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Handelsblatt report translated; and a statement by German gold repatriation advocates

Submitted by cpowell on Tue, 2013-01-15 13:59. Section: Daily Dispatches

9a ET Tuesday, January 15, 2013

Dear Friend of GATA and Gold:

Below are, first, an English translation by the German financial journalist Lars Schall of yesterday's report in Handelsblatt about the Bundesbank's plan to retrieve German gold vaulted abroad, and, second, a response by Peter Boehringer, founder of the German "Repatriate Our Gold" campaign.

CHRIS POWELL, Secretary/Treasurer

Gold Anti-Trust Action Committee Inc.

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Bundesbank Wants to Bring German Gold Back

From Handelsblatt, Dusseldorf

Monday, January 14, 2013

http://www.handelsblatt.com/politik/deutschland/reserven-bundesbank-will...

The Bundesbank has worked out a new concept by which it wants to store its gold reserves in the future. According to information of the Handelsblatt (Tuesday edition), this concept, which will be announced Wednesday, intends to strengthen the domestic locations and store less gold in New York and even to store no gold at all in Paris.

The central bank thereby reacts to a report of the Federal Court of Audit, which surveys the financial statements of the Bundesbank and had advised the bank to prepare and document a current concept of depositories.

Currently the gold of the Bundesbank is stored, according to its statements, in New York, London, Paris, and Frankfurt. At the U.S. central bank 45 percent of the total 3,396 tonnes of gold are stored; at the Bank of England in London 13 percent; at the Banque de France in Paris 11 percent; and 31 percent at Bundesbank headquarters in Frankfurt. This distribution is about to change now.

Bundesbank board member Carl-Ludwig Thiele already said last fall that there was no compelling reason for storage in the French capital. Originally, the Federal Republic of Germany distributed its gold during the Cold War and the division of Germany for security reasons to various partner countries, including France. This argument does no longer apply. Another argument against Paris: Unlike in London or New York, in the event of a world currency crisis the Bundesbank would receive no foreign exchange.

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Statement by Peter Boehringer

Founder, Repatriate Our Gold, Germany

Wednesday, January 15, 2013

Repatriate our Gold -- http://www.gold-action.de and http://www.gold-action.de/campaign.html -- is of course satisfied with the development at the Bundesbank. This is a huge success that would have been almost beyond imagination 1 1/2 years ago when we started our initiative.

But:

1) The Bundesbank has not yet given details of this repatriation.

2) It is unfortunate that obviously the Bundesbank still does not plan to publish official gold bar number lists, which are important to prove or disprove double ownerships of bars and loans of German gold bars abroad that could have been used to manipulate the price of gold in the past.

3) There is no word about a proper physical and independent audit of gold in the Bundesbank's own vaults.

We will see how things develop. But we are proud of the success so far.

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January 14, 2013

As for gold, below, it continues to find support at its red 200-day moving average. Its first upside target is to get over 1700. Getting above the blue declining trendline would help. The full stochastics at the bottom of the chart look bullish.

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It Begins: Bundesbank To Commence Repatriating Gold From New York Fed

Submitted by Tyler Durden on 01/14/2013 20:32 -0500

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed - because if the central banks don't have faith in one another, why should anyone else? - trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi's Goldmanesque demands to allow implicit monetization of peripheral nations' debts has just "returned the favor" by launching the greatest physical gold scramble of all time.

From Handelsblatt:

Die Bundesbank hat ein neues Konzept ausgearbeitet, wo sie k�nftig ihre Goldreserven lagern will. Nach Informationen des Handelsblatts (Dienstausgabe) sieht dieses Konzept, das am kommenden Mittwoch bekanntgegeben werden soll, vor, den heimischen Standort aufzuwerten, in New York daf�r weniger Gold zu lagern und �berhaupt kein Gold mehr in Paris zu horten.

Derzeit lagert das Gold der Bundesbank ihren Angaben zufolge in New York, London, Paris und Frankfurt. In der amerikanischen Notenbank Fed lagern 45 Prozent der insgesamt 3.396 Tonnen Gold, in der Bank of England in London 13 Prozent, in der Banque de France in Paris elf Prozent und im Hauptsitz in Frankfurt 31 Prozent. Diese Verteilung soll sich nun �ndern.

