Central Banks Want More Gold. So Should You

MarketWatch published an article reviewing the growing gold repatriation movement throughout Europe. While the author tries to take a “balanced” mainstream view and even throws in a few swings at gold bulls, he is forced to admit that the trend is troubling. There’s only one reason so many countries would want their gold back on sovereign soil – fears of a massive currency crisis. Matthew Lynn writes:

The point about having gold on your own soil is that it is an insurance policy against a chaotic return to national currencies.The fact that so many countries seem to want that insurance tells you something important about the euro — and it is hardly comforting. They still think there is a real possibility of collapse.”

 

There are not many circumstances in which holding a big stash of gold on your own territory matters very much. But one of them is the sudden, chaotic reorganization of your currency. If a country were to introduce a new currency overnight then if it could be backed by some gold right from the start that would give it some instant credibility in the markets. Repatriating gold only makes sense as a way of preparing for that to happen.”

There’s a big takeaway here for investors. You should follow the example of these central banks and pay no heed to official economic forecasts that paint rosy pictures. For American investors in particular, the actions of these banks bely the false narrative of a strong US economy told by the Federal Reserve.

The Fed is the holder of much of these foreign gold reserves, because it was once considered the strongest, safest, and most trustworthy financial power in the world. However, if the US economy is really so strong, there’d be no reason to worry about leaving your gold in New York. After all, it’s been safe for decades.

It seems Europe no longer believes the propaganda. Not only do these central banks likely doubt the strength of the US dollar, they’re probably terrified by the prospects of an even weaker euro. On top of that, the massive gold accumulation of Russia, China, and India has to make them nervous. They must be aware that economic power is heading East. Gold is one of the best ways to protect themselves from this future reality.