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Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

norberthaering.de

101–110 of 238 posts

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#101
post #9

Earlier quoted context omitted.

> that's not property That's the whole point. The US government effectively treats other country's good reserves as their own. It was shrewd negotiation because they got much more than zero, and then US government/Federal Reserve has significant negotiating ability on its side by virtue of having the world reserve currency and the ability to impact monetary policy and systems so heavily on a global scale.

The blog post implies, without much proof, that it is the US Fed that is causing the gold to be moved slowly, which conforms to the blog posters political opinions. It could of course also be that the German gold is not moving out of the US Fed quickly because the German central bank has promised it as collateral for something, or it is involved in some other financial deal. The Swiss for instance were able to move a…

Is there anything on record claiming that the Bundesbank tried to withdraw more than 300 tons but was denied (besides the speculations)?

Officially, they wanted to rebalance some of their holdings. The original plan was to remove 150 tons in 3 years, but due to undisclosed issues, that became a 300 tons withdrawal in 7 years, which was achieved three years ahead of schedule.

I'm also wondering why all those articles assume that moving tons of gold is trivial, is there any description at what is involved in X tons of gold transportation (insurance / planning / protection / etc.).

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#102
post #41

Earlier quoted context omitted.

No, not really. The "nothing is amiss" argument goes like this: a) Until 1971, gold was regularly moved between central banks. The United States exchanged U.S. Dollars against gold and Germany made use of this. Obviously, it was easiest to just leave the gold where it was bought - in the United States. This was also where a lot of other central banks had (and still have) their gold, so it also made exchanges easier.…

These may be reasonable propositions (or were when they applied, especially in the cases of a) and c)), but if and only if one assumes the deposits are effectively on call, and apparently they are not. Your last sentence gets close to the key issue: if there is an innocent explanation, why have the parties who could remove the doubt over that explanation stopped talking about the issue?

Because nobody but dumb people on the internet actually cares where the gold is stored. Since 1971 gold, along with every other commodity, has been optionalized. It doesn't matter where or how it exists because what actually gets traded are options on the commodity. Now every once and a while somebody does actually take delivery but delivery is very, very costly and complicated for physical goods. Physical delivery involves not just the conveyance and storage fees but also the costs of integrity checks -- that is, literally going through each unit and verifying that what's delivered satisfies some standard.

What the Federal Reserve has always been doing since it let foreign nations deposit gold for safe keeping is running a very inefficient options market. Gold is transferred in and very modest storage fees are assessed each year (essentially the gold is stored for free [1]). Note that there are no real provisions for transferring the gold back out, this must be negotiated on a case-by-case basis. It is by all accounts a costly and tiresome thing to do.

Now the real question is -- why would any foreign government participate in such a scheme? And the answer is because it's very beneficial for them. They get free gold storage in the safest vault in the world. And they don't "lose" that wealth -- the NY Federal Reserve's word is in fact "good as gold" and so that wealth can be leveraged much more efficiently than lugging around and cutting up actual gold bars. What does the United States get out of it? In fact it's not so clear. Some politicians have reasonably asked why we're paying a bunch of money to store ~7,000 tons of other people's gold below Manhattan. It doesn't really make much sense except that, well, it's now been "policy" for 50 years and changing is very difficult and expensive.

In the end nobody really cares. There's nothing suspicious going on. The author's "reading" that Germany has forfeited 1200 tons of gold because they're not allowed to "count the gold" is beyond ridiculous. The rationale for leaving gold in the Fed and moving slips of paper around is pretty sound -- it's called modern banking. It's mostly worked for 500 years. And the idea that gold will act as a reasonable substitute when the dollar collapses is just dumb. Because this is the thing that gold bugs never seem to understand: when/if the dollar collapses it won't be an isolated event. The implication is that the productive capacity of the USA has been zeroed out. Think about what events might cause this and ask yourself if, at this point, Germany (or anybody's) biggest problem will be missing gold.

The article is painfully ignorant. The idea that it's the gold buried under Manhattan that makes the dollar the reserve currency is not even wrong.

That said, if Germany does really want its gold the right thing to do would be for the Fed to make them pay standard market rates plus a Fed premium. Considering some banks charge as much as $300 an oz for such a delivery such a transaction would actually knock quite a bit off the national debt.

[1] https://www.newyorkfed.org/aboutthefed/goldvault.html#storin...

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#103
post #92
post #35

> Switzerland is a small, neutral country without a serious army. They would hardly refuse to hand the gold back on request. This guy is suggesting that Germany could invade Switzerland if they refuse to give back their gold, so this is a good reason to keep it there. I'm pretty sure such action would be illegal under UN rules, ie: you can't invade a country because they don't give you back your posession. And Switze…

That Switzerland is a landlocked country surrounded by Germany and its allies, who are also Switzerland's biggest trading partners is a stronger reason they wouldn't steal from Germany. The consequences of doing so would be devastating. The US, on the other hand could get away with it, being too big to fail.

This. Switzerland depends heavily on Germany (and the rest of Europe) for imports.

Moreover, the one thing Switzerland has which is far more important than their​ pharmaceutical industry is trust. They are not in a strong-arm position like the USA, and any doubt in their solvency would cripple them back to the poverty they had in the 1950s.

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#104
post #44
post #37

Earlier quoted context omitted.

As Russia-Ukraine has shown you can take stuff by force without creating big scale war. And remember how Hitler just went state shopping before there was a war? The thing about war is that most party's don't really want it. So sometimes it's possible to grab some advantage that theoretically should result in war.

