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A decade ago, I asked officials at the New York Federal Reserve if I could peek at their gold reserves. They refused point blank.
The reason? Fed officials have long taken pride in having the world’s biggest gold vault, dug 80ft down into Manhattan’s bedrock. But they prefer to keep it discreet, partly because many of the vault’s 507,000 bars belong to countries such as Germany and Italy. Silence was literally golden.
Now, however, a discordant note has been sounded. In recent weeks, politicians in Germany and Italy have demanded the repatriation of their gold bars, worth an estimated $245bn. So have others. “We are very concerned about [US President Donald] Trump tampering with the Federal Reserve Bank’s independence,” explains the Taxpayers Association of Europe.
Neither the Fed nor European governments seem minded to act, and there are no signs of bullion moving east. On the contrary, gold has flooded into, not out of, America since Trump’s election, prompting speculation that US government agencies, like private investors, might be stockpiling it (although there is no public proof of that).
Either way, what is indisputable is that these repatriation appeals are a sign of spreading mistrust. The reason those bars were placed in New York vaults in the first place is that America’s allies have hitherto assumed that Washington was a responsible leader of the west — and the dollar-based finance system.
Now, however, figures in the Trump team — including Stephen Miran, chair of the Council of Economic Advisers, and Scott Bessent, Treasury secretary — are chafing against the “cost” of this system. Thus the question that investors need to ask is what other countries might do if trade wars spawn capital battles as well.
In Asia, this debate is already under way, as investors look for diversification. One sign is surging gold purchases. Another is that recent unusual price movements in Hong Kong markets suggest a reluctance to buy dollar assets.
Meanwhile, Chinese officials are hailing the rising use of the renminbi in trade invoicing, and developing a Cross-Border Interbank Payment System (Cips) to challenge the US-controlled Swift interbank payments system.
Investors also need to watch the so-called mBridge initiative, a cross-border central bank digital currency project launched in 2023 by the Bank for International Settlements. Last year Washington forced the BIS to withdraw from this, leaving China in control. I suspect this is an own goal by the US.
Europe, by contrast, has been fairly passive thus far. However, figures like François Heisbourg, a key European adviser, are urging preparation for a “post-American Europe”. And while this has already sparked pledges of higher military spending, the focus is now also shifting to “geoeconomics”, or the idea that statecraft must drive industrial policy.
However, analysts such as Elmar Hellendoorn, at the Atlantic Council, want to go further, with a policy of “geofinance” too. After all, he argues, Europe is vulnerable since it not only relies on dollar finance, but is also buffeted by speculative capital flows, due to financialisation of its economy.
Thus “large parts of the European economy are now under the strong influence, if not the direct control, of Wall Street firms, which are ultimately subject to US laws and Washington’s financial statecraft”, he frets. Indeed, Enrico Letta, the former Italian prime minister, fears that Europe is becoming a “financial colony” of the US.
Can this change? The European Commission is taking baby steps in that direction, by accelerating efforts to create a single European capital market. Central banks across Europe are also developing cross-border digital currencies and the European Central Bank itself is building a digital euro. That sets up a fascinating policy contest with Washington, which is embracing dollar-based stablecoins instead — partly because Bessent thinks this will create trillions of dollars of new demand for Treasuries.
However, these efforts still seem far too timid to actually create a “global euro moment”, to quote Christine Lagarde, ECB president. And that seems unlikely to change unless a crisis hits, be that a loss of market confidence in the dollar (perhaps due to fiscal jitters) or extreme aggression by the US towards Europe.
Hence why those Manhattan gold vaults matter: if such crises do ever materialise, it is easy to imagine a scenario in which American leaders (at best) will insist on using that bullion as collateral for dollar swaps or (at worst) as a tool for political coercion.
Germany’s Bundesbank, for its part, discounts that risk — in public at least. “We have no doubt that the New York Fed is a trustworthy and reliable partner for the safekeeping of our gold reserves,” it tells the FT. Almost certainly so. But the debate shows that once unimaginable scenarios are at least being imagined. Reclaiming gold is a rational move.