Is A Run on US Gold Reserves Looming?

October 29th, 2012 by

Last week’s Bundesbank gold reserve drama may be starting a cascade effect. There is now a movement in the Netherlands to bring home the nation’s gold reserves from New York, Ottawa and London, as questions continue on whether gold reserves have been leased out without the owning nation’s knowledge. The Netherlands has the 10th largest gold reserves in the world, and Germany is the second largest.

This chain of events started last week when the German Court of Auditors demanded the central bank audit all overseas gold reserves, claiming that there has never been verification of the actual existence of Germany’s nearly 2,400 tons of gold that is held overseas. Germany is not allowed physical access to their gold by the U.S. Federal Reserve, citing “security concerns.” Negotiations are being held between the Fed and Bundesbank for access and verification.  In addition, Bundesbank has announced it will be bringing home 50 tons of gold from the U.S. each year for the next three years, for inspection, analysis, and melting down into “Good Delivery Standard” bars.

German Overseas Gold Reserves

German Overseas Gold Reserves

The German central bank has defended the continued deposit of the nation’s gold reserves overseas as necessary collateral for quick liquidity when purchasing dollars, pounds or francs. When the Bundesbank was formed in 1957, it took over the 1.328 tons of overseas gold reserves of its predecessor, but has never actually seen or audited the gold.

In related news, China has now purchased over 512 tons of gold this year alone- 10 tons more than the entire gold reserves of the European Central Bank. Worries are starting to surface on how much “gold leasing” central banks have done, whose gold it was done with, and how much physical gold is actually in the various gold reserves. If we see a “run” on the central banks by foreign governments bringing their reserves back home, we may get some answers, whether we want them or not.

-by David Peterson