Gold rush in Europe as concern over money printing rises

This move is significant, as it reflects growing concern that the unprecedented money printing of major central banks could debase fiat currencies, trigger runaway inflation and cause another financial crisis – perhaps even bigger than that of 2008. In spite of surging demand for the yellow metal, the gold price continues to struggle at under $1,200 per ounce.

By Monday we will know the result of a referendum in Switzerland dubbed Save our Swiss Gold, also aimed at shoring up national sovereignty. More than 5 million Swiss will vote on whether their national bank should be required to repatriate 1,040 tonnes of its gold – a fifth of which is held by the Bank of England and a third by Canada. A yes vote would bar the Swiss National Bank (SNB) from selling its reserves of the precious metal and require it to increase its gold holdings to 20 per cent of its total assets. It would also mean the Swiss National Bank having to acquire 1,500 tonnes of gold over the next five years. This would have a significant impact on supply-and-demand and thus on the price of gold. However, SNB chairman Thomas Jordan has warned of “dangerous” consequences if the vote goes through, arguing that if the bank were forced to boost its gold reserves, its costs would increase exponentially and its ability to move within the currency market would be severely hindered, putting its credibility at stake.

“The initiative is dangerous because it would weaken the SNB,” he told an audience near Zurich last week. “The connection between a minimum share and a ban on selling which it embraces would very severely impair our monetary policy room for manoeuvre.”

The Save Our Swiss Gold campaign appears to be waning, with polls showing the yes vote at 38 per cent last week against 42 per cent last month. Like the Scottish independence referendum, the Swiss gold initiative might turn into another devastating defeat.

Meanwhile the Netherlands has moved more effectively to repatriate its gold. To the surprise of many, it recently received 122 tonnes back from the Federal Reserve Bank of New York. In contrast, Germany’s attempt to get its gold back from the US has not been successful. It would like to repatriate 680 tonnes from the Federal Reserve of New York, but so far has clawed back just 5 tonnes. The Fed has told the Germans they will have to wait until 2020 before it delivers all the gold back to Germany.

The Netherlands has 612 tonnes of gold reserves, making it the 10th largest hoarder in the world. This signals that the country has been rather conservative in managing its monetary policy, as its 612 tonnes of gold amount to more than 54 per cent of the Dutch central bank’s total assets. But the problem is that it only keeps 11 per cent of that gold in the country. The rest has been stored abroad – 51 per cent in the US, 21 per cent in Canada and 18 per cent in England. The Netherlands has now come to realise that it might be unwise to keep more than half of its gold in a single country. The goal now is to keep 31 per cent of its gold reserves in Amsterdam, 31 per cent in New York, and maintain the 20 per cent it already has in Ottawa and the 18 per cent it has in London.

The latest country to jump on the bandwagon of gold repatriation is France. After the right-wing Front National party earned a shock victory in May’s European Parliamentary elections, its leader Marine Le Pen now wants the return of French gold reserves. Le Pen has written a letter to that effect to the Banque de France. The letter echoes the demands made by the Save Our Swiss Gold campaign. It calls for:

_ Urgent repatriation to French soil of all of our gold reserves located abroad.

_ An immediate discontinuation of any gold sales programme.

_ Conversely, a gradual reallocation of a significant portion of foreign exchange reserves in the balance sheet of the Bank of France by buying gold at each significant decrease in price (recommendation 20 per cent).

_ A suspension of any financial commitment or loan contract that wagers our gold reserves.

It is clear that the move in Europe is tilting towards a gold standard of some sort, with nations beginning to realise that the days of the fiat currency regime could be numbered.