Tag Archives: bullion banks

BullionStar Presentation on Real Vision TV – Bullion Banking, ETFs & Physical Gold

BullionStar recently teamed up with Real Vision TV, the unique video-on-demand finance and investment channel, to film a presentation for the Real Vision audience on some topical areas of the gold market.

The video presentation, which was filmed in London in June 2017, covers the fractional-reserve world of bullion bank trading in the London Gold Market, and also some concerns and risks of gold-backed Exchange Traded Funds. It then wraps up by discussing the benefits and attractions of physical gold ownership in light of the dangers and risks of today’s synthetic gold trading market.

Real Vision TV has kindly made this presentation available for viewing by BullionStar customers and readers, and the video presentation, which is 20 minutes long, can be viewed at the following link:


Ronan Manly BullionStar on Real Vision TV explains London bullion banking, ETFs and Physical Gold
Ronan Manly, BullionStar on Real Vision TV. Click to view video presentation.

BullionStar would like to thank Real Vision TV for making this presentation possible and for facilitating the broadcasting of the presentation to the BullionStar audience.

Real Vision TV, founded by Raoul Pal and Grant Williams, is a subscription-based video on-demand channel featuring discussions, interviews, presentations and insights from many of the world’s top financial market minds and investment gurus.

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LBMA Gold Vault Data – How low is the London Gold Float?

The London Bullion Market Association (LBMA) has just released a first update on the quantity of physical gold and silver holdings stored in the ‘LBMA’ London vaulting network. The LBMA press release explaining the move, dated 31 July, can be read here.

This vaulting network, administered by the LBMA, comprises a set of precious metals vaults situated in London that are operated by the Bank of England and 7 commercial vault operators. For simplicity, this set of vaults can be called the LBMA London vaults. The 7 commercial vault operators are HSBC, Brinks, ICBC Standard Bank, Malca Amit, JP Morgan, Loomis and G4S. ICBC Standard outsources its vault management to Brinks. It’s possible that to some extent HSBC also outsources some of its vault management to Brinks.

Strangely, the LBMA’s initial reporting strangely only runs up to 31 March 2017, which is 4-months prior to the first publication date of 31 July. This is despite the fact that new LBMA vault holdings data is supposed to be published on a 3-month lagged basis, which would imply a latest report coverage date of 30 April.

At the end of April 2017, the Bank of England separately began publication of gold vault holdings for the gold bars that the Bank stores in custody within its own vaults. The Bank of England reporting is also on a 3-month lagged basis (and the Bank actually adheres to this reporting lag). See BullionStar article “Bank of England releases new data on its gold vault holdings”, dated 28 April 2017, for details of the Bank of England vault reporting initiative.

Currently, the Bank of England is therefore 1 month ahead of the LBMA vault data, i.e. on 31 July 2017, the Bank of England’s gold page was updated with Bank of England gold custody vault holdings as of 30 April 2017.

Ignoring the LBMA 3-month lagged vs 4-month lagged anomaly, the LBMA’s first vault reporting update, for vault data as of 31 March 2017, states that the 8 sets of vaults in question (which includes the Bank of England gold vaults) held a combined 7449 tonnes of gold and a combined 32078 tonnes of silver.

Also included in the first batch of LBMA data are comparable London vault holdings figures for gold and silver for each month-end date from July 2016 to February 2016 inclusive. Therefore, as of the 31 July 2017, there is now an LBMA dataset of 9 months of data, which will be augmented by one month each month going forward. Whether the LBMA will play catch-up and publish April 2017 month-end and May 2017 month-end figures simultaneously at the next reporting date of 31 August 2017 remains to be seen.

One of the Bank of England gold vaults
One of the Bank of England gold vaults

The New Vault Data – Gold and Silver

For 31 March 2017, the LBMA is reporting 7449 tonnes of gold stored across the 8 sets of vault locations. For the same date, the Bank of England reported 5081 tonnes of gold held in the Bank of England vaults. Therefore, as of 31 March 2017, there were 2368 tonnes of gold ‘not in the Bank of England vaults’ (or at least 2368 tonnes of gold not counted by the Bank of England data).

Of the gold not in the Bank of England vaults, about 1510 tonnes of this gold in London was held by gold-backed Exchange Traded Funds (ETFs), mainly with the custodians HSBC and JP Morgan. These ETFs include the SPDR Gold Trust and various ETFs from ETF Securities, Source, iShares, and Deutsche Bank etc. This 1510 tonnes figure is taken from an estimate calculated at the end of April 2017 using data from the GoldChartsRUs website. See BullionStar article “Summer of 17: LBMA Confirms Upcoming Publication of London Gold Vault Holdings” dated 9 May 2017 for details of this ETF calculation.

Subtracting this 1510 tonnes of ETF gold from the 2368 tonnes of gold stored outside the Bank of England vaults means that as of 31 March 2017, there were only about 858 tonnes of gold stored in the LBMA vaults outside of the Bank of England vaults that was not held by gold-backed ETF holdings. See Table 1 below.

The lowest gold holdings number reported by the LBMA within its 9 months of vault data is actually the first month, i.e. July 2016. At month-end July 2016, the LBMA report shows total vaulted gold of 7283 tonnes. There was therefore a net addition of 166 tonnes of gold to the LBMA vaults between August 2016 and the end of March 2017, with net additions over the August to October 2016 period, followed by net declines over the November 2016 to February 2017 period.

Table 1: LBMA London Vaults and Bank of England Vaults – Gold holdings, July 2016 – March 2017

Turning to silver, as of 31 March 2017, the LBMA is reporting total vaulted silver of 32,078 tonnes held in London vaults. The vaulted silver data also shows a notable increase over the period from the end of July 2016 to the end of March 2017, with a net 2485 tonnes of silver added to the vaults.

Since the Bank of England vaults only store gold in custody on behalf of customers and do not store silver, there are no silver holdings at the Bank of England and therefore there is no specific Bank of England silver reporting. The LBMA silver data therefore refers purely to silver vaulted with operators such as Brinks, JP Morgan, Malca Amit, HSBC, and Loomis.

There are currently at least 12,000 tonnes of silver stored in London on behalf of silver-backed ETFs such as the iShares Silver Trust (SLV), various ETF Securities products, a SOURCE ETF and some Deutsche Bank ETFs. Subtracting these ETF holdings from the full 32,078 tonne figure being reported by the LBMA would suggest that there are an additional ~ 20,000 tonnes of non-ETF silver held in the London vaults.

