{"id":2694,"date":"2025-03-27T20:28:02","date_gmt":"2025-03-27T20:28:02","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2694"},"modified":"2025-03-27T20:28:02","modified_gmt":"2025-03-27T20:28:02","slug":"gold-is-a-formidable-monetary-weapon-the-mysteries-of-fort-knox-and-china","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2025\/03\/27\/gold-is-a-formidable-monetary-weapon-the-mysteries-of-fort-knox-and-china\/","title":{"rendered":"Gold is a formidable monetary weapon – the mysteries of Fort Knox and China"},"content":{"rendered":"One of the most significant long-term effects of this War in Ukraine, regardless of when a peaceful settlement is reached, will be on gold and the dollar.\r\n\r\nThat is, in the realm of an ongoing currency war. When Russia launched its military operation in Ukraine, it overlooked the fact that its central bank had about $300 billion worth of U.S. bonds parked in European banks. These funds were immediately \u201cfrozen\u201d and seized by Biden and other Western powers.\r\n\r\nAs this fact became embedded in economic practices, global central banks realized that their dollar-based assets were not as sound as they once assumed. If they make the wrong move or anger the\u2026 wrong U.S. President, their assets could be \u201cfrozen\u201d with the constant threat of being seized \u2013 that is, stolen.\r\n\r\n\"This\r\n\r\n \r\n\r\n\r\n\r\nThis eventually led to a major policy shift in central banks around the world. They began to favor gold over dollar- and euro-based assets.\r\n\r\n \r\n\r\nGold is apolitical \u2014 meaning it is not controlled by any government at will \u2014 and if stored properly, it cannot be arbitrarily seized. According to analysts, this was a primary factor in the yellow fever investment boom of the past 2+ years, which has had a significant impact on the international monetary system.\r\n\r\n \r\n\r\nAnd even if President Donald Trump makes a deal with Vladimir Putin and returns the assets, who\u2019s to say that a future U.S. president wouldn\u2019t abuse his power?\r\n\r\n \r\n\r\nAs much as we want to believe that America will never have another president like Joe Biden, we have to admit that it\u2019s a possibility. The Biden administration\u2019s seizure of Russia\u2019s central bank assets has changed the game for the foreseeable future.\r\n\r\n \r\n\r\nGold is much more attractive than it used to be, while fiat currencies are less so. That doesn\u2019t look likely to change even if the war in Ukraine ends tomorrow. Gold has returned as a reserve asset, and its importance is only expected to increase in the coming decades.\r\n\r\n \r\n\r\nPhysical Gold Deliveries and China\u2019s Role<\/strong>\r\n\r\n \r\n\r\nWhen you look at the gold futures market as a whole, there are hundreds of ounces of \u201cpaper\u201d metal traded for every ounce of actual physical bullion in a vault. Most of the time, the physical metal never changes hands or is ever delivered.\r\n\r\n \r\n\r\n\u201cPaper\u201d gold and silver are simply traded on the market and then settled in cash. However, recently that has begun to change. A few weeks ago, news broke about the Bank of England vaults, where gold withdrawals are supported.\r\n\r\n \r\n\r\nAn unusual number of investors were requesting physical delivery. Deliveries that normally take a few days have taken up to 8 weeks. Apparently the Bank of England\u2019s gold stock has\u2026 lightened somewhat, for now. But there is still plenty of unusual activity.\r\n\r\n \r\n\r\nIn London, this activity has reduced liquidity in the OTC (Over-the-Counter Market), which is overseen by the LBMA, and has sparked a race among London gold market participants to borrow gold from central banks, which store their reserves in the Bank of England vaults.\r\n\r\n \r\n\r\nThe main difference today is China\u2019s activity. Over the past few decades, China has secretly bought thousands of tons of gold. Officially, the country only holds about 2,200 tons. However, some analysts believe that the Chinese may actually hold as much as 20,000 tons of gold (more than double the US reserves).