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Nations Seeking Power Also Seek Gold

Nations Seeking Power Also Seek Gold

Thursday, 09 June 2016 07:29 AM Current | Bio | Archive

When it comes to which country owns the most gold, many Americans would be surprised to discover it’s the United States. But that doesn’t mean the U.S. is a major trader of gold; in fact it’s just the opposite. The U.S. rarely adds or subtracts from our stockpile of the precious metal.

In fact, looking down a list of the top gold-holding countries/entities may yield several surprises. The Netherlands and Switzerland are on the list, along with, perhaps unexpectedly (or perhaps not), the International Monetary Fund and perennially recession-bound Japan.

Less surprising: the usual power players Germany, Russia and China.

As China strives for a greater role in the global economy, it’s no coincidence it’s also working for greater power and prominence in the international gold trade.  Meanwhile Russia, hit hard with international sanctions after its thinly veiled proxy war with Ukraine, and further hurt by low oil prices, has similarly used large gold purchases to bolster its foreign reserves. So what this list tells us is that the world’s most industrialized and internationally powerful economies are also continually ensuring they have tons of gold at their foundation.

China’s Plan: Become the New Market Maker

For nearly a century gold prices worldwide were set in a closed-door process called the London Fix, which involved a handful of banks in, you guessed it, London. But after repeated accusations of price manipulation, in 2015 the international gold trade switched to a new system called the LBMA Gold Price (for the London Bullion Market). This time China was front and center, making sure it got a seat at the table.

This wasn’t a spur of the moment play; as in all things, the Chinese work the long game.  In 2014 they opened the Shanghai Gold Exchange (SGE), a key step in the internationalization of China’s gold trade.  In April of this year the SGE started issuing its own benchmark gold price, one denominated in China’s own currency, the yuan. Yet China’s ambitious attempts to become a central competitor in the gold trade haven’t stopped there.

Just last month China’s Industrial and Commercial Bank of China Ltd. bought a controlling interest in one of London’s largest gold vaults, one formerly owned by Barclays Bank. Now China not only has a stake in setting gold prices but, with control of the vault, has a stake in clearing and settling gold purchases around the globe. It’s clear from the sequence of moves that China’s eventual plan is not just to be a part of the global gold trade but to become its dominant player.

Russia’s Goal: Make Itself Sanction-proof

International outrage and subsequent widespread sanctions against Russia in the wake of its military intervention in Ukraine have clearly rankled Moscow, as well as damaging Russia’s currency, the ruble. The effects of these restrictions were exacerbated by the global crash in oil prices, which put Russia’s economy in even worse straits.

In an effort to stabilize the ruble, offset international sanctions and strengthen its trade ties with China, the Russians also started stockpiling gold. Along with that came efforts to de-dollarize their foreign reserves and shed foreign debt, leading some analysts to speculate the Russians are gearing up for a “gold ruble” in the near future.

Germany to U.S.: Give Our Gold Back

Not to be left behind, and conscious that wealth that’s in someone else’s hands is perhaps more their asset than yours, in 2013 Germany launched an effort to bring its gold bullion home from the foreign banks, including the New York Federal Reserve, where it was being stored. The plan is to have half the country’s gold transferred to Frankfurt by 2020. Undertaken initially as a political move, it conveniently adds Germany to the list of countries bolstering their reserves as China works to carve out a larger piece of the world gold trade.

Laying Gold as the Foundation

Some have speculated that these power players’ increase in gold reserves is part of some larger plot against the dollar. But nations don’t stockpile gold to attack someone else’s currency, but rather to reinforce their own.  Our allies and competitors stockpiling gold aren’t attacking the U.S.; they’re copying us.  

In our new connected global economy the real currency is trust. China and Russia both know trust comes from backing your currency with a high-value asset that’s solid and tangible. The U.S. has over seventy-two percent of its foreign reserves in gold and the dollar is the strongest currency on the planet. That’s not a coincidence.

Instead of fearing other countries’ stocking up on gold, we should be cautiously welcoming this development. Why the U.S. isn’t positioning itself to become a bigger player in the coming gold-backed global economy is the only real mystery here. 

But even if our government isn’t taking its cue from recent events and moving to further protect the nation’s currency, that doesn’t mean you can’t choose to do so for your dollars and dollar-denominated assets.  Because while it’s nice to ensure your cash today is protected, what’s even more vital is to ensure the future buying power of your retirement savings is locked in and indestructible. 

Every day I speak to clients who want their future protected with tangible assets like gold and silver through their own gold IRA.  They know paper dollars, like stock and bonds, have only the value someone’s willing to pay you for them – on the day and time you need to sell.  Gold’s value is inherent, impervious to inflation’s erosion of buying power, and withstands market fluctuations that can topple a house of paper assets.

Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau. To read more of his work, Go Here Now.

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When it comes to which country owns the most gold, many Americans would be surprised to discover it's the United States. But that doesn't mean the U.S. is a major trader of gold; in fact it's just the opposite.
nations, power, gold, own
Thursday, 09 June 2016 07:29 AM
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