Gold: An Anchor of Trust

Central banks globally added a net 57.3 tons of gold in August, continuing a gold-buying spree that’s been going on for months. Countries like Russia and China are seeking to minimize exposure to the US dollar and undermine the ability of the US to weaponize the greenback as a foreign policy tool. But there are even more fundamental reasons central banks hold gold, as outlined by De Nederlandsche Bank (DNB), the central bank of the Netherlands.

The DNB holds more than 600 pounds of gold, according to its website. The bank calls the yellow metal its “ultimate reserve asset.”

A bar of gold always retains its value, crisis or no crisis. This creates a sense of security. A central bank’s gold stock is therefore regarded as a symbol of solidity.”

The DNB calls its gold holdings “an anchor of trust.” It notes that while bonds and other securities come with risk, gold retains its value, even during an economic crisis.

Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”

The DNB holds about a third of its gold in Amsterdam. The rest is stored in the US, Canada and the UK. The central bank used to hold even more of its gold overseas, but it has joined a number of other nations in repatriating some of its gold.

Peter Schiff has talked about central banks buying and holding gold. He has noted that the US went off the gold standard in 1971, but he thinks the world is going to go back on it.

The days where the dollar is the reserve currency are numbered and we’re going back to basics. You know, everything old is new again. Gold was money in the past and it will be money again in the future, and central banks that are smart enough to read that writing on the wall are increasing their gold reserves now.”

Central bank gold purchases this year continue a trend we saw through 2018. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record.

During an interview on RT Boom Bust, Peter Schiff called this a “global gold rush on the part of central banks” in preparation for a dollar crisis.

The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up.”