Last week I was interviewed for a Dutch news item about gold, the show (Een Vandaag) was broadcasted on national television Monday November 17, at 6:15 pm. It was viewed by 1 million people.
Is that a lot? It is, if you consider this is 6 percent of the Dutch population (16.8 million), so I was quite happy to have reached so many people with my message – although it’s impossible to expand in detail in news items.
The main topic was the Swiss gold referendum that is held on November 30, though I could also share some information on other developments across the globe regarding gold:
- Chinese consumer gold demand is much larger than what is generally assumed in the West.
- The Chinese government stimulates its citizens to buy gold.
- The Chinese central bank is increasing its official gold reserves.
- Russia’s central bank is the most aggressive gold buyer at the moment.
- The repatriation of the German gold from New York means the Germans don’t trust the US anymore, and highlights the value the Germans attach to gold.
- In my opinion a debt based monetary system is not sustainable and eventually will be replaced by a system that includes gold.
The item covered gold from a Keynesian angle, by economist Ivo Arnold, and from a gold advocate angle, by me. Make sure English captions are on.
Transcript of the video including comments:
‘Save Our Swiss Gold’, with that motto the Swiss people will hold a referendum at the end of this month on a remarkable proposal to connect their own Swiss franc to the value of gold, just like it used to be. The so called ‘gold standard’. The initiators have no longer trust in the future of the dollar or euro, and thus they want to make their franc as crisis-proof as possible.
Gold. Huge stocks of gold. Nearly all central banks around the world have it stored in their vaults. Also the governors of our own the central bank like to uphold a trustworthy image and appear for the camera in the gold vaults.
Interviewer: “How much gold is stored here?”
Klaas Knot: “I think about 67 tonnes.”
This gold used to be base of money and all money the bank printed was required to be backed by gold. But this relation is suspended since the thirties. Present-day currencies, like the euro or the dollar, are unbacked, so called fiat money. Central banks can print as much money as they like, as it’s only a matter of trust. Gold has no more function. You can only…
Duisenberg: …”save it, in case of emergencies.”
However, has gold’s role as the base of money completely vanished? A number of Swiss people don’t think so. The ‘Schweizerische Volkspartei’ collected 100,000 signatures, to push for a referendum through which they want control of the Swiss central bank’s gold policy.
Luzi Stamm: “With ‘The Gold Initiative’ we want three things: Prohibit the central bank from selling gold, store all gold on our own soil, and cover 20 % of the bank’s assets in gold.”
The central bank and almost the entire Swiss parliament consider the referendum stupid and potentially dangerous. Yet, first polls show that 45 % of the electorate would vote YES, 16 % isn’t sure. Economists are anxious the Swiss will say YES.
Ivo Arnold: “I think it would be unwise for the Swiss to do this, for a number of reasons. The primary reason would be that the Swiss central bank would lose its flexibility to take control when necessary.”
It is exactly this flexibility that has brought us into trouble.
And control was needed when the Swiss franc sky rocketed during the eurocrisis.
Ivo Arnold: “In 2011 and 2012 everybody was never nervous about the euro, so the Swiss franc became a safe haven. A currency of safety for investors. This strengthened the franc enormously and that was hurting the Swiss industry. A good reason for the Swiss central bank to take control, in the interest of the Swiss economy.”
Let’s not talk about why everybody was nervous about the euro. The fact the Swiss franc became a safe haven was a reaction from the free market.
Subsequently the Swiss pegged their franc to the euro and lifted the parity with gold, as the last country. A wise decision according to economists.
Ivo Arnold: “If we look back in history, at the great depression in the thirties of the previous century, we can see the countries that held on to the parity with gold the longest, suffered the most from the depression, and recovered slowly. The countries that quickly lifted the gold parity recovered faster. So we need to contemplate if it’s in the interest of the Swiss to implement such a rigid system.”
Sure, if you abandon gold all together and print money/credit you will get a economic boom. It’s the inevitable bust that is the problem, and continuously boom-bust cycles lead to malinvestment and a broken economy and that’s were we are now; endless money printing to keep the charade going.
