Buba wants her money back. (Her real money, that is.)
Earlier this week, Germany’s central bank, the Bundesbank, announced it would commence repatriating its vast offshore gold reserves, the second-largest stockpile in the world after that of the United States. Gold rose a bit after the news, but not much. It’s up about $20 for the week, still comfortably within medium-term trading range.
Really, gold? We expected more… This is big news, after all.
The folks over at ZeroHedge have been all over this story. Here’s Mr. Tyler Durden, putting things in perspective:
“[T]his is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed – because if the central banks don’t have faith in one another, why should anyone else? – trust in central banks by other central banks is ending.”
Officially, Germany claims 3,396 tons of the shiny yellow metal…though only a third of that total currently rests within its own borders. Almost half (45%) of the stash is vaulted some 80 feet beneath the streets of Lower Manhattan; roughly one tenth (11%) lies under the Banque de France. But now Buba wants it back. The Bundesbank will make a 300 ton withdrawal from its deposit in New York and a 374 ton, complete withdrawal from its holdings in France.
Just to reiterate that last point…Germany will withdraw ALL of its gold currently held in France. All. (of.) Its. Gold.
Now, what possible reason could the German government have for wanting to keep its hard asset currency close to home? Does it know something about the future of the euro that we don’t? Or the future of the dollar? Why has Buba fallen out with the Feds and the Frogs?
Back in October of last year, the Bundesbank was enthusiastically making the case for keeping gold abroad, arguing that:
Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity.
So, there’s no reason to doubt the security of Germany’s gold deposits? Or to question the “key role that the US dollar plays as a reserve currency in the global financial system”? And certainly there’s no reason to make any large, sudden withdrawals, right? Again, from the Bundesbank’s October statement:
There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible.
Indeed, as recently as last November, Andreas Dobret, a member of the Executive Board of the German Bundesbank, could be heard yapping about the “excellent relationship between the Bundesbank and the U.S. Fed.”
In a speech given that month to the Federal Reserve Bank of New York’s Bill Dudley, Mr Dobret responded to what he called “the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany,” by calling it “a discussion which is driven by irrational fears.”
What happened to those “irrational fears,” Mr. Dobret? Did they suddenly become uncomfortably rational?
German gold reserves peaked out at about 4,000 ounces back in 1968, three years before Richard Milhous Nixon unilaterally terminated convertibility of the Greenback to gold and five years before the Bretton Woods currency exchange markets closed (only to be opened as a “floating currency regime” shortly thereafter). A piece in the New York Times this week noted that, “The end of Bretton Woods in 1973 eliminated some, though not all, of gold’s importance as a universal currency.”
It’s certainly true that pointy-headed academics were talking individuals out of their gold long before the Nixon snip…and that folksy billionaires have continued to do so since. Nevertheless, we have a feeling gold is about to get a whole lot more important. Again. Historically, gold has proved itself a reliable insurance against the corruptibility of men in positions of power…positions of power that routinely attract and promote corruptible men. Has anything really changed?
Buba is grabbing her gold. Perhaps we should too.
Joel Bowmanfor The Daily Reckoning
Well, the FOMC didn’t disappoint the equity markets, though Bernanke certainly disappointed Chuck! The Fed decided to institute another round of bond buying in order to try and boost the housing and labor markets. The markets had counted on the Fed announcing some sort of plan, but Bernanke’s use of unlimited funding was even more […]
Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
I wish I’d known about gold like 10 years ago. Better late than never I guess.
though, hopefully her adult teeth are intact and her parents can resell the
caps when her baby teeth fall out.
The U.S., Russia, the EU and Ukraine all met in Geneva, where all sides agreed to halt all violence and provocations in Ukraine. But the news media are still taking an antagonistic stance toward Vladimir Putin and Russia. What gives? Today, Marc Faber explains the hypocrisy behind U.S. foreign policy... and the BS the news media are pushing about it...
One of the world's foremost innovators - Wired Magazine's former editor-in-chief, Chris Anderson - talks about the future of innovation, his company 3D Robotics and how he built the world's first Lego-operated drone at his dining room table.
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by Obamacare? They're the ones on the front lines dealing directly with new patients, as well as the red tape that makes bureaucracies go round. Loren Heal explores further...
Since the beginning of March, hedge funds have been steadily moving out of growth stocks. So it's not coincidence this sector has fallen in tandem. But the question is, where is the "smart money" headed now? Greg Guenthner examines the current, decidedly "unsexy" trend in the market. Read on...
Thanks in part to Michael Lewis's book Flash Boys, High Frequency Trading (HFT) is front and center for this round of the news cycle. Today, John Rubino continues the discussion, explaing why HFT is so dangerous, and how public awareness of it is affecting something called the "trust horizon." Read on...
U2 frontman and self-proclaimed demigod Bono held a benefit concert in an Iowa cornfield on Tuesday, in an attempt to help those poor investors who were devastated by last month’s Mt. Gox bankruptcy...