Germany and Italy, among the largest gold holders, have openly discussed the repatriation of their assets.
For decades, major global powers serenely entrusted their gold reserves to American vaults. The United States stood as a guarantor of security, and its institutions symbolized unwavering stability. However, this long-standing tradition is now facing a challenge: Germany and Italy, two of the world`s most significant gold holders, have openly expressed their intent to repatriate their assets. What lies behind this move – a mere political whim or a profound distrust in evolving American policy and economic principles?
The United States holds the world`s largest gold reserves. According to the World Gold Council, the US reserves total approximately 8,100 tons. At a current price of around $3,300 per troy ounce (approximately 31 grams), these reserves are valued at nearly $880 billion. Furthermore, the US also stores gold for other nations, including Germany, Italy, the Netherlands, and Poland. The rationale behind this has long been clear: the US served as their primary ally and security guarantor, reinforced by historical ties.
However, this situation is gradually shifting. Experts note that both Germany, which holds the world`s second-largest gold reserves (3,350 tons), and Italy (over 2,450 tons) have begun discussing the necessity of repatriating their precious metal from the US. It`s important to emphasize that while Germany and Italy haven`t yet initiated any transfers, there`s a growing call from groups like the European Taxpayers` Association for their politicians to take this step. Other nations have previously taken similar actions; for instance, the Netherlands reportedly retrieved its gold from the US in 2014, and France repatriated its gold from both the US and the UK in the 1960s. Given that Germany and Italy remain high on the list of gold reserve holders, why are these countries now being urged to repatriate?
The primary reason, articulated by Michael Jaeger, President of the European Taxpayers` Association, points to Donald Trump`s actions. Specifically, Jaeger voiced concerns about Trump`s perceived encroachment on the independence of the American central bank, the Federal Reserve (Fed). However, the underlying situation is certainly more complex.
National central banks (regulators) are responsible for controlling inflation, employing various tools to do so. The most common method involves adjusting the country`s key interest rate. A high rate helps curb inflation but can hinder economic growth, whereas a low rate stimulates growth but risks accelerating inflation. Within the current economic framework, it`s generally considered crucial for regulators to maintain independence from the government. Otherwise, states might be tempted to increase public debt—for example, by issuing bonds—then allow inflation to rise, effectively devaluing their national currency, and repay the debt with depreciated «new» money.
Turkey serves as a clear illustration of what happens when a regulator`s independence is compromised. President Erdogan replaced three central bank governors in just two years because their policies conflicted with his agenda; they raised key interest rates while Erdogan sought low rates. As a result, Turkey`s economic situation only worsened.
The independence of the US Federal Reserve has been enshrined since the Federal Reserve Act of 1913. Donald Trump had disagreements with the current Fed Chair, Jerome Powell, even during his first term. Trump advocates for a low-interest-rate policy, which, on one hand, aims to boost the US economy. On the other hand, such a path inevitably leads to high inflation. Trump appears willing to tolerate this, while Powell is not.
From the outset of his first presidency, Trump harbored significant resentment towards key US trading partners due to massive trade imbalances. For an extended period, the US imported considerably more goods than it exported. If everything can be purchased from other countries, why produce it domestically? Consequently, US manufacturing declined, leading to deindustrialization. Today, China`s economic power has grown substantially, posing a global challenge that feels existential for the United States. Trump`s proposed solution is reindustrialization—bringing manufacturing back to the US. This is easier said than done. It requires boosting exports and encouraging more purchases of American goods. This can be achieved through protectionist trade tariffs, effectively forcing an increase in American exports, and a policy of devaluing the US dollar. A lower national currency exchange rate benefits exporters who are paid in foreign currency, making a weaker domestic currency desirable for them. However, a devalued dollar leads to rising inflation, a trend closely monitored by Fed Chair Powell, who resists lowering the key interest rate.
A second crucial aspect of reindustrialization is the significant financial commitment required from the government. This involves expenditures through various tax incentives, which are essential if the state intends to stimulate the process. Trump initiated a «big beautiful bill» on taxes and spending, designed to offer such tax breaks, reallocate US government spending, and shift energy policy. While this might seem beneficial overall, it would entail a substantial increase in the already exorbitant American national debt. In Trump`s view, the cost should be borne by the countries that have long leveraged America as a primary export market.
While Trump`s objectives are clear, it`s not what he does, but how he does it that sparks concern. In essence, Trump pursues his goals through any available means. His only constraint is the system of checks and balances still operational in the US – a system he explicitly challenges. In other words, the current American president is seen as «attacking sacred principles.» Unsurprisingly, we already observe a notable division within the American elite. This rift extends beyond Trump and the «Deep State» he has long battled; it`s also evident among former staunch Trump supporters. Elon Musk`s direct confrontation with Trump is a prominent example, and several other committed Republicans have also grown increasingly disillusioned with their recent leader`s actions.
It`s no surprise that opposition movements in European countries are advocating for the repatriation of assets, aiming to avoid unexpected expropriation. While such a move might seem unlikely at present, Trump`s unpredictability makes him a considerable risk. The probability of countries undertaking gold repatriation is certainly not zero. Such actions are unlikely to significantly impact the stability of the US dollar or broader financial markets. Nevertheless, there are strong doubts that current European leaders would dare to proceed with such a step, as it could irrevocably damage already strained relations with the American leader. For now, the prevailing strategy for European bureaucrats seems to be to «wait out» Trump`s potential term, thereby attempting to maintain the status quo for some time.
Amidst this uncertainty, where even seemingly immutable foundations of global finance are being tested, the issue of gold and foreign exchange reserves becomes critically important for all players, including Russia. Russian gold and foreign exchange reserves, a significant portion of which is officially held in gold and yuan, have already undergone substantial structural changes since February 2022. In light of the aforementioned risks of expropriation and the politicization of the precious metal itself, Russia is particularly focused on a policy of maximum sovereignty and physical security for its reserves. This entails further increasing the share of gold stored domestically and intensifying efforts to create independent financial instruments and infrastructure resilient to external pressure.
