Bundesbank plans to relocate part of its gold reserves

At a press conference on 16 January 2013, the Bundesbank presented its new plans for the storage of Germany’s gold reserves.By 2020, the Bundesbank intends to store half of the country’s gold reserves in its own vaults in Frankfurt; the other half is to be stored in the vaults of its partner central banks in New York and London. At the end of the press conference, the 70 or so journalists who attended the event were, for the first time, given the opportunity to be present during an audit of the Bank’s gold bars.

“The two primary functions of the gold reserves are to build trust and confidence domestically and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time”, as Carl-Ludwig Thiele, a member of the Bundesbank’s Executive Board, explained: the envisaged future allocation of the gold reserves – half of them in Germany and the other half at the most important international gold trading centres – takes account of these primary functions. To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.

The Bundesbank holds gold reserves totalling 3,391 tonnes with a market value of €137.51 billion (as at the balance sheet cut-off date of 31 December 2012). Up to now, 31% of the gold reserves have been stored at the Bundesbank’s central office in Frankfurt am Main. The remaining 69% have been in storage in the vaults of its partner central banks in New York (45%), London (13%) and Paris (11%). The Bundesbank’s storage arrangements have always focused on three main objectives: security, liquidity and cost efficiency. Mr Thiele explained that the Bundesbank consequently only stores its gold with partner central banks which have the soundest international reputation and the highest security standards. “We have no doubts about the integrity and reliability of our partners.” At the end of last year, Executive Board member Thiele visited the Bank’s partner central banks abroad in person to check whether its bullion was being stored in an appropriate manner and in compliance with the high security standards demanded by the German central bank. “As expected, I found everything to be just as it should be”, he confirmed. Furthermore, Mr Thiele went on to say that there have never been any irregularities of any kind in the past in connection with the storage of the Bundesbank’s gold reserves at its partner central banks.

Complete withdrawal of reserves from Paris

Once the relocation process has been completed in 2020, 50% of the gold reserves will be in storage in the Bundesbank’s own vaults in Germany, 37% will be at the Federal Reserve Bank in New York and 13% at the Bank of England in London, Mr Thiele added. The gold reserves currently in storage at the Banque de France will be withdrawn completely, a decision taken as a result of the change in the framework conditions following the introduction of the euro, Mr Thiele explained: with the introduction of the single currency area, it is no longer necessary to have gold reserves in storage in France ready to be exchanged for foreign currencies at any time. Mr Thiele thanked the Banque de France for the secure storage of the Bundesbank’s gold that it has provided over many years and praised the trusting and amicable relationship enjoyed by the two central banks.

Verifying authenticity of the gold bars

At the end of the press conference, the journalists who were present had the opportunity to experience first-hand the mandatory auditing procedure that is carried out by the Bank on its gold stocks. In a three-stage process, the authenticity of the gold bars is verified and the weight and purity of each individual bar are determined. This is a necessary process as there are no uniform values for gold bars, an expert from the Bundesbank explained. Every gold bar is unique, even though they all may look identical at first glance. A gold bar has to fulfil certain requirements before it can be traded at international gold trading centres. Each gold bar must have a purity of at least 995.0 parts per thousand fine gold and weigh between 10.9 and 13.4 kg; a standard gold bar weighs 12.5 kg. Strict requirements also apply with regard to the shape, appearance and the documented specifics of each bar. In order to check the authenticity of each gold bar, the experts first of all calculate its exact weight using special precision scales, which can measure to one-thousandth of a gram. The second step involves x-raying each gold bar. This allows the exact components of the surface material and thus the purity to be determined. As only the surface of the gold bar can be analysed in this way, the third stage of the process involves the use of ultrasound to examine the homogeneity of the gold, ie the consistency of the material composition throughout the bar. Only once all three tests have been concluded can the authenticity and the exact weight and purity of each bar be given.