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Why the Bundesbank is repatriating its gold

I’ll take it as given that my readers are aware of the German gold repatriation, which was driven by the release in October 2012 of a report by the Federal Audit Office that contained criticism of the way the Bundesbank managed its overseas gold reserves. The goldbug spin on this is that it shows that Germany doesn’t trust the US or the Fed.

I agree with Jim Rickards, as paraphrased by GATA, “that Germany’s Bundesbank really doesn’t want any of its gold returned from the Federal Reserve Bank of New York and has arranged for the return of a small part of it only as a political sop to agitation in Germany’s parliament.” (see this story CDU Politician Wants to Bring German Gold Home for an example of that political agitation.)

It is worth noting that “the Audit Court can only give recommendations and can’t legally force the Bundesbank to act” so they could have ignored the calls for repatriation. However, as a result of the political fallout of the auditor report, the Bundesbank decided that “despite our different view of the law, the Bundesbank will, where possible, take up the audit court’s suggestions”.

In support of Jim’s idea that it is just to pacify local domestic politics, consider this speech in New York in November 2012 by Dr Andreas Dombret (Board Member of the Bundesbank). If you read the whole thing it certainly doesn’t sound like there is any distrust. Some key quotes:

  • bizarre public discussion … on the safety of our gold deposits … driven by irrational fears
  • conducting a “phantom debate” on the safety of our gold reserves. The arguments raised are not really convincing
  • the excellent relationship between the Bundesbank and the US Fed
  • looking back at sixty years not only of fruitful cooperation in many fields and international fora, but also of storing gold and trading via the New York Fed
  • we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed
  • Bill [Dudley, of the FED], I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters.
  • Bundesbank will remain the Fed’s trusted partner in future
  • we are confident that our gold is in safe hands with you

Should they keep their reserves in Germany? IMO all countries should. Does it make sense that the Fed doesn’t allow viewings “in the interest of security and of the control process” when they allow tourists to see the vault? IMO no. Is it acceptable that the Bundesbank just trusts a custodian and accepts as an appropriate auditing process:

  • “in 2007, “following numerous enquiries,” Bundesbank staff members were allowed to see the facility, but they reportedly only made it to the anteroom of the German reserves.”
  • “auditors from the Bundesbank made a second visit in May 2011. This time one of the nine compartments was also opened, in which the German gold bars are densely stacked. A few were pulled out and weighed.”

IMO no. But it is clear to me that their public statements and (lack of) action reflect the fact that they consider the repatriation as “irrational” rather than showing any distrust in the US or France central banks.

Source Gold Chart

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