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The Dutch Central Bank (DNB) recently moved a large part of its gold reserves to a new vault in Zeist. In a podcast by the Financiëele Dagblad Aert Houben, Director of Financial Markets at DNB and Professor at the University of Amsterdam, provided more information about DNB's view on gold. What did the vault in which DNB's gold was kept for a long time actually look like and how does DNB now view the gold stock?
For a long time, some of DNB's gold was kept in the vault of the main building, which is located on Frederiksplein in Amsterdam. The vault could be completely flooded in the event of a fire, so that the gold was well preserved. In addition, the stock was also well secured, so that no gold theft ever took place at DNB. This is in contrast to other central banks that have seen their gold reserves ever being attacked by thieves.
DNB's gold is stored in these cabinets. (Source: DNB)
Today, the Dutch Central Bank is in possession of no less than 612.5 tonnes of gold, which is Gold price represents a value of more than 35 billion. This large amount of gold is not stored in one place, but is spread out in four locations. Thirty percent of the gold is in the new vault in Zeist. That's about 14.000 bars of gold weighing 12.5 kilos and a thousand chests of gold coins. Another thirty percent of the gold supply is stored in New York. There is also more than twenty percent in Canada and the remaining eighteen percent in London.
The Dutch Central Bank has been in possession of a substantial gold reserve for a long time. At the end of the nineteenth century, there was a gold core standard in the Netherlands, as we have explained in more detail In a previous article. Money in this system effectively became fiduciary and the gold was stored in the vault of the central bank for backing. At the time, there was still a coverage rate of 40 percent. World War I the bank's gold reserves increased sharply.
Later, this system was transferred to the Bretton Woods system, in which the dollar was backed by gold. Other currencies had a fixed exchange rate against the dollar and the dollar was in turn exchangeable for gold. In the 1960s, more and more dollars were exchanged for gold, also by DNB. That is why part of the gold stock is still in New York. The link to gold was definitively abandoned by President Nixon in 1971.
At the fall of the Bretton Woods system, DNB had built up a gold reserve of more than 1700 tonnes. After America abandoned the peg with gold, the Dutch central bank gradually sold part of the gold reserves. There was no reason to hold on to such a large gold reserve. After all, gold does not pay interest, while bonds do. But according to Aert Houben, there is no doubt that gold is indeed valuable; 'The reason central banks hold on to gold is because the precious metal also contains intrinsic value. In addition, you can buy and sell it anywhere in the world'.
Moreover, gold has been a beacon of trust for centuries. Should a new currency ever be created or should major systemic risks ever occur, the population can draw confidence from a new currency, as there is a large amount of gold against the new currency. But since gold is mainly used as insurance, the current gold reserve, which amounts to about four percent of our gross domestic product, is sufficient. 'I think four percent is more than enough. Should a systemic crisis break out, the value of gold will skyrocket. Experience also shows that full coverage is not necessary,' says director Houben.
The DNB director is also asked why gold is preferred over other high-value products, such as diamonds or platinum. According to Houben, gold meets the right conditions to act as a hedge. For example, gold is available in sufficient quantities, the precious metal is also comparable in all parts of the market and the supply of gold is limited. Products such as shells used to play the role of money, but at some point the supply of shells grew so fast that there was enormous inflation. The value of gold, on the other hand, has remained fairly constant throughout history. This was also explained at the previous event of Holland Gold by co-founder of Holland Gold Vincent Kersten.
Not everyone seems equally convinced of the precious metal. For example, Mathijs Bouman, the economist who was also a guest at the beginning of this year, channel from Holland Gold, that he is not impressed. 'I was actually very disappointed by the gold stock when I was allowed to look in the vault. I was much more impressed by the pallets of banknotes that were also in the safe,' says the economist.
Bouman also believes that gold is primarily of emotional value. Only a small part is used for industrial application or to make jewellery. The vast majority is stored in underground vaults. This is mainly the case when major crises break out, but if a major disaster does occur, weapons, food or other utensils are much more useful, according to Bouman.
Although there are different views on the value of gold, friend and foe agree that gold is historically one of the few products that retains value in the long term. That is why DNB has been sticking to the precious metal for a century and a half. Gold is also a good way for countries such as China and Russia to build up independent reserves. After the invasion of Russia in Ukraine, it has become clear that the dollar is increasingly being used as a weapon. For the time being, gold seems to be one of the few alternatives for central banks to hold as reserves.
Just like DNB, other central banks also want to keep gold in reserve. The demand for gold from central banks is Sharp increase.
