Germany Continues to Bring Its Gold Home

by Peter Schiff, Schiff Gold:

Germany continues to bring its gold home.

In early 2013, the Bundesbank announced a plan to repatriate massive amounts of its physical gold reserves back into Germany. The goal is to have half of its gold back within the country’s borders by 2020. At nearly 3,400 tons, Germany’s gold reserves currently rank as the second-largest in the world.

According to Handelsblatt Global, a scare in 2012 led to the decision to bring the gold home. The sovereign debt crisis in the eurozone that year led many analysts to question the safety of the country’s reserves. In fact, financial controllers said they weren’t even sure all of Germany’s overseas gold holdings existed. The Federal Audit Office demanded the central bank make regular spot checks to ensure its gold reserves abroad were “physically counted and their authenticity and weight” confirmed.

Germany began aggressively ramping up its repatriation program in 2014. The German central bank brought home 120 tons of gold that year. In 2015, Germany’s Bundesbank transferred more than 210 tons of gold back into the country from vaults in Paris and New York. According to the Financial Times, with the 2015 transfers, Frankfurt became the largest storage location for the country’s reserves after New York. The repatriation continued in 2016, with more than 100 additional tons of gold coming back into the country.

The Bundesbank plans to continue its repatriation project this year, removing all of its gold from neighboring France. It plans to transfer all 91 tons back into Germany by the end of the year.

Germany primarily dispersed its gold around the world to protect it from the specter of a Russian invasion during the Cold War. But why bring it back now? Why bother with the hassle and expense when the gold is arguably safely stored in the US, and other European vaults? As Handelsblatt Global explains, it is a shield against a currency crisis.

The Bundesbank states for the record that its storage plan is based on ‘the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.’ This means that in case of a severe currency crisis, it can sell or pawn the gold remaining abroad in the US and the United Kingdom for hard currency.”

But its not just about being able to sell gold for other hard currencies. A country with sufficient gold reserves can back its own currency with gold. Many believe this is why countries like Russia and China have been aggressively buying gold over the last several years.

In addition to its repatriation project, Germany has been stingy about selling off any of its significant gold reserves. In past years, the Bundesbank has only sold around 0.1% of its reserves annually, and that was to the German finance ministry in order to mint coins.

‘In a major crisis or a breakdown of the monetary system, the demand for gold, and therefore its price, would shoot up. The Bundesbank’s gold would then be worth so much that it could save the euro solely based upon the confidence the markets place in it,’ economist Jörg Guido Hülsmann from the University of Angers told Handelsblatt Global. The Bundesbank prefers to express this with a bon mot: Gold is ‘worth the most when it doesn’t have to be turned into cash.’”

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