Buba Gold Fantasies

Buba Gold Fantasies
Slow Loris Larry

Those of us who follow the gold blogosphere, even sporadically, have now been subjected to a plethora of wild imaginings concerning the Deutsches Bundesbank’s (Buba’s) ‘repatriation’ of German gold from the NY Fed (and to a markedly lessor extent, noise concerning ‘repatriation’ from Paris). 

You know what I mean:  ‘The Fed refuses to let Germany have their gold back!’  ‘All 300 tonnes could have been flown to Frankfurt in days (or weeks at least).’ ‘That didn’t happen because the Fed doesn’t have the German gold anymore – the Fed sold, leased, or swapped (or hypothecated, or even re-hypothecated) it all long ago without telling the Bundesbank, and now cannot get it back (or at least not readily or easily or right away).’  ‘One can therefore definitely conclude that the all the Fed’s gold is also long gone, just like all the US Treasury gold supposedly held at Fort Knox or West Point.’. This list of unwarranted fantasies, declared stridently as absolute fact, could be elaborated, but that short list should suffice to remind you of what I am talking about.

Admittedly, neither the Bundesbank nor the New York Fed have been completely forthcoming about revealing what has transpired between them, and why they have now agreed to a seven year timetable to move 300 tonnes of gold from New York to Frankfurt (there was an earlier schedule of 150 tonnes by 2015), leaving it up to others to freely imagine why that could possibly be.  Since seemingly everyone else feels free to make up all kinds of bizarre things in order to ‘explain’ what, according to their fevered imaginations, has been going on, why not me, too?

Following are a few verifiable facts along with some of my suppositions about what could be involved in the (now) seven year time frame for transferring what amounts to approximately a mere 20% of Buba;s gold held by the New York Fed to Frankfurt.  They have, after all, reported that they intend to leave over1,200 tonnes with the Fed in New York.  These and other issues were covered in a recent interview by a Handelsblatt reporter with Carl-Ludwig Thiele, a member of the Deutsches Bundesbank Executive Board (http://www.bundesbank.de/Redaktion/EN/Interviews/2014_02_19_thiele_handelsblatt)

Let me first address the issue of ‘Repatriation’ of German gold, a term which implies that the gold in question was once upon a time held in Germany before being moved to New York, and now will be only slowly returned, leading to all kinds of spurious nonsense about ‘Germany not being able to get its original gold bars back from the Fed’.  In the interview, Thiele was quite specific in stating that Buba’s gold stored with the Fed had never been in Germany,  making the point emphatically that the gold at the Fed would not be ‘returned’ to Germany, as it had never been there in the first place.  In other words, it will be ‘patriated’, not ‘repatriated’, by which I mean ‘delivered to the country that owns it’ (but had never before had it in their physical possession in their country).

I will discuss how the ‘German’ gold (gold owned by Buba) may have come to be deposited in their account with the New York Fed below.  But first, let us deal with the issue of ‘are the same gold bars that have always belonged to Buba (wherever they have actually been held) going to be sent to Germany’, or was the Buba gold all alienated by the Fed in any one of many possible nefarious dealings over the years, so equivalent gold is now only going to be very slowly patriated to Germany as the Fed can get its hands on some – a common theme on the Internet.  One would not reasonably expect that cash money deposited in a bank account by a creditor to be the exact same notes that could withdrawn at a later time.  The gold Buba eventually gets delivered might not be the their original bars, as the metal is, after all, fungible, and one gold bar of a given purity and approximate weight is as good as any equivalent one, with minor weight differences being cash adjusted.  But, that would only be the case if the gold in question had been unallocated.  On the other hand, if Buba’s gold at the Fed has been allocated all along, that would mean that the specific bar numbers and weights were known to Buba all along, and  they could have had such bars physically delivered at their pleasure.  In the interview, Thiele reiterated that Buba had the bar numbers and weights of their gold held in New York, and that the bars they examined at the Fed in 2012 exactly matched the existing bar lists that had been in their possession. He insisted that the NY Fed had been completely cooperative in their inspection of their gold in New York.  Although he did not say this, is it really at all likely that the NY Fed would, in previous years, have leased or otherwise alienated the German gold without Buba being complicit in any such arrangement?  I don’t think so, as Central Banks MUST retain trust among themselves in order to keep the present reserve bullion system functioning.

