Dear Friend of GATA and Gold:
The long clamor about the German gold reserves by GATA and particularly by our friends, the German journalist Lars Schall and the German market analyst Dimitri Speck, this week caught the attention of the German edition of the Financial Times, which published a story headlined "Speculation and Rumors: The Hunt for the Treasure of the Bundesbank."
The Financial Times Deutschland confirms, as GATA has reported, that most of the German gold is stored outside the country, partly for international security reasons but more so now for ease of trading and general subservience to the United States. The FTD story is notable mainly for extracting from the German central bank, the Bundesbank, a statement that no German gold is being leased at the moment.
Unfortunately the FTD's question, or at least the Bundesbank's answer, did not encompass gold swaps, particularly gold swaps with agencies of the U.S. government, also major mechanisms of gold price suppression, which were the focus of Schall's telling recent inquiries of the Bundesbank, inquiries the Bundesbank turned away without answering:
http://www.gata.org/node/9363
And the FTD's story errs completely in asserting: "In the 1960s former Bundesbank president Karl Blessing allegedly sent a letter to the American high commissioner in Germany in which he guaranteed that gold would not be converted into dollars. The letter is unpublished to this day; that's why it cannot be excluded that the commitments went even further."
... Dispatch continues below ...
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In fact the supposedly mysterious Blessing letter was sent, in 1967, not to the American high commissioner in Germany but to the chairman of the U.S. Federal Reserve, William McChesney Martin Jr.; it did not guarantee that Germany would not trade gold for dollars but quite the opposite, that Germany would not trade dollars for gold; and GATA published it in January this year, thanks to the efforts of Speck and University of Texas economics professor James K. Galbraith, who obtained a copy of the letter from the Lyndon B. Johnson presidential library at the university:
http://www.gata.org/node/9547
But the FTD story is a good start by a major news organization in getting interested in the details of gold price suppression. The FTD and other news organizations would perform even better service by pressing the Bundesbank, the Bank of England, and the Federal Reserve about gold swaps, the Fed in 2009 having admitted undertaking them --
http://www.gata.org/node/8192
-- and the Bank of England having refused last month to distinguish its gold loans and swaps from its general reporting of its claimed gold reserves:
http://www.gata.org/node/10635
The Financial Times Deutschland story is appended -- first an English translation provided by Schall and then the original in German.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Speculation and Rumors:
The Hunt for the Treasure of the Bundesbank
Germany is in possession of 3,400 tons of gold, the second-largest gold reserves in the world. But where is the billion-dollar treasure stored? There has been wild speculation about this for years. Financial Times Deutschland went in search of clues.
By Peter Vollmer
Financial Times Deutschland
Monday, November 7, 2011
http://www.ftd.de/finanzen/maerkte/rohstoffe/:spekulation-und-geruechte-...
Anyone who wants to lay his hands on the gold reserves of the Bundesbank -- which are currently approximately 3,401 tons with a current market value of $196 billion -- faces a problem: Where is the gold of the Bundesbank anyway?
This simple question has been the subject of wild speculation. Critical minds claim that the precious metal was largely in the United States, where it was deposited on the one hand during the Cold War as far away as possile from the "Iron Curtain," and on the other hand also as an ideological pledge of loyalty to the alliance of Germany to the United States.
Supercritical spirits even doubt that the Bundesbank has the gold at all.
Let's take one thing at a time.
The big gold reserves of the Federal Republic -- according to recent data from the the mining lobby World Gold Council the second largest in the world after the U.S., which holds with 8,133 tons, more than twice as much -- date from the 1950s. With the economic miracle, West German exports boomed and many nations paid in gold.
In 1968, Germany held 4,000 tons -- the culmination of the German gold holdings. A large portion of these reserves was, however, never transported, which is both logistically and actuarially difficult. The gold simply changed hands at the great trading centers in New York, London, or Paris without ever changing the local storage locations there.
During the Cold War, it seemed too uncertain to deposit the gold at the headquarters of the Bundesbank in the financial metropolis Frankfurt -- just 100 kilometers away from what in the Cold War was called the "Fulda Gap" -- a spot at the inner German border, which would have been ideal for an invasion by Warsaw Pact troops in wartime because of its topography.
Over the years Germany's gold reserves decreased slightly, especially since the gold price dropped between 1980 and 2000, interrupted only by occasional convulsions. With the gold price increasing beginning in 2001 from below $300 per troy ounce to $700 in 2006 and finally above $1,000 in 2008, the perception of gold in the public mind changed, and more and more critical minds were interested in the whereabouts of the gold.