We present it in the original for fear of losing something in translation, but in broad English terms the above reads as follows:

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

There is no need to explain why this is huge news (for those who have not followed our series on the concerns and issue plaguing German gold can catch up here, here, here, here, and certainly here) . At least no need for us to explain. Instead we will let the Bundesbank do the explanation. The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher L�nder, the Bundesbank's predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany's gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

And in case the above was not clear enough, below is the speech Buba's Andreas Dobret delivered to none other than NY Fed's Bill Dudley in early November:

Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany - a discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a "phantom debate" on the safety of our gold reserves.

The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end - and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the Fed [ZH may, and likely will, soon provide a few historical facts which will cast some serious doubts on this claim. Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also grateful for your uncomplicated cooperation in so many matters. The Bundesbank will remain the Fed's trusted partner in future, and we will continue to take advantage of the Fed's services by storing some of our currency reserves as gold in New York.

Incidentally, what Zero Hedge did provide after this article, was factual evidence that the Buba's very much "trusted partner" had been skimming it on physical gold deliveries on at least one occasion, in "Exclusive: Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambiguous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

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James Turk On Why Bullion-Buying Central Banks Fight High Gold Prices

Written by Drew Voros  | January 14, 2013

Founder of bullion-dealer GoldMoney says reserve banks know rising gold prices are reflection of their failed policies.

James Turk is founder and chairman of GoldMoney.com, which is a European-based precious metals firm that presently safeguards $2.1 billion of precious metals assets owned by customers. Turk is a popular speaker at conferences as well as on radio and television. His latest book is "The Collapse of the Dollar." HAI Managing Editor Drew Voros caught up with Turk to discuss central bank gold buying, the debasing of the dollar and why he favors silver over gold.

HardAssetsInvestor: What is the issue in the gold market that most concerns you?

James Turk: The biggest issue is government policy. It's been quite clear that governments have been trying to keep the gold price from rising. But it's inevitable the gold price will rise when national currencies are being debased, as they all are being now. And rather than let the free-market forces take over, governments are trying to deny reality. They're trying to force the market into thinking that gold really isn't worth what the market says it's worth. Governments are engaging in anti-gold propaganda and various interventions. It's exactly like the 1960s, which I lived through and remember well.

HAI: Why would a central bank, which presumably is also buying gold for its reserves, want the price to be lower? Isn't that an investment that the bank has as well?

Turk: First of all, gold is not an investment.

It's money. It's not an investment because it's a sterile asset. It doesn't generate cash flow. It doesn't have a balance sheet, management team, PE/ratio or anything like that. And in fact, gold doesn't create wealth. Money doesn't create wealth until you put it at risk. Money only creates wealth if you invest it or you lend it or you deposit it. But gold itself doesn't create wealth. Dollars don't create wealth unless you deposit them in a bank, lend it to somebody, or invest it in securities. It's the same thing with gold.

Central banks own some gold, but they own it because of the legacy issues when the dollar and all national currencies used to be backed by gold. That formal link to backing gold was broken back in 1971 by President Nixon. And ever since then, national currencies have been dependent upon government promises rather than physical metal in the vault.

The physical metal that's actually sitting in central bank vaults is a reserve. That's why the central banks around the world are called the Federal Reserve, or the Reserve Bank of Australia, or the Reserve Bank of India. They are each bank's reserves, so that if there are problems with the paper currency, or the deposit currency that's circulating, the bank can always rely on the physical gold reserves to rebuild or reconstruct the monetary system.

You have to look at gold from that point of view. The reason central banks want to keep the gold price down is that in this fiat currency world in which we live, a rising gold price is an indication that a currency is losing purchasing power and that central bankers are doing a poor job managing the currency's purchasing power. Central bankers don't like to have that red flag waved when the gold price rises, because governments today rely on the power of creating money out of thin air to fund their deficits and meet their spending aspirations.

HAI: But they're caught in a Catch-22, right? They don't want a high gold price, but they are constantly introducing monetary-easing policies that fuel higher gold prices.

Turk: You're absolutely right. And the way I describe it is that there's a war going on between the gold market and central bank policy. While the central banks win an occasional battle or two, they are losing the war. I describe this war as a managed retreat. Gold is up 12 years in a row at an average annual appreciation of 16.8 percent. What that shows is how badly the purchasing power of national currencies is being eroded.

HAI: Why have we seen such a muted reaction in the last three months with gold prices, when coming off the heels of QE3 and QE4, certainly around the globe, Japan and other places are in the same theme? Why has it stopped reacting? Or has it?

