Germany demands its gold back
Filed under: Investing
The move to repatriate some of its gold reserves from Paris and New York by the Bundesbank raises questions of trust, particularly between central bankers. Should you worry?
The move is considerably concerning - potentially. When trust in currencies and the ability to repay debt is under pressure, holding a certain amount of gold (or gold mining stocks, to a lesser degree) makes sense for some. But gold, still, remains a speculative, volatile asset.
German gold grab
Short term, the Bundesbank's move is unlikely to see the gold price move north; Germany is simply re-positioning the physical asset. There's also another explanation - that Germany simply needs to audit its gold stockpiles.
"Maybe it is triggered by a need to physically audit," David Kotok, chief investment officer at Cumberland Advisors told CNBC. "It is unusual so it triggers speculation about the motive. It may also be benign and markets just accept it."
Germany, originally, also organised much of its gold reserves around worries of Soviet invasion. Better for its gold to be in far-off New York than Frankfurt or Berlin.
Debt averseCurrently gold is selling for $1,678 an ounce, at time of writing (16 Jan, 11.15am). That's a huge climb from well under $300 an ounce, the price when Gordon Brown ill-advisedly sold 400 tonnes of Britain's gold reserves between 1999 and 2002.
(Brown even announced the sale in advance, warning the market and forcing down the price. To be fair to Brown, few in opposition worried about the move - at the time. There was also some resentment directed at an asset class that appeared, then, passive and lazy.)
Germany's decision may also be an indication that it is increasingly worried about the US debt crisis, not to mention concern about the recent European Central Bank debt-buying spree.
"The relationship Germans have with their gold is a special one," reports Spiegel online. "Germany hoards nearly 3,600 metric tons of the precious metal -- only the US has more."