Tag Archives: New York Federal Reserve

New York Federal Reserve Lying About Gold Storage?

There is about 6700 metric tonnes of gold stored 80 feet below street level on the bedrock of Manhattan, in the vaults of the New York Federal Reserve. None of this gold is owned by the New York Federal reserve, they are merely the custodians for the US treasury (that holds approximately 400 metic tonnes in NY), 60 sovereign countries and the IMF; completely free of charge! From the NY Fed website:

The New York Fed charges account holders a handling fee for gold transactions, including when gold enters or leaves the vault or ownership transfers (moves between compartments), but otherwise does not charge fees for gold storage.

NY Fed

 

What would be the NY Fed’s incentive to provide this free service? My local gold storing company charges me more than 1 % per annum for the safekeeping of my bullion (lucky me gold is dirt cheap at the moment). If we subtract the 400 metric tonnes, which the NY Fed stores for the US treasury, from the 6700 it stores in total, the outcome is 6300 metric tonnes. At current market value 1 % of 6300 metric tonnes is more than $2.5 billion. I’m sure sure the big guys can store gold at lower prices, it’s still very kind the NY Fed doesn’t charge its depositors one dime.

But let me get to the point. The NY Fed also states on its website:

All bars brought into the vault for deposit are carefully weighed, and the refiner and fineness (purity) markings on the bars are inspected to ensure they agree with the depositor instructions and recorded in the New York Fed’s records. This step is vital because the New York Fed returns the exact bars deposited by the account holder upon withdrawal—gold deposits are not considered fungible.

This is where it might wring. For one, the Bundesbank succeeded to repatriate 5 mt from the NY Fed in 2013 (although they wanted to withdraw 37.5 mt that year to repatriate 300 mt before 2020). Did they get back the exact same bars they once deposited? No, the bars were remelted. This is only logic as we know New York has a big gold leasing market which is largely facilitated by gold from the NY Fed vaults. No, gold leasing is not a conspiracy, it’s just part of the gold market. (Note, it’s also possible the BuBa leased out their gold themselves.)

The Netherlands have 300 mt of gold stored in New York. The Dutch gold is managed by De Nederlandse Bank (DNB, The Dutch Central Bank). Senior policy maker financial markets at DNB Jan Lamers wrote an essay in 2006 named “Gold Policy Of The Dutch Central Bank“.  I translated a few snippets that explains a bit about central bank gold leasing:

From the beginning of the eighties of the last century there has been a gold leasing market of some size. DNB also participated in it. Because gold leasing is often seen as something magical, I will explain that this is just a normal activity that is part of responsible management of the official gold reserves.
…The lease market made it possible for central banks to lend gold with interest. In a gold loan the gold is physically delivered to the counter-party, the lender gets a claim denominated in gold on the counter-party. When DNB therefore lends 1000 kilograms, it gets a claim of 1000 kilograms of gold on the counter-party. When the loan is repaid the gold bars that are returned are not the same as the ones loaned out, but they meet the same quality standards. Such a transaction is similar to the lending of € 1000 in the form of banknotes. …The debt does not have to be paid back with the same notes, as long as the banknotes are legal tender. If we look at it this this way there is really nothing magical about a gold loan.

…In the eighties of the last century gold producers were looking for a tool to to secure revenues from future mining production and bring down high interest rates for borrowing money. Moreover, it was difficult to attract equity capital to finance mining. As a solution was to borrow gold on a large scale from specialized banks, who in turn borrowed gold from central banks. The borrowed gold was sold in the spot market and with the proceeds the miners financed the production of gold. In later years the mining output could pay of the gold loan. This process serviced mines relatively cheap financing and also they covered the price risks.

…The supply of gold loans is mainly from central banks around the world, only a fraction is being supplied by private gold owners.

 

Although not every gold lease requires a movement of physical gold, it can also be a a book entry, the statement from the NY Fed they grant to return the exact same bars deposited by the account holder upon withdrawal is hard to swallow. As we have have seen by the repatriation of some German gold from the NY Fed.