Table 2: LBMA London Vaults – Silver holdings, July 2016 – March 2017
How small is the London gold float?
How small is the London gold float?

Previous Vault Estimates for Gold and Silver

Prior to the new LBMA and Bank of England vault holdings data reports, the only way to work out how much gold and silver were in the London vaulting network was through estimation. Between 2015 and 2017, a number of these estimates were calculated for gold and published on the BullionStar website and the GoldChartsRUs website.

See BullionStar page “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults” and GoldChartsRUs page “LBMA/BOE VAULTED GOLD, 2016 Update – The London Float”, and BullionStar page “Tracking the gold held in London: An update on ETF and BoE holdings”.

The “Tracking the gold held in London” article, published on 5 October 2016, took a LBMA statement of 6500 tonnes of gold being in London, the earliest reference to which was from 8 February 2016 Internet Archive page cache, and also took a Bank of England statement that the Bank held 4725 tonnes as of the end of February 2016 period, and then it factored in that the UK net imported more than 800 tonnes of non-monetary gold up to August 2016, and also that ETFs had added about 399 tonnes over the same period. It also calculated, using GoldChartsRUS ETF data, that the London-based gold-backed ETFs held about 1679 tonnes of gold as of the end of September 2016.

Therefore, as of the end of September 2016, there could have been at least 7300 tonnes of gold held across the LBMA and Bank of England vaults, i.e. 6500 tonnes + 800 tonnes = 7300 tonnes. As it turns out, this estimate was quite close to the actual quantity of gold held in the LBMA and Bank of England vaults at the end of September 2016, which the LBMA’s new reporting now confirms to have been 7590 tonnes. The estimate is a lower number because it was unclear as to which initial date the LBMA’s 6500 tonnes reference referred to (in early 2016 or before).

Previous Vault Estimates Silver

At the beginning of July 2017, an article on the BullionStar website titled “How many Silver Bars are in the LBMA Vaults in London?” estimated that there were about 12,000 tonnes of Good Delivery silver bars held across 4 LBMA vault operators in London on behalf of 11 silver-backed Exchange Traded Funds. These ETFs and the distribution of their silver bars across the 4 vault operators of Brinks, Malca Amit, JP Morgan and HSBC can be seen in the following table.

Table 3: ETF Silver held across LBMA commercial vaults in London, early July 2017 

The above article about the number of silver bars in the London vaults also drew on some data from precious metals consultancy Thomson Reuters GFMS, which each year publishes a table of identifiable above ground global silver supply in its World Silver Survey. One category of silver within the GFMS identifiable above ground silver inventories is called ‘Custodian Vaults’. This is distinct from silver holdings in ETFs and silver holdings in exchange inventories such as in COMEX approved vaults in New York. A simple way to view ‘Custodian Vaults’ silver holdings is as an opaque ‘unreported holdings’ category as opposed to the more the transparent ETF holdings and COMEX holdings categories.

For 2016, according to GFMS, this ‘Custodian Vaults’ silver amounted to 1571.2 million ounces (48,871 tonnes), of which 488.7 million ounces (15,200 tonnes), or 31% was represented by what GFMS calls the ‘Europe’ region. Unfortunately, GFMS do not break out the ‘Custodian Vaults’ numbers by individual country because they say that they receive the data on a confidential basis and cannot divulge the granularity. The early July article on BullionStar had speculated that:

“With 488.7 million ozs (15,201 tonnes) of silver held in Europe in ‘Custodian vaults’ that is not reported anywhere, at least some of this silver must be held in London, which is one of the world’s largest financial centers and the world’s highest trading volume silver market.”

“Apart from London, there would presumably also be significant physical silver holdings vaulted in Switzerland and to a lessor extent in countries such as Germany, the Netherlands and maybe Austria etc. So whats’s a suitable percentage for London? Given London’s extensive vaulting network and prominence as a hedge fund and institutional investment centre, a 40-50% share of the European ‘custodian vault’ silver holdings would not be unrealistic, with the other big percentage probably vaulted in Switzerland.

This would therefore put previously ‘Unreported’ silver holdings in the London vaults at between 6080 tonnes and 7600 tonnes (or an additional 182,000 to 230,000 Good Delivery Silver bars).

Adding this range of 6080 – 7600 tonnes to the 12,040 tonne figure that the 11 ETFs above hold, gives a total figure of 18,120 – 19,640 tonnes of silver stored in the LBMA vaults in London (545,000 – 585,000 Good Delivery silver bars).

But here’s the catch. With the LBMA now saying that as of the end of March 2017 there were 1.031 billion ounces of silver, or 32078 tonnes, stored in the LBMA vaulting network in London (and 31238 tonnes of silver in London as of end of December 2016), of which at least 12,000 tonnes is in silver-backed ETFs, then that still leaves about 20,000 tonnes of silver in the London vaults, which is higher than the silver total attributed to the entire ‘custodian vault’ category’ in Europe (as per the GFMS 2016 report).

Even the lowest quantity in the 9 months that the LBMA reports on, which is month-end July 2016, states that the LBMA vaults held 951,433,000 ounces (29,593 tonnes), which after excluding silver ETFs in London, is still higher than the total ‘Custodian Vault’ category that GFMS attributes to the European region in 2016.

These new LBMA vault figures are basically implying that all of the GFMS custodian vault figure for Europe (and some more) is all held in London and not anywhere else in Europe. But that could not be the case as there is also a lot of silver vaulted in Switzerland and other European countries such as Germany, to think of but a few.

This begs the question, does the GFMS Custodian vault number for Europe need to be updated to reflect the gap between the non-ETF holdings that LBMA claims are in the London vaults and what GFMS is reporting in a European ‘Custodian vaults’ category? If the LBMA reporting actually broke down the silver vaulting quantity number into Good Delivery silver bars and other categories, it might help solve this puzzle as it would give an indication of how much of this 32,000 tonnes of silver is in the form of bars that are accepted for settlement in the London Silver Market i.e. Good Delivery silver bars.

Could some of this 32,000 tonnes of silver be in the form of silver jewellery, and private holdings of silver antiques and even silver artifacts? On the surface the LBMA reporting appears to say not since it states that:

“jewellery and other private holdings held by retailers, individuals and smaller vaults not included in the London Clearing system are not included in the numbers”

But because this statement reads rather ambiguously, by implication another interpretation of the LBMA statement could be that:

“jewellery and other private holdings held by retailers and individuals in vaults that are part of the London Clearing system are included in the numbers”

The London Clearing system here refers to the vaults of the 7 commercial vault operators.