Why would at least 1,500 tonnes of Buba gold have ended up on deposit with the NY Fed, along with another 374 tonnes deposited with the Banque du France?  I don’t actually know any of the following` in any detail, or even for sure, but I believe that West Germany, as it was known in the aftermath of World War II, didn’t have any gold to speak of at first.  Imperial Germany traded much of its gold for war material during WW I, and the ensuing Weimar Republic spent any government gold that survived the Great War in paying war reparations, while any acquired by the Third Reich would have been returned to what the Occupation forces regarded as its legitimate owners if possible.  However, by the 1960s, West Germany was running big balance of payments surpluses with the United States – all those imported Volkswagens and a few Mercedes and even fewer Porsches (BMWs and Audis were not a big deal back then, as I can recall), and under the Bretton Woods Agreement, trade imbalances could officially be settled on demand with gold transfers valued at $35 per ounce whenever surplus dollar holders wanted to trade their dollars for the metal..

By the late 1950s there were increasing problems in holding the international market price of gold to that set price, and the London Gold Pool was established to sell gold in order to attempt to keep the price from rising, which worked for nearly a decade before it was abandoned in1968.  During its existence, the US government sold 4,700 tonnes of its gold through the London Gold Pool, but had actually depleted its total gold holdings by around half to its current 8,250 tonnes by the time that Nixon ‘temporarily’ closed the ‘gold window’ in 1971.  Prior to that time, US gold that was owed to other countries was usually deposited with the Bank of England or the NY Fed, which were located in the only major gold marketing centres of those days. That is why so much German gold ended up in those two places: it had come directly from the US Treasury, and had never been in Germany.

There were rumours, if not actual reports, that the US Treasury was running short of LBMA 99.5% pure 400oz Good Delivery Bars prior to Nixon’s ‘temporary’ closure of the ‘gold Window in 1971, and that it could only deliver Roosevelt’s 1930s 90% coin-melt bars to foreigners redeeming surplus dollars. The US Treasury to this day lists its remaining gold holdings, which are only supposed to be at Fort Knox and West Point, as being in ‘Deep Storage’, whatever that might mean.  Maybe it means that their holdings are locked away so deeply and securely that nobody has seen the stuff since the 1950s.  Maybe it means that nobody has been allowed to see what they have locked away because it consists, at least largely, of coin melt.  Or it could even mean that, although on the books at those storage locations, it is actually still to be mined and is only owed to those repositories.  Maybe we will all know the truth of such matters some fine day  Or not!

In any event, some of the gold the US Treasury deposited with the NY Fed’s German account during the late 1960s could well have been 90% coin-melt, as at that late date, the United States Treasury had apparently largely depleted its stock of LBMA Good Delivery Bars. How much of it actually was, if any, nobody who knows is saying.  As mentioned, Buba has said that they are going to be bringing 300 tonnes of gold from New York, while leaving somewhat more than 1,200 tonnes there. Along with the 445 tonnes remaining in London after 930 tonnes were brought to Frankfurt in 2000/1, that would leave a nice round 50% of German gold in New York and London, and the remaining half in Frankfurt once all of their 375 tonnes arrive from France.  One would think, as Buba appears to do,  that 50% held at home should be enough to satisfy the portion of the German public who are even aware of, or care about,  the issue.

Why did some German gold end up in Paris?  Probably not to keep it safe from Soviet tanks!  In 1968 President De Gaulle was so annoyed by US reluctance to turn over more gold @ $35 per ounce that he sent a French warship to New York to collect a load.  Did their German allies then say to the French, “Hey, while you’re at it, pick some of ours up too, will ya?  And, by the way, you can keep it in Paris for us if you want!“  Is coin-melt all that the French collected, or is that just all that they picked up for Germany?  Were additional 90% coin melt bars sent to the NY Fed’s German account (equivalent to at least 300 tonnes of good delivery bars but maybe a larger, even a much larger, proportion)?   If not, why didn’t Buba ‘patriate’ that gold from New York and/or from Paris in 2000/1 when it brought 930 tonnes of good delivery over from London, ‘to save on storage costs’?   Were no storage costs being charged in New York or Paris because the German gold in those places was not readily marketable, being only 90% fine?

