Germany to repatriate gold worth €27bnBy Michael Steen in Frankfurt and Jack Farchy in London
On January 16, 2013 3:42 pm
http://www.ft.com/intl/cms/s/0/97970542-5fd2-11e2-b128-00144feab49a.html#axzz2IA9qegcjGermany’s Bundesbank will repatriate gold stored in foreign vaults in New York and Paris with a market value of €27bn by 2020, in a rare instance of the fiercely independent central bank bowing to popular disquiet about keeping most of its gold reserves abroad.
While insisting the decision in no way reflected any security or access concerns, the Bundesbank said all
374 tonnes of gold stored at the Banque de France would come home, as would some 300 tonnes out of a total of 1,500 tonnes kept at the New York Federal Reserve.
Germany is not the first country to repatriate its gold reserves. But others – including Venezuela, Iran and Libya – were typically reacting to fears of asset seizures as a result of international sanctions.
“In Germany, a lot of emotion is attached to the topic of gold reserves,” Carl-Ludwig Thiele, Bundesbank board member, told a news conference. “To hold gold as a central bank creates confidence . . . [We] build trust at home and have the possibility to exchange gold at short notice into foreign currency abroad.”
What is set to become one of the biggest planned gold transports on record will result in half of Germany’s gold being kept at the Bundesbank in Frankfurt and the other half split between the New York Fed and a smaller portion at the Bank of England.
Currently, the Bundesbank holds less than a third of the German gold, which was deliberately kept “as far to the west as possible” during the Cold War, Mr Thiele said. Before German reunification, 98 per cent of its gold was in foreign vaults.
The last big German gold transport was in 2000/2001 when the Bundesbank withdrew 940 tonnes of gold from the Bank of England. Unlike the Fed and the Banque de France, Britain’s central bank charges storage fees for gold and the move was partly to save money, according to federal auditors.
Mr Thiele declined to say how much the transport operation would cost, although traders estimated shipments could cost about $5m-$10m. He also declined to give details on how exactly the gold would be moved, citing security concerns.
“There are certain risks in transporting it and that means there will be insurance costs involved too,” he said. “But in relation to the value of the gold we say this is economically do-able for the Bundesbank.”
The
Bundesbank came under public pressure last October after federal auditors questioned the degree of oversight the bank had over its foreign gold holdings, the second-biggest such reserves in the world, which the central bank keeps on behalf of the state.
“There was a public debate but we made this decision ourselves,” Mr Thiele said. “This was an independent decision.”
The withdrawal of all gold from Paris reflected the fact France and Germany shared a currency in the euro so there was no need to store the gold in Paris to facilitate exchanging it for foreign currency, he said.
That rationale does still exist for the gold reserves in New York and the 445 tonnes still held in London.
Moving some of the New York gold would allow the German central bank to make use of extra capacity in its vaults in Frankfurt after IT equipment was moved to a new building, the bank said.
The country had no gold reserves after the second world war but started building reserves in 1951. While it favoured storing gold in New York, Paris and London, it did not move any gold there but acquired it locally.
Since 1973, the Bundesbank has not bought or sold any gold, other than 5-6 tonnes a year that it sells to the finance ministry to be used for making gold coins.
The 674 tonnes of gold that Germany is proposing to move is equivalent to about 54,000 standard 400-ounce bars. Gold traders said that moving the bullion from Paris to Frankfurt could be done relatively easily by truck, while transporting it from New York would probably be done by aircraft.
If Germany was moving the gold using a commercial security company, traders said it would need to transport the gold in many trips as its high value means it is impossible to insure more than 3-5 tonnes per shipment. It would take several dozen shipments to move 300 tonnes of gold from New York to Frankfurt, traders estimated.
In 2011, Venezuela’s president Hugo Chávez ordered some 160 tonnes of the country’s gold reserves held in New York and London to be
shipped back to Caracas, a transfer that was completed last year. Iran moved some of its gold back to Tehran from Switzerland in 2005.
The cost of the operation is likely to be small relative to the value of the cargo. Venezuela’s repatriation – which traders said would have been more expensive because of the longer distance and the lack of direct flights from London to Caracas – was said to cost about $9m.
