Wednesday, January 8, 2014

The Curious Case of the German Gold

Late in 2012, Germany made an unprecedented request of the US Federal Reserve Bank.  Germany, like most of the world, had stored as much as 50% of its gold in the US Fed's vaults as part of the agreements turning the USD into the world's reserve currency.  They wanted the Fed to return their gold, for storage in their country.  The idea was that Germany's gold was held as if in a safe deposit box; like a safe deposit box, the owner has every reason to expect if they want to empty the box, they can.

In a stunning move, the Fed refused, originally refusing Germany the right to inspect their gold, and finally offering to return the gold in installments, eventually completing the transfer by 2020.
The German government then asked to visit the FED vaults to inventory the gold and determine its actual existence, but the FED refused to permit Germany to examine its own gold. The reasons given were “security” and “no room for visitors”. And nothing else.

Germany did finally send some staff to the FED, and they were permitted only into the vault’s anteroom where they were shown 5 or 6 gold bars as representative of their holdings, and were permitted nothing else.
Isn't that peculiar? 

In the early days of 2013, the German Bundesbank announced that it intended to repatriate Germany's gold reserves. That would mean moving 300 tons of gold from New York to Frankfurt in 8 years, or roughly 37.5 tons per year.  In December, the Fed delivered 37 tons of gold to Germany as requested.  Here it goes from peculiar to outright weird.   I quote some exchanges from Germany as reported on GATA, the Gold Anti-Trust Action Committee's website.  You should read the whole thing:
December 26, 2013

Dear Ladies and Gentlemen:

I am an independent financial journalist.

In connection with the transfer of 37 tons of Bundesbank gold from New York to Germany, I came across the news that the bars were a melted before the transfer. May I kindly ask you for the following information:

Why were the bars melted at all? And why couldn't that wait until the bars arrived in Frankfurt?

Kind regards,

Lars Schall

January 3, 2014

Dear Mr Schall:

Thank you for your enquiry.

At a press conference on the topic of Germany's gold reserves on 16 January 2013, Executive Board member Carl-Ludwig Thiele presented the Deutsche Bundesbank's new storage concept. In addition to the relocation of gold bars, this concept includes, amongst other things, measures to ensure that the specifications of the London Good Delivery (LGD) standard are met.

In cases where these specifications were not already met, the Bundesbank had these original gold bars melted down and recast in order to meet this standard. This was achieved without any difficulties.
Statement by Peter Boehringer, president of German Precious Metal Society and co-initiator of the Repatriate our Gold campaign --

The public is still waiting for answers to crucial questions like these:

  • What kind of gold bars were melted? Original material from the 1950s and '60s?
  • How can the Bundesbank hint in its press release that some of the old bars already met the LGD specifications when those specifications were not defined and made a standard for central bank bars until 1979?
  • Why has the Bundesbank not published a bar number list of the old bars? How can there be security concerns about bars that no longer exist? Why has the Bundesbank not published a bar number list of the newly cast bars?
  • Who exactly melted the bars? Where exactly was this melting performed? Is there a smelter at the Federal Reserve Bank of New York?
  • Who witnessed the melting and recasting of the bars?
  • Are there any reports on this in writing with a valid signature? By whom?
  • And especially: Why was it deemed necessary to perform this action in the United States as opposed to Frankfurt or nearby Hanau, where there are some of the best facilities in the world for metal probing, melting, and recasting? Had these actions been performed in Germany in a fully transparent manner, it would have been so easy for the Bundesbank to dismiss all questions from "paranoid gold conspiracy theorists."
  • There is more at the GATA link, but the whole episode has the air of some sort of deliberate obfuscation going on.  Why would the Fed not allow the Germans to even see their gold, and then let them "look but don't touch" at a few bars?  Why doesn't the Fed give Germany everything now, and not over eight years?  Why would the Germans agree to not getting their gold all at once, but rather wait until 2020?  Why would the bars be melted down?  I looked up the London Good Delivery standards and there's nothing about it that seems to require refinement, so recasting them seems unnecessary. 

