At the end of August, Germany completed its gold transfer process. What does it mean for the gold market?
On August 23, 2017, the Bundesbank informed that it had finished the planned repatriation of gold earlier than originally assumed. The German central bank transferred approximately 300 tons of gold from the New York Fed and about 374 tons of the yellow metal from Paris in the years 2013-2016. In that way, the Bundesbank managed to realize its gold storage plan three years ahead of schedule. As a result, the German central bank stores 50.6 percent of its gold holdings (about 1,710 tons) in its own vaults in Frankfurt am Main, while the rest is located in New York (36.6 percent, or 1,236 tons) and in the Bank of England’s vaults in London (12.8 percent, or 432 tons). At almost 3,400 tons, Germany has the second-largest gold reserves in the world, which account for about 69 percent of the country’s total foreign reserves.
The official reason behind the decision to move the gold home was “to build trust and confidence domestically”. But it could also be a recognition of the changed geopolitical environment, as there is no longer a worry that gold reserves might fall under Soviet control. However, the Cold War ended a long time ago, so a much more probable explanation according to many analysts is the sovereign debt crisis in the Eurozone. The Germans could want to have its gold at hand – just in case of the collapse of the euro.
What does it all imply for the gold market? Well, not much – at least when it comes to gold prices. It was merely a transfer of bars, so the operation will not affect the price of the yellow metal. However, such a quick transfer of gold home may signal some worries about fiat currencies – as a reminder, the rush to repatriate gold holdings is global. Recently, Australia, Belgium and the Netherlands have also either started or completed their repatriation programs. Gold is perceived as a safe-haven, the ultimate insurance against the collapse of the current monetary system based on fiat currencies – and it performs its function the best when investors have easy access to it.
However, this very week we can see a return of risk appetites – after Irma passed and tensions about North Korea somewhat eased – and the continuation of the pull back in gold prices. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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