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Why is Germany repatriating their gold?

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’.

Conclusion

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.

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About the Author

Jan SkoylesJan 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 in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes 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.View all posts by Jan Skoyles

  • STR

    An excellent article; I suspect the answer lies in the concluding statement.

    • janskoyles

      Thanks STR!

  • http://twitter.com/silversucker Marvin Charbonneau

    Good article . I think the time has come for all countries to store their own gold on their own territory. Many of the excellent reasons are brought forward in your writing .Those of us that have investments in gold are anxiously waiting to see the out come .As more countries repatriate their gold it may very well be the death knell for the central banking short selling, leasing,price control mechanism that they have had over gold since 1971.

    • janskoyles

      I agree Marvin, this is an exciting development for those of us in gold investment, on both a personal and global scale. Whilst many in the financial media are dismissing this move by Germany, one has to ask why have they decided to start this repatriation now? It’s not as though the Bundesbank don’t already have enough on their plate! I suspect we will begin to see a domino of repatriation moves from other European countries now, however I do not expect countries to store 100% of their gold on home territory. As we have seen already in the last year, gold is slowly creeping back into the international payments system, therefore some will still need to be held abroad. Even when Chavez repatriated Venezuela’s gold, he sent some to other countries for protection and trade.

  • JonFrum

    If Germany shows up with a truck and there’s no gold bars marked ‘Property of German Republic on them, we’re all screwed, and the preppers are right.

  • Jim

    Go to White House website and sign the petition to have USA gold audited and assayed. Enogh lies and drama.

  • Arnie D

    Absolutely Germany should repatriate its gold. Why would any nation store its valuables in another country, any more so than an individual would store his in a neighbour’s house, even if the neighbour is a good friend. I certainly wouldn’t.

    • janskoyles

      Hi Arnie D, I think that if the ‘neighbour’ is prepared to do a regular audit and there is no danger of leasing or swap arrangements, then it’s not so bad to decide to store some of your gold investments with them.

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  • Garry S

    It’s Germany’s asset, of course they should do with it as they wish. How do you argue against freedom of choice. To argue differently, especially by the custodian, would be suspicious indeed.

    • janskoyles

      Hi Gary S, I agree. Freedom is choice is exactly the reason why I’m so interested in gold as money. This move by the Bundesbank is a step in that direction to acknowledging gold’s importance in the monetary system.

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  • RUSS SMITH, CALIFORNIA

    Hi! Patrons Of Comments & Analysis Et Al:

    The entire format under which Bretton Woods operated is completely faulty in my humble opinion. The US Constitution under Article 1; Section 10 calls for the Fort Knox gold etc. to be in the hands of all American Citizens & NEVER inside a repository somewhere. If every country’s gold was in the hands of their people, their gold would be under their protection and public controls and NEVER thereby available to unstable geopolitcal events risking it by others such as today’s governments who don’t even know how to manage their currencies. We are all robbed by OUR respective government’s fiat money systems today that unavoidably erode the buying power of OUR savings. This can not go on indefinitely can it without chaotic consequences notifying US all that OUR world monetary system is unbalanced with insanity?
    CHEERS:
    RUSS SMITH, CA. (One Of Our Broke Fiat Money States)

  • Joseph

    All the German gold covers about half of the Greek debt. Wow!

    • Richard

      Remember, the Germans stole all the Greeks Gold in WW2, and never repatriated it.

  • nonplused

    The Germans must know that at least the amount they are repatriating is there. If the Fed could not deliver the gold, they would have made it known to Germany not to ask until they can come up with it. Otherwise they risk a currency apocolypse! Therefore the theory the gold isn’t there cannot be true.
    I think they want it home as insurance against what might happen in the future if there is a currency crisis.
    I guess we’ll see though. If the physical market goes short 600 tons of gold because the Fed is busy trying to come up with physical, then hold on to your ounces!

    • janskoyles

      Hi nonplused, the theory that the gold isn’t there is clearly something that we will never know for sure. However, the fact that such a small amount of the total gold held in NY is being repatriated does make one wonder if the Americans have had to buy some time in order to get the gold in!

    • alsim

      the fed will need 7 years to ferry 300 tons , only 5% of its declared ( but real?) reserves .The standard proceding is 5 tons in a plane , so flying a plane a day will bring home the gold in 60 days. Why then are the germans giving the fed 7 years to ferry the gold?. There is only one possible answer , the gold is NOT THERE .

      • Bevin Chu

        “There is only one possible answer, the gold is NOT THERE.”

