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Five things repatriating gold bullion says about the country

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Published : November 05th, 2012
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Despite the fall in the gold price this week, those thinking to buy gold bullion have been buoyed by talk of Germany auditing and repatriating their gold reserves held abroad. Below, Jan Skoyles looks at what this mean and says about the country.

This week few will have missed reports that Germany is getting closer to bringing its gold bullion reserves home. Following questions asked in Parliament earlier this year regarding the 3,396 tonnes of gold bullion, federal auditors have now instructed the Bundesbank to regularly inspect the gold bullion reserves held in the US Federal Reserve, Bank of England and Banque de France.

Der Speigel also report that the Bundesbank is planning to ship 150 tonnes of the gold reserves from the New York Federal Reserve back onto home soil, over the next three years. It is also only now becoming clear that the Bundesbank reduced 1,100 tonnes of gold holdings with the Bank of England to 500 tonnes between 2000 and 2001.

The mainstream media coverage of Germany’s actions regarding their gold reserves seems to have an underlying accusatory tone to it. It’s almost as if by the Bundesbank openly admitting it is looking out for its own finances, for its own country and its citizens, it is being unpatriotic to the global cause of pretending that a highly leveraged, fiat money, banker-centric, government-spending driven economy is exactly how things work best.

Germany isn’t the first country to ask questions about its gold, let alone repatriate it. Switzerland is also raising plenty of questions and Venezuela finished repatriating their gold earlier this year. So what does repatriating the country’s gold say about the sovereignty?

1. Changing geo-political landscape

There are two geopolitical reasons for a country taking custody of another’s gold; the first is for ease of transport for payment purposes, the second is to protect the gold from geopolitical risk.

The ease of transport for payment purposes can be argued to still be a relevant reason, particularly given moves by China, India, Russia and Iran to make gold payments for oil and wheat. However, the chances of the US, UK and France demanding payments in gold in the near future as they desperately try to prop up their own currencies is unlikely, particularly as Germany is a successful export nation to these countries. This was one of the reasons for Venezuela’s movement of gold into Brazilian and Chinese custody – they’re trading partners with useful exports and are more likely to accept gold.

Germany’s gold was primarily kept in the US on account of the physical threat from Russia. This seemed reasonable at the time; the US was the bigger and lesser of two evils. The big guy in the playground can be an allay, for a time.

Much of Germany’s gold held in the US has never made it to Germany; it started life as German gold reserves in a US vault somewhere. This was on account of the European country running trade surpluses between the 1950s and the end of the Bretton Woods. German gold reserves between 1950 and 1971 went from zero to 3,600 metric tonnes, in the same period US reserves fell by 11,000 tonnes.

But the threat no longer remains, so why hasn’t the gold been moved back to Germany?

2. Do not trust the custodian country to keep track of it when lending it out

Back in the mid-1920s, the head of the German Central Bank, Herr Hjalmar Schacht, went to New York to see Germany’s gold. However the NY Fed officials were unable to find the palette of Germany’s gold bullion. The Chairman of the Federal Reserve, Benjamin Strong was mortified, but to put him at ease Herr Schacht turned to him and said ‘Never mind, I believe you when you when you say the gold is there. Even if it weren’t you are good for its replacement.’

Both GATA and Bring Back Our Gold argue that central banks have either loaned or “sold short” the majority of the country’s gold. As GATA found out between 2008 and 2009 the Fed has gold-swap arrangements with foreign banks but keeps them secret. This practice of loaning out gold is not uncommon; it’s the worst kept secret ever. However as Zerohedge point out this can lead to the eventual problem that no-one’s sure whose gold is whose anymore having been a sort of pass-the-parcel for many years. There is now a debate as to whether Germany, or anyone else storing gold in a central bank abroad, owns allocated gold or is merely a ‘creditor’ on a metal statement.

The fact that there has not been an audit of Germany’s gold for some time, not since 1979 in the New York Fed, gives some validity to GATA and others’ concerns. Added to this the refusal by the Federal Reserve to conduct an independent audit of the gold reserves in Fort Knox, as campaigned for by Dr Ron Paul, and worries build as to whether the custodian is ‘good for’ the gold.

3. Do not trust the custodian country to protect the value of their own currency

As we said in the first point, much of the gold was originally stored abroad for safe keeping, particularly in regard to storing with the US Federal Reserve. However as two round of QE have shown and the third just beginning, the US aren’t even willing to protect their own assets in the long-term, so are they likely to look after those of another country’s when they realise the rest of the world doesn’t want to use their currency anymore.

Every few months there is a discussion regarding what China are planning on doing with the gold they both mine and import every year, with many believing they are hoarding the metal as an insurance against the billions of US Treasury bonds, notes and bills they hold. Many believe they will issue some kind of gold-backed currency in the short-term and dump its one trillion dollars’ worth of US Treasury securities. Whilst, at the moment the US seem to take their monopoly currency for granted, should the Chinese or anyone else behave in such a manner, the US will need to respond – most likely with gold, which on its own it does not have enough of.

The continual devaluation of the US Dollar is, of course, a good thing for the gold price and therefore, even more reason for countries to get it back onto home soil.

4. Foresee the need to protect the future of your own monetary system

Germany is the one country in the Eurozone which appears to be reminding everyone of how important it is to return to some resemblance of sound money. In the last few months we have listened to Jens Weidmann, President of the Bundesbank, compare the ECB’s plans to the ‘Faustian Pact’. However, thanks to the undemocratic nature of the Eurozone, fewseem to be listening. Like many of the disagreements in the past, the ECB finds a way to work around them or gently persuade member countries to support new measures – such as Draghi’s OMT plans.

