The Coin Analyst: Texas Wants Its Gold Back, but to What End?

by Louis Golino for CoinWeek ………

At first blush Texas might not seem to share much in common with Germany.

But in addition to being the largest states in their respective unions, Texas, like Germany, now wants to take physical possession of its physical gold reserves stored outside the state.

A few years back the Texas university system made headlines by making huge investments in gold, not shares in gold-backed ETF’s or mining companies, but actual gold, a billion dollars worth of it, in fact.

That gold, which is under the ownership of the Texas Investment Management Company, is currently stored in New York.  While many people believe that like Germany, Texas’ gold is held below the New York Federal Reserve Bank, in reality the gold is stored with a private bank, HSBC, one of the largest banks in the world.

texgold The Coin Analyst:  Texas Wants Its Gold Back, but to What End?Last week Texas Governor Rick Perry, a former presidential candidate who famously threated bodily harm against the Chairman of the Federal Reserve during the 2012 GOP primary because of Mr. Bernanke’s quantitative easing policy, made headlines again last week by saying Texas no longer wanted to store its gold in New York.  He made the call during a Glen Beck radio show.

Gov. Perry said that Texas would pay to have all that gold transported back to Texas and would build a kind of mini Fort Knox to store it.

Neil Irwin of the Washington Post wrote on March 27 that Gov. Perry’s move only made sense if Texas either expects the U.S. national government to collapse, or if it plans to make good on threats to secede from the union, a frequent theme evoked by Gov. Perry.

Mr. Irwin also pointed out that in his view gold is not an investment.  It is more of an insurance policy against bad events.  Moreover, if you consider storage costs, especially on the scale involved in this case, gold is not only an investment that pays no yield.  It actually has a negative yield, in Mr. Irwin’s views.

But that view overlooks changes in the valuation of gold, which over long periods of time has held its own in purchasing power terms.  Moreover, it has no counterparty risks.  It is really an asset, in my view, more than an investment.

Mr. Irwin explains that gold is a good thing to buy if you believe the U.S. is headed for another era of hyperinflation like that of the 1970’s.  But again, that overlooks the fact that it remains the best-performing asset class of the past two decades when inflation remained very low.

In the case of Germany’s well-publicized call to have its gold reserves stored overseas in France and the United States returned to Germany, there had been questions about whether the gold is really all there, so an accounting was requested.  And as domestic pressure grew in Germany for returning the gold, the German government made plans to bring it back over a period of time, a major logistical undertaking given the size of Germany’s gold reserves.

The original rationale for storing the gold overseas, which was protecting it from nuclear annihilation in the event of war in the middle of Europe, had disappeared, and there appeared to be no logical reason to store all that German gold overseas.

But in Texas’ case the rationale for returning it back home is a lot less clear.

According to the Week (www.theweek.com) former Rep. Ron Paul, a proponent of the gold standard, supports Gov. Perry’s move, but Giovanni Capriglione, a Texas state legislator who wrote the legislation calling for the repatriation of the gold, said the move has nothing to do with Texas going back to the gold standard.  Instead, in his view, it is intended “give the state a reputation as being more financially secure in the event of a national or international financial crisis.”

But unless Texas really plans to secede from the union, or expects the national government and financial system to collapse, in which case it might make sense to take its gold back and build the high-security depository to store it, there does not appear to be good justification for this move, and there is little support for it in the Texas state legislature.

As Mr. Irwin pointed out, in most crises (short of a systemic collapse) it would be easier to sell the gold if it remained in New York, where it would be close to the precious metal exchanges and financial institutions that would be involved in such transactions.

The whole issue does draw attention to the question of where and how gold owners should store their physical gold.

Everyone has different requirements.  Many very wealthy people who own large amounts of the yellow metal cannot simply rent a bunch of safety deposit boxes, or build a secure in-home vault, because of the size of their holdings.  Besides, some of them remain concerned that a 1933-type of situation could repeat itself, and that their gold could be confiscated, so they prefer to store it overseas at locations such as the secure allocated storage facilities of the Perth Mint in Western Australia.