Until GFMS comes back with a possible clarification of its ‘Custodian Vault’ figure for Europe, then this contradiction between the LBMA data for silver and GFMS data for silver will persist.

The HSBC vault containing the GLD gold
The HSBC vault in London containing the GLD gold

Large Bars but also Small Bars and Gold Coins

According to the LBMA’s press release, while the LBMA vault holding data …represent the volume of Loco London gold and silver held in the London vaults offering custodian services“, surprisingly the new LBMA data includes “all physical forms of metal inclusive of large wholesale bars, coin, kilo bars and small bars.”

The inclusion of gold coins, smaller gold bars and gold kilobars in the LBMA vault data is bizarre because only large wholesale bars are accepted as Good Delivery in the London gold and silver markets, not gold coin, not smaller bars, and not gold kilobars. Even the LBMA website states that “the term Loco London refers to gold and silver bullion that is physically held in London. Only LBMA Good Delivery bars are acceptable for trading in the London market.

Furthermore, the entire physical London Gold Market and physical London Silver Market revolve around the LBMA Good Delivery lists. Spot, forward and options trades on the London OTC gold and silver market are only referenced to a unit of delivery of a Good Delivery bar, both for gold and for silver.

For example, in the LBMA’s “A Guide to the London Precious Metals Markets” it states that:

Unit for Delivery of Loco London Gold

This is the London Good Delivery gold bar. It must have a minimum fineness of 995.0 and a gold content of between 350 and 430 fine ounces…. . Bars are generally close to 400 ounces or 12.5 kilograms

For silver, the same guide states that:

“Unit for Delivery of Loco London Silver

This is the London Good Delivery silver bar. It must have a minimum fineness of 999 and a weight range between 750 and 1,100 ounces, although it is recommended that ideally bars should be produced within the range of 900 to 1,050 ounces. Bars generally weigh around 1,000 ounces.

Additionally, all the new London-based gold futures contracts launched by the LME, ICE and CME also reference, if only virtually, the unit for Delivery of loco London gold, i.e. the London Good Delivery gold bar. They do not reference smaller gold bars or gold coins.

In contrast to the LBMA , the COMEX exchange where the famous COMEX 100 ounce gold futures contract is traded only reports vault inventories of gold and silver where the bars satisfy that contract for delivery, i.e. the contract for delivery is one hundred (100) troy ounces of minimum fineness 995 gold of an approved brand in the form of either “one 100 troy ounce bar, or three 1 kilo bars”. COMEX do not report 400 oz gold bars or gold coins specifically because the contract has nothing to do with these products. Then why is the LBMA reporting on forms of gold that have nothing to do with the settlement norms of its OTC products in London?

Additionally, the LBMA website also states that “only bars produced by refiners on the [Good Delivery] Lists can be traded in the London market.“ All of this begs the question, why does the LBMA bother including smaller bars, kilogram bars and gold coins? These bars cannot be used in settlement or delivery for any standard London Gold Market transactions.

Perhaps these smaller gold bars and gold coins have been included in the statistics so as to boost the total reported figures or to make reverse engineering of the numbers more difficult? While the combined volumes of smaller bars and kilobars probably don’t add up to much in terms of tonnage, the combined gold coin holdings of central banks stored at the Bank of England could be material.

For example, the United Kingdom, through HM Treasury’s Exchange Equalisation Account (EEA), claims to hold 310.3 tonnes of gold in its reserves, all of which is held in custody at the Bank of England. The latest EEA accounts for 2016/2017, published 18 July 2017 state that “The gold bars and gold coin in the reserves were stored physically at the Bank’s premises.” See Page 43, Exchange Equalisation Accounts for details. Many more central banks, for historical reasons, also hold gold coins in their reserves. See Bullionstar article “Central Banks and Governments and their gold coin holdings” for some examples.

As another example, the Banque de France in Paris holds 2435 tonnes of gold of which 100 tonnes is in the form of gold coins, and 2,335 tonnes of gold bars. Even though these gold coins are held in Paris, this shows that central bank gold coin holdings could materially affect LBMA gold reporting that includes ‘gold coins‘ within the rolled up number. But such gold coins cannot be traded within the LBMA / LPMCL gold trading / gold clearing system and if present would overstate the number of Good delivery gold bars within the system.

The Bank of England gold page on its website also only refers to Good Delivery ‘gold bars’ and says nothing about gold coins, which underlines the special status to which the Bank of England assigns Good Delivery gold bars in the London Gold Market.  Specifically, the BoE gold page states that:

“..we provide gold storage on an allocated basis, meaning that the customer retains the title to specific gold bars in our vaults”

 “Values are given in thousands of fine troy ounces. Fine troy ounces denote only the pure gold content of a bar.

“We only accept bars which comply with London Bullion Market Association (LBMA) London Good Delivery (LGD) standards. LGD bars must meet a certain minimum fineness and weight. A typical gold bar weighs around 400 oz“

The Bank of England has now confirmed to me, however, that the gold holdings number that it reports on its website “is the total of all gold held at the Bank” and that this “includes coins that belong to the Exchange Equalisation Account (EEA) which are held by the Bank on behalf of Her Majesty’s Treasury (HMT)

This means that the total gold number being reported by both the Bank of England and the LBMA needs to be adjusted downward by some percentage so as to reflect the amount of real Good Delivery gold bars in the London vaults. What this downward adjustment should be is unclear, as neither the Bank of England nor the LBMA break out their figures by category of gold bars versus gold coins.

LBMA numbers – Obscured Rolled-up numbers

Another shortcoming in the LBMA’s vault reporting is that it does not break down the gold and silver holdings per individual vault. The LBMA will be only releasing 2 highly rolled-up numbers per month, one for gold and one for silver, for example, 7449 tones for gold and 32078 tonnes for silver in the latest month.

Contrast this to New York based COMEX and ICE gold futures daily reporting, which both do break down the gold holdings per New York vault. Realistically, the LBMA was never going to report gold or silver holdings per vault, as this would be a bridge too far towards real transparency, and would show how much or how little gold and silver is stored by each London vault operator / at each London vault location.

This does not, however, stop the LBMA from claiming transparency and in its 31 July press release it states that:

“According to the Fair and Effective Markets Review (see here for further details) 
‘…in markets where OTC trading remains the preferred model, authorities and market participants should continue to explore the scope for improving transparency, in ways that also enhance effectiveness.’

Real transparency, as opposed to lip-service transparency, would be supported by providing an individual breakdown of the number of Good Delivery gold and silver bars stored in each of the 8 sets of vaults at each month end. If they want to include gold coins, smaller gold bars, and gold kilo bars as extra categories, then this could also be itemised on a proper report. It would also only take any decent software developer about 1 day to write and create such a report.

There is also the issue of independently auditing these LBMA numbers. The issue is essentially that there is no independent auditing of these LBMA numbers nor will there be. So there is no second opinion as to whether the data is accurate or not.

The Bank of England gold vault reporting is also short of transparency as it does not provide a breakdown of how much of the reported gold is held by central banks, how much gold is held by bullion banks, how much of the central bank gold is out on loan with the bullion banks, and how much gold, if any, is held on behalf of ETFs at the Bank of  England as sub-custodian. Real transparency in this area would provide all of this information including how much gold the LPMCL bullion clearing banks HSBC, JP Morgan, UBS, Scotia Mocatta and ICBC Standard hold at the Bank of England vaults.

On the issue of ETF gold held at the Bank of England, it has been proven that at times the Bank of England has acted as a gold custodian for an ETF, for example, during the first quarter 2016, the SPDR Gold Trust held up to 29 tonnes of gold at the Bank of England, with the Bank of England acting in the capacity of sub-custodian to the SPDR Gold Trust. See BullionStar article  “SPDR Gold Trust gold bars at the Bank of England vaults” for details.

The London Float

The most important question with this new LBMA vault reporting is how much of the 7449 tonnes of gold stored in London as of the end of March 2017 is owned or controlled by bullion banks.

Or more specifically, what is the total level of LBMA bullion bank unallocated gold liabilities in the London market compared to the amount of real physical gold bars that they own or control. 

This ‘gold owned or controlled by the bullion banks’ metric can be referred to as the ‘London Float’. LBMA bullion banks can maintain their own holdings of gold bars which they buy in the market or import directly, and they can also borrow other people’s gold thereby controlling this gold also. Some of this gold can be in the LBMA commercial vaults. Some can also be in the Bank of England vaults.

In its press release, the LBMA states that:

“The physical holdings of precious metals held in the London vaults underpin the gross daily trading and net clearing in London.”

This is not exactly true. Only gold which is owned or controlled by the bullion banks can underpin gold trading in London. Allocated gold sitting in a vault that is owned by central banks, ETFs or investors and which does not have any other claim attached to it, does not underpin anything. It just sits there in a vault.

As regards gold bars stored in the LBMA vaults in London, these bars can either be owned by central banks at the Bank of England, owned by central banks at commercial vaults in London, owned by ETFs at the commercial vaults in London, owned or controlled by bullion banks, and owned by investors (either institutional investors, hedge funds, private individuals etc). On occasion, some ETF gold has at various times been at the Bank of England.

If central bank gold is held in allocated form and not lent out, then it is ‘off the market’ and can’t be ‘used’ by any other party such as a LBMA bullion bank. If central bank gold is lent out or swapped out to bullion banks, then it can be used or even sold by those  bullion banks. The LBMA uses the euphemism ‘liquidity’ to refer to this gold lending. For example, from the LBMA’s recent press release on the new vault reporting it says:

“In addition, the Bank of England also offers gold custodial services to central banks and certain commercial firms, that facilitate central bank access to the liquidity of the London gold market.”

ETF gold when it is held within an ETF cannot legally be used by other entities since it is owned by the ETF and allocated to the ETF. Institutionally owned gold or private owned gold when it is allocated is owned by the holder. It could in theory be lent to bullion banks also.

Some of the LBMA bullion banks have gold accounts at the Bank of England. How many of these banks maintain gold holdings within the Bank of England vaults nobody will say, not the Bank of England nor the LBMA nor the bullion banks, but it at least extends to the 5 members of London Precious Metals Clearing Limited (LPMCL) which are HSBC, JP Morgan, Scotia Mocatta, ICBC Standard and UBS. Gold accounts for bullion banks undoubtedly also extend to additional bullion banks beyond the LPMCL members because many bullion banks have been involved in gold lending at the Bank of England for a long time, for example Standard Chartered, Barclays, Natixis, BNP Paribas, Deutsche Bank, and Goldman Sachs, and these banks would at some point have to take delivery of borrowed gold at the Bank of England.

Note, the gold brokers of the London Gold Market have for a long time, as least since the 1970s, been able to store some of their gold bars at the Bank of England vaults. These brokers were historically Samuel Montagu, Mocatta, the old Sharps Pixley, NM Rothschild and Johnson Matthey.

Since LBMA bullion banks can maintain gold accounts at the LBMA commercial vaults in London, and because some of these banks have gold accounts at the Bank of England also, then this London “gold float” can comprise gold bars at the commercial vaults and gold bars at the Bank of England vaults. It is however, quite difficult to say exactly what size this London bullion bank gold float is at any given time.

Whatever the actual number, its not very big in size because if you subtract central bank gold and ETF gold from the overall LBMA gold figure (of 7449 tonnes as of the end of March 2017) then whatever is left is not a very big quantity of gold bars, and at least some of this residual gold stored in the LBMA commercial vaults is owned by institutions, hedge funds, private individuals and platforms such as BullionVault.

In September 2015, a study of central bank gold held at the Bank of England calculated that about 3779 tonnes of Bank of England custody gold can be accounted for by central bank and monetary authority gold holdings. See “Central bank gold at the Bank of England” for details and GoldChartsRUs page “LBMA/BOE VAULTED GOLD, 2016 Update – The London Float”. Compared to the 4725 tonnes of gold held at the Bank of England at the end of February 2016, this would then mean that there were about 946 tonnes of gold at the Bank of England that was “unaccounted for by central banks”. This was about 20% of the total amount of gold held at the Bank of England at that time.

However, some of this 946 tonnes was probably central bank gold where the central bank owner had not publicly divulged that it held gold at the Bank of England. Many central banks around the world that were contacted as part of the research into the “central bank gold at the Bank of England calculation” either didn’t reply or replied that they could not confirm where their gold was stored. See BullionStar article “Central Banks’ secrecy and silence on gold storage arrangements” for more details.
After factoring in these unknown central bank gold holders at the Bank of England, the remaining residual would be bullion bank gold. It could therefore be assumed that a percentage of gold stored at Bank of England, somewhere less than 20% and probably also less than 10%, is owned by bullion banks. Since central bank gold holdings, on paper at least are relatively static, the monthly changes in gold holdings at the Bank of England therefore probably mainly reflect bullion bank gold movements rather than central bank gold movements.

If we look back now at the LBMA vault data for gold as of 31 March 2017, how much of this gold could be bullion banks (London float) gold.

LBMA total gold vaulted: 7449 tonnes

Bank of England gold vaulted: 5081 tonnes

Gold in commercial LBMA vaults: 2368 tonnes

Gold in ETFs: 1510 tonnes

Gold in commercial vaults not in ETFs: 858 tonnes

Gold in commercial vaults not in ETFs that is allocated to institutions & hedge funds = x

i.e. 7449 – 5081 = 2368 – 1510 = 858

Assume 10% of the gold at the Bank of England is bullion bank gold. Also assume bullion banks gold hold some gold in LBMA commercial vaults.

Therefore total bullion bank gold could be (0.1 * 5081) + (858 – x) = 508 + 858 – x = 1366 – x.

Since x has to be > 0, then the bullion bank London float is definitely less than 1300 tonnes and probably less than 1000 tonnes. The bullion banks might argue that they can borrow more gold from central banks, take gold out of the ETFs, and even import gold from refineries. All of these options are possible, but still, the London bullion bank float is not that large. And it is this number in tonnes of gold which should be compared to the enormous volumes of ‘paper gold’ trading that occur in the London Gold Market each and every trading day.

For example in June 2017, the LBMA clearing statistics state that 21 million ounces of gold was cleared each trading day in the London Gold Market. That’s 653 tonnes of gold cleared each day in London. With a 10 to 1 ratio of gold trading to gold clearing, that’s the equivalent of 6530 tonnes of gold traded each day in the London gold market, or 143,660 tonnes over the 22 trading days of June. Annualised, this is 1.632 million tonnes of gold traded per year (using 250 trading days per year).
And sitting at the bottom of this trading pyramid is probably less than 1000 tonnes of bullion bank gold underpinning the gigantic trading volumes and huge unallocated gold liabilities of the bullion banks. So you can see that the London gold trading system is a fractional-reserve system with tiny physical gold underpinnings.

In May 2011, during a presentation at the LBMA Bullion Market Forum in Shanghai China, on the topic of London gold vaults, former LBMA CEO Stewart Murray included a slide which stated that:

Investment – more than ETFs


  • Gold Holdings have increased by ~1,800 tonnes in past 5 years, almost all held in London vaults
  • Many thousands of tonnes of ETF silver are held in London

Other holdings

  • Central banks hold large amounts of allocated gold at the Bank of England
  • Various investors hold very substantial amounts unallocated gold and silver in the London vaults

The last bullet point of the above slide is particularly interesting as it references “very substantial amounts’ of unallocated gold and silver. Discounting the fact for a moment that unallocated gold and silver is not necessarily held in vaults or held anywhere else, given that it’s just a claim against a bullion bank, the statement really means that investors have ‘very substantial amounts‘ of claims against the bullion banks offering the unallocated gold and silver accounts i.e. very substantial liabilities in the form of unallocated gold and silver obligations to the gold and silver unallocated account holders.

If a small percentage of these claim holders / investors decided to convert their claims into allocated gold and silver, especially allocated gold, then where are the bullion banks going to get the physical gold to give to these converting claim holders? Neither do the claim holders of unallocated positions have any way of knowing how accurate the LBMA vault reporting is, because there is no independent auditing of the positions or of the report.

LBMA Vault data collaboration
Joni Teves, UBS, and Ruth Crowell, LBMA CEO


The last line of the LBMA press release about the new vault reporting states the following:

“A detailed explanatory commentary follows, prepared by Joni Teves, Precious Metals Strategist, UBS”

This line includes an embedded link to the Teves report within the press release. This opens a 7 page report written by Teves about the new vault reporting. By definition, given that this report is linked to in the press release, it means that Joni Teves of UBS had the LBMA vault reporting data before it was publicly released, otherwise how could UBS have written its summary.

In her report, Teves states that a UBS database estimates that there are “1,485 tonnes of gold worth about $60bn and about 13,759 tonnes of silver worth about $7.85bn are likely to be held in London to back ETF shares“.

These UBS numbers are fairly similar to the ETF estimates for gold (1510 tonnes) and silver (12040 tonnes) that we came up with here at BullionStar, and so to some extent corroborate our previous ETF estimates. Teves also implies that some of the gold in the Bank of England figure is not central bank gold but is commercial bank gold as she says:

 “let’s say for illustration’s sake that about 80% to 90% of BoE gold holdings are accounted for by the official sector.

The statement on face value implies that 10% – 20% of Bank of England gold is not central bank gold. But why the grey area phrase of “let’s say for illustration’s sake”. Shouldn’t the legendary Swiss Bank UBS be more scientific than this?

Teves also says assume “negligible amount (in commercial vaults) comprises official sector holdings“, and she concludes that “this suggests that over the past year, an average of about 2,945 to 3,450 tonnes ($119-$139 bn) of investment-related gold was held in London.

What she is doing here is taking the average of 9 months of gold holdings held in the LBMA commercial vaults (which is 2439 tonnes) and then adding 10% and 20% respectively of the 9 month average of gold held at the Bank of England (which is 506 and 1011 tonnes) to get the resulting range of between 2945 and 3451 tonnes.

Then she takes the ETF tonnes estimate (1485) away from her range to get a range of between 1460 and 1965 tonnes, as she states:

 … “Taking these ETF-related holdings into account would then leave roughly around 1,460 to 1,965 tonnes or about $59bn to $79bn worth of gold in unallocated and allocated accounts as available pool of liquidity for OTC trading activities

But what this assumption fails to take into account is that some of this 1,460 to 1,965 tonnes that is in allocated accounts is not available as a pool of liquidity, because it is held in allocated form by investors precisely so that the bullion banks cannot get their hands on it and trade with it. In other words, it is ring fenced. Either way, a model will always output what has been input into it. Change the 10% and 20% range assumptions about the amount of commercial bank gold in the Bank of England vaults and this materially alters the numbers that can be attributed to be an ‘available pool of liquidity for OTC trading activities’.

Additionally, the portion of this residual gold that is in ‘unallocated accounts’ is not owned by any investors, it is owned by the banks. The ‘unallocated accounts’ holders merely have claims on the bullion banks for metal that is backed by a fractional-reserve trading system.

In her commentary about the silver held in the London vaults, Teves does not comment at all about the huge gap between her ETF silver in London (which UBS states as 13,759 tonnes), and the full 32000 tonnes reported by the LBMA,and does not mention how this huge gap is larger than all the ‘Custodian Vault’ silver which Thomson Reuters GFMS attributes to the entire ‘Europe’ region.


The amount of gold in the London LBMA gold vaults (incl. Bank of England) that is not central bank gold, that is not ETF gold, and that is not institutional allocated gold is quite a low number. What this actual number is difficult to say because a) the LBMA will not produce a proper vault report that shows ownership of gold by category of holder, and b) neither will the Bank of England in its gold vault reporting provide a breakdown between the gold owned by central banks and the gold owned by bullion banks. So there is still no real transparency in this area. Just a faint chink of light into a dark cavern.

On the topic of London vaulted silver, there appears to be a lot more silver in the LBMA vaults than even GFMS thought there was. It will be interesting to see how GFMS and the LBMA will resolve their apparent contradiction on the amount of silver stored in the London LBMA vaults.

A Chink of Light into London’s Gold Vaults?

On 5 February, the Financial Times of London (FT) featured a story revealing that the London Bullion Market Association (LBMA) plans to begin publishing data on the amount of real physical gold actually stored in the London precious metals vaulting network. The article titled “London gold traders to open vaults in transparency push” can be read here (accessible via FT subscription or via free monthly FT read limit).

This new LBMA ‘monthly vault data’ will, according to the FT’s sources, be published on a three-month lagged basis, and will:

show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s, which are also members of the LBMA.”

The shadowy source quoted in the FT article is attributed to “a person involved in setting up the programme”, but at the same time, although “the move [to publish the data] is being led by the LBMA“, the same LBMA ”declined to comment” for the FT story. This then has all the hallmarks of a typical authorised leak to the media so as to prepare the wider market for the data release.

On 16 February, the World Gold Council in its “Gold Investor, February 2017″ publication featured a focus box on the same gold vault topic in its “In the News” section on page 4, where it states:

“Enhanced transparency from the Bank of England

The Bank of England is, for the first time, publishing monthly data revealing the amount of gold it holds on behalf of other central banks.

 As a leading custodian of gold, with one of the largest vaults in the world, the Bank of England’s decision is highly significant. Not only will it enhance the transparency of the Bank’s own gold operations; it will also support the drive towards greater transparency across the gold market.

The data reveals the total weight of gold held within the Bank of England’s vaults and includes five years of historical data.”

The Proposed Data

Based on these two announcements, it therefore looks like the gold vault data release will be a combined effort between the LBMA and the Bank of England, the blood brothers of the London Gold Market, with the Bank of England data being a subset of the overall LBMA data. While neither of the above pieces mention a release date for the first set of data, I understand that it will be this quarter, i.e. sometime before the end of March. On a 3 month lagged basis, the first lot of data would therefore probably cover month-end December 2016, because that would be a logical place to start the current dataset, rather than, for example, November 2016.

While the Bank of England data looks set to cover a 5 year historical period, there is no indication (from the FT article) that the wider LBMA vault data will do likewise. From the sparse information in the FT article, the LBMA data will “show gold bars held“. Does it mean number of gold bars, or combined weight of gold bars? What exactly it means, we will have to wait and see.

The Bank of England data will capture “total weight of gold held“. Notice that in the above World Gold Council piece it also states that the data will cover the amount of gold that the Bank of England “holds on behalf of other central banks.” There is no mention of the amount of gold that the Bank of England holds on behalf of commercial bullion banks.

Overall, this doesn’t exactly sound like it is “enhancing the transparency of the Bank’s own gold operations” as the World Gold Council puts it. Far from it. Enhancing the transparency of the Bank of England’s gold operations would require something along the lines of the following:

  • Identities of all central banks and official sector institutions (ECB / IMF / BIS / World Bank) holding active gold accounts at the Bank of England. Active gold accounts meaning non-zero balances
  • Identities of all commercial / bullion banks holding active gold accounts at the Bank of England
  • A percentage breakdown between the central bank gold held in the Bank of England vaults and the bullion bank gold held in the Bank of England vaults
  • An indicator for each gold account as to whether it is a set-aside earmarked custody account or whether it is a fine troy ounce balance account
  • Information for each central bank and official sector institution as to whether any of “its” gold is lent, swapped or repo’d
  • Information for the bullion bank gold accounts as to whether the gold recorded in those accounts is borrowed, sourced from swaps, sourced from repos, or otherwise held as collateral for loans
  • Information on the gold accounts of the 5 LPMCL clearing banks showing how much gold each of these institutions holds each month and whether the Bank of England supplies physical gold clearing balances to these banks
  • Information on when and how often the London-based gold-backed ETFs store gold at the Bank of England, not just using the Bank of England as sub-custodian, but also storage in their own names, i.e. does HSBC store gold in its own name at the Bank of England which is used to supply gold to the SPDR Gold Trust
  • Information on whether and how often the Bank of England intervenes into the London Gold Market and the LBMA Gold Price auctions so as to supply gold in price smoothing and price stabilisation operations in the way that the Bank of England’s Terry Smeeton seems to have been intervening into the London Gold Market in the 1980s
  • Information on the BIS gold holding and gold transactions settlements accounts at the Bank of England and the client sub-account  details and central bank identities for these accounts
  • Information on gold location swaps between gold account holders at the Bank of England and gold accounts at the Federal Reserve Bank of New York, the Banque de France, and the Swiss National Bank, and BIS accounts in those locations
  • Gold for oil swaps and oil for gold swaps

Anything less is just not cricket and does not constitute transparency.

And its important to remember that any publication of gold vault data by the LBMA and Bank of England is not being done because the LBMA suddenly felt guilty, or suddenly had an epiphany on the road to Damascus, but, as the FT correctly points out:

“the LBMA, whose members include HSBC and JPMorgan, hopes to head off the challenge and persuade regulators that banks trading bullion should not have to face more onerous funding requirements.”

Bank of England

The Current Data

As a reminder, there is currently no official direct data published on the quantity of real physical gold bars held within the London gold vaulting system. This vaulting system comprises the vaults of eight vault operators (see below for list).

Once a year in its annual report, the Bank of England provides a Sterling (GBP) value of gold held by its gold custody customers, while the LBMA website states a relatively static total figure of “approximately 6,500 tonnes of gold held in London vaults” that it claims are in the vaults in its network. But beyond these figures, there is currently no official visibility into the quantity of London Good Delivery gold bars held in the London vaults. There are, various ways of estimating London gold vault data using the Bank of England annual figure and the LBMA figure together with Exchange Traded Fund gold holdings and central bank divulged gold holdings at the Bank of England.

These approaches have been documented in BullionStar articles “Central bank gold at the Bank of England” and “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“, both from September 2015, and more recently “Tracking the gold held in London: An update on ETF and BoE holdings” from September 2016.

