German Bundesbank to repatriate gold

It Begins: Bundesbank To Commence Repatriating Gold From New York Fed

Zero Hedge,

14 January, 2013

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi's Goldmanesque demands to allow implicit monetization of peripheral nations' debts has just "returned the favor" by launching the greatest physical gold scramble of all time.

From Handelsblatt:

Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie künftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts (Dienstausgabe) sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York dafür weniger Gold zu lagern und überhaupt kein Gold mehr in Paris zu horten.

Derzeit lagert das Gold der Bundesbank ihren Angaben zufolge in New York, London, Paris und Frankfurt. In der amerikanischen Notenbank Fed lagern 45 Prozent der insgesamt 3.396 Tonnen Gold, in der Bank of England in London 13 Prozent, in der Banque de France in Paris elf Prozent und im Hauptsitz in Frankfurt 31 Prozent. Diese Verteilung soll sich nun ändern.

We present it in the original for fear of losing something in translation, but in broad English terms the above reads as follows:

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here, here, and certainly here) . At least no need for us to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:

Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a “phantom debate” on the safety of our gold reserves.

The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as gold in New York.

Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

5 things repatriating gold bullion says about the country

The Real Asset Co,

25 October, 2012

Despite the fall in the gold price this week, those thinking to buy gold bullion have been buoyed by talk of Germany auditing and repatriating their gold reserves held abroad. Below, Jan Skoyles looks at what this mean and says about the country.

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 report 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.

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.

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 bullion, 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.

Max Keiser, from two months ago

Keiser Report: Goodbye, German Gold?