But states are not individuals, and it is hard to see the real benefit to moving all that gold from New York to Texas.

golino portrait thumb The Coin Analyst:  Texas Wants Its Gold Back, but to What End?Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

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44 Comments on "The Coin Analyst: Texas Wants Its Gold Back, but to What End?"

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  1. Hubert says:

    I’m sure all of that gold will be much safer in Texas. No chance of cronyism, nepotism, political backscratching, sociopathic bank management or plain-ol’, down-home corruption there…

    • Oso Blanco says:

      Lets see- not like Bear Sterns, or Corzine and MF Global, Cyprus, etc?

      It is their gold- they can do what THEY want with it and store it where THEY want– what is the criticism of them for?

  2. Daniel says:

    Good for Texas! Like I always say and hear, if it’s not in your hands, you don’t actually own it. Paper silver/gold will fall just as sharply as our worthless currency.
    I would bet that the FEDs don’t have the gold. I guess we’ll see soon.

    • Dave in CT. says:

      Daniel, I agree, and we’ll have to wait to see if the depository has that gold in hand…What they’ll do is, send Texas share to them in the certificates…blah blah blah….Just have to wait…

  3. Dave in CT. says:

    Louis,
    Very interesting to see if what Texas is said to own, if it is all in this New York depository ! I don’t see why Texas wouldn’t want to have their physical gold stored in it’s own state. For me, I have my physical PM”S stored in multiple banks. This is just in case one of the bank safety box areas get hit. I’ll least I would have had the foresight to store it in many locations, and not all of it in one single bank. Now, even with safe deposit box insurance, it seems that what you would have to pay, would not be worth it, not for the small amounts that most have. Over the long run, your premiums/profit would slowly be taken away, but for a huge amount, then the insurance costs would be negligible.
    On another thought, Gatewest now has RCM’s latest mint releases, including the UHR Moon Mask, and I was a bit surprised that it cost a bit more, than a bit less, as one usually see’s when Gatewest starts selling the coins, after the initial release from Canada. I picked up this Moon Mask, and also saved some money, from the foreign transaction fees most have to endure. My card carry’s no penalty/fee’s when ordering from these outside countries. Every bit helps, especially when 99% will have no upside in making a fair profit, or none !
    Louis, thanks for posting that MM-UHR coin. I collect any type of HR, and this one is pricey, so I am happy that the RCM kept the mintage fairly low, but with a 6000 mintage. I think as it stand now,their isn’t 6000 HR collectors. But over time, these should have a decent premium, but not should not carry the premium of Perth’s HR Dragon silver coin. Time will tell. But since I only display my prized PL Libertad kilo’s, this will go in one of my safe deposit boxes but not before I get to enjoy this for a few weeks, then off to it’s new home (my babys SDB) !
    I also see Perth mint’s May release has a Kookaburra HR listed. I hope Perth has now realized that anything over a 6000 mintage figure is not good for the hobby. As I have written to them on numerous occasions, their claim that 7500 or more HR’s is a good and healthy number is not accurate. Their isn’t enough collectors in the universe to sell these coins too.

  4. V.Kurt Bellman says:

    I predict this is the preliminary stage of some foolish scheme for Texas to issue gold legal tender, risking a smackdown fight with the federal government. U.S. Attorneys are not well known for a sense of humor.

  5. Trent Imbruglia says:

    So how much is it going to cost the taxpayers of Texas to transport the gold, build the mini Fort Knox and keep it secured well enough it doesn’t get stolen?

  6. Sicilian Gold says:

    The Inside Story on the Gold-for-Oil Deal that could Rock the World’s Financial Centers
    http://www.usagold.com/goldtrail/archives/another1.html

  7. jason says:

    If they give the world an enema, they’ll start in Austin.