The September 2015 estimates calculated that there were 6,256 tonnes of gold in total in the London vaults, with 5,134 tonnes at the Bank of England (as of end February 2015), and 1,122 tonnes in London “not at the Bank of England“, all of which was accounted for by gold-backed ETFs which store their gold in London. These calculations implied that there was nearly zero gold stored in London outside the Bank of England that was not accounted for by ETF holdings.

The “Tracking the gold held in London” estimates from September 2016 used a figure of 6,500 tonnes of gold in total in the London vaults, and showed that there were 4,725 tonnes inside the Bank of England vaults, of which about 3,800 tonnes was known to be held by central banks (and probably a lot of the remainder was held by central banks also) and that there were 1,775 tonnes of gold outside the Bank of England. The article also calculated that there were 1,679 tonnes of gold in the gold backed ETFs that store their gold in London, so again, there was very little gold in the London vault network that was not accounted for by ETFs and central bank gold.


The Vaults of London

Overall, there are 8 vault operators for gold within the LBMA vaulting network. These 8 vault operators are as follows:

  • The Bank of England
  • HSBC Bank plc
  • JP Morgan Chase
  • ICBC Standard Bank Plc
  • Brink’s Limited
  • Malca-Amit Commodities Ltd
  • G4S Cash Solutions (UK) Limited
  • Loomis International (UK) Ltd

HSBC, JP Morgan and ICBC Standard are 3 of the London Gold Market’s clearing banks that form the private company London Precious Metals Clearing Limited (LPMCL). The other two member of LPMCL are Scotia Mocatta and UBS. Brink’s, Malca-Amit, G4S and Loomis are the aforementioned security companies. The LBMA website lists these operators, alongside their headquarters addresses.

Bizarrely, the FT article still parrots the LBMA’s spoon-fed line that the vaults are “in secret locations within the M25 orbital motorway”. But this is far from the truth. Many of the London vault locations are in the public domain as has been covered, for example, on this website, and the FT knows this:

JP Morgan: https://www.bullionstar.com/gold-university/jp-morgan-gold-vault-london

Malca-Amit https://www.bullionstar.com/gold-university/malca-amit-london-gold-vault

G4S: https://www.bullionstar.com/gold-university/g4s-london-gold-vault

And perhaps HSBC: https://www.bullionstar.com/gold-university/hsbc-gold-vault-london

G4S location https://www.bullionstar.com/blogs/ronan-manly/g4s-london-gold-vault-2-0-icbc-standard-bank-in-deutsche-bank-out

Malca-Amit location https://www.bullionstar.com/blogs/ronan-manly/gold-vaults-london-malca-amit

HSBC possible location https://www.bullionstar.com/blogs/ronan-manly/hsbcs-london-gold-vault

And obviously, the Bank of England vaults are where they always have been, under the Bank’s headquarters in the City of London: https://www.bullionstar.com/gold-university/bank-england-gold-vaults

It’s slightly disappointing that we spend time and effort informing the London financial media where some of the London gold vaults are, and then they continue to parrot the LBMA’s misleading “secret locations” line. I put this fake news down to a decision by the FT editors, who presumably have a stake in playing along with this charade so as not to rock the boat with the powerful investment banks that they are beholden to.

The FT also reminds us in its article that “last year a gold vault owned by Barclays, which can house $80bn of bullion, was bought by China’s ICBC Standard Bank.

This Barclays vault in London was built by and is operated by Brink’s, and presumably after being taken over by ICBC Standard, it is still operated by Brink’s. Logistically then, this ICBC Standard vault is most likely within the Brink’s complex, a location which is also in the public domain, and which even hosts an assay office as was previously mentioned here over a year ago. The Barclays vault (operated by Brink’s) is even mentioned in a Brink’s letter to the SEC in February 2014, which can also be seen here -> Brinks letter to SEC February 2014.


Brink’s letter to SEC, February 2014

Given the fact that there are eight sets of vaults in the London vault system (as overseen by various groups affiliated to the LBMA such as the LBMA Physical Committee, the LBMA Vault Managers Working Party,  the gold clearers (London Precious Metals Clearing Limited), and even the LBMA Good Delivery List referees and staff, then one would expect that whatever monthly vault data that the LBMA or its affiliates publishes in the near future, will break out the gold bar holdings and have a distinct line item in the list for each vault operator such as:

  • HSBC – w tonnes
  • JP Morgan – x tonnes
  • ICBC Standard – y tonnes
  • Brink’s – z tonnes



At the LBMA conference in Singapore last October, there was talk that there were moves afoot for the Bank of England to begin publishing data on the custody gold it holds on a more regular basis. It was also mentioned that this data could be extended to include the commercial bank and security carrier vaults but that some of the interested parties were not in favour of the idea (perhaps the representative contingents of the powerful HSBC and JP Morgan). Whatever has happened in the meantime, it looks like some data will now be released in the near future covering all of the participating vaults. What this data will cover only time will tell, but more data than less is always welcome, and these data releases might also help show how near or how far we were with earlier estimates in trying to ascertain how much gold is in the London vaulting system that is not accounted for by ETF holding or central bank holdings.

Revealing the extent of the gold lending market in London is critical though, but this is sure to remain a well-kept secret, since the LBMA bullion banks and the Bank of England will surely not want the general market to have any clue as to which central banks don’t really have any gold while still claiming to have gold (the old gold and gold receivables trick), in other words, that there is serious double counting going on, and that some of the central bank gold has long gone out the door.


IMF Gold Sales – Where ‘Transparency’ means ‘Secrecy’

Welcome to the twilight zone of IMF gold sales, where transparency really means secrecy, where on-market is off-market, and where IMF gold sales documents remain indefinitely “classified” and out of public view due to the “sensitivity of the subject matter”.

Off and On Market

Between October 2009 and December 2010, the International Monetary Fund (IMF) claims to have sold a total of 403.3 tonnes of gold at market prices using a combination of ‘off-market’ sales and ‘on-market’ sales. ‘Off-market’ gold sales are gold sales to either central banks or other official sector gold holders that are executed directly between the parties, facilitated by an intermediary. For now, we will park the definition of ‘on-market’ gold sales, since as you will see below, IMF ‘on-market’ gold sales in reality are nothing like the wording used to describe them. In total, this 403.3 tonnes of gold was purportedly sold so as to boost IMF financing arrangements as well as to facilitate IMF concessional lending to the world’s poorest countries. As per its Articles of Agreement, IMF gold sales have to be executed at market prices.

