The world's second-biggest holder of gold reserves,
Germany, is planning to bring home some of its gold held in New York
and Paris - a move that would mark a breakdown of trust between the
world's major central banks, analysts said.
The Bundesbank, Germany's central bank, will announce on Wednesday the repatriation of some of its gold holdings at the New York Federal Reserve and Bank of France, German business daily Handelsblatt reported on Tuesday.
The Bundesbank confirmed to CNBC's senior economics reporter Steve Liesman that it will move a small part of its gold reserves from the New York Fed, Liesman said on Twitter. Germany has almost 3,400 tons of gold, the world's second-largest holdings after the United States, valued at almost USD 177 billion at the end of December, according to the Bundesbank. It moved the bulk of its reserves abroad during the Cold War in case of an attack on West Germany by the Soviet Union.
News that Berlin wants to bring some of that gold back home is causing a stir, with Bill Gross, the managing director at bond giant PIMCO tweeting: "Report claims Germany moving gold from NY/Paris back to Frankfurt. Central banks don't trust each other?"
Ric Spooner, chief market analyst at CMC Markets in Sydney told CNBC Asia's "Squawk Box," "Whether or not their action really does reflect a lack of trust in the Fed (US Federal Reserve) is a moot point, but it is certainly likely to be taken that way by some sectors of the market. The general inference is that if there was a real debt crisis in the US, then they (German authorities) would feel a little more confident about having their assets at home."
The US fiscal woes are firmly in focus with Washington expected to reach its debt limit by the end of February. Finding long-term debt sustainability without hampering an economic recovery remains a challenge for policymakers, Fed chief Ben Bernanke said earlier this week.
"The reason the Bundesbank is doing this, repatriating the gold back home, is to instill confidence in the German consumer as to the solidity of the Bundesbank," Societe Generale's senior currency strategist Sebastien Galy told CNBC.
"Right now it is just a sign that the system is breaking down, that confidence is lower across the board and the entire financial system has basically become a domestic financial system, where you have the euro zone, a dollar zone and the yen zone," he added.
Dominic Schnider, global head of commodity research at UBS Wealth Management told CNBC, "Holding gold in key financial centers (New Tork, London or Paris) makes sense and can give access to foreign currencies like the US dollar. On the other hand, we have seen how easy money printing is. Thus, we don't need gold anymore as collateral."
He added: "Nevertheless, holding some gold at home is not a bad idea in an age of ballooning central bank balance sheets. As a reference, Hong Kong also shipped its gold back home from London some years ago."
Analysts, however, did not expect any immediate reaction in gold or currency markets to any gold repatriation from the Bundesbank."For the gold market, it doesn't make any difference to the overall supply and demand situation. The Bundesbank is the owner of the gold regardless of where it's located," Spooner said.
For some analysts the question was not so much whether Germany would move its gold reserves, but whether it would sell the gold once it was back home.
"What Germany intends to do with its gold once it's repatriated would be interesting," said Nick Trevethan, senior commodities strategist at ANZ Research in Singapore. "We know that Venezuela sold some of its gold," he added, referring to a decision by Venezuela's government in 2011 to repatriate foreign bullion reserves from bank vaults in the West.
Mere Audit Check?
But despite all the theories about mutual central bank distrust and lack of faith in fiat currencies, or currencies that are not back by gold reserves, the Bundesbank's move - if push does come to a shove - may have a much more prosaic explanation: stock-taking.
In October, Germany withdrew two-thirds of its gold holdings from the Bank of England, according to media reports and in the same month a German federal court said the Bundesbank could conduct annual audits and physically inspect its gold reserves worldwide.
"Maybe it is triggered by a need to physically audit," David Kotok, chief investment officer at Cumberland Advisors said. "It is unusual so it triggers speculation about the motive. It may also be benign and markets just accept it."
There's some substance in this. Germany's international broadcaster Deutsche Welle reported on its website on Tuesday that the Bundesbank is reacting to a recent report by the Federal Audit Office which has criticized the lender for failing to thoroughly check the amount and authenticity of the bullion stored abroad,.
