4 ms·

No, not really. The "nothing is amiss" argument goes like this: a) Until 1971, gold was regularly moved between central banks. The United States exchanged U.S.

by ar0 9y ago

No, not really. The "nothing is amiss" argument goes like this: a) Until 1971, gold was regularly moved between central banks. The United States exchanged U.S. Dollars against gold and Germany made use of this. Obviously, it was easiest to just leave the gold where it was bought - in the United States. This was also where a lot of other central banks had (and still have) their gold, so it also made exchanges easier. b) After 1971, trading gold might have become less frequent, and at the moment the Bundesbank states it does not sell or buy any gold at all. But still: Look at Switzerland who has sold a lot of their gold after they joined the IMF. By selling gold out of the US Fed vault, they could offer delivery at the US Fed, avoiding a lot of logistical hassle. Maybe the Bundesbank just wants to keep this option open, even though they don't use it right now. It would be stupid to ship all the gold to Frankfurt, then decide to sell it in a couple of years from now, and then having to ship it back to the U.S. for the buyer. c) Until 1989, it made sense to store gold outside of Europe to avoid it falling into the hands of the Soviet Union should they decide to invade (as suggested elsewhere in this discussion). d) After 1989 and until recently, no one really cared about this topic. So it was easiest to just leave the gold where it was. Moving gold is a complicated business. The Bloomberg article linked above really makes it seem easier than it is. Yes, gold doesn't take up much space, but because it is so valuable you can't just put tons of gold into one plane / ship / truck - no one will sell you insurance for such a huge risk. You need to transport it in smaller batches, organizing secure transport and insurance for them, keeping the transports as secret as possible for security reasons. Also, you need to have sufficient storage available at the location where you want the gold to end up. And - again - you don't want to store all of the stuff in a single space because you won't get insurance for too much gold in one building. I am not sure which explanation is the right one. I also find it a bit strange that they seemed to go through a lot of effort in melting these bars to make sure no one can inspect the originals. But this doesn't mean that there is no innocent explanation for all of this.

pg314 9y ago
> I also find it a bit strange that they seemed to go through a lot of effort in melting these bars to make sure no one can inspect the originals. You're inferring a motive. The stated reason is that those bars didn't conform to the London Good Delivery specification.
- ar0 9y ago
  You're correct, I wasn't precise there. Good call! In fact, now that I think about it, there's also another potential and innocent explanation for this (pure speculation, though): Maybe the insurance companies for the transport only accepted to insure LGD bars, as otherwise they would have to value each and every individual bar prior to shipment to determine the insurance value. (Opens up new questions for speculation, though: If that was the case, why didn't the Bundesbank disclose that as the reason for melting them?)
mannykannot 9y ago
These may be reasonable propositions (or were when they applied, especially in the cases of a) and c)), but if and only if one assumes the deposits are effectively on call, and apparently they are not. Your last sentence gets close to the key issue: if there is an innocent explanation, why have the parties who could remove the doubt over that explanation stopped talking about the issue?
- tonfa 9y ago
  > the deposits are effectively on call, and apparently they are not IMO you need more than speculation to claim that. Besides, it is known that US gold bars are of poor quality (a lot of the Banque de France gold is being recast because of it). "buyers don’t want the beat-up American gold" and “American gold,” the official says. “It is the ugliest.” https://www.bullionstar.com/gold-university/banque-de-france-gold-vaults https://www.bullionstar.com/gold-university/banque-de-france...
  - mannykannot 9y ago
    You say it needs more than speculation, but you are speculating about an alternative explanation (to be clear: I am not calling the Banque de France statement you quote as speculation, but the implication that it is the explanation for the stalled transfer appears to be so. Note that the Banque de France is itself performing the recasting of its American bars.)
- therpe1 9y ago
  Because nobody but dumb people on the internet actually cares where the gold is stored. Since 1971 gold, along with every other commodity, has been optionalized. It doesn't matter where or how it exists because what actually gets traded are options on the commodity. Now every once and a while somebody does actually take delivery but delivery is very, very costly and complicated for physical goods. Physical delivery involves not just the conveyance and storage fees but also the costs of integrity checks -- that is, literally going through each unit and verifying that what's delivered satisfies some standard. What the Federal Reserve has always been doing since it let foreign nations deposit gold for safe keeping is running a very inefficient options market. Gold is transferred in and very modest storage fees are assessed each year (essentially the gold is stored for free [1]). Note that there are no real provisions for transferring the gold back out, this must be negotiated on a case-by-case basis. It is by all accounts a costly and tiresome thing to do. Now the real question is -- why would any foreign government participate in such a scheme? And the answer is because it's very beneficial for them. They get free gold storage in the safest vault in the world. And they don't "lose" that wealth -- the NY Federal Reserve's word is in fact "good as gold" and so that wealth can be leveraged much more efficiently than lugging around and cutting up actual gold bars. What does the United States get out of it? In fact it's not so clear. Some politicians have reasonably asked why we're paying a bunch of money to store ~7,000 tons of other people's gold below Manhattan. It doesn't really make much sense except that, well, it's now been "policy" for 50 years and changing is very difficult and expensive. In the end nobody really cares. There's nothing suspicious going on. The author's "reading" that Germany has forfeited 1200 tons of gold because they're not allowed to "count the gold" is beyond ridiculous. The rationale for leaving gold in the Fed and moving slips of paper around is pretty sound -- it's called modern banking. It's mostly worked for 500 years. And the idea that gold will act as a reasonable substitute when the dollar collapses is just dumb. Because this is the thing that gold bugs never seem to understand: when/if the dollar collapses it won't be an isolated event. The implication is that the productive capacity of the USA has been zeroed out. Think about what events might cause this and ask yourself if, at this point, Germany (or anybody's) biggest problem will be missing gold. The article is painfully ignorant. The idea that it's the gold buried under Manhattan that makes the dollar the reserve currency is not even wrong. That said, if Germany does really want its gold the right thing to do would be for the Fed to make them pay standard market rates plus a Fed premium. Considering some banks charge as much as $300 an oz for such a delivery such a transaction would actually knock quite a bit off the national debt. [1] https://www.newyorkfed.org/aboutthefed/goldvault.html#storingthegold https://www.newyorkfed.org/aboutthefed/goldvault.html#storin...

