Back in 2009 the German central bank, the Bundesbank, announced they were concerned they hadn’t been paying enough attention to their gold reserves stored in overseas central banks. It’s not at all unusual for central banks to hold gold for one another, and the Federal Reserve is no exception. While the Fed charges for moving gold in or out of its vault buried 80 feet below street level in lower Manhattan behind a massive 90-ton, 9-foot-high steel cylinder, it doesn’t charge them for the actual storage.
The Germans have been storing their gold with us for quite a long time, but it was mainly a Cold War safety measure to insure that the Russians couldn’t invade and either make off with Germany’s gold, or turn it into a glowing, radioactive mess.
As Cold War tensions gave way to a less fearful political climate, the Germans started bringing some of their gold home. In 2000 and 2001, they brought home 940 tons from the Bank of England because, unlike the Fed, the Bank of England was charging the Germans storage fees. With their gold safe at the Fed and not being charged storage fees, the Bundesbank didn’t feel any urgency to reel it home, and started getting a little sloppy about how they accounted for their gold reserves.
The brouhaha was exacerbated by rumors that the Germans’ gold was missing — and the US was going to go broke trying to replace it.
The market crash of 2008 touched off concerns about the safety of their gold reserves and reliability of the United States. The Germans, along with the rest of the world, watched as the arrogant captains of Wall Street not only escaped punishment, but then turned around and started lobbying Congress to undermine the few additional regulations they faced in the wake of the crash. Adding to those concerns, it came to light that the Bundesbank had been a little sloppy in their oversight of gold reserves, not just in the US but also in France.
It’s also helpful to consider the political climate in Europe since 2008. The bungling ineptitude of US regulators was an insult to the precision and accountability of the German people. On top of that, Europe was dealing with its own crisis, and the European Central Bank (ECB) was coming around to the industrious Germans, hat in hand, looking for bailout money for Greece, Spain, Portugal, and Ireland. The rolling financial crisis that started on our shores but soon washed up on the other side of the Atlantic rightly cheesed off the industrious Germans, who follow very conservative and sound economic policies.
The political brouhaha was exacerbated by unfounded rumors that the Germans’ gold was missing, as was the gold in Fort Knox — and the US was going to go broke trying to replace it. That’s all nonsense of course — the dollar didn’t crash, the euro didn’t crash, and the Germans moved ahead with plans to repatriate roughly 700 tons of gold from New York and Paris over eight years.
It takes that long because moving that much gold is expensive, and some of the bars have to be assayed and forged into modern good delivery bars. The gold also has to be air freighted back to Germany, a process that requires extraordinary security and is really expensive. A fully loaded Airbus A380 can only carry 197,000 pounds of cargo, so it’s going to take a lot of flights to move that much metal — and the Bundesbank needs somewhere to store it all.
Investors in the US can relax. The Germans don’t plan on flooding the market with gold; and our currency isn’t going to collapse, at least not anytime soon, and certainly not because the Germans are taking their gold back.
It’s a financially sound strategy to keep a percentage of your wealth in hard assets, like gold and silver. There’s no reason you shouldn’t be taking advantage of the current depressed precious metals prices to catch up your percentages. Store your gold in a good quality safe, make sure your insurance would cover any losses, and keep in mind that none of the conspiracy theorists ever come back around to admit they were wrong. Continue your regular purchases of high quality bullion products and you’ll be just fine.