Why Germany Wants its Gold Back

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After spending more than 50 years in foreign hands, Germany's gold is finally going home.

In a recent watershed decision the Bundesbank, Germany's central bank, has decided at least half of its gold should be held in its own vaults.

Since the Bundesbank is the second-largest gold holder in the world, that's going to mean moving 54,000 bars of the shiny metal.

Gold

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.

For investors, the lesson is simple: Learn from Portugal's failure.

Be like Germany, and get yourself some physical gold.

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About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. Rick | January 29, 2013

    Things that make you go hmm. It all does seem very suspicious.

    • Brian | May 20, 2013

      The question should be why Germany wants its gold back in Germany now?

      The answer is in the timing.
      Germany requested its gold from the USA at the beginning of the GFC.
      If te USA had gone belly up it would probably do like what it did in the 1930s and conviscate the gold.

      So the answer, IMO, is that Germany does not now trust Uncle Sam because
      of risk.

      Cheers
      Brian

      • Chris | August 6, 2013

        germany ask the fed to few the gold in 2011 but there refused to show the gold. now Germany is worried that the gold may be gone thats why there ask to have it back

  2. John | January 29, 2013

    I have been following this story for a while and this is a very interesting article. The thing which puzzles me is why have so many countries chosen to store their gold in each other's vaults? If I had a few billion dollars worth of gold I would want to keep it as secure as possible so transferring it abroad would not seem to make much sense to me.

    • Fabian | January 29, 2013

      For "safety" reasons. Don't forget that until the late 80's an invasion by Russian troops was considered plausible. Then, America having won this cold war, who would have doubt its trustworthiness? I wouldn't be surprised that this gold is not there anymore given 1) the barbaric relic meme that prevailed for a while originating in the Anglo Saxon economic circles and 2) the leverage orgy that is still the fashion du jour in the financial world; why lend the gold once if you can lend it 30 times?

      • Daniel | January 29, 2013

        It wasn't just for safety…

        Central banks keep their gold at other central banks for liquidity reasons under the pretense that if they needed instant liquidity if there were a lack of confidence in their local currency for whatever reason, they could put up collateral with their gold and "instantly" receive credit without waiting to make the proper transaction transfers.

    • Big Tony | January 29, 2013

      Its because in the days of the gold standard, countries could settle their bills by moving gold bars from one cage to another and no need for secure transport which would open it up to theft bay bandits etc…
      But now this international set-up is no more it makes sense for nations to take their gold home.

    • Bigmike | January 29, 2013

      During and shortly after ww11 the waring and losing countries gold was literally stolen and moved to the victorious countries. Germany, etc. were just given credit slips. The central banks have undeniably stolen the gold and used it to fund their global banking systems. And now they are panicking and trying to delay the findings. I am quite convinced that the gold is not in the vaults declared.

    • Steve | January 29, 2013

      Kind of like letting another country count your country's votes. That make's a lot of sense also.

    • Chris | August 6, 2013

      the first country shifted his gold was poland. when germany get into poland the poland army hold the german so long back till there shipped all there gold over turkey to france. As france get into the war there start to ship the gold to canada and usa to keep it away from hitler. Hitler needed the gold for finance the war, he took gold from the jews so called "toten gold"

  3. barrie owen | January 29, 2013

    Peter, I thank you for a great overview of reality in an ever increasing world of Unreality. I simply wonder how long it will take for the people to wake up to the truth of what is really going on behind the closed doors of politics and power, And indeed who is pulling the strings. Was it not one of the Rothschilds who once said. ( Give me the purse strings to a Nations economy, And I care not what laws they make ) Thank You. Barrie Owen ex Member

  4. Thomas Hegarty | January 29, 2013

    It's pretty damn clear that the Bank hasn't got the gold !
    It sounds like the ordinary Banks and 'Fractional Banking.'
    That's the trouble, where money is concerned, some one is always going to work a 'fiddle !'
    Not allowed to see your own gold ?
    You couldn't make it up !
    You've gotta laugh haven't you. Not if you are German of course !

