Everyone is familiar with the traditional “run on the bank,” which has happened many times in real life and was memorably portrayed in the classic film It’s a Wonderful Life.
It begins with a nervous depositor loudly demanding that all his savings be converted to cash and withdrawn from the bank. Other customers hear the demand and rush to the teller to demand their savings too. Soon, a line forms and word spreads that the bank is in trouble. The line stretches around the block, and by late in the day the bank has to close its doors because it’s out of cash and has no liquid assets to meet depositor demands.
These classic runs ended in the U.S. in the mid-1930s with the creation of FDIC deposit insurance, although something close to a run developed in 2008, which the Fed had to squash by guaranteeing all bank deposits of any size and not just the $250,000 limit covered by FDIC insurance.
What about gold? Gold deposits are not covered by FDIC insurance. Two central banks – the Federal Reserve Bank of New York and the Bank of England – hold about 6,000 tons of gold each.
This gold is not mainly owned by the U.S. or U.K. but is overwhelmingly owned by other countries (and the IMF) and held in custody for their benefit. What would happen if a run on the gold banks started to spin out of control?
It looks like that’s exactly what’s happening. In the past eight years, several central banks led by Germany have demanded repatriation of part or all of their gold from the Fed and BoE depositaries. Austria, Netherlands and Hungary have also withdrawn some of their gold and returned it to their home country vaults. Now, according to this article, Romania has introduced legislation that would cause it to join the race to gets its gold before the gold runs out and the Fed’s doors are shut for good.
This gold run on the bank is gathering momentum. Of course, major players like China and Russia already keep their gold at home and are not subject to U.S. or U.K. blackmail. Venezuela found out the hard way when they recently tried to withdraw some of their gold from the Bank of England and were told that they could not have it.
If you have gold, keep it in safe, nonbank storage. The banks will freeze it just when you most need it. Don’t be a victim like Venezuela and soon many others.
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