Germany Moving Its Gold Back Home, Should You Be Worried?

Barry Norman

Gold traders remain bullish but speculators that ran to gold after the FOMC decision seem to have backed out of the metal. Gold entered the holiday shortened week at 1256.00, silver remains very strong at 15.81 and platinum is down over $15.00 at 973.65. This week has very little events of major risk on the calendar. Regardless of the dovishness of the Fed at last week’s meeting they cannot ignore climbing inflation rates for long and rate increases will be on the agenda in a flash.  The dollar rose 0.3 per cent against a basket of major currencies but was still near a 17-month low against the yen and set to end the week 1.2 per cent lower against the currency basket.

The US central bank held interest rates steady on Wednesday and indicated it would tighten policy this year, but fresh projections offered by the Fed showed policymakers expect two quarter-point increases by year-end, half the number forecast in December.

Expectations the Fed would raise rates steadily this year had faded since the bank’s initial hike in December, as concerns about global growth roiled financial markets. A low interest rate environment tends to decrease the opportunity cost of holding non-yielding bullion.

Since the beginning of the year, gold prices have seen a solid move to the upside. Prices continue to trade above their long-term and short-term downtrends. This is encouraging, to say the least.

All that is certain is that gold bullion has surprised investors and just a few months into the year, it has exceeded expectations. Going forward, the precious metal could continue to do so. Investors oversold the precious metal for all the wrong reasons and they are starting to realize this now.

The German central bank accelerated the withdrawal of Germany’s gold reserves from overseas repositories, president of the Bundesbank Jens Weidmann said Sunday.

According to Weidmann, the bank is working on a new concept of the gold storage adopted by Germany in 2013, according to which at least half of the total gold reserves of the country should be transferred to Frankfurt until 2020.

Weidmann said that 366 tons of gold at a total value of approximately 11.5 billion euros have been delivered to Frankfurt so far. According to him, the rest of the gold will be stored in New York and London.

Gold is an additional reserve currency for Germany. According to the Bundesbank, the German gold reserve amounts to approximately 3,400 tons and is the second largest in the world after that of the United States. A well-known analyst said recently that “There are suggestions Germany wants its gold because it’s worried its loans to less fiscally responsible sovereigns won’t be repaid. But many others believe Germany is preparing in case the euro were to eventually dissolve, so it wants its gold to potentially back a new Deutsche Mark. Perhaps they, too, recognize gold’s return to its role as money.”

The gold reserve is to a certain extent a financial regulator for Europe as a whole and ensures Germany a leading role among European countries.

Central banks of foreign countries resumed the withdrawal of their gold reserves from the US Federal Reserve, according to the last report by the last Fed reserve.

A massive repatriation of gold began back in the beginning of 2014.

During the period, a total of 250 tons of physical gold have been withdrawn from the Federal Reserve. The gold reserves in the depository dropped to 5,950 tons, a record low for the last 20 years. Last time, a similar situation occurred ahead of the 2008 financial crisis, and foreign central banks withdrew nearly 400 tons of gold. Taking into account that the current withdrawal has lasted since 2014 and this year has been seeing a new crisis, history is repeating itself.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.