Critically, the IMF claimed on numerous occasions before, during and after this 15-month sales period that its gold sales process would be ‘Transparent. In fact, the concept of transparency was wheeled out by the IMF so often in reference to these gold sales, that it became something of a mantra. As we will see below, there was and is nothing transparent about the IMF’s gold sales process, but most importantly, the IMF blocked and continues to block access to crucial IMF board documents and papers that would provide some level of transparency about these gold sales.

Strauss-Kahn – Yes, that guy

On 18 September 2009, the IMF announced that its Executive Board had approved the sale of 403.3 metric tonnes of gold. Prior to these sales, the IMF officially claimed to hold 3217.3 tonnes of gold. Commenting on the gold sales announcement, notable party attendee and then IMF Managing Director Dominique Strauss-Kahn stated:

“These sales will be conducted in a responsible and transparent manner that avoids disruption of the gold market.”

The same IMF announcement on 18 September 2009 also stated that:

“As one of the elements of transparency, the Fund will inform markets before any on-market sales commence. In addition, the Fund will report regularly to the public on the progress with the gold sales.”

DSK has left the building
DSK has left the building

On 2 November 2009, the IMF announced the first transaction in its gold sales process, claiming that it had sold 200 tonnes of gold to the Reserve Bank of India (RBI) in what it called an ‘off-market’ transaction. This transaction was said to have been executed over 10 trading days between Monday 19 November to Friday 30 November with sales transactions priced each day at market prices prevailing on that day. On average, the 200 tonne sales transaction would amount to 20 tonnes per day over a 10 day trading period.

Note that the Reserve Bank of India revealed in 2013 that this 200 tonne gold purchase had merely been a book entry transfer, and that the purchased gold was accessible for use in a US Dollar – Gold swap, thereby suggesting that the IMF-RBI transaction was executed for gold held at the Bank of England in London, which is the only major trading center for gold-USD swaps. As a Hindu Business Line article stated in August 2013:

“According to RBI sources, the gold that India bought never came into the country as the transaction was only a book entry. The gold was purchased for $6.7 billion, in cash.”

“The Reserve Bank of India bought 200 tonnes of gold for $1,045 an ounce from the IMF four years ago. The Government can swap it for US dollars,” said [LBMA Chairman David] Gornall.”

Two weeks after the Indian purchase announcement in November 2009, another but far smaller off-market sale was announced by the IMF on 16 November 2009, this time a sale of 2 tonnes of gold to the Bank of Mauritius (the Mauritian central bank), said to have been executed on 11 November 2009. Another two weeks after this, on 25 November 2009, the IMF announced a third official sector sales transaction, this time a sale of 10 tonnes of gold to the Central Bank of Sri Lanka.

Overall, these 3 sales transactions, to the Reserve Bank of India, Bank of Mauritius and the Central Bank of Sri Lanka, totalled 212 tonnes of gold, and brought the IMF’s remaining official gold holdings down to 3005.3 tonnes at the end of 2009, leaving 191.3 tonnes of the 403.3 tonnes remaining to sell. All 3 of the above announcements by the IMF were accompanied by the following statement:

“The Fund will inform markets before any on-market sales commence, and will report regularly to the public on progress with the gold sales.”

For nearly 3 months from late November 2009, there were no other developments with the IMF’s  gold sales until 17 February 2010, at which point the IMF announced that it was to begin the ‘on-market’ portion of its gold sales program. At this stage you might be wondering what the IMF’s on-market gold sales consisted of, which ‘market’ it referred to, how were the sales marketed, who the buyers were, and who executed the sales transactions. You would not be alone in wondering about these and many other related questions.

The IMF’s press releases of 17 February 2010, titled ‘IMF to Begin On-Market Sales of Gold’ was bereft of information and merely stated that the IMF would “shortly initiate the on-market phase of its gold sales program” following “the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement“, and that the sales would be “conducted in a phased manner over time”. The third Central Bank Gold Agreement (CBGA) ran from September 2009 to September 2014. These CBGA’s, which have been running since September 1999, ostensibly claim to support and not disrupt the gold market but in reality have, in their entirety, been highly secretive operations where vast amounts of central bank and official sector gold is channeled via the BIS to unspecified buyers in the bullion banks or central bank space, with the operations having all the hallmarks of gold price stabilization operations, and/or official sector gold redistribution between the world’s developed and emerging market central banks.

The February 2010 announcement also made the misleading claim that “the IMF will continue to provide regular updates on progress with the gold sales through its normal reporting channels”. These regular updates have never happened.

An article titled “IMF ‘On-Market’ Gold Sales Move Ahead” in the ‘IMF Survey Magazine’, also dated 17 February 2010 reiterated this spurious transparency claim:

Transparent approach

The IMF publicly announced each official sale shortly after the transaction was concluded. A high degree of transparency will continue during the sales of gold on the market, in order to assure markets that the sales are being conducted in a responsible manner.”

However, following this February 2010 lip service to transparency, there were no direct updates from the IMF exclusively about the on-market gold sales, even after the entire gold sales program had completed in December 2010.

One further IMF ‘off-market’ gold sale transaction was announced on 9 September 2010. This was a sale of 10 tonnes of gold to Bangladesh Bank (the Bangladeshi central bank) with the transaction said to have been executed on 7 September 2010. Adding this 10 tonnes to the previous 212 tonnes of off-market sales meant that 222 tonnes of the 403.3 tonne total was sold to central banks, with the remaining 181.3 tonnes sold via ‘on-market’ transactions. The Bangladesh announcement was notable in that it also revealed that “as of end July 2010, a further 88.3 metric tons had been sold under the on-market sales announced in February 2010″. The addition of Bangladesh to the off-market buyer list that already consisted of India, Sri Lanka and Mauritius also resulted in the quite bizarre situation where the only off-market buyers of IMF comprised 4 countries that have extremely close historical, political, cultural and economic connections with each other. Three of these countries, India, Bangladesh and Sri Lanka, are represented at the IMF by the same Executive Director, who  from November 2009 was Arvind Virmani, so their buying decisions were most likely coordinated through Virmani and probably through the Reserve Bank of India as well.

On 21 December 2010, the IMF issued a press release titled ‘IMF Concludes Gold Sales’ which stated:

“The International Monetary Fund (IMF) announced today the conclusion of the limited sales program covering 403.3 metric tons of gold that was approved by the Executive Board in September 2009.”

“The gold sales were conducted under modalities to safeguard against disruption of the gold market. All gold sales were at market prices, including direct sales to official holders.”

‘Modalities’ in this context