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Why is Germany repatriating their gold?

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Published : January 21st, 2013
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This week few will have missed reports that Germany is getting closer to bringing its gold investment reserves home. Following questions asked in Parliament in 2012 regarding the 3,396 tonnes of gold bullion, the Bundesbank are set to announce tomorrow a new concept in how they store Germany’s gold reserves.

Reported in an exclusive by German newspaper Handelsblatt, Buba intends to remove some of its gold held in New York, and all of the gold held by the Banque de France. Considering various representatives of the German central bank denied claims that they would be looking into repatriating the gold bullion investments, one has to wonder what’s made them take such a decision.

When the repatriation issue raised its head late last year, 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 bars, 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? Handelsblatt reports that no gold will be kept in France by Germany. Presently 11% of the 3,396 tonnes is held there. As Bundesbank board member Carl-Ludwig Thiele said last year there was no compelling reason for storage in the French capital given the current geo-political landscape.

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.

This week it has been confirmed that Germany is on its way to a recession. 2012 Q4 GDP is expected to have declined 0.5%, whilst GDP for the year was below expectations at 0.8%. Plant and machinery investment declined by -4.4%.

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, 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.

Do you think Germany should take her gold home? Tell us what you think in the comments column below.

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.

Companies Mentionned : Bullion | Gold |
Data and Statistics for these countries : China | France | Germany | India | Iran | Russia | Switzerland | Venezuela | All
Gold and Silver Prices for these countries : China | France | Germany | India | Iran | Russia | Switzerland | Venezuela | All
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Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of sites including Kitco, GATA and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.
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The owners of the FED, the Rothschilds, (Rockefeller here in the states) have been on a binge of sorts with using armies of the U.S. to go after nations they feel are Rogue States, a notion they alone feel is sound, because they think so, out of GREED fo  Read more
Invention - 1/20/2013 at 5:11 PM GMT
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The owners of the FED, the Rothschilds, (Rockefeller here in the states) have been on a binge of sorts with using armies of the U.S. to go after nations they feel are Rogue States, a notion they alone feel is sound, because they think so, out of GREED for the most part & to keep others in the financial sector in step with them or else, they, the others would cease to exist or be of the others afore have said,& be among the not so lucky few called Rogue States. So Germany has seen the writing on the wall, that America can`t be trusted anymore. If seeing what they(the Germans) are seeing our great country dissolve as a CAPITALIST state, and its citzens are being gutted at every turn by their own government. Well Germany are out of the shell game for now, with what they see that `our word` means nothing, but empty chatter. So true our currency is pure fiction, that hasn`t even got a bounce to it. Dead as the Banksters in three piece suits......
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Asking if Germany should repatriate it's gold is like asking if one should prepare for a bad storm given the very dark clouds in the western sky.
How many fools does it take to sit in a room at a hearing and listen to the likes of The Bernanke answer that gold is not money and not one burst out in laughter at that ridiculous statement?? Anyone with a sound mind and eyes to see can look and see Mr. Corzine walking freely having overseen the "hypothication" (fancy word for theft) and gambling away of segregated funds. Any one with a sound mind and ears to hear and see the inaction of the SEC to high crimes on wall street.
I can go on here - just look at the paper metals charts every day and see the manipulation on a daily basis and see the CFC sitting by with their eyes closed and their hands over their ears while the large hedge funds (and I include the ESF) freely manipulating the markets. The basket case known as derivatives, the impotent Congress. The leasing of gold....on and on...But the real question is why would any nation leave their hens in the Fed's hen house guarded by hungry,desperate foxes?
Germany is saying enough, we are not fools.
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