Tag Archives: official gold reserves

Venezuela Exported Another 12t Of its Official Gold Reserves To Switzerland In February

According to data released by the Swiss customs department on Tuesday, Venezuela has net exported 12 tonnes of gold to Switzerland in February 2016. In January Venezuela net exported 36 tonnes of gold to Switzerland, in total 48 tonnes was moved in the first two months of this year. 

On 16 March 2016 BullionStar researcher Ronan Manly reported “Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris”, based on an article by newspaper El Cooperante. Establishing, Venezuela has net exported at least 60 tonnes of gold year to date. 

Venezuela’s economy is in a tight spot. The country suffers from triple-digit inflation and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default. The foreign exchange reserves of Venezuela declined by 12 % to $13.6 billion US dollars in February, from $15.5 billion US dollars in January of 2016. In an effort to avoid catastrophes Venezuela’s central bank has a strong motive to employ its official gold reserves. 

The gold imported by Switzerland must have been supplied from the official gold reserves of Venezuela’s central bank – Banco Central de Venezuela (BCV) – either as sales or swaps. Documents by the US Geological Survey show Venezuela’s annual gold production stands at approximately 12 tonnes, which is insufficient to be responsible for the large shipments in recent months.

The Swiss customs department publishes trade statistics by weight and value. When using the average monthly gold price to compute the estimated fine gold content from the weight and value disclosed, it shows the gold exported by Venezuela since December 2013 was roughly “99.5 % pure” (see the grey dots in the chart below). In the wholesale gold market bars have a minimum fineness of 995 per 1,000 parts. Data from Switzerland’s trade statistics implies the metal imported from Venezuela is wholesale bullion from the BCV, not mine output that has a lower fineness.

Switzerland gold import venezuela february 2016
Chart 1. The gold imported by Switzerland from Venezuela prior to December 2013 was likely mine output (roughly 80 – 85 % pure), imports after December 2013 from Venezuela must have been supplied by the BCV’s official gold reserves, as the batches were roughly 99.5 % pure. Any estimated purity above 100 %, in reality would be more like 99.5 %.

According to Eurostat no EU member has imported any gold from Venezuela in the past years – Eurostat’s data is updated until December 2015. International Merchandise Trade Statistics provider COMTRADE reports Venezuela hasn’t exported any significant tonnages of gold to countries outside of Europe in recent years either – COMTRADE data is updated until November 2015. However, trade statistics do not grant how much gold is, or is not, crossing borders around the globe. Gold can cross international borders without appearing in trade statistics. As an example, we know the BCV shipped an unspecified quantity of gold out of Caracas to an international destination on 2, 3 and 7 July 2015, while these shipments cannot be traced in any trade statistics at my disposal.

How much unencumbered gold the BCV has left is unknown. For sure Venezuela’s official gold reserves are not as much as the World Gold Council portraits. According to the Council the BCV still holds 361 tonnes as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro [gold] monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16. This equates to roughly 296 tonnes of gold, at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Ronan Manly). According to the BCV website, Venezuela’s official gold reserves declined by roughly 60 tonnes from February until June 2015 (from 361 tonnes to 301 tonnes).

The 296 tonnes of monetary gold, as per November 2015, are not fully unencumbered, as the central bank has entered into swaps (of at least 50 tonnes) with bullion banks that provided the metal to remain on the BCV’s balance sheets. 

