Germany To Repatriate Gold: Irrational Or Logical Solution?

It was recently announced that the German central bank was set to repatriate some of its gold reserves based on economic fears plaguing the eurozone. Though Germany has long been the diamond in the rough of this currency bloc, the fear of a widespread crisis has still managed to infect one of Europe’s strongest economies. Currently, Germany holds about 31% of its gold (3,400 tons) within domestic borders; it plans to up that figure to 50% by 2020 [for more gold news and analysis subscribe to our free newsletter].

To Move or Not to Move

Though there has been much debate over whether or not this is the right decision for the country, the bank will commence with the movement this year. It will start by moving 300 tons from the New York Fed as well as all of its 374 tons at the French central bank. The bank has estimated these 674 tons have a market value of $36 billion, making this process quite an undertaking. The bank has made a move once before, as it vacated some of its reserves from the Bank of England after the bank raised custody fees in 2000. But the coming move has left the country at odds, as there are an array of differing opinions.

GoldThe bank itself states that the move is for auditing purposes, but the timing is curious given pressure from local media to bring back some of the nation’s bullion. This campaign, called Bring Our Gold Back Home, “highlighted and played to deep and intense popular fears that the euro crisis could ultimately lead to the loss of Germany’s gold reserves, the most tangible expression of national savings accumulated from nothing since World War II,” writes Christopher Lawton and Todd Buell.

Some economists view the move as completely irrational, and feel that it was driven by growing public outcry rather than by any kind of economic or monetary purposes. Still others feel that it grants more credibility to gold reserves and helps put the public at ease that all is well. While all banks involved will comply with the requests of the Germans, it certainly puts up a front of a lack of trust that may not sit well with institutions like the New York Fed.

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Disclosure: No positions at time of writing.

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