While such checks would still be needed in the future, the Bundesbank would have more of its reserves under its direct control by bringing home some of its stockpiles. The central bank is to disclose more details of its plan on Wednesday.
The Bundesbank, Germany's central bank, will announce on Wednesday the repatriation of some of its gold holdings at the New York Federal Reserve and Bank of France, German business daily Handelsblatt reported on Tuesday.
The Bundesbank confirmed to CNBC's senior economics reporter Steve Liesman that it will move a small part of its gold reserves from the New York Fed, Liesman said on Twitter. Germany has almost 3,400 tons of gold, the world's second-largest holdings after the United States, valued at almost USD 177 billion at the end of December, according to the Bundesbank. It moved the bulk of its reserves abroad during the Cold War in case of an attack on West Germany by the Soviet Union.
News that Berlin wants to bring some of that gold back home is causing a stir, with Bill Gross, the managing director at bond giant PIMCO tweeting: "Report claims Germany moving gold from NY/Paris back to Frankfurt. Central banks don't trust each other?"
Ric Spooner, chief market analyst at CMC Markets in Sydney told CNBC Asia's "Squawk Box," "Whether or not their action really does reflect a lack of trust in the Fed (US Federal Reserve) is a moot point, but it is certainly likely to be taken that way by some sectors of the market. The general inference is that if there was a real debt crisis in the US, then they (German authorities) would feel a little more confident about having their assets at home."
The US fiscal woes are firmly in focus with Washington expected to reach its debt limit by the end of February. Finding long-term debt sustainability without hampering an economic recovery remains a challenge for policymakers, Fed chief Ben Bernanke said earlier this week.
"The reason the Bundesbank is doing this, repatriating the gold back home, is to instill confidence in the German consumer as to the solidity of the Bundesbank," Societe Generale's senior currency strategist Sebastien Galy told CNBC.
"Right now it is just a sign that the system is breaking down, that confidence is lower across the board and the entire financial system has basically become a domestic financial system, where you have the euro zone, a dollar zone and the yen zone," he added.
Dominic Schnider, global head of commodity research at UBS Wealth Management told CNBC, "Holding gold in key financial centers (New Tork, London or Paris) makes sense and can give access to foreign currencies like the US dollar. On the other hand, we have seen how easy money printing is. Thus, we don't need gold anymore as collateral."
He added: "Nevertheless, holding some gold at home is not a bad idea in an age of ballooning central bank balance sheets. As a reference, Hong Kong also shipped its gold back home from London some years ago."
Analysts, however, did not expect any immediate reaction in gold or currency markets to any gold repatriation from the Bundesbank."For the gold market, it doesn't make any difference to the overall supply and demand situation. The Bundesbank is the owner of the gold regardless of where it's located," Spooner said.
For some analysts the question was not so much whether Germany would move its gold reserves, but whether it would sell the gold once it was back home.
"What Germany intends to do with its gold once it's repatriated would be interesting," said Nick Trevethan, senior commodities strategist at ANZ Research in Singapore. "We know that Venezuela sold some of its gold," he added, referring to a decision by Venezuela's government in 2011 to repatriate foreign bullion reserves from bank vaults in the West.
Mere Audit Check?
But despite all the theories about mutual central bank distrust and lack of faith in fiat currencies, or currencies that are not back by gold reserves, the Bundesbank's move - if push does come to a shove - may have a much more prosaic explanation: stock-taking.
In October, Germany withdrew two-thirds of its gold holdings from the Bank of England, according to media reports and in the same month a German federal court said the Bundesbank could conduct annual audits and physically inspect its gold reserves worldwide.
"Maybe it is triggered by a need to physically audit," David Kotok, chief investment officer at Cumberland Advisors said. "It is unusual so it triggers speculation about the motive. It may also be benign and markets just accept it."
There's some substance in this. Germany's international broadcaster Deutsche Welle reported on its website on Tuesday that the Bundesbank is reacting to a recent report by the Federal Audit Office which has criticized the lender for failing to thoroughly check the amount and authenticity of the bullion stored abroad,.
While such checks would still be needed in the future, the Bundesbank would have more of its reserves under its direct control by bringing home some of its stockpiles. The central bank is to disclose more details of its plan on Wednesday.
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