According to my estimates the upper bound of the BCV’s unencumbered gold reserves, as of 9 March 2016, is 152 tonnes, the lower bound is 0 (zero). The upper bound estimate is based on the official gold holdings of Venezuela in February 2012 at 366 tonnes, assuming all was unencumbered at the time, after which I have subtracted:

  • Venezuelan (995 fine) gold exports to Switzerland in 2013 at 8 tonnes. This gold could have been involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from Venezuela’s unencumbered reserves.
  • Venezuelan gold exports to Switzerland in 2014 at 12 tonnes. Again, this could have been gold involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from unencumbered reserves.
  • The 50 tonne gold swap between the BCV and Citibank executed in April 2015 for a tenor of 4 years. Presumably this swap included the 50 tonnes the BCV had already stored at the Bank Of England. The gold in question remained on the BCV balance sheet according to the website the Venezuela Analysis.
  • A 60 tonne decline shown on the balance sheet of the BCV from February 2015 until June 2015.
  • Venezuelan gold exports to Switzerland in September, October, November and December 2015 at 24 tonnes in total. This could have been gold involved in a swap, leaving the metal on the BCV balance sheet, same as in 2013 and 2014.
  • Venezuelan gold exports to Switzerland in January, February and March 2016 of 60 tonnes in total.

The calculation excludes the volumes of:

  • The unspecified quantity of gold exported out of Caracas to an international destination on 2, 3 and 7 July 2015.
  • The gold swaps between BCV and the Bank for International Settlements carried out “in recent years”, as reported by Reuters in February 2016 (these deals can be related, for example, to the exports to Switzerland performed in 2013 and 2014)
  • The gold swap with Deutsche Bank in early 2016, as reported by Reuters in February 2016 (this deal can match the exported metal in January or February 2016).

In theory the lower bound of the BCV unencumbered gold reserves is zero, as the three points above can have caused an additional decline in unencumbered reserves of 152 tonnes, or the central bank has sold or swapped significant tonnages we don’t know about.

Please read my post “GOFO And The Gold Wholesale Market” for an explanation of swaps. 

More references about Venezuela’s official gold reserves can be found in previous posts on BullionStar Blogs:

Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris. By Ronan Manly, 16 March 2016.

Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January. By Koos Jansen, 19 February 2016.

Venezuela says adiós to her gold reserves. By Ronan Manly, 1 November 2015.

Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation. By Ronan Manly, 14 May 2015.

Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes. By Ronan Manly, 13 May 2015.

Guest Post: Australia Audits Gold Reserves At BOE

Written by Bullion Baron:

Two years ago the news was publicly broken on the BullionBaron.com website that 99.9% of Australia’s Gold reserves are stored at the Bank of England in the United Kingdom. Attempts by another blogger, interested in the whereabouts of Australia’s Gold, had been rejected by the Reserve Bank of Australia (RBA) only several months earlier, “The Bank does not publish the location of its gold reserves.”

Bank of England Vault
Bank of England gold vault

Decisions like this don’t happen in a black hole. Something changed the RBA’s mind, between August 2012 and December 2012, on making the location of Australia’s Gold reserves public.

From my observation, the RBA tends to follow the lead of other Central Banks, so the decision to release information on the location of Australia’s Gold may have been a result of Germany’s Central Bank (Deutsche Bundesbank) deciding to do so in October 2012 (interview containing the information originally released is no longer published on the site, but available via Web Archive). Only a month later, in November 2012, the Austrian Central Bank released the location of their Gold reserves, revealing that 80% resided in the UK, 3% in Switzerland and 17% in Austria. Cue the RBA feeling comfortable to release the location details of Australia’s Gold around 1 month later.

A recent experience of mine with the RBA further highlighted their desire to follow in the footsteps of other Central Banks rather than to think for themselves. A Freedom Of Information (FOI) request I made for the Gold bar list was initially rejected, but after lodging an appeal with the Office of the Australian Information Commissioner (OIAC), highlighting that the United States published a list of their Gold bars details (sans the serial number), the RBA decided to follow suit (RBA Gold Bar Details).

Earlier this year I spotted a line in the RBA’s 2014 Annual Report indicating an audit had been performed (not something I have seen mentioned in previous years):

Gold holdings at the end of June 2014 were around 80 tonnes, unchanged from the previous year. Gold prices rose by 9 per cent in Australian dollar terms in 2013/14, increasing the value of the Reserve Bank’s holdings of gold by around $0.3 billion to $3.6 billion. Activity in the gold lending market remained subdued, with the Bank having only 1 tonne of gold on loan during the year. Income earned on that loan amounted to $0.2 million. During the year in review, the Bank audited its gold holdings, including that portion held in safe custody at the Bank of England.