The point here is that there is no market for old 1930s vintage coin-melt bars, apart from gold refiners who can melt them down and purify them to produce LBMA good delivery bars or nowadays 99.99 kilo bars for the Asian markets. The Bundesbank has said that they intend to assay and audit all the gold that is obtained from New York (and presumably also what they get back from Paris).  To do that accurately (to good German standards) the bars will need to be melted, refined, and recast, which in the interview cited above was said will be done in Europe. There are German gold refineries, including one in Frankfurt (thanks for that info, Warren), but presumably they are all flat out like their Swiss counterparts converting LBMA good delivery bars into 99.99 kilo bars.  Or, maybe Buba just wants to do it all themselves, in house.  Did Buba have the facilities to do that at the beginning of 2012 or 2013?  Perhaps, but probably they did not.  Or could they not find a German refiner who would agree to refine more than two tonnes a week on a steady basis?

So, why does everyone writing about all this out there on the blogosphere insist that it was the Fed that set the schedule for delivering the gold to Buba, and that the only possible reason for the seven year timetable (not to mention the earlier three year timetable for half the amount) must be because the Fed doesn’t have the gold and needs that much time to find enough to send to Frankfurt? Why not consider the possibility that it was Buba who told the Fed not to be in a hurry about sending them any of the gold until they had installed and learned to operate their facilities to refine it and re-cast it, which would take them until late 2013, and even then their capacity would only be around two tonnes per week on a sustained basis?   Or, alternatively, that they had not found anyone locally to promise to do it at a faster rate?. Under such circumstances, getting 50 tonnes each from New York and Paris per year would be about the right amount/rate from the beginning of 2014 over the next six years (now that they already have 37 tonnes from Paris and 5 from New York).

An alternative reason why the Fed and Buba agreed to transfer the gold over the extended period has been suggested by Nick Laird (personal communication), as well as others.  If Buba had asked for its gold as quickly as Venezuela did, what message would that have sent to all the other Central Banks that hold some or all of their gold at the New York Fed? Could that have precipitated a run on the gold held by the Fed as everyone else asked for theirs right away too? However, if Buba is happy to get just a small fraction of its gold over a prolonged seven year period, why should others be in any hurry either, given that leaving it in New York would facilitate arranging for it to be leased, swapped, or sold at short notice should they decide they wanted to do that?

Now, doesn’t at least some of the above make a whole lot more sense than the rabid claptrap you can read about the Buba gold being unavailable for delivery which is being spread all over the Intertubes?

Slow Loris Larry


Anonymous said...

This argument IMO has become moot, since the extremely slow delivering is raising questions.
So if the Buba wants to avoid what you write, it would be best to deliver the gold immediately in one huge WOOOSH!
That would refute the thesis that the gold isn't there.

Now since the deliveries are even below the already very slow plan, what remains as reason, if the reason, not to stir speculations about uncertainty, is obsolete?

But I also have a question:
what do you say to Hjalmar Schacht, the former German central bank president, memoirs, where he describes, how he wanted to inspect the German gold in NY in the 1930s, and Strong, the cairman of the NY Fed, couldn't find it?

Warren James said...

This is a reply from Slow Loris, who is having computer issues - he asked me to post it on his behalf.


Part of my 'imaginings' is that Buba cannot handle all 300 tonnes in a single huge WOOOSH. They would have to put it somewhere until it could be melted, assayed, and recast in the form they desire, whether or not it comes as 1930s coin melt. Why not leave it in New York until it can be processed somewhere in Europe?

In answer to your question, those of us who are not involved with the official Central Bank operations at a sufficiently high level can only look at what they may do 'through a glass, darkly', and then try to imagine what those dark shapes and their moving shadows may signify. That definitely includes me!

However, I imagine that any 80 year old problem that Schacht experienced would have been extinguished during WWII, and that the Federal German Republic would have started with a clean slate with regard to Fed gold accounts.


AdvocatusDiaboli said...

Okay, all valid points, except:

What I really dont get is, why would the Buba recast the bars to "official LMBA" at all anyway?
Gold is Gold (and 1930coinmelt bears some nice history;). Why the extra costs and transportation risks, when you plan to vault it deeply anyway?
That makes absolutely no sense to me at all. The only explanation I personally find: They dont want to vault it deeply, but rather adjust the gold to a form a possible (future) buyer wants (soon?), meaning, they are preparing to sell.

