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February 27, 2017

The mystery of the German gold rush

By Olenka Hamilton

With Marine Le Pen on the march in France and the euro imperilled like never before, the Germans are bringing home their gold with alacrity, writes Olenka Hamilton

With the prospect of Front National candidate Marine Le Pen becoming the next French president – and of France therefore quitting the euro – is it a coincidence that Germany is due to complete its biggest ever gold repatriation programme years ahead of schedule?

Beginning in 2013, Germany has been shipping its gold home to Frankfurt from the US and France, where it’s been since the Cold War, with the goal of repatriating 300 tonnes from New York and 374 tonnes from Paris by 2020.

With characteristic efficiency, the transfer from New York is already complete – three years earlier than scheduled. Meanwhile, just 91 tonnes remain to be shipped over from Paris to finish the job, just in time for Marine Le Pen to take the throne. Very convenient.

Perhaps it’s only natural that the Germans want their gold within reach given the political situation. While the Germans are up to their necks in the euro, gold is a proven long-term store of wealth, which governments have historically turned to in times of economic crisis. It’s also very liquid which means, if the euro fails, Germany’s gold stores could be used to buy dollars or back a new deutschemark, for example. Perish the thought.

The de facto leader of the currency bloc, Germany knows the limitations of the euro better than anyone. Many ordinary Germans are sick of bankrolling Europe’s weaker economies and have simultaneously, it transpires, become uneasy about keeping their gold abroad. As a result of public pressure Berlin announced in 2012 that it wanted its gold where it could see it – and it began bringing home the gold.

And naturally enough, the official line from the Bundesbank is that it’s got nothing to do with the euro. ‘Germans are a risk-averse people,’ confirms Ross Norman, one of the world’s top gold forecasters and CEO of German-owned London gold trader Sharps Pixley. They are, he says, four times more likely to save as British people, and it’s quite ordinary for Germans to buy physical gold to ensure their financial security.

Let’s not forget – because our Teutonic friends haven’t – how in Weimar Germany hyperinflation soared to the extent that the German people were forking out 200,000 million marks for a loaf of bread. God forbid they’ll be digging out their wheelbarrows again.

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So it’s not surprising that Germany has the biggest single central bank holding of gold in the world after the US, which amounts to 3,390 tonnes, ten times that of the UK.

And the Germans aren’t alone. Klaas Knot, Governor of the Dutch Central Bank, confirmed in an interview in 2014 that in 2012 the Netherlands had made concrete emergency plans for the event that the euro crashed. Not long after, the repatriation of gold began. Austria has since followed suit. (The Belgians talk about it, too, but no action has yet occurred.)

There are those who believe holding onto gold is an outdated and largely pointless activity for governments. Gordon Brown certainly thought so, which does make you wonder whether the cautious Germans are on to something. Either way, one thing’s for sure: with a stash that’s valued at $150 billion and all the uncertainty out there, it’s no surprise they want it just where they can get their hands on it.

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