Germany’s Gold Is Coming Home – Facts & Opinions

The German Bundesbank published a press release yesterday (Wednesday January 16th 2013) in which they announce the start of the repatriation of their country’s gold.  Reuters details that “the Bundesbank plans to transfer 300 tonnes of gold from the Federal Reserve in New York and all of its gold stored at the Banque de France in Paris, 374 tonnes, to Frankfurt. By 2020, it wants to hold half of the nearly 3,400 tonnes of gold valued at almost 138 billion euros in Frankfurt, where it stores about a third of its reserves. The rest is kept at the Federal Reserve, the Banque de France and the Bank of England.”

According to MarketWatch, “the German central bank planned to leave half of its gold parked abroad so that it would be available as collateral if Germany needed to buy large amounts of foreign cash on short notice — a step it would typically take only if its own currency was in crisis. Then he showed a crowd of reporters some bars of gold, along with the tools used to check their purity”.

By 2020, the German gold reserves should look like this:

  • Frankfurt (31%, currently) 50% by Dec. 31, 2020
  • New York (45%, currently) 37% by Dec. 31, 2020
  • London 13% no change
  • Paris (11%, currently) 0% by Dec. 31, 2020

The Bundesbank wrote in their official press release that with the new storage plan, the focus is on 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.”

A lot of emotion is attached to the topic of gold reserves in Germany, according to the Bundesbank board member Carl-Ludwig Thiele which he said during the news conference on Wednesday. “The Bundesbank has managed the gold reserves with great caution and will continue to do so.”

Reactions on the news

An first interesting reaction comes from Peter Boehringer on behalf of Repatriate Our Gold and the German Precious Metals Association  (Gold-Action.de):

In our view, there is a lot of room for speeding up and increasing the volumes for this repatriation.

In addition, the Repatriate our Gold campaign insists on proper and independent physical and full audits of the Bundesbank’s own vaults in Germany. This includes the publishing of bar number lists, which has been overdue for years. These gold bar number lists are important to prove or disprove multiple ownership of specific bars which could have come about through gold loans. This is one more reason to audit and repatriate all gold bars — as an incomplete audit and incomplete lists would not fulfill this important purpose.

Somehow linked to this reaction, GATA questions to which extent the gold is present in the vaults: “The Deutsche Bundesbank’s plan announced today to repatriate some of Germany’s gold reserves from the Federal Reserve Bank of New York is so incomplete and slow as to increase, not diminish, doubt that all the gold is really available.”

Jim Sinclair with his 50+ years of experience in trading the gold markets, looks from a different angle. He published the following on his own site JSMineset (quote):

I respectfully disagree with most of the explanations given today on the why of German actions in gold. My understanding is that the causal event of this notification actually came from the actions of the US Exchange Stabilization Fund and the long term plans to strengthen the euro.

What occurred as I am told is an act in Germany in reaction to a parting shot from the retiring Secretary of the US Treasury via the Exchange Stabilization Fund.

When gold traded at $1918 it was setting up for a challenge of a very important round number, $2000. The sell off was a product of long liquidation in an anticipation of $2000 in a fast market. Gold did fall on its own weight into the $1800 area, however the body block at $1800, $1775 and $1750 was a product of the Exchange Stabilization Fund operating as an account of a major Gold Bank. Seeing that, this gold bank went to the short side for the account of its hedge funds and not wholly owned trading arm. This gold bank issued a public statement that the gold market was dead as a doornail, finished and completed.

Background

We published earlier on GoldSilverWorlds some background on how we got to this point. Dimitri Speck told us during an interview that, along with some other German authors, he started to question a couple of years ago why the Bundesbank didn’t publish the results of their audits. Their question did escalate to some members of the Parliament. In Germany in particular, there is a Court of Auditors that picked up the topic two years ago (i.e. “RechnungsHof”, a special office which controls the public finances). The pressure increased and resulted in a promise by the Bundesbank to provide an answer “soon”. Their answer finally came in October.

We also wrote that an increased transparency in central bank gold holdings could spark a chain reaction with potentially huge effects on the gold market and perception.

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