Germany has shut down speculation that it could sell part of its massive gold holdings, announcing plans to repatriate 674 tonnes of bullion held in foreign vaults since the Cold War to protect it from potential invaders.
Germany’s central bank cited the need to build trust and confidence domestically months after federal auditors questioned whether it had verified the existence of bullion holdings overseas.
Deutsche Bundesbank’s move Wednesday followed growing agitation among Germans, who have become increasingly concerned about building European economic turmoil, for assurances that the nation’s gold holdings, the second-largest in the world, were truly secure.
“With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time,” the central bank said.
It plans to withdraw 300 tonnes of gold from the Federal Reserve in New York and 374 tonnes of the metal from the French central bank in Paris, where it has been held for decades. Like other European countries, Germany moved much of its gold overseas after the Second World War to keep it safe from foreign invasion.
By 2020, when the phased relocation is complete, Germany will hold 50 per cent of its reserves in Frankfurt, 37 per cent in New York and 13 per cent in London. Germany also saw less need to keep so much of its physical gold overseas with the Cold War over and as the adoption of the euro as a common currency helped to clear space in Bundesbank vaults in Frankfurt.
The decision to move the bullion to Frankfurt suggests the Bundesbank will not be a seller of gold in the near future, because it will be removing so much of its reserves from key financial capitals.
“You generally want to have your gold in a major financial centre if you want to use it for lending or financial operations,” said Philip Klapwijk, executive chairman of global precious metals consultancy GFMS Ltd. in London.
“It’s going back to Germany, so it does signal that any speculation that Germany is going to be selling gold, is probably not a valid one,” added Bart Melek, head of commodity strategy at TD Securities Inc. in Toronto.
Gold is trading at about $1,680 (U.S.) an ounce, well off highs reached in August, 2011, of nearly $1,900 an ounce, but prices are expected to rise again this year.
GFMS said in a report Wednesday that average prices could rebound in the first half of the year to more than $1,800, driven by ultralow interest rates across Western economies.
The consultancy also said central bank buying would help to support prices after hitting levels in 2012 not seen since the mid-1960s.
Mr. Klapwijk said moving the gold to Frankfurt may not necessarily involve physical movement of all of the bullion, at least not for all of the way.
Instead, he pointed at past swaps by other banks, selling gold at one location and buying it at another. Such operations might even result in profits on the transactions that could later be used to pay for physical transport of the gold bars.
Another option, Mr. Klapwijk suggested, is to trade gold holdings in New York with holdings in Europe. But eventually the gold will need some form of physical transport.
Anthem Blanchard, chief executive officer of Blanchard Vault, calculated that it would take seven heavy-duty trucks with a 60-tonne capacity to transport the German central bank’s metal from Paris to Germany in one trip.
“If they were Brink’s armoured trucks, which can carry a little over 13 tonnes, it would be a little over 31 trucks,” Mr. Blanchard said.
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