German Gold Back In The News

A raft of disappointing U.S. corporate earnings results yesterday led to another bad day for “risk” assets, with stocks and commodities struggling. The Dow had its worst session in more than four months, losing 1.8% to close at 13,102.53. The euro struggled again, falling below $1.300, and is now trading under $1.295. Precious metals all suffered selloffs during morning trading in London, but stabilised over the course of the afternoon. Gold has found support around $1,710, but silver and the other metals as ever look vulnerable to weakening market sentiment.

Manufacturing PMI from China today was better-than expected (rising to 49.1 from 47.9 last month, though any number below 50 still signals contraction), but this good news has been offset by worse-than-expected eurozone data released this morning: the FT reporting that Germany’s composite PMI falling from 49.2 to 48.1 September to October, while the country’s Ifo index of business confidence has fallen for the sixth consecutive month, and is now at its lowest level since February 2010.

New York Stash
The Germans are also getting worried about their gold -- all of which is stored in New York, London and Paris (it is believed that the New York Fed holds around 1,500 tonnes of the 3,400-tonne total stash, with just 500 tonnes in London and the rest in Paris). A new report from Berlin’s Federal Auditors’ Office is critical of the Bundesbank’s oversight, noting that the gold has “never been physically checked by the Bundesbank itself or other independent auditors regarding their[sic] authenticity or weight." Instead, it relies on a "written confirmations by the storage sites." Several sections of the report given to politicians were blacked out, on account of supposed security concerns.

This James Turk article we published in June is highly relevant reading as far as this issue is concerned. Given tight supply and multiple positions credited to unallocated metal, it’s not overly conspiratorial to think that custodians might not be good for some (and perhaps even all) of the gold bullion that they’re supposedly holding on behalf of the Bundesbank and other central banks. German voters would be forgiven for taking their senior politicians' bland assurances with more than a pinch of salt.