GM Jenkins said...

Great post, SLL.

Anonymous said...

Very nice, SLL !

Re "deep storage". We should keep in mind that the gold reserve of the U.S. government is still owed, according to international treaties in effect today, to the foreign holders of U.S. dollars (at $42.22 per ounce, according to the Smithsonian Agreement of 1974 - hope I am getting the year right).

In 1976-1978 (Jamaica accord), the Europeans managed to change the IMF statutes which still reflected the Bretton-Woods system, in such a way that gold became an alternative international reserve to the dollar. In 1999, the Euro went online with gold as the major reserve, (potentially) traded at a free market price.

At this stage, the U.S. needed to justify (to the rest of the world, in particular Asia) what they intended to do with their gold.

They clearly indicated (Greenspan, Summers and others) that they (1) did not intend to aim for another international conference in order to revalue their gold; (2) did not intend to sell it or start trading gold; but (3) rather keep the gold locked away, remaining in the state of default, and continue with the dollar. The term "deep storage" reflects this.

In addition, you have more recent statements from the U.S. (Summers: "You cannot expect any country to run a primary surplus just in order to service their external debt" - summer 2011 in the Financial Times - and Greenspan: "The U.S. government can pay any debt it owes simply because we can always print money to do so" - fall 2011).

From this, we know that the U.S. gold will be used only after the dollar in its present form has disappeared and died its natural death.


costata said...

Good post SLL.

I think this is a key point:

"Or could they not find a German refiner who would agree to refine more than two tonnes a week on a steady basis?"

As Stewart Thomson pointed out in his latest letter "In January, which was a stellar monthly for sales, the US Mint sold only about three tons of gold coins..." (The post also discusses why "most top bank economists tend to view Western mint sales (whether good or bad) as largely irrelevant to the price of gold." http://www.kitco.com/ind/Thomson/2014-02-25-Gold-Big-Picture-Focus.html)

When you consider how easily high retail demand triggers the "choke point" capability of Mints it's not such a big stretch of the imagination to think there are logistical issues at work here. I also think that Nick Laird's point is well made - there are political issues as well.

I suspect that the most important issues influencing the Buba's appproach to this excercise are 1. Political considerations, 2. Cost and 3. Security. It's also rather ironic that 50% of Germany's gold may in fact be in the process of being made less safe by being concentrated in Frankfurt.


AdvocatusDiaboli said...


being german, I might add:

I really dont give a sh!t when a bunch of populistic german collectivist nationalistic moron goldbugs tell me "bring our gold back". What does that mean "our"?
It is not mine, I dont own it. I am not going to get my share of it. I dont even have a paper title to it. Never ever had and never ever will. In that perspective, why should I personally care where it is or if it even exists?

e.g. I am much more concerned right now about people like our foreign minister F.W.Steinmeier suggesting to donate out of urgency 1billion of tax payers money to the Ukraine. The same Steinmeier who, end of last year suggested "eat-the-rich" out of necessity.
Greets, AD

S Roche said...


In answer to your question, (final para): Yes.

@ Mike Meyers

Why say anything to Schacht? He was very sanguine about it.

Benjamin Strong was mortified, however Schacht didn't have a problem with them not being able to find the gold, saying:

"Never mind, I believe you when you when you say the gold is there. Even if it weren’t you are good for its replacement."

Nothing has changed.

costata said...


Ultimately that German gold backstops Germany's sovereign debt. Every time we hand a new group of politicians the keys to the fleet of government clown cars we also (de facto) give them a licence to borrow money on a sovereign credit card that we taxpayers are obliged to pay (unless you're an American).

The IMF is the enforcer of repayment for the rest of us. Admittedly the IMF economic idealogues tend to kneecap people and then tell them to "get to work" in order to pay down the debt without giving any consideration to the fact that it's hard to work with broken kneecaps. Who knew?

The problem with taxation is that flaws built into the current taxation regime place limits on the amount of tax that can be extracted to repay sovereign debt. At some point "austerity" becomes highly counter-productive - debt rises as revenue shrinks because of the economic contraction.

