So let us
imagine the worst case scenario. There
exists a finite amount of gold in the world.
It is around 130,000 tons today having risen from 100,000 tons thirty
years ago.
It is possible
to produce apparent good delivery gold bars by substituting a tungsten core in
newly minted bars. Google this blog for
details. There is some reason to think this was done at Fort Knox during the
nineties. This would at least double the
availability of bars for foreign delivery and storage. Of course, one would simply use good delivery
for foreign delivery and the other type for in house storage. Thus the gold in storage in the USA could
well be 80% missing and the balance simply undeliverable.
At the same
time, this reserve has been used to earn interest by been used to back debt
instruments as collateral and this easily could have been done through the
banking system at least several times for every outstanding ounce.
In that
circumstance real delivery becomes almost impossible, particularly with the
Chinese scooping every available free ounce.
Whoever thought this was all a great idea is so f**ked as any old trader
can tell you. It really was just too
easy.
Now you have a
clear understanding of just how bad the news could be regarding gold, read this
item.
A Year Later,
The Bundesbank Has Repatriated Only 37 Tons Of Gold (Of 700 Total)
Procuring physical gold seems to be a rather
problematic and time-consuming process, as the Bundesbank is learning.
Recall that it was almost exactly one year ago in mid-January, when the German central bank, in a shocking
development expressing the bank's lack of trust in its central banking peers,
announced that it would proceed with the repatriation of 700 tons of gold held
by its "partners" the New York Fed and the Banque de France, by the
end of 2020.
Since we had posted numerous articles on the topic
of German official gold just prior to this announcement, many of which
speculated about its quality and existence, it seemed like a shocking
confirmation that the most hawkish of European central banks was taking its
commitment to hard-money so seriously, especially after just weeks prior it
swore up and down it has confident about its gold where it currently was.
There is no need to explain why this is huge news
(for those who have not followed our series on the concerns and issue plaguing
German gold can catch up here, here, here, here,
and certainly here)
. At least no need for us to explain. Instead we will let the Bundesbank
do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it
does not move the gold back to Germany:
The reasons for storing gold reserves with foreign
partner central banks are historical since, at the time, gold at these trading
centres was transferred to the Bundesbank. To be more specific: in October 1951
the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first
gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold
reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in
1957, the Bundesbank took over these reserves. No further gold was added until
the 1970s. During that entire period, we had nothing but the best of
experiences with our partners in New York, London and Paris. There was
never any doubt about the security of Germany’s gold. In future, we wish to
continue to keep gold at international gold trading centres so that, when push
comes to shove, we can have it available as a reserve asset as soon as
possible. Gold stored in your home safe is not immediately available as
collateral in case you need foreign currency. Take, for instance, the key role
that the US dollar plays as a reserve currency in the global financial system.
The gold held with the New York Fed can, in a crisis, be pledged with the
Federal Reserve Bank as collateral against US dollar-denominated liquidity.
Similar pound sterling liquidity could be obtained by pledging the gold that is
held with the Bank of England.
And in case the above was not clear enough, below is
the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill
Dudley in early November:
Please let me also comment on the bizarre public
discussion we are currently facing in Germany on the safety of our gold
deposits outside Germany – a discussion which is driven by irrational fears.
In this context, I wish to warn against voluntarily
adding fuel to the general sense of uncertainty among the German public in
times like these by conducting a “phantom debate” on the safety of our gold
reserves.
The arguments raised are not really convincing. And
I am glad that this is common sense for most Germans. Following the
statement by the President of the Federal Court of Auditors in Germany, the
discussion is now likely to come to an end – and it should do so before it
causes harm to the excellent relationship between the Bundesbank and the US
Fed.
Throughout these sixty years, we have never
encountered the slightest problem, let alone had any doubts concerning the credibility
of the Fed [ZH may, and likely will, soon provide a few historical facts which
will cast some serious doubts on this claim. Very serious doubts]. And for
this, Bill, I would like to thank you personally. I am also grateful for your
uncomplicated cooperation in so many matters. The Bundesbank will remain
the Fed’s trusted partner in future, and we will continue to take advantage of
the Fed’s services by storing some of our currency reserves as gold in New
York.
Incidentally, what Zero Hedge did provide after this
article, was factual evidence that the Buba's very much "trusted
partner" had been skimming it on physical gold deliveries on at least one
occasion, in "Exclusive: Bank Of England To The Fed: "No
Indication Should, Of Course, Be Given To The Bundesbank..."
So we wonder: what changed in the three months
between November and now, that has caused such a dramatic about face at
the Bundesbank....
* * *
The question of Buba's relationship with other
central banks still remains open, however one thing we have just learned is the
pace at which the German Central Bank has been able to repatriate its
gold. It would make a snail proud.
Yesterday Buba head Jens Weidmann told Bild that
gold valued at €1.1 billion has been repatriated so far. Putting a weight to
this number: to date the Bundesbank has received shipments of a paltry 37
tons of gold from its existing storage place in either New York or Paris to
Germany: "The gold reserves of the country will be stored in
Frankfurt because it has a special storage with the corresponding equipment,”
said Carl-Ludwig Thiele, a Bundesbank board member.
The repatriated amount over the course of all of
2013 represents just over 5% of the total stated target of 700 tons, and is
well below the 87.5 tons that the Bundesbank would need to repatriate each year
if it were to collected the 700 tons ratably ever year in the 8 year interval
between 2013 and 2020.
So the question begs: since the price of gold has
tumbled in 2013 (according to many driven in part by the Buba's own demand,
which would make procuring gold in the open market for the US and French
central banks that much easier for subsequent dispatch to Frankfurt) and one
would assume there would be many more sellers than buyers of physical, why
would the Bundesbank not be able to obtain a far greater share of the gold?
Unless, of course, neither New York nor Paris actually have free, unencumbered
physical gold in their possession -with most of it leased out to various even
closer "partners" - and are scrambling to procure as much physical as
they can find at the new low, low prices (thank you paper gold ETF dumping).
However, a snag seems to have emerged: unlike in the
"west" where momentum is the only driver of "value", buyers
out of China (and of course India, especially when one considers the black
market attempt to circumvent the Bank of India's capital controls on gold imports)
are hoarding as much physical gold as they can get. Could it be that the
Bundesbank is unable to repatriate more just because China is already buying up
every marginal tons of physical gold in the market, and is making physical gold
purchases by the Fed next to impossible?
In other words, is China now holding Germany's gold
hostage, and if so when and what price would it release it to the New York Fed
and the Banque de France? One look at just the pace of imports by China reveals
that if indeed this is the case, then there may be a few snags in this hardly
best laid plan of central bankers and men.
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