Germany wants their gold back – What do they know that we don’t?

Throughout the last few months many reports have suggested sprigs of green are beginning to show and it won’t be long before the global economy shows sign of “progression”.  However, Germany’s latest announcement gives the suggestion all the positive talk was an illusion.

Initially Germany was only going to audit their gold reserves within the US, but the latest statement from Germany’s central bank, The Bundesbank, declared a plan to remove half their gold reserves from Paris and the US and store the precious metal in their own Frankfurt vaults.

It’s no secret that Germany has the second largest gold holding in the world, falling behind America, and therefore this announcement has got everyone talking about everything from secret conspiracies to lack of trust We may never know the real reason behind this shock move.

Meanwhile, The Bundesbank has stated the principal reasons for the repatriation are aimed at enhancing trust within the German economy and allowing an easily accessible means to exchange gold for foreign currencies at trading centres.

This reflects the change in Western Europe’s economical structure since the Euro began.  The majority of Europe operate on a single currency therefore there is no need to have vast amounts of gold stored for example in, Paris, as this is no longer the financial hub for Germany.

Gold forms part of Germany’s currency reserve, thanks to an economic boom from 1950 – 1960.  At this time the International Monetary System was dominated by the US dollar, meaning it was rational for gold to be stored in the US.  As this is no longer the case, Germany contends there is no reason for the gold to be stored there.

However, this drastic proposition suggests The Bundesbank does not trust other central banks to look after their gold, in particular socialistic France.  Combine this with serious doubts about the Euro holding its value, Germany wants as tight a control over its hard assets as possible.

That’s not to say a conspiracy theory hasn’t been raised, the Gold Anti Trust Action Committee asserts that central banks are hiding a hideously bankrupted system of double counting where no one knows who owns what.  Therefore, Germany are ensuring they don’t suffer a “run on the vaults”.  Could this be an underlying reason for an audit?!

Proving a conspiracy theory however, is clutching at cobwebs and the real reason may be the logical assertion that Germany fears a significant drop in the Euro and therefore they are placing higher importance to protecting their hard assets.

In the midst of the conundrum, the wise investor is taking full opportunity of the temporary lull to ensure their portfolios are positioned strongly for whatever the future holds.

Author: Eytan Krips