Gold's status re-asserted

Sixty years ago the world thought gold was an important reserve asset. Gold lost its shine for a while in the 1990s, when the world basked in what seemed like the start of an era of endless peace and financial stability. Everything was hunky-dory. But the attack on the World Trade Center in 2001 put paid to the the idea of perpetual peace. The collapse of Lehman Brothers in September 2008 reminded us that the world of banks was built on intolerable risk.

Since 2001 gold has been on an almost uninterrupted upward trend. 24 years ago the average price of gold was $255.95/ounce. Last year an ounce of gold averaged $2,386.20.What goes around comes around.

Over the last six decades gold has re-asserted its status as a critical reserve asset. And that's not just Glint telling you - the source of that piece of wisdom is no less than the ECB, the European Central Bank.

This week the ECB published a report which says central bank gold reserves reached 36,000 tonnes in 2024, close to 1965's peak of 38,000 tonnes. Gold as a share of the world's central bank reserves beat the Euro into second place, after the Dollar, which continues to dominate.

Fiat's fallacy

1965 is memorable for something else - the US Coinage Act of that year. For fans of gold, President Richard Nixon has a special place in the house of horrors for his suspension of the convertibility of the US Dollar into gold, killing off the gold standard. But a previous President, Lyndon Johnson, runs him pretty close. Johnson proposed and Congress passed a measure eliminating silver from the ten-cent and quarter Dollar coins, and reducing the silver content of the half Dollar coin from 90% to 40%. Another law, in 1970, eliminated silver entirely from that coin .

The fallacy of fiat currency was thus laid bare. Fiat currencies have no intrinsic value - they survive thanks to government decree and the public willingness to buckle to that decree. Governments can pick and choose what they deem to be a currency, and what value that currency is accorded. Societies persist in the money illusion, the idea that the value of fiat money is what's stated on the banknote. In reality what matters with fiat money is its purchasing power.

On 23 July 1965, when President Johnson signed the Coinage Act into law, your half Dollar was mostly silver. Later that year it was less than half silver. In 1970 it had no silver at all. Thus do governments meddle with money.

Don't touch our gold

From bitter experience Germany knows that the face value of paper money can be completely different to its purchasing power. During 1945 to 1950 Germany didn't have any gold reserves.

Today the Bundesbank owns the world's second-largest gold reserves, 3,351 tonnes. More than a third of that gold, currently worth some $130 billion, is stored in the US. Worries about the intentions of the then Soviet Union encouraged the Bundesbank in the 1970s to shift some of its gold to somewhere that seemed more secure and far from the USSR. Where better than the Federal Reserve bank in New York?

Six decades later

Six decades and eleven Presidencies later and some Germans are starting to think their gold stored in the US may be vulnerable to a whim of the latest President. The German Taxpayers Federation has called on the Bundesbank and the country's Finance Ministry to repatriate the gold. Michael Jaeger, secretary general of the taxpayers association of Europe told Reuters "Trump wants to control the Fed, which would also mean controlling the German gold reserves in the US. It's our money, it should be brought back."

It's difficult to imagine the US stealing the gold of another country that is stored in the Federal Reserve's vaults. But it is a measure of how the world has changed in the past six decades that an important ally of Germany should no longer be trusted.

It is also a measure of how important gold is to a central bank that it is becoming critically important to have it under direct control. The central banks of other countries, particularly those that are developing, are doing their best to accumulate gold. The World Gold Council (WGC) calculates that global gold demand in the first quarter of this year was 1,206 tonnes, the highest first quarter level for a decade.

Protection against quixotic governments messing with fiat money is one of the most important characteristics of gold. Six decades from now, what will still be around?

Gold Is Security, Glint its Key

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For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.