But the Bundesbank was tight-lipped: Its former chief executive, Hans-Helmut Kotz, told the magazine Stern in 2004: "The biggest part of our gold reserves is held at the U.S. Federal Reserve, the Bank of England, and the Banque de France, in that order." Never again has any representative of the Bundesbank expressed himself in such detail.
Via a written request to the Federal Government, Member of Parliament Peter Gauweiler received in November 2010 no further details of the storage locations but learned that the Bundesbank maintains its gold holdings in physical form -- not in the form of dodgy, windy delivery promises of banks that may be cash-strapped in time of crisis -- and that lending would be made in the current low-percentage range.
... Gold Lender Bundesbank
So anyone who does the treasure hunt has to patch up a map first: for example, from rumors -- 2.300 of the 3.400 tons are allegedly in the vaults of the Federal Reserve Bank in Manhattan. That would be more than two-thirds of the total gold reserves. The testimony of former Bundesbanker Kotz would not be contradicted by that. And because the Bundesbank is so tight-lipped, a lot of yarn is spun.
This also implies that the central bank would have lent the gold to collect interest on the loan -- and to give unspecified market forces such as banks the opportunity to suppress the gold price by selling the borrowed gold at the market. That would be a classic short sale, for which specualators are blamed in the stock and bond markets, and there would have been a lot of winners except for gold owners and producers. The central bank would receive interest for lending the gold that would otherwise uselessly lounge around.
Speculators could suppress the price with the sale of the borrowed gold and buy the gold back later more cheaply and pocket the difference as profit, more so as one pushes the gold price down. And both banks and central banks have an indirect interest in a low gold price, even if their gold reserves are worth less. The price of gold is ultimately a crisis indicator of system stability and future inflation rates; the higher the gold price, the higher the stress in the system, which neither banks nor central banks want.
But either the Bundesbank is lying or the conspiracy theory of "gold price suppression" via short selling with borrowed gold is wrong, because at the request of the Financial Times Germany, the Bundesbank announced that "at present no gold is lent."
Thorsten Schulte has neither a wooden leg nor an eye patch -- only his nickname fits the image of the treasure hunt. The "Silver Boy" is an expert in precious metals. He says: "Of course it is suspect that the Bundesbank reveals so little." There are several explanations. One is that the Bundesbank appeals to reasons of security and business policy.
... 'Diplomatic consideration for the U.S.'
In various Internet forums it is conjectured that the reserve was a dead pledge to the United States. But at the Bundesbank they do not want to hear of that: "We are guided by safety, cost efficiency, and liquidity," said a spokeswoman. Changes of storage locations were not excluded in general, but a transport to Germany's own vaults would be associated with high costs. Therefore, much of the gold is stored abroad.
Most experts consider it likely that Germany does not want to offend the wooden leg of the U.S.: "I suppose it's also about diplomatic consideration for the U.S.," says Schulte.
In the 1960s former Bundesbank president Karl Blessing allegedly sent a letter to the American High Commissioner in Germany in which he guaranteed that gold would not be converted into dollars. The letter is unpublished to this day; that's why it cannot be excluded that the commitments went even further. And even if not: "To carry the gold away from the U.S. would be a distrust signal first-class," says Schulte.
The situation is not as dramatic anyway. Parts of the German gold are simply in New York, Paris, or London because it can be traded or sold better this way. About 60 central banks store their bullion in Manhattan, thus saving the cost of transport. "In addition, there are reputable sources who say that the Bundesbank would bring small quantities to Germany time after time," says "Silver Boy" Schulte.
Therefore, the gold reserves that lie under the Bundesbank branches in Mainz and Frankfurt had not for long been at more than 4 percent of the total, as gold fans speculated over and over again. The Bundesbank told the FTD that "a large part of its gold reserves" are in Germany. However, more precise statements will not be given for the time being, and therefore conspiracy theorists will continue in dark nights at the fireplace spinning yarns about the German gold.
With gold near $1,750, silver around $34 and investors around the world focused on Europe’s debt problems, today King World News interviewed legendary value investor Jean Marie Eveillard, who oversees $50 billion at First Eagle Funds. KWN wanted to get Eveillard’s thoughts on what is happening in Europe and how it will impact the price of gold. When asked about Europe, Eveillard replied, “I understand the stock market was up today in Europe and the US, to some extent, because there is a new Greek Prime Minister. It doesn’t matter, Greece is gone. Italy is too big to fail but it’s also too big to bail. I think it’s a phenomenon of contagion.”
