Germany, Gold, It’s History

The present “buzz” is that Germany is pulling their gold out of the USA for some reason involving lack of trust in the USA. Then there is the same action per London gold (so one presumes the same non-trust of London markets / economies).

h/t Crospatch in T9 comment=45244

But WHY is all that German gold in London and the USA to begin with?

If you don’t know why something is, you can’t properly say why it stops.

http://www.history.com/news/german-gold-going-home

Has a great ‘catch up’ on the history of State Gold movements. From Nationalist Spain sending $Billions of it to Stalin for ‘safe keeping’ and an arms deal (never to be seen again) to Belgium shipping a load out under threat of Nazi invasion to a safe “French” bank in an African colony (only to have France fall and the Vichy French hand it over… so still more ‘lost gold’ not accounted.)

When did the German Gold come here? Well, back when there were two German nations and the USSR. Neither of those exists now. So the Germans were making a boat load of money selling cars and stuff to the USA, then converting those $Dollars to gold IN the USA and leaving it in our banks / vaults. Some other gold was shipped to places like Paris and London so as to be outside the reach of the USSR should a land invasion happen.

At this point, I’m not seeing a lot of reason to leave those piles of gold all over the place. The USSR is gone. NATO is very capable, and it is far more likely that the Russians will be involved in Syria than trying to cross Ukraine and Poland to get to Germany. Easier to just sell them gas for gold.

At the same time, the widespread acceptance of the Euro means Germany does not need a pile of gold in Paris for “settlement” of accounts vs the D.Mark.

As the Cold War raged in the 1960s and 70s, then-West Germany, with its powerful economy booming after years of struggles following two world wars, began to make contingency plans to protect its gold reserves in the case of a possible invasion by the Soviet Union. By the height of the Cold War, more than 95 percent of the nation’s gold reserves were being held overseas. The amount of gold continued to swell, as Germany’s post-war trade surplus with the west was converted into gold bullion under the terms of the post-World War II Bretton Woods financial agreement. Following the fall of the Berlin Wall in 1989 and the reunification of the country the following year, the Bundesbank began recalling its reserves and, according to recently announced plans, will have nearly half its gold capital in storage at its central bank in Frankfurt by 2020. The other half will remain in reserves in New York and London.

Germany is also not the only country to have repatriated its gold in recent years: Hong Kong withdrew its entire reserves from British banks in the early 2000s, and in 2011, Venezuela pulled its international stash, later selling a significant part of its gold holdings to Russia and China. Bundesbank officials stressed that the move was based more on a change in the geopolitical landscape than anything else. While it is only withdrawing portions of its reserves in the United States and Great Britain, it is making a complete withdrawal of its gold from France, stating that the acceptance of the Euro makes it unnecessary to keep large deposits on hand in Paris. Some analysts believe that Germany’s decision to recall its overseas holdings amounts to little more than an internal audit of its finances. Others, however, hint at a darker motive, and consider Germany’s move to be signal of its lack of faith in the stability of American and British financial markets.

On Fast Money they brought up another point. During the most recent “Financial Crisis” when the banks were in question, access to national gold reserves was frozen. For some weeks, they simply could not do anything with their gold. I know that would make me a bit less than interested in leaving all my gold in the hands of a system that could halt my access at any time.

So it looks quite reasonable to me that Germany wants to put 1/2 under their direct control “at home” in their own vaults. The other half in London and New York gives good geographic diversification and has large lots in major “money centers” where a settlement of accounts can be moving a registration number in that vault from one “Name” to another. (One of the original reasons for large money center banks was to reduce all the shipping of gold for ‘settlement’ and the attendant losses at sea).

So things look more politically driven than “worry driven” to me. Hong Kong under China taking home the gold. Venezuela (probably rightly) making sure the USA can’t ‘freeze its assets’. Germany saying “Hey, cold war is over and settlement inside the EU doesn’t need gold in Paris. Trade with China mattering more and USA not so much.”

It does, mostly, tend to reflect the ever lowering importance of the USA to global trade and money flows, though. Why have Real Money™ tied up in the less relevant USA when it can be at home or ready to use buying resources from Australia or settling accounts with China? Or perhaps swapped to Russia for Natural Gas heat in winter.

