Gold serves as the basis of the global monetary system for the simple reason that it exists as a finite, physical store of value. And unlike every issuance of debt or piece of printed money, there is no counter party risk – unless, of course, you don’t actually have the physical gold in your possession. Then it’s no more a basis of one’s reserves than all of the digital money created with a keystroke.
Hugo Chavez understands this and that’s why he ordered all of Venezuela’s gold to return home. He’s also not a particularly popular guy in the West which works to his advantage in this case. He’s not afraid of upsetting the fractional gold apple cart by pulling 100% of his country’s gold deposits. It’s not nearly so easy for European countries, who are under intense pressure to leave their gold in the possession of the United States and the Too Big to Fail banks.
Take the case of the Netherlands. After much inquiry from the Dutch citizens about the details of their gold, the president of the Dutch Central Bank Klaas Knot admitted that a full 90% of the country’s gold reserves were not in their possession. Gold is the fallback in the case of a worst case financial crisis, but what good is it in that scenario if you don’t posses it? Knot claims that this arrangement saves on shipping if they ever want to sell it. But why on Earth does the Dutch government need to be poised to sell 90% of its gold on a moment’s notice? It doesn’t make sense.
The London Gold Pool was an arrangement of eight central banks and several European countries to pool their gold in the United States during the 1960’s for the purpose of defending the $35/ounce price of gold. Could the real reason the Dutch and so many other European countries keep their gold in the US be an unofficial version of the London Gold Pool? It would certainly explain why these countries continue to give away their best financial insurance in what promises to be an epic financial storm of either debt destruction or currency debasement.
Here’s an interesting article from last October The Dutch Central Bank Answers Ten Questions about its Gold which led up to this latest admission.