“But with Europe stumbling from crisis to crisis, the German public has grown uneasy about keeping the gold abroad. Some even argue the world’s second biggest bullion reserve may be needed to back a new deutschmark, should the euro zone break up.“ – Reuters, 2-9-2017
“Germany has a stronger relationship with gold than most nations. The country’s experience with hyperinflation between 1919 and 1923, during the years of the Weimar Republic, is ingrained in the national consciousness. Gold, above all, stands for stability” – Financial Times, 11-10-2017
Germany completed its scheduled transfer of national gold reserves from the New York Fed and the Bank of France in 2017. It will now leave 1236 tonnes at the New York Fed and another 432 tonnes in London. The remainder of its 3378-tonne national holding will be stored in Frankfurt. The repatriation transfers to Frankfurt were completed three years ahead of schedule.
With respect to the gold left at the Fed, Bundesbank’s Carl-Ludwig Thiele told reporters: “We have a lot of discussions about (U.S. President Donald) Trump, regarding implications on monetary policy, macroeconomics, etc., but we trust the central bank of the U.S.”
Thiele’s confidence in the Federal Reserve brings to mind an old story about Germany’s relationship with the Federal Reserve and the storage of its gold reserves. When Hjalmar Schacht, head of Germany’s central bank in the 1920s, visited the New York Fed he asked to see Germany’s gold stored in its vaults.
“Strong**,” wrote Schacht in a 1955 autobiography, “was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked: ‘Now, Herr Schacht, you shall see where the Reichsbank gold is kept.’” Storage staff went off to retrieve the gold. “At length,” Schacht goes on, “we were told: ‘Mr. Strong, we can’t find the Reichsbank gold.’” To which Schacht replied: “Never mind; I believe you when you say the gold is there. Even if it weren’t you are good for its replacement.”
One need presume that nearly 100 years later, the level of trust conveyed by Schacht remains in place. It is unlikely that Germany would depart the euro anytime soon and back a new Deutschmark with gold. Having an asset set aside, though, that is detached from erratic national currencies in this day and age is a wise move for the prudent nation-state – just as it is for the prudent private investor.
** New York Fed president at the time, Benjamin Strong
Repost from 2/10/2017, updated October, 2019. The Financial Times article linked at the top of the page tells the fascinating inside story of Germany’s gold repatriation.
“‘If you look at gold on a very long-term basis, there is literally very little correlation between interest rates and gold,” Boris Schlossberg said Monday on CNBC’s ‘Power Lunch.’ ‘Basically, gold rose when interest rates rose in the ’70s, gold rose when interest rates declined in the ’90s,’ so the likely effect of Fed rate rises isn’t straightforward.”
MK note: One of the lessons I can pass along from many years watching the gold market, and working within it as a purveyor of the metal, is that none of the well-worn mantras and correlations carry much value in predicting short-term prices. For the most part, they are simply fodder to fill the trough of journalists charged with the responsibility of providing an explanation, realistic or not, for any given day’s market performance. In that respect, Mr. Schlossberg breaks down in one neat sentence the relationship between gold and interest rates, i.e., there isn’t one. That will not keep the Fed from jawboning, nor will it curtail market speculation on the prospective results – whatever course the central banks ultimately takes.
Only the wisdom meted out by the market itself in countless situations down through the centuries carries any real value with respect to gold and gold ownership. In the end, the most enduring lesson history teaches us about gold is that it will protect its owners over the long run no matter what the central banks and governments dish out in the way of failed, or even successful, economic policy. It really gets down to a simple notion: One either believes in the transcendence of gold when it comes to matters economic, or one does not.
That is why the quote on our home page from Thomas Bailey Aldrich has been enshrined there nearly from day one of this website: “The possession of gold has ruined fewer men than the lack of it.” That simple bit of advice has not only protected our clientele over the years; it has built significant wealth. The Fed might attempt to put a stop to gold’s run in terms of the price, but it cannot put an end to global demand, or dislodge the metal of kings and the king of metals from the place it holds in the human heart.
