Geopolitical diversification of gold

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Germany is leading the Gold Repatriation Movement

In the wake of world war 2, fear of the Soviet Union drove the German government to start physically securing more than two-thirds of its gold in vaults belonging to foreign central banks in New York, London, and Paris. Just like many of the private financial elite, Germany wanted to diversify their geopolitical risk by holding wealth in offshore vaults. These vaults need to be located in different geographical and political locations to make sure they would not lose everything in the event of invasion.

In the aftermath of the 2008 Global financial crisis, central banks around the world started realizing that the whole world’s financial system was illiquid and that the house of cards was a lot more fragile than they thought only a year earlier. This reinforced the importance of gold as a baseline store of value of last resort. 
Gold is great for traditional central banking because it is globally recognized, has decentralized issuance, hard to steal has a history as money of over 3000 years and so on.

In October 2012, Germany shocked the world by making a gold repatriation requests to Banque de France and the U.S. Federal Reserve. The German Bundesbank said it would bring back 150 tons (worth about 5.3 billion Euros) of gold from the Fed in New York. The plan was to split the shipments over three years for security.

When people asked ‘why repatriate gold?’ Germany’s central bank hinted at a potential currency crisis, and a need to secure some of the countries sovereign gold holdings within its borders, just in case. This also points to another global financial crisis wich makes sense since history shows us time and time again that printing currency or debt endlessly ends in collapse.

Germanys goal was to bring home 674 tons from a total of 3,384 tons held at the Fed. The NY Fed notified the German Bundesbank that everything is fine and that the gold would be shipped back to Germany from the Fed’s vaults in Manhattan. The problem was the fine print. They would ship this over a period of eight years! 
This eight-year timeline raised alarm bells in Germany as to why their request could not be settled in a more timely manner. 
Most people were blaming safety and noting that it was important to split such precious cargo over multiple shipments, but come on eight years?!

In 2014, Germany received its first batch of gold from Paris and New York. In total 37 tons arrived but only 5 of these were from New York and 32 tons from Paris. Only 5 tons, 1/10th of the 50 tons requested per year!

In late March 2015, Germany reported that things were starting to speed up a bit. The total tonnage of gold repatriated from Parisian, and New York vaults were now at 157 tons leaving 1447 tons in NY, 307 tons in Paris and, 438 tons in London.

Fast forward to January of this year and the news out of the German Bundesbank is that another 210 tons of gold bullion were shipped back to Frankfurt, 110 of which came from Paris and 100 tons from the New York Fed.

With 1,403 tons of the yellow metal, just a little more than half is left in NY. Frankfort at this point is now Germany’s biggest gold storage location.

It is always good to diversify risk, so holding gold offshore is imperative not only on a national reserve basis but also in a personal capacity. 
London is not part of Europe and while extremely tied into the euro it still holds it’s sovereign Pound Sterling. Germany has decided to leave its London gold holdings in the London Vaults.

The German Bundesbank sais that they will have repatriated half of the national gold reserves back to Germany, 37% will be left in the New York Fed and 13% in London’s Bank of England vaults.

Germanys move to start repatriating some of its gold holdings has inspired Austria, Belgium and The Netherlands to do the same.

In late 2014, the Swiss had a referendum based around “Save our Swiss Gold” wich was an initiative to back the Swiss Frank with gold again. This move would have seen the Swiss national bank having to have to repatriate 100% of their gold holdings back to Switzerland. The public referendum (apparently) chose against a gold-backed currency.

At the same time, the Central Bank of the Netherlands also announced that it had repatriated 122 tons of gold held at the New York Fed. This was 1/5th of the 612 Tones in total that the Dutch had sitting in NY. 
Many people were surprised that the Netherlands managed to receive such a large shipment of gold from the NY Fed in one move. Maybe they had logistics organized now so everything was a bit faster.

1 month later in December 2014, Belgium and Austria jumped on the repatriation bandwagon, announcing that Belgium wanted to bring back a portion of the 225 tons and the Austrians wanted part of their 280 tons of gold secured in offshore vaults.

In May last year (2015), Belgium had successfully repatriated 110 tons of gold from London and 5 months later The Belgium central bank revealed that it wanted half of all the countries gold reserves back inside its borders. They have almost achieved this with an announcement in December last year that they have successfully repatriated five more tons from London.

Diversification is Key.

What does all this mean for the normal person? It means that gold is one of the most important assets to hold as a base fall back. It shows that big national banks are starting to feel that it is important to hold gold to hedge risks against the badly designed and fickle Euro. 
It means that one should hold a part of their portfolio in a geographically independent offshore jurisdictions but also at home where you can touch it.

Diversification is key and with you are well placed. You have access to one of the largest professional gold vaulting facilities in a historically neutral country (Switzerland). You can for the first time in history liquidate your gold holdings and send it as bitcoin or repatriate it physically.

It looks like the world is in for a wild ride over the next few years, and it warms my heart that so many people have found bitcoin and so that they can secure their families hard earned savings outside this ridiculous global financial system.

Joshua Scigala 

PS, Did you ever wanted to know what it looks like inside the New York fed gold vault?

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