Germany’s central bank is the second biggest holder of gold bullion in reserves, second only to the U.S. The German central bank owns 3,395.5 tonnes of gold, comprising 72.4% of its entire reserves. (Source: World Gold Council, October 2012.)
But all of this gold bullion is not held by the Deutsche Bundesbank, the central bank of Germany. The majority of Germany’s gold is stored in other central banks: 66% of it is held by the Federal Reserve; 21% is held by the Bank of England; and eight percent is held by the Bank of France. (Source: Market Watch October 31, 2012.) Germany holds the majority of its gold in these other central banks for “security and convenience” purposes.
Recently, this caught the attention of the general public, politicians, and the media in Germany. They are demanding that the government audit Bundesbank and bring all the German-owned gold back to the country. (Source: Market Watch October 31, 2012.)
Why is all this happening?
On the surface, the gold held by the central bank in Germany is only worth 144 billion euros; meanwhile, the gross domestic product of the country is much higher than that—almost 20 times larger than the Bundesbank’s gold holdings. (Source: Business Standards November 1, 2012.)
So, why care about the gold held by the central bank? The issue in my opinion is much bigger than it appears.
The “Bring Back Our Gold” movement in Germany illustrates three things that I have been talking for far too long in these pages—way before anyone started to talk about it.
Firstly, countries want gold with them rather than anywhere else. Gold in hand is better than debits or credits saying “You have this much gold.”
Secondly, this is a prime example of how people are losing trust in a monetary system that creates money out of thin air. The demands for auditing the German central bank are a clear signal people don’t trust what the bank says.
Lastly, maybe Germans are scared that other regions and their neighboring eurozone members will weigh heavy on the shared currency, the euro, and, if the currency dissolves, the country will need its gold in hand to base the new measure of exchange on.
What do I get from all of this? The public appetite is turning to gold—and why shouldn’t it? Many central banks have ruined the wealth of their citizens by flooding their economies with monopoly money and manipulated interest rates.
This movement by the people of Germany to bring back the gold to the country and audit their central back is unique, but not unexpected. I will not be surprised if the trend of demanding an audit of central banks and citizen movements of “Bring Back Our Gold” hit other countries.
Where the Market Stands; Where it’s Headed:
Technically speaking, a huge top has been put in for the stock market. The right shoulder of a classic head-and-shoulders pattern may finally be in. We are very close to the end of a bear market rally in stocks that started in March 2009.
What He Said:
“Home sales down 8.4%, could be the bottom,” read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them, and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in Profit Confidential, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.
Germans Demanding Their Gold Back; Will They Get It? was last modified: November 7th, 2012 by Michael Lombardi, MBA
Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »
Forecasts Aug. 27, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 27, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)