Posted 29/01/2014
News has broke that the central bank of Germany was planning to repatriate its gold reserves from the United States and France. Some believe this is a very big sign of coming economic reset.
Germany’s central bank will relocate 54,000 solid gold bars, worth about $36 billion, from deep underneath the Federal Reserve Bank of New York and the Banque de France in Paris to the safe confines of German soil — vaults at the Bundesbank’s Frankfurt headquarters.
But to date Germany has managed to transfer a paltry 37 tons.
This amount represents just 5% of the stated target, and was well below the 84 tons that the Bundesbank would need to transport each year to collect the 674 tons ratably over the 8 year interval between 2013 and 2020. The release of these numbers promptly angered Germans, and led to the rise of numerous allegations that the reason why the transfer is taking so long is that the gold simply is not in the possession of the offshore custodians, having been leased, or worse, sold without any formal or informal announcement. However, what will certainly not help mute “conspiracy theorists” is today’s update from today’s edition of Die Welt, in which we learn that only a tiny 5 tons of gold were sent from the NY Fed. The rest actually came from Paris.
Gold at the New York Fed. (Federal Reserve Bank of New York)
The Bundesbank understandably offered few details as to the timing of or methods to be used in the move, which presumably will occur with secret, well-guarded trucks (from Paris) and in numerous small batches by plane from New York. Presumably, it will make sure the villain from “Die Hard: With a Vengeance” is accounted for before the move, along with the “Ocean’s 11″ gang. And whatever happened to Auric Goldfinger?
But while the notion of billions of dollars in gold bars being transported across the Atlantic and the Franco-German countryside triggered a thousand heist jokes on Twitter, the decision reflects a real, and somewhat disturbing, current in German politics.
The backstory: Germany built up its gold reserves as the flip side of running trade surpluses in the decades after World War II. In practice, much of the world’s gold is stored in vaults underneath central banks: eighty feet below street level and hard against the bedrock of lower Manhattan at the New York Fed, in the ancient vaults of the Bank of England on Threadneedle Street in the City of London, and so on. This is highly convenient; when one government or central bank sells its gold to another, the precious metal can be rolled from one cage to the next, with none of the risk that comes with transporting it across oceans. (For more about the New York Fed’s gold storage operation, click here).
The system, of course, is built upon trust — that the New York Fed won’t suddenly be taken over by people with no respect for those nations’ property rights and seize it for their own use, and that the central banks won’t lie about how much gold is in their vaults. Among the world’s central bankers, that trust runs deep, and most governments are content to keep their gold wherever it is most convenient. The exceptions are governments that have reason to fear that their gold stocks could be frozen as part of a conflict, such as in Iran and Libya.
So what the heck is Germany doing? It is a nation with a deep-seated fears about the stability of its currency, no doubt in part the legacy of the Weimar hyperinflation of the early 1920s. The fixation on its gold comes at a time when the world of finance seems in chaos. Germans are being asked to help rescue Greece and other European nations with troubled finances. The European Central Bank has bought bonds from some of those nations, which Germans widely view as tempting enormous inflation. Against that backdrop, it is perhaps not shocking that there is political resonance to the theory that the New York Fed and Banque de France may be putting one over on the Bundesbank and that some of Germany’s gold might actually be missing.
(This is, it should be noted, not solely a German fixation. There are plenty of Americans who are convinced that the U.S. gold reserves in Fort Knox are missing.)
So, essentially, the Bundesbank is offering a sop to the conspiracy theorists by relocating the gold to German soil. The nation just has to hope that nothing goes wrong during the journey.
“In Germany, a lot of emotion is attached to the topic of gold reserves,” Bundesbank board member Carl-Ludwig Thiele said in a press conference announcing the move.
“When I said they would do this three, five, six years ago – that you would know the end of the currency was near. The end of the Euro was near and the end of the United States currency was near because people would start to repatriate and they would demand their gold back. They would demand their assets back,” Glenn Beck said when he read the story.
At the same time that Germany announced they were repatriating their gold, Japan announced they would be devaluing their currency to make themselves more competitive.
Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilising devaluations, Russian central banker Alexei Ulyukayev said on Wednesday.
“We’re on a threshold of a very serious, confrontational actions in the sphere that is known … as currency wars,” the central bank’s First Deputy Chairman told reporters.
Russia holds the G20 presidency this year, a forum at which currencies and their relative values is likely to surface.
“The recent decision by the new government of Japan regarding very protectionist monetary policy … this is a course towards a sharp depreciation of the yen,” Ulyukayev said.
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.
“Let me tell you what I told my wife this morning,” Glenn said. “Honey, do we have the cash on hand someplace? Someplace Buried? Someplace deep in the bowels of a place? Out of a bank?”
“Don’t take all of your money out of the bank – but do you have money, do you have physical assets handy where you don’t have to get it from the bank?” he asked.
“When the reset comes it will come quickly. I’m not saying it’s tomorrow or next week. I don’t know when it will be. It could be five years down the road. But it will come. This is a very big sign,” Glenn warned.
Glenn also predicted that the Germans would realign themselves with the Russia as they are the only ones who are using their own resources and not spending themselves into oblivion.
“I’m telling you while the Russians are dirtbag, criminals and dangerous – the Germans will look to the Russians and say you know, ‘the West is destroying themselves. At least the Russians aren’t those communists that France and everybody else are going to.’”
” The Germans will disconnect from the West. Because the west will hold them responsible to prop up the rest of the world just like we are. The Germans will switch sides. Mark my words. It’s coming,” Glenn said.
For investors, the lesson is simple: Learn from Portugal’s failure.
Be like Germany, and get yourself some physical gold.
Sources
http://beforeitsnews.com/economy/2013/01/why-germany-wants-its-gold-back-2484978.html
http://www.glennbeck.com/2013/01/16/currency-wars-on-the-horizon-germany-wants-its-gold-back/
Coercion Code - "Dark Times are upon us" 