Turk: Gold hasn't lost any of the attributes or characteristics that make it useful. What you're seeing is just the latest battle in this ongoing war. The central planners are out in full force. The last thing they want to have happen when announcing QE3 or QE4, is to see the gold price rocket, because that's going to send a message around the world that currencies are being destroyed. So they intervene as much as possible, to keep that from happening, to try to control the gold price. But even though they're trying to control the gold price, that hasn't kept the gold price from rising 16.8 percent per annum on average over the last 12 years. Because central banks are not addressing the underlying causes of the problem here-that government spending is out of control-you're going to see a rise in gold price in 2013 as well.

HAI: You wrote an extensive report questioning the accuracy of the above-ground gold stock, which of course is in direct correlation to what central banks own. Are you saying that central banks don't have as much gold as they say they do?

Turk: There are two elements to your question. The first is looking at the overall, above-ground gold stocks. That's important to know, just like it's important to know the total quantity of euros in circulation, or the total number of dollars in circulation. Because once you know the total above-ground stock of gold, you can relate it to the total above-ground stock of the national currencies, and make some determination as to whether gold is cheap or expensive, compared to those currencies.

This relative value can be determined by my Fear Index. I look at it, usually, just against the U.S. dollar, but you can do it globally as well. The Fear Index is still very low, suggesting that gold is still undervalued relative to fiat currency. That explains the importance of knowing the total above-ground stock of gold.

The second part of that question is, How much do central banks actually own? My view is that central banks own a lot less gold than they say they do. They don't accurately report on their balance sheet how much gold they have in the vault, and how much gold they've taken out of the vault and loaned to various participants in the bullion market. There's a big difference between having physical gold in the vault and having somebody owe you physical gold. The fact that central banks don't really report how much physical gold they really have creates a huge uncertainty in the gold market.

HAI: When you say central banks lend it, to whom would they lend it?

Turk: Well, they lend it to bullion banks, which in turn lend it to various fabricators. The fabricators turn it into bars, coins, high-karat jewelry and disburse it to millions of people around the globe. That's why you have to assume this gold is never going to come back to the central banks. Let's put some numbers behind it in order to put it into perspective.

Central banks say they own about 30,000 tonnes of gold. The above-ground stock of gold is approximately 156,000 tonnes of gold. Now, the reality is that central banks probably own no more than 15,000 tonnes of gold and it could very well be less than that. The rest of that gold, or 141,000 tonnes, is held by countless individuals and institutions around the globe.

HAI: What would you say to an investor, rubbing his chin, saying to himself, "Should I buy bullion or a gold-backed ETF or both?"

Turk: The investor first has to ask himself why he is buying bullion in the first place. Why does he want bullion in his portfolio? Does he want to trade bullion in order to gain some exposure to the gold price, and try to profit from ups or downs in the fluctuations of the gold price? Or, is he looking for a bedrock asset that doesn't have counterparty risk, and puts wealth outside the monetary and banking system today?

Now, if you're a trader, products like an ETF, futures contracts, options-all of those things, they're the right tool for that particular job. But if your objective is to get a safe haven with no counterparty risk, again, you have to get the right tool for the job, which is to own physical metal, because only physical metal avoids counterparty risk. So it's really just using the right tool for the right job. And every individual has to ask what they want to accomplish by having exposure to gold.

HAI: What would it cost to store $10,000 of gold in your vault?

Turk: The annual storage fee is 15 to 18 basis points, which is less cost than the typical gold ETF.

HAI: How have physically backed gold ETFs impacted the gold market's supply and demand equation?

Turk: It provides people with more exposure to the gold price. But if you actually do a correlation between the weight of gold in the ETF and gold prices, over long periods of time, there is little correlation. Sometimes you'll see the gold price going up, with no changes in the weight of metal going into the ETF. And you'll see other periods of time when there's weight of metal going into the ETF, and there is no change in the gold price.

HAI: When we talked earlier last year, you favored silver over gold. Do you still feel that there's a better upside to silver?

Turk: I do. Gold was up 7 percent last year, and silver was up 8.2 percent. So it has outperformed. I expect silver to continue to outperform. However, silver has greater risk because of the extra volatility. The way I describe it is that if owning gold is like flying in a 747, silver is like flying in an F-16. That volatility is not for everybody. But higher risk typically means a higher return. So I expect silver to outperform going forward.

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