Guest Post: Germany, Gold & 'Diplomacy', by Ned Naylor-Leyland

Fri, Jan 2, 2015 - 1:56pm

Our pal, Ned Naylor-Leyland, starts the year off with a bang with this terrific essay.

Thanks, Ned, for sharing this with us!


Germany, Gold & 'Diplomacy',

by Ned Naylor-Leyland

In 2012 the ‘German Gold’ story started to gather momentum. Early that year, Deutsche Bank purchased (in joint venture with G4S) a large site on the outskirts of London, with the intention of building an LBMA-friendly Gold vaulting operation. Deutsche/G4S embarked on a 2-year construction program at the site to build a state of the art warehousing facility. This job was completed when the site went operational in June of 2014.

Just 5 months after completion, on Christmas Eve 2014, Deutsche Bank said (on a slow news day) that their London vaulting facility is now ‘up for sale’. In light of Deutsche Bank’s departure from the London Gold ‘Fixing’ process, and its departure from ‘all physical Precious Metals business’ in 2014, maybe this mooted vault sale isn’t such a surprise.

There is, however, rich and fascinating context to the story of Deutsche Bank, Germany and Gold Custody.

Let’s rewind a little...

Back in November of 2012 Andreas Dobret, executive board member of the Deutsche Bundesbank, said the following in an open speech to the New York Federal Reserve Chairman Bill Dudley:

"Please let me also comment on the bizarre public discussion we are currently facing in Germany on the safety of our gold deposits outside Germany – a discussion which is driven by irrational fears. In this context, I wish to warn against voluntarily adding fuel to the general sense of uncertainty among the German public in times like these by conducting a 'phantom debate' on the safety of our gold reserves. The arguments raised are not really convincing. And I am glad that this is common sense for most Germans. Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed."

Two short months after Mr Dobret’s speech, in January 2013, the Bundesbank did a monumental U-Turn, asking to repatriate 300 tonnes of Gold from the same institution to which it had so publicly declared its faith. So far, it is reported that they have successfully repatriated just 5 of those 300 tonnes in 2 years.

The latest data shows that more Gold has been departing the New York Fed in late 2014, alongside a successful Dutch Central Bank repatriation. If this additional Bullion is found not to have headed to Frankfurt, then there appears to be a monumental ‘diplomatic’ problem. I say ‘diplomatic’, because in November 2014 Deutsche Bank itself stated in a research note that:

"In the beginning of 2013, the Bundesbank announced it would repatriate 300 tonnes of gold stored in the US by 2020. It is well behind schedule, citing logistical difficulties.

Yet diplomatic difficulties are more likely to be the chief cause of the delay, especially seeing as the Bundesbank has proven its capacity to organise large-scale gold transports."

That the Dutch have successfully repatriated 122 tonnes (for context this is 122 of the 166 that left the FRBNY in 2014), from the same black-hole vaults in which the German Gold is apparently stuck, adds a fascinating new twist to the issues of 21st century ‘Diplomacy’ and sovereign Gold reserves.

Once the initial German repatriation request had been placed, in early 2013, many other ‘interesting’ things started to happen in the world of German Gold. Most crucially, the German Financial Regulator (BAFIN) suddenly became a lot more interested in the subject of Precious Metals. Indeed, in 2013 BAFIN paid several visits to Deutsche Bank, interviewing and demanding documents as part of an investigation into the potential manipulation of Precious Metals markets.

Further to this investigation, and after considering Deutsche Bank’s Precious Metals ‘operations’ in some detail, Elka Koenig of BAFIN stated, in January 2014 that:

The allegations about (manipulation of) Precious Metals markets are “particularly serious because such reference values are based -- unlike Libor and Euribor -- typically on transactions in liquid markets and not on estimates of the banks.”

This pointed comment by BAFIN followed on from the imposition of new IOSCO legal principles governing global benchmarks and preceded the total departure of Deutsche Bank from what BAFIN was inferring could be a major financial crime scene. As an interesting aside, it is said by people close to the IOSCO process that the ‘London Gold & Silver Fix’ failed 15 of 19 principles of fair and transparent global benchmarking.

Immediately after this important statement by Elka Koenig from BAFIN, Deutsche Bank announced that it was:

"withdrawing its participation in the gold and silver benchmark setting process following the significant scaling back of our commodities business. We remain fully committed to our Precious Metals business" .

That’s all well and good, however Deutsche Bank manifestly were not, as they put it, ‘committed to their Precious Metals business’. Deutsche Bank’s Head of Precious Metals, Matthew Keen, resigned the next working day following Elka Koenig’s statement about potential manipulation. Indeed, his replacement in that role, Kevin Rodgers, also resigned just three short months later.

Between twice losing the top man in their Precious Metals business, Deutsche Bank also unsuccessfully sought buyers for its London Fix seats (both Gold & Silver), quit as an LBMA forward market maker and quietly stopped contributing data to GOFO calculations. For those who are willing to see, it is fairly self-evident that a serious conversation took place between the Bundesbank and Deutsche Bank about what the Regulator had learned about Precious Metals price discovery and custodial ‘issues’, leading to Deutsche’s wholesale departure from the industry.

The recent spate of European Central Bank Gold repatriation requests, Degussa’s revelation in December that they have seen ‘record demand’ for physical Gold in Germany, and the ongoing ‘diplomatic issues’ with Russia add yet more intrigue to an already bizarre story.

The Germans purportedly moved their Gold to London and New York during the Cold War to keep them safe from the reach of the Soviet Union. Now the Bundesbank appear to want the Gold back (much closer to Russia), just as NATO and Western powers sabre-rattle against Germany’s old foe. You couldn’t make it up.

