Practical analysis for investment professionals
24 January 2013

Poll: What Does Germany’s Repatriation of Gold Reserves Mean?

Posted In: Economics

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked for readers’ reactions to Germany’s repatriation of gold reserves.


Germany’s repatriation of gold reserves is a sign of:

Poll: Germany's repatriation of gold reserves


Germany’s central bank, the Bundesbank, made waves in markets last week when it announced plans to repatriate a significant portion of its foreign gold holdings. Specifically, it is aiming to maintain at least 50% of gold holdings within national borders by 2020, up from 31%.

The most popular response to our poll about the Bundesbank’s decision reveals that 36% of 857 respondents think Germany is preparing for a systemic-risk event. The second- and third-most-popular responses are that the German government is bowing to public pressure and that the move is a result of declining trust among nations.

A separate poll conducted through our Asia-Pacific NewsBrief shows that 36% of respondents think Germany is preparing for a systemic-risk event, whereas about 28% see the move as motivated by declining trust among nations, and about 23% think the German government is bowing to public pressure.

Interestingly, the Bundesbank is reducing gold held in Paris down to zero. Clearly, the role and importance of gold have grown substantially since the onset of the financial crisis in 2008. As J.P. Morgan once famously quipped, “Gold is money. Everything else is credit.”


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

5 thoughts on “Poll: What Does Germany’s Repatriation of Gold Reserves Mean?”

  1. The other way to look at this could be to avoid a situation where countries in deep debt/financial troubles decline to refund the gold and currencies collapse (you can print money but not gold) and natiionalize everythiing or thinking of a world war situatiion where physical gold matters and represents economy. It might be a fantasy thought but at the end, in changing trade/financial equation, its always better to have a physical gold quoted in USD vs, having a USD bank balance equvivalent to buy physical gold

  2. Christian Takushi says:

    Although this move may seem directed at a global systemic event, it is rather a responsible move – logical and consistent when analysed from a historic and policy-making perspective. After the turn of events in Europe and the unravelling debate in Germany this is a move but also a gesture. You may to recall the many promises that EU governments gave Germany and the assurances that the German government gave to its people for them to give up the German Mark for the sake of a European Union Currency, all of that sealed in Maastricht. Later the de-factor failure of the Maastricht treaty (commitment to responsible finances etc), more recently the de-facto assumption by Germany of weak EU members’ sovereign debt and the fact that France – for years uncompetitive – is now going on an even more socialist path (confiscations often threatened). Thus it is a message to France. It is also a political maneuver ahead of general elections in Germany. Few nations have experienced the horrible experience of hyperinflation as Germans have, which led to the fall of the “Weimarer Republik” and the rise of Hitler to power. The promises given to the German people in order for them to give up their cherished D-Mark have been utterly disappointed by political EU realities; many Germans feel betrayed and maneuvered into a situation where they have to pay up to keep the Euro together. This is a well-timed political rather than monetary move (actually a gesture) to appease the deeply worried center-right-liberal voters on whose support Angela Merkel is hoping to win reelection. It also sends a political message to France, a partner that no longer capable of carrying the weight of Europe together with Germany. Christian Takushi, economist.

    1. Liz says:

      Christian!!!!!! Soy Liz, de Perú!! cual es tu correo para comunicarnos?? Podemos hacer un primer contacto al tequierof@yahoo.com
      Escríbeme, sería lindo volver a estar en contacto.

  3. There was a lot of noise made about this repatriation. Why? As we now know from [1] and [2], the Bundesbank shipped about 950 tonnes from London to Frankfurt around 2000/2001 and did not tell anyone for a decade.

    This time it is about 50 tonnes per year for a couple of years, and there is a big noise. So the point is the noise rather than the amount of gold moved, isn’t it?

    What are they saying here?
    * we consider gold an important reserve
    * we hold only physical gold now (as opposed to swaps, unallocated gold, gold leased, as we did in the past)
    * everyone is invited to see that we have only fully allocated (=physical) gold right now, something on which we never commented before
    * the gold reserve of the U.S. is not credible (I do believe the gold is indeed there, but since it belongs to the government as opposed to the Fed, it will not be available to defend the dollar).

    The following is paraphrasing MF at FOFOA’s: The Bundesbank is asking only for 50 tonnes a year. This is polite and diplomatic. Asking for all 1500 tonnes would be rude and openly signal distrust in the U.S. which is something you don’t do as a professional diplomat. But asking for 50 tonnes a year is perfectly measured. It invites a lot of speculation, however, and creates a lot of talk.

    So their move is the worst conceivable diplomatic attack on the credibility of the U.S. treasury that an ally such as Germany could possibly launch, still maintaining all diplomatic customs and not getting into the line of fire themselves.

    If you’d like to understand the different role of gold played in the U.S. as opposed to the Euro zone, I suggest you take a careful look at the consolidated financial statement of the Eurosystem of central banks and at the corresponding balance sheet of the Federal Reserve System of the U.S. The answer is there, open, for everyone to inspect.

    Hint: It is in Assets, Item 1, and Liabilities/Capital under “Revaluation Accounts” for the Eurosystem.

    Sincerely,

    Victor

    [1] http://www.bundesbank.de/Redaktion/DE/Downloads/Bundesbank/Wissenswert/gold_entwicklung.pdf?__blob=publicationFile
    [2] http://www.bundesbank.de/Redaktion/DE/Downloads/Bundesbank/Wissenswert/gold_transaktionen.pdf?__blob=publicationFile

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