Germany's Gold and Your
By Dr. Jeffrey Lewis
The recent furor over Germany’s request to
audit its gold reserves being held by central banks in New York, London and
Paris has highlighted the fact that there is even more reason to have one bar in
hand versus two bars in the bush in today’s uncertain world.
The controversy arose after the Bundes bank’s
official requests for a full audit of German gold reserves were apparently been
turned down by the foreign central banks responsible for storing the bulk of
These central banks include the Federal
Reserve Bank (1,536 tonnes), the Bank of England (450 tonnes) and the Banque de
France (374 tonnes). The Bundesbank keeps just 1,036 tonnes of the county’s gold
reserves in Frankfurt.
The Physical Premium
Of course, the whole point of buying precious
metals as an investment in physical form is that they are a relatively easy way
to store wealth for the common man. Nevertheless, the modern strategy would be
to use the leverage available with precious metal ETFs, futures or options.
The status quo also tends to scoff at paying
any premium for physical precious metals, since you could just buy more paper
ounces using the premium you would have paid for physical.
They also argue that you may also have to pay
to store the physical safely.
The physical premium is typically computed as
a function of inventory management, including storage costs and time of delivery
factors. Also included are the costs associated with keeping the doors to a low
margin business open for all the fledging dealers, which is especially true for
precious metal in bullion or non-numismatic form.
Unfortunately, for the elite or wealthy
investor, the idea of taking physical possession is still a very radical
concept. Only a relatively small percentage of the very small amount of precious
metals allocated to the average portfolio is actually stored personally.
Sovereigns Scramble to Audit Their Gold
Apparently sovereigns like Germany found the
idea of holding physical metal in their own vaults just as unromantic.
Nevertheless, Germany has recently discovered that getting back all of its 2,360
tonnes of physical gold stored with other central banks may not be as easy as
just asking for it.
The reason for sovereigns participating in an
overseas gold storage program are numerous, and for many countries are mostly
political, but the overseas storage issue is providing a textbook case of the
importance of direct control of some, if not all, of one’s wealth.
Now, with unprecedented issuance of debt and
rampant paper money printing programs disguised as quantitative easing, the
reasons for taking control of your assets are becoming a matter of economics.
While this may be bullish for metal prices, the irony is that it could also be a
precursor to a move to nationalize precious metal mines.
Venezuela was one of the first countries to
request the repatriation of its gold reserves in modern times. More recently,
the list of sovereigns repatriating gold has grown, and Germany has announced
plans to repatriate 50 tonnes per year from the New York Fed over the next three
In addition to Germany’s audit requests,
countries including Switzerland, The Netherlands and Ecuador have also requested
audits of their gold reserves held abroad by other central banks.
Manipulation May Help Sovereigns Accumulate
Like the Chinese government and many concerned
individuals, these countries may all be stealthily accumulating physical gold,
which is being facilitated by the ongoing paper market manipulation aimed at
keeping physical precious metal prices low.
One wonders if they could be preparing for the
eventual demise of the vastly over printed U.S. Dollar, which may in turn herald
the introduction of a new global reserve currency?
Obviously, none of these sovereigns is buying
silver, because there is simply not enough physical silver left at prices
anywhere near the current levels trading in the paper market.
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