Bundesbank reveals location of gold holdings

German central bank says gold is held in four countries; kept in the vaults of the trading centres where transfers happened

The Deutsche Bundesbank has revealed where its gold holdings are kept. The German central bank told CentralBanking.com that "part" of its gold holdings is kept in its own vaults in Germany. While the rest is looked after by the Bank of England, the Federal Reserve Bank of New York and the Banque de France.

The central bank explained that the precious metal was kept in the vaults of the places were the gold had been transferred to German ownership.

"This [split] has arisen for historical and market-related reasons because the gold, at the various times in question, was transferred to the Bundesbank in these trading centres," said a spokesperson for the central bank.

The central bank refused to reveal the amount of gold held in each location. Germany has the second largest official sector gold holdings in the world, second only to the US. Making up 72.8% of the total reserves held by the central bank, some 3,396.3 tonnes are owned, according to the World Gold Council's figures.

It is common for central banks not to store all of their own gold holdings. "It is quite simply much easier to leave the gold where it is, rather than incur the risks and associated costs of transporting it elsewhere," says George Milling-Stanley an independent consultant on gold markets. "In addition, many governments like to keep some of their gold at home, but also to vault a portion of their reserves overseas so that it can easily be mobilised if that should ever become necessary".

Venezuela sparked controversy recently by repatriating all its gold after president Hugo Chavez cited concerns about its safety in the vaults of central banks in countries where economic turbulence continues.

Looking into the choice of locations, it is easy to see why the Germans have decided to store their gold where they have. The vaults of the Bank of England constitute one of the centres of the gold trade. "Gold stored at the Bank of England vaults under Lombard Street can easily be mobilised into the market via trading strategies, or posted as collateral for a currency loan. The London vaults of JPMorgan, HSBC, and other bullion dealing investment banks have a similar status," says Milling-Stanley.

Of the Banque de France, Milling-Stanley says it has "recently become more active in this space, acting primarily as an interface between the Bank for International Settlements in Basel [BIS] and commercial banks requiring dollar liquidity. These commercial banks are primarily located in Europe, especially in France".

Nevertheless, the French central bank "lags a long way behind" the Bank of England as a facilitator of the international trade in gold, Milling-Stanley says.

The New York Federal Reserve is, according to Milling-Stanley, "widely regarded by central banks as the safest place to store gold". However, he adds it "has no role in the international trade because the Fed will only accept other governments as counterparties. The bullion dealing investment banks simply cannot have accounts with the Fed, and this is the principal reason why the Bank of England retains its important role, why the BIS is growing in importance in central bank gold transactions, and why the Banque de France has been able to make some small inroads."


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