The reason why the majority of the German gold reserves are located outside the country – and why that is about to change

That the German foreign reserves primarily consist of gold should surprise no-one, considering how crisis-proof the precious metal is. More likely to surprise is the fact that rather that, until recently, 70 percent of all German gold reserves were stored outside Germany, 45 percent alone in the US Federal Reserve Bank FED in New York. However, none of the German gold stocks were actively shipped outside the country at any time: Rather, the gold reserves were accumulated as a means to balance the huge current-account surpluses Germany built up toward countries in the dollar area and in the former European Payments Union during the so-called “Wirtschaftswunder”. These compensations, in form of gold deposits, remained where they were credited: at the main trading places for gold, such as New York, London and Paris.
In addition to these more practical considerations, the geopolitical situation of the era played an important role in the decision to choose especially New York to store German gold reserves: from the 1950s to the 1980s, there was fear that the Cold War could turn into a very real one. Today, not only the political environment in Europe has fundamentally changed since the Cold War, but also the economic environment: with the introduction of a common European currency, storing gold reserves in Paris lost its raison d'être, since these could not be converted to another currency than the Euro. Therefore, some 50,000 gold bars will have to be relocated from Paris to Frankfurt within the next five years. But not only from Paris, but also from London and – in particular – from New York considerable amounts of gold are to be 'relocated' to Germany.

Upon completion of this big retrieval operation, half of the German gold reserves will be stored in Frankfurt, 37 percent at the US Federal Reserve Bank FED and 13 percent at the Bank of England.

Arnulf Hinkel
Financial journalist