H/T to Systemskeptic on the Permanent Portfolio Forum for this link:
Bundesbank to pull gold from New York and Paris in watershed moment
Handelsblatt said the Bundesbank will announce on Wednesday that it intends to relocate the gold to vaults in Frankfurt, said by insiders to include parts of the old archive library. Germany has 3,396 tons of gold worth roughly £115bn, the world’s second-largest holding after the US. Most of the reserves were stored abroad for safety during the Cold War.
Now admittedly I’ll wait to see what happens and if Germany does this or not. The sources unfortunately about this news have been known to use a bit of hyperbole.
But what does this mean if it’s true?
IMO. The Germans are preparing for the possibility of the Euro going away. I wouldn’t be surprised if they had vaults full of German Marks ready to come out quickly if needed when the horrible idea of the Euro finally goes the way of the Dodo. They probably want the gold close to home as part of their emergency reserves. Or perhaps Germany is growing a bit uncomfortable with the direction the U.S. is taking in managing their own affairs? Who knows? There are so many possibilities…
But clearly Germany certainly doesn’t feel gold is “worthless” as many critics of the metal often assert.
I always found the argument that gold is “worthless” when central banks hold tons of it in their vaults kind of funny. We even had a cartoon in our book pointing out the hypocrisy of the entire debate. If it’s worthless, why do these banks hold so much of it (and continue to buy)? It’s the Riddle of the Sphinx to some it seems. Ben Bernanke answered the question that it’s “tradition” to hold gold. Yeah it’s tradition alright. Like 4,000+ years of tradition of gold being valued as a form of wealth and money perhaps? Brilliant answer.
As for Germany’s motivations in all of this…well it’s certainly interesting and we’ll have to see how it all plays out going forward.
Gold works great in a balanced portfolio of stocks, bonds and cash like the Permanent Portfolio. If you balance the risks and rewards it can provide powerful diversification against currency problems. There’s a reason why central banks hold gold and why individuals should as well. That reason is it works for certain situations like no other asset.
Here’s our cartoon pointing out the silliness of the gold is worthless argument:
Gold is worthless! Just ask Fort Knox.
The problem with the gold repatriation is that it is over a 7 year timeline. It raises the question of whether the gold is in fact in the hands of the u.s. government. If the u.s. wants to maintain faith in the fed and the u.s. dollar, then the best way to do so would be a press release announcing that all requested gold will be delivered within 1 week on multiple brand new Boeing Dreamliners with full military escort to Frankfurt and that the German government should be prepared to accept delivery immediately.
Decisive and immediate delivery = trust in your allocated depository. Just imagine the Perth Mint needed 7 years to deliver on its certificates. I don’t think they would be in business much longer.
Yes I posted on the forum about emerging details that it will happen over seven years. Very strange kind of timeline I think. We’ll have to sit back and see if this plays out into anything more substantial.