in line with the Basel regulations.
Recently, Turkey called on its citizens to buy gold and sell their Lira to protect themselves from its rapidly falling exchange rate as political crises erupted.
The Turkish example demonstrates one way that gold can be used to strengthen banking systems and increase liquidity in financial markets.
6) Sadly, in Venezuela, as its Peso has completely lost credibility the country is selling off its gold reserves that it had brought home from foreign central banks. Once this has gone, the nation is likely to fall into both social unrest and ‘national bankruptcy’, as they have little except the oil and gold they produce. This is not sufficient to ease its problems. Maybe China will rescue it with loans in exchange for access to its resources?
Why is gold increasingly and desperately needed in the future, by governments?
One may think that gold has worked successfully in such roles as above until now so why is there a greater need for gold to be harnessed in the global monetary system?
Simply put, because liquidity problems, loss of confidence in currencies is increasing and fragmentation of the world’s trading system is on the brink of major negative shifts. This is hitting the currency world and requiring that gold be activated in global financial systems.
We can see gold’s importance rising as we see, countries like Switzerland distancing itself not just from U.S. clients, but from the dollar itself. Gold trading is still an unregulated industry, but for how long?
Dealers are deeply suspicious of new clients as KYC regulations are imposed and gold dealers, storage and trading companies are treated with great suspicion. In South Africa such companies are not allowed to deal in gold outside the country. The exception is the Rand refinery that exports newly produced and refined gold production, but this is very carefully monitored by the Reserve Bank of South Africa.
Even now companies like Bullion Vault and Goldmoney are not allowed to permit clients to collect their gold from Swiss vaults but can only receive their gold at their home address, after paying large fees.
What has become clear is that a fragmentation of monetary system will follow the loss of dollar hegemony in a multi-currency system. Confidence in national currencies will wane dramatically then. Other Nations will then look at the gold reserves of nations as they examine the credibility of those currencies,
For countries like the U.K. whose gold reserves are only 310.6 tonnes, the large storage companies based there, such as the Bullion Vault and Goldmoney, which hold large tonnages of gold that can quickly be confiscated, should conditions such as caused the Dollar Premium to be instituted in 1971, would be a prime target of the British government. With Brexit on the way, how close is that danger?
Act Now! There is only one structure designed to combat the confiscation of your gold and that is the Ultimate Gold Trust / Stockbridge Management Alliance Ltd. that can be found at www.Stockbridgemgmt.com
Bear in mind that gold dealers would also be put out of business as gold dealing would be banned. Only governments would be allowed to own gold and would brook no competition from the private sector!
You need also to protect yourselves as you would then be required to report your gold holdings under a new FATCA regulation to be imposed then. UGT would be in a position to guard you even then!
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Contact us at firstname.lastname@example.org NOW!
A word to gold investors - Simply holding gold overseas will not be enough. We are happy to send you a guide on just how to hold your gold effectively out of the reach of the authorities in your Jurisdiction.
It will be the gold investor that ensures he is outside the reach of confiscating authorities that will retain his gold and ensure he profits from those rocketing prices.
There are no gold custodians or dealers that are geared to protect their clients with the exception of one we know of – www.Stockbridgemgmt.com.