    • fallingman | January 29, 2013

      Thanks Peter. Really good article.

      You know who really does have the gold they claim to have and a whole lot more?

      The Chicoms.

      You can at least double their slice of the pie in the chart above. They'll announce the full extent of their holdings someday when they're good and ready…and we're not.

  5. Jon Beck | January 29, 2013

    The safest way to xfer gold to another country is to have that country, in this case, Germany bring one of its nuclear submarines over here and load the gold….escort it back across the Atlantic with a couple of destroyers and cruisers……JB, Athens, Tenn.

  6. Werner | January 29, 2013

    Peter Krauth's arguments are a half-surprise to me, to be honest. In fact I doubt there is much real gold left in the US central bank's vault, or else it has been lent out. Same might be true for Fort Knox. The squandering of the "barbarous relic" some people use to call gold, might backfire in the most unexpected way.
    Thank you Peter for keeping us on alert.

    • mart | January 29, 2013

      the gold is there just it's lent out to others so they need to unwind those contracts so they can give it back to germany. what we may see is an unwinding of the manipulative shorts when this happens…

  7. Nick Georgalis | January 29, 2013

    The value of gold is not so much as a hedge against inflation. Gold is a non-performing asset. Gold is the only money the executioner will accept. Therein lays its value. The higher the price of gold the more likely chaos will reign.

  8. John Harrison | January 29, 2013

    Have just read your report on German gold reserves being brought home. You suggest that the price of gold may well skyrocket. I fell bound to say that my shares in both Frasnillo and African Barrack Gold are showing no signs of this happening, quite the reverse in fact.
    Regards, John

    • Daniel | January 29, 2013

      John, do not fret now. Gold and silver are on the heels of an incipient bull market. Of course there are corrections like you are experiencing now. But it is not a bear market. We are still knee deep in a bull super commodity market that has another 8-9 years left.

      The recent price takedown in the miners is meant to shake you out. It is a manipulation because gold represents a judging proxy of the US Dollar and if Gold miners were to take off under some of the most bullish underlying fundamentals, then interest rates may well rise to 20% like they did in the 1970s.

      You should be adding more, and remember "Markets are bigger than Government". One day you will be laughing about how you are complaining now. Best to you.

    • mart | January 29, 2013

      the weak will not collect in this market…

  9. Will Harden | January 29, 2013

    I heard that Dominiqe Straus Kahn, the contender for President of France when he was charged with rape in New York, was about to expose the fact that much of Fort Knox gold was actually gold-plated Tungsten! Tungsten is passed as fake gold as it has the exact same density but only costs $ 20 per lb. If I am wrong, somebody please tell me.

    • DD | January 29, 2013

      Will Harden – I don't too much about the gold you mention, but what I read was that the USA had sent some gold to China for something or other (last year I believe) and China found out it was this Tungsten gold, so China shipped it right back to the US and good for them! But of course the US will twist, manipulate and lie about it so to make out/sure China gets the blame for shipping Tungsten when in fact the Tungsten did not come from China, but the US instead.

      I have always felt that DSK was "set up" to a degree in regards to the rape. I have read he was about to talk and start to tell people some of what is really going on + he apparently started to go against the Euro and the ECB for some reason. I know there is much more to this story than I mention here though. The rabbit hole is deep as they say!

  10. Farley | January 29, 2013

    Isn't this just an instance of good old fashioned fractional banking practices, where we hope that all the depositors will not show up at our door, at the same time, all asking for their gold back?

    And do not tell me that Germany does not have the ability to build its own safe storage vaults.

    Or was this a condition demanded by USA, after WWII, under the surrender treaty and prior to the final Peace treaty which was signed in Russia in 1990?

