Value held in gold at the Fed will be equivalent to 4% of US GDP. “Given the current geopolitical situation, it seems risky to keep so much gold in the United States” — but not everyone thinks the same.
25 meters below ground, on Liberty Street, in New York, the United States Federal Reserve (Fed) guards more than half a million gold bars from central banks, governments and institutions around the world.
The vault is protected by a 90-ton steel cylinder and, once closed, its gigantic lock can only be opened the next day. And the Fed Gold Vaultthe largest known gold deposit in the world, which houses around 6,300 tons in piles of bars whose value, at current prices, is approximately 4% of the Gross Domestic Product (GDP) of the United States.
The vault plays a critical role in the stability of the global financial system, as many countries keep their gold reserves there — the safe haven asset par excellence, used to back their currencies and face contingencies in crisis scenarios.
Gold has always been seen as a safe haven in times of financial turmoil, geopolitical volatility and loss of value caused by inflation. Therefore, the precious metal represents a significant part of central bank reserves around the world, especially in Europe.
“It is one of its most important assets because, in the face of adverse geopolitical events, it allows it to act as lenders of last resort to banks and companies and intervene in foreign exchange markets,” Barry Eichengreen, a specialist in the international monetary system at the University of California at Berkeley, in the United States, told BBC Mundo, the BBC’s Spanish-language service.
For decades, the United States and its central bank, the Fed, were seen as the most reliable guardians of such an essential asset — especially by many European countries that felt threatened by the power of the Soviet Union and began to accumulate large quantities of gold there. But since Donald Trump’s return to power, European politicians and experts began to question the convenience to repatriate gold stored in the country.
The president’s distance from international commitments and his disagreements with the United States’ European allies — on issues such as trade tariffs, Danish sovereignty in Greenland or, more recently, the war against Iran — have generated concern about the security of European gold held by the Fed.
How European Gold Came to the United States
Unlike Russia, whose central bank keeps its gold reserves on its own territory — which protects them from possible Western sanctions — several European countries they continue to store their reserves abroad, many of them in the New York Gold Vault.
Also Portugal it already had gold at the Fed, but will no longer have it in 2021, the year in which this gold “was reallocated to the Bank of France”, according to the Report of the Board of Directors of the Bank of Portugal.
European gold began to accumulate there from the 1950s onwards. According to Barry Eichengreen, “Germany and other European countries, whose economies were recovering and were increasingly exporting to the United States, received payments in a combination of gold and dollars”.
“Transporting gold on ships or planes and taking out insurance to protect it is expensive, so it seemed like a good idea to store it in the Federal Reserve vault — which, moreover, does not charge for custody,” explained Eichengreen.
The system created at Bretton Woods in 1944 established a fixed exchange rate regime with the dollar indexed to gold. Therefore, gold and dollar became the most reliable assets — and for the weakened postwar European powers, it was advantageous to accumulate them costlessly in the custody of the United States Federal Reserve.
Faced with the Soviet threat on the other side of the Iron Curtain, the American guard was seen as the best guarantee. But the Soviet Union no longer exists, and Donald Trump’s return to the White House has altered the decades-long alignment between Washington and its European allies.
Already Germanyseveral voices have sounded the alarm. The country has the second largest gold reserves in the world, behind only the United States, and is therefore one of the countries most exposed to possible risks.
Economist Emanuel Mönch, who was the main researcher at the Bundesbank, the German central bank, defended the repatriation of the gold that the German central bank keeps in New York — around 1,200 tons, according to estimates in the German press, with an approximate value of 200 billion dollars.
“Given the current geopolitical situation, it seems risky to keep so much gold in the United States”said Mönch, who believes that bringing him back would contribute to “greater strategic independence” for the country.
In the same vein, Michael Jäger, president of the German Taxpayers Association, said that “Trump is unpredictable and will do anything to generate revenue. Therefore, our gold is no longer safe in the Fed’s vault.”
“What would happen if the provocation around Greenland continued? It increases the risk that the Bundesbank will not be able to access its gold, so it should repatriate its reserves”, added Jäger.
This concern was also expressed by deputies from the CDU, Chancellor Friedrich Merz’s party, as well as other political forces. Bundesbank President Joachim Nagel tried to allay fears.
“There is no reason to worry,” Nagel said last October during an International Monetary Fund meeting in Washington. In February, he commented on the topic again at a press conference: “This doesn’t keep me up at night. I have complete confidence in our colleagues at the United States central bank.”
But across the Atlantic, neither the Federal Reserve nor the Trump administration has reaffirmed that confidence. “I haven’t heard any reassuring words and I think that would be timely,” said analyst Barry Eichengreen.
BBC Mundo contacted the Federal Reserve, but received no response. The institution’s silence comes at a time of tension in relations between its president, Jerome Powelland the government.
Trump repeatedly criticized him for refusing to reduce interest rates, and the Justice Department even opened a criminal investigation against Powell — who denounced the initiative as part of “threats and pressure” from the executive to weaken the Fed’s independence and force it to “follow the president’s preferences”.
The repatriation wave
Germany is not the only European country with gold in New York. Italy and Switzerland They are often named among the countries that maintain the most reserves there. And some countries have already initiated repatriation processes in the past.
The Netherlands did so from 2014 onwards, when it reduced the portion of its reserves deposited with the Federal Reserve from 51% to 31%. Germany also repatriated some of its bars during this period, but a large quantity remained in the Gold Vault.
“It was the time of the Greek debt crisis and the euro, and Europeans wanted the security that their currency and bank deposits were backed by something tangible,” explains Eichengreen.
Many years earlier, in the 1960s, President Charles de Gaulle decided to bring back to France the gold bars that the country kept at the Fed — according to several authors, for fear of a sudden devaluation of the dollar, whose value was linked to gold in the Bretton Woods system. Time proved him right.
In 1971, United States President Richard Nixon ended the dollar’s convertibility into gold, dismantling the international monetary system created after World War II. France, which had already repatriated its reserves, was in a better position than the countries that saw their bars stored in New York lose much of their value in dollars overnight.
A costly repatriation
The Gold Vault now houses less gold than in the past. According to data from the Federal Reserve, the volume of international gold reserves deposited in the New York vault has been recording a continuous decline since 1973, when it reached more than 12 thousand tons of the metal. Still, the idea of keeping European gold there continues to have defenders.
Clemens Fuest of Germany’s IFO Institute for Economic Research told The Guardian that repatriating the gold “would only add fuel to the fire current situation” and could bring unintended consequences.
Some experts emphasize that the Federal Reserve’s independence from the Trump government prevents it from taking unilateral action on gold — and highlights the costs, in addition to the logistical and security challenges involved in transporting such valuable cargo.
On the other hand, doubts about the reliability of the Federal Reserve as the guardian of European gold threaten to open yet another fissure in the world order that has existed for decades.
According to Eichengreen, “although the withdrawal would not have particularly significant financial impacts for the United States, custody of gold is a global asset that the country has offered for free — like NATO’s security umbrella or the dollar as a global currency — in exchange for building friendly relations and commercial partnerships.”
“This government does not believe that the United States should provide services free of charge — and anything that fuels doubts among allies about the security of their deposits in the country further erodes this goodwill, something essential when their support is needed, for example, in a war in the Middle East.”
There is no record that any European country has so far decided to repatriate its gold during Trump’s second term. But perhaps, in the minds of some governments, the words of Christine Lagarde, president of the European Central Bank, in a speech last year echo: “In the history of the international monetary system, there are moments when the foundations that seemed unshakable begin to shake.”