    The often-cited allegation is that there is nowhere near as much gold in the central bank vaults as they claim to have, and Fort Knox is empty.  In this view, central banks keep reselling each other the same few bars of gold in a never ending pyramid or Ponzi scheme creating a "money bubble".  It would be the last bubble before everything collapses, and this Bundesbank/Fed behavior is giving credibility to those stories.


    1. Melting them down is I suppose one way to make sure the bars don't have tungsten cores.

    2. Or maybe the "new" bars are loaded with tungsten...

    3. I would imagine that ANOTHER melting is in these bars future, when/if they are ever returned.

    4. I had forgotten about this, and it sounded awful suspicious in the beginning, before all this talk about the melting the gold.

      I suspect you are right, SiG. Western central banks are very likely playing three card monte with gold reserves.

    5. Obviously original german gold is long gone. And there isn't 300 tons of any gold available in fed. So they recast who knows whose gold and gave it to germans. I presume gold bars are stamped with central bank's logo and serial numbers, so giving germans bars stamped with, say, logo of the Bank of New Zealand might have raised some concerns.

      1. Just what I was thinking.

      2. The Bundesbank has seemingly reversed its prior statement on recasting their gold.

        An article on GATA says, in part, "While the Bundesbank first asserted that some of the gold bars were melted and recast before being returned to Germany --

        -- thereby implying that the gold returned to Germany was not the gold originally deposited, the Bundesbank yesterday seems to have told the German magazine Wirtschafts Woche (Business Week) that the gold was not recast until it reached Germany. " [emphasis added]

        The stories they link to are in German so they're of no use to me.

        My tendency is to think exactly what you suggest, but there's no reason to be more suspicious here than in general. I don't see any reason why they'd recast the bars at all, so the whole thing "stinks like yesterday's diapers" - to quote a cartoon.

    6. It is called Rehypothecation and it is not going to end well for anyone but the super rich.

      1. Yes, but it's just one form of the all the rehypothecation going on around us. The bulk of it is in real estate, if the numbers I found last time are correct..

        Don't ignore the others.

    7. There are several parking spots to accommodate loading and what not and there are several trolleys available to move small and large items in and out of storage unit.

    8. If they hadn't parked their gold in the Self Storage Website, it might still be there.

    9. The Feds spent most of it on booze and whores. The rest of it they wasted.

    10. "Why would the Germans agree to not getting their gold all at once, but rather wait until 2020?"

      Because that way they get back 300 tons of some gold at some point rather than no gold ever? I.E. They just ensured that they're not the ones still standing when the music stops.

    11. All of this raises a question: Why would a country elect to entrust their assets to the US? I can understand the Southern Republic of African Goat Herders and Deep Sea Fishermen doing so to keep some of it out of the hands of whichever kleptocrat is running the country this week, but Germany? Westbound traffic through the Fulda Gap hasn't been an issue for 25 years, and if there's one thing the Germans know how to do it's build secure concrete and steel structures.

      So, who else was stupid enough to give their gold to us to keep for them? And, are any of them asking for it back, too?

      1. I think it goes back to the mutual back scratching (or mutual hand jobs) of the Breton Woods agreement that made the dollar the reserve currency. It was easy to agree to because getting rid of a gold standard and going to fiat currency allowed them all to buy votes, give money to friends, make themselves incredibly rich, and all the other aspects we hate.

        I say "all" to include the European Central Bank, the Bank of Japan, and the other "big playas". Small countries only benefit the way remoras benefit from the sharks eating.

      2. OK, so where is the gold that everyone believes is in Fort Knox but may not really be? I'd suppose some of it may have been sold off for industrial uses, but not all of it. And, who else has repositories of gold that may not be as full as advertised?

      3. "And, who else has repositories of gold that may not be as full as advertised?"

        Very likely every central bank and large bank (think J.P. Morgan, B of A, etc.).

      4. Don't forget the Chinese have been really big buyers of gold in the last few years, as have the Indians. Not just the Chicom government, but they have been encouraging their people to buy gold.

    12. Donning my tinfoil hat: I wonder if Bill Clinton sold more to the Chinese than just technology?

    13. Of course it's a Ponzi scheme ... ALL government programs and activities (except, perhaps, war and "law enforcement") are Ponzi schemes.

    14. Satirical take on the German's visit to the fed: