In 2013, Germany shocked the world when it announced its plans to reclaim its gold from the US. In the future, German gold was to be kept on German soil. At the time, Germany had the world’s second-largest gold reserves, at least on paper. Most of its gold was stored in France and in America. Could there have been doubts about the gold’s existence?
At the time, many wondered: Why is Germany bringing all of its gold, worth roughly US$ 30 billion, back to the Vaterland? The decision meant moving 374 tons of gold from Paris and 300 tons from the Federal Reserve in New York.
Germany brought all of its gold back within German borders – and it did so well ahead of schedule. On August 23rd, 2017, the Bundesbank announced that it had completed this process, three years early. Now speculation is swirling once again: What is going on with Germany and its massive gold reserves?
The Germans are not alone in hoarding gold
It’s interesting how bankers (and central bankers in particular) tend to denigrate and dismiss gold as a barbaric relic while at the same time holding and buying large amounts of the precious metal…
About 30 percent of the international reserves of developed countries are stored in gold. The US claims to be the largest holder of gold with 8’134 tons, Germany comes in second with over 3’000 tons, while Italy and France hold about 2’500 tons.
In January, Russia’s central bank (CBR) added almost 20 metric tons to its gold holdings, bringing its total gold reserves to 1’857 tons. This is a historic high and Russia has now overtaken China as the fifth-biggest holder of gold reserves, with much of its gold purchases coming from local producers. Turkey comes third in the top 10 counties that have recently significantly increased their gold reserves.
World official gold reserves
Source: IMF International Financial Statistics, World Gold Council
Why are these countries so eager to acquire gold?
Obviously, we cannot be entirely sure of their exact agenda, plans and intentions. We can’t (fortunately or unfortunately) read Mr. Putin’s or Mr. Erdogan’s minds. However, a few explanations appear to make sense:
While it remains a means of payment in the global trade system, gold contributes to a decline in dependence on any currency. Clearly, “currency games” come to mind, especially as the the US dollar is under attack, or at least under scrutiny.
As is clear to any savvy investor, and to central bankers in particular, the excessive volume of money injected into the system since 2008 raises concerns about the “quality” of fiat currencies. Gold clearly offers a more secure store of value when this house of paper money comes tumbling down. The hoarding of gold, much like the current crypto-currency craze, can be read as a sign of crumbling trust in fiat money.
Gold offers a diversification of risks. It might be less liquid than American or German bonds, however, it is still very liquid and in the event of a collapse of the dollar or the euro, gold will preserve its value and offer a solid hedge.
Iran clearly demonstrated the fact that gold can be a great insurance against international sanctions. During times of stringent limitations imposed on the country, the government in Tehran was able to continue selling oil by employing gold as a means of transaction, thus circumventing the Western-controlled global banking system.
Finally, the price of gold has been on the rise. After the drawback starting in August of 2011, when gold hit a high of US$ 1’854 per ounce, the gold market appears to have bottomed and is starting its upward trend again. As uncertainties in the global financial markets grow, the price of gold will continue to rise. And, this trend comes in the company of rising inflation! This interesting combination has not gone unnoticed by central bankers.
Gold versus US inflation
Source: Market Realist, www.marketrealist.com