The interesting fact is that the European central banks, together with the Asian ones, were the most aggressive in the purchases: fear of the crisis of the euro and currency wars?
In reality, and this is especially true in Europe, behind the great maneuvers on the gold reserves there is not only the traditional protective shield against the great risks: there is also the recall of the opportunity. A reminder of which few still seem to know, despite the fact that the appointment is now a matter of a few weeks: those missing until March 29, 2019. The doomsday for Brexit will also be that of the advent for the gold market.
It is not clear whether by choice or by chance, the Bank of International Settlements of Basel, the “Bank of central banks” for its key role in the world financial system, set an appointment with history for March 29: resurrection of the Gold Standard in the banking world.For almost 60 years, the gold standard has regulated the convertibility between gold and the dollar, linking up with the market value: in 1971 it was the American president Richard Nixon, frightened by the bearish pressures that risked sinking the dollar in the middle of the cold war, to cut the cordon with gold decreeing the end of the gold standard. Now something begins to move in the opposite direction.
Gold as cash
Il Sole 24 Ore has discovered that among the complex but well-known reforms of the standards for credit and finance from the «Basel 3» plan, there is an accounting alchemy able to transform gold into money in the balance sheets of large banking groups . From March 29, by decision of the BIS, the gold in the portfolio to commercial and business banks becomes «Cash Equivalent», an asset equivalent to cash and therefore «risk free». In fact, it is the first “re-monetization of gold” since the times of the Bretton Woods agreement: the technicians call it “Gold Remonetization”, a process inverse to that of the “demonetization” of gold decided by Nixon.
Same status as sovereign bonds
The BIS operation, as reconstructed by Sole24Ore, bears the signature of the FED, the ECB, the Bundesbank, the Bank of England and the Bank of France, the G-5 of the great global monetary powers. In 2016, when the new rules of the banking system included in the “Basel 3” package were defined, the Central Bankers’ Committee inserted a norm of epochal importance that no one has ever openly discussed in public. In practice, gold in “physical” ingots – therefore not in the “synthetic” form such as certificates – is once again considered by regulators to be the equivalent of the dollar and the euro in terms of asset security, thus eliminating the obligation to weigh up the risk for the purpose of capital absorption, as happens with any other financial asset, excluding (for now) the Eurozone government bonds. The turning point is not trivial, for the gold market and for the very role of national gold reserves. The result is significant: with the new Basel 3 rules, gold is given the same status that is now recognized for sovereign bonds in bank balance sheets. A question therefore arises spontaneously: is the promotion of gold perhaps the premise for applying a risk weighting coefficient to government bonds held by banks? From the debt crisis, the goal of the regulators was in fact twofold: to require the banking system to hold adequate assets to cover the extent of the risks. The focus is primarily on government bonds, which under current rules can be held by banks without any impact on their assets. The issue mainly concerns low-rated countries such as Italy, Spain, Portugal and Greece, which have been observed after the 2011 debt crisis.
The banks of these countries, both to increase profitability (carry trade) and to facilitate the issuance of public debt in auctions, have the highest amount of government bonds in the eurozone. And this phenomenon is particularly felt in Italy, where the banking system owns 400 billion BTp out of the 2,400 billion of public debt. What would happen then, if it were applied to risk weighting on BTPs as the Basel Committee wants? The consequences depend on the level of risk weighting applied to the BTPs: if it were high, some banks could be forced to replace the securities with other financial assets, including gold, or to proceed with capital increases. At a time when the market is reluctant to buy bank shares, the risk of repercussions on the stability of the banking system could be high. Just look at the Credit default swaps (the insurance against default risk) on Italian banks: according to Bloomberg data, the 5-year CDS of some of the major Italian banks have surged since the spring of 2018, even tripling in some cases the value. It is in this context that the date of March 29th is rapidly approaching.
The countries that have repatriated gold from abroad, regaining control and management, already feel safe from the risk of finding themselves short of gold on March 29 to make it available to their banks in case they want to replace sovereign bonds . In the arsenal of the system, there is a gold mountain of 33,000 metric tons of gold that is worth $ 1.4 trillion at current exchange rates. And that represents 20% of all the gold extracted in the world in almost 3 thousand years. As usual, the most far-sighted and prudent countries – or perhaps the best informed about the turn of the end of March, were Germany, Holland, Austria, France, Switzerland and Belgium, but also Poland, the Romania and Hungary have regained control of their gold reserves and increased their size.China, Russia, India and Turkey were instead the nations that bought gold in the last two years more than anyone else, with Mosca who even liquidated the entire portfolio in US government bonds to replace them with precious metal. But the problem is not this: it is on the price of gold that the accounts do not add up.
In 2018, as many as 641 tons of gold bars were purchased by the monetary authorities of every continent, but above all in Europe: it is the highest level since 1971. The maneuver is unprecedented and must be seen in the phenomenon of repatriation of state ingots entrusted to custody. Seven thousand tons of gold reserves have been withdrawn from central banks by the New York Federal Reserve treasury, while 400 tons have been secretly released by the Bank of England. In recent years, but especially in 2018, a jump in the price of gold would have been in the order of things. On the contrary, gold closed last year with an overall 7% decline and a negative financial return. How do you explain it?
While the central banks were collecting “real” gold bars behind the scenes, at the same time they were pushing and coordinating the offer of hundreds of tons of “synthetic gold” on the lists in London and New York, where 90% of metal trading takes place precious: the excess supply of gold derivatives obviously served to knock the price down, forcing investors to liquidate positions to limit the large losses accumulated on futures. Thus, the more the futures price fell, the more investors sold “synthetic gold”, triggering downward spirals exploited by central banks to buy physical gold at ever lower prices. With all due respect to those who look to gold as a safe haven. China, India, Russia and Turkey have practically doubled the gold reserves over the past five years with this system.Moscow, to buy gold, even sold the last 20% of US government bonds it had in foreign exchange reserves.
How compatible is such a situation with the duties of correctness and transparency of a central bank? Certainly, the system created by the Anglo-American “Goldfinger” seems really made for abuse. Who knows what will happen after March 29 …
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