Add in some desire to make Germany a “Money Center” in its own right, and things are quite reasonable. It is just a matter of the USA becoming more of a sideshow to global trade and settlement.

Some Gold Charts

Just to use this as a moment to check the gold action:

Precious metals charts covered here:

http://chiefio.wordpress.com/2011/12/13/gld-gold-vs-silver-and-currencies/

Shows gold GLD as basically a “flat roller” for the last year. Something to trade quarterly, but not a long term riser. TV shows have been full of “now is the time to buy gold” ads, that usually mean it isn’t as they have to pay to drum up buyers. But right now ‘near’ a buy signal. MACD with “blue on top”, but below the zero line. DMI with ‘red on top’, but looks like a crossover about to happen. RSI has had a ‘near 20′ moment, but is now at 50 (where slowly dropping ‘flat rollers’ reverse downside…)

So I’m just not feeling the love for gold at the moment. Frankly, the FXA Australian Dollar has less volatility and a nice rise line as a place to park for safe keeping. But on a trade basis, I could see trading gold here. Though on a ‘faster chart’. Likely a 10 day hourly. ( I’d use 15 minute, but that the “Gold Fix” happens in London so the fast action is largely over by the time California wakes up.) Mostly the chart there says to just avoid those folks cheapening their currencies (USA, Japan) and stay with enduring value of any sort.

The “one stop” chart here:

http://chiefio.wordpress.com/2012/06/04/a-very-useful-one-stop-investment-chart/

Shows TIP flatish and US Stocks running up (though in non-US currencies, might well be more nearly flat as the $US drops). It does look like time to do a full on WSW again. Rotation out of TIPs / WIP and into ‘something’ likely a good idea. US Stocks as a probable, but selected other nations stocks perhaps better.

But gold is mostly being a volatile trade rather than a long term investment at this point.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics, Trading, and Money, World Economics and tagged , , . Bookmark the permalink.

18 Responses to Germany, Gold, It’s History

  1. R. de Haan says:

    I think the underlying reason for the return of the gold is based on trust issues among national banks but also between the German people and their governent and the EU.
    How I know there is a trust issue?
    It is going to take the Fed 7 years to return the German gold: http://www.zerohedge.com/news/2013-01-16/it-will-take-fed-seven-years-deliver-300-tons-german-gold

  2. crosspatch says:

    Gold is often kept on deposit in various places around the world to settle balances of trade accounts. The gold moves from one account to another without physically being moved. This is sort of a “run on the central banks”. It is saying “we don’t trust the US, we want our gold here, we will physically ship it if we need to in order to settle accounts”. Maybe they were worried about getting stuck with mostly tungsten rather than gold, but it smells to me that the Germans don’t trust the Obama administration to play square and so they are taking their money home.

  3. Graeme No.3 says:

    Contingency planning for a possible currency problem? Should the euro fail, and inflation become even moderately bad, the german public will be the first to exit the then currency, based on past troubles. A gold based currency would be a stabilising one.

  4. John Robertson says:

    Sheesh, the German government is pulling its chips and going home. The EU is toast.
    Trust does not exist, I guess a serial abuser of the truth and his administration,controlling the US economy, scare the Germans as much as most fiscal conservatives fear these insane activities.
    Some times a foreign point of view sees more clearly than an internal eye.

  5. crosspatch says:

    A gold based currency would be a stabilising one.

    Common misconception. It is still fiat currency because the value of the currency to an ounce of gold is still set by fiat. You can not openly float the currency against gold and use that for your base because someone can dump a bunch of gold on the market and debase your currency. Fiat money IS the best approach but only when it is done responsibly. What we have here is an administration that thinks fiat currency is a money tree. We have a highly irresponsible administration with no real world experience in anything and one that has been shown to be fundamentally dishonest on several occasions. There is no ethical integrity with this administration and I would not trust them as far as I could throw them.

    It doesn’t matter what sort of currency we have as long as these clowns are running our administration. They are bound to screw it up no matter what.

    Gold was great when the US was the major gold producer, that fell apart once South Africa and the Soviet Union’s gold production exceeded ours. South Africa broke the final attempt at a gold standard for international trade by dumping it on the markets at below the “official” price.

