Australia’s gold demise bar none … well, four

Australia’s gold demise bar none … well, four, by Paul Garvey.

In a vault deep in the basement of the Reserve Bank’s Martin Place headquarters in Sydney sits a hoard of gold bars worth about $US500,000 each — all four of them.

The RBA now holds almost the entirety of the nation’s gold in vaults administered by the Bank of England.

To add insult to injury to the nation’s gold devotees, the vaults are stuffed full of the redesigned $10 polymer banknotes awaiting official release in September. …

Australia sold its gold in 1997, in a sale timed to suppress the price of gold, to bury it forever, and replace it with government paper:

Then-treasurer Peter Costello agreed to sell most of its holdings in 1997.

The decision prompted cries of betrayal from the gold industry and, with the benefit of hindsight, was incredibly poorly timed. Since the sale of 167 tonnes of gold for $2.4 billion, or just over $400 an ounce, gold in Australian terms has rallied to record highs. The price peaked last July at $1819.44 an ounce, at which point the gold Australia sold for $2.4bn would have been worth $10.7bn. …

Australia is in the paper camp, with the monetary progressives:

The RBA’s current gold holdings, in the Bank of England’s vaults, now total just under 80 tonnes.

That’s less gold than is held by the central banks of Iraq, Poland and Romania, according to figures compiled by the World Gold Council, and is just a sliver of the amount held by similarly sized economies such as Spain (281.6 tonnes) and Russia (1706.8 tonnes).

Gold has been accepted as money most everywhere civilized for the last 5,000 years. Paper currencies come and go, usually ending in a storm of inflation and over-production to meet some crisis or other.

That storm will be on the West soon. We have record low interest rates, near zero, so next time there is a recession the only available tool for the central banks is “printing.” In addition, the debt load across society is greater by far than at anytime in history (courtesy of the great bubble, 1982 – 2008), and the temptation to inflate society out of its debt will become irresistible at some point.

Government got us into this mess, and government will keep digging until it collapses.

hat-tip Stephen Neil