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Germany and Gold Holdings

By Heide B. Malhotra
Epoch Times Staff
Created: January 30, 2013 Last Updated: February 2, 2013
Related articles: Business » Global Markets
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Gold bars, weighing 28 pounds each, are displayed at the Bureau of Engraving and Printing in Washington, Aug. 27. At present, Germany holds 31 percent of its gold in Frankfurt, 45 percent in New York, 13 percent in London, and 11 percent in Paris. (Paul J. Richards/AFP/GettyImages)

Gold bars, weighing 28 pounds each, are displayed at the Bureau of Engraving and Printing in Washington, Aug. 27. At present, Germany holds 31 percent of its gold in Frankfurt, 45 percent in New York, 13 percent in London, and 11 percent in Paris. (Paul J. Richards/AFP/GettyImages)

Suspicions are being voiced by market analysts, economists, and a number of researchers and political experts that Germany has lost confidence in the central banks of the United States, United Kingdom, and France, and it’s putting them on notice concerning the gold they hold for Germany.

A Jan. 16 article posted on the Gain, Pains & Capital website asked, “Why would Germany suddenly decide that it wants to change a policy it has had in place for over 30 years? … How did it go from wanting to audit its reserves to actually removing them from the NY Fed’s care?”

The article then stated “In simple terms, Germany has just announced that it doesn’t trust the US Fed.”

At present, Germany holds 31 percent of its gold in Frankfurt, 45 percent in New York, 13 percent in London, and 11 percent in Paris. By Dec. 31, 2020, it will hold 50 percent of its gold in Frankfurt and reduce its holdings in New York by 8 percent and in Paris by the full 11 percent, according to a Jan. 16 announcement by the Deutsche Bundesbank.

Almost every article and discussion seems to look for a reason for the sudden about-face by the Bundesbank, and the majority stresses the word confidence.

“What is striking is the sudden change of posture by the central bank. In a matter of weeks, the Bundesbank went from an absolute confidence in its counterparts, to an almost panic-like demand for the delivery of its reserves,” according to a Jan. 23 article on the Market Oracle website.

A Jan. 22 article on the Hard Assets Investor website states, “Whatever the motives German central bankers may have, the fact of the matter is that this sends a sign of no confidence in the Fed’s services.”

Dissenting Voices

“The German people have been clamoring for their gold to be brought home and, since there is no longer a legitimate reason for it to be stored abroad (i.e., the threat of an invasion by the Soviet Union), returning this gold to the Bundesbank makes good sense,” according to a Jan. 21 article on the Seeking Alpha website.

Gold is not just a mineral with little industrial use and importance in the international monetary system, but is still considered a measure of wealth throughout the world and holds an important role in the global monetary system.

If a country such as Germany begins to repatriate its gold holdings, market analysts worldwide dissect the information trying to make sense of it, while repatriation by a country such as Venezuela gets no more than a shrug of the shoulders.

“This is a case of perception being, perhaps, more important than reality, however, it may lead to other nation’s [sic] bringing their gold home,” the Seeking Alpha article suggests.

Little-Known Problem

“Legal accounting ‘tricks’ (gold swaps) currently allow central banks to ‘lease’ and provide the physical metal to the market (causing gold price suppression) while still reporting it in their balance sheets,” the Market Oracle article states.

It is no secret that the Bundesbank won’t tell the world that none of the three central banks holding the German gold can account for each and every one of the serialized gold bars belonging to Germany.

Germany’s cavalier attitude allows for its gold to be repatriated slowly without creating an unwarranted hike in the gold price. This gives the two central banks located in New York and Paris ample time to get its books in order.

At the same time, it helps the respective central banks by not having to “shine further light on how many overlapping paper claims multiple financial institutions, sovereign/exchange traded funds (ETFs), and unknowing investors have over the same bars of gold,” according to the Market Oracle article.

Should the Bundesbank decide to repatriate all of Germany’s gold, the secrets of the world’s banking system might come to light, and many investors might come to realize that all they hold is a piece of paper instead of a serialized gold bar.

An Oct. 25, 2012, article on the Silver Doctors website clearly states what a number of related articles on different websites are expressing.

“The $1 Trillion question—how much longer until the Bundesbank requests the repatriation of its remaining 2200 tons of gold supposedly held at the NY Federal Reserve, and in doing so takes down the entire global banking system?”

Secret Documents Coming to Light

“A previously classified report leaked today has revealed a much larger German gold repatriation has already occurred—from 2000–01,” according to the Silver Doctors article.

The document disclosed that the Bundesbank had repatriated a large portion, 940 tons, of its gold reserves located at the U.K. central bank, reducing it from 1,440 tons to 500 tons or by 65.28 percent.

“Germany’s gold reserves were repatriated over a decade ago—talk about being ahead of the game!” the Silver Doctors article states.

What is of even greater importance is a document that surfaced in the Bank of England (BOE) archives that suggests that the BOE and the U.S. Feds delivered 172 gold bars of inferior quality to the Germans in the past, according to a Nov. 9, 2012, article on the Zero Hedge website.

“At least two central banks [BOE and the U.S. Fed] have conspired on at least one occasion to provide the Bundesbank with what both banks knew was ‘bad delivery’ gold. … The ‘bad delivery’ occured [sic] even as official gold refiners had warned that the quality of gold emanating from the US Assay Office was consistently below standard, and which both the BOE and the Fed were aware of. … The banks merely covered up the refiners’ complaints,” the Zero Hedge article states.

The gold turned over to the Germans had been re-melted and “showed a loss in fine ounces terms four times greater than the gross weight loss,” according to a 1968 letter from the BOE to the New York Fed.

According to the above letter, the U.S. Fed had agreed to pay for the refinement of the gold to achieve the required purity.

Disagreement and Compliance With Auditing Procedure

According to market analysis, Germany’s gold repatriation issue began with a press release on Oct. 22, 2012. On that date, the Bundesbank announced that it had a disagreement with the Federal Court of Auditors (FCA) concerning the physical inventory of its gold reserves stored with foreign central banks.

The Bundesbank states that “the scope of the audit requested by the FCA does not conform to common practice among central banks. … There is no doubt whatsoever that the institutions acting as the Bundesbank’s depositories have the very highest of reputation and credit rating.”

Despite all the words that underline the Bundesbank’s confidence in the central banks located in the New York and London, it states that it might in the end repatriate some of its gold back to its German location and accepts the recommendation by the FCA.

“Irrespective of this existing judicial interpretation, the Bundesbank will take up suggestions by the FCA wherever possible. The character of the gold as a reserve asset, however, is the key factor in decisions regarding storage of the gold holdings,” the Bundesbank October 2012 announcement states.

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