Expert on German gold return

CNC report from Frankfurt
Added On January 19, 2013

The German central bank has announced to bring home some 36-billion-U.S. dollars worth of gold stored in the United States and France by 2020.

Experts say the decision emphasizes the increasingly importance of gold in times of financial crisis.

The German central bank, or Bundesbank, will transport 300 tonnes of gold from New York and 374 tonnes of gold from Paris to Frankfurt by 2020.

By then, half of Germany's gold reserves will be stored in its own vaults in Germany, with the other half still stored in central banks in New York and London.

Horst Loechel, professor at the Frankfurt School of Finance and Management, explains the reasons of such moves.

SOUNDBITE (ENGLISH) HORST LOECHEL, Frankfurt School of Finance and Management
"The main reason is that there was a strong discussion during this euro crisis in the last two years, particularly last year, about the safety of the gold reserve of Germany or Bundesbank. And in this discussion, the public realized for the first time more or less that most of this gold reserve is not stored in Germany but abroad, for example mostly in New York, and Paris. So some people were afraid, or the German public was afraid including the press and so forth, was afraid about the safety of this gold stored in foreign countries. So there was a discussion, so this moving back, or repatriation of this gold to Germany is, let's say, a reaction on this discussion."

Loechel says the decision of Germany's gold repatriate indicates the importance of gold is increasing in times of crisis.

SOUNDBITE (ENGLISH) HORST LOECHEL, Frankfurt School of Finance and Management
"The move of the Bundesbank means that the importance of gold surely increases, put upward pressure on the gold price particularly in times of crisis. Gold seems to be more and more (of an) anchor for the overall situation and perhaps people will not any more trust in the paper money. It doesn't matter (whether it is) dollar or euro because it's simply paper, so it's based only on trust. People think gold is more hard, but let's see how things are developed."

Some worry Germany's decision of gold repatriate would be an issue for the U.S. Federal Reserve or the position of the U.S. dollar, as it has the second-largest gold reserves in the world.

But Loechel has different opinions.

SOUNDBITE (ENGLISH) HORST LOECHEL, Frankfurt School of Finance and Management
"I don't think there is a strong impact for the Federal Reserve. In any case, it is simply a technical issue for us all because gold of other countries are stored at the Federal Reserve Bank for some security reason for some technical reason, for some exchange reason in the U.S. dollar and forth. For the position of the United States for the gold position, for the current account position, for any position, this doesn't matter because in any case this is not the ownership of the United States of this gold. It doesn't matter whether the gold was in the United States or in Germany. So I don't think this move of the Bundesbank for the repatriation of part of German gold will affect in any case the Federal Reserve Bank. I don't think in any case this will shake the exchange rate of the U.S. dollar and so forth."

Still. Loechel mentions there is a possibility that other central banks could follow the Bundesbank and ask for gold repatriations.

SOUNDBITE (ENGLISH) HORST LOECHEL, Frankfurt School of Finance and Management
"I think there is a possibility. The Bundesbank is important.The Bundesbank has the second most largest gold reserve in the world, (with) overall value of almost 140 billion euros. This is really a big amount of money. So all moves of the Bundesbank are important for other central banks or for other countries, so perhaps some countries will also think about that too, to repatriate their gold reserve to their gold country. I am not sure, we have to see what the future will bring."