Owning gold is life insurance and wealth preservation. Anyone who has lived through hyperinflationary periods in the Weimar Republic, Zimbabwe, Argentina or Venezuela understands the importance of gold. But it is not enough just to own gold or silver. It is also extremely important how you hold it and where you hold it. We have just seen another example how governments unilaterally "confiscate" gold.
VENEZUELA CAN'T GET THEIR GOLD BACK
The Venezuelan government gold held at the Bank of England (BoE) is just the latest example of the importance of choosing the right jurisdiction and the right vaults. Venezuela is holding 14 tonnes of gold with the BoE in London, worth $545 million. This is a relatively small amount when it comes to sovereign gold. Still, Venezuela has for some time asked to get it back but the BoE has come up with all kinds of excuses like it is hard to get insurance for such a big amount and this has allegedly delayed the release of the gold by several weeks. This is of course a ridiculous excuse.
Our company ships large amounts of gold and silver from all over the world to private vaults in Switzerland and Singapore. We have never had a problem organising immediate shipment or getting insurance cover. So the reason for the delay is clearly not insurance or transport. The UK, as still part of the EU, is cooperating with the US in relation to the sanctions against Venezuela. So the question is now if Venezuela will ever see their gold back. It is reported that both Libya's and Ukraine's gold has been "taken care of" by the US. Maybe Venezuela's gold will end up in the same place.
MAJOR PHYSICAL GOLD SHORTAGE IN INTERBANK MARKET
Most central banks hold gold with the Bank of England as well as with the Fed in New York. A major part of the central banks' gold is either sold covertly or leased to the market. When a central bank wants its gold back, it doesn't exist anymore in London or New York. A bullion bank has sold the leased gold to China or India and all the central bank has is an IOU stating that they are owed gold by the bullion bank. So there is no physical gold available to deliver against the IOU.
At some point, the market will discover that there is a massive shortage of physical gold in the interbank market. When this happens there will be panic and the gold price will shoot up. At the same time the holders of paper gold in the futures market will also ask for delivery. Since there are at least 100 paper claims for every physical ounce available, there will be a massive squeeze in that market too.
GERMAN INVESTORS WORRY ABOUT GOLD CONFISCATION
I was last week in Munich giving a speech at the International Precious Metals & Commodities Show. The mood at the show obviously reflected the depressed prices of the mining stocks and the metals. There were around 4,000 visitors this year against 14,000 when I spoke in 2012. After a six years correction, precious metal investors are feeling quite bruised. Many of the German investors own mining stocks where the losses are so much greater than for the physical. Based on contrary opinion the cooler interest is a good indication that we are getting to the end of the correction.
A clear concern among German investors in physical gold and silver is the risk of confiscation within the EU. Germany has a history of banning personal ownership of gold from the 1920s to the 1950s. We talked to several investors who were worried about confiscation in Germany and the EU and therefore interested in moving their gold and silver holdings to Switzerland and also to Singapore.
SWITZERLAND HAS NEVER CONFISCATED GOLD
Switzerland has never banned or confiscated gold. Gold ownership is a long established tradition in Switzerland. Swiss gold refiners are world leaders in their field and refine 70% of all the gold bars in the world.
In addition, gold represents 29% of Swiss exports, which makes it a strategic industry. These factors combined make it very unlikely that Switzerland will ever confiscate gold. It would be very foolish and improbable that the Swiss government would kill the goose that lays the golden egg.