  8. Joseph Lieberman says:

    It only makes sense to have the gold stored in Texas if , the people of Texas expect to be in control of it and eliminate a future scandal ,or fraud,, or some variation of being wronged by a third party that is in the business of scamming America (aka the FED…,,,(keeping your own gold is live being a volunteer soldier,, fire fighter, etc….. it is a responsibility,, for which if you chose to forsake it and are lazy and rely on others to do it for you not only do you deserve to be eventually cheated ,,, you WILL be CHEATED… some way somehow….
    but people reading these kinds of articles already know that,,,, ( the party propaganda machine is coming apart ,, the people are AWAKE.)

  9. Rob says:

    It becomes a dangerous proposition to begin to think that the property of someone else should come under the control of opinionated bystanders.
    Right now the people of Cyprus beg to differ with you Dave in CT on the safety of bank deposits.
    That which belongs to Texas is theirs to do with as they wish!
    Thou shall not covet thy neighbors possesions!

  10. Scott Billingworth says:

    Texas should not have to justify why they want it back. They own it.

    It is a warning sign when the borrower questions you why you want your property back.

    • Trent Imbruglia says:

      what borrower? No one is borrowing the gold. It’s on deposit in a very secure place. Texas now has to pay for the facility and manned security themselves.

      • Dave in CT. says:

        TRENT:, as of now, we just do not know if Texas gold is there or not. Because who has been there to actually take inventory ? The question is, and I may well be off, if a every large investor, or even other countries gold that they are holdingstoring, how do we know, when all said and done,when one guy is taken to where that fella’s gold is suppose to be stored at, or an official is taken to an area where their gold is suppose to be, that this official from the depository is not using the same stack/area of gold deposits twice. I.e., who’s to know the diff if they counting, and showing the same stockpile of gold to 100 diff. owners, but when its all said and done, it turns out to be the same stockpile ? And all those paper contracts that are being bought an sold all day and night long, the smart people say if these investors ever wanted to take physical possession, their would be a panic, and those futures contract could not be filled. C’mon, our govt is lying to us all the time. Same thing with the severe shortage of AMMO. Our govt is buying up all the ammo, so us common and law abiding folks cannot acquire this, all because what they are doing is,continuing their madness and push on making all guns illegal, and do not have the votes to stop their crazy gun control, then they will make getting AMMO so difficult, our guns will be useless. All of their smoke and mirrors to further control us. My point is, has anybody really proved that all of the investors gold is really accounted for. I just do not know, but I also would not believe a govt., or impartial outsider to give us an honest answer. Texas is right on for at least talking about the idea of getting it back to it’s mother !

        dave in ct….

    • V.Kurt Bellman says:

      Gold has been largely changing hands only on paper for many many decades now. Bulk gold doesn’t get shipped very much at all; it’s too expensive and risky. Of course, dealing with paper documents presupposes the ability to read and understand basic arithmetic. The Governor of Texas may not qualify under that standard. He does qualify on folksy aw shucks cowboyism, but not much else.

  11. Louis,

    I don’t think Texas would actually attempt to secede from the Union unless the country was already on the verge of total collapse. So far, that doesn’t seem to be the case, so I think Perry’s motivation is probably concerns about financial security in the event of another major financial crisis in the US.

    An additional “knot” in the equation is that Texas’ gold is held by HSBC. While HSBC is one of the largest banks in the world, we’ve had a taste of what can go wrong with the banks in the case of Cyprus. In the event of a major solvency crisis with HSBC, Texas could run the risk of losing its gold. I am firmly in the “if you don’t hold it, you don’t own it” camp and I think this move makes some sense. Of course, if HSBC has a major solvency crisis, we may have other things to worry about besides what Texas is doing with its gold…

    Thanks for writing about this. It’s a very interesting issue and I had never really considered that individual states had their own supplies of gold and silver.

    • Dave in CT. says:

      CAP, hello, and I wanted to say, along with this article’s writer, I have enjoyed your comments. Yes, many states have held some type amounts of gold, this going back before the Civil War. Of course by the end of that unpopular war, nothing little was left, and what was left was shipped out before the ending days of this war, and held secret in and at, some neutral or blue flag leaning western states(sympathizers), for fear of forfeiture and confiscation. Gen. Sherman, behind being a disgrace of a man, plundered anything of value, on his march to the sea. This action, and to this present day, is why some southerners still have so much hared towards our FEDERAL GOVT.