“It’s not will it happen, but when it will happen.” – Carl Icahn
MK note: I would like to add my endorsement of Carl Icahn’s video presentation to Pete’s (below). The title for the video is “Danger Ahead” and in it Icahn delivers a chilling analysis of where the actions of the Federal Reserve, Wall Street and America’s major businesses are likely to lead us. He also offers some ideas as to what can be done to alter the financial situation, i.e., “the dysfunction,” as he calls it, prominent in Washington and in America’s corporate boardrooms. Icahn notes that financial leaders in 2007 and 2008 did not warn the people and he wants to make sure that this time around financiers in the know, people like himself, fulfill their responsibility to get the word out and give investors time to act.
This is the man Donald Trump has named publicly as his choice for Secretary of the Treasury if he is elected president. Icahn came out recently as endorsing Trump for president. In this video he says Trump will wake up the country as to what’s going on and likens him to Teddy Roosevelt – someone who is not afraid to say “this is complete bullshit.”
If you decide to take Icahn’s advice to prepare, you should not just consider what you might want to sell, but what you might want to buy. If gold and silver come to mind, so should USAGOLD. Helping investors properly balance their portfolios is is what we are good at. Call the Trading Desk to have your questions answered, receive the proper advice for your particular situation.
MK note: If you want to hear it straight from the horse’s mouth, this is the interview you’ve been waiting for. It brings home the reality of the global physical supply problem and what its repercussions might be from the vantage point of an operating manager for one of the world’s top gold refineries. It is interesting to note that the gentleman interviewed, who sits at the center of the massive movement of physical metal from West to East, states that he “still cannot understand” how the price can be where it is today in the face of the massive demand he is witnessing first hand. Don’t miss this one. . . . . .
Mainstream America is being cooked slowly alive. . . .
“If zero interest rates become the long-term norm, economic participants will soon run on empty because their investments aren’t producing the gains or cash flow needed to finance past promises in an aging society, he wrote in an investment outlook on Wednesday for Denver-based Janus Capital Group Inc. That’s already beginning to happen in the developed world, where Detroit, Puerto Rico, and, he predicts, soon Chicago, struggle to meet their liabilities.”
MK note: This is the other side of the interest rate coin. If the Fed raises rates, all hell will break loose. . . . .And, if the Fed stays in the zero bound, all hell will break loose. Heads I win; tails you lose. Maybe we should recognize that France, Japan, Detroit, Puerto Rico and Chicago (to name a few) are likely to encounter difficulties no matter what the Fed does simply because from a business point of view governments far and wide have been poorly managed. As for the private investor, Gross is right when he points to the lack of return as a major problem among ordinary investors. We are made aware of it every day by prospective investors concerned about where the stock and bond markets might be headed, knowing full well there isn’t much in the way of yield available anywhere.
I quoted him frequently in my writings, as did a lot of other people simply because somehow everyone knew what he meant and you really couldn’t argue with his logic. Some of the best from one of America’s preeminent philosophers, Yankee great, Yogi Berra (1925-2015):
On his approach to at-bats: “You can’t think and hit at the same time.”
On selecting a restaurant: “Nobody goes there anymore. It’s too crowded.”
On economics: “A nickel ain’t worth a dime anymore.”
On the 1973 Mets: “We were overwhelming underdogs.”
On how events sometimes seem to repeat themselves “It’s deja vu all over again!”
On baseball attendance: “If people don’t come to the ballpark, how are you gonna stop them?”
On a slipping batting average: “Slump? I ain’t in no slump. … I just ain’t hitting.”
On travel directions: “When you come to a fork in the road take it.”
On pregame rest: “I usually take a two-hour nap from 1 to 4.”
On battling the shadows in left field at Yankee Stadium: “It gets late early out there.”
On fan mail: “Never answer an anonymous letter.”
On being told he looked cool: “You don’t look so hot yourself.”
On being asked what time it was: “You mean now?”
On being given a day in his honor: “Thank you for making this day necessary.”
On a spring training drill: “Pair off in threes.”
On his approach to playing baseball: “Baseball is 90 percent mental. The other half is physical.”
On death: “Always go to other people’s funerals. Otherwise they won’t go to yours.”
On learning: “You can observe a lot by watching.”
On his team’s diminishing pennant chances: “It ain’t over `till it’s over.”
On the fractured syntax attributed to him: “I really didn’t say everything I said.”
From Fox News/9-23-2015