One might say, on the balance of evidence, that the Germans are now more worried about their ‘ongoing diplomatic relations’ with the US (NSA spying etc) and the opaque LBMA Precious Metals ‘price discovery’ and custodial system, than they are by anything Putin might be up to.

It seems certain that the story of Germany & Gold will be something to watch once more in 2015, not least initially to find out if those paltry repatriation numbers from the New York Fed are in due course updated to Germany’s benefit.

Ned Naylor-Leyland, January 2015 (thanks to R. Manly)



About the Author

turd [at] tfmetalsreport [dot] com ()


Jan 2, 2015 - 7:09pm

Dutch preferential teatment

AGAU: 1,000 hat tips.

Fred Hayek
Jan 2, 2015 - 10:47pm

@Dr. P., I think you're missing the point

As part of the further integration of european finance the countries in the EU agreed that things would be run by certain standards to achieve fairness and transparency. Those are the standards Ned cited. He's not making it up out of whole cloth or just imagining what those standards should be. They were drawn up by the EU which doesn't make them good. It's no secret that there's corruption in the EU and yet by this very flawed organization's standards the gold fix fails, abjectly, in 15 out of 19 measures.

Fred Hayek
Jan 2, 2015 - 10:53pm

The U.S. finance industry SUCKS!

Yes, it well and truly sucks.

See the article at the link below:

For every dollar purloined/"earned" by the U.S. financial industry 60 cents are sucked out of the rest of the U.S. economy. This is the *only* industry that costs everyone else in the country money with every dollar it makes. So, yes, the U.S. finance industry sucks. At least one side of a double entendre should be objectively true.

Dr. P. Metals
Jan 2, 2015 - 11:51pm


I missed no point, thanks though.

Jan 3, 2015 - 12:12am

"Diplomatic difficulties"

Could be the Israeli/Americans putting in a claim on Germanys gold.

And yes the Dutch definitely lucked out on the crash investigation rights.

just my 2c

J Siefert
Jan 3, 2015 - 1:27am

If Germany wasn't a vassal

If Germany wasn't a vassal state of the US they would be buying gold on the open markets like the Chinese and Russians are. I can confidently assume that is also the opinion of many Germans and other Europeans.

Jan 3, 2015 - 9:16am

RE:The U.S. finance industry SUCKS!

The details and substance of the article are accurate - as far as it goes. But the Post has 'soft-pedaled' the whole topic, but afterall, it is the Post and we dare not offend Our owners on the Street.

In the early years of the 2000's I had the personal experience of having three extended family members graduate with advanced degrees and land positions on Wall St. They are all multi-multi-millionaires now. AND, everyone one of them knew exactly what they were selling their souls for. One of them, on his third and final interview told me that he brought-up, in the conversation, that he was seeing some things that were not exactly like he had been taught in school. His potential boss immediately changed his demeanor and told him;

"Look. there are no cops on the beat. There haven't been any since 2000. We do whatever we deem to make profits. Is that something you can 100% agree to? Make that decision right now. I know you have other offers you can pursue if you have any objections to what I Just told you~!" He took the job, and now he is one of their top producers, (er, criminals).

My point is that these people, like the woman in the article, who claim they were doing, ''god's work'', and "we didn't know~!", are in total denial, and bare-faced LIARS. They got those jobs because they were the top brightest, fast on their feet, and now they want to claim ignorance????

Give me a fkn break......................................

Dr. P. Metals
Jan 3, 2015 - 9:38am


the long conversation I had in the desert indicated the same: they know perfectly well what is going on with fraud, lies, theft, games, rigged, .01% etc etc, but as long as THEY can profit in/from it, they just don't care. They may not know ALL the tiny details,of the manipulation, bailouts etc, but they absolutely know it's ALL fraud, almost ALL the time. His main justification was: no matter what "new" system you come up with, it will end up the same. I can't disagree with him on that particular point, but I don't use it to justify willful conspiracy to participate.

Fred Hayek
Jan 3, 2015 - 3:54pm

@abguy4 . . Yup. Morals seem to sprout after FU money is had

Thank you for the story. Sadly, it completely fits my deeply cynical expectations of the financial industry and many of its . . participants.

Isn't it a funny coincidence how the woman in the article just . . discovered . . her morals right around the time that she had accumulated what, to her, constituted F*** Y** money?

Reading any story like that one has to expect that the person being profiled will be more than a wee bit kinder to herself in the retelling than a neutral observer might be. Oh, in those early days, I was flying around the country helping make goodness bloom! Yeah, right. More likely she was flying around signing sucker counties and municipalities to chump deals like those jefferson county Alabama interest rate swaps that were supposed to help them pay for their new municipal sewers but which actually ruined them. At first, while I was making my money, we would arrange for unicorns to poop skittles over flyover country. But now that I've got my swag, I notice an icky undertone to everything. So, bye. See ya later!

Jan 3, 2015 - 6:22pm

German Gold

Nice summary Ned!

I think Germany can see the writing on the wall regarding China and Russia accumulating gold. They likely recognize that they will need all they can get before the big shift away from the US$ occurs.

The US knows that Germany is a lynch pin to the EU and thus the status quo of the US$. The more German gold that gets repatriated, the more likely their departure (aka defection) to the other side would become. Not so with the Dutch. Regardless of any leverage they may have from the crash investigation, they are still not as much of a threat to the US since they are a relatively small fish and it wouldn't make any sense for them to jump (at least not until others do).

This is looking more and more like a bunch of dominos.

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