So you are saying that Germany would begin military action against Switzerland for $50 billion worth of gold (rough value of 1000 tons of gold). How much damage to the Euro and to the European stock markets would such action cause? Not to mention other costs

Switzerland don't have any German gold according to the article.

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#105
post #2

Bloomberg has a very interesting article on this topic also: https://www.bloomberg.com/news/features/2015-02-05/germany-s... Reading in between the lines, it seems as if a good chunk of gold has gone missing and there is an attempt by both sides to save face.

> Reading in between the lines, it seems as if a good chunk of gold has gone missing and there is an attempt by both sides to save face. Or more likely: you do not want to cause any confusion in the markets. Ultimately the state of that gold has very little impact on the world as it moves. However any speculation about it, potentially can have impact (and most likely not positive one). When people in Europe started t…

"The gold in the U.S. was earned by West Germany through trade surpluses in the 1950s and 1960s and was never moved out of the United States due to fear of invasion by the Soviet Union."

https://en.wikipedia.org/wiki/Gold_repatriation

So for a while the U.S. was saying to Germany 'thanks for those cars, machine tool and other goodies, have some gold, we will keep it in the vault safe until you need it...' and, after a while, got a bit lax about moving the piles of gold from one vault to the next.

So it is not as if this gold got there due to the Germans prudently shipping it across the Atlantic for safe keeping, it is money that should have been paid in gold for goods exported by Germany to the USA. I think they were promised to be paid and no physical gold was ever moved or paid.

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#106
post #10

Why do countries bother to hold gold? Wouldn't it be sensible to sell as much of it off as possible? (I'm asking like "ELI5" because I'm sure there is a reason)

Gold is extremely rare on Earth, because it is extremely rare in the universe - it comes from neutron star collisions. [1] To underline the scarcity on Earth, there are thoughts that we are reaching 'peak gold.' [2] You can read here the lengths we go to to get at small seams of gold: http://gizmodo.com/terrifying-facts-about-the-worlds-deepest... Asteroid mining may be a check on this.

Most of the gold in the world is used for jewelery approx 68-78% depending on the estimate. It does have its uses as an industrial metal, but if there wasn't gold tomorrow, the sun would still rise.

In the US, we don't have the same cultural relationship with gold that exists in India, China and elsewhere, where most of the demand is. Keynes called gold a 'barbarous relic,' and I think that's been adopted to some degree in our culture. Central banks hold many currencies, and in some cases baskets of currency. Gold is another that can't be printed, and has a multi-thousand year track record (what currency can claim that?).

More immediately, if I was in the shoes of a central banker, I would be looking to participate in the future gold-backed currency markets. Gaddhafi tried to start a gold-backed Dinar as a pan-African currency and to settle oil trades that would have competed with the petrodollar system. A bayonet and several bullets put these plans on hold. There has been talk of Russia, the top oil producer [3][4], and China moving to gold backed currencies [4].

I have exposure to gold mining stocks. For me, I'm thinking about the reasons above. I'm also thinking about the next financial crisis with the backdrop of rates barely above 0%, a massively leveraged derivatives market that will eventually be looking for real assets at the end of all of the complex chained structures, a massive debt overhang, and looking at what Moody's thinks about our pension system, Social Security, and Medicare [5]. Trying to stay hedged.

[1] https://www.cfa.harvard.edu/news/2013-19 [2] https://en.wikipedia.org/wiki/Peak_gold [3] https://www.bloomberg.com/news/articles/2017-02-20/russia-ov... [4] https://www.forbes.com/sites/nathanlewis/2016/05/05/china-is... (note: commentary piece) [5] https://www.moodys.com/research/Moodys-US-government-pension...

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#107
There's no need for Germany to invade other EU members, because the ultimate goal of EU was to give the Germans control over the Europe without using military force, and that's working pretty well for them - they can keep other countries in check just because they provide most of the money to EU budget.

But, Switzerland is NOT an EU member, so that's a different story :)

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#109
post #7

Earlier quoted context omitted.

I'll just leave this here: http://www.zerohedge.com/news/2013-03-02/why-jpmorgans-gold-...

As fascinating as that is, what I find to be even more interesting is that the total wealth in that insane concrete-bubble structure built to withstand atomic attack... is just over a billion USD. That's nothing in the scale of global wealth. And that's the largest gold vault on Earth. Pretty disappointing if you ask me. The entire gold vault (one million ounces of gold) is worth about a third of one percent of JPMor…

You miss the point.

You CONVERTING gold into USD on a current value. But rest assured if one million ounces are rendered untouchable for period of 100 years due to radioactivity, you can bet your bottom dollar the price of gold (remaining stock) will sky rocket.

Re: Why Deutsche Bundesbank had to promise to leave 1200 tons of gold in New York

#110
post #2

Bloomberg has a very interesting article on this topic also: https://www.bloomberg.com/news/features/2015-02-05/germany-s... Reading in between the lines, it seems as if a good chunk of gold has gone missing and there is an attempt by both sides to save face.

This puts me in mind of the rai stones of Yap, and particularly of one that was lost at sea, but which continued to be used in transactions because of a general agreement that it still existed and so its ownership could be recognized.

I have lost track of the clearest version of this story that I have seen, but it is mentioned in the 'Transfers by Clearing' section here: http://www.wondermondo.com/Countries/Au/MicronesiaFS/Yap/Rai...

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