Germany, like other countries in the EU, has a responsibility to protect its citizens’ wealth and standard of living. At the moment this is being threatened as the successful export country props up other fiscally different countries to its own. Gold, as we have long said, is a protector of wealth. The euro, many have said was designed to act ‘like a gold-standard’ unfortunately you can’t dress up a fiat currency to glister, as it seems the Germans have realised.

5. It’s yours, you want it where you can see it

As we work hard to show here at The Real Asset Company, when you buy allocated gold bullion, you own gold, only you can instruct what should happen to it. The Bundesbank, and Venezuela before it, has done nothing wrong. This is despite mainstream coverage which wants to imply that the Bundesbank’s decision to move 600 tonnes of gold from the Bank of England between 2000 and 2001 was a ‘shock’ and ‘mystery’.

As we have outlined above, no one really knows how this financial crisis will unfold. Whilst financial crises have, unfortunately, become too frequent, in the last forty years, never has one been this contagious, far-reaching or beyond the understanding of the policy-makers. Why shouldn’t the Germans get their gold back under control? They own it and most likely, they’ll need it.

Jan Skoyles

Do you think Germany should take her gold home? Tell us what you think in the comments column below.
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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.



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... Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany -- a discussion which is driven by irrational fears.
In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a "phantom debate" on the safety of our gold reserves.
The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the president of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end -- and it should do so before it causes harm to the excellent relationship between the Bundesbank and the U.S. Fed.
Let's get back to facts and figures: I would like to remind you that our gold reserves are part of the German currency reserves. These were accumulated over time thanks, in part, to Germany's economic boom in the 1950s and 1960s. Germany's growing economic strength, especially its strong external position, resulted in rather large trade account surpluses, most of them acquired in U.S. dollars. At that time, the International Monetary System, known as the Bretton Woods system, was dominated by the U.S. currency. As long as this system was in force, which was up until 1971, the U.S. Fed was obliged to exchange its currency for gold.
Any current account surplus thus resulted in an increase in Germany's gold reserves. This gold was stored in U.S. vaults for obvious reasons. This was not only the case for the gold held by the Bundesbank -- it was, in fact, common practice. By the way: It was the only practical thing to do, since running a trade account deficit meant a decrease in gold stocks.
Thus, we are now looking back at 60 years not only of fruitful cooperation in many fields and international fora, but also of storing gold and trading via the New York Fed. As a matter of fact, it is sensible for us to do so in New York, as Frankfurt is not a gold-trading venue.
Throughout these 60 years we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed. And for this, Bill [Dudley, president of the Federal Reserve Bank of New York], I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed's trusted partner in future, and we will continue to take advantage of the Fed's services by storing some of our currency reserves as gold in New York.
At the same time, you can be assured that we are confident that our gold is in safe hands with you. The days in which Hollywood Germans such as Gerd Frobe, better known as Goldfinger, and East German terrorist Simon Gruber masterminded gold heists in U.S. vaults are long gone. Nobody can seriously imagine scenarios like these, which are reminiscent of a James Bond movie with Goldfinger playing the role of a U.S. Fed accounting clerk.
While gold is important, we have to combat a crisis of confidence in the euro area. This is the task we need to concentrate on. And we will do so.

These few extracts reveal the deplorable stupidity of the case that is spun to account for Germany's Gold being stored at the NY Fed. There is not a single phrase which does not scream 'this is the most disingenuous narrative we can construct' and 'anyone with eyes even half-open will see straight through this measly and wholly ineffective effort to deceive.'

The reality is that the Bundesbank does not care for, nor take care of Germany's Gold. The Bundesbank could not care less about Germany's Gold. The Bundesbank does not see Germany's Gold in those terms; it does not see Germany's Gold as Germany's Gold.

You think it does; you believe it should. But just because the Bundesbank operates in Germany, in that geographical space, that does not imply or suggest that it works in Germany's best interests. Au contraire.

The Bundesbank's allegiances, its raisons d'etre, its modi operandi have nothing at all to do with safeguarding Germany's assets, rather they are focussed on exploiting and stealing the value of those assets. Just like every other Central Bank.

The Central Banks of the world don't work for the citizens of this or that country. They do not serve the interests of the citizenry. They suck every available drop from the gnarled, wrinkled, sagging, soon-to-be-empty tit of each and every citizen. From the cradle to the grave, you are owned by them, and their job is to suck you dry.

The Central Banks work with and for each other under the umbrella of the BIS. Of course, there is a heirarchy. These are Rothschild Central Banks, so don't agonize too long over the ranking.

And there you have it, a charming deceit, in which peoples are fooled to accept as intuitively right what is, in truth, an outrageous lie. The Bank of England does not work to benefit the government and the British people; The Fed Reserve likewise is no friend to USA citizens; the Bundesbank cares not one jot for the welfare of the German people... Ad Infinitum....

Now re-read the above excerpts, knowing that the Bundesbank is in bed with The Fed Reserve, and every other Central Bank.

Don't fret, don't agonize, don't worry...There is nothing you can do about it. It is a waste of time, effort and resources to get angry or upset. Just open your eyes and know the truth. Nothing will change; they aint going to stop the artifice.
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All that Pete is offering is his opinion. He does not bother to support his position with so much as a single fact. What proof can he put forth to bolster his claim? Surely there must be something. For all i know, Pete might be correct. But the presentation of his position is far from persuasive.
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Yes, Germany should take all of its gold home. If they can find any.
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from: ... Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany -- a discussion which is driven by irrational fears. In  Read more
prljr - 11/9/2012 at 12:53 PM GMT
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