Mostly due to a contextual failing on my part, I don't understand what is going on here.

Am I reading this right? Basically the US told the Germans they can't have the gold back because it may not actually be there, and what is there isn't the purity it should be and somehow strongarmed them (the Germans) in to just keeping their mouth shut because if the gold supply/repository is tainted the world market is fucked?

Wow. You understood far more than me. Unless you're wrong, in which case it vindicates my decision to quit reading half-way throught the article.

Central banks leave gold with each other to facilitate trades between the countries and a vast amount of gold is held at the NY Fed. The Fed tracks the inventory of the gold it holds and each day they will adjust the holdings based upon the net of the daily foreign exchange transactions. This is sort of a primitive model, which has largely been in place since the end of WW2. A few years ago, Germany started looking at the agreement with the Fed and decided it was not beneficial, as the Fed does not guarantee (provide insurance) for the gold it holds. The Fed is not always transparent, so Germany has no way of knowing if the gold is actually there or if the gold is pure. For these reasons, Germany decided to repatriate the gold back to Germany.

What I find interesting here is that Germany audited the Fed's agreement and the repatriation process, but did so in a rather unusual way that should only raise more questions. The gold was largely repatriated due to a lack of transparency and the audit equally lacked transparency. Not mentioned in this article, but I assume to be a larger reason for the repatriation is with interest rates. Germany started repatriating the gold before interest rates in the EU went negative.

But why were the Germans only allowed to repatriate les than 1/4 of their reserves?

btw, for whatever reason the text box does not like the 'less than alligator' sign, cuts off everything after.

Same reason you can withdraw money from your bank. The money doesn't belong to the Fed, the Fed is just the custodian holding it. Germany had the choice to leave the gold, repatriate the gold, or sell the gold in NY and repatriate the cash. Germany wasn't forced to do anything, it simply decided what to do with it's assets.

Before the FDIC, banks insolvency was a major concern. If customers became aware that their bank may be insolvent, they would withdraw their money and this would occasionally cause a run on banks, causing mass panic for the remaining customers that haven't withdrawn their cash yet. This is largely a problem because banks lend out long term debts (such as issuing mortgages), which are funded by short term deposits (that cash in your checking/savings can be withdrawn at any time). A run on the banks, will cause the bank to sell assets at fire-sale prices.

If the Fed didn't allow a country to withdraw reserves from the bank, it could cause mass panic with other country's central banks. Unlike the above example of a run on banks, the Fed is not investing these gold reserves, so if the Fed was not able to pay back the gold, it would simply mean that the gold is not there and all trust would come crashing down.

While Germany could repatriate 300 tons of gold, they were still required to maintain 1,200 tons as a required reserve. Repatriating the last 1,200 tons would basically mean that Germany is no longer interested in trading with the US ever again.

So what's with the article insinuating the gold is impure, or may not even exist?

I don't mean to be dense, I just don't have the background to understand fully what is going on here.

It's more critical with Germany's central bank. Central banks in themselves don't always have a lot of transparency for a variety of reasons. Germany pulled the gold out of the Fed largely due to lack of control and guarantee. A lot of the gold simply moved to other locations that still did not provide guarantees or direct access to the gold.

Germany withdrew the gold based upon audit findings, Germany took action, the actions did not address any of the original audit findings, the auditors the auditors hide evidence and remain quiet about the process.

This would be a lot easier to take seriously if the accusations came from someone able to audit their own grammar.