Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion (2 page)

Armed with that information, Russell immediately went to the mine with a few G.I.s where he talked with other displaced people and local Germans, who corroborated the French women’s story. Mine officials told him that the assistant director of the National Galleries in Berlin was also there to care for confiscated artworks. A British POW, who had been captured in 1940 and was working at the mine as a mechanic’s assistant, told Russell that he had helped unload the gold. The soldiers learned that there were five more entrances to the labyrinthine mine, with one of them still behind enemy lines. Russell immediately ordered a tank battalion to guard the entrances and arrested all the mine executives.
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On April 7 at 10:00 A.M., Lt. Colonel Russell, accompanied by mine officials, soldiers, and Signal Corps photographers, entered the mine. The group immediately noticed at the entrance several hundred bags. When they opened them, they found them full of Reichsmark currency, which the Germans had apparently left behind in their rush to escape. Soldiers later found over a hundred more in another location. They determined that each sack contained one million Reichsmark. They also found a locked steel door and speculated that they would find more valuables behind it. Germans told the G.I.s that it was called simply “room number eight.” At 2:00 P.M., soldiers attempted unsuccessfully to open the vault’s door and then left.

With all that evidence in hand, Russell interrogated Werner Veick, who worked for the Reichsbank, Germany’s central bank, and said that he had been part of a group that recently brought gold, along with both German and foreign currencies, to the mine from Berlin. He said most of it was stored in the room behind the steel door. Russell quickly sent word to his superiors that there was a vault that reportedly contained gold and other valuables. Eventually the news reached General Patton, who ordered the soldiers to blow off the door the next day and find out what was inside. In the meantime, reinforcements were sent to guard the mine.

The next morning, a group led by Lt. Colonel Russell was back at the mine to blast their way into the vault. They gathered up both Kaiseroda officials and Paul Ortwin Rave, the curator of the German State Museum, to investigate what was underground. Newspaper photographers and reporters traveling with Patton’s army accompanied them. The soldiers tried at first to get into the room by digging around the door; but when that didn’t work they blew a five-foot hole in a masonry wall.

Inside, the soldiers found riches to rival King Solomon’s mines. The room was approximately 75 feet wide, 150 feet long, and had a 12-foot ceiling. Bags of gold bars and gold coins were neatly arranged in rows only a few feet apart. The G.I.s broke the seals of a few bags to confirm the contents and then resealed them. At the back of the room were 207 battered suitcases, boxes, and packages in addition to 18 bags containing gold or silver jewelry, gold watches, and other valuables. Much of it appeared to have been flattened with a hammer to fit as much as possible into the containers. The soldiers speculated it was war loot collected by Nazi soldiers. The boxes actually contained valuables that Gestapo guards had taken from concentration camp inmates on their way to the gas chambers. Bales of currency were stacked along another side of the room. There were also several balances, seemingly to weigh precious metals. Later that day, the group found elsewhere in the mine 550 bags of Reichsmark plus paintings and other museum treasures. They were haphazardly packed in cardboard or wooden containers.
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General Manton S. Eddy, the commander of the XII Corps, arrived at the mine three hours later and quickly telephoned Patton to report that they had found a huge treasure of gold and artworks. In a rare reaction for a general famous for his oversized ego, Patton decided that the discovery was a political rather than a military matter, and asked General Dwight D. Eisenhower, the commanding general of the Allied European Theater of Operations, to take over responsibility. The Berlin museum paintings and art pieces, which included the famous bust of Empress Nefertiti, were priceless. The gold alone in room number eight was worth $238.5 million. At today’s gold price, that would be about $9 billion. The Merkers mother lode was the largest recovery of stolen property in world history, but the story behind this incredible cache and the plight of Europe’s wartime gold was still to be discovered.
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Throughout history the glitter of gold has mesmerized mankind. Gerald M. Loeb, the founding partner of the Wall Street brokerage firm E. F. Hutton, once observed, “The desire for gold is the most universal and deeply rooted commercial instinct of the human race.”
¹
For as long as records have been kept, people have had an obsession with gold that is second only to their preoccupation with sex. Wrote historian Peter L. Bernstein in his book
The Power of Gold
: “Over the centuries, gold has stirred the passions for power and glory, for beauty, for security, and even for immortality. Gold has been an icon for greed, a vehicle for vanity, and a potent constraint as a monetary standard. No other object has commanded so much veneration over so long a period of time.”
²

Of course, the metal has also had its enemies. The Roman poet Virgil wrote in the
Aeneid
, “To what extremes won’t you compel our hearts, you accursed lust for gold?” Shakespeare wrote in Romeo and Juliet, “There is thy gold, worse poison to men’s souls, doing more murder in this loathsome world, than these poor compounds that thou mayst not sell.” In December 1921, Thomas Edison called it “an invention of Satan.” The British economist John Maynard Keynes dismissed it as “a barbaric relic.”
³