A question posed by email to the RBA earlier in the year suggested that RBA officials had performed the audit themselves. I decided to lodge another FOI request.

“I request that a copy of the following documents be provided to me: All documents pertaining to the audit of the RBA’s gold holdings performed during the 2013/14 financial year, as was specified in the ‘Operations in Financial Markets’ section of the Reserve Bank of Australia Annual Report 2014 (“During the year in review, the Bank audited its gold holdings”).”

Two months later (decision on the documents was delayed due to consultation with the Bank of England) I received the following list of documents that would be provided (on payment of fees, which were reduced from an original quote due to the small number of documents that could be released):

RBA Gold Audit Documents

And today the documents arrived. Here’s what we know…

In February 2013, the Assistant Governor (Financial Markets) requested the Audit Department to include in its audit program a review of the Bank’s gold holdings at the Bank of England (BoE). The Chief Representative in EU approached the BoE to facilitate this review and in late May 2013 initial planning discussions were held with BoE staff with tentative agreement that the review would take place in September 2013.

The audit included:

  • An on-site physical verification on September 23, 2013, which will take 4-5 days to complete, assuming two RBA auditors are involved given the proposed scope.
  • Inspecting a sample of RBA Gold bars (list to be provided in advance), including checking the details of these bars against the Bank’s inventory list and weighing of the bars by BoE staff using their equipment.
  • Randomly selecting additional Gold bars from the inventory list and observing these bars being located and retrieved from their vault (plus verifying the details and weighing them).
  • Obtain a high level understanding of the BoE gold safe custody service.
  • Continuing discussions for a comprehensive safe custody agreement between the RBA and BoE.

As the above document list shows, those relating to final audit results were not provided. I would assume the audit was successful, but no doubt that would be a highly contested opinion in the Gold blogosphere. The following reason was provided for denying access to the report:

Documents 10, 11 and 12 are drafts of the report prepared by the RBA’s Audit Department detailing the findings of the audit and document 13 is the final of that report.

Denial of access to these four documents in terms of s33(a)(iii) is appropriate because release of the information (which relates to procedures for the conduct of the audit with the BoE and the subsequent results) ‘would, or could reasonably be expected to, cause damage to’ the relationship between the RBA and the BoE. This belief is soundly held by us on the basis that we are aware that the BoE provides safe custody services not only to the RBA, but also to other central banks around the world.  Disclosure of the information in these documents could damage the relationship between the BoE and its other central bank clients, and by extension (as the source of the information), the relationship between the BoE and RBA. As foreshadowed to you in earlier correspondence, we consulted with the BoE in relation to these documents and they affirmed the views we held regarding the damage that would be done to the relationship between the BoE and RBA if the redacted information were disclosed.

Denial of access to these four documents is also appropriate in terms of s47E(a) (‘disclosure would, or could be reasonably expected to, prejudice the effectiveness of procedures or methods for the conduct of tests, examinations or audits’ by the Bank) and (b) (‘disclosure would, or could be reasonably expected to, prejudice the attainment of the objects of particular tests, examinations or audits conducted, or to be conducted’, by the Bank). The documents in question concern the ‘procedures and methods’ within both the RBA and the BoE regarding the conduct of the physical check of a sample of gold bars (for the purpose of conducting the audit). Disclosure of this information would, of course, reveal those procedures and methods, and by logical extension render them less effective. Also, the ability of the Bank to attain the objects of the audit (which is to reveal whether the Bank’s arrangements are robust and secure) would be prejudiced. These considerations apply to both the audit currently the subject of your FOI request and also any other audits undertaken by the RBA. A key requirement for undertaking a successful audit (of any aspect of the RBA’s work) is that there is as little opportunity as possible for individuals to take steps to predict what an auditor may choose to focus on, and/or how they will conduct the audit. It is self-evident that if such procedures and methods are revealed, then the opportunity to circumvent them is greatly increased.  As s47E is a public interest conditional exemption, I must take into account whether the giving of access is in the general public interest (in terms of s11A(5)). When deciding whether access is in the public interest, I must take into account the following from s11B(3) and have noted my views in each case:

Section 11B(3) factors favouring access to the document in the public interest include whether access to the document would do any of the following:

(a) promote the objects of this Act (including all the matters set out in sections 3 and 3A); release would be contrary to some sections, particularly sections 2(a) and 3(3)

(b) inform debate on a matter of public importance; the Bank’s gold holdings, while important and of interest to some, are not a matter of public importance generating any level of debate.

(c) promote effective oversight of public expenditure; release of the information would not do this.

(d) allow a person to access his or her own personal information; the request is not seeking personal information.

Taking into account these factors, and the implications release of the information would have on the Bank’s audit processes, I have decided that it is clearly not in the public interest to disclose the information in these four documents (10, 11, 12 and 13).  Disclosure of these documents would manifestly harm the public interest by way of reducing the ability of the RBA to successfully conduct audits and tests of its operations going forward.

The released documents (mostly a chain of various emails) also suggested the RBA has been invited back for another review in 12 months.

One interesting point from the documents; the Bank of England was emailing clients in June 2013 (those for whom they’re providing custodial services) inviting them to audit samples of their Gold:

Bank of EnglandGold Inspection Letter

Given that the RBA has followed the lead of other countries to release reserve location details, perform audits and release (some) bar list details, it will be interesting to see whether they go further and follow the lead of the many countries now deciding to repatriate some or all of their Gold reserves…However discussions on the RBA audit were already well advanced at that time.

I’m sharing links and opinions daily on Twitter (@BullionBaron).

Why Did European Central Banks Sell Gold?

In 1991 the Dutch central bank (DNB) held 1,700 tonnes in official gold reserves, currently they have 613 tonnes – of which 67 tonnes are stored in Amsterdam, 300 tonnes at the Federal Reserve Bank Of New York (FRBNY), 123 tonnes at the Bank Of England (BOE) and 123 tonnes in Ottawa. The exact locations of the Dutch gold was first disclosed after a member of The House Of Representatives, E. Irrgang (party: SP), officially asked about the details of the Dutch holdings at the Secretary Of The Treasury, J.C. de Jager, in 2011 in the heat of the Eurocrisis. Reading back the answers from de Jager, I noticed some remarkable answers. I translated a few snippets. Question by Irrgang, answers by de Jager:

Question 1: Has the DNB leased any of its gold holdings, if so, to whom?

Answer 1: DNB has stopped all gold leasing activities in 2008.

Question 6:  Can you confirm that since 1991 DNB has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations

This last two sentences caught my attention, it  could imply two things:

  • the DNB sold gold to lower its holdings in order to be on par with other important gold holding nations.
  • the DNB sold gold to redistribute gold among central banks around the world proportionally to the size of their economy.

In a report from the DNB, released in  2010, titled Money and Gold we can read some comments of the DNB on their sales:

Screen Shot 2014-11-19 at 8.16.49 AM

Selling In Secret

In utmost secret the Dutch Central Banks sold it first gold tranche in 1992: 400 tonnes. The proceeds were invested in US dollars and Deutsche Marks. “Gold lying idle in the vaults doesn’t yield” was thought. In those years the gold price was dropping…. In 1996 the next tranche was sold, this time it was 300 tonnes. Again sold in utmost secret.

Selling By Agreement

Little by little the DNB is selling gold. Not too much at once or the gold market could be disrupted. This threatened to happen in 1999 when the Bank Of England (BOE) suddenly announced to sell a large part of their gold reserves. Panic in the gold market was the result.