by ar0 9y ago

pg314 9y ago

> I also find it a bit strange that they seemed to go through a lot of effort in melting these bars to make sure no one can inspect the originals. You're inferring a motive. The stated reason is that those bars didn't conform to the London Good Delivery specification.

ar0 9y ago
You're correct, I wasn't precise there. Good call! In fact, now that I think about it, there's also another potential and innocent explanation for this (pure speculation, though): Maybe the insurance companies for the transport only accepted to insure LGD bars, as otherwise they would have to value each and every individual bar prior to shipment to determine the insurance value. (Opens up new questions for speculation, though: If that was the case, why didn't the Bundesbank disclose that as the reason for melting them?)

mannykannot 9y ago

These may be reasonable propositions (or were when they applied, especially in the cases of a) and c)), but if and only if one assumes the deposits are effectively on call, and apparently they are not. Your last sentence gets close to the key issue: if there is an innocent explanation, why have the parties who could remove the doubt over that explanation stopped talking about the issue?

tonfa 9y ago
> the deposits are effectively on call, and apparently they are not IMO you need more than speculation to claim that. Besides, it is known that US gold bars are of poor quality (a lot of the Banque de France gold is being recast because of it). "buyers don’t want the beat-up American gold" and “American gold,” the official says. “It is the ugliest.” https://www.bullionstar.com/gold-university/banque-de-france-gold-vaults https://www.bullionstar.com/gold-university/banque-de-france...
- mannykannot 9y ago
  You say it needs more than speculation, but you are speculating about an alternative explanation (to be clear: I am not calling the Banque de France statement you quote as speculation, but the implication that it is the explanation for the stalled transfer appears to be so. Note that the Banque de France is itself performing the recasting of its American bars.)
therpe1 9y ago
Because nobody but dumb people on the internet actually cares where the gold is stored. Since 1971 gold, along with every other commodity, has been optionalized. It doesn't matter where or how it exists because what actually gets traded are options on the commodity. Now every once and a while somebody does actually take delivery but delivery is very, very costly and complicated for physical goods. Physical delivery involves not just the conveyance and storage fees but also the costs of integrity checks -- that is, literally going through each unit and verifying that what's delivered satisfies some standard. What the Federal Reserve has always been doing since it let foreign nations deposit gold for safe keeping is running a very inefficient options market. Gold is transferred in and very modest storage fees are assessed each year (essentially the gold is stored for free [1]). Note that there are no real provisions for transferring the gold back out, this must be negotiated on a case-by-case basis. It is by all accounts a costly and tiresome thing to do. Now the real question is -- why would any foreign government participate in such a scheme? And the answer is because it's very beneficial for them. They get free gold storage in the safest vault in the world. And they don't "lose" that wealth -- the NY Federal Reserve's word is in fact "good as gold" and so that wealth can be leveraged much more efficiently than lugging around and cutting up actual gold bars. What does the United States get out of it? In fact it's not so clear. Some politicians have reasonably asked why we're paying a bunch of money to store ~7,000 tons of other people's gold below Manhattan. It doesn't really make much sense except that, well, it's now been "policy" for 50 years and changing is very difficult and expensive. In the end nobody really cares. There's nothing suspicious going on. The author's "reading" that Germany has forfeited 1200 tons of gold because they're not allowed to "count the gold" is beyond ridiculous. The rationale for leaving gold in the Fed and moving slips of paper around is pretty sound -- it's called modern banking. It's mostly worked for 500 years. And the idea that gold will act as a reasonable substitute when the dollar collapses is just dumb. Because this is the thing that gold bugs never seem to understand: when/if the dollar collapses it won't be an isolated event. The implication is that the productive capacity of the USA has been zeroed out. Think about what events might cause this and ask yourself if, at this point, Germany (or anybody's) biggest problem will be missing gold. The article is painfully ignorant. The idea that it's the gold buried under Manhattan that makes the dollar the reserve currency is not even wrong. That said, if Germany does really want its gold the right thing to do would be for the Fed to make them pay standard market rates plus a Fed premium. Considering some banks charge as much as $300 an oz for such a delivery such a transaction would actually knock quite a bit off the national debt. [1] https://www.newyorkfed.org/aboutthefed/goldvault.html#storingthegold https://www.newyorkfed.org/aboutthefed/goldvault.html#storin...