The Real Story Behind Germany’s Gold Recall

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Did you hear the news? Germany, the world’s second largest gold-holding nation, is recalling some of its gold. The Germans are bringing the physical metal – once on hold outside its borders – back in country.

This is a huge development in the world gold market. But more importantly may portend a life-changing trend that gold buyers like you and I can take to the bank.

Today let’s connect a few more dots, and talk gold…

Germany, Russia, Ronald Reagan, Clausewitz, this story has it all. Let’s start by covering a distant memory, the Cold War.

Indeed, the Cold War is not just over, it’s REALLY over. Get over it. The world is REALLY changing, and I mean in ways that you can scarcely begin to comprehend.

Yes, I know. The Soviet Union fell apart in 1991. Germany reunified – expensive as that was – and the Red Army went home to Mother Russia in the mid-1990s. (I was in Berlin, in 1991, right after I did my thing in Operation Desert Storm. Wow, I could tell you some stories about the Group of Soviet Forces in Germany, headquartered at Potsdam. Another time, perhaps.)

But now? In 2013? What’s happening? There’s big news, which the mainstream media evidently fails to comprehend, while they fixate on the wrong sorts of shiny stuff – “gun control,” for instance, and what Hollywood celebrities think about it.

Here’s the real news. Long-term, this will change your life. You paying attention?

Germany is recalling some of its central bank-owned gold from the Federal Reserve Bank in New York, as well as all “German” gold on deposit in France. It’s back to der Heimat.

Let’s back up. Why was German gold not in Germany? It’s a monetary relic of the Cold War. Back in the 1950s-1980s, the “Federal Republic of Germany” (the Bundes Republik Deutschland, or BRD – “West” Germany) was basically a potential nuclear battlefield. So part of the monetary preparation for fighting World War III in Europe was to keep West Germany’s gold away from the Russian tanks and nuclear fallout.

There was also something of a “conqueror’s legacy” about it. Post-World War II, the immediate challenge to U.S.-British-French policymakers was to keep Germany tame, considering the horrible memories of the late unpleasantness of 1939-1945. As Nobel laureate Francois Mauriac once quipped, “I love Germany so dearly that I hope there will always be two of them.”

One way for the U.S., Britain and France to keep a leash on Germany was to keep “German” gold under control outside of that country’s borders. The West German “mark” — the national currency that predated today’s euro — was thus, to a significant extent, at the mercy of people in Washington, London and Paris.

Indeed, the German gold in New York, London and Paris was a form of conquerors’ deference to maintaining “gold backing” for the mark. It’s a much longer story than this, but the point is that the policy lasted three generations.

Now, however, that issue of outside control over the German currency has come to a new turn of events. The Germans are burying the last of their grandparents who lived through World War II. And they are revisiting the rationale for storing their gold under the jurisdiction of conquering powers of World War II. There are all manner of policy implications — immediate and long term.

What will Germany do with its gold after it is back inside the traditional national boundaries? Well, we’re going to find out, aren’t we?

Germany is removing all of its gold from France. The publicly-stated reasoning is that there’s no further reason for the French to store German gold, in that both nations are part of the “euro” monetary union. Of course, just a glance at the past 200 years of history tells you that there’s likely much more to the underlying rationale.

Germany will still keep some gold in New York and London, but only after conducting a complete inventory of every bar – by weight and assay, for each serial number. (Remember what Ronald Reagan said? “Trust, but verify.”)

The monetary rationale, here, is that – despite what some banker-types want you to believe — gold plays a role in balancing terms of trade between Germany and the U.S. and Britain. In other words, the dollar-euro and pound-euro exchange system works better with gold in the gearbox.

It’s accurate to say that as history shows, gold goes to where it’s respected. As I see things, just the idea that Germany is assaying its gold, and wants some of it back, speaks volumes. The gold will boost the credibility of the German government and its central bank, and generally strengthen the German economy for all manner of reasons.

Here’s a future scenario on which to chew. Perhaps Germany might look at its gold, smile and then back out of the euro as we know it. The effect will be to ditch the southern countries — certainly Greece, Spain and Portugal — from a “European” currency.