      Dave in Ct….

  12. Louis says:

    Thanks to all for an interesting discussion. Unlike the situation with Germany, I don’t think anyone is actually questioning whether all the gold is there, and unlike the German gold, the Texas gold is stored at a private bank.

    • V.Kurt Bellman says:

      Louis, no one “sane” is questioning whether all the gold is there. That leaves many in the “Paulian universe” openly questioning it, as the former OB/GYN Legislator himself did from the Chair at a Congressional hearing last term. We need to be gently aware that among our numismatic brethren we can count a solid number of conspiracy junkies and, well, darn it, “wingnuts” who believe the “gummint” is regularly up to no good. Doesn’t successful evil presuppose at least a measure of competence? I mean, when I look at the “fedrill gummint”, all I see are buffoons.

      • V.Kurt Bellman says:

        Incidentally, I see the same thing when I look at Paulians – buffoons.

        • Dave in CT. says:

          Dear V.Kurt Bellman;
          I am smart enough to know your last comment was not needed, and not smart enough to figure out what the hell it meant. I am very sorry you have to pick on folks that have thoughts that differ from you, and make them feel unnecessarily stupid. Not needed, which is why I do not comment on the Mint news blog, too many folks insulting each other, and the guy that runs it, does not do enough to get those same old posters, off that blog. I.E., he doesn’t follow through on his warnings of others, to be just nice to each other. This is suppose to be FUN…and I love Coin Week, and do not want to see it start here. So why Mr. Bellman, why do you feel that you have to leave hurtful post on a very decent blog ? Please behave. thank you V.

          DAVE in CT…

          • V.Kurt Bellman says:

            I’m sorry but I have an extraordinarily negative opinion of the economic and factual beliefs of the Ron Paul fanbase. Am I allowed that? I think I am. Furthermore, I have a very low opinion of Austrian School economics generally, also. In my opinion, it is utter hogwash. I am an unreconstructed Keynesian, and proudly so. The VAST majority of mainstream economists agree with me. The “debt is the boogeyman” hard money ideologues represent an tiny tiny sliver of serious economic thought, and their rarity does not make them precious (they’re not coins, cons maybe, but not coins), it makes them, well, loony. Sorry, it just does.

      • Joseph Lieberman says:

        has nothing to do with sanity,,, any bussiness man just wants to have his money/gold… when you sanity is questioned for wanting to have what is yours,,, that is when you are dealing with crooks,,,

  13. CoinWeek says:

    Why is it that otherwise intelligent people feel it necessary to be sarcastic and pejorative when making a point. It seems they have an uncontrollable need to “label” people and marginalize anyone with whom they disagree.

    Everyone that has a different point of view or may disagree with your positions is NOT an idiot or an asshole. No wonder it is near impossible to have a civil dialogue anymore.

    • V.Kurt Bellman says:

      When a man, former Rep. Ron Paul, has repeatedly illustrated his ignorance from the Chairman’s seat at the U.S. Congressional hearing room, spouting unsubstantiated rumors as often as he has, and having been PROVEN wrong about the alleged lack iof the existence of various gold reserves (audits were ordered, done, and all gold was present), he and his followers deserve derision.

      • V.Kurt Bellman says:

        Opinions are opinions, and facts are facts. Ron Paul makes up, or made up, facts far too often and regularly got caught at it.

