Investment Contrarians

Gold Bullion Held Within America; Foreign Countries Question How Much Is Really There

By for Investment Contrarians |

Gold BullionWith the rise of instability within the European Union (E.U.), gold bullion has become increasingly attractive as a backstop. Next to America, Germany has the second-largest holding of gold bullion, with approximately 3,600 metric tons. What is interesting at the current moment is that many voices within Germany are calling for the Bundesbank, its central bank, to check its international holdings, namely in the U.S., as not all of the gold bullion held by Germany is being stored on the country’s own soil.

A recent report by the German Federal Audit Office criticized the Bundesbank for its lack of a better international inventory system. While the German central bank has a strong handle on its domestic gold bullion inventory, its knowledge of its holdings in other countries, especially the U.S., is not as thorough as some would like. (Source: “Why Germany Wants to See its US Gold,” Der Spiegel, October 30, 2012.)

With gold prices at very high levels, there is a greater concern to ensure the accuracy of the level of gold bullion actually being held. With approximately half of Germany’s gold bullion being stored in America, the lack of proper auditing by German officials worries some within Germany.

Of Germany’s 3,600 metric tons of gold bullion in total, 1,536 are being held at the Federal Reserve Bank of New York. (Source: Der Spiegel.) Some within the German community have been calling for a return of the gold bullion to help fund other proposed ventures, including a natural disaster relief fund or an education fund. With gold prices so high, many people believe this would be a more practical use of the country’s foreign-stored holdings. The Bundesbank refuses to sell its holdings of gold bullion.

The main argument by the Bundesbank to keep gold bullion holdings in foreign countries is for emergency uses. Regardless of gold prices, if there was a collapse of currency, the foreign holdings of gold bullion can be used for exchange into dollars for payments in extreme circumstances.

Due to the recent calls for better audit procedures, the Bundesbank has agreed to begin inspecting some of its holdings within America over the next several years. These recent calls to verify a system that has been in place for decades is mainly the result of the eurozone crisis and high gold prices. With instability within the E.U. growing, many believe that gold bullion holdings will somehow stabilize the situation. As well, the high level of gold prices is also enticing some to think about selling some of the gold bullion to pay for much-needed projects at home.

Because of the eurozone crisis, which still is not resolved, there’ll be increased scrutiny over central banks’ holdings of gold bullion. That in and of itself won’t do anything to help the eurozone residents. Regardless of where gold prices go, structural reform is needed for the European continent to regain its growth trajectory. This is a far more complex issue than simply counting gold bullion bars.

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