Apart from modest sales to mint gold coins, nowadays the Bundesbank leaves its stash untouched. — Bloomberg
EIGHTY feet below the streets of Manhattan there’s a New York Federal Reserve (Fed) vault containing some US$220bil of German gold. Perhaps, it’s time Germany sold some of it.
My provocative suggestion was prompted by recent calls from opposition German politicians and the Bundesbank’s former head of research Emanuel Monch to repatriate this 1,236-tonne stash, made up of almost 100,000 bars.
These demands follow US President Donald Trump undermining the independence of the Fed and his evident disdain for North Atlantic Treaty Organisation (Nato) allies.
But shipping the bullion home would further strain Berlin’s relationship with Washington and antagonise Trump, who seems to care a great deal about gold.
Just look at his gilded restyling of the White House. Deliberate or not, his erratic behaviour is causing an exodus from the dollar and has driven precious metals prices to the moon.
That’s greatly benefited the Bundesbank, which controls its nation’s gold reserves – the world’s largest after America’s. They’re worth about €500bil (US$599bil) at current prices.
That’s equivalent to 18% of the country’s debt and is a near 19-fold increase since Germany adopted the euro in 1999.
Germany finished bringing home 300 tonnes of gold from New York in 2017 following domestic political pressure for more transparency and a tighter grip on its reserves.
Its holdings there date back to the postwar Bretton Woods system when the dollar was backed by the metal. New York is a major trading hub for gold, alongside London.
Today, neither the Bundesbank nor Germany’s coalition government want to repatriate more.
“I have no doubt that our gold at the New York Fed continues to be securely stored,” the central bank’s president Joachim Nagel said this week.
That’s surprising given Trump’s disregard for institutional norms. But Berlin is stuck between a geopolitical nugget and a hard place on this issue.
I’ve a better solution: Why not sell some of the hoard, taking advantage of soaring prices and rampant demand?
Gold galore
Germany has the world’s second largest gold reserves.
That means it’s benefiting enormously from soaring prices. This isn’t investment advice. I don’t know whether gold prices are nearing a peak or will keep rising.
To be transparent, I own a bit of gold and in hindsight wish I owned more. I’m conscious, too, that encouraging the Bundesbank to part with treasure is borderline heresy in a country that experienced hyperinflation in the 1920s.
Nowadays there are few practical reasons to hold so much.
As a euro member, Germany no longer has its own currency.
Yet, the national stockpile retains huge symbolic importance. Parting with it would be unpopular.
“Selling some of the gold gradually at these sky-high prices to reduce federal borrowing would make perfect economic sense,” Holger Schmieding, Berenberg’s chief economist, tells me.
“But it’d be politically dangerous. Germans love the Bundesbank as it is.”
Numerous institutional and legal hurdles stand in the way of a sale. European treaties rightly safeguard the independence of national central banks – something I was reminded of recently when Rome and the European Central Bank (ECB) tussled over the ownership of Italy’s gold.
Implementation would be difficult, too. It would be self-defeating for Germany to sink the gold price by selling a big chunk.
Investors might view such a move as a sign of economic weakness or monetary financing of the budget, depending on how the proceeds were used. This would need careful choreography.
The Bundesbank would be fiercely opposed. Nagel said in 2024 he hadn’t considered selling gold for a “nanosecond” and he’s said similar more recently.
The central bank declined to comment for this column. But with gold now comprising more than 80% of Germany’s official reserve assets, it’s worth pondering whether this stockpile could be put to more productive use?
Even from a pure risk-management perspective it seems imprudent to have nearly all the Bundesbank’s eggs in such a volatile asset. Although the central bank isn’t a returns-obsessed hedge fund, it might be a good moment to take profits.
Germany accumulated its gold during the post-war boom.
It has sold only modest amounts recently to mint gold coins.
To recap, central bank demand is contributing to skyrocketing gold prices, together with feverish retail speculation and the so-called debasement trade.
Neighbouring Poland, not a eurozone member, has been buying heaps.
Yet, Germany’s far larger holdings go back to its hefty current account surpluses after World War II.
Apart from modest sales to mint gold coins, nowadays the Bundesbank leaves its stash untouched.
About half is in Frankfurt, 12% in London and the rest in New York, where it accrues no interest.
Central bank resistance
The Bundesbank’s resistance to selling was correct in past decades.
It held steady even as fellow Europeans were offloading the metal in the early 2000s. Notoriously, UK Chancellor of the Exchequer Gordon Brown authorised the sale of some 400 tonnes of gold between 1999 and 2002.
That was at an average price of US$275 per ounce, bringing in US$3.5bil that was reinvested in interest-bearing foreign-currency reserves. Today it would be worth US$70bil or so. You’d think that might give anyone pause before encouraging similar, but bear with me.
It’s true that the soaring value of its gold reserves has had one striking benefit for the Bundesbank: It was a counterweight to the drain on its finances following the recent period of “quantitative easing,” where it had to buy lots of low-yielding bonds at the behest of the ECB. — Bloomberg
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. The views expressed here are the writer’s own.
