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News & ResearchA Bar In The Bank Is Worth Two In The Fort

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Back in October of last year, I posted that the German central bank had made the move to withdraw the majority of its gold holdings from the Bank of England.

Well this week, they are at it again ... only this time, they've asked their French and US custodians to hand over the bullion. Now why would they go and do and thing like that, do you suppose?

My previous post was a cut and paste of a Telegraph article entitled "Bundesbank slashed London gold holdings in mystery move" ... but, I'm afraid (and not because I have been reading too many Zerohedge and end-of-the-world reports) that the rationale this time cannot be considered a mystery ... it must come down to a matter of trust.

Taking bullion home to Germany from afar is a dangerous political move - but one the Bundesbank seems more than comfortable with. It is also a 'volte face' in its public stance as it had said, as recently as last year that:

"Gold stored in your home safe is not immediately available as collateral in case you need foreign currency ... 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."

Remember that Germany is second only to America in its theoretical holding of gold - some 109 million ounces - of which 45% is held in the US (now to be reduced to 37%), 13% in the UK and 11% in France (all of which is to be moved to Germany now, by the way).

This isn't just a vote of no-confidence here. This is proving the point that we, amongst others, have been trying to make all along with regards to the 'if you can't touch it, you don't own it.'

Official reserves are allowed to be leased out - conservative estimates reckon that 15% is used in this way at any one time. There has long been suspicion as to why in the year 2000, the US government changed financial reports to show a differentiation between its "Gold Bullion Reserves" and its "Custodial Gold" (the latter accounting for over 54 million ounces of the total 261 million held) for example. 

Certainty for the Bundesbank clearly will only come from having the bullion in its vaults. What it means for the US dollar and the price of gold is not certain, but certainly provokes arguments for one going down and the other up.

What appears more certain, is the fact that these are not normal times. In normal times, central banks are supposed to trust one another and trust in one another's currencies. 

In normal times, as a member of the board of the Bundesbank (Mr. Dobret) himself said, just two months ago, only "irrational fears" would make people put forward the "bizarre public discussion [that] we are currently facing in Germany on the safety of our gold deposits outside Germany." Perhaps not quite as bizarre and irrational as first thought?


Where is your bullion?  Can you pick it up tomorrow if you want to? 

German _gold 


Sunday January 20, 2013 by Robin Newbould