Gold Repatriation: What’s the calmest way to say, “Give me back my gold!” ?

German Gold Repatriation

Germany’s Bundesbank has officially demanded a gold repatriation of 50% of its total gold reserves back from the United States Federal Reserve.  Is this a cause for concern? Does it reflect Germany’s inside knowledge of the severity of the Euro crisis? Should the holders or owners of gold ETF’s follow suit? And what does this mean for the rest of the world?

Are we really shocked that Germany is starting to wake up to the reality that the dollar is no longer the world’s safe-haven asset and the U.S government is no longer a trustworthy banker for foreign nations?

In a word – no.

Germany’s request for its gold does not bode well for the future of the dollar. In fact, the Bundesbank’s official statements are all you need to confirm the Germans’ waning faith in the U.S. The Fed has already refused to submit an audit of its holding on Germany’s behalf and one cannot help but wonder if there is enough gold available to satisfy Germany’s request.

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The Germans have given the U.S seven years in order to complete the transfer. Most would deem this time line as excessive and unnecessary but people in the know understand that this allows the Fed to save face and to prevent other depositors claiming their gold reserves in order to avoid a run on the Fed.

Other commentators are saying that If the US don’t have all the gold necessary to satisfy Germany’s request they will have enough time to print more dollars to buy more gold on the open market. However such a move could substantially increase the gold price whilst depressing the dollar. The U.S seems to be in a slight quandary…

With fiscal cliff talks looming and discussions over the debt ceiling, this request could not have come at a worse time. To make this all worse – The Netherlands and Azerbaijan are also discussing repatriating their foreign gold holdings. How long before the rest of the international community follow suit?

It’s not completely accurate to say that we’re in unchartered territory. Germany’s repatriation mirrors what happened in the 60’s under Nixon rule. The fear back then was that the U.S was not doing enough to maintain the integrity of its dollar and as a result Germany, France and Switzerland redeemed their gold reserves. This repatriation was coined the “Nixon shock” which propelled chronic inflation throughout the 70’s and a contemporaneous rally in gold.

Are we repeating history? Ironically only time will tell…