Resource World Magazine

S P E C U L AT I O N S L e o n a rd M e l m a n Gold Repatriation O ne of the world���s oldest sayings is ���pay attention to what I do, not what I say.��� That adage appears to be quite appropriate at this time since several nations continue to pay lip service by saying they support the concept of printing vast quantities of unbacked, fiat currencies as the means to advancing prosperity while at the same time doing precisely the opposite, namely exerting every effort to rebuild their gold reserves. Three particular nations, Venezuela, Germany and Switzerland stand out in this regard. The government in Caracas stunned much of the financial world in November, 2011 when President Hugo Chavez announced plans to repatriate his country���s external gold holdings. One of the stated reasons for making this move was that the Venezuelan government was beginning to have real concerns regarding the economic stability of several European nations as well as the US. Some more sceptical observers offered the opinion that he, Chavez, was playing to his socialist supporters by demonstrating reduced reliance on Western capitalist nations. By June, 2012, the Venezuelan central bank reported that the transfers were completed and the country had received a total of 160 tonnes of gold with a market value of approximately $9 billion. Arrival of the final shipment was turned into a major media event which was broadcast on national television under the theme, ���Mission Complete.��� During January 2013, Germany announced their desire to repatriate a total of 674 tonnes of gold worth about $36 billion at current market prices. Three hundred of those tonnes are currently stored in Federal Reserve vaults while the remaining 374 tonnes are held at the French central bank. The driving MARCH 2013 force behind this action was a campaign by the German mass media to ���Bring Our Gold Back Home.��� The German action poses a set of serious questions. Why does Germany even want to take such actions? Does this indicate a reaction by Germans to the fact that the American Federal Reserve has refused to allow any audits of the gold (supposedly) held in their vaults? An answer to the first question lies in the fact that one of the most powerful reasons for Germany to have sent its gold into foreign storage in the first place was that post-war Europe feared a Soviet invasion and public opinion supported moving Germany���s gold into safer harbors ��� but that condition no longer exists. The second question relates to some growing doubts that the German gold hoard remains safe in the hands of the Fed or the French central bank. Also, given Germany���s tragic history of hyperinflation in the 1920s, there could be growing suspicion in Germany that the present international financial apparatus is fatally flawed, and therefore, gold could serve as a legitimate backup to the present system. Clearly, the last concept could be regarded as a threat to present central bank leadership and many economists who support the status quo have openly questioned why Germany would even be concerned regarding such matters since gold has not been a legal part of international commerce since the abandonment of the post-war Bretton Woods Agreement in 1973. Switzerland is the third country involved in repatriation. In their case, four legislators introduced a resolution into parliament in early 2012 presenting a ���Swiss Gold Initiative��� for public consideration with the stipulation that if the initiative received 100,000 signatures by March 2013, the entire subject, including three specific constitutional amendments, would be brought before the full legislature. As of mid-February 2013, 90,000 signatures have been obtained. The three constitutional amendments would require that: ��� The gold reserves of the Swiss National Bank are not for sale ��� The gold reserves of the Swiss National Bank be stored in Switzerland ��� The Swiss National Bank keeps its assets in gold to an essential proportion ��� The proportion of gold must not be less than 20%. Writing in support of the initiative, Swiss National Councillor Luzi Stamm stated what appears to be an essential concept underlying the actions of all three countries, when he declared, ���The United States Federal Reserve Bank and the European Union`s European Central Bank are about to destroy the value of dollars and euros.��� The speculation, then, is this: Is Mr. Stamm correct and the world���s economic system is under threat, thereby leading to these acts of gold repatriation ��� or are these actions merely an aberration of some sort? If the former case is true, the outlook for gold and silver could hardly be more bullish over time; but if the latter proposition is the case, the reverse could quite easily be true. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@ shaw.ca www.resourceworld.com 33

• Cover