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 reports 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 ally, 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.