Gold Giant Bundesbank Signals An Open Vote Of No Confidence in Global Monetary Stability

Submitted by Thomas Kolbe

The German Bundesbank hoards the second-largest gold reserves among central banks. The precious metal serves as an insurance policy for both states and private individuals. Its massive price surge shows that the dice have already been cast: governments will attempt to inflate their debts.

Anyone acquiring precious metals in these weeks simultaneously casts a verdict on their currency. This may be a conscious portfolio decision or simply an undefined desire to have a monetary insurance policy at hand. One never knows what the future holds.

Gold jewelry or collectible silver coins are aesthetically appealing and trigger our instinct to collect. What private purchases and the massive hoarding of gold by central banks share is their monetary-policy background.

In honest moments, looking at the soaring global sovereign debts and escalating geopolitical conflicts, we know that our monetary system is heading for severe turbulence. In many places, the fiscal Rubicon has long been crossed. With debt-to-GDP ratios well above 100 percent—in the U.S., China, and numerous European countries—only a massive expansion of the money supply can ensure the public sector’s ability to pay.

Bundesbank Holds Massive Gold Reserves

This occurs at the expense of those trusting in cash. In this context, it is noteworthy that the German Bundesbank hoards the second-largest gold reserves among global central banks.

3,350 tons of gold, with a market value of roughly half a trillion euros, are split between the Bundesbank’s vaults in Frankfurt (50 percent), the New York Federal Reserve (37 percent), and a storage facility in the City of London (13 percent). It is an inheritance from the old Bretton Woods system, when gold was stored near major global trade hubs.

The time is drawing closer to bring the reserves stored abroad back home. In a fragile monetary system, precaution is not alarmism—it is pure self-protection.

Italian Prime Minister Giorgia Meloni must have thought the same. She is working under intense pressure to formally transfer the Italian central bank’s gold reserves to the state—a step equivalent to an open vote of no confidence against the European Central Bank. 

Italy holds 2,452 tons of gold, ranking third internationally behind the U.S. and Germany, giving it, like Germany, a bargaining chip to restart its own currency should a severe euro crisis ever occur.

From the Frankfurt ECB Tower, these developments are viewed with the utmost concern. Nothing corrodes a monetary system faster and more effectively than a loss of confidence in creditworthiness. The banking system, as well as pension funds and retirement insurance, rely on the stability of government bonds recorded on their balance sheets.

Once it became clear that states could no longer consolidate fiscally, the bond market corrected sharply. Billions in losses are on the books, only not written off due to special valuation rules granted by lawmakers.

From the ECB’s perspective, the hoarding of national gold reveals dangerous secession tendencies. It still holds around 500 tons of gold from the early days of the monetary union, when member states contributed gold reserves proportionally to their GDP to support the euro. This is far from sufficient to provide the euro with a stable, metal-backed anchor after decades of money growth.

The repeated desire of ECB President Christine Lagarde to centralize national gold reserves at the ECB vault is almost universally rejected by eurozone members. So much for the repeatedly touted integration of the euro system.

Gold as a Global Trust Anchor

Elsewhere, gold has also become central to stabilizing trust. The BRICS nations have for years worked on creating a payment system independent of SWIFT but have failed so far because no one trusts the Asian hegemon, China.

The solution—the pegging of mutual transfers to gold—was adopted by China during the global financial crisis more than fifteen years ago, when it became the largest buyer in the precious metals market. With roughly 2,300 tons, China now holds the fourth-largest gold reserves in the world.

Besides China, Russia, Turkey, India, and Poland, as well as countries like Egypt and Thailand, have significantly increased their gold holdings since 2008. The price increase is therefore justified and likely to continue in the long term, albeit with growing volatility. 

A positive side effect of this reevaluation is a kind of balance-sheet repair. The deep gaps created by the bond market crisis are closed by the appreciation of gold for those who recognized the approaching sovereign debt danger early.

In Germany’s Bundesbank, gold now represents roughly 80 percent of the entire balance sheet. There is thus motivation in many places to continue boosting the gold price. It is an elegant way to stabilize the monetary system while simultaneously repairing past damages across different institutional levels through a simple repricing.

States Strive for a Gold Monopoly

It is almost a historical irony. When U.S. President Richard Nixon terminated the dollar’s convertibility into gold in 1971 amid soaring debt and massive inflation of liabilities, the so-called fiat credit money system was set in motion. Debts exploded, and states could borrow nearly without limit.

Unbacked credit, combined with ever-lowering reserve requirements, created a perfect Ponzi system, which has now entered its crisis stage.

German policymakers tried to escape this debt spiral by enshrining the so-called debt brake a few years ago. Yet the corrosive erosion of this fiscal constraint began immediately afterward and was ultimately buried last year by Chancellor Friedrich Merz and his high-stakes special fund gamble.

With this policy of unlimited state credit, citizens are driven toward safe havens such as precious metals, accelerating the decline of the fiat credit money system.

The relationship of states to gold remains ambivalent. Aside from committed fiat regimes like Canada, which holds no gold at all, it is becoming increasingly clear that gold can either extend the Ponzi scheme or initiate a new monetary system.

However, citizens fleeing into the safe haven of precious metals become potentially dangerous antagonists, prompting an immediate political counterreaction. Gold purchases are recorded, limited, and legislated in ways clearly designed to capture future portfolio gains.

The Netherlands, for example, is expected to begin taxing unrealized capital gains in 2028—a clear warning.

A general, sharp appreciation of precious metals could create tens of thousands of capital-strong, independent families, particularly in Europe. It is precisely this independence that vexes the etatists in Brussels and EU capitals. The fiscal effect of harvesting book gains in the private sector also plays a role, given runaway sovereign debt.

The ambivalence of gold—and this applies to precious metals as well as other assets without counterparty risk, such as Bitcoin—inevitably provokes massive repression in political regimes focused on citizen control.

Expect other European states soon to follow the Netherlands’ example. The fight for sovereignty has begun.

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About the author: Thomas Kolbe, a Germany a graduate economist, has worked for over 25 years as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.