  6. sabretoothed says:

    Sort of hard to tell on the chart at the moment. If you look at major gold stocks like NEM or ABX they look like they are making their right shoulders in their head and shoulders patter. My thinking is maybe the market will dump, and gold will dump to min 1500, then the funds will smash the gold stocks down as it gold was going to 800 or something, then gold will really run after that?? Dunno just a guess. It could also now suddenly run too, but the gold stocks charts look strange, its either a great buy or disaster is coming soon?

    Some charts are seen in this article, you can see the long term support channel around 1500. But maybe gold will run? http://www.gold-eagle.com/editorials_12/maund010613.html

  7. crosspatch says:

    Oh, and the banks are collecting record deposits but they aren’t lending it. Looks like instead they are gambling with it in the various markets:

    http://www.zerohedge.com/news/2013-01-17/big-three-banks-are-gambling-860-billion-deposits

  8. DirkH says:

    Will switch to a German Gold ETF in 20 days; summer break; selling most of my stocks. Using Gold as storage for 8 or 9 months.
    I expect to make 13% with Gold until October, then will switch back to stocks; I expect stocks to correct some time during the summer months. When the stocks go down the Gold will go up, it’s correlated negatively.
    (My expectations are based on average behaviour of the markets in the last 3 years. Purely statistical.)

    The ETF I have chosen, Xetra-Gold, says they back deposits up physically and have a vault in Hanau near Frankfurt.

  9. Ian W says:

    R. de Haan says:
    18 January 2013 at 2:45 am

    The zerohedge link showing that perhaps Germany distrusts the Fed as asking for such a small amount of gold will take 7 years for the Fed to return it. So there is doubt that there is gold in that vault.

    A story was in all the UK media for no apparent reason – of the Queen visiting the vaults of the bank of England see http://www.telegraph.co.uk/news/newsvideo/royalfamilyvideo/9742780/Queen-and-Duke-of-Edinburgh-visit-gold-vault-at-Bank-of-England.html
    Perhaps that was done to prevent the ‘run on the central bank’ and show that look we actually do have real reserves here (unlike the Fed ;-) ).

  10. Gail Combs says:

    I didn’t have time to read the post and comments (just skimmed) but I though you would be interested in this article. It may be the real reason Germany is demanding its gold.

    The Great American Disaster: How Much Gold Remains In Fort Knox?

    Yesterday marked the 39th anniversary of the day when the US Government declared bankruptcy. Oh, they didn’t call it that at the time. But what happened on August 15, 1971 was that the US defaulted on its promise to pay gold for dollars….
    In 1934, gold was confiscated from US citizens, melted from coins into bars, and gathered over the next few years into a new storage facility at Ft Knox, Kentucky….

    …gold began to leave Ft Knox and was shipped to the foreign persons and institutions who ponied up their $35 in Federal Reserve Notes for each troy ounce of gold they wanted….
    at least 75% of official US gold left the nation in exchange for paper dollars which can be printed at will. However, I think the total amount of real gold which remains is even less. The exact amount that remains is now officially listed at 147.3 million ounces. From the peak, that is a decline of 79%.

    In 1988, 22 years ago, I wrote a book about Fort Knox, the gold there, and the documented history of official lies, evasions and incompetence of those who were entrusted with the gold.

    I say “documented history” because when writing the book, I was very careful to only include official documents and private correspondence from the US government, stretching from 1934 to 1987. Using their own responses to the questions of just how much gold is left, and what that gold’s quality is, for the first time this book put all these governmental attempts to answer the questions about their own gold policies in one place. What their responses revealed was shocking to me.
    …A man named Edward Durell had been corresponding with the highest US governmental officials for years when he asked me to come to his Virginia farm and write a book based on all his work. He was nearly 90 years old, and had been a wealthy industrialist who had bankrolled the campaigns of many politicians for decades. He was dying (he would die weeks after the book came out) and wanted to see all his concerns made public before he did. It was his life’s work to restore transparency and honesty to the monetary system….

    When President Nixon closed the gold window exactly 39 years ago, Durell began hearing rumors that made him concerned about the amount and quality of the gold that remained in Fort Knox. While Durell was a lifelong Republican, he never trusted Nixon, and considered him a world-class liar.

