Today's Daily Telegraph reported that there is a movement in Germany to get back its gold amounting to 1,200 tonnes, held earmarked at the NY Fed. The Bundesbank denied it, expressing complete confidence in the Americans.

Well, they would, wouldn't they.

The article quotes two politicians who had been pushing for this and/or audits/inspections before Trump was even elected. At its face, the article is therefore speculative. But it was unlikely to be published unless there was more to it than at first appears. We should read between the lines.

Politicians and the Bundesbank as custodian for Germany's gold are bound to be concerned. But the Bundesbank is in a difficult position. It had problems with the Americans over repatriating just 300 tonnes, first announced in 2013 and not completed until 2017. Apparently, the bar numbers didn't match Bundesbank records, and Bundesbank officials were previously refused access to inspect their earmarked gold.

The problem is that either the gold is not there, or if it is there it is encumbered by being leased out to other parties. In other words, it has at least two owners with further rehypothecation extremely likely.

We don't know what the Bundesbank committed to in order to get just 300 tonnes returned over a ridiculously long period. But it is likely that they had to agree to leave the rest with the NY Fed. And does the Bundesbank dare to threaten the entire gold market paper system by renewing demands for the return of more of its gold?

The wider point is that within all the EU's national central banks which store their gold in New York and elsewhere there are bound to be growing concerns over the security of their earmarked gold in New York. The implications are that the Fed cannot be trusted, and any leasing must be stopped. But for now, they are unlikely to create a crisis by demanding the return of their gold.

I have argued recently that when other central banks as a whole are aggressively acquiring bullion as a means of dumping fiat currencies from their reserves, it makes no sense to permit the NY Fed, the Bank of England, or the Bank for International Settlements to use gold leasing of central bank gold to provide the market liquidity necessary for gold derivative markets to function.

The current flow of gold out of the Bank of England's vaults almost certainly involved leased gold, because commercial entities store their bullion in LBMA vaults. The comfort afforded to the BoE's central bank customers by the book entry transfer system, which means leased gold doesn't leave the Bank's vault has now been blown out of the water.