Tag Archives: Austria

Central Bank Austria Claims To Have Audited Gold at BOE. Refuses To Release Audit Reports & Gold Bar List

After years of gradually securing its official gold reserves (unwinding leases) the central bank of Austria claims to have completed the audits of its 224 tonnes of gold stored at the BOE. However, it refuses to publish the audit reports and the gold bar list. What could possibly be so sensitive to hide from public eyes?

After the Germans had activated a program to repatriate 150 tonnes of their official gold reserves in 2012, which was revised in 2013 to have 50 % of their gold on German soil by 2020, and the Dutch repatriated 123 tonnes in 2014, the Austrians have likely been inspired by these initiatives – if European official gold policy is not adroitly aligned among national central banks behind the scenes. In 2015 the Austrian central bank, the Oesterreichische Nationalbank (OeNB), revealed it would repatriate a significant share of its yellow metal from the UK, where they were storing 80 % (224 tonnes) of their total reserves (280 tonnes) at the Bank Of England (BOE). The Austrians decided to eventually have 50 % of their gold on own soil by 2020 – just like the Germans.

Have a look below at the repatriation schedule of the OeNB for the period from 2015 until 2020. We can wonder why the gold is scheduled to be transported over the course of five years instead of a few months. My guess is this is caused by some kind of friction between the BOE and its foreign central bank clients, in this case the OeNB.

gold-storage-overview-oenb-2015-2020
Exhibit 1. Courtesy OeNB. Total OeNB gold accounts for 280 tonnes.

But we know that the OeNB didn’t start to get nervous about the safety of their gold in 2012 or 2015. This started right after Lehman Brothers fell in 2008, as documents show the OeNB slowly started to secure its bullion by unwinding gold loans to commercial banks in 2009. Though, the OeNB publicly disclosed these details after the facts in 2015.

Have a look at the overview below. OeNB gold loans to commercial banks have been brought down from 116 tonnes in 2009 to 24 tonnes in 2013.

austria-official-gold-reserves-2009-2013-bestss
Exhibit 2. Source: Bericht des Rechnungshofes Oesterreichische Nationalbank – Gold– und Pensionsreserven, Jubiläumsfonds sowie Sozialleistungen.

I (we) first learned the Austrians were worried about the safety of their gold in the UK through an article from Goldreporter.de from May 2014. The article noted:

Austria is planning to send auditors to the Bank of England in order to verify the existence of Austria’s gold reserves stored in British vaults.

The Austrian accountability office will sent a delegation to London in order to check on Austria’s gold reserves stored in vaults at the Bank of England. … The measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.

I acknowledge the request. Any grocery store is obliged to do an inventory once a year. It is the only way of getting rid of these unreasonable allegations”, Ewald Nowotny, Governor of the National Bank of Austria tells Trend.

Exactly. Any gold owner, and thus many central banks including the OeNB, is obliged to do an inventory once a year to be positive his gold is safe and sound. If central banks truly hold the amount of gold they claim, executing a proper audit and publish the documentation shouldn’t be a problem. Or would it?

Well, it could be a problem if a central bank is obstructed by its custodian to perform audits. In February 2015 we learned the OeNB had some problems with auditing their gold at the BOE. The Austrian Court of Audit (Der Rechnungshof) wrote in a report [brackets added by me]:

Late 2013, the OeNB stored roughly 82 % of its physical gold holdings [224 tonnes] at a depository in England [BOE] and therefore ran a high concentration risk. The current [2015] depository concept lacked adequate measures to reduce this risk. Additionally, the gold depository contract with the depository in England contained deficiencies. With respect to the gold reserves stored abroad, internal auditing measures were lacking

The OeNB had no appropriate concept to perform audits of its gold reserves. … The lack of audit measures represented a gap in the internal control procedures of the OeNB. The OeNB started in March 2014 with the development of an ​​audit program, which included all the gold holdings of the OeNB.

So, although the OeNB was trying to audit their gold at the BOE since March 2014, the results haven’t been as desired, as “the gold depository contract with the depository in England contained deficiencies”, and, “with respect to the gold reserves stored abroad, internal auditing measures were lacking”. Noteworthy to mention is that the BOE sent a letter to its foreign central bank clients in June 2013, openly inviting them to come and audit their gold. Please read bellow the letter obtained by colleague gold blogger Bullion Barron:

As you may know, the Bank of England’s vault operation is somewhat unique in that it facilitates both long term central bank storage and active trading.

