Germans Reclaim Their Gold From the Fed!

Posted by - Wednesday, January 16th, 2013

In what has becoming an ongoing series of articles about the growing rift between the German central bank -- the Deutsche Bundesbank -- and the Federal Reserve, it appears the situation has escalated once again.

After the Fed denied repeated requests over years to inspect and verify the German-owned gold in the Fed's Vaults, German politicians and officials became increasingly irate.

It ultimately put Bundesbank board member Carl-Ludwig Thiele in front of a committee that tore into him regarding a scathing report from German auditors about the lack of access and transparency.

Handelsblatt, a leading German business paper, is now reporting that the Bundesbank is now about to reshuffle all of its gold reserves in foreign central banks.

Currently, Germany owns 3,396 tonnes of gold. 45% of it is with the Fed in New York. 13% is in London, 11% is in France and the remaining 31% is in the Bundesbank's vaults in Frankfurt.

The plan is to immediately remove 300 tonnes of gold from the Fed's New York vaults and completely remove their gold from France's central bank. By 2020, half of their gold will be in Frankfurt.

So far, the 1,536 tonnes of gold the Fed holds for Germany, worth over $80 billion at spot prices, has only been backed up by personal assurances. Now the Fed will have to prove its demands for blind faith were at least partially justified as 768 tonnes are removed over the next several years.

All the Germans originally wanted was basic verification and inspection of their property. Perhaps if the Fed was more accomodating, there never would have been pressure on the Bundesbank to explain why it allowed the situation to persist as Fed to keep their gold off-limits.

Even the official reasoning for the move, that diversified gold storage locations is outdated, is very true in a post-Cold War era. However, moving such valuable and heavy metals across the Atlantic is no easy or cheap feat, especially after all the security and insurance is added up.

In an era where gold is rehypothecated to cover seemingly endless loans and IOU's are handed out like candy to preffered elite banks, this is a big deal.

The last thing the Fed -- or the entire global economy -- needs is a large number of central banks reclaiming their gold reserves. Germany is second only to the U.S. in total central bank gold reserves.

If other depositors follow Germany's move, how far this could go or how bad it will get if the Fed cannot quickly produce the gold it has “loaned” into the market is anyone's guess.

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