German gold returns home: How populism is influencing monetary policy

After spending decades abroad during the Cold War, Germany’s gold is coming home in an effort to build public “trust and confidence,” the German central bank said.

On Thursday, Germany completed the transfer of $13 billion in gold reserves from New York to Frankfurt, the Bundesbank announced on Thursday. The transfer is one step in a plan developed by Germany’s central bank in 2013 that aims to repatriate half the gold reserves it keeps abroad. The final transfer is expected from Paris later this year, completing the project three years ahead of schedule.

Germany is not bringing home its gold bullion in response to concerns about President Trump’s monetary policy, officials said. Instead, it’s a recognition that the broader political and economic climate has shifted – not to mention a response to populist pressure within Germany and across Europe.

“Trump has not triggered a discussion about the storage facility in New York,” Bundesbank board member Carl-Ludwig Thiele told a news conference, Reuters reported, though he said the Bundesbank regularly discusses the implications of Mr. Trump’s potential policies.

Germany’s gold reserves – valued at 120 billion euro ($127 billion) – are the second-largest stockpile of precious metal in the world. The German government assiduously cultivated these reserves after World War II, to protect German economic prosperity. 

But during the Cold War, up to 98 percent of the reserves were stored abroad. That kept them safe from the Soviet Union in the event of invasion, and meant the gold was near foreign exchange points – in London, New York and Paris – if foreign currency was needed in an emergency.

Today, the international picture looks very different: France and Germany are both part of the eurozone, eliminating the need for French currency, while the Soviet Union is no longer a threat. These factors may have made it easier for Germany to decide to bring its gold home, a move the Bundesbank said it made to improve management and auditing of the stockpiles.

Populist pressure within Germany may have played a decisive role, however.

Around 2012, conspiracy theories questioned whether Germany still had the gold reserves it claimed to possess. At the same time, the "Bring Our Gold Back Home" campaign, led by German tabloid Bild-Zeitung, fueled fears that the euro crisis could lead to the loss of German gold reserves. Though economists described that campaign as "irrational," the Wall Street Journal reported, it was popular at home, as well as in neighboring Austria, where far-right party FPOe proposed that Austria should also repatriate its gold.

As populists win support across Europe, the plan to bring Germany’s gold home seems to be gaining traction. Candidates like France’s Marine Le Pen and movements like 5-Star in Italy openly advocate withdrawing from the eurozone, leading some to suggest that the gold will be needed to back a new German currency should the euro collapse.

Though gold has not been directly linked to currency since the US ended the Bretton Woods agreement in 1973, gold reserves can improve international confidence in a currency and help keep trade flowing.

For now, though, Germany appears to be staying the course. As laid out in the 2013 plan, half the country’s foreign gold reserves will stay in London and New York, and the Bundesbank has no plans to move them, Mr. Thiele said.