“But with Europe stumbling from crisis to crisis, the German public has grown uneasy about keeping the gold abroad. Some even argue the world’s second biggest bullion reserve may be needed to back a new deutschmark, should the euro zone break up.“ – Reuters, 2-9-2017
“Germany has a stronger relationship with gold than most nations. The country’s experience with hyperinflation between 1919 and 1923, during the years of the Weimar Republic, is ingrained in the national consciousness. Gold, above all, stands for stability” – Financial Times, 11-10-2017
Germany completed its scheduled transfer of national gold reserves from the New York Fed and the Bank of France in 2017. It will now leave 1236 tonnes at the New York Fed and another 432 tonnes in London. The remainder of its 3378-tonne national holding will be stored in Frankfurt. The repatriation transfers to Frankfurt were completed three years ahead of schedule.
With respect to the gold left at the Fed, Bundesbank’s Carl-Ludwig Thiele told reporters: “We have a lot of discussions about (U.S. President Donald) Trump, regarding implications on monetary policy, macroeconomics, etc., but we trust the central bank of the U.S.”
Thiele’s confidence in the Federal Reserve brings to mind an old story about Germany’s relationship with the Federal Reserve and the storage of its gold reserves. When Hjalmar Schacht, head of Germany’s central bank in the 1920s, visited the New York Fed he asked to see Germany’s gold stored in its vaults.
“Strong**,” wrote Schacht in a 1955 autobiography, “was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked: ‘Now, Herr Schacht, you shall see where the Reichsbank gold is kept.’” Storage staff went off to retrieve the gold. “At length,” Schacht goes on, “we were told: ‘Mr. Strong, we can’t find the Reichsbank gold.’” To which Schacht replied: “Never mind; I believe you when you say the gold is there. Even if it weren’t you are good for its replacement.”
One need presume that nearly 100 years later, the level of trust conveyed by Schacht remains in place. It is unlikely that Germany would depart the euro anytime soon and back a new Deutschmark with gold. Having an asset set aside, though, that is detached from erratic national currencies in this day and age is a wise move for the prudent nation-state – just as it is for the prudent private investor.
–– MK
** New York Fed president at the time, Benjamin Strong
Repost from 2/10/2017, updated October, 2019. The Financial Times article linked at the top of the page tells the fascinating inside story of Germany’s gold repatriation.
