My last article on the end of sanctuarization of the Banque de France’s gold grabbed a lot of attention, drawing over 20 000 readers and getting nearly 500 re-tweets. However, this news hasn’t made it to the main stream media – maybe it sounded too much like a conspiracy theory (a ridiculous accusation, and I challenge anyone to find any trace of that in my eight books; I only use public data and known sources). So let’s get back to this important issue.
This information – the creation of a gold market between Banque de France and JP Morgan – was dispatched by Reuters on November 12. And there was no accompanying statement to the news, which is a little bizarre, denoting a troubling taste for secrecy. The primary source for Reuters is an article by Sylvie Goulard, second deputy governor of the Banque de France, in the October Alchemist magazine. Since we have free access to it, let’s read it!
First of all, an observation: "Since the 2008 financial crisis, there has been renewed interest in gold from reserve managers. Indeed, gold confirmed its status as a safe haven and also emerged as a very good asset for diversification, given its low correlation to other asset classes." (page 6)." This is so true!
Sylvie Goulard goes on,"Building on its long experience in managing its gold reserves, in 2012, the Banque de France began to extend its range of gold services to reserve managers. In addition to offering custody of physical gold in its vault in Paris, the Banque de France can buy and sell gold on the spot markets for its institutional customers, using its execution expertise."
Announcing the creation of this gold market means they will be offering gold swaps and leases and be no more limited to the spot market.
Said services are being offered to foreign central banks that are already storing all or part of their gold in Banque de France's vaults (the list is kept secret). Is it also the case of Banque de France’s own gold? As Sylvie Goulard explains, "Since 2009, the Banque de France has been engaged in an ambitious programme to upgrade the quality of its gold reserves. The target is to ensure that all its bars comply with LBMA standards so that they can be traded on an international market." It seems very clear to me.
One must also read this next article, written by Isabelle Strauss-Kahn, former director of the Banque de France. She explains: "I remember having written several memoranda to counter multiple requests from parliament and government members to sell reserves and return the proceeds to the government, which would have been a breach of the principle of non-monetary financing enshrined in most laws of central banks." (page 9). Kudos for her, even though she was unable to stop the sale of 589 tonnes of gold by Nicolas Sarkozy in 2004, which was a disastrous decision.
Moreover, she points out that, "In June 1999, the SNB decided that half of its 2,590 tonnes of gold reserves were no longer required for monetary purposes." So the SNB has sanctuarized half of its gold reserves... what about Banque de France? That is the question.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.