It finally happened. After a report in a German business daily earlier this week, the Bundesbank has today confirmed it will take back large quantities of its gold stored in New York and France.
The AP reports that all 374 tons of German gold held in Paris and a further 300 tons of gold stored in New York will be moved back to vaults in Frankfurt by 2020. That amount is worth $36 billion at current market prices. It represents about 19 percent of Germany's gold reserves.
Germany has the second highest holdings of gold in the world, which has long been stored overseas due to decades old Cold War fears of a Soviet invasion. However, with that fear gone, a movement within Germany to take back the country's gold has gathered momentum over the last few years. Last may, a "Bring back our Gold" campaign was launched and appeared to be impacting the mainstream.
A big part of this is due to Peter Gauweiler, the head of the conservative Christian Social Union (CSU), who has for years demanded to know exactly where Germany's gold is (He eventually was allowed to visit the Bundesbank's domestic gold in storage in Frankfurt).
Gauweiler's argument was bolstered by a recent report from Germany's Federal Audit Office that sternly criticized the German central bank. The report, while apparently routine, looked like a key piece of evidence to those expecting some sort of conspiracy theory. As Der Spiegel described it last year:
Indeed, the partially blacked-out report read like the prologue to an espionage thriller in which the stunned central bankers could end up standing in front of empty vaults in the US.
It turned out that German bankers had not been allowed to see their gold for decades — standard practice for gold vaults around the world — but in 2007 they were finally allowed in, and, after further inquiries, finally allowed to touch some of the gold in 2011.
This may all seem a bit crazy, but it's hardly unprecedented. Ambrose Evans-Pritchard of The Telegraph has noted that secret German reports say country took two-thirds of its gold back shortly after the start of the Euro a decade ago. He believes this may have been ordered as the Bank of England was selling off its own gold and there were fears that the gold may not be clearly allocated to Germany.
As John Browne, a Senior Market Strategist at Euro Pacific Capital, observed last year, the entire system for gold storage is pretty crazy. He describes it as requiring "a level of central bank cooperation and trust that staggers the imagination. Allied governments appear to have "trusted" one another with the stewardship of hundreds of billions of dollars worth of unallocated, and in some cases uninventoried, gold bars. This policy borders on financial negligence."
Now Germany has another problem — how to move over 600 tons of gold. "For security reasons we can't discuss that, partly to protect the gold, partly to protect the staff that will be carrying out the transfer," said Bundesbank spokesperson Moritz August Raasch said today.
Raasch assured the AP that all transfers will be insured.
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