Germany’s Move to Repatriate its Gold Reserves

January 16, 2013 in Euro Zone

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German newspapers’ prediction that a move is afoot by the Bundesbank to repatriate at least some of its gold reserves held with the New York Fed and the Bank of France, has come true.

The Bundesbank announced today a “new storage plan” that seeks to store half of its gold reserves in its own vaults by 2020.

According to the bank, the new storage plan gives weightage to “the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.”

The bank also clarifies that since “France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial center in which to exchange gold for an international reserve currency should the need arise. As capacity has now become available in the Bundesbank’s own vaults in Germany, the gold stocks can now be relocated from Paris to Frankfurt.

There are, however, motives that could be ascribed to this move to get back a part of the almost 3,400 tons of gold held abroad by Germany.

One, the Bundesbank may be paying heed to long-standing calls to audit its gold reserves for their real quantity and quality. Germany moved its gold reserves abroad during the Cold War for their security, and it appears that it missed the 2010 audit after the one in 2007. The Bundesbank has not been very forthcoming about the reasons for missing the audit.

Two, it could be that Germany is now worried about the economic conditions prevailing in the United States with its impending problems relating to the debt ceiling, and France, located in debt-afflicted Euro zone. This time Germany’s gold may need to be protected not from Cold War hostilities, but fiscal crisis confiscation. Considering the worsening scenario, Germany may feel that home is the best place for its $177 billion worth of yellow metal.

Three, the Bundesbank may want to look good in the eyes of the German people, reassuring them with its solidity, while the region is afflicted with economic crisis.

Whatever may be the true reason, the move could create an environment of doubt and mistrust between the major central banks of the world. More particularly, it may show the world is no longer confident in the UK or the US as the custodians for its gold reserves. It may be recalled that Hong Kong and Venezuela also moved their bullion home earlier.

 

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Saul Griffith is an investor and trader in stocks, commodities and forex, writing under a pen name. Saul has professional accounting qualifications and extensive experience in industry and the financial markets. He also has an abiding interest in breaking news that could be a harbinger of new trends and give insight into an instrument’s potential for providing value, growth or yield. Additionally, he keeps abreast of technology and political developments – in his opinion these are areas which could help shape global recovery from the current turmoil. Connect the author on Google: +Saul Griffith.

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