EUROZONE GOLD EXCLUSIVE: Draghi mulls gold sales ban….

Marigold Draghi?

….looks at gold-backed bonds to restore confidence

The Slog’s Brussels Mole reports that a bold double-whammy scheme to stabilise the euro and restore confidence in eurozone bonds ‘in the intermediate future’ is under serious consideration at the European Central Bank (ECB). The plan involves banning the private sale of gold in the proposed Fiskalunion, and using ECB gold supplies as collateral for sovereign debt bonds issued by member States.

In what will be seen as both sensational and horrifying by everyone from private investors to senior German financial figures, The Slog was today advised of the existence of an ECB plan to protect the single currency from desertion in favour of gold…and back some Fiskalunion eurobond and member State debt issuance with gold bullion.

It’s an odd mentality, is it not, that destroys confidence in eurozone bonds by cheating investors one year, and then looks to back the bonds with gold the next. It is, however, typical of ruthless eurofanatic tunnel vision to go for every last throw of the dice to before giving up.

That said, it is at least a creative idea – so we can be sure, therefore, that it didn’t originate in Brussels. The most likely original source of such a scheme is the front left cerebral lobe of Mario Draghi….or one of his chums in Goldman Sachs. Say for the sake of argument, Mario Monti.

“The idea is new Union, fresh start,” my source asserts, “The old fluffy eurozone is dead, long live the gilt-edged FU. They’re not going to do it next week, but there is an ECB task-force working seriously on the ramifications and details”.

Two days ago in Berlin, ECB boss Draghi made a significant comment when asked about the inflationary pressures of QE in the eurozone. I quote:

“in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries.”

This was a calculated comment by Mario, designed to suggest a future where gold would represent a poor investment. Its effect was immediate: gold futures fell to $1703, and the hint was duly trotted out by several commentators.

“Gold is not getting any support since people are not talking about an inflation spike,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

My view is more anthropological I’m afraid: Mario Draghi wouldn’t be indirectly rubbishing gold if he didn’t fear it.

In fact, The Slog’s bottom-line belief about gold hasn’t changed since 2009: with the exception of top-top end A+++ property, it is the best investment on offer given the current outlook. And although timing one’s purchase entry exactly right is as much about good fortune as calculation, by 2014, $50 this way or that could very easily feel like peanuts compared to the gains made.

Those who see gold as purely an inflation hedge are missing the point. Top end property and gold are must-buys for the big investors right now, because they want safety and survival once the global financial system starts unravelling in the face of eurozone debt contagion.

Look at what Soros and Paulson did in August. Both liquidated a huge tranche of stock investments in favour of an enormous call on gold. This is a six-month track of the gold price from May 12 this year:

You can see that by the time Soros and Paulson bought the shiny stuff, it’d been holding at between 1550 and 1600 dollars for three months. This was a rigorous test of the low, and it had failed. All you’d need to do then is read a couple of newspapers about QE, the eurozone disaster, and the global slowdown, and decide it would be daft not to buy.

The other consideration (when dealing with the likes of Paulson and Soros) is whether they know of the Draghi scheme already….and plan to (a) get in while they can, and (b) benefit from what would probably result: a rising dollar price of gold. Odder things have transpired on the Goldman Sachs bush telegraph.

Of course, when Big Dicks like these two buy big, it becomes a short-term self-fulfilling prophecy to some extent: after much hype, the price shot up to test $1800 by the end of September. But this is the lesson: the existence of such major opinion leader actions – and ironically, the current cyclical fall-back of gold making it look increasingly, temptingly cheap – would worry any organisation in charge of a dodgy currency. And as Draghi’s ECB is the proud owner of a Mickey Mouse euro, it is entirely logical that the all-or-nothing brigade would plan to close off the exit-route into gold.

It’s not as if there is no precedent in recent times: the Reserve Bank of India very seriously considered banning the sale of gold coins there during last June. And as of early September 2012, private citizens can no longer buy gold in Argentina. That’s not what the new law says, but it is the cast-iron practical effect of the legislation.

In fact, using gold to back bonds has been put forward before by the World Gold Council – they would, wouldn’t they? – but I can imagine the idea terrifying the US Treasury and Reserve. It could well, for instance, trigger an investor desire to inspect the contents of Fort Knox; and it would turn the QE thing into a whole different ball of wax.

Meanwhile, the question is there for European private gold-bug investors to address: should they get in while the window’s still open? More on this later at The Slog.

Update at 11.15 am BST Friday: Germany starts repatriating gold – Coincidence or coordination?

43 thoughts on “EUROZONE GOLD EXCLUSIVE: Draghi mulls gold sales ban….

  1. As you will know, governments telling people which metals they can and cannot own goes back far further than the recent machinations of the ECB, the Bank of India and the Argentine gummint.

    For example, in 1933 Pres. Franklin Roosevelt issued a proclamation forbidding the hoarding of gold (and silver) coins and bullion. His Executive Order 6102 ordered all citizens of the land of the free to sell all their gold to the Fed at $20.67 an ounce, on or before May 1 that year, or be fined up to $10,000 and/or spend up to ten years in prison.

    As soon as the Fed had collected the loot, the nominal price was increased by 69 per cent, to $35 an ounce.

    US citizens were not permitted to own the 79th element in the periodic table again until 1974.


  2. OT, but — doesn’t Bobby Darin look more than a bit like David Cameron in this old version of ‘Dream Lover’ with Sandra Dee?