I am pleased to tell you that we will now allow inspections of a suitable random sample of your bars. We will follow a principle of doing everything we can to accommodate requests, subject to us maintaining our ability to run the vault efficiently.

The workload associated with these visits, combined with regular operations means that you will need to agree the scope and timing of any inspection with us in advance. Furthermore, there will need to be some constraints around the date, sample size and frequency of visits depending on the overall demand.

Due to the number of customers we have, we may not be able to accommodate your request immediately but, we will do everything we can to accommodate you as soon as is reasonably practicable.

If you would like to discuss further details, please contact your Relationship Manager

First of all, it seems that prior to June 2013 foreign central banks had no auditing rights at the BOE at all. That’s shocking. In addition, this letter was sent in June 2013, but in February 2015 Austrian Court of Audit declared, “with respect to the gold reserves stored abroad, internal auditing measures were lacking”. Why couldn’t the OeNB audit its gold in London by 2015 while the BOE had stated in 2013 to welcome clients for metal inspection?  

In any case, I emailed the OeNB in September 2016 to ask what the status was of the repatriation program – how much had been shipped from the UK to Austria. The OeNB replied:

Due to security reasons we are not able to give information concerning the concrete process and status of the transport of the Austrian gold reserves.

Then I asked if the OeNB had been able to finally audit its gold at the BOE and if they have a gold bar list publicly available disclosing each of their bar’s refinery brand, serial number, year of manufacturing, etc. The OeNB replied [brackets added by me]:

…we can confirm that the Oesterreichische Nationalbank has audited her gold holdings in the UK and also in Switzerland, but we also have to tell you that we won’t send a copy of the audit reports.

I regret, we do not have the required [the gold bar] list online.

Isn’t that odd? In 2014 the President of the OeNB Nowotny stated, “any grocery store is obliged to do an inventory once a year. It is the only way of getting rid of … unreasonable allegations”. Effectively he stated that the only way to proof the existence of the Austrian gold is to do a proper audit. But once that audit is completed the reports should made public or the whole exercise isn’t credible. Actually, by not releasing the audit reports more concern is raised. Can an audit “get rid of … unreasonable allegations” if it’s done in secret and the documents remain classified? I think not.

Consider this…

  1. The audits have been obstructed for at least 20 months (June 2013 – February 2015).
  2. After the audits had been allegedly completed, the OeNB decided not to publish the audit reports. 
  3. The OeNB settled to repatriate 140 tonnes from the BOE. But why not all? Did the OeNB discover a portion of their gold was missing? Have European central banks settled with their custodians (BOE & New York Fed) to receive a slice of what was once deposited? 

Why not full transparency? Why are central bankers always so secretive about their official gold reserves? What could possibly be the reason to hide inventory documents from public eyes? Why doesn’t the OeNB publish a gold bar list? Why doesn’t the Dutch central bank publish a gold bar list (and makes up false excuses)? Why did the German central bank publish a gold bar list that is worthless because it doesn’t disclose gold bar serial numbers, refinery brands and years of manufacturing? Why does it take Austria and Germany another four more years to repatriate gold from the UK and US?

If the OeNB, and many other central banks, keep hiding their documents from us all we can do is worry and speculate. Not because we want to, but because we’re forced to.

BullionStar, though, will keep pushing for more transparency at every central bank around the world. Whether it be the central bank of the Netherlands, Germanythe US, Belgium, Italy, Austria or the IMF.

To be continued…

oenb-director-kurt-pribil-and-president-ewald-nowotny
OeNB Director Kurt Pribil and President Ewald Nowotny.

Kronen Zeitung: Austria Repatriates 110 Tonnes From UK

Austria is repatriating gold from the vaults at the Bank Of England (BOE) at this very moment, according to Kronen Zeitung. The OeNB (central bank of the Republic of Austria) stored 82 % of its 280 tonnes at the depository in England. It will start by bringing back 110 tonnes to Austria, to eventually have 50 % on own soil. 

This was to be expected as Austria has steadily working to move more of its official gold reserves from unallocated to allocated accounts in recent years, and additionally reduced its gold leased out by a staggering 60 %.

Austria official gold reserves allocated vs unallocated ratio

The chart above reaches to December 2014, when Austria only had 15.58 tonnes of unallocated gold versus 264.41 tonnes allocated – nearly fully allocated.

Austria official gold reserves 2009 - 2013 bestss

In this chart we can see “Gold loans to commercial banks” dropped from 116.451 tonnes in 2009 to 23.887 in 2013, down 79.49 %. Total non-physical holdings dropped from 156.589 tonnes in 2009 to 61.671 in 2013, down 60.62 %. Austria has unwounded all leases and is working towards being fully allocated.

Worth mentioning is that on February 24, 2015, the Austrian Court of Audit (Der Rechnungshof) released a report on the Austrian central bank’s official gold reserves audits. This report contains (official) critical notes regarding the safekeeping of the Austrian gold. Stating:

The OeNB runs a high concentration risk.

…The gold depository contract with the depository in England contained deficiencies.

…The OeNB had no appropriate concept to perform audits of its gold reserves.

…The lack of audit measures represented a gap in the internal control procedures of the OeNB. The OeNB started in March 2014 with the development of an ​​audit program, which included all the gold holdings of the OeNB.

 

 

Who’s next? Belgium?

Austria Expresses Concern Over Their Gold At BOE

Yesterday the Austrian Court of Audit (Der Rechnungshof) released a report on the Austrian central bank’s official gold reserves audits (Austria holds in total 280.0 metric tonnes). This report contains (official) critical notes regarding the safekeeping of the Austrian gold.

The report is written in German, but from being Dutch (my native language is similar to German), using Google Translate, having spoken to Peter Boehringer about this and using the English introduction from the Rechnungshof’s report, we can squeeze the essential bullion points from the report.

I will sum up the highlights. Let’s start with a quote from the English introduction:

In end-2013, the OeNB (central bank of the Republic of Austria) stored some 82 % of its physical gold holdings at a depository in England [BOE] and therefore ran a high concentration risk. The current depository concept lacked adequate measures to reduce this risk. Additionally, the gold depository contract with the depository in England contained deficiencies. As regards the gold reserves stored abroad, internal auditing measures were lacking. 

The Austrian Court of Audit expresses great concern about the disproportionate amount of official gold reserves (229.6 tonnes) stored at the Bank Of England (BOE), which will be the Austrians excuse for repatriating, “the gold depository contract with the depository in England contained deficiencies” and, “gold reserves stored abroad, internal auditing measures were lacking”. They’re putting it blunt for an official source on a topic so sensitive as gold.

oenb

The OeNB didn’t have any proper auditing rights or access to their own gold at the BOE until 2013. This is line with what Bundesbank executive board member Carl-Ludwig Thiele said in 2011, “We’re in negotiations with our partner central banks [FRBNY] to develop auditing rights.” Apparently, foreign central banks had no rights whatsoever to audit their own gold at the BOE or Federal Reserve Bank of New York (FRBNY) until 2013.

Though it hasn’t been only imprudent policy from the BOE; between 2009 and 2013 there had been no audit protocol for the Austrian gold by the OeNB itself. From the February 24, 2015, report

The OeNB had no appropriate concept to perform audits of its gold reserves. … The lack of audit measures represented a gap in the internal control procedures of the OeNB. The OeNB started in March 2014 with the development of an ​​audit program, which included all the gold holdings of the OeNB.

In May 2014, for the first time, a delegation from the Austrian accountability office travelled to London in order to check on Austria’s gold reserves stored in vaults at the BOE.

Strikingly the Bundesbank’s current gold repatriation schedule was released January 16, 2013. The Austrian central bank decided on January 17, 2013, to “adopt measures … in terms of the management of gold stocks … that should reduce the risk of asset losses of the OeNB”. Repatriating gold is highly contagious at the moment.

After Germany received its first gold bars from the US in 2013, the Dutch central bank surprised the world on November 21, 2014, by stating they had successfully repatriated 122.5 tonnes from New York (which according to me was planned long before), on December 5, 2014, the Belgian central bank announced they were investigating to repatriate their gold reserves, followed by the Austrians on December 12, when newswire Der Standard stated:

…In Austria, the Court of Auditors has adopted the gold concept in its recent OeNB examination. In its draft report it provides the OeNB diverse recommendations. One of the key points: Given the “risk of a high concentration at the Bank of England”, the examiner advises to “rapidly evaluate all possibilities of a better dispersion of the storage locations”. Not only the parties should be diversified, but also the “actual spread of storing among locations”.