        Hardly an unreasonable conclusion.

      • DameEdnasPossum

        As the Germans know full well that their gold is not there, the 7 year delay in fact suits them as it provides them with an opportunity to prepare accordingly for what is to come. An outright admission that their gold is gone would cause chaos, and chaos is an opportunity provided one is sufficiently prepared for it…just ask the Zionist cabal and the military industrial complex who orchestrated the 9/11 inside job and the ensuing war on terror…

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  • major

    I think Germany or any other Country should protect their own assets, especially becuase of th epersisitent rumors that the US Federal Reserve may have lost their original allocation due to Gold carry trade. I dont think the US Federal Reserve can be trusted any longer

    • janskoyles

      I agree major. As I say in the last point, it’s Germany’s gold therefore why shouldn’t they have it back. The persistent rumors, I believe, go someway to explain why such a small amount is now being repatriated from the NY Fed.

    • http://profile.yahoo.com/SL5ZMN5RT52VY3HIETAJLNUS2Y Jon

      Considering that the Federal Reserve originated as a scam to enslave the American people, it’s probably a pretty good idea not to trust them.

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  • needahbeh

    How does this differ from keeping money in the bank?

    • janskoyles

      If you’re asking how investing in gold differs from keeping money in the bank then I point you in the direction of our brilliant Education Centre which contains a wealth of information to help you understand gold. http://therealasset.co.uk/how-to-guide/about-gold/background-gold-investing/gold-for-investment/

      • needahbeh

        Actually, I was comparing foreign countries keeping their gold
        in our vaults, to people keeping money in any bank, I suspect neither will be there when called upon to be retrieved in any full amounts.

  • Pagtrick Barron

    Godfrey Bloom, member of the European Parliament, and I have recommended that Germany leave the European Monetary Union, reinstate the deutshce mark, and tie it to gold. Therefore, Germany must have complete control over its gold reserves to satisfy the market that its currency really can be exchanged for gold bullion upon demand.

    • janskoyles

      Thank you Mr Barron for your comment, it’s a great honour to have you read my article!

      For those of you interested to learn more about Austrian economics and gold-backed currencies, I strongly suggest you look at his and Mr. Bloom’s blog on the Mises Institute website.

  • http://www.facebook.com/people/Gordon-Johnson/1374212093 Gordon Johnson

    If, as GATA says, Central Banks have been fractionally reserving Gold assets in Gold Swaps, then the German repatriation can also be viewed as a bank run. Only the first countries to repatriate may receive more than paper.

    Of course, the Central Banks could easily and simply dismiss this as an issue by conducing an indpendent audit.

    You must ask yourself, “Why haven’t they done the simple thing?”

    • janskoyles

      I was saying this to someone just today Gordon. Whilst the financial media run around saying this insignificant and just a bit of housekeeping, we need to ask ‘Why now?’ something’s happened to make them want it back.

  • janskoyles

    Hi Bruce, I suspect this is why only a small amount is coming back at all, and why it is coming back gradually! One wonders what Chavez went through to get Venezuela’s so promptly!

    • Al

      He must have said, well, you know I’m crazy, I’m gonna invade you if you don’t hand me my gold.

    • nopologrequired

      I suspect they didn’t want his little pestering country to ignite a conflagration of repatriation when he started jumping up and down yelling “THE AMERICANS DON’T HAVE OUR GOLD!!!” Venezuela is not a team player with western powers… but Germany is. Which is likely why they are going along with the show.

  • http://www.facebook.com/people/Daniel-Kirsner/768565194 Daniel Kirsner

    How ’bout “because the US has replaced almost all of it with gold-coated tungsten bars.”

  • Bobbala

    Trust the Obama … LOL

  • pjb1

    They were crazy to leave it here in the first place. If it turns up missing, well, they’ve just learned and paid for a very expensive lesson. Probably one that will stick in the future.

  • http://www.facebook.com/howard.lewis.902 Howard Lewis

    After the U.S.running the tungsten con on China and Britain trying it on India, safe to say the Bush cabal created a condition which deceptively warranted the U.S. sending any real gold in Fort Knox or other American repository to Bush41′s clan before any others.

  • J Taylor

    of course, for many reasons

  • cassandra

    France has the German gold. That’s why France is able to return the German held in France. The United States does NOT have any gold. That’s why Germany is forced to accept very small amounts that the U.S. FED will buy in the open market over the next few years. The poor Germans have been made fools of by Bernanke’s FED. Take it or leave it Germany. 2% of your gold is better than NOTHING. You’ve accept our terms and shut up!

