Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Elliott Wave Crash Course - 3 Ways the Elliott Wave Principle Enhances Your Trading - 28th July 16
Japan's "Helicopter Money" Play: Road to Hyperinflation or Cure Debt Deflation? - 27th July 16
Monetary Zika - The Insidious Nature of Credit Expansion - 27th July 16
Gold and Pork Bellies - 27th July 16
Silver Is Insurance Against The Worst Part Of This Depression - 27th July 16
Don’t Buy The SPX Hope Stock Market Rally! - 27th July 16
Bitcoin $650 Still in Play - 26th July 16
Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - 26th July 16
The Forex Markets Are Getting Exciting! - 26th July 16
Underpriced Silver Is the “Rip Van Winkle” Metal - 25th July 16
Declines in Multiple Market Indexes - 25th July 16
Retailers Are Doomed as Most Americans Are Too Poor to Shop - 25th July 16
Here’s One Currency That Could Go to Zero - 25th July 16
Stock Market Top is Expanding - 25th July 16
Silver Manipulation – Because They Needed the Eggs - 25th July 16
Silver Market COT Stuns: What's Going On Here? - 24th July 16
Gold Demand Remains Stable During Sector Weakness - 24th July 16
Sernova, Diabetes and Haemophilia - 24th July 16
Russia: Tensions, Turmoil, and Western Hubris - 24th July 16
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16
Addicted to Debt - We Can’t Borrow from the Future Anymore - 21st July 16
Not Everything Is Bullish for Gold - 21st July 16
Don’t Get Sucked Back Into the Stock Market - The Big Picture Hasn’t Changed - 21st July 16
Silver – Caught Inside - 21st July 16
Forex: "The Markets Are Getting Exciting!" - 20th July 16
China Economic Troubles - Is Kyle Bass Finally Getting His Revenge? - 20th July 16
Why Lithium Will See Another Price Spike This Fall - 20th July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

The Real Reason Germany Wants its Gold Back

Commodities / Gold and Silver 2013 Jan 29, 2013 - 02:12 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: After spending more than 50 years in foreign hands, Germany's gold is finally going home.

In a recent watershed decision the Bundesbank, Germany's central bank, has decided at least half of its gold should be held in its own vaults.


Since the Bundesbank is the second-largest gold holder in the world, that's going to mean moving 54,000 bars of the shiny metal.

Gold

So why does Germany want its gold back, and why now?

Part of it has to do with pressure from a grassroots group led by a group of economists, business executives, and lawyers, along with the German Precious Metals Association, who have put together a "Repatriate our Gold!" campaign.

But that's only part of the story...

Official pressure began last October when the German Federal Court of Auditors requested an inspection of the gold Germany stores in foreign central banks.

That sparked something of a political controversy since these gold reserves have never been thoroughly inspected and audited.

What's more, the U.S. Federal Reserve had already refused to allow the Germans to verify their gold despite several attempts.

According to Der Spiegel:

"Finally, in 2007, "following numerous enquiries," Bundesbank staff members were allowed to see the facility, but they reportedly only made it to the anteroom of the German reserves.

In fact, auditors from the Bundesbank made a second visit in May 2011. This time one of the nine compartments was also opened, in which the German gold bars are densely stacked. A few were pulled out and weighed. But this part of the report has been blacked out - out of consideration for the Federal Reserve Bank of New York.

So why would the Federal Reserve deny the Bundesbank a full inspection and audit?

That question has been rich feed for the rumor mills ever since the news broke.

So let's have a closer look at the surrounding facts...

The Significance of the German Gold Repatriation

According to the plan, Germany's gold repatriation will take seven years to complete and by 2020, Germany will store 50% of its gold in Frankfurt. Several analysts consider that, since the gold will only be moving from one vault to another, this transfer will have no measurable market effect.

But I think it's a mistake to make that assumption. Instead, this news could have a significant psychological impact.

Here's why...

Others will follow Germany's lead. The Dutch are already making similar noises, asking for an audit and full transparency. The Netherlands also only has 10% of their gold reserves at home, with the rest in New York, Ottawa, and London. Now it's only a matter of time before others start to ask the same kinds of questions. In a recent tweet, Bill Gross said what many are probably already thinking: central banks just don't trust each other anymore.

Growing concerns about the euro. There are suggestions Germany wants its gold because it's worried its loans to less fiscally responsible sovereigns won't be repaid. But I believe Germany is preparing in case the Euro were to eventually dissolve, so it wants its gold to potentially back a new Deutsche Mark. Perhaps they, too, recognize gold's return to its role as money.

A list of unanswered questions. The first is obvious: Is the gold really there? If so, why would it take seven years for Germany to get its gold back? Would you take the risk of collecting it slowly, or would you want it much faster? Some say the gold's there, yet others disagree. Steve Scacalossi, vice president and director, global precious metals at TD Securities, says Germany's gold is allocated, and therefore can't be lent out, so it will not affect gold lease rates.

Meanwhile, Keith Barron, a geologist and consultant responsible for one of the largest gold discoveries in 25 years, recently told King World News:

"I believe that most of the Western world's gold, which is supposed to be in central bank vaults, has been leased out. Much of it is now in private hands in India, and what remains continues going East to China and other Asian vaults. So most of the Western gold has vanished from the vaults and it's now just a book entry. These various Western countries and bullion banks simply roll these leases over when they come due, and the gold never gets returned back to the countries. So it's very interesting to see what's going on. Obviously the trust is breaking down in the system."

While some could easily dismiss Germany's behavior as that of a distrustful state, there's precedent for Barron's claims.

The Story Behind Portugal's Lost Gold

In 1990 Drexel Burnham Lambert, one of America's largest investment banks, filed for bankruptcy. Drexel's failure is famously blamed on junk bond trader Michael Milken.

But few know that the central bank of Portugal had loaned 17 tons of gold to Drexel. When the firm failed, Portugal's claim on its gold simply evaporated.

That was more than two decades ago at a time when almost no one was interested in gold, which then traded at $380.

Today, gold sells for $1,660 per ounce, and now a lot more people are paying attention.

The fact is, if Germany's gold is really sitting in the vaults of the New York Fed and the Banque de France, it shouldn't take until 2020 for it to make its way back home.

Seven months -- maybe. Seven years means something else is up, and that raises suspicion.

Such a delay makes you wonder if these central banks aren't being forced to "buy back" the gold they may have leased out.

Anthem Blanchard, CEO of Nevada-based Blanchard Vault, a precious metals storage company, appears to agree with PIMCO's Bill Gross.

Mr. Blanchard recently told Canada's Globe and Mail, "most importantly, the action of repatriation signifies the acknowledgement of credit risk and the Bund's [Bundesbank's] concern of any possibility that gold held at the Fed may be over-pledged in some manner."

Meanwhile, the physical gold market is one that many already consider to be rather tight.

If Germany calling in its gold unleashes a run by other nations on central-bank-stored gold, the physical market could react with a massive squeeze.

That's in addition to the fact central banks are stepping up their gold acquisitions. As a group, they bought more gold in 2012 than at any time in almost 50 years.

Now it's entirely possible that fear's been struck in the hearts of central bankers around the world.

That means the price of gold could skyrocket.

For investors, the lesson is simple: Learn from Portugal's failure.

Be like Germany, and get yourself some physical gold.

Source :http://moneymorning.com/2013/01/29/why-germany-wants-its-gold-back/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife