Will Germany’s ‘Gold Grab’ Send the Gold Price Higher?

Mark this day in your diary. This is the day that the central bankers showed their hands. Germany looks set to announce that they want all of their gold back…thank you very much.

I assure you this is big news. Although it will probably be swept under the carpet by the mainstream media. But this news shows you that the German central bank would prefer to have its gold in its own vaults rather than risk leaving it in American, French and British vaults.

Why is Germany doing this? Are they acting now because they know there is trouble coming down the road? Probably.

As an article in Der Spiegel noted recently:

‘Germany moved some of its gold reserves abroad during the Cold War to protect them from a possible Soviet attack. Some of the gold was moved back to Frankfurt after the collapse of communism. But the Bundesbank argues that it still makes sense to store some gold in major financial centers so that it can be sold quickly if necessary. Although the Bundesbank does not provide exact details about the distribution, it has revealed that the largest share of Germany’s gold is held in New York, followed by Frankfurt, London and Paris.’

German’s Wish to Bring the Gold Back Home

Germany’s Handesblatt newspaper said on Monday that the Bundesbank has developed a new strategy that involves bringing their gold bars home from abroad. And Marketwatch said the Bundesbank’s press office has organised a news conference for Wednesday morning, and the topic will be gold reserves…

The gold price has had a nice little kick higher in recent days. This could be based on the speculation that an announcement about the German repatriation of gold reserves is on the cards. I’ll explain the very interesting set up in the gold price below.

But first I’d like you to think about the repercussions of the world’s second largest owner of gold preferring to have its gold on its own soil rather than in foreign vaults.

As Marketwatch notes, quoting Thorsten Polleit, chief economist at precious metals firm, Degussa:

[German] public has been long demanding an audit of the German gold reserves and repatriation of those reserves, Degussa’s Polleit said. Some fuel was thrown on that fire in the last year by the financial crisis.

‘But the Bundesbank traditionally keeps a veil of secrecy around gold. It hasn’t had its worldwide reserves audited down to the last bar for decades, if ever, Polleit noted. So it may be a bit of a mystery just what is in the vaults of the New York Federal Reserve, which holds a 45% chunk of Germany’s gold reserves. The Bank of England and the Bank of France hold 13% and 11% each. The Bundesbank itself holds 31% of those reserves.’

So is there deterioration in the trust between central banks? Are they finally suspicious as to whether the gold they have stored in each other’s vaults is actually there?

Obviously there is first mover advantage in being the first to repatriate your gold if you’re suspicious about what is actually there. Do other central banks start to put their hands up for their gold once they realise the last in line may end up empty handed?

Of course these scenarios will be seen by the mainstream as conspiracy theories.

But the actions of central banks are the only show in town at the moment. The financial markets are now obsessed by the money printing shenanigans of the central banks. So they should be even more concerned by what central banks do with real money, i.e. Gold.

Has Germany Shown it’s Hand on Gold?

Hugo Chavez repatriated Venezuela’s gold in 2011 from the Bank of England. That news didn’t cause much of a stir because as Zerohedge noted it’s ‘one thing for a “crazy, lunatic” dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most.’

The gold has sat there unaudited for years. So why pull it out now? There would have to be a very good reason for it. Because this could be seen as a red flag to so many in the markets, Germany would need a good reason for showing their hand in this manner.

Of course we may be barking up the wrong tree and they may announce something else entirely later today. But this news is something to take very seriously and the reaction of the gold market will be telling.

A Long Term Uptrend for the Gold Price

Gold Price Daily Chart

Click here to enlarge


Source: Slipstream Trader

The current set up in the gold price is the most interesting I’ve seen for many months. I don’t have any gold stocks in my trading portfolios at the moment but I think the time is fast approaching to pick up a few beaten-down gold stocks.

There is a confluence of indicators pointing to a strong resumption of the uptrend in gold above US$1700.

My long term trending indicator is the 35 day/200 day and that shows gold is still in long-term uptrend although the trend is weak at the moment. A close in the gold price back above the 35 day moving average while in long term uptrend will be a long term trending buy signal now that the price has retested the 200 day moving average.

Also there is an ABC set up pointing at a buy signal above US$1700 when the price overlaps above ‘A’ in the chart.

The Point of control for the past year and a half’s trading is also around US$1700. So a close back above the point of control is another sign that the gold market is strengthening.

What does this all mean? From here there is a good chance of a chain reaction above US$1700 in the short term. It just needs a catalyst to make that happen. Could the announcement from the Bundesbank about repatriating their gold be the catalyst to ignite the fuse?

I can’t say for sure, but it’s worth paying close attention to what’s happening in Germany and the plans for its gold.

Murray Dawes
Editor, Slipstream Trader

Murray Dawes is the Editor of Pivot Trader and contributing Editor at Money Morning. He was one of five, from 5,000 applicants, chosen for a graduate position with the Swiss Banking Corporation — now part of banking giant UBS. The bosses quickly cottoned on to his potential and pushed him up the ranks as a futures broker on the floors of the Sydney Futures Exchange. Murray later broke out on his own, and developed custom trading systems to trade leveraged financial instruments like futures. Due to his success, Murray became the ‘hired gun’ trader for Australia’s rich and famous. Today, Murray runs a trading service through Port Phillip Publishing to help everyday Aussie investors use his advanced trading methods.

Money Morning Australia