The birth of the new monetary system

2013-JAN-18

The Bundesbank’s confirmation on Wednesday that it is looking to repatriate a portion of its gold reserves caused a stir in financial media: by 2020 they are looking to have finished transportation of 674 of the 2,319 tonnes currently stored abroad. This will mean transporting 300 from New York (of 1,500 now held there) and all 374 tonnes currently held in Paris. As this Bloomberg chart illustrates, in 2020 the bank plans that 50% of its gold will be in Frankfurt, with 37% in New York and 13% in London.

The Telegraph’s Ambrose Evans-Pritchard references this news in an article titled “A new Gold Standard is being born”. This is one of the clearest references to the growing importance of gold as a reserve asset that we’ve seen in the mainstream media, so it’s good that this subject is attracting increasing recognition. Writing about the German gold, he notes:

“It [the Bundesbank] responded to massive popular pressure and prodding from lawmakers in the Bundestag to bring home Germany’s gold. Yet that is not the end of the story. The fact that this popular pressure exists – and is well-organised – reflects a breakdown in trust between the major democracies and economic powers. It is a new political fact in the global system.”

Loss of confidence in both paper assets and the financial system as a whole is what’s slowly driving precious metal prices higher. Governments take for granted this confidence, yet an increasing number suspect otherwise. In Doug Casey’s words, “we are living in the middle of the biggest bubble in history” – the fiat currency and bond bubble. When it bursts, we’ll all know about it.