Then Germany will do what we all know it wants to do anyhow — that is, form a “new” euro including the economies of northern European countries. Think in terms of an expanded version of the old Hanseatic League, perhaps, with Germany as the center of gravity. Very Clausewitz, no? And there’s the possibility of offering membership to Italy (or perhaps just “northern” Italy).

Oh, and don’t dismiss the possibility of a German-Russian monetary alliance. They already have a strong, and growing energy alliance. Why not start coordinating things in terms of currency as well. We’ll see, right?

Best wishes…

Byron W. King

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Byron King

Byron received his Juris Doctor from the University of Pittsburgh School of Law, was a cum laude graduate of Harvard University, served on the staff of the Chief of Naval Operations and as a field historian with the Navy. Our resident energy and oil expert, Byron is the editor of Byron King's Military-Tech Alert, Outstanding Investments and Real Wealth Trader.  Byron has made frequent appearances in mainstream media such as The Washington Post, MSN Money, Marketwatch.com, Fox Business News, CNBC's Squawk Box, Larry Kudlow, Glenn Beck and PBS Newshour. He also had a feature article written in the Financial Times, and has appeared on both CNN and Marketplace radio broadcasts. Byron has also been quoted in various international publications such as The Guardian and De Volkskrant, and has been a guest on Canada's CBC television broadcast.

At The Daily Resource Hunter , we take a fundamentally different approach to research. With our boots on the ground, we travel the world looking for the most lucrative resource, energy, an precious metals opportunities. Each business day we call on our stable of world-class writers and thinkers to show you how to get ahead.

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3 Comments
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  1. Gold is a very poor ‘investment’ strategy. Subject to confiscation, devaluation, manipulation of price, availability and even fraud, difficult to get rid of, a bit hard to store safely, must be converted into cash to actually be used, sellers of goods, products, land, houses, food, fuel do not accept it and so forth.

    Gold simply represents a store of value in a poorly-useable form. If you are ok with all of that, then you can ‘invest’ and hope to time the market correctly (or not).

    Unlike land, gold IS constantly being created. You decide if it’s “better” then land or actual real durable goods that can actually be used. I don’t think it is.

    Gold cannot be used in it’s present form unless you are a jeweler or making microchips with gold connections and so forth. Gold must be converted, subject to current manipulated “value”, into dollars or euros or whatever, which means you’re STILL going to pay the higher inflated prices (inflation) of the goods you wanted (and should have bought in the first place, bypassing gold as an ‘investment’ strategy).

    In this day of digital money (and fiat currency), both of which will NEVER go away (they won’t allow it, ever) the “need” for gold is over-hyped, over-sold and presented under many false assumptions. The world will never go back to a meaningful gold standard. Even if passed into law, it won’t be any more meaningful then the missing gold in Fort Knox.

    Everything about gold is now “fabricated” — manufacturing costs, availability, supply and demand, present value, need, usefulness (beyond manufacturing and public desire), in order to keep up the illusion of gold’s historical position as money (which is now irrelevant in the age of computers and digital / fiat money).

    Only gold-bugs seem to “care” about gold and its (manipulated) value, a very small minority of people. Investors, including entire countries and wealthy individuals, seek to “play” gold markets, stampeding the gold-bugs to “buy” or “sell”. It’s a game to them and they know it. They profit on the public ignorance of it all.

  2. Sorry but I think you are ill-informed. The Euro-wide single currency and trade zone is first and foremost a german project, dating from the times even before Hitler. Don’t expect them to ever end this unless they’re literally forced to, either from the outside or by the hungry masses.

    As for Russian-German monetary union (LOL, sorry), not gonna happen. The last time they tried that, it led to a world war. No chance in hell that US/UK/Israel would ever let that happen. The only chance for that to ever come to fruition would be if the US goes down the drain, say in a civil/race war for example. But I don’t see that happen either.

  3. “Wow, I could tell you some stories about the Group of Soviet Forces in Germany, headquartered at Potsdam.”

    Please do. :)

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