    However, within days of Nixon’s resignation in August of 1974, Durell contacted his old friend (and longtime recipient of Durell’s money for his various past elected offices) William Saxbe. Saxbe wasn’t just anybody: he was then the United States Attorney General, the highest legal official of the executive branch of the government. With a new President, Gerald Ford, who Durell considered more honest, he asked Saxbe to mount a complete audit of the gold at Ft Knox.

    Saxbe moved quickly to try to placate Durell, and barely six weeks later, on September 23, 1974 Mary Brooks, the Director of the US Mint, led six Congressmen and one Senator on a tour of Ft Knox. It was the first time since Franklin Roosevelt visited on April 28, 1943 that anyone except Mint and Treasury officials had been allowed inside of Ft Knox. Too my knowledge, no outsider has been inside ever since.

    It was not an audit or inventory of the gold supply; but simply a tour. But there was more of a carnival atmosphere than anything else. While it seemed to placate the few elected representatives at the time, upon reflection several of them publicly pronounced themselves ..unsatisfied….

    The central part of what I learned is that, by official admission, only a small percent of the gold that is left in Fort Knox is “good delivery” gold. In fact, though this is just my opinion, I wonder if there was so little such good delivery gold left by August of 1971 that Nixon had to close the gold window.

    If I had read this article or Chris Weber’s book ‘…Good As Gold?’: How We Lost Our Gold Reserves and Destroyed The Dollar I sure as heck would want to get MY GOLD out of Fort Knox!

    Now off to feed the animals.

  11. crosspatch says:

    Stocks might actually do well in 2013, not sure I would sell them. I already sold most of mine in the fall of last year before the election and have been back to dollar cost averaging accumulation mode. I think we will see gains in equities due to inflation. Won’t necessarily be a value rally, but an inflation rally. Equities due tend to keep their value with inflation. I wouldn’t be in any “bubble” stocks, though. No AAPL, for example.

  12. Tim Clark says:

    { R de haan }
    I went to one of those links included in the link you supplied. It said the Chinese were accumulating gold AND silver at a frantic pace. Some pundit claims the reason is at some point, the Chinese will announce that the Yuan is backed at some % of value (fiat of course – Crosspatch), and demand that they be the currency Hegemonger. Other countries will be only too happy to oblidge.
    I agree that this assessment seems reasonable.
    After all Crosspatch, an arbitrary and governmentally determined fraction of gold or silver bullion backing your currency is better than none.

  13. DirkH says:

    crosspatch says:
    18 January 2013 at 5:58 pm
    “Won’t necessarily be a value rally, but an inflation rally. Equities due tend to keep their value with inflation. I wouldn’t be in any “bubble” stocks, though. No AAPL, for example.”

    Yes. But I expect a disruption of the rally between FEB and OCT. Maybe an Israel/Iran thing; mabye a Fukushima/Macondo style accident, maybe something to do with another US/USD downgrade. Maybe something emanating from the Eurozone.

    The market will want a correction sometime and will use the next best excuse to perform it.

    AAPL is toast – their wizard is gone, they are now an ordinary company (Steve Jobs didn’t have a reality distortion field – he was a CREATOR of reality; an Ayn Randian hero. Whether you like his products or not. Without him, AAPL is as blind as the Nokia managers were when they DIDN’t conquer the emerging smartphone markets – their nerds had developed a toy that would have done; same with MSFT.)

  14. pg. sharrow says:

    @Gail; I liked your little linked picture of a goat roper a WUWT. ;-)
    That your goat or roper? pg

  15. I will get my wife to read this stuff as I am as dumb as a brick when it comes to investments.

  16. E.M.Smith says:

    @GallopingCamel:

    It mostly says that I need to do a more complete analysis and that things are moving, though the question of ‘for how long’ is still to be worked out. Gold looking flat, and equities up (but too late? Not clear.)

    Oh, and that Germany wants to be a money center and have a pile of gold at home…

  17. adolfogiurfa says:

    We´ll need FIAT POPCORN if things keep going like this, real popcorn won´t be enough! :-)

  18. punmaster says:

    Fiat popcorn? So that’s what you use those little cars for.

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