  3. It was Hilter who said “Gold in the hands of the people is the ultimate enemy of the State”.
    When buying gold it is probably best to pay with cash where ever possible.


  4. Quote Two days ago in Berlin, ECB boss Draghi made a significant comment when asked about the inflationary pressures of QE in the eurozone. I quote:

    “in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries.” Unquote

    As an honest greek, currently too poor to even consider buying a gold earring, let alone a bar of gold, I should probably stay out of this conversation BUT I just want to point out that many greeks and richer members of my family survived the war by owning gold sovereigns.

    These are still bought and sold in the basement of the Bank of Greece where you can see such sights in the “BUY” queue as couples turning their savings into sovereigns, and others in the “SELL” queue turning their sovereigns into cash to pay bills. (And now with a 40% rise in the electricity bills, what was 250€ will now be 350€ and I wonder who benefits – german & french banks? the ECB?).

    Meanwhile there is no risk to EU price stability coming from Greece – where we pay the highest grocery & service bills in the EU, thanks to our corrupt greek cartels backed by our corrupt governments. ie we pay up to 40% more for the same items as germans do. And we never had german salaries.

    Lastly, when the Nazis waltzed off with the BofG gold (and never returned it), does this mean that our gold is currently spread through 3 depositories and will soon become the public property of the ECB?

    A poor gold-less commoner wonders.


  5. Pingback: John Ward – Eurozone Gold Exclusive : Draghi Mulls Gold Sales Ban… – 26 October 2012 | Lucas 2012 Infos

  6. No real surprise here, it’s what totalitarian governments always try – and then drive the trade underground. When the US tried it less than 20 per cent of the coinage was turned in – unlike bullion – since there was a numismatic loophole. Gold shares boomed after the ban as a way of getting exposure and the companies became much more profitable with the devaluation, as indeed, also happened in Zimbabwe.

    My guess is also the idea came from GS, in fact, I have been waiting for someone to float the idea of gold backed bonds. The US Treasury may also be in the loop. US taxpayers this year had to declare precious metals holdings held overseas for the first time on their tax returns.


  7. ot: Obama seems to be consolidating his slight lead in the polls with having him at 294 electoral votes, a 73 per cent chance of winning and a 1.5 per cent lead in the popular vote. William Hill lowered the odds on for an Obama victory from 1/2 on yesterday to 4/9 on today. I will have a small flutter, probably the kiss of death as it was for Kerry in 2004.


  8. Obama is better for gold and the stock market IMO. Bernancke will remain in place till Jan 2014 working his magic money routine and O can stuff the Fed Board. More importantly any fiscal adjustment will be slower.


  9. And the next step when they all scramble for gold? Gold confiscation, then? Sequestration, and as you point out, not while there still is one more throw of the dice.


  10. Interesting Story. So I wonder which EZ countries would freak first ? Italy, Portugal, Spain and Greece (and France?) who have managed pretty successfully so far to keep their quite sizable Gold Reserves out of the EZ Debt Crisis and may not go for an ECB ‘What’s Yours is now mine’ idea instead of anticipation of an incoming Bale Out…..or Germany, Netherlands, Austria and Finland who I would imagine have no intention of Fiskalpacting their shiny yellow stuff to the benefit of Mr Draghi & Co or Club Med’s latest EuroPonziBond Schemes.

    The problem that I personally have with holding Gold as an investment is twofold, firstly there seem to be an awful lot of people running around with pieces of paper saying that they own so many kilos of Gold that is being stashed away somewhere nice and safe for them…… with little solid evidence of its existence, or that there are not a dozen others holding similar paper with the same serial numbers, and secondly, if any of the major Central Banks were forced to audit their actual reserves and were found to be a few thousand ingots light, or that some were filled with tungsten instead, I suspect the Gold Price bubble would burst very quickly indeed.

    Just supposing some of the US and EZ actual Gold Reserves were discovered upon audit, to be smaller than registered but all China’s reserves were confirmed to be present and correct……hmmmm !


  11. But there has been spectacular growth —–in unemployment. News this morning is that unemployment in Spain is now more than 25% with approaching 6 million people unemployed. It is a tragedy for those who want to work and represents a colossal waste of one of the key factors of production.


  12. What with OMT and now this gold scheme, it would desperation is the driving force behind all this or, is it designed to just gets us past the US elections?


  13. Sounds to me like a rerun of the Rente Giscard (1973),whereby the French government 15 year loan note was linked to gold,in terms of interest and capital.If that is the only way EZ governments can finance themselves,they should note what the redemption cost the French taxpayer in 1988!These guys are getting desparate……


  14. “Hanging on in quiet desperation is the Draghi way,
    The time is gone, the song is over
    Thought He’d something more to say”…. ;)


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  17. This sounds like an old, old scam: when a currency is about to go tits-up, he who is holding physical stuff of a valuable nature is the one who’ll be surviving with riches intact, and he who holds bonds issued by some airey-fairey entity which by then probably doesn’t even exist is going to be the proud possessor of a ream or two of low-grade arse-wipe.

    So, the fundamental question to ask is this: in whose vaults, under whose control will all this shiny yellow metal be sitting?


  18. GrahamD, I agree with your points but not your conclusion. Everything you say points to a gold price surge when the truths are revealed, as that would mean less of the stuff is there than believed. Gold would be scarce. That is not a bubble bursting, it would be price discovery. The bubble to be burst is government bonds. Just make sure you’re not the one holding the paper promises of goild, but you’ve got the real thing.


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