Gold Relocation Possible

The central bank has not ruled out such a relocation. The existing gold storage concept would be reviewed, potentially it will bring parts of the stored gold in the UK to Austria, OeNB experts have stated. Any changes will be decided upon security and economic criteria, according to the OeNB.

A brief orientation on the current gold concept: Austria has 280 tonnes of official gold reserves, only a small part of (17 %) is kept in Vienna. 80 % of the reserves are located in London, the most trading partner in gold, 3% percent is stored in Switzerland.

What more can we learn from the latest report from the Austrian Court of Auditors. Quite a lot, apparently the OeNB has been allocating gold and unwinding leases at a rapid pace since 2009. Have the Austrians been preparing repatriating a few years ago? Just like the Dutch? From the report February 24, 2015:

The composition of the gold holdings of the OeNB in the years 2009 to 2013 changed greatly. The proportion of non-physical inventory fell from 56% in 2009 to approx. 22% in 2013. 

Currently all gold loans ran out no later than September 24, 2014.

In the report there is a table of all gold holding compositions from 2009 to 2013. Here’s my best translation:

Austria official gold reserves 2009 - 2013

We can see Gold loans dropped from 116.451 tonnes in 2009 to 23.887 in 2013, down 79.49 %. Total non-physical holdings dropped from 156.589 tonnes in 2009 to 61.671 in 2013, down 60.62 %. Austria has unwounded all leases and is working towards being fully allocated.

If I compare these numbers with previous research I did on the gold holdings of the Austrian central banks, the similarities are not hard to find. It seems the Austrian Court of Auditors has labeled unallocated gold as non-physical, which is probably the best way of putting it, as unallocated gold represent a claim on gold, though the holder does not own specified bullion. From the LBMA:

UNALLOCATED ACCOUNT An account where specific bars are not set aside and the customer has a general entitlement to the metal. … The holder is an unsecured creditor. 

The next chart demonstrates the composition of Austrians allocated versus unallocated gold. We can see that by end 2013 unallocated gold accounted for 61.68 tonnes, the same as the total non-physical holdings in the chart above.

Austria official gold reserves allocated vs unallocated ratio

This chart reaches to December 2014, when Austria only had 15.58 tonnes of unallocated gold versus 264.41 tonnes allocated – nearly fully allocated.

There is more information in the report that I don’t feel comfortable publishing as I haven’t discussed it with a native German speaker. 

The Eurosystem

Austria’s allocation policy has been the main reason the Eurosystem’s total unallocated gold dropped to from 232 tonnes in 2013 to 183 tonnes by the end of 2014 (France and Malta also helped).

Eurosystem Official Gold Reserves Allocation, December 2014Reuters released an article on February 24, stating the Eurozone has increased its gold holdings by 7.437 tonnes to 10,791.885 tonnes in January 2015. I can’t verify this from the numbers I have. Perhaps it has got something to do with Lithuania joining the Eurosystem on January 1, 2015, though Lithuania holds only 5.8 tonnes (fully allocated). The article also notes Turkey has decreased its official holdings, though this is due to changes in Reserve Requirements commercial banks hold at the Turkish central bank (CBRT), not because the CBRT is trading on the open market – read this post for more details on the Turkish gold market.   

Currently Germany, Estonia, Ireland, Greece, Italy, Cyprus, Latvia, Luxembourg, The Netherlands, Slovakia and Finland are fully allocated.

 

Eurosystem Official Gold Reserves Allocation December 2014

Why Austria Is Likely To Repatriate Its Gold From London

Yesterday, December 12, we learned the next European county in line – after Germany, Switzerland, The Netherlands and Belgium – to openly talk about repatriating its gold reserves is Austria. This came to me as no surprise.

From derStandard.at we could read:

The National Bank Thinks About The Gold Concept

The gold reserves of the Oesterreichische Nationalbank (OeNB) and their deposits in the UK and in Switzerland are a recurring theme in political discussions. Especially the Freedom to demand the relocation to Austria, along the example of the Deutsche Bundesbank in mind, who want to move half their gold by 2020 to Germany.