  14. Louis says:

    I think a number of people mistakenly think this gold is something like the gold reserves of Texas that are collectively owned by the taxpayer the way the U.S. gold reserves at Ft. Knox are. But this is different. It is gold that is owned by a company created by the Texas state univ. system for the retirement fund investments of employees of those universities, and the company is under the control of the Board of Regents of that system. See this web site:
    http://www.utsystem.edu/about/utimco

    • Dave in CT. says:

      Dear V, ok, good reply, and maybe I stand a bit corrected on your original reply. I also have found Mr Paul to be not a truth guy, but then who is ? The folks that voted for Obama, I’ll bet they are wondering why he sold them out. I,E., he is now proposing that for a large group that mostly voted for him, stated he would not touch SS/SSD/VA benefits etc, now he is proposing that a new COLA be initiated and this would mean drastically lower COLA money that would be figured into the already pathetic little amount these groups already receive every month. How can you sell out these groups who have given so much to this country. So yes, he has sold out the same very larger group/’s, that if it were not for them, he would not have been voted in for the additional 4 years. So V, nothing but back room deals, and more and more lies to the American voters. God, what is wrong with this country, now if passed, and it will be, millions, and mean many millions, will basically rec. a joke a COLA adjustment next Jan 1rst. What can I say, they all lie and Romney would have been voted in, if Obama told truth on his true intentions. But then again, Romney probably would have cut SS completely. So you just cannot win, and you have to vote with your gut feelings. Off topic, but related to Mr. V’s post…

  15. V.Kurt Bellman says:

    If any reader here would like to read a piece that kinda sorta explains part of what is going on right now in precious metals, you can find it here:

    http://www.kitco.com/ind/Arora/20130404.html

    Now, I am NOT a believer in technical analysis; in my opinion it has no value at all. It “works” because enough people believe it works and they act in a way to cause it to be a self-fulfilling prophesy. But what this writer has here in this piece is not all chart mumbo-jumbo, becuase while he presents it in a chart, he is describing a very real phenomenon in PM’s. He’s calling them “gold momos” in his piece. I’ve never heard that term before, but the concept is a familiar one. Gold and silver have stopped making sensible moves (to many) because the present prices are all “fluffed up” by the momos, and their aggregate demand for the stuff.

    Coin people get all confused about this because they don’t usually understand that when fundamentals justify an up market, it can be “too much up”, as it was in 2010/2011. That was the momos piling into the market. I saw it and gave my Chicago ANA talk for that very reason. The market for PM’s was overheated by amateur market chasers who have no longterm interest in metals or anything else. They chase the big moves, and usually lose big. They lose big because they continue to buy into a bubble they themselves created.

    What the momos SHOULD do is take stock of what they really want to do emotionally, and do the exact opposite. They won’t; I will and do. That’s why I sold in August 2011.

    • V.Kurt Bellman says:

      By the way, when you start seeing the bulk of mainstream writers writing how bad precious metals are as an investment, wait another month, and start buying. Your profits may not come fast, but they will come.

      • Dave in CT. says:

        V, I have found this to be so true. You are a smart guy. Thank you

        dave in ct…

        • V.Kurt Bellman says:

          Here it comes, Dave in CT. Today (4/11/13), the New York Times pubilshed an article entitled “Gold, Long a Secure Investment, Loses Its Luster”.

          Oh the times… they are a’changing….

          That’s ONE. Keep a count. When this drip becomes a deluge, start buying up the PM’s all the momos are shedding like sunburned skin.

  16. Mike says:

    “But states are not individuals, and it is hard to see the real benefit to moving all that gold from New York to Texas.”

    Is this guy serious? There is a HUGE advantage to storing gold in a Texas repository. If another 1933 federal style gold heist took place, Texas could declare that unconstitutional citing the 10th Amendment. The state and individuals could both store their gold their. True zero counter-party risk backed by wonderful Don’t Mess With Texas.

    • Dave in CT. says:

      Guy’s:, if we ever get in that scenario, where our country outlaws the ownership of gold, will it really matter ? Things will be so bad, and inflation will be running rampant (read aftershock, both books), and at this time, or that time, owning gold/silver really wouldn’t matter, not to most of the population, who never have seen the shiny yellow stuff, and that’s a fact. PM”s are for the most part, is owned by the well doer’s, and some coin hobbyist. But the rest of the population, really knows nothing about it, or its standing in our economy. But my point is if confiscation comes to be, by then folks, it will be too late for our finances to be unaffected, and the economy will most likely take decades to come back. It just will not matter to the average JOE. As it stands now, the average JOE doesn’t care about gold, the potential confiscating, the gold standard. Tell me I am wrong !

