Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
The Best Reasons to Buy Gold in the Age of Trump - 22nd Feb 17
Silver, The Return of Stagflation - 22nd Feb 17
Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - 22nd Feb 17
Gold: Short End US Rates Matter More Than Long End Real Yields - 22nd Feb 17
CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry - 22nd Feb 17
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

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