During the Trump administration political ties between the U.S. and Germany have critically deteriorated. Recently, the U.S. imposed sanctions on companies working on Nord Stream 2, and announced to withdraw 12,000 troops from Germany. In 2013, when Germany repatriated gold from the U.S., the Germans communicated: we will not be threatened.
Gold is a political metal. “Whoever has the gold makes the rules,” as the saying goes. Because gold serves as the backstop of the international financial system, the global distribution of gold influences the balance of power. This is true for gold ownership, but it also applies to storage locations. The more of its gold reserves Germany stores at the Federal Reserve Bank of New York, the more leverage the U.S. has over Germany. It wouldn’t be the first time the U.S. freezes gold assets in New York to pressure foreign nations.
Since the launch of the Eurosystem Germany has been repatriating gold. Currently, Germany has 1,698 tonnes (50%) stored on its own soil, 1,236 tonnes (37%) stored in the U.S., and 432 tonnes (13%) in the U.K. Officially, Germany has the second largest gold reserves in the world at 3,366 tonnes…
When Germany started repatriating 300 tonnes from New York in 2013, and published the Blessing letter on the Bundesbank’s website, it communicated it will not be threatened again. Why else dust off the Blessing letter and his interview with Der Spiegel just before repatriating gold?
Germany might be waiting for the elections in the U.S., because Biden can change America’s foreign policy. If Trump wins, and trans-Atlantic alliances further deteriorate, I wouldn’t be surprised if Germany brings more gold home. The consequences will be significant. One, if Germany repatriates because of a political dispute, this can incentivize other countries to repatriate from New York as well, causing a run on the Fed. Second, Germany would emphasize the importance of gold, which hurts the credibility of the dollar.