The more I learn about bitcoin, the more I respect gold. The more I learn about gold, the more I appreciate bitcoin.

Nic Carter

When Germany and Austria started to get large parts of their gold reserves home in 2015, I was excited. After all, I was the only journalist in Austria to actually care about the national treasure, the shiny rock as gold is sometimes called. (It’s not a rock, it’s a metal).

Until then, the roughly 280 tons of Austrian and 3400 tons of German gold (the second largest stash in the world after the US) were entirely stored abroad. German gold was mostly in New York, Austrian gold in London.

For years questions about the gold were left unanswered.

“No problem”, they said.

“There are audits”, they said.

“It’s better this way”, they said.

The only real reason given was the fact, that London and New York are where the gold markets are. So if you ever wanted to actually do anything with the gold (ie. sell it), it needed to be there.

Politically, only a fringe group of right wing politicians was interested in the topic. Of course, we also had plenty of conspiracy theories. Is the gold even there??

It was. In the end, there were no real problems in getting the gold home to Vienna and Frankfurt. There was only a slight hiccup. The Germans realized they had to recast a lot of the gold coming from New York. That slowed operations down a little and lead to more conspiracy theories.

But, you know, also gave the Germans a chance to check if the gold was really real.

Like the Bitcoiners say: don’t trust, verify.

My first visit to the gold-vault of the Austrian Nationalbank

When the Austrian Nationalbank finally invited journalists to go see the first couple of tons after they arrived in Vienna, I cursed them. The press tour was scheduled for the morning after our Christmas party at “Die Presse”, the newspaper I worked for.

I refused to drink that night, went home early. People called me “weird”. Austrians take Christmas parties very seriously. Also, I still managed to show up late for the tour. And you know what? They waited for me. A badge of honor. After all I was the one pestering the central bank officials about the gold for years.

Anyway, here is me with the gold…

These bars are heavy, let me tell you.

The tour was, of course, very interesting. Today, half the Austrian Gold is in Vienna. Most of it in that one vault we visited. I can’t remember how many huge security doors we had to get past.

I do remember the large piles of cash, wrapped in plastic, that were sitting down there as well. Central bankers were very excited about those, as the Austrian “Nationalbank” is partly in charge of the emergency cash infrastructure in Europe. They actually airlifted paper money to Athens when the debt crisis struck and people were storming the Greek banks.

So there it was: 1200 bars of gold, each with their own unique serial number. 12,5 kilo a piece: 15 tons total. The first batch. Stored on large shelves that were probably not bought at IKEA. There was a “testing station” to imply the Gold is real (for the TV cameras) and two grim looking guys from Austrian elite police force “Cobra”.

They appeared much less grim when I saw them again that night in a staged scene for the state broadcaster ORF, pushing the gold on a little cart. They needed some movement for the cameras I guess.

The real reason, European central banks got their gold home

Now I don’t want to start one of those pointless fights about Gold vs. Bitcoin. I agree that on paper Bitcoin has all the properties of gold - and then some. I can see why Bitcoin is called the “digital Gold” and I’m very excited about the positve effect Bitcoin will have on our society. This Newsletter is called "Fix the money”, is it not?

But the central banks have different ideas. At least for now. They are working on their own digital currencies - a topic for a whole post on its own.

And then there is the gold. They don’t talk about it alot. They don’t really say what it is for and they didn’t really say why they brought it home in the first place.

Or did they?

This is why I’m writing this post: I remember what they said and I think it makes sense now. Finally we know why European central banks got their gold home.

Theory one was “political pressure” - but that’s obvious nonsense.

Theory two was “Brexit” - but that didn’t make much sense, Germany got its gold from New York, not London.

Theory three was “70 years have passed” - my personal favorite at the time. I actually asked Ewald Nowotny, the head of the Austrian Nationalbank at the time, if there was some “gentlemen agreement” not to move the gold for 70 years and leave it with the allies of WW2 - after all the gold-repatriation was started exactly seven decades after the end of WW2. He denied my little theory, so there was that.

He did however say other things.

Gold is a currency reserve, just like foreign currency holdings, but a non-yielding currency reserve. The National Bank holds this reserve for Austria. It serves as a safety cushion in case of any catastrophes. Such a catastrophe would be, for example, the complete collapse of world trade, where it would then no longer be possible to pay with national currencies.

