Of late, a new pattern has been emerging with gold reserves that translates to the fragility of the financial and currency system present in the modern day world. As the central banks of China and Russia are piling up their reserves, the precious metals speculators are paying close interest regarding the financial order that is emerging out of the process. The central European countries and their central banks have started repatriating their reserves at a massive scale in the past few years. This is a great concern not just to the savvy investors but to all citizens, as it is an indicator of which direction the economy is headed and an indication of a weakening dollar and collapsing global economy.
Starting from 2009, countries like Netherlands, Austria, Belgium and Germany have showed their interest in repatriating gold that they hold in other locations such as London and New York. Usually, they have never tried to repatriate reserves from these countries and the sudden change in their activities is a cause of rising fear. Although this is seen as the standard measure worldwide and world banks have a mutual trust amongst themselves when it comes to reserves, the repatriation comes across as a shocking move.
However, the answer behind this move is the obvious. The central European countries have trust issues and do not rely on the modern financial system as holding reserves offshore is seen as a risk and they want to cut slack. With the sudden change of interest in Russia and China’s central banks, even Europe would have to work on it and strategize again with the currently prevailing trends in the market.
Eurozone Stress Spurs Gold Repatriation Demand
In the past several years, many countries from all over the world have repatriated their gold reserves held offshore.
Even European countries have started following the trend off late. This gives a clear indication about the future economic trends that are likely to happen. Central European countries such as Netherlands, Belgium, Germany and Austria combined have nearly 4,000 tons of reserves held and are the second largest reserve holders in the world. Their significant gold holdings form the support of their currency and hence, they have a high credit rating consistently. This also gives them the upper edge in taking several decisions and they have a strong hold over the entire Europe and its functioning. Although they might seem to be politically and financially strong nations, their relations with other weaker economies go for a toss in the long run. Due to the Greek crisis and other economically challenging conditions in countries like Italy, Spain, Ireland and Portugal, all these countries are slowly marching towards a test of faith that might eventually happen considering the prevailing scenario.
Most of the central banks do understand the risks they are running into, and do anticipate a breakdown in the economical scenario, as gold will be that critical asset to make sure that there will not be any emerging crisis in the Eurozone in the long run. Although it is not seen as the ultimate indicator when it comes to the economical health of a country, the central banks do realize that it is the best form of currency available and they are taking all steps to ensure that they repatriate gold and hold all reserves within their country’s borders to avoid any risks. They believe in holding physical gold within their country rather than having it on paper and having their reserves in other nations.
Traditional Economic and Political Order Shifts over Gold Reserves
In the past few years, countries like China and Russia have placed a sudden emphasis upon leveraging gold reserves.
This gaining interest has be witnessed by the financial system all over the world continuously. With a common interest shared between the countries, energy and infrastructure related trade between both the countries have also seen a massive surge, resulting in extended co-operation and strategic partnerships between China and Russia. In the coming days, Russia might emerge to be the dominating nation when it comes to Energy and as a result, Europe will have to change their policies and interests based on the likes of Russia. A change of policy clearly means taking decisions and acting based on how Russia wants it to be. Although the chances that China or Russia will have a totally gold-backed currency are bleak, they will still have an upper edge over other economies in the world with the reserves they have in their arsenal.
Irrespective of the intent behind repatriating reserves, be it to steer away from the crisis Eurozone is in or to be a politically strong nation by having gold-backed economies, one thing is clear that it is starting to be looked upon as one of the strongest indicators in the world economy. Central banks of different countries are continuously increasing their interests in having reserves and the world economy is seeing a paradigm shift with reserves becoming predominantly important. This move should be taken into consideration by savers and investors from all over the world.
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