Why are Germany repatriating their gold?
Wednesday, January 16, 2013 8:11
Why are 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’.
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.
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2013-01-16 07:51:10
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