Why Central Banks Are Repatriating Gold
In 2012, the US Federal Reserve Bank in New York had over 6,700 tons of gold in its basement. While some of this gold is from within the United States a fair amount heralded from foreign country’s central banks. Banks stored the gold with the Federal Reserve because of its secure storage and neutral stance on storing gold.
In the year of 2014, countries started to withdraw their gold and return it to their central banks. This process is called repatriating because the gold is once again returning to the country it belongs to. 50 tons of gold were withdrawn and repatriated in the first month that countries started to take back their gold. There are a variety of reasons for this withdrawal and unfortunately, most of them don’t bode well for the United States’ image.
Germany and the Netherlands have both repatriated large amounts of gold, 85 and 122 tons respectively. Furthermore, Germany plans to continue to repatriate gold until 2020. 300 tons of gold are scheduled to be flown from the New York to Germany but due to the fact that a plane can only carry 3 tons of gold per flight it will take 100 flights to repatriate all of the gold. For safety and security reasons these flights are happening randomly over the next four and a half years.
Switzerland is also on the list of countries thinking about repatriating gold. A referendum was held to start returning Swiss held gold to the Swiss National Bank. The referendum was rejected along with another gold related referendum, but parties might not stop there.
With the financial issues that the world has been through in the last few years people have been hesitant to trust anyone else with their money. All one needs to do is to look at how Greece almost defaulted on its loans. Countries want to have their money easy to access and under their own control where they don’t have to worry about other entities potentially spending it or taking it as payment for loans. A general distrust of financial decisions exists around the world.
There is also a fear over the possibility of losing gold stored abroad, especially in the United States, because of the threats made by radical Islamic sects. ISIS and other terrorist organizations have threatened attacks against the country’s infrastructure and that includes financial organizations. When terrorists attacked the New York World Trade Center towers in 2001 multiple underground vaults were destroyed when the buildings collapsed. The destruction of these vaults took 8 tons of gold with them. Countries want to remove their gold from the main target of terrorist actions.
If countries like the US and Greece are in such big debt why do they repatriate their gold instead of spending it? First, the value of gold almost always is growing so the value of their savings is going up. Secondly, gold is a political and power symbol. For ages, the people who have the most gold have held power because of the perceived image that comes along with precious metals. Giving up some of your gold would be a symbol of weakness.
Countries aren’t only seeking to repatriate gold stored in the United States, multiple countries are considering or in the process of withdrawing their gold from the United Kingdom too. Germany, the Netherlands, Belgium, and Austria are among the countries looking to take back control of their own gold. Austria has announced that they are in the process of repatriating 110 tons of gold stored in the U.K. This is 39% of the gold they have stored in Britain.
The gold being repatriated to central banks around the world is for many reasons but while slightly marring the gold image of United States banks it shouldn’t be a significant issue. There are still many wealthy investors that have gold to store around the world and use the United States as a safe place. In addition, countries are not withdrawing all of their gold. There is still plenty of gold being stored in the US Federal Reserve Bank.