Wednesday, October 7, 2015

Germany May Set Off a Run on the Gold Stored at the New York Federal Reserve

By Robert Wenzel

WSJ's John Carney has a report out on a very important story. The plan of the Germans to audit and physically inspect all their gold.

Writes Carney:
A German federal court has said that country's central bank should conduct annual audits and physically inspect its gold reserves worldwide, including gold in the custody of the Federal Reserve Bank of New York. In addition to the FRBNY, Bundesbank gold is stored in London, Paris and Frankfurt.
For decades, the Bundesbank has relied on written confirmation of its gold holdings in London, Paris and New York. According to the report from the German audit court, the last time Bundesbank officials physically inspected the central banks gold holdings was, well, never.
This is big.

There has long been speculation that the New York Fed does not have anywhere near the gold in its vaults that it claims to hold for various countries. If other countries follow in Germany's path and demand accounting of their gold, with physical inspection, this could cause a major problem for the Fed, if  it does not hold the gold reserves it claims to hold.

A stalling by the Fed of foreign audits would be a warning signal to foreign countries that the gold alleged to be on hand at the Fed may not be there. The wise foreign country treasurer, upon seeing delaying tactics, would surely consider pulling his country's gold out at that time, in the hope that he won't be stuck as the last man with a Fed receipt with no gold to back it.

Carney understands this:

[I]f the gold isn't there, well, calamity could follow as trust in the central bank gold depositories evaporated instantly.
But there is a question to be raised as to how thorough of an audit will actually be able to be conducted given the sloppy methods the Fed uses in  recording actual gold ownership . Carney writes:
In any event, it looks like Bundesbank officials will soon be visiting the Fed's vault, which is located 80 feet below street level and 50 feet below sea level. The vault is accessible only by elevators controlled by an operator in a remote location. I've been told by a source that the elevator operator is actually not in New York City at all, although I can't confirm this and the Fed won't discuss this sort of thing.

Down in the vault there are 122 compartments assigned to depositing countries and international organizations. Smaller gold depositing countries get shelves in shared library compartments.

The compartments do not have labels reading "Germany's gold" and so on. They are instead numbered, and only a few people at the Fed know what numbers correspond to which country. The Fed says it does this to protect the privacy of the depositors. But this also makes actual inspection less reliable. There's no way for Germany to know that the gold it is being shown is Germany's, as opposed to some other depositor's. In an extreme case—which I have no reason to believe is true—miscreants at the Fed could just show everyone who came to visit the same pile of gold.
But there is a long-term workaround to the US sloppy recording methods. The German auditors
could audit the gold and also mark the bars, say with  "Property of the  the Federal Republic of Germany" and a serial number for each bar. It is after all their gold!

This would make it much more difficult  for the Fed to show this to other countries as gold belonging to them, instead of Germany. Especially, if auditors show up with short notice (as auditors are supposed to do!) and if this gold auditing catches on--as it should.

And speaking of gold audits. What about US gold held by the Treasury? I have long believed that an "Audit the Gold" campaign would be much  more important than the "Audit the Fed" push.

Curiously, the gold of the United States of America has never been audited. And that leads to all kinds of speculation.

Carney reports on the speculation(though it is unclear where he gets the idea that Fort Knox gold is audited regularly):
The gold of the United States government, which officials say is held in the United States Bullion Depository in Fort Knox, has been rumored—probably since the Depository's founding in 1937—to have been looted and replaced with gold-painted tungsten, for instance. The government treats this as nonsense—which it most likely is—but nonetheless it does conduct regularly scheduled audits of the gold in Fort Knox, including doing purity tests on a small sample of the gold.
If Senator Rand Paul wanted to take a step toward getting back in the good graces of libertarians, his promoting an Audit the Gold bill in Congress would be an excellent step.

 Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. I can't believe other countries trust the NY Fed with their gold.

  2. The gold at Fort Knox is absolutely NOT audited on a regular basis. Carney is flat wrong or spouting misinfo about that. It has only been audited once, and that was over 40 years ago. In 2010 they changed the seals on the vault doors, which was an opportunity to remove the gold.

  3. It's one thing to say that, "The Numbers don't add up" when , of course, they do. It's the language that doesn't make sense. To review in a sloppy manner: GM knowingly installs bad switches, people die. A government subsidized entity is fined - "Take the money for the fine from...whom? Pay the money collected to...whom?".

    VW, which has for years published emissions testing on its vehicles both with and without emissions equipment in place - SAE Paper showing such an action on request - and a fine against VW that would make a scene from Dr. Evil in a Mike Myers Comedy is given.

    Ohhh! Forgot one thing. Gemany want its gold and now is going to demand that the PHYSICAL GOLD - THE German gold, with numbers and everything on the bars - is to be inspected in the New York Gold Deposit.

    This should be fun, if it doesn't lead to World War 3. "Angela! It's here - I'm holding a bar of it right now... Hey, officer? We have a boat, a coupla' new Mercedes trucks waiting with the engines running as we speak...How'za bout we drive around to the back and start loading OUR GOLD NOW...HMMM? We'll talk about that $18 Bill Emissions Penalty real soon now, OK?"

    Somebody is playing some Power Poker and one of the players has a hand 6 of clubs high. Wanna guess who? This is DANGEROUS STUFF and someone should tell the Duffer in Chief that he should stop calling her Mr. Merkel and get serious with some VERY serious stuff. You know. Jus' sayin'...


  4. I think it is humorous how they act like gold isn't important yet it is.

    1. You comment reminds me of Ron Paul asked "Why do central banks hold it?" to Bernanke:

      The "barbarous relic" that central banks hold(or claim to)

  5. Some time ago I believe I read that Germany requested the return to Germany of all gold held by the US and the US said, . . .NO.

  6. I read the same story...shall we remind Germany "if you don't hold it" ..."you may not own it "

  7. Yes, the Empire has rehypothecated your gold. But to freely paraphrase Greenspan, it will be more than happy and able to repay you in fiat.

    Or then again...perhaps the Empire really can return your gold. Rumours abound that imperial stormtroopers have removed for safekeeping the gold of Ukraine, Libya, Iraq, maybe even Syria back to the seat of the divine emperor in Washington.

    In doing so, the Empire is not different from those of previous ages. An interesting economic thesis posits that Hitler was under great duress to pay for his outlandish government spending -- spending on massive social welfare programs as well as the military build-up -- as so was motivated to invade neigbouring territories and plunder their gold. Books abound on this subject, like this: Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion.

  8. Perhaps the disclosure of missing bullion will have a stimulating effect on moribund mining operations; Uncle Sam will have to get what it owes from somewhere.

  9. I don't think it's true that the BUBA inpspectiors won't be able to know whether or not the bars shown are those of the Bundesbank or not. As far as i know every bar has an imprint of the Bundesbank plus a Bundesbank internal number on it. As we know some of the little Gold that has been returned to Germany so far were not the original Bundesbank bars, which should be alarming enough.