It Begins: Bundesbank To Commence Repatriating Gold From New York Fed

Submitted by Tyler Durden on 01/14/2013 21:32 -0400

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi's Goldmanesque demands to allow implicit monetization of peripheral nations' debts has just "returned the favor" by launching the greatest physical gold scramble of all time.

From Handelsblatt:

Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie künftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts (Dienstausgabe) sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York dafür weniger Gold zu lagern und überhaupt kein Gold mehr in Paris zu horten.

Derzeit lagert das Gold der Bundesbank ihren Angaben zufolge in New York, London, Paris und Frankfurt. In der amerikanischen Notenbank Fed lagern 45 Prozent der insgesamt 3.396 Tonnen Gold, in der Bank of England in London 13 Prozent, in der Banque de France in Paris elf Prozent und im Hauptsitz in Frankfurt 31 Prozent. Diese Verteilung soll sich nun ändern.

We present it in the original for fear of losing something in translation, but in broad English terms the above reads as follows:

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here , here, and certainly here) . At least no need for us to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:

Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a “phantom debate” on the safety of our gold reserves.

The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed’s trusted partner in future, and we will continue to take advantage of the Fed’s services by storing some of our currency reserves as gold in New York.

Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

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Mon, 01/14/2013 - 21:44 | 3152793 Mudja

Just wait till it arrives and they find out its just pretty looking tungsten!

Vat iz diz? Ve hav been zkammed!

Mon, 01/14/2013 - 22:42 | 3152961 AgAu_man

Vee doubt it. Vee Berliners know all about Tungsten (Wolfram in German), ja. Zee vorld-famous lamp kompany OSRAM (in Berlin) is a fusion of zee name Osmium and Wolfram. And vee are pretty good in Physics, ja? Alzough vee don't have as much pull mit zee Swedish Nobel Komittee any more, as some now have.

Vee vill apply Ultrasound and X-Ray Crystallography methods at first, but zen vee will melt all zee bars and find out for sure. Zen vee vill re-mold them into ISO-compliant sizes. Deutsche Bank and Dresdner Bank vill be very happy. Zee 'Sparkasse' not so much, as zat is a bank for commoners -- like your WaMu used to be.

Mon, 01/14/2013 - 21:44 | 3152795 Poor Grogman

Someone just rang the bell...

Mon, 01/14/2013 - 22:02 | 3152859 GetZeeGold

Shake hands....let's get the rules straight. There are none.

Tue, 01/15/2013 - 08:55 | 3153631 awakening

Mad Max: Beyond Thunderdome

Dr. Dealgood:"Thunderdome is simple. Get to the weapons, use them any way you can. I know you won't break the rules... there aren't any."

Mon, 01/14/2013 - 21:44 | 3152796 Moe Howard

Fuck the Fed.

I got my own central bank. Under the river.

Mon, 01/14/2013 - 21:44 | 3152798 moroots

Prisoners' dilmma bitchez!

Mon, 01/14/2013 - 21:45 | 3152800 erg

*rubs hands together maniacally*

I was just reading a past article about German gold repatriation.

ZH, please turn off your beam into my mind.

Thanks.

Mon, 01/14/2013 - 21:50 | 3152820 Jim in MN

Just shove a paper clip into the chip in your head.

Problem solved!

Mon, 01/14/2013 - 22:02 | 3152857 erg

A dead short. Got it.

It sounds like a naked silver short gone really bad.

Mon, 01/14/2013 - 21:45 | 3152801 dougngen

Jim Kramer Says of gold: Sell,Sell, Sell!!!

Mon, 01/14/2013 - 22:09 | 3152843 akak

Credibility says of Jim Cramer: Bye Bye Bye!

Mon, 01/14/2013 - 22:41 | 3152957 Dr. Engali

Jim Cramer had credibility ?

Mon, 01/14/2013 - 22:52 | 3152984 AlaricBalth

Who is this Jim Cramer person you are referring to?

Mon, 01/14/2013 - 23:15 | 3153037 akak

Jim Cramer is a coke-snorting, hyperactive, ADD-afflicted, shameless stock-pimping pumpmonkey on the American cable TV financial channel CNBC, who is incessantly and perpetually haranging his audience (all 12 of them) to BUY! BUY! BUY! stocks, almost regardless of the particular stock, its history, or its prospects. He is (in)famous for having told his (gullible, naive, ignorant, soon-to-be-pennyless) audience to buy Bear Stearns as a "solid value" several days before their bankruptcy.

Tue, 01/15/2013 - 00:03 | 3153176 AlaricBalth

Oh, now I know. Thanks. He's the blowhard who is featured on the Ministry of Propaganda's cable channel. My 4 year old son thinks he is Chuckles the Clown.

Tue, 01/15/2013 - 00:59 | 3153292 in4mayshun

LOL! That should be his Wikipedia entry

Mon, 01/14/2013 - 21:46 | 3152802 Triple A

I will believe it when it actually happens.

Mon, 01/14/2013 - 21:45 | 3152803 Hulk

Its about fucking time they came to their senses. If you don't hold it, you don't own it. period...

Mon, 01/14/2013 - 21:52 | 3152827 centerline

Sending the message you want to hold it violates basic trust though. Makes this a big move. Not mention the history involved here (think WW1 adn WW2).

Mon, 01/14/2013 - 21:45 | 3152806 Jim in MN

Let the REAL Goldilocks Economy commence to begin!

Mon, 01/14/2013 - 21:48 | 3152816 samsara

Well Gentleman, I do believe I just heard the OFFICIAL 2 Minute warning.

(Hear it that is, over the din of some fat women singing)

Please Place your final bets, Window will be closing in 10,9,8,7...

Mon, 01/14/2013 - 21:48 | 3152817 Jim in MN

Also, 'Ich bin ein Berliner' has been replaced by 'We are not a deadbeat nation'.

LOLUIC (laughing out loud until I cry)

Mon, 01/14/2013 - 22:04 | 3152861 Five8Charlie

"We are not a deadbeat nation." Looks like Germany just expressed their opinion on that.

Don't know why they don't trust us anymore. Just 'cause we sold them piles of shit mortgages. And then laughed about it.

Tue, 01/15/2013 - 00:31 | 3153240 DaveyJones

all those massive prosecutions mended the sores

Mon, 01/14/2013 - 21:50 | 3152821 centerline

Isn't there an appropriate Rammstein song to accompany this thread? Come on guys. Need some mood music here.

Mon, 01/14/2013 - 22:14 | 3152894 Jim in MN

Clearly, 'Du Hast'.

http://www.youtube.com/watch?v=RlOAMKTj0hU

Tue, 01/15/2013 - 00:24 | 3153226 Freddie

Change the verse from

Du Hast Mich (you hate me) to:

Du Hast Timmy

Du Hast The Benank

Du Hast Obamo

Du Hast FRN Fiat

Tue, 01/15/2013 - 01:38 | 3153349 OldPhart

After listening and viewing...perhaps this is apropos.

Sonne

Mon, 01/14/2013 - 22:22 | 3152900 moonstears

http://www.youtube.com/watch?v=mPhVd3DOuTQ translates "Play with me" (As I recall its about two brothers(banks) jerking each other off...guess Lady GaGa's not so weird afterall, huh?)

Mon, 01/14/2013 - 22:31 | 3152931 Room 101