DNB’s statement “Gold lying idle in the vaults doesn’t yield” is not accurate as de Jager informed us the DNB was leasing some of its reserves up until 2008.

Shortly after the BOE’s sales in 1999, all European central banks collaborated in a program called  the Central Bank Gold Agreements (CBGA), or the Washington Agreement On Gold, to jointly manage gold sales. The official reason for the CBGA program was to coordinately allow central banks to sell some of their obsolete gold reserves for higher yielding reserves (US treasuries).


Central Bank Largest Sellers

However, were the CBGA sales perhaps done for the same reasons de Jager mentioned above? To equalize gold holdings around the world?

In 1999 gold analyst George Milling-Stanley from The World Gold Council stated the following about the Washington Agreement On Gold:

Central bank independence is enshrined in law in many countries… It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement…

The End Of Bretton Woods And The Race To The Bottom, 1971

I stumbled upon a few interesting reads about the end of the Bretton Woods system in August 1971. In those years there was a lot of monetary turmoil, just like now. Before 1971 the US dollar was pegged to gold, and foreign countries held dollars in reserve because the US had promised they were “as good as gold”. The dollar came under pressure because the US money supply grew, but they insisted to keep the gold price at $35. Many European countries were redeeming their dollars for gold, because the dollar was overvalued relative to gold.

Official gold reserves

This led to a drain in US official gold reserves (I you are wondering were the rest of the US gold stock went, consider reading this)

Note, due to technical reasons from here on this post might cause errors on tablet devices and mobile phones. I hope to solve this issue within 24 hours. In the meantime you can read this post on desktop/laptop browsers. 

The US wished to devalue the dollar against all currencies (in the hope to boost export and stimulate domestic industries) except gold. A higher gold price in dollars would increase the dollar value of European gold holdings. Additionally it would hurt the credibility of paper money in general and thus could destabilize the US dollar Hegemony. The US was keen to exploit the advantages of issuing the world reserve currency, without limitations being imposed by gold.

The French were the most critical on US’ monetary policy, in 1965 the French president De Gaulle made a speech in which he stated gold should be the base in the international monetary system, not the dollar.

The London Gold Pool, a group of nations controlling the price of gold at $35, collapsed in March 1968. Hereafter a two-tier system existed; a free market gold price and an international payment price under the Bretton Woods system (at $35). Central banks could actually buy gold from the US Treasury at $35 and sell it on the open market at $40. Subsequently the gold window was closed by Nixon in August 1971 – after pressure from his Treasury Secretary John Connally. In a TV presentation he announced to temporarily suspend the convertibility of dollars into gold (because “evil speculators” were attacking the dollar), and so the Bretton woods system came to an end.

Nixon also announced an import surcharge of 10 %, which made foreign goods 10 % more expensive for American consumers, to boost domestic growth. After the Nixon Shock negotiations started between the biggest economies about the value of their currencies relative to each other and gold. I will publish a few historical diplomatic documents from this era. Below you can read a phone call Nixon made with Kissinger on October 28, 1971.

Richard Nixon: US President

Henry Kissinger: US National Security Advisor

John Connolly: US Treasury Secretary

Arthur Burns: US Chairman Of The Federal Reserve

Peter Peterson: US Assistant To The President For International Economic Affairs

George Shultz: US Director Of The Office Of Management And Budget

Paul McCracken: US Chairman Of The President’s Council of Economic Advisors

Willy Brandt: Chancellor Of Germany

Georges Pompidou: President Of France

P stands for president, K for Kissinger

Nixon kissinger

Two months later Kissinger, pretending not to know anything about economics, negotiated these monetary affairs with Georges pompidou. On December 13 at Azores at Mr Pompidou’s residence.

And another meeting the next day at Azores between Kissinger and Pompidou.

Eventually, after the currency war, the dollar had lost more than 50 % of its value in 1981. Devaluation can be a short term fix but, but causes long term problems.

In Gold We Trust