On Sunday, Germans go to the polls to elect a new Chancellor. The new Chancellor will replace Angela Merkel, who has had the job for the past 16 years. One thing seems certain – whoever replaces Merkel they are unlikely to touch Germany’s official gold reserves, which now stand at 3,362.4 tonnes.
Only the US has more gold in its official reserves, 8,133.5 tonnes. Germany’s appalling experience of hyperinflation – when prices rise by 50% or more a month – during the 1919-23 period of the Weimar Republic has left deep scars in the national DNA. For Germany and most Germans gold is synonymous with stability.
At the outset of the 1914-18 war, Germany decided to pay for the war by borrowing; when it was defeated it was saddled with vast debts. The debt problem was exacerbated by printing money without the economic resources to back it. For some Germans the money creation now being done by the US Federal Reserve, the European Central Bank (and others) is an uncomfortable reminder of that distressing past of around a century ago.
During the Cold War, when the threat of a Russian invasion of the-then West Germany was taken seriously, Germany stored 1,500 tonnes of its official reserves in the underground vaults of the New York Federal Reserve. The need for that safe-keeping has diminished.
Politicians, notably Peter Boehringer, a former asset manager and now a member of parliament representing the Eurosceptic Alternative for Germany (AfD) party, pushed in 2012 to get the gold back. Boehringer said then: “People are always interested in gold, but we live in a time when central banks are running amok. In 1971, all currencies were linked to gold. That’s no longer the case, and the behaviour of central banks is ridiculous. More and more people can see that”.
In January 2013 Germany’s central bank, the Bundesbank, started the process of repatriating half of that gold – more than 53,000 bars. In the first half of this year physical bullion demand in Germany was the highest since 2009; inflation in Germany is the highest in more than a decade.
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