Austria announced this week that it will no longer allow the U.K. to store their gold reserves worth billions of dollars. Find out why they are repatriating their gold reserves, plus other top stories.
Most weeks, Your News to Know brings you the latest happenings in the world of finance and the gold market. Stories this week include: Austria taking its gold back from the U.K., gold could replace dollar as the king of currencies, and Texas might soon have a Fort Knox of its own.
Austria will no longer store the bulk of its gold in the U.K.
Austria is about to implement significant changes to its bullion storage policy. Currently, 80 percent of the nation’s 280 tons of gold – worth around $10 billion – are stored in the Bank of England, with 3 percent stored in Switzerland and the remaining 17 percent in Austria itself.
After February’s Court of Audit raised concerns over the risk of storing so much of their bullion in one place, starting from mid-2015, Austria will look to shift the percentages around quite a bit. By 2020, the nation wants to hold 50 percent of their reserves inside the country, with 20 percent in Switzerland and 30 percent in the U.K.
CNBC reports that there were speculations of this decision being influenced by a potential “Brexit” – Britain leaving the European Union, a scenario UK Prime Minister David Cameron promised to confirm or deny by 2017. Austrian Central Bank Governor Ewald Nowotny, however, denied this had any part in Austria’s decision to move gold reserves.
Nowotny also pointed towards an emerging trend of European countries repatriating their gold. Adrian Ash, head of research at Bullion Vault, supported Nowotny’s claims, stating: “For Germany, the Netherlands and now Austria, it reflects domestic political pressure over the loss of sovereignty from being in the single Euro currency.” Ash also attributed the change in policy to anxiety in taxpayers who wish to “have a more solid base than QE (quantitative easing) and zero rates.”
When the dollar crashes, could gold emerge as the main currency?
The possibility of gold replacing the dollar and becoming a primary currency was recently explored in an article at Arabian Money. According to HSBC currency experts, the dollar might have topped out in March with its $1.04 spike against the euro, followed by a 5 percent crash.
The looming possibility of higher interest rates has held gold down in recent times, but how probable is it really? The Fed seems to be quite indecisive in this regard, saying that a raise is unlikely in June but might happen in September. This leads the article to wonder: “Does it not begin to feel like traders are being strung along from one meeting to another?”
A ponderous Federal Reserve isn’t the only thing that could cause a surge in gold’s price – there is also the issue of economic weakness. The number of jobs in March was only half of what it was supposed to be, consumer spending is down and the housing market has taken a hit – this economic contraction also makes a raise in interest rates unlikely. Add to these the negative impact that a strong dollar has had on U.S. exports, and a weakening of the greenback seems quite possible. Of course, gold is “the classic hedge for dollar weakness”.
The situation overseas could also end up playing a big part in the yellow metal staging a comeback. If a Greek exit from the eurozone is about to happen, it will spell great news for gold as a safe haven asset. Germans already benefited from gold’s protection against the 25 percent depreciation of the euro. A “Grexit” causing the euro to crash could boost gold’s price by an additional $200 per ounce, according to some experts.
The article remains quite clear on its stance: “Gold is about to have its run – as a speculative currency vehicle as the ultimate money that no central bank can print.”
Texas might soon get a Fort Knox-like bullion depository
A recent bill approved unanimously by the Texas State Senate might make Texas the first state with its own state bullion depository, the Houston Chronicle reports. According to the official analysis of the bill: “The establishment of a Texas Bullion Depository would allow the state, state agencies and private individuals to store precious metals utilizing a secure Texas-based depository to reduce reliance on out-of-state facilities and to insulate their assets from unstable market forces.”
The bill was filed by the president of a private equity company named Giovanni Capriglione and 31 of his colleagues, and received no opposition. The facility’s establishment and administration have been assigned to Comptroller Glenn Hegar. Senator Lois Kolkhorst explained some of the reasoning behind the bill’s approval, stating that there have been concerns over Texas holding its gold in other states.
Currently, Texas’ $1 billion worth of gold is kept in secure facilities around the country, most prominently in New York. Considering the University of Texas Investment Management Company pays an annual fee of over $605,000 to New York for bullion storage, a Texas bullion storage facility should prove quite beneficial in terms of saving money.
The idea is also bound to receive praise from Texas citizens who own gold, as they will be able to use the repository to store their bullion. “New York will hate this,” Kolkhorst said of the bill. “To me, that and the fact that it will save Texas money makes it a golden idea.”