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What Happens When Central Banks Repatriate Their Gold

Kitco News

(Kitco News) -  The repatriation of gold from central banks has less to do with gold and more to do with the rise of nationalism, said Jeffrey Christian, managing partner of CPM Group.

“The more important thing has nothing to do with gold and it has everything to do with the rise of nationalism,” Christian told Kitco News on the sidelines of the PDAC 2019. “What you’re really seeing is a rising nationalist trend, not only in Europe, but also in other countries.”

Christian added that the countries that have in recent years repatriated their gold or added more gold to their reserves, such as Germany, Hungary, and Austria, have had a “nasty history of twentieth century nationalism.”

In late February, Romania proposed legislation to repatriate 95% of its foreign gold reserves, the majority of which is currently held in the United Kingdom with the bank of England.

“Nothing in Romania’s economic situation justifies keeping such a quantity of gold as a reserve abroad, with the associated costs, which are not to be neglected, when this reserve can be kept and supplemented, accordingly, in deposits in the country,” said Romania's Social Democrat Party (PSD) leader Liviu Dragnea and PSD senator Serban Nicolae.

Romania joins the ranks of other European countries that have repatriated its gold. In 2017, Germany’s central bank completed a program to bring home nearly $31 billion worth of gold bars from storage locations new New York and Paris.

Christian said that gold repatriation also signals to the markets that central banks don’t need to be lending gold and using the yellow metal as a monetary store of value.

“Gold is not necessarily used by these countries for any monetary purpose. The value of having gold in a bank of England or other third party location is you can use it to lend out gold, and most central banks have stopped lending gold for any significant volumes,” he said.

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