Wednesday, April 10, 2013

The Chess Game of Capital Controls
Jeff Clark
Germany’s central bank is withdrawing part of its massive gold holdings from the US, as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.
The Bundesbank says it wants to build trust and confidence domestically, and to facilitate the timely exchange of gold for foreign currencies.
What’s not mentioned is that in the event of a US bankruptcy, euro implosion or similar financial catastrophe, access to gold would most certainly be limited. If Germany actually needed its gold, regardless of the reason, any transfer or sale would be difficult. At best, there would be delays. At worst, such requests could be denied. That defeats the purpose of owning gold.
But the greater significance of Germany’s move is that it reinforces the growing recognition that gold is money, not a commodity, a trading vehicle or an investment. It's a store of value, a hedge against monetary dislocations. In the extreme, you can use it to pay for goods or services when all other means fail. Those who don't recognize this historical fact stand to lose the most in an adverse monetary event.
Here’s the quote that reveals the ultimate reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis." Germany's central bank thinks a currency crisis is possible. That's a very sobering fact.
Of course, history is clear on this: Eventually, all fiat currencies fail.
And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, the next step could be a clampdown on gold exports, the most stringent of capital controls.
Storing some gold abroad is critical at this point, and the window of time for doing so is getting smaller. Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.
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