If you turn on the news or open up a newspaper, you will find something about Germany’s recent announcement that they want their gold back on German soil.  Ever since the beginning of the Cold War, when Germany feared that the Soviet Union could breach the Berlin Wall and cease control of the country, most of the country’s gold supplies have been kept outside of Germany’s borders.  With 3,396 tons of gold, Germany has the second largest gold reserve on the globe (America holds the number one spot with 8,133 tons), but only 31 percent of it is kept locked away by the Deutsche Bundesbank in Frankfurt.  45 percent of its holdings are in New York, London is holding onto 13 percent, and Paris has the remaining 11 percent.  With last week’s announcement, Germany plans to increase its holdings to 50 percent by 2020.

How they plan to achieve this is by removing its entire reserve of 374 tons from Paris back to Germany and roughly 300 tons from the Federal Reserve Bank in New York.  The move will cut Germany’s share of gold in the United States to 37 percent, which is still a large amount, and will be the largest planned transport of gold ever recorded with an estimated value of $36 billion of gold bars.

Should the United States and the Rest of the World Be Concerned

Not long after the news broke out, many journalists and bloggers were quick to offer their opinions on what the motivation was behind Germany’s decision.  The official reason given by the Bundesbank was that removing its gold reserves from France is just a natural consequence of the Euro, and since the two countries use the same currency, Germany wants to be able to have quick access to their reserves in case the need arises.  As for the relocation from the US, the Bundesbank claims that is only part of their larger goal of keeping 50 percent of their gold reserves on German land.

Although that is the official reasoning given by the Bundesbank, others feel there is more to the story.  You may have heard the term “currency war” thrown around by various media outlets.  A currency war, or more officially known as competitive devaluation, is when countries compete against each other for low exchange rates on their own currency.  In the short-term, countries with a very low exchange rate end up seeing much higher prices on imported goods which give a boost to domestic industries and products, and in return creates new jobs locally.  In the long-term it ultimately leads to a decline in international trade which would be negatively felt across the globe.

The move could also signify Germany’s lack of trust in not only the Euro but also the US dollar and America’s financial stability.  Other foreign governments have already expressed their concerns with about recent policy decisions by the US Fed and the dysfunctional political environment in Washington DC.  Germany has already had to do too much to bail out failing economies in the eurozone, and perhaps they are troubled with what may happen soon in the US.

Others believe Germany is troubled with whether or not their oversees gold, especially its holdings in the United States, are still in existence.  Back in October of 2012, federal auditors questioned the Bundesbank on whether bank officials have actually seen the gold that they are being told is kept safe.  This stems from the belief held by some that the gold stored by the Fed may not actually be there and instead has been lent out to others.  These people may be called conspiracy theorists or crackpots, but the fact that the US Fed has turned away all calls for an audit adds some credibility to the belief.

How Germany Plans to Bring Its Gold Home

The thought of transporting 674 tones of solid gold bars sounds like a fitting plot for a Hollywood heist movie.  1995′s hit movie “Die Hard: With a Vengeance” was centered around a group breaking into the Federal Reserve Bank and hauling out $140 billion worth of gold bars in dump trucks.  Or maybe it would make a great plot for “Oceans 14″.  With the move being publicly known, it surely has caught the attention of more than just Hollywood.

Actually, this isn’t Germany’s first move of Gold in recent years, and is not the largest.  Between 1998 and 2001, Germany slowly transported 850 tons of gold from London to the Bundesbank in Frankfurt.  The difference between that move and the upcoming transport is that it was kept secret and wasn’t even known about until just recently.  This time the move will be a bit riskier.

Germany and the Bundesbank are still exploring their options for transport, and while we will probably be kept from knowing the exact plans until to move is fully complete, you can probably rule out any oceanic shipments.  The country’s largest airline, Lufthansa, has already offered to assist in the transportation of gold from the US to Germany, and spokesman Michael Goentgens commented that ”We have specific containers for such cargo, then teams accompanying the cargo until the plane’s loaded and ready to take off, then people waiting where the plane lands.”

No matter what route Germany plans to take in moving its 674 tons of gold, it isn’t going to be easy.  It will be done in small amounts, probably 60 to 100 flights carrying 3 to 5 tons at a time, which is the maximum amount that can be insured at a single time.  The small shipments should hopefully keep the move less obvious and reduce some risk, but of course it still all depends on whether or not the gold is still where its said to be.

Source: CNBC, MSN, FT, Current 
Photo by Agnico-Eagle via Wikipedia