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

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

#21

Post by tonfa »

RandomBookmarks wrote: post #6
Kenji wrote: post #3

"I am not criticizing the Bundesbank for storing 37 percent of Germany’s official gold in in a place there it has no control over it. It seems clear that they negotiated hard with the US and acted rather shrewdly." I am sorry, but as a layperson, I do not know what's to negotiate. If I own something, I should be able to take it home whenever I want?? This is mind-boggling. What's the point of property that you cannot…

Yeah. Can anyone comment on the trustworthiness of this blog post? I also do not understand what is there to negotiate (except storage fees).

It's a lot of "clearly that's how it happens" because from the author viewpoint (pro gold holdings), anything else would not make sense.

E.g.: "It seems clear that they negotiated hard with the US and acted rather shrewdly." does not provide any source for the statement, and it's the same for almost everything in the article, just speculations.

One could also imagine, that Germany plans on lowering their gold holdings and having them on account at the FRBNY would be a convenient thing to make that happen.

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

#22

Post by uncle_d »

pyvpx wrote: post #14
rwmj wrote: post #13

Earlier quoted context omitted.

Given that you want an asset which is difficult to move, wouldn't it be better to build infrastructure instead (eg. roads). At least you can use that asset. I don't understand why gold would be preferable.

roads require maintenance and are only valuable between two points people wish to traverse. gold doesn't deteriorate, is trivially divisible, and can be moved when you want to -- stays put when you don't. gold has been a store of value for millennia , so I personally find it ignorant to ignore the historical significance. hopefully we can rope an asteroid with a few billion tons of gold (and other precious metals) an…

If diamonds are anything to go by, it is perhaps unlikely that the asteroid miners would dump the whole lot on the market in one go. It would be in their interests to maintain prices in order to maximise their profits, would it not?

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

#23

Post by roenxi »

rwmj wrote: 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)

Currencies actually fail quite regularly (hints: Zimbabwe, Venezuela) - it makes a lot of sense to hold wealth in a form that will survive that. Maybe someone wants to claim that any individual country "will never" suffer from a currency crisis. I'll just point out that America went from Barack Obama to Donald Trump in one election then agree to disagree.

Countries want an asset that can hold wealth through a crisis where the way things work radically changes. This asset needs to be:

* As indestructible as possible

* Easy to transport if an adversary is approaching (see also, European history :P)

* Hard to create

Gold satisfies these requirements really well; and as an added bonus it is nearly useless so hoarding it doesn't risk the real economy (see also; the US helium reserves and the risk to medical imaging or such when they run out).

EDIT I'll add that the 'easy to transport' part is what makes this Fed-Bundesbank business so completely weird - this quantity of gold is physically quite small and should be easy to inspect and audit.

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

#24

Post by uncle_d »

f_allwein wrote: post #8

I think the background to this is that, during the Cold War, Germans were worried about a possible Soviet invasion, so storing gold in the US at the time made sense. As the article states, conditions have changed somewhat and there has been political pressure to return some of the gold in recent years.

Speculating here, but as a defeated and occupied WW2 power - indeed still hosting U.S. troops to this day - Germany might not have had very much say in where its gold got stored.

Compare and contrast with speculation about what happened to Ukraine's gold: http://www.zerohedge.com/news/2014-11-18/ukraine-admits-its-...

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

#25

Post by chinathrow »

tonfa wrote: post #15
rwmj wrote: 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)

They do. Switzerland sold more than half of their gold in the past 20 years, including all their holdings at the Federal Reserve in New York (that's like 1300 tons of gold that was sold, in comparison the hundreds of tons that are mentioned on the article for germany and netherlands). Not sure why the article doesn't mention that fact, maybe it doesn't feed into the FUD/conspiracy theory?

Did Switzerland sell them themselves, i.e. were they flown back to Switzerland first or was the sale done by the Fed?

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

#26

Post by mannykannot »

tonfa wrote: post #18
f_allwein wrote: post #8

I think the background to this is that, during the Cold War, Germans were worried about a possible Soviet invasion, so storing gold in the US at the time made sense. As the article states, conditions have changed somewhat and there has been political pressure to return some of the gold in recent years.

Another reason is that a lot of gold trading is and was happening between central banks. (and moving the gold physically is a pain, easier to have them all in the same location, that's what the FRBNY account is for)

That argument is countered in the article. I will leave it as an exercise for the reader to read it.

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

#27

Post by the_mitsuhiko »

jbmorgado wrote: post #20

I'm not really understanding what is going on here and the article doesn't address that: 1 - Why do Germany and Netherlands even store their gold in the USA? 2 - Why shall the USA/FED have any saying about Germany wanting their property back anyway? It's like me having to negotiate with my bank weather I can or not withdrawal my money from there.

> 1 - Why do Germany and Netherlands even store their gold in the USA?

Today: because it turns out they cannot get it back. Originally because countries did not want that when they were invaded by others that the invader would also run off with the wealth. So keeping it on the other side of the world in a 'neutral' country looked reasonable.

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

#28

Post by vinceguidry »

rwmj wrote: post #13
stupidhn wrote: post #12

Earlier quoted context omitted.

Diversification of "hard assets" because the value of sovereign currency is illusory and often fleeting. I agree that mining, storing and transporting gold around the planet is a waste of resources, but there are only so many places to store wealth in a physical manner. The fact that gold has historically been useless in industry probably adds to its value.

Given that you want an asset which is difficult to move, wouldn't it be better to build infrastructure instead (eg. roads). At least you can use that asset. I don't understand why gold would be preferable.

The problem is that roads are too usable. They can be used by your political enemies just as they can your friends.

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

#29

Post by tonfa »

chinathrow wrote: post #25
tonfa wrote: post #15

Earlier quoted context omitted.

They do. Switzerland sold more than half of their gold in the past 20 years, including all their holdings at the Federal Reserve in New York (that's like 1300 tons of gold that was sold, in comparison the hundreds of tons that are mentioned on the article for germany and netherlands). Not sure why the article doesn't mention that fact, maybe it doesn't feed into the FUD/conspiracy theory?

Did Switzerland sell them themselves, i.e. were they flown back to Switzerland first or was the sale done by the Fed?

I would assume the gold is typically never traded by moving it physically between location, but just brought into a vault where both parties have an account (like the Fed, or London)

They didn't say how much gold they had at the Fed, just that they used to and that they no longer have any.

https://www.bullionstar.com/gold-university/central-bank-gol... has a bunch of data.

For example with the sell via the BIS, I assume they just transferred the gold within the Berne vault to BIS (BIS has an account there), and then let the BIS handle the sale. The London gold was likely already there.

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

#30

Post by the_mitsuhiko »

RandomBookmarks wrote: post #6
Kenji wrote: post #3

"I am not criticizing the Bundesbank for storing 37 percent of Germany’s official gold in in a place there it has no control over it. It seems clear that they negotiated hard with the US and acted rather shrewdly." I am sorry, but as a layperson, I do not know what's to negotiate. If I own something, I should be able to take it home whenever I want?? This is mind-boggling. What's the point of property that you cannot…

Yeah. Can anyone comment on the trustworthiness of this blog post? I also do not understand what is there to negotiate (except storage fees).

There is very litte content in the blog so very little to not trust. The situation as described is hardly news. Foreign countries have troubles repatriating gold and that is hardly surprising. The US are in a better position to negotiate here.
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