Gold doesn't suffer from this limitation. A currency issuer can engineer a targeted hyper-devaluation of their currency against gold and bring re-balance their debt and servicing costs with their asset/income position. Alternatively a credible central bank currency issuer can act a market maker in the instigation of a hyper-revaluation of gold in order to achieve the same outcome.

Dan the Man said...

the goldbug/doomer community out there seem to be resistant to alternative rational explanatioms such as the one's proposed above.

a quick scan of some popular metals blogs last night indicated some of the regulars there are more interested or predisposed to name calling or troll hunting then conversing rationally much less socially.

when a blog is mostly populated by angry trolls it ceases to be a community and essentially becomes an Island of Misfit Toys type of place.

fringe thought, fringe group and lunatic fringe site. guess what site i'm referring to yet?

Anonymous said...


Ultimately that German gold backstops Germany's sovereign debt.

Although it is owned by them, it doesn't really backstop their sovereign debt. The gold of the Euro member countries is a monetary reserve (as opposed to a government slush fund) and cannot be deployed without approval by the ECB.

No surprise at all that Brits and Americans talked about Cyprus selling their gold when Cyprus was bankrupt last year. No surprise either that they defaulted on their debt without selling a single ounce.


costata said...


I take your point about the media discussion of Cyprus. I suppose the ECB Eurosystem's right of veto over any use of sovereign gold by EMU members is effective control. But I also think that we have to differentiate between threats to the periphery of the EU and threats to the core.

If Germany or France were ever subject to the kind of onslaught that was unleashed on Greece I think the nuclear option would be on the table. (For other readers the term "nuclear option" refers to an old discussion about the Europeans forcing a reset and regime change from the US dollar-based system by hyper-revaluing gold rather than simply letting nature take its course.)

Dan the Man said...

the following self-righteous linked rant and axe-grinding comments afterwards are what pass as topical talking points these days i guess.
looks like the turd brought back "moderator thinskin" in an effort to bolster a continually sagging viewership and a noticeably cruder and arrogant poster base.

AdvocatusDiaboli said...

"Ultimately that German gold backstops Germany's sovereign debt."


"If Germany or France were ever subject to the kind of onslaught that was unleashed on Greece I think the nuclear option would be on the table."

never ever. Aint gonna happen dude, start to get real. First of all: That is nothing but a biased wet dream of some IMF haters and FG loonies.
Second: If somebody is in some deep shit, let's say like Ukraine right now, that party can not suddenly say, hey wait, I got some gold and therefore we revalue it, so that I am not broke any longer. Just aint working that way.
Third: I like your expression about the fleet of government clown cars. Revaluating gold would only be done for one cosmetic purpose, to max out the balance sheet even more. So what's the point: Govs consumes real resources, the monetary plane, shall it be paper or the ratio of paper to physical gold, simply dont matter to them.

Unknown said...

So of course it seems that people don't know for sure why it takes one year to return 5 of 1500 tonnes of gold from ny to Germany (or whatever the tiny fraction is)...

And it seems to me that in spite of all the "wild imaginings" , speculations from all sides, verbosity, sarcasm, lengthy historical analyses, etc., the solution that the fed just doesn't have the gold to return hasn't been in any way refuted. No one seems to know, and there seems to be a lot of talk from all corners, So I'll go with Occam's razor on this one... Sorta madoff-style... Everything was fine until redemptions started in earnest.... Idk, that answer just seems to fit.... I'm not saying that i think there will be any immediate consequences from it, nor do I wish there to be... That solution just seems to fit human nature and the situation

Slow Loris said...

Just saw this from

Gold Bars at NY Fed "Need Recasting", Says Bundesbank
Submitted by oceanoz on Mon, 05/19/2014 - 23:27

Just found this article from 20Jan2014.

Gold bars owned by Germany's central bank fail London Good Delivery standards.

Updating its website in January 2013, just as it announced Germany's 2020 relocation plan, the Bundesbank detailed how in the late 1960s it agreed to accept non-LGD gold bars into its New York Fed account, because the run on America's gold which eventually led to the collapse of the post-war Bretton Woods system had depleted the Federal Reserve's stockpile of Good Delivery metal.

On having the bars then recast into acceptable form, the German central bank says, "the Fed compensated the Bundesbank for both the costs incurred from the melting process...and the discrepancy in the weight of the bars."



costata said...

Interesting - thanks SLL