Gold is the most maligned asset, if you listen to the Fed, the ECB, and other central banks. This was driven home again in a variety of ways, including what transpired before the Swiss gold referendum and Mario Draghi’s “all assets but gold” declaration. So I asked a man who knows, Fabrice Drouin Ristori, Founder and CEO of Goldbroker.com, why the heck central banks react toward gold in that bizarre manner.
WOLF: On November 30, the Swiss voted down the proposal presented in the “gold referendum.” Was there anything peculiar about the process?
FABRICE: The Swiss National Bank and most Swiss media campaigned for the NO side, which is quite unexpected in a democratic process. There are two lessons to be learned from this referendum: One, this campaign clearly shows that gold is the banking and financial system’s enemy #1 in Western countries, since a return to a gold standard would limit their money creating capacity, thus their power. And two, people in Western countries have lost awareness of what a monetary system based on true money is. The Swiss have now joined this category despite their long experience with the gold standard.
WOLF: Following the ECB’s decision to delay any QE till next year, Mario Draghi said that in terms of asset purchases, the ECB had discussed “all assets but gold.” Why would the ECB consider buying all assets – including “old bicycles,” as German politician Frank Schäffler had said so poignantly in July 2012 – but not gold?
FABRICE: The central bankers’ discourse is systematically anti-gold. Draghi’s announcement just confirms the fact that the ECB along with other Western central banks consider gold as their main enemy. In a gold-standard environment, they would lose the capacity of printing money, and they don’t want to give up this power.
Over the last few months, it has gotten quite difficult to purchase physical gold in large quantities, as proven by the backwardation phenomenon, when the Gold Forward Offer Rate is negative [GOFO is the interest rate at which participants are willing to lend gold on a swap against US dollars]. If the ECB were to buy physical gold in the markets it would create havoc on spot prices. And a rising gold price brings investors and economic agents to seriously question the stability of paper currencies. They might even abandon paper currencies in favor of tangible assets. To avoid that whole chain reaction, the ECB refuses to buy gold as part of its QE program.
WOLF: There have been a slew of countries trying to repatriate some of their gold, among them Venezuela, Germany, and the Netherlands. Seems easy enough, but some of these countries have a hard time repatriating their gold. What’s the deal?
FABRICE: Gold has been stored mainly in the United States and London in order to protect the gold reserves during times of conflicts – the Cold War, for example – and/or to improve the liquidity of their gold reserves by moving them closer to the large trading centers.
That certainly made sense at the time, but we are now seeing a reverse movement of repatriation as there are some doubts as to the real existence of those gold reserves in the two main storage locales, London and New York. There is a high probability that gold reserves from several countries have been leased to bullion banks and then sold on the markets in order to control the gold price and thus maintain the illusion of value of paper currencies such as the dollar, the euro, etc.
When central bankers, often under pressure from their own government, decide to repatriate their physical gold, one can logically assume that they have some doubts about all of their gold still being there, especially in a context where no real audits of gold reserves are being performed.
Physical gold is making a comeback in the international monetary system. Several governments and monetary authorities are aware of this and are worried about the existence of their gold reserves. I believe we are seeing the end of a game of musical chairs that will bring us a lot of bad surprises.
WOLF: With the Bank of Japan out to demolish the yen, successfully so far, Japanese households might someday get scared, dump their yen, and become big gold buyers. Is that something that would worry the BOJ since it has been telling the Japanese to pull their money out of the banks and put it in the stock market in order to drive up stocks?
FABRICE: All major central banks are worried about this movement toward physical gold. We see it through media pressure, for example, leading up to the Swiss gold referendum; we see it in announcements by central banks, such as Mario Draghi’s “all assets but gold” declaration; we see it in outright market manipulation. Everything is done to bash gold so that no link can be established between the loss of purchasing power of paper currencies and the performance of gold.
Gold terrifies the pundits and powerbrokers of the current international monetary system. They’re terrified of gold’s eventual return at the core of the future international monetary system. And this is why they openly bash it.
They are trying, like in Japan, to influence individual decisions. But when the loss of faith in paper currencies manifests itself all over the world, I don’t see how investors would want to follow the advice of those who have contributed to the destruction of the purchasing power of these currencies through infinite money creation, such as QE and other methods.
WOLF: On a more personal note, you’re an entrepreneur. We here in San Francisco appreciate that. But why did you go that route?
FABRICE: I founded Goldbroker.com in 2011 to organize in one location a solution that lets investors own physical gold and silver directly in their name, without any intermediaries, and store it outside the banking system, which I think is crucial for a number of reasons. This way, each investor can become his or her own central bank. If I may, I would like to invite your readers to check out our solution at Goldbroker.com.
Fabrice Drouin Ristori is the Founder and CEO of Goldbroker.com.