Germany Wants its Gold Back!

Gold has always been important to Germans.  Unlike Americans, who tend to overvalue paper currency to our detriment, Germans are traditionally drawn to a hard asset they can hold and store.

This preference is likely a result of a century’s education that cuts close to the bone. German school children are taught the comparatively recent history of the disastrous devaluation of the mark during the post-World War I years, and its catastrophic results on the economy.

To pay the tremendous cost of reparations for which they were liable after the Great War, Germany suspended its gold standard and wildly inflated its paper currency.   This shattered the nation’s economy, inflicting poverty and humiliation on the German people, and giving Adolph Hitler an open wound on which to pour salt as he rose to power.

Stories, perhaps apocryphal, of German consumers using wheelbarrows to transport millions of marks just to buy groceries became legion. But whether or not anyone ever actually used a wheelbarrow, the financial impact of such hyperinflation is well established.  It’s a hard way to teach a populace the fragility of paper money and the value of a tangible asset that resists such inflation.

Years ago, I became friends with a Jewish man who told me a story that illustrated the unmatched power of gold in Germany: His father had been an extremely successful businessman.  When he was no longer permitted to work, he realized he had to get his family out of the country quickly.  How was he able to rescue himself and his family? He used gold to bribe the SS; buying passports for himself, his wife, and two children, my friend and his sister.

Today Germany is one of the most advanced economies in the Western world.  But while it’s transformed into an enlightened European democracy make no mistake – Germans have a long memory.

They also don’t kid themselves about their membership in the European Union (EU).  As one of the most affluent member countries, Germany is first in line to bail out debtor member countries like Greece.  This makes Germany’s alliance with the EU an uneasy one, much like Thanksgiving spent with the poor-and-spendthrift relatives.

And do Germans enjoy spending and saving their most recent currency – the euro?

Recent events suggest they’re finding it somewhat lacking.

For decades, the Bundesbank, Germany’s central bank, has stored its gold abroad in Paris and in the Federal Reserve Building under the streets of New York.  But suddenly they decided they want it back – all of it!  So they’ve steadily been bringing their massive reserves home, with 110 tonnes returned from Paris, and just short of one hundred tonnes back from New York.

“With approximately 1,403 tonnes of gold, Frankfurt has been our largest storage location, ahead of New York, since the end of last year,” according to Bundesbank board member Carl-Ludwig Thiele.

The main reason the Bundesbank wanted its gold back is, after the 2012 eurozone debt crisis, the central bank resolved to be more open about just how much gold it owns.

In the past Germany’s been accused of exaggerating its holdings. But now the yellow metal is again assuming its role as safe haven against roiling paper markets, they want the rest of Europe to know who’s got the goods.  As German gold was being repatriated, the Bundesbank issued a statement on its website detailing its plan to publicly account for each and every gold bar it owns.

If there’s a moral to this story, it’s this:  If you have, say, one hundred thousand dollars in paper money in your portfolio, as Elmer Fudd used to say, “Be vewy, vewy careful.”  Soon all it may be good for is to buy the wheelbarrow to push it in.

But if you have one hundred thousand dollars in physical gold (not paper gold), smile! Gold is on its way up.  As our worldwide economy sinks big investors and small are turning every day towards the precious metal.  The great and increasing mass of investors want what you’ll already have.