"Germany looks to repatriate gold." There was a headline that stirred debate this morning.
Germany is repatriating some of its gold supply held in the U.S. and France and returning it to Germany. Is it a sign that the Bundesbank no longer trusts other central banks? That the Bundesbank is unhappy with the fiscal irresponsibility of Washington?
I doubt that. This has little to do with distrust among central banks. Germany put gold in the U.S. during the cold war because of fear of the Soviet invasion. That has long since gone away. It makes sense to bring some of it back.
But there's a more immediate reason why this is happening now: it has a lot to do with the euro crisis, and a little bit to do with the continuing value of gold and its convertibility into currency.
Some German politicians unhappy with German concessions on the euro have been complaining that the crisis is a threat to Germany's control of its foreign reserves. They want more control of those reserves, which would include the gold supply.
The Bundesbank explicitly stated this in their press release, saying it would give them "the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time."
The Germans also say "the gold serves the purpose of being flexible in a crisis," according to Bundesbank board member Carl-Ludwig Thiele, who was quoted in the WSJ online this morning.
Germany has the second largest gold reserve in the world after the U.S. About 45 percent of the holdings are in New York, 31 percent are in Frankfurt, London has 13 percent, and Paris has 11 percent as of December 31, 2012.
They are looking to reduce the 45 percent holdings in New York to 37 percent, and Paris to zero. That would bring the German's gold supply to about 50 percent in Frankfurt.
That is hardly a wholesale rush home.
It's not even a rush: the Germans said they would accomplish the move "by 2020."
As a side issue, there have been calls to repatriate the gold and get a full audit of the gold supply.
Most central banks do not do regular physical audits of their gold supplies, and this has led to fairly regular calls in many countries--including the U.S.--for a full physical audit.
Most of the U.S. gold supply is held in Fort Knox. Some have argued that an audit is necessary to determine if any of the gold has been lent out, or if all of it is still physically present.
By the way: if the Germans do start exchanging gold for currency (like the U. S. dollar), that would be an issue. It would tell us the Germans are really worried about the euro.
Now THAT would be a story.
According to the World Gold Council, these are the largest government holders of gold (in tonnes):
- U.S.: 8,133
- Germany: 3,396
- IMF: 2,814
- Italy: 2,451
- France: 2,435
- China: 1,054