Searching for Germany's Gold

Gold and silver prices gained slightly in Thursday's trading and continued in the green in early trading Friday morning. Comex Gold is currently trading back above the $1,700 mark and silver is taking another stab at the $34 level. The gold chart currently looks like it may be completing a reverse head-and-shoulders pattern with the latest correction back to $1,676 being the right shoulder of this formation. This is usually a powerful bullish signal. If gold can break the neckline which can be drawn at $1,750, than standard technical analysis would indicate that a $200 surge with a new target price of $1,950 is on the cards. Such a move will probably coincide with a change for the better with regards sentiment towards the euro, with signs of progress in tackling the continent's sovereign debt woes.

Yesterday evening's, "debt restructuring“ programme ended with 85.8% of Greek bonds being turned in by private debt holders. These creditors therefore agreed to having 53.5% sliced off the face value of their Greek bonds. Greek authorities were pleased with the result, but still seek to force the remaining debt holders into participating by invoking so-called collective-action clauses which were authorised in February. Through this "hair cut“ Greece will be freed from €100 billion in national debt. But many questions still remain. One being if this debt deal will formally be ruled a credit event, triggering payment on credit default swaps. The International Swaps and Derivatives Association (ISDA) will be addressing this issue tomorrow. It will be interesting to see what their decision is.

Another question is whether or not Greece can "turn the corner" in terms of economic growth and get out of recession. All the models on Greece are based on strongly improving GDP numbers. If they don't materialise Greece will be in for more trouble, with further bailouts from other EU nations a possibility.

Speaking of other EU nations, there have been some interesting developments over the course of this week with regards countries' gold reserves. The German tabloid paper BILD recently went to New York to find out more about the German gold held at the New York Federal Reserve vault. Most of the German gold – at 3,396.3 tonnes the second-largest official gold hoard in the world – is stored in other countries – with most of it in New York. But detailed information about this subject is rare, as the Bundesbank remains very secretive about the location and form of the German gold (the Bundesbank's balance sheet does not distinguish between gold bullion and claims on gold). BILD points out that the Bundesbank has violated reputable accounting standards by not auditing the bars every three years, and is pushing for an investigation.

While no one expects the Germans to repatriate anytime soon – in the manner of Venezuela's Hugo Chavez – that these questions are being asked in mainstream media is significant. More people are starting to understand the importance of gold as a monetary asset. As the global debt crisis continues, expect more attention to turn to the topic of national gold reserves.