Gold is beautiful, malleable, and rare. It is also indestructible, which probably accounts for its connection to eternal life. Treasure hunters still today find shiny coins from Spanish galleons that sank in the early 1700s off the coast of Central Florida. Gold does not rust. Even if buried in the ground for thousands of years it still sparkles. The metal is extremely heavy: a cubic foot of it weighs a half-ton. It can be easily turned into products ranging from wedding rings to teeth. It is used in computers and has even gone to the moon. An ounce of gold can be stretched to a string fifty miles in length or made into a sheet measuring one hundred square feet. It can be pounded down into gold leaf one-tenth of the diameter of a human hair. The world’s total gold holdings amount to only about 165,000 tons. A metric ton in the form of a cube is only fifteen inches on each side. All the gold mined in world history would fit into three-and-a half Olympic-sized swimming pools.
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The ancient Chinese and Egyptians practiced alchemy, a quack science that attempted to turn base metals into gold. King Croesus of Lydia, who ruled the area of modern Turkey, introduced large-scale gold coinage. French historian Fernand Braudel called the metal the “lifeblood of Mediterranean trade in the Second Millennium B.C.”
⁵
Thucydides in the fifth century B.C. wrote admiringly of the Carthaginians, “If willing to help, of all existing states they are the best able; for they have abundance of gold and silver, and these make war, like other things, go smoothly.”
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Explorers during the Age of Discovery set off in sailing ships to look for gold. The objectives of Columbus were gold, god, and glory. On October 12, 1492, the day after he landed on the island of Guanahani in the Bahamas, he set out on a quest for the metal. He wrote of his first experience: “Seeing some of them with little bits of this metal hanging at their noses, I gathered from them by signs that by going southward or steering round the island in that direction, there would be found a king who possessed large vessels of gold, and in great quantities.”
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Two years after that first voyage to the new world, the proud Columbus proposed to his Spanish patrons, King Ferdinand and Queen Isabella, the rules for gathering gold from the new territories. Colonists, for example, should be obliged to get a license from the Spanish governor, and all gold found should be smelted immediately. He wrote them, “Without doubt there is in these lands a very great amount of gold.” In the century after Columbus, the world’s stock of gold increased five-fold setting off one of the world’s most productive eras of gold discovery.
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Under the mercantile system, which dominated the world economy from the sixteenth to the eighteenth century, countries imported as few goods as necessary, exported as much as feasible, and sold as little of their gold as possible. This was followed by the international gold standard, which was the bedrock of global finance for the next century, leading up to World War I.

The British in the early eighteenth century established the value of a country’s currency on the basis of gold. Sir Isaac Newton, the master of London’s Mint, in 1717 tied the value of the pound sterling at 113.0016 grains of pure gold. Britain was such a dominant economic power that other countries had no choice but to follow its lead. That gold system became the foundation of world trade and fostered economic prosperity. The U.S. dollar in that era was worth 23.22 grams of gold. From the 1830s to the 1930s, the international price of gold was about $20 an ounce.
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During that time, Britain was the international lender of last resort and helped countries out of financial troubles. The system had credibility and fostered close cooperation among the leading nations as well as widespread prosperity. If a country followed irresponsible economic policies, it had to devalue its currency by decreasing its gold value. It was a humiliating and painful process that nations fought hard to avoid.

Governments often ignored the gold standard in times of war, but they returned to it in peacetime. Britain and other nations suspended it during World War I. In April 1925, though, Chancellor of the Exchequer Winston Churchill put his country back on the gold standard at the pre-war level.
¹⁰
It was an unrealistic price that fostered the world depression. Nonetheless, Joseph Schumpeter, the great Austrian-American economist of the mid-twentieth century, praised gold as an automatic system that reacted quickly to changing conditions, writing, “Gold imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense.”
¹¹
Robert Mundell, the winner of the Nobel Prize for Economics, has said, “Gold will be part of the international monetary system in the twenty-first century.”
¹²
George Bernard Shaw, the playwright, in
The Intelligent Woman’s Guide to Socialism and Capitalism
, wrote, “You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. And, with due respect for those gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold”
¹³

On January 24, 1848, James W. Marshall discovered a few flakes of gold at the sawmill he owned with John Sutter in Northern California. Ambitious miners from around the world rushed to California by land and sea to seek their fortune, and in the process helped settle the nation from sea to shining sea. When the Union Pacific and Central Pacific railroads met on May 10, 1869 at Promontory Summit in the Utah Territory, a golden spike completed the job. The United States had become a global power.

Gold has always been the last refuge of people in times of crisis. In July 1864, Confederate military units invaded the District of Columbia and were within sight of the nation’s capital. Union Secretary of War William Stanton took $5,000 in government bonds and $400 in gold belonging to his wife Ellen out of his safe at the War Department next door to the White House, gave them to his secretary, and told her to go to his home and hide the valuables in his mattress.
¹⁴

In
Lords of Finance
, which recounts the history of central banking between the two world wars, Liaquat Ahamed wrote that Montagu Norman, the governor of the Bank of England, the predominant banker in that period, considered gold to be “one of the pillars of a free society like property rights or habeas corpus, which had evolved in the Western liberal world to limit the power of government.”
¹⁵

At the beginning of World War II, when nations fell in a matter of days and millions of refugees flooded the roads to escape the conflict, people turned to gold as their last hope for survival. In June 1940, twelve-year-old Felix Rohatyn, who would later become the chairman of the international financial giant Lazard Frères and rescue New York City from bankruptcy in 1975, was one of millions of European Jews trying to escape from the Nazis in France. His mother instructed him to empty tubes of Kolynos toothpaste and refill them with gold coins from his grandfather’s collection. Two years later, when Rohatyn finally arrived in New York City to end his long escape odyssey, the gold was still in the toothpaste tubes.
¹⁶

In a similar but less successful tale, Prime Minister Paul Reynaud, who had led his country’s battle against Hitler, fled France after the armistice and was trying to get into Spain in June 1940. Spanish customs officers at the border inspected the luggage of his mistress Helène de Portes and found $2 million worth of gold.
¹⁷

The world’s central banks are the traditional home for most gold. That is where the vast majority of it is stored, and the biggest trades in the metal have traditionally been made among national financial institutions. Governments looked to central bankers to run their economies, and for most of history nations settled their foreign trade exchanges with gold. Countries buying more than they were selling usually made up their trade gap with bullion. Sweden established the first central bank in 1664 following the failure of a prominent private financial institution. The Bank of England was established thirty years later and was the preeminent one for nearly three centuries. During that time, it was the custodian of gold. The New York Federal Reserve, the American central bank, took over that international role during World War II.