  11. patrick o' sullivan | January 29, 2013

    why have all of ye not BEEN listening to JIM SINCLAIR.THE ONLY ONE TO LISTEN TO,AND DO EXACTLY WHAT HE SAYS.BUY PHYSICAL GOLD AND HOLD ON TO IT.SELL WHEN IT HITS $3500 AN OUNCE.GET WHATEVER YOU NEED, AND BUY MORE GOLD AGAIN WITH WHAT YO HAVE LEFT.

    • DD | January 29, 2013

      Po'S – Some reckon gold may reach over $6K and ounce and silver around $300 plus.

  12. Dad | January 29, 2013

    I am wondering if it has something to do with America. The American economy is looking increasingly less stable, compound that with a dysfunctional government and add American gun control issues, high crime, high unemployment and increasing distinction between the rich and the working class. Is it a question of trust?

    • 48ozhalfgallons | January 29, 2013

      Hmm….. methinks you're on to something. The government overseen press would not like your slant on reality, Dad.

  13. Larry P | January 29, 2013

    Shades of 'Die Hard with a Vengeance'! Only THIS time it wasn't former under-educated Soviet/East German troops but highly (Ivy League) educated American financial professionals, federal regulators and law enforcement officials. America's OWN 'Gang of 4'.

    Who needs terrorists to destroy a nation when its own government is doing such a bang-up job?

    • Jw Albritton | January 30, 2013

      Larry P you have it right, The gov. has put the USA down the tubes. If you belive in GOD read Revelations. The twelve tribes are in trouble.

  14. ROLF LOTH | January 29, 2013

    There seems to have never been in history a government less trustworthy, more corrupt and criminal in its operations as the United States government and its agencies with its foreign handlers.
    The Germans, Dutch and Portugues were ignorant and stupid enough to entrust their wealth to these gangsters. There is no reason why a country cannot construct a secret hiding place to store its precious metals safely and out of reach of any potential invaders and threat, such as the USSR posed. I will shed no tears over their losses, should they materialize, since I would not trust anybody with my precious metals.

  15. H. Craig Bradley | January 29, 2013

    INSTEAD, BUY A FARM IN CHILE

    Central Banks do indeed "own" or control most of the world's physical gold. If you just "get some physical gold" will it protect you from financial and social turmoil? Can you keep it secure without guns? Is it fungible if existing financial systems and Western banks collapse? Since nobody knows what is really going to happen or when, gold can only be a hedge-not physical protection.

    If you want to protect yourself from impending doom, then you would be better off owning productive land (garden, farm, ranch, etc. either domesically or somewhere in Latin America). Federal law requires U.S. Citizens to report any deposits or assets held in "Foreign Financial Institutions" annually. The original law, called the Foreign Tax Account Compliance Act (FTACA) was only 18 pages long. The regulations just released by the Treasury Dept. are 350 pages. It still does not clarify if gold stored overseas must also be reported.

    The truly "rich" are moving money out of the country but not transferring it to foreign bank accounts. Instead, they are buying productive farmland at home and abroad. Farmland and real estate do not have to be reported to the IRS. This is an apparent loophole- a big one at that.
    http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA). Land is harder to digest, especially if it is overseas or in Latin America.

    • Ozziegeorge | February 13, 2013

      Wish your super-rich would come to Australia – they'd be much more welcome than the chinese buying up our productive assets!

  16. H. Craig Bradley | January 29, 2013

    DSK INTRIGUE LIGHT

    At least the French only knee-capped (framed) political rival Dominiqe Straus Kahn with trumped-up charges of sexual assault while in New York City. In contrast, the Russians (Putin) murdered an ex-KGB agent Alexander Litvinenko with a lethal dose of Polonium-210 at a restaurant in London, England in 2006 who was "spilling Vladimir's beans".

    • DD | January 29, 2013

      H. Craig Bradley – I think I heard or read somewhere about a year or so ago that Putin had nothing to do with Litvinenko's death despite being accused of killing him. Even Litvinenko's dad accused Putin in the beginning, but I believe he has changed his mind of late. I can't help but feel that 60 Minutes or some such program did a segment on the Litvinenko killing too.

