Jim Rickards Says There is Much More Behind Mnuchin's Fort Knox Visit and Germany's Gold Saga
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(Kitco News) - Between Germany getting its gold back and Treasury Secretary Steve Mnuchin’s visit to Fort Knox, lots of “weirdness” is going on in the gold space, this according to best-selling author Jim Rickards.
“Last week featured two unusual stories on gold – one strange and the other truly weird,” Rickards, the author of the New York Times bestseller Currency Wars, said on Wednesday.
The first strange gold story involves Germany. Last week, Germany's central bank completed its plan to repatriate the country's gold reserves from New York and Paris, three years ahead of schedule. Initially expected to take until 2020, the plan involved returning 374 tons of gold from Paris, and 300 tons from New York.
“But the German central bank does not actually want the gold back because there is no well-developed gold-leasing market in Frankfurt and no experience leasing gold under German law,” Rickards said in an interview with Kitco News.
Rather, the author believes that the move was done purely for political reasons.
“The driving force both in 2013 [date of announcement] and 2017 [date of completion] is that both years are election years in Germany. Angela Merkel’s position as Chancellor of Germany is up for a vote on Sept. 24, 2017. She may need a coalition to stay in power, and there’s a small nationalist party in Germany that agitates for gold repatriation,” Rickards said.
He added, “Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and [last] week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now.”
Last week, the Bundesbank, one of the biggest holders of gold in the world, said that it completed the move of 674 tonnes from the vaults of the Federal Reserve Bank of New York and the Banque de France.
Frankfurt now holds just over half of Germany's total 3,378 tons of gold reserves, with 36.6 percent left in New York and 12.8 percent in London. The gold was initially stored outside of Germany during the Cold War.
But the truly “weird’ story for Rickards comes from the United States.
Treasury secretary Steven Mnuchin recently tweeted that he paid a visit to Fort Knox to see the U.S. gold hoard. Mnuchin is only the third Treasury Secretary in history ever to visit Fort Knox.
“The U.S. government likes to ignore gold and not draw attention to it. Official visits to Fort Knox give gold some monetary credence that central banks would prefer it does not have,” Rickards said.
So why an impromptu visit by Mnuchin and why now?
“The answer may lie in the fact that the Treasury is running out of cash and could be broke by September 29 if Congress does not increase the debt ceiling by then. But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price.”
U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.
Once the Treasury revalues the gold, the Treasury can issue new “gold certificates” to the U.S. Fed and demand newly printed money in the Treasury’s account under the Gold Reserve Act of 1934, the author explained.
“Since this money comes from gold revaluation, it does not increase the national debt and no debt ceiling legislation is required. This weird gold trick was actually done by the Eisenhower administration in 1953,” Rickards said.