In Austria, the Court of Auditors has adopted the gold concept in its recent OeNB examination. In its draft report it provides the OeNB diverse recommendations. One of the key points: Given the “risk of a high concentration at the Bank of England”, the examiner advise to “rapidly evaluate all possibilities of a better dispersion of the storage locations”. Not only the parties should be diversified, but also the “actual spread of storing among locations”.

Gold Relocation Possible

The central bank has not ruled out such a relocation. The existing gold storage concept would be reviewed, potentially it will bring parts of the stored gold in the UK to Austria, OeNB experts have stated. Any changes will be decided upon security and economic criteria, according to the OeNB.

A brief orientation on the current gold concept: Austria has 280 tonnes of official gold reserves, only a small part of (17 %) is kept in Vienna. 80 % of the reserves are located in London, the most trading partner in gold, 3% percent is stored in Switzerland.

Note, the above was translated by Google and me, although I don’t speak German, the language is quite similar to Dutch: I can’t guarantee the translation is 100 % accurate

The exact tonnage of Austria’s official gold reserves at each location was first disclosed in November 2012:

The Austrian central bank keeps most of its 280 metric tons of gold reserves in the United Kingdom, Vice Governor Wolfgang Duchatczek was quoted as saying in the finance committee of the country’s parliament today, according to Bloomberg.

Answering lawmakers’ questions, Duchatczek said 80%, or 224.4 metric tons of the metal was stored in the U.K., 17% or 48.7 metric tons in Austria and 3% in Switzerland, according to a summary of a closed-door committee meeting provided by the parliament.

The reserve has been unchanged since 2007, Duchatczek was quoted as saying. The central bank has earned 300 million euros ($385 million) over the last ten years by lending the gold, he said.

Then May this year we learned Austria was getting nervous about the gold they store at the Bank Of England (BOE), when they sent auditors to London to have a look. From Goldreporter.de, May 2014:

Austria is planning to send auditors to the Bank of England in order to verify the existence of Austria’s gold reserves stored in British vaults.

The Austrian accountability office will sent a delegation to London in order to check on Austria’s gold reserves stored in vaults at the Bank of England. This is reported by Austrian magazine Trend. The measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.

“I acknowledge the request. Any grocery store is obliged to do inventory once a year. It is the only way of getting rid of these unreasonable allegations”, Ewald Nowotny, Governor of the National Bank of Austria tells Trend.

Since May a lot has happened; Russia’s central bank increased its gold reserves significantly, China keeps importing huge quantities of gold, the Swiss population has expressed their concern on their gold reserves, The Netherlands has repatriated 122.5 tonnes from the New York Fed and Belgium openly stated it’s investigating to repatriate, which a central banker would never say if it wasn’t to act accordingly in my opinion. All this is happening in a global environment of QE. Would these developments make the Austrians, that were already a little jumpy on this topic, even more or less nervous?

There is another clue Austria has been long preparing to repatriate – no, it’s not because Menger and Mises were born there. While doing research for my post Eurosystem Increasing Allocated Official Gold ReservesI noticed the there was one country in specific that was allocating its reserves, from what I saw in data from the Bundesbank.

Eurosystem Total Official Gold Reserves (10,787 tonnes)

Eurosystem Official Gold Reserves Allocation, October 2014

As you can see in the chart above Austria has a fraction of its official gold reserves unallocated. In the next chart we can see the ratio between allocated versus unallocated gold developing from January 2013.

Austria official gold reserves allocated vs unallocated ratio

It looks like Austria is taking it step by step, just like The Netherlands did. First there was some discussion in politics about the official gold reserves and then actions are being taken behind the scenes, in the case of Austria they started to allocate their gold. The fact concrete actions already have been taken since July 2013, tells me there is a significant probability more will follow; such as repatriating gold from London.

Given the ‘risk of a high concentration at the Bank of England’, the examiner advise to ‘rapidly evaluate all possibilities of a better dispersion of the storage locations’… The central bank has not ruled out such a relocation. The existing gold storage concept would be reviewed, potentially it will bring parts of the stored gold in the UK to Austria, OeNB experts have stated.

Bear in mind The Netherlands not even talked about repatriating openly while preparing it. Who knows how many countries are preparing or discussing repatriating behind closed doors at this moment.