Japanese exporters such as Sony (SNY) and Toyota Motor (TM) have all surged since November due to the quantitative easing actions taken by the Bank of Japan that have resulted in the yen falling in value, making exports cheaper from the island nation. This is very threatening to Germany, which is the second largest exporting nation in the world. But the Bundesbank is now fighting back with its move to bring home Germany's stores of gold from the Federal Reserve Bank in New York City and the Banque de France in Paris.
This move should counter the quantitative easing from the Federal Reserve and Bank of Japan that has weakened the U.S. dollar and the yen, respectively. Germany can do little in a currency war, as it trades through the euro. That is a huge advantage for Germany, however, as it has the strongest economy, by far, in the eurozone.
If Germany had it own currency, it would be a tremendous disadvantage now. Its own currency would rise against the U.S. dollar, yen and whatever was representing other European nations. But the weak euro gives Germany a huge competitive advantage in international trade.
But Germany can still act to weaken the euro. It is doing this now with the Bundesbank bringing home its gold. This will raise the price of gold and lower the value of the euro through basic supply and demand as Germany owns the second-largest supply of gold in the world, behind the United States. In this measure, Germany punches above its weight class as it only has the fifth-biggest economy in the world.
With such a huge chunk of gold being taken out of circulation, its price will rise based on the basic fundamentals of supply and demand. There will be less gold for others to lend out, which will increase the price. When the price of gold rises, the euro should fall. From that, German export companies such as Siemens (SI) and Volkswagen (VLKAY.PK), as well as technology centric firms such as SAP (SAP) will become even more competitive.
This move by the Bundesbank also plays into the momentum buying of central bankers loading up on gold. In 2012, central banks from around the world bought the most gold in almost the last half century. That is bullish for gold for several reasons.
The first is obvious supply and demand. There are more, bigger buyers resulting in a much greater demand for gold. That in itself should drive up the price of gold.
Perhaps more foreboding is the psychological impact, though. This demand for gold by central banks is very bearish for fiat currencies. The last buyer in the world for gold should be central bankers, as they are the ones in charge the paper money produced by their nation.
Maybe these central banks want to weaken their own currencies for an export advantage through the purchases of gold. That should happen from the Bundesbank bringing home its gold from under the streets of Manhattan and Paris to vaults in Frankfort. If Germany had announced that it was selling its gold reserves to buy euros, most likely gold would fall in value with the euro rising.
Also increasing would be the unemployment rate in Germany, as many exporters would lose sales due to the euro rising in value to make their products less competitive in international commerce. But that will not happen, as Germany is bringing home its gold rather than selling it to buy euros. Welcoming the gold back the most will be German export companies.