  • Billyjobob

    Yes, now not in 7,10, or 20 years!

  • fazsha

    I always look for hooks, statements that summarize best the role of gold. When I got into gold in 2002, I listened to Jim Sinclair’s interview on FinancialSense.com, and he said “what do I believe in my heart of hearts, the price of gold would have to be to balance the balance sheet of America? $1,250 an ounce.” Now, this was stunning back then, but researching him as Mr. Gold, and knowing that he understood the role of gold, I believed him and was convinced by the argument. Now of course you’d think of that price as a bargain, but in 2002 it was fantastically high. You need to understand, and then the future becomes as clear as Mr. Sinclair sees it, which now is north of $3,500. We need to balance the balance sheet of America – and now, of the world, and $1,250 ain’t gonna get it done anymore.

  • Tall Tom

    Germany’s “repatriation” of the Gold will be a prudent action to take.

    (The term, “repatriation”, is taken loosely as the Gold was not on Germany’s soil in the first place. I believe that the term, DELIVERY, is much more accurate and appropriate. The misuse of the term, “repatriation”, only serves to obfuscate the United States DEFAULT on the 1944 Bretton Woods agreement on August 15, 1971. The press accomplishes a wonderful task of writing Revisionist History by the choice of their terminology.)

    It is an embarrassment to the United States Government that it will take the better part of this remaining DECADE to Deliver the Gold that rightfully belongs to Germany. This is a strong indicator that the United States does not own any Gold whatsoever.

    At least the Germans are not sending Warships into New York Harbor like the French did in 1968 to take Delivery of their Gold…YET.

  • Tall Tom

    Germany’s “repatriation” of the Gold will be a prudent action to take.

    (The term, “repatriation”, is taken loosely as the Gold was not on Germany’s soil in the first place. I believe that the term, DELIVERY, is much more accurate and appropriate. The misuse of the term, “repatriation”, only serves to obfuscate the United States DEFAULT on the 1944 Bretton Woods agreement on August 15, 1971. The press accomplishes a wonderful task of writing Revisionist History by the choice of their terminology.)

    It is an embarrassment to the United States Government that it will take the better part of this remaining DECADE to Deliver the Gold that rightfully belongs to Germany. This is a strong indicator that the United States does not own any Gold whatsoever.

    At least the Germans are not sending Warships into New York Harbor like the French did in 1968 to take Delivery of their Gold…YET.

    • janskoyles

      I suspect the Americans have had to do a huge amount to appease the Germans so that they don’t have a Charles de Gaulle moment! Gives them time to buy gold if they need to…

  • anand srivastava

    Funny that Bundesbank will only be shipping 400tonnes per annum. And they do not plan to get all of it. None of the gold in London will be shipped. Less than 50% from the New York will be shipped. BTW they are shipping all their gold from France.

    I don’t think these are the actions of somebody who is worried about their gold. We could actually think about this shipment in another way.

    France is very near, doesn’t have gold from too many countries and is part of EZ, so they don’t need any gold there.

    London has very little of their gold and it is outside the EZ. It also holds gold from lots of countries, so to do transfers between countries would be best done from there. So they are not getting any gold from there.

    NY has a lot of gold, and they don’t think they will need that much gold there. They would not have actually shipped anything, except for this political brouhaha.

    It is too much ado about nothing.

    BTW there is a theory, that if US tried to confiscate German gold. Germany would openly buy the same amount of gold from the open market using the US Treasuries they have. Yes that would cause the USD value to crash through the floor. I don’t think US will want that.

    This applies to any country that has Foreign reserves of USD and Pounds. Don’t worry the gold is safe.

    • janskoyles

      I understand your point, which is shared by many, but I think you have to ask why are they wanting to do this NOW?

      • Tom

        They are doing this now to pre-emptively defuse the issue in an election year. That is exactly why it is so little over such a long period of time. My guess is It is merely for show. Nothing to see here; don’t look behind that curtain. They have bought themselves seven years for a very small percentage of the gold held.

        As for the ability to dump their US Treasuries to buy gold on the open market, listen to James Rickards talk about China. The Treasuries are not bearer notes, and theoretically the US can stop another country from dumping them. Even if they could dump that amount, the value of the treasuries they are dumping would implode while gold would explode.

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  • KO2, Indonesia

    Man … It’s beginning into country level ….
    Before it was venezuela … now it’s Germany, watch it … The Netherland and Swiss are in the pipeline.

    Lets not be naive, prepare very seriously !!