"But that would then already be apocalyptic conditions," Nowotny said. But the government itself would not have access to the gold reserves. "The gold is owned by the National Bank. It would be our decision to use it," Nowotny said. (Salzburger Nachrichten, translated by me, emphasis added)

Now, as you can imagine, this peaked my interest. So I asked a high ranking official of the Austrian Nationalbank, what the hell Nowotny meant. This official shall stay anomymous, but what he said stuck with me for seven years.

“Imagine a scenario like 2008 but worse. Imagine our currency is not accepted anymore by countries that deliver our energy. Then the gold comes into play. Then we would need it.”

They also added that in order to transport the gold, new armoured BMWs were bought for the police at the expense of the central bank. Austrian police is normally driving Volkswagen so those swanky BMWs stick out when you see them on the street alongside a large armoured truck that is transporting gold or cash. I’m only telling this story to illustrate: The infrastructure to use the gold is infact in place.

Do you see where I’m going with this?

How does the gold repatriation fit into what is happening now?

So we fast forward a couple of years. It’s 2022. And we are fast approaching those apocalyptic conditions, aren’t we?

The monetary architecture of the world has basically broken down. The Wests decision to freeze Russias currency reserves was a shock that China/India/Saudi and many others are still processing.

Here is economist Ken Rogoff laying it out.

It was Rogoff who remindend emerging market countries in 2016 that it might be a good idea to buy some more gold for their reserves.

“Are emerging-market central banks overweight in dollars and underweight in gold? Given a slowing global economy, in which emerging markets are probably very grateful for any reserves they retain, this might seem an ill-timed question. But there is a good case to be made that a shift in emerging markets toward accumulating gold would help the international financial system function more smoothly and benefit everyone.” (Kenneth Rogoff)

And to add some context, here is Vladimir Putin in 2022:

Where does that lead us?

There is one prominent Western analyst who has been making waves with his theories on a new monetary order, he is calling “Bretton Woods 3” - Zoltan Pozsar from Credit Suisse. He thinks that commodities, gold and other real stuff will dominate in the coming months and years as trade switches to a variety of currencies, driven by the sanctions and the moves by BRICS countries establish their own systems seperate from the Dollar-based institutions of the past.

Oh - and China has been stocking commodities like crazy over the last couple of years.

If we are right, our framework will be the right framework to think about how to trade interest rates in coming years: inflation will be higher; the level of rates will be higher too; demand for commodity reserves will be higher, which will naturally replace demand for FX reserves (Treasuries and other G7 claims); demand for dollars will be lower too as more trade will be done in other currencies. (Zoltan Pozsar, Credit Suisse)

Now, Zoltans ideas are pretty much the most out there concepts that you will find in western media. But thankfully, the Indians speak English and are happy to explain.

Russia has tapped into this sentiment and is even talking about linking the ruble to gold. Putin has floated the idea of Western economies depositing gold with Russia to buy rubles, with which oil and gas can be purchased. Putin has, in fact, decided to save the ruble by linking its value to gold. By pegging 5000 rouble to 1 gram of gold, he is seeking to counter the collapse of the Russian currency with the backing of gold.

This is a very powerful and disruptive idea because at one stroke, a large part of the global energy trade could move away from the dollar. And linking a currency to gold can be seen as an economically responsible act, discouraging the wanton printing of currency, as the US has been doing for the last 15 years.

In this period, the Fed’s balance sheet has grown from $800 billion in 2008 to nearly $8.5 trillion in 2021. A tenfold increase in the printing of currency would have been impossible if the dollar was backed by gold, as it was until Richard Nixon delinked it from bullion in 1971. Nixon closed the gold window to prevent foreign governments from selling dollars to accumulate gold as a hedge against persistent inflation in the US.

Interestingly, the US faces a similar inflationary situation today and Putin is trying to revive gold and other non-dollar payment mechanisms as a medium of exchange. It is a clever move because gold also has natural resonance with India and China, the largest importers of gold in recent decades. Gold owned by Indian households is estimated to be 40% of GDP. Culturally and psychologically, gold has huge traction within India, China and Russia. Russia has over 50% of its forex reserves in gold. (The Wire, emphasis added)

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Obviously nothing is set in stone and I don’t expect the Austrian gold to move out of its new home deep under the central bank building in Vienna anytime soon. I’m just following the breadcrumbs here.

But two things seem obvious:

• The war in Ukraine and the following sanctions by the West are changing the global monetary order in front of our eyes.

• Real stuff like gold will matter again like it hasn’t for a long, long time - and it’s good that Austria, Germany and a few other European countries have full control over their gold (or at least a large part of it)