Texas Wants its Gold Back from NY Fed

The University of Texas endowment fund is on the verge of doing what Germany, Venezuela and a few other countries have been unable to do: pry their gold deposits out of the New York Federal Reserve’s grubby little hands to repatriate to Texas.

Texas Governor Abbott has signed a law that establishes the Texas Bullion Depository. The depository is a state level, Fort Knox type repository, in which to store gold bars owned by Texas.  These gold bars are currently held by the NY Federal Reserve bank.

It is no simple task to take delivery of $1 billion of your gold that the Fed is holding for “safekeeping”. It is certainly not as easy as driving the truck around back, ringing the bell and saying “Hi. We’re from Texas and we’d like our gold back, please.” It has taken years.

But it is not hard to see why Texas would want to get their gold out of New York and onto Texan soil. One of the banks serving as custodian of some of the gold is reported to be HSBC. This bank regularly pays out billions in fines for rigging markets, for money laundering, for tax problems… But they are still in business! Then you look at a situation like MF Global where shady trades and market hedging was secured improperly with customer deposits. When the firm collapsed in 2011 it took a lengthy court battle for depositors to get their money back.

Coupled with the knowledge that there is far more paper gold, such as futures and ETFs than there exists in physical gold to back it up, Texas is smart to be nervous. $1 billion is a lot of money to them! That represents pensions for teachers and other state workers. It is the financial backbone of their university system. It is a Big Deal. To HSBC that amount of money is just another pesky fine.

When the rest of the gold market starts really thinking about this and calling in the gold they supposedly own behind their warehouse receipts, there could be a very big problem. A lot of people could be left with little more than warehouse receipts and class action forms to fill out.

Interestingly, the Texas law also creates an electronics payments system backed by this gold to protect from “national financial or currency crisis.”

Once the paper gold market begins to unravel, the price of physical gold bullion could skyrocket, and the Texas bet could pay off very, very handsomely. And if we really do experience a currency shock or collapse of some kind, Texas is going to look pretty smart for putting all this in place.

There is truth to the statement that if you don’t hold it, you don’t really own it. More and more states and sovereign wealth funds are realizing this. The faith in the Wall Street banking cartel is wearing thinner and thinner with every crash, every investigation, every slap on the wrist fine, and every bailout. If your gold is stored in the wrong hands it could be used to secure debt and back risky bets and who knows what else. Do you hold gold in your home or with a trusted, honest custodian? When a state like Texas sees the writing on the wall, maybe it is time for you to act as well.

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