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

norberthaering.de

41–50 of 238 posts

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

#41
post #18

Earlier quoted context omitted.

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.

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.

b) After 1971, trading gold might have become less frequent, and at the moment the Bundesbank states it does not sell or buy any gold at all. But still: Look at Switzerland who has sold a lot of their gold after they joined the IMF. By selling gold out of the US Fed vault, they could offer delivery at the US Fed, avoiding a lot of logistical hassle. Maybe the Bundesbank just wants to keep this option open, even though they don't use it right now. It would be stupid to ship all the gold to Frankfurt, then decide to sell it in a couple of years from now, and then having to ship it back to the U.S. for the buyer.

c) Until 1989, it made sense to store gold outside of Europe to avoid it falling into the hands of the Soviet Union should they decide to invade (as suggested elsewhere in this discussion).

d) After 1989 and until recently, no one really cared about this topic. So it was easiest to just leave the gold where it was. Moving gold is a complicated business. The Bloomberg article linked above really makes it seem easier than it is. Yes, gold doesn't take up much space, but because it is so valuable you can't just put tons of gold into one plane / ship / truck - no one will sell you insurance for such a huge risk. You need to transport it in smaller batches, organizing secure transport and insurance for them, keeping the transports as secret as possible for security reasons. Also, you need to have sufficient storage available at the location where you want the gold to end up. And - again - you don't want to store all of the stuff in a single space because you won't get insurance for too much gold in one building.

I am not sure which explanation is the right one. I also find it a bit strange that they seemed to go through a lot of effort in melting these bars to make sure no one can inspect the originals. But this doesn't mean that there is no innocent explanation for all of this.

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

#42

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.

You read the news "Robberies in have increased by 30%". Would that make you more willing to redirect half your savings to my account? If so, I'm happy to discuss further via email.

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

#43
...the US will allow central banks to repatriate as much gold from New York as is absolutely necessary to allow them to have half of their gold at home....

What the actual fuck? Why do we need permission from the US to have our own gold?

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

#44
post #37
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…

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

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

#45
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…

Without a serious army? Are you kidding me?

Yes its not exactly the US military but bloody hell, you would have a very very hard time trying to take over Switzerland - even these days. Road tunnels designed to be blown up, hundreds of thousands of modern trained soldiers with guns at home - fighting on their own terrain, ammunition dumps in individual towns, strong points, bunkers in every apartment block, supplies of modern anti armour weapons, lots of people trained in the use of explosives, etc etc

Good luck getting in there.

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

#46
post #13

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.

Infrastructure is both less durable as well as less liquid. It also returns diminishingly as you engage projects on your opportunity cost frontier. Also likely to be less secure to military or political threats.

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

#47
post #42

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.

You read the news "Robberies in have increased by 30%". Would that make you more willing to redirect half your savings to my account? If so, I'm happy to discuss further via email.

In principle if you are know to be a honest person and there is big enough stick (contract plus state justice system) to threaten you then it could make sense.

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

#48
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)

If you make the money, i.e., print the paper and convince people to associate it with value, then money has no value in itself to you. But gold is nothing you produce. It's already there and people already associate value to it. Even another country who doesn't like you is willing to listen to your demands if you promise them gold in return. Therefore having as much gold as possible is one of the things that grand you power as a country. Other things are valuabe trade goods like oil, high tech, cars, etc. Again other sources of power are technology&science, knowledge, military, lots of people.

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

#49

...the US will allow central banks to repatriate as much gold from New York as is absolutely necessary to allow them to have half of their gold at home.... What the actual fuck? Why do we need permission from the US to have our own gold?

Try to take the gold from someone with a bigger stick. You know how that'll end, right?

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

#50

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.

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