Where's Germany's Gold?

In recent weeks pressure has been building on the German Bundesbank after the tabloid newspaper Bild started a media campaign questioning the location of Germany’s gold reserves. The country’s Federal Court of Auditors has started investigating official data on the subject, and will soon present its findings to the Bundestag's Budget Committee.

At the start of the week the Bundesbank itself commented on this investigation -- reconfirming that its official gold reserves are stored at the New York Federal Reserve, the Bank of England and the Banque de France. It has been five years since the bank’s last gold audit, and Bild's campaign is aimed at forcing greater transparency on this issue. Given the difficult situation currently facing the euro zone, the timing of the newspaper’s campaign is perhaps not surprising.

Germany's Gold
The German state owns just under 3,400 tonnes of gold according to the Bundesbank, worth approximately €135 billion at current market value. More and more, however, people are questioning whether the bank’s audit processes are reliable. Germans as well as other Europeans would perhaps be well advised to heed the implicit warning in the old Anglo-Saxon saying: “possession is nine-tenths of the law”.

During the Cold War the threat of a Soviet invasion of West Germany was an obvious reason for storing the nation's gold abroad. Come the fall of the Berlin Wall and the demise of the USSR, some gold was repatriated to Frankfurt, but the Bundesbank continues to argue that storage in London and New York in particular makes sense, because these are major gold trading centres where bullion can be sold easily if the need arises.

Rumours are circulating that the court of auditors will recommended that the gold be returned to Germany. Though it’s doubtful that Berlin will be prepared to act on this advice, it does raise the intriguing thought of Angela Merkel following in Charles de Gaulle’s footsteps, demanding delivery of gold from America. One wonders what kind of answer she would get.