GOLD REHYPOTHECATION!? We Asked Former NY Fed Insider Chris Whalen About the Gold Inside The Fed’s Vaults

Gold Repatriation and Sanctions

• Fed Research Note: A recent Fed note by Colin Weiss acknowledged that holding gold protects central bank reserves from U.S. sanctions only if the gold is held domestically, using Russia as a case example. 12

• Repatriation Trend: Central banks from France, the Netherlands, Germany, and Turkey have recently repatriated gold from the New York Fed. 1

• Sanctions Evasion: Gold allows countries like China to offer clearing mechanisms in Yuan with the option of gold delivery via the Shanghai Gold Exchange, bypassing the U.S. sanctions regime. 3

• Political Trust: Whalen noted that gold reserves are symbolic; if trust in the U.S. declines, nations are more likely to move their gold home. 4

Rehypothecation and Custody

• Fed Custody: Whalen stated that gold held at the Fed for other central banks is a custody relationship and not intermingled; he does not believe the Fed is rehypothecating these reserves. 15

• Commercial Gold Risk: The more significant concern is whether commercial markets like the COMEX have sufficient metal to cover outstanding obligations, as Asian buyers often demand physical delivery. 56

• Fed Vaults: Whalen described the New York Fed gold vault as a massive, castle-like structure and noted that managers historically rotated opening it, reducing the likelihood of undetected impropriety. 789

U.S. Fiscal and Monetary Risks

• Debt and Deficits: Whalen highlighted the risk of the U.S. running a $2 trillion deficit (roughly 6% of GDP), which he believes will eventually force a crisis because interest payments will crowd out other spending. 1011

• Inflation: He argued that inflation is driven by fiscal deficits and that the Fed cannot easily fight it without raising rates to levels (e.g., 10-year at 7-8%) that would cause massive defaults in mortgages and corporate bonds. 11

• Dollar Status: Whalen suggested the U.S. is at risk of the dollar becoming like the “American peso” if fiscal issues are not addressed. 12

Precious Metals Outlook

• Gold as a Backstop: Whalen believes gold will increasingly serve as a backstop for various fiat currencies and a measure of inflation, even if not used as a primary currency. 13

• Silver: He views silver primarily as a commercial asset rather than a monetary one, noting that China stockpiles silver for industrial use. 1415

• Market Lag: He noted that precious metals often lag financial markets and that central bank buying has remained strong even during price weakness. 16

Other Market Risks

• AI Bubble: Whalen believes the AI trade has largely run its course and that the bubble will continue to sag as cheaper, more efficient models emerge. 1718

• Private Credit: He identified private credit as a major risk, particularly insurance companies buying business-purpose loans for rental properties. 17

• Operational Risks: He cited CME/COMEX shutdowns and large gold movements (e.g., JPMorgan pulling 13 million ounces) as events that fuel market suspicion. 19