Luzi Stamm: “The central bank will keep its freedom to print money all day if it prefers to do so. But if they print, 20 % of that money will be required for gold purchases.”
Jan Nieuwenhuijs publishes under his blog name ‘Koos Jansen’ about developments in the gold market. In his opinion the referendum in Switzerland should be taken very seriously.
: “If a country like Switzerland, that has always stood for neutrality and a very strong economy, will take such a huge step towards gold, this will have great influence on global sentiment about gold.”
The past thirty years gold was seen as an old-fashion investment. Many banks and investors sold their gold. However, when the credit crisis erupted and in 2008 the financial system was unstable, the price of gold exploded. Gold was again a safe haven. Now the panic has declined, the price of gold is going down for two years.
“…so they’re selling. Additionally, the price is predominantly set by speculators in the Western paper markets. So they determine the price and made the price go down since 2011.”
Whilst Western investors sell their gold, demand in countries like Russia, China, Turkey and Mexico from investors and central banks is increasing.
“The red line in Russia, currently the most aggressive buyer.”
Interviewer: “And the green line?”
: “The green line is China, every now and then they inform the world by saying how much gold they really have, which makes the line jump up, followed by years of silence.”
Though China is the most significant player in this market as their demand is increasing more than we think.
: “I can measure this by how much they buy, which is much more than they want us to believe.”
Nieuwenhuijs discovered that Chinese consumer demand has sky rocketed, and he found in Chinese reports and publications certain statements from Party Members, which not only expose the Chinese people are stimulated to invest in physical gold, as well as…
: “..the Chinese central bank is accumulating gold, first to reach 4,000 tonnes, to surpass Germany and be second in the world, than to reach 8,500 tonnes to have more than the US.”
Closer to home ‘The Gold Exchange Shop’ went from 4 to 50 branches in the past years. They also see demand for physical gold rising, because many people aren’t confident the crisis is over.
Johan De Ruiter: “People notice every time billions of euros are printed out of thin air. If we all believe in it it’s fantastic, however gold is known as money for over 6000 years.”
Interviewer: “What kind of people buy gold at your shop?”
Johan De Ruiter: “It used to be mostly investors, but now also normal people that have 20 to 30 thousand euro at the bank, who like to secure their wealth.”
There is another sign gold’s role is not over; also the Germans want to repatriate their gold now stored in the US.
: “The German central bank is currently repatriating gold from the US. This tells us, 1) they don’t trust the US, 2) they apparently attach a lot of value to their gold.”
Gold advocates see it everywhere; signs that the system of unbacked money, which can be printed out of thin air, is coming to an end and eventually will be replaced by a system with gold.
: “We could do a reset and restructure all the debt, but many people will doubt if that is a credible solution. Because then we would start over with a system that has just failed, and thus gold will be re-introduced into the monetary system to give it sufficient credibility.”
Here is were the gold advocates start dreaming, according to economist Arnold.
Ivo Arnold: “I think a fixed parity of a currency with gold is never going to happen ever again. There are so many downsides to it and we’ve experienced this so often in history. That’s why we don’t have a gold standard now.”
And now everything is perfect?
But what if the Swiss say YES to the gold proposal?
Ivo Arnold: “I don’t think the Swiss will set a trend. They were the country that was the last to hold on to a gold standard, so they’re are always perceived as a ‘weird’ country. It’s not likely other countries will follow them. It would of course give a boost to the gold market as the Swiss central bank would need to increase its gold reserves over the next years.”
Switzerland is not a weird country, to the contrary, they always had a strong economy and are the only country that has never defaulted on their sovereign debt (that I’m aware of).
November 30th will be the day the Swiss will vote on the re-introduction, or not, of the gold standard.
Yes, my real name is Jan Nieuwenhuijs. I started on Twitter under the name Koos Jansen a few years ago and got stuck to it. For the sake of simplicity I never changed it.