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Category: Gold

Why are Germany and Texas taking back their gold?

Germany appears to be having reservations about its economic future. The Bundesbank has finished “repatriating” half of its gold reserves back ont...

25 September 2017


Germany appears to be having reservations about its economic future. The Bundesbank has finished “repatriating” half of its gold reserves back onto sovereign soil, bringing 674 tonnes of gold back from New York’s Federal Reserve and from the Bank of France in Paris.

According to Carl-Ludwig Thiele, a member of the Bundesbank’s Executive Board, the move is to “build trust and confidence domestically”, and it seems there is no shortage of public pressure for Berlin to re-home its gold within its borders.

Philipp Bagus, professor of Applied Economics at Universidad Rey Juan Carlos and author of The Tragedy of the Euro, notes the public mistrust in the handling of the economy in his native Germany, something he says is reminiscent of the Weimar Republic: There has been public pressure on [The Bundesbank] from civil society. I don’t think the Bundesbank would have done it without it. People realised that the euro could collapse, so it’s good to have the gold in reach”. Bagus points to the popularity of figures such as post-war German minister of Finance, Ludwig Erhard, who was critical of the rise of integrated, transnational bureaucratic projects. “Everyone tries to acclaim Erhard, he’s very popular; even in parties on the left.”

Texas is going through something similar. In 2015, governor Greg Abbott signed a bill into law which enabled the opening of the Texas Bullion Depository, a facility expected to open next year. The primary role of the repository is as a “safe house”, away from federally regulated banks. It will provide the means for the $600-900 million worth of gold, owned by the University of Texas Investment Management company (UTIMCO), to be moved from a rented vault in Manhattan to Austin. Although administered by the office of the Texas Comptroller, who is responsible for state taxation, it will be owned by a private company: Lone Star Tangible Assets.

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“We believe UTIMCO could safely and economically move their gold to the Texas Bullion Depository. Our vendor has a plan to work with a major banking partner to provide the necessary liquidity for these larger investors to permit the storage of precious metals,” says Chris Bryan, a spokesman for the depository.

In addition to being a storage and exchange vessel, the bill includes a payments infrastructure to be built into the depository. The move makes business sense says Keith Weiner, chair of the Gold Standard Institute and CEO of Monetary Metals. “I believe the [primary] intention of the bill’s author, state representative Giovanni Capriglione to drive business opportunity, jobs, and revenues for Texas,” he says.

However, like in Germany, underlying political motifs come into play. Republican state representative Giovanni Caprigilione, is calling for “independence and sovereignty” from Wall Street banks and the Federal Reserve while, governor Abbott claimed in a press release the depository “will repatriate $1 billion of gold bullion from the Federal Reserve in New York to Texas”.

While building an inner-state repository should not be seen as a challenge to Washington, the state of Texas is required to stand up to the federal government should there be a 1933-style confiscation as done by president Roosevelt, says Weiner. However, he adds as a caveat that “the government today does not have the same motivations” as it had then.

Both Texas and Germany, whether deliberately or not, may be setting a precedent for others in an unstable world: showing that individuals and localities should have greater power and control over their holdings, rather than trusting those who see more value in the patronage of, rather than the physical ownership of, gold.

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