      I'd need to research this to refresh my memory to be sure though.

  17. Helmut | January 29, 2013

    If you deposit money with a bank it's a loan and the bank can on-lend your money. If you hire a deposit box from a bank and place your money there the bank shouldn't touch your money. Which is Germany's situation? Has it "deposited" (i.e. loaned) its gold or has it hired a deposit box? Do you have the answer, Peter?

  18. Helmut | January 29, 2013

    Considering that it may take seven years to return the gold I assume it was "deposited" and on-lent. Who borrowed it? One borrower would be the numerous gold ETFs. They give you a piece of paper that says they hold x ounces of physical gold on your behalf. It doesn't say that the holding is borrowed. If the ETF doesn't buy the gold, what does it do with your money? What will happen if you want to take possession of your gold and Germany wants to take possession of its gold when the two are the same gold? In banking circles, it is assumed that such a thing will never happen.

    • DD | January 29, 2013

      Craig – Yes and incl. Gordon Brown when he sold the UK gold off for dirt cheap, yet the British people did not even blink at this fact.

      Oh well, the Brits only have themselves to blame when the sht finally hits the fan.

  19. Mario | January 29, 2013

    For Germany to trust the Fed with it's gold bullion, is INSANE! I, as an American do not believe the gold is there. These must have surely leased it out and are now trying to get it back. Give Germany its gold back and let the chips fall where they may. Dissolve the Federal Reserve!

  20. cherry | January 29, 2013

    NEVER TRUST BANKERS !!! What about the German gold stored in France? or any country that has gold stored in another country. VERY interesting to do an accounting of who has what where…China may have some outside the country and Russia but I will bet against that…ALSO perhaps it would be good idea to check all the small investors gold supposedly in the ETF holdings etc
    WHO COULD REALLY DO THIS ?? it is a giant international PONZI in my estimation

  21. Douglas J | January 29, 2013

    Now how in the world do we have a audit on bullion holdings mmm dial a banker mmm American mm Russian mmm German mm WHO will beat up America if they have leased out Gold to India mmm I know a melt down of Indian trinkets mm how many tons have gone willy nilly mmm TONS of Gold, work that out and America cannot ship it back pronto I say have Fort Knox Audited if America has shipped on credit mmmm I do not comprehend this enormous task maybe we should be a little Irish never lend and never borrow.

  22. milton | January 29, 2013

    Where have the Germans stored all those teeth of their concentration camp victims? Those teeth contained much of the Germans' gold and silver holdings.
    The Nazi regime pulled off the biggest robbery in the history of the world . aided by many prominent rich Americans. The children of those wealthy Americans are desperately attempting to pull off a similar robbery on their own countrymen now. The Federal Reserve and the banksters are well into the destruction of the dollar and the American middle class and will soon confiscate their pension programs.The move by Ron Paul and others to audit the Federal Reserve has been consistently thwarted by Congress and all their crony capitalist friends. It is all a den of thieves and getting worse by the minute. Let us prey!

  23. Lionel | January 30, 2013

    The simple fact is that gold and silver have had their run, they are now at a price where the mining costs are met for the more expensive to access reserves, and now the mining cost will govern the price in the future. It is the cost of supply over the demand for purchase that governs the sale price, if the banks need more gold, the mining companies will be very happy to sell it to them for $1,800 per oz. a big push in purchasing may raise it to $2000, but it will soon fall back to $1,800. Once upon a time copper was also used for money, before that it was goats. At least you could milk the goats for your interest, and eat them if you were hungry, you could even use them to breed and make your own money. Try getting two ounces of gold to breed you a third ounce. When gold was $350 per oz it was too cheap, now it is worth it's cost to bring to market, as the price goes up, the markets will be overflowing with it.

