Joel Bowman

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 Bowman
for The Daily Reckoning

You May Also Like:


Gold Bulls Bust Myths

Richard Daughty

John Nadler at Kitco.com had a recent column with the terrific title “Who You Gonna Call? Mythbusters!”When I read that, I began to sing the song to myself! “Something strange, in the neighborhood. Who ya gonna call? Mythbusters! Something weird, and it don’t look good. Who ya gonna call? Mythbusters!” Wonderful!Of course I was impressed […]

Joel Bowman

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.

  • Wags

    I wish I’d known about gold like 10 years ago. Better late than never I guess.

  • sikafashion

    seriousness
    though, hopefully her adult teeth are intact and her parents can resell the
    caps when her baby teeth fall out.

Recent Articles

Why the Fed Will Launch Another Round of QE

Richard Duncan

Ben Bernanke introduced the world to the concept of "quantitative easing" back in 2002. It was an "unorthodox plan" to save the economy from the horrors of deflation. But the monstrous economy it has actually created is in some ways far worse. And as Richard Duncan explains, it's not going to end any time soon. Read on..


How to Safeguard Your Digital Currency

Dominic Frisby

While the technical details of Bitcoin may intimidate the novice, they shouldn’t keep him from getting in on a digital currency revolution that -- while taking different forms -- isn’t going away. How do you get the simplest, easiest-to-act-on tips about how to invest, safeguard and grow your digital wealth? Dominic Frisby has more…


Solar to Save the World, Ebola to Maim it

Chris Campbell

The duality is stark. In one hand, we have an energy renaissance underway, in the other, a virus is threatening to wreak havoc on the markets and, potentially, your life. Nothing we’re currently doing to fight the Ebola virus will work in 2014, say the researchers. Nothing we’re currently doing will beat it in 2015, either. We need a new game-plan. Read on…


How to Profit From the “Cycle of Hype”

Greg Guenthner

Lose your shirt in 3D printing stocks this year? Don’t kick yourself. You’re not alone. (Okay, kick yourself a little if it’ll make you feel better.) You need to make sure you don’t lose your 3D-printed shirt in the next tech craze. Because there will be a next time. Look, it’s really not your fault if you got taken for a ride on 3D stocks. Greg Guenthner has more...