For more than 20 years, most central banks diversified out of gold into currencies, especially the US dollar as well as US Treasuries. All these Keynesian thinkers scorned any banker who dared to consider gold anything other than some “barbaric relic.” And, in order to earn some income from the yellow metal they either leased their gold or sold it. I wonder what these individuals have to say now.

In what can easily go down in history as the worst timed gold sale ever, bbetween 1999 and 2002, Mr Gordon Brown then the Chancellor of the Exchequer ordered the sale of almost 400 tons of UK’s gold reserves when the price was at a 20-year low. Since then, the price has increased more than six times costing taxpayers billions of pounds. The decision to sell the gold, taken by Brown, is regarded as one of the Treasury's worst financial mistakes in its history. Mr Brown and the Treasury have repeatedly refused to disclose information about the gold sale amid allegations that warnings were ignored.

It is understood that Brown pushed ahead with the sale despite serious misgivings at the Bank of England. It is believed that senior Bank experts were not even consulted about the decision, which was driven through by a small group of senior Treasury aides close to Brown. The Treasury has been officially censured by the Information Commissioner over its attempts to block the release of information about the gold sales. Evidently the proceeds from the sales were invested in dollars, euros and yen.

In last two years, this desperate need to rid themselves of their gold has changed completely and numerous other countries have begun buying gold again in large quantities. In 2011 central banks purchased some 439 tons of gold, the highest figure since 1964! This net buying trend by central banks which began in 2009 has proliferated as central banks diversify out of their foreign exchange holdings and accumulate gold. The key buyers of gold in 2011 included Russia, Mexico, Thailand, South Korea, Bolivia, Venezuela, Turkey, Kazakhstan and Tajikistan. And, according the World Gold Council (WGC), while the purchases of gold from the central banks accelerated, sales among signatories to the third Central Bank Gold Agreement all but dried up, with a 5 ton sale by Germany.

One of the reasons cited by the WGC is “a continued desire among central banks to diversify their sizeable reserves in light of credit downgrades which have brought into question the safety of holding massive amounts of US dollar and euro denominated reserves.”

As more central bankers turn back to gold as a store of value, some of these “ geniuses” don’t even know where their current gold is being stored.

Recently, the German Federal Audit Office has criticized the Bundesbank auditing and inventory controls regarding Germany’s gold holdings reported at around 3,400 tons. Evidently, the last time the Bundesbank did an audit of their gold which is held in high-security vaults in Frankfurt, Paris, London and New York was 2007.

But, perhaps even more alarming is the fact that almost 60% of Germany’s gold is stored outside of Germany with the majority of it being held by the Federal Reserve Bank of New York. One of the major concerns of German lawmakers is the question of what would happen if they needed to access their gold holdings urgently. I would not be surprised if Germany follows in Hugo Chavez’ footsteps and have their gold repatriated to Germany.

In the event of a US dollar meltdown, any gold held by the US Federal Reserve on behalf of foreign central banks could suddenly “disappear.”

Towards the end of last year, Venezuelan leader Hugo Chavez ordered the repatriation of the country's gold reserves held in North America and Europe. Before the move Venezuela held around 211 tons out of its 365 tons of its gold reserves in U.S., Canadian, and European banks. Evidently, the Bank of England held about 99 tons of Venezuela's gold, with smaller amounts stored by the Bank for International Settlements in Switzerland, Britain-based Barclays Bank, J.P. Morgan Chase & Co. in the United States, and Canada's Bank of Nova Scotia.

According to Venezuelan officials the reason why they did this was to reduce exposure to debt-laden economies like the U.S. and those of Europe, while also taking advantage of the precious metal's rising price. Venezuela also said it aims to diversify by investing in faster-growing allied nations like Russia and China, both of which recently have been making large investments into the oil-rich South American country. And, by repatriating the bullion, Venezuela has prevented the seizure of any gold that may arise due to arbitration cases including those linked to the nationalization of multibillion-dollar oil projects run by big U.S. companies.More than 60% of Venezuela's international reserves are in gold. That is nearly eight times the regional average of just over 8% and twice that of the second highest in Latin America, Ecuador.

In January this year, the Dutch government admitted that only 10% of its 612.5 tons of the tenth- largest official gold reserve is held in the Netherlands. When questioned, the Dutch Treasury replied that the Dutch gold is located in Ottawa, New York, London, and Amsterdam, but did not specify how much is in each place.

Until 10 years ago, the gold Reserves of the Swiss National Bank (SNB) were regarded as the “property of the Swiss people.” But, during the last decade the central bank disposed of nearly 50% of its gold reserves in order to buy foreign currencies. And, recently, four members of the Swiss parliament presented the Gold Initiative in order to secure the SNB’s gold reserves. If accepted, this initiative would mean that a portion of the Swiss Franc would be backed by gold, and it would also force the SNB to reveal the location of where the gold is stored.

The simple message of these actions is that there are certain political leaders who recognise gold as an alternative to the fiat currencies of the world. They are also concerned about the whereabouts of their gold, especially any holdings held in the USA because of the possible confiscation of foreign gold reserves by their custodian, the US government.