Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
An article by Alasdair Macleod, Head of Research, GoldMoney
I am often asked whether or not western governments are likely to confiscate gold, and my answer has invariably been on the lines of “unlikely at the moment, because so few people own gold”. However given low stock levels in western vaults and that bail-ins are on the agenda the answer to the question should be reconsidered.
I first wrote about the new bail-in provisions after the Cyprus debacle last year. What it means for depositors is succinctly summarised in a current UK Government consultative document on the subject:
“Bail-in involves shareholders of a failing institution being divested of their shares, and creditors of the institution having their claims cancelled or reduced to the extent necessary to restore the institution to financial viability. The shares can then be transferred to affected creditors, as appropriate, to provide compensation.”
On the face of it anyone with an unallocated gold account is at risk. In the past this risk has been dismissed, given that the Bank of England with or without the assistance of other central banks always bails out bullion banks in trouble. However, the ability of western central banks to bail out bullion banks in the future is compromised by the emptiness of their vaults, much of their gold being out on lease. Furthermore, because leased gold is still their legal property, they will have first call, leaving unallocated gold accounts with nothing.
This means that next time there is a market hiatus in gold bullion banks will probably be forced to renege on their gold obligations to customers, settling in currency-cash if they can. Since bullion banks are mostly divisions of larger commercial banks, a failure in the gold market is likely to spill over into a wider banking crisis, and it becomes a moot point whether the solution is bail-in, bail-out, or systemic collapse.
The truth is that western central banks have created a monster out of their long-term management of the gold price. For the last thirty years they have been leasing monetary gold in increasing quantities, all of which has disappeared into the anonymity of Asia. Bullion banks know from experience that every time they get into trouble they can expect to be rescued, a liability for central banks that can no longer be discharged with certainty. So where does that leave bank customers with allocated accounts, or gold such as ETF stocks held for them in custody?
In theory they should be completely ring-fenced. Allocated and custodial gold is clearly the property of customers. But it would be naïve to think that customers’ clearly identified gold is safe in the chaos of a widespread financial crisis. And then there is the well-established precedent that allows any government to seize its citizens’ property by declaring the action to be “in the national interest”. It is even written into European Human Rights legislation.
We normally go through life not worrying about these things, dismissing them as scare-mongering. But the disappearance of the west’s monetary gold into Asia, whichever way you look at it, makes the unimaginable seizure of privately-owned gold by the state considerably more likely.
Ends
NOTES TO EDITOR
For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email [email protected]
GoldMoney is one of the world’s leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.
GoldMoney has offices in London, Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink’s, Via Mat, Malca-Amit, G4S and Rhenus Logistics.
Historically gold has been an excellent way to preserve purchasing power over long periods of time. For example, today it takes almost the same amount of gold to buy a barrel of crude oil as it did 60 years ago which is in stark contrast to the price of oil in terms of national currencies such as the US dollar.
GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey’s anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers’ assets with independent audit reporting every 3 months by two leading audit firms.
Visit www.goldmoney.com
