Amid global money printing on a scale never before witnessed by Mankind, word came yesterday that government auditors in Germany want the Bundesbank (the central bank) to have a first-hand look at the nation's gold reserves, much of which are held outside the country and none of which they have inspected since sometime around World War II.
This raises some interesting questions for precious metals investors in general and gold ETF holders in particular, notably owners of the SPDR Gold Shares ETF (GLD).
Of course, the Bundesbank immediately shot back by saying they have complete trust in the foreign central banks that hold their gold, namely, the Federal Reserve in New York, the Bank of France, and the Bank of England, however, that hasn't stopped the debate that appears to have somewhat of a grassroots origin, this in a country with an extreme fear of inflation stemming from the Weimar Republic hyperinflation in the 1920s.
The first intriguing detail about this story is the question of exactly how much of the country's gold is stored abroad. Most reports indicate that about two thirds of Germany's official gold holdings of 3,396 tonnes are held outside the country, however other reports cite much different numbers while still others note that there are no official figures.
If the Bundesbank is to nip this little row in the bud, the first thing they should probably do is clear up whatever confusion there is about how much of the country's gold is safely secured in its own vaults and how much is being entrusted to foreign central banks.
Another curious aspect of this development is that it seems to have some unusual supporters - German economists.
According to this AP report, the effort dubbed "Bring Home Our Gold" is "backed by some German economists, industry leaders and a few lawmakers" and has attracted 10,000 or more supporters online so far (a number that presumably has gone much higher in the last day or so after this story made it into the newspapers).
I don't know about you, but I don't know of a single economist in the United States who has the least bit of interest in our gold reserves and, while there is a small contingent of lawmakers in Washington D.C. - headed by Rep. Ron Paul (R-TX) - who have shown great interest in auditing our stash of gold bars, they are viewed by most people as conspiracy theorists, not to be taken seriously.
My guess is that if you would ask a German man on the street what he thought about the nation's gold reserves, you'd get an entirely different answer than if you asked that question on Main Street in the US.
The nascent movement to repatriate Germany's gold comes about a year after Hugo Chavez brought back all of Venezuela's 160 tonnes of gold from vaults in London, a move that the mainstream financial media characterized as an oddity, a curiosity, or just another example of this leader being pretty nutty.
Few people are calling the Germans nutty about wanting to check in on their gold - after all, they've been about the only thing that has kept the eurozone currency experiment alive in recent years.
Adding to the intrigue is the revelation that the 500 tonnes of German gold stored in London is not quite 500 tonnes anymore, some portion of this having exited the vaults without a corresponding official announcement. Some think this was related to sharp increases in gold leasing or gold swaps in recent years, an effort that allows central banks to push this physical gold into the market while still claiming ownership.
But, what's probably most revealing about this row between German auditors and their central bank is the relatively trifling dollar amount involved.
All of Germany's gold reserves - nearly 3,400 tonnes - only amount to about $190 billion at today's prices, a small sum as compared to the amount of money the European Central Bank has conjured out of thin air since the sovereign debt crisis began three years ago and a pittance when compared to the nearly $10 trillion in new money that all the world's central banks have created.
By comparison, the US gold reserves of over 8,000 tonnes are valued at about $450 billion - less then half of this year's budget deficit, and just a tiny fraction of the overall US debt.
So, what's all the fuss amongst the German people about wanting to check in on their gold?
It must be that some of the German people are getting a little concerned about what they see happening today all around them. More importantly, this concern can't simply be shrugged off as if it was someone like Hugo Chavez making news about his country's gold (and who, perhaps, might not have been so nutty after all about getting all of Venezuela's gold back from overseas).
What does this mean for investors?
There's been a growing trend in recent years to take physical possession of precious metals rather than to rely on counter-parties in ETF form and this is clear to see in recent statistics that show physical demand rising at a much faster pace than ETF holdings and, in some ways, the German people are expressing the same kind of concern that, for years, has been directed at gold and silver ETFs.
Put simply, in a worst-case scenario (that, by the way, looks more likely with each passing year), it's nice to know that you can actually get your hands on the gold you own and that's probably what's really driving this effort in Germany to check in on their gold held overseas.
I've long advocated owning as much precious metals in physical form as is practical and then rounding out your holdings or adding trading position with ETFs for this very reason - you never know when getting your hands on the actual metal might be important and, with ETFs, it may not even be possible.
It seems as though the German people are thinking along these same lines.
Disclosure: I am long GLD.
Additional disclosure: I also own gold coins
