Excerpt
World’s 2nd Largest Stockpile Of Gold Leaves The United States
About 20 years ago when I was still a cadet at West Point, my economics professor organized a class trip to the Federal Reserve Bank of New York. The part of the trip that I remember most was touring the Fed’s high security vault, 80 feet below street level beneath the bank’s main office building downtown. This vault houses the largest known depository of gold in the world. None of that gold, of course, belongs to the Fed. The Federal Reserve doesn’t own a single ounce of gold. Almost all of that gold is owned by foreign governments and central banks.
It’s been that way since the end of World War II—European governments wanted to store their wealth overseas, out of the reach of the Soviet Union. As a kind of professional courtesy among governments and central banks, their gold has been stored for free by the Fed for the last 70+ years. Even after the Soviet Union fell, most governments still chose to keep their gold in New York. It was safe. America was a rich, trusted ally. Why bother moving it? Fast forward a few decades and the world has clearly changed. The US government is in debt up to its eyeballs. It has been caught blatantly spying on its own allies. And it’s much less predictable than ever before.
Germany was among the first out the door. Even as early as 2013, the German government announced that they would bring back at least half of their country’s gold reserves (the second largest in the world) by the end of 2020. They’re ahead of schedule. Late last week the German government moved $13 billion worth of gold from New York to Frankfurt. That shipment puts them nearly at their goal, almost four years earlier than planned. It’s easy to understand why. The entire global financial system requires having a great deal of trust.
Germany used to place a lot of trust in the US government and central bank to store its gold. But there are obvious signs that Uncle Sam is no longer the reliable, credible, trusted counterparty he once was. Germany hasn’t quit cold turkey; they’re still going to store a minority portion of their gold in the US. But they have taken a major step to reduce exposure to a counterparty that’s obviously bankrupt, which hence reduces the risk.
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