\r\n\r\n \r\n\r\nToday there are major gold exchanges in China, mainly in Shanghai, which compete with the LBMA and COMEX markets. The Chinese markets are basically driving the price higher today. The chart below, from the CME market, shows how prices rose first in China, followed by New York and London.\r\n\r\n\r\n\r\n\"This\r\n\r\n\r\n\r\nPhysical and Monetary Gold – The Limits of Demand<\/strong>\r\n\r\n \r\n\r\nThe \u201cShanghai Gold Premium\u201d is a relatively new phenomenon. The bigger story, however, is \u201cunfolding beneath the surface.\u201d\r\n\r\n \r\n\r\nThe real issue is the growing \u201cdisconnection between paper gold and physical supply. There is growing concern that the LBMA market and the Bank of England may not have enough gold to meet demand, leading investors to rush to physically own gold. Most gold futures contracts are usually settled in cash at expiration, but in January, there was an unusual surge in contracts opting for physical delivery.\r\n\r\n \r\n\r\nAlthough the LBMA reported that gold shipments to the U.S. slowed in February compared to January. Arbitrage traders (the investor always has two opposing positions, where one hedges the other in order to eliminate investment risk) have also capitalized on the price gap between Western exchanges, such as the LBMA and Comex, and China\u2019s Shanghai Gold Exchange International (SGEI), which continues to pay a premium for physical delivery and is \u201csettled primarily in physical gold\u201d rather than cash. This suggests that \u201cconfidence in \u2018paper\u2019 gold is eroding and investors are taking action to reduce the associated risk by securing physical possession.\u201d\r\n\r\n \r\n\r\nFort Knox Inspection<\/strong>\r\n\r\n \r\n\r\nIn this context, US President Donald Trump promised to visit Fort Knox \u201cto make sure the gold is there,\u201d a question also raised by Elon Musk. Officially, the United States Gold Depository (commonly known as Fort Knox) \u200b\u200bholds more than half of the Treasury Department’s $428 billion gold reserves.\r\n\r\n \r\n\r\nIn this chart, we put that amount into perspective by comparing Fort Knox’s reserves to central bank gold reserves worldwide.\r\n\r\n\r\n\r\n\"This\r\n\r\nThe data comes from the U.S. Mint and the World Gold Council. For illustrative purposes, we looked at a pallet of 1,190 gold bars (400 troy ounces each) weighing approximately 14.8 tons.\r\n\r\n \r\n\r\n\"This\r\n\r\n\r\n\r\nWhat is Fort Knox?<\/strong>\r\n\r\n \r\n\r\nLocated in Kentucky, Fort Knox is a U.S. military facility that serves as the primary storage facility for America’s gold reserves. The facility was established in the 1930s to protect the gold from potential foreign attacks.\r\n\r\n \r\n\r\nThe first shipment of gold arrived in 1937 via U.S. mail from the Philadelphia Mint and the New York Assay Office. During World War II, Fort Knox housed important U.S. documents, including the Declaration of Independence, the Constitution, and the Bill of Rights.\r\n\r\n \r\n\r\nIt has also housed international treasures, including the Magna Carta and the crown, sword, scepter, orb, and cape of St. Stephen, King of Hungary, before they were returned in 1978.\r\n\r\n","protected":false},"excerpt":{"rendered":"

One of the most significant long-term effects of this War in Ukraine, regardless of when a peaceful settlement is reached, will be on gold and the dollar. That is, in the realm of an ongoing currency war. When Russia launched its military operation in Ukraine, it overlooked the fact that its central bank had about … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[105,59,106],"tags":[527,52,904,895,905,82,906,907,908,141],"class_list":["post-2694","post","type-post","status-publish","format-standard","hentry","category-developed-economies","category-proposed-fiscal-policies","category-us","tag-central-banks","tag-china","tag-cme","tag-comex","tag-fort-knox","tag-gold","tag-lbma","tag-monetary-weapon","tag-sgei","tag-usa"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2694"}],"version-history":[{"count":1,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2694\/revisions"}],"predecessor-version":[{"id":2695,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2694\/revisions\/2695"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}