Many experts think that the actual amount of gold stored in central banks’ vaults is far smaller than what is written in their reports. And if owners – such as ETF holders - were to suddenly request their gold, a gigantic scandal would follow.
About 15 years ago, it became known that most of Germany’s gold reserves are stored in the US. As a consequence of this revelation, in 2013 Bundesbank decided to repatriate part of the precious metal back to Germany. There are reasons to believe that full repatriation wasn’t possible simply because the Fed’s vaults in New York didn’t hold enough gold. To conceal this fact, it was announced that part of the precious metal was left in New York on purpose so that Germany could quickly sell it on the world’s largest precious metals exchange, located in the same city, if the need arose.
Since then, a bit more than half of Germany’s gold reserves – if we assume that the bars sent from New York are genuine – are stored within Germany (1,710 tons), while the other half (1,236 tons) is still in the Fed’s custody. The Bank of England in London should store another 420 tons.
Meanwhile, according to Bundesbank itself, most of Germany’s golden treasure is stored in Germany as a way to ‘strengthen trust”, because if too much of the country’s gold were kept in the US, Washington would come to exact an excessive influence on Berlin.
Germany’s current gold reserves date from the times of the Bretton Woods monetary system (1944-1973), which saw a partially gold-backed US dollar pegged to other important currencies. Another important factor for the emergence of Berlin’s reserves was the creation of the European Payments Union (1950-1958), in which countries with a positive foreign trade balance would receive gold.
It’s worth noting that over the course of these decades, Germany received much less gold than it was entitled to. According to the Bretton Woods Agreement, the USA was supposed to convert excess dollars into gold, but by the end of the 50’s it became clear that this way the country’s gold reserves would be depleted very quickly, destroying the myth of the gold backing of the dollar. In those times, it was mostly Western European states that accumulated dollars – they hosted US military bases and attracted a lot American investments.
It’s not that important if the Fed’s vaults in New York still hold some of the German gold or if it has been sold. In any case, it’s highly unlikely that Berlin should demand for its reserves to be returned in full. Not only would such a demand lead to increased US pressure concerning the construction of the Nord Stream-2, but other countries could follow Germany’s example. In this scenario everyone would see that the States don’t have enough gold to satisfy all the owners, and that would be a serious blow for the whole system.
Once again we see that gold remains a key element of the global financial system. The media may try to present it differently in order to dissuade retail investors from accumulating the yellow metal – but this is only because gold is a natural antagonist to the US dollar.
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