Madsen Pirie

A story by Ambrose Evans-Pritchard in the Telegraph reports that Germany’s Bundesbank is to bring much of its gold reserves held abroad back to Germany.  All its gold held in Paris is to relocate to Frankfurt, plus much of that held in New York.  Germany’s gold, 3396 tons of it worth about £115bn, is the world’s second largest holding after that of the US.

This move sets alarm bells ringing at several levels.  One wonders just what financial shocks the Bundesbank is anticipating that might require sudden liquidity on this scale? Is the world moving to a de facto new gold standard as countries move out of euros and dollars?  Maybe we will all curse Gordon Brown even more than we have done already for selling a huge proportion of Britain’s gold reserves for euros at a time when gold was at its low point in the market.  Gold is traditionally regarded more as a hedge against chaos than against inflation, though it often serves both functions.  Alarmingly Evans-Pritchard reports that:

“Veteran gold trader Jim Sinclair said the Bundesbank’s move is a pivotal event in the gold market and the latest warning for investors that they should keep metal bars under their physical control, rather than relying on paper contracts.”

This is the kind of news that has us all reaching for our seat-belts because there might be a rough ride coming.

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