Germany's Gold 2020: Focus on "Confidence" & Liquidity

GERMANY'S Bundesbank – the world's second-largest holder of physical gold after the United States – today confirmed plans to "redistribute" its Gold Bullion reserves away from Paris and New York to Frankfurt.

The 13% of its 3,391-tonne hoard currently in London will remain at the Bank of England.

"By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany," says the central bank on its website.

"The other half will remain in storage at its partner central banks in New York and London."

Some 11% of Germany's gold reserves – built up during the country's long economic boom after the Second World War – are currently held at the Banque de France in Paris.

But "given that France, like Germany, also has the Euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial centre in which to exchange gold for an international reserve currency," says the German central bank.

Germany's gold reserves currently total 3,391 tonnes according to data compiled by market-development body the World Gold Council. Unlike all other major Eurozone states except Italy, Germany did not sell any of its gold reserves when the price of Gold Bullion hit 20-year lows in the late 1990s and early 2000s, around the time of the single European currency's launch.

Unlike France and Spain, nor did Germany sell any gold (other than for commemorative coins; sales totalled 8 tonnes in 2012) when the gold price turned higher a decade ago.

With the numbers given in today's news release suggesting that Germany has no plans to sell any gold in future, the Bundesbank also said that by 2020 it will cut the proportion of its gold reserves held at the New York Federal Reserve from 45% to 37%.

"To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt," its announcement says. That would leave 1,236 tonnes at the Federal Reserve Bank of New York in Manhattan, with the current 450 tonnes in London remaining at the Bank of England.
 
"This new storage plan," says the Bundesbank, "is focus[ed] on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time."

A member of the European Union but still issuing the Pound Sterling – the world's 3rd most popular reserve currency after the US Dollar and Euro by value – the UK hosts both the world's major foreign exchange and physical bullion markets in London. There, members of professional trade body the London Bullion Market Association deal some $240 billion-worth of gold between them each day, according to a spring 2011 survey.

The Bank of England is London's primary storage site for physical gold bullion, far outweighing even the major market-making bullion-bank providers led by HSBC and J.P.Morgan. At last (public) count in February 2012, the Bank was vaulting some 5,015 tonnes of large-bar gold.

Barely 310 tonnes belong to the British taxpayer. The rest is cared for on behalf of other governments and central banks, as well as commercial banks and their clients wanting both the security of the Bank's deep underground vaults as well as the deep liquidity of the wholesale London market.