      Dave in Ct…

      • V.Kurt Bellman says:

        You’re right, Dave. You can’t build a monetary system around something that most studies say is owned by no more than 1% to 3% of the population. Gold and silver aren’t your buffer if it all goes down the dumper. Lead, coated with copper (with little holes in the tip), mounted in brass, would be the MUCH MORE IMPORTANT metals.

  17. Dennis says:

    I have a question and before you jump on me and say I don’t belong on this page, I assure you that it matters not to me if Texas becomes it’s own country but I just wanted to share some food for thought. … Are you aware that of the $193.8 Billion state budget Texas has, $100.3 Billion of it comes from Federal money? ..Could the state afford to lose that? and not to mention the not to mention 142,801 Federal employees (by 2011 figures..probably more now) who would lose their jobs, this just doesn’t appear well thought out to me.. My question to you is ..REALLY? ..Your thoughts?

  18. Edward Waddups says:

    just build a texas militia training ground and put the gold depot
    there let them gaurd it for a nominal fee. this kills two birds with one stone

  19. Edward Waddups says:

    if Texas separates from united states we can collect our own taxes for replacing federal money. this money would be better spent by Texas.

    • Dennis says:

      Say this works to some degree.. what are you going to do about the 143,000 people out of work from federal jobs? …How are you going to replace the thousands of kids who lose funding for college? How are you going to replace the Billions of dollars in Social Security folks will lose? …How are you going to Pay for the Billions of dollars in medicine and medical help people would lose? ..How are you going to defend yourselves if a country decides to invade?… You guys are delusional right now .. just saying

      • V.Kurt Bellman says:

        Read the papers. Texas has been riding the edge of self-delusion for quite a while now. Look, I know some here get all upset with me when I indicate some people are stupid, but MAN, when it comes to Texas, the problem is self-inflicted.

        Here’s the skinny: Texas, especially non-Hispanic “white man” Texas, is a unique subculture all its own. It’s loaded with swagger, confidence, squinty eyes, sunburned hides, and pointy toed little boots with spurs. It is not like anywhere else, except maybe Arizona. No, too many retirees there. The cultural difference between places like Texas and New York City (you’ve seen the Pace salsa ads, right?) is so abrupt that it’s amazing they fit in one nation. I like to pick on BOTH Liberalland and Cowboyland. I think they’re both hilarious. But that’s jus’ me, your friendly neighborhood “radical centrist”.

        • Dave in CT. says:

          V, since I do not have an IQ of 125, most of this went over my head, what are you saying here ? Besides maybe putting down to diff. geographical areas and there unique beliefs ? Be nice….lol
          thanks,
          dave in ct.

          • V.Kurt Bellman says:

            All I’m saying is this, and I mean it. What passes for normal economic behavior in Texas willl get you fitted for a straightjacket (metaphorically) in New York, AND what passes for normal economic behavior in New York will get you barb-wired to the fence post somewhere in Texas. Two different cultures, so utterly different. I’d suggest even MORE different economically/culturally than Athens and Frankfurt are. Think about THAT! How can those two U.S. places operate under a single currency (Dollar) and the two European (Euro) cannot? Simple. They share a currency AND a tax/spend policy commonality. No, they don’t care for that commonality at all. but they’re forced into it. What Texas may be preparing for is opening a can of Frankfurt whoop*ss on New York’s “Athens complex”.

  20. David McCarty says:

    About 2 months ago I saw a show on RT, (Russian Television) and it was about Texas. They visited a private mint that was making coins honoring Texas. They were made of silver. It was said that the pressed were bought from the Denver mint. Can someone tell me who this mint is and where they are. I also understand the coins are valid for commerce in Texas.

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