  24. CHUCK ADKINS | January 30, 2013

    I HEARD A FEW YEARS AGO JUST AFTER GEITHNER WAS APPOINTED U.S TREASURY SEC. FROM HIS POST AS NEW YORK'S FED HEAD; THAT HE HAD GIVEN A LARGE QUANTITY OF GOLD STORED IN THE VAULTS IN N.Y. TO CHINA. WHILE I HAVE NO PROOF OF THIS, AFTER WATCHING HIM IN ACTION AS U.S. TREASURY SEC. I CAN BELIEVE THE RUMOR. HE HAS MADE SOME VERY SUSPICIOUS COMMENTS AS TREASURY SEC. THAT DO NOT INDICATE HE HAS OUR NATIONAL INTEREST AT HEART. ESPECIALLY WHEN IT COMES TO INCREASING OUR DEBT LIMIT. DOES ANYONE HAVE ANY IDEA HOW MUCH EVEN ONE TRILLION DOLLARS REALLY AMOUNTS TO ? THE BEST WAY TO LOOK AT IT IS TO PUT IT IN ASTRONOMICAL TERMS: ALPHA CENTURY IS THE NEAREST STAR OUTSIDE OUR SOLAR SYSTEM, ABOUT FOUR LIGHT YEARS FROM EARTH. THAT IS THE SPEED OF LIGHT AT 186,000 MILES PER SECOND, PER MINUTE, PER HOUR, PER DAY, TIMES 365 DAYS EQUAL ONE YEAR, TIMES FOUR YEARS EQUALS 1,000,000,000,000 MILES; AND THAT IS ONLY ONE TRILLION MILES. CAN YOU IMAGINE THE DEBT ON 16 PLUS TRILLION DOLLARS ? THIS ADMINISTRATION HAS OUTSPENT ALL OTHER PRESIDENTS COMBINED IN ONLY 4 YEARS AND IS ASKING ONLY THE HOUSE OF REPRESENTATIVES TO GIVE THE OK TO GO FURTHER IN DEBT. IT CAN'T ASK THE SENATE, SINCE HARRY HASN'T ALLOWED THEM TO HAVE A BUDGET DURING HIS TERM AS HEAD OF THE SENATE. WHAT A GUY ! AND WE HAVEN'T SEEN ANYTHING YET; WE STILL HAVEN'T GOT A BILL FOR OBAMA-CARE, THAT POLOSI PASSED WHEN THEY HAD THE HAMMER IN THE HOUSE, AND NEVER EVEN READ THE CONTENTS. YOU GOTTA ADMIT, THEY HAVE GUTS. NOT BRAINS, JUST GUTS.

  25. jakel goff | January 30, 2013

    DR. LARRY BATES, A life long BANKER , TENN. House of Representatives, Chaired the committee on banking and commerce, And an EXPERT on the federal reserve said a few years ago that he does't think the fed has the gold reserves… After seeing his videos, I buy nothing but PHYSICAL…. I will Bet China has it. Would you loan all that money??? with no GOLD??????????????????????????????

  26. Vlad | January 30, 2013

    I support the decision of the German government. In much interesting official information about how much gold is stored most powerful states in the world. But it would be interesting to find out what the gold in the hands of the people of India for more than 15,000 tons (the official gold reserves of 360 tons of India). Unverified data from China said that the Chinese people have more than 50,000 tons of gold.

  27. Eagle | February 2, 2013

    Who does the US owe money to ?

  28. H. Craig Bradley | February 3, 2013

    FAMILY LEGACIES

    Well, Keith's grandmother Mimi is said to have been a shrewd money manager and investor throughout her life (articles here). My grandmother had a different, but no less serious focus back in 1965, the last year we minted new silver coins for general circulation and when we still had the words " silver certificate" printed on each and every one dollar bill.

    My late Grandmother grew-up in Grover, Colorado on a small ranch (homestead) at the turn of the last century. She grew up poor and lived through the great depression of the 1930's as an adult and had a perspective common for the day: be skeptical of government authorities (politicans) and what they say and remember it! She passed that on to me intact when I was just a lad by taking me to the local post office to validate the then "redeemable in silver guarantee" we once had for our paper money. Too bad other children were not so informed at an early age.

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