German Gold returning home...

The rumor of the last few weeks that Germany will withdraw its gold from New York and Paris is already an official news. Bundesbank announced it will bring back home about 674 metric tons of the yellow metal by 2020. This way by the end of the decade about 50% of all German gold reserves will be in Germany. At current moment most of German gold is abroad. It was moved out of country during the Cold War when the country was afraid of a Russian invasion. The overall German gold reserve is 3391 tons, and is second biggest in the world, after the US one.

Some months ago the President of Venezuela Hugo Chavez withdrew country's gold reserves from London. It was a widely discussed topic, but generally the theme was palliated by the fact that Chavez is a left populist who regularly stigmatizes the capitalism and global imperialism.

But now what can be said? Are The Germans communists, and do they lose confidence in USA and even in their main EU partner - France?

I think there is nothing surprising in taking gold reserves back home. The world financial system based on fiat money is collapsing and it is obvious that in near or midterm future, paper money will lose its power and some kind of gold standard will be back. So in this case physical gold in your own vaults will be important. It is a matter of time the Euro to either disintegrate, or be devalued by inflation. So Germany will need back its Deutsche Mark, and gold will be needed to cover it.

Germany is relatively stable, compared to other EU countries, Japan and USA. Germany is much more conservative and cautious country, that fights the budget deficit and tries to control its debt. So Germany is one of so called "wise" countries in EU that will survive best during the crash.  So these countries will reestablish their currencies and these currencies will be very similar to gold (just like the Deutsche Mark was). So the gold reserves will became vital for them.

But there is another interesting question with this transfer of the gold to Frankfurt. Why the relocation will happen so slow? 2020 is about 8 years from now and it is expected the crisis to escalate much faster. So Germany risks to lose its reserves, because after the crash every country will keep in borders as much gold as it is possible. So foreign gold deposits will de facto be expropriated by the host. Therefore it is wiser to take all the gold home, just like Chavez has done.

Are Germans more stupid than Chavez?

No.

Therefore may be there is another reason of so slow bringing the gold back.

May be this gold simply does not exist. There are some conspiracy theories that even the gold in Fort Knox is missing, being replaced by tungsten bars. As German gold reserve is second largest in the world, so if really this gold does not exist, then an order from Berlin for all the gold will be an nuclear explosion on the markets. If it is officially proved that there is no as much gold as is written in accounting books, then the market will simply go crazy, and this will accelerate the financial crash.

If the gold does not exist, there is no way Germany can take it. 3000 tons is more than the annual production of new gold. So it is not possible it to be bought from the market fast.

So may be Germany understands that it is better to receive some gold, and wait eventually to receive the rest, than to receive nothing in an attempt to withdraw all at once.

Generally even out of conspiracies, it is clear that much more owners own gold than is the real quantity of gold. I.e. most of "owners" simply believe they own gold. A big share of gold reserves is concentrated in some big financial centers and is actively traded. I.e. you can have gold deposited in London, but the same gold is already sold to other investors, that also believe they have their gold. The deposit center owes gold to all, but it can not provide real gold if all owners decide to have their gold home. I.e. even if there is no "tungsten conspiracy" the clear fact is that real gold is much less than the "owned" gold. This, in situation of paper money collapse will mean a secondary "gold-ownership" catastrophe. This is one more reason for the importance of fiat-money system, that is absolutely misunderstood by politicians, that are printing money and ruining it in a flighty manner.

And finally, Germany is too important global economic factor to allow doing rapid moves. Even if everything was OK with global finances, and there was no danger of collapse, even then, if second largest gold owner decided to withdraw its gold this would crush the markets. At current moment even the news that Germany wants immediately its gold back, would skyrocket the price. This will not be beneficial even for Germany. That's why the news comes with an addition - the withdrawal will be very slow.

But the main truth is the same - Germany wants it gold home...

Dobri
Jan 16th 2013

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