The financial world this month was shocked by the request of the German Bundesbank to repatriate a large proportion of its gold that is stored outside the country. By 2020 Germany wants to return 50 percent of their total reserves back in Frankfurt, including 300 tons from the Federal reserve. The announcement of the Bundesbank about this happened only 3 months after the fed refused to provide an audit of German gold reserves.
It seems that Germany is returning to the reality, which is used to prepare the Central banks around the world: the dollar no longer is a global asset-a safe haven and the American government is not a trustworthy banker for foreign Nations. Looks like their fears are justified, considering, apparently, the inability of the fed to timely return what rightfully belongs to Germany. Germany, a developed and powerful country with the second largest gold reserves in the world. If they cannot rely on Washington to his promises, who can?
Where is Germany's gold?
The effect of the decision of Germany to repatriate gold revolves around the question unanswered: why to complete shipment needs seven years?
A popular explanation is that the fed has already re-mortgaged all their gold reserves in other countries. That is, the same ingots promised many other investors. Because the fed in its existence depends on the banking system of fractional reserve, it should be no surprise that she became a fractional reserve Bank. If so, then Germany might politely asked for a 7-year period, the fed was able to save face, and prevent panic RAID other holders demanding them to return their gold.
Now the fed can always print more dollars to buy gold on the open market, offsetting any shortfalls, but such a step will significantly increase the price of gold. And the last thing the Fed would need is another spike in the price of gold, which would remind the world about the decline of the dollar.
Leaving aside assumptions
None of these theories are not supported by facts, but anyway, request Germany to return the gold does not Bode well for the future of the dollar. In fact, the official statement of Bundesbank, is all that is necessary to confirm the weakening of the faith of the Germans in the United States.
In October last year, after the Bundesbank had requested to audit their gold, Executive Board member Carl-Ludwig Thiel asked why the Bank keeps so much of the German gold abroad. His answer stresses the importance of the dollar as world reserve currency:
The til statement may lead us to only one conclusion: by keeping fewer reserves in the US, Germany foresees less need for "denominated in US dollars liquidity". "Gold stored in your home safe is not immediately available as collateral in case you have a need for foreign currency. Take, for example, the key role that the dollar plays in the global financial system as the reserve currency. Gold stored at the fed in new York, in the event of a crisis, be pledged to the Federal reserve Bank as security denominated in U.S. dollars liquidity" (Incoherence of the text of the author; approx. mixednews.ru).
History repeats itself
The whole situation just repeats the late 60s, the period that led to the "Nixon Shock". At that time the world lived in the conditions of the Bretton woods system – an attempt by Western countries to link the dollar to gold at a fixed rate while allowing the metal to trade privately as a raw material. This led to the gap between the market price of gold as a commodity asset, and the official price of the US Treasury.
As the real price of gold moves further from the official rate, the world began to realize that the system is unsustainable, and many have begun to suspect that the US really can't keep a strong dollar. West Germany was the first to bother to exchange their dollar reserves for gold, and then her reached France, Switzerland and others. In the end, this resulted in the fact that in 1971 Nixon "closed the gold window", ending the link between the dollar and gold. This "Nixon shock" spurred chronic inflation throughout the ' 70s and the current rise of gold.
It seems that the entire international community is thinking back in the 60s, because Germany isn't the only country that today is drifting away from the dollar. The Netherlands and Azerbaijan will also discuss the repatriation of its foreign gold reserves. And every month we hear that the Central banks continue to accumulate their gold reserves. The latest are Russia and Kazakhstan, but in the past year, countries from Brazil to Turkey increased their gold reserves, diversifizierung away from unsecured paper currencies.
And don't forget about China. Once the biggest buyer of us bonds, now he is a net seller "Kazachek" while helping himself to the gold.
Unlike the 60s, today there is no official gold window would be closed. There will be no "shock" to indicate free flight of the dollar. This requirement is Germany may be the closest indicator we can get.
Until you try, you never know
Last month I wrote about the three pillars that support prolonged low interest rates the fed: the fed, investors within the country and foreign Central banks led by Japan. Then I talked about how Japan's planned radical devaluation of the yen could undermine the country's ability to continue to buy bonds that can make other pillars of the same unstable.
While private investors and even the fed I believe U.S. Treasury bonds are still a viable investment, the news about the German repatriation are given to understand that the foreign state no longer buy into the propaganda. Why should they? If anyone should understand what limitations face the United States that the governments of other countries.
American investors should be shocked by the deception fed the same way as the Bundesbank. Although we may not exchange fed dollars for our gold, we, nevertheless, can still buy gold on the open market. As more and more investors and governments choose to store their savings in precious metals, the value of the dollar will become smaller and smaller, accelerating, thus, the flight of investors into precious metals. That's when a handsome range, which for generations anchored the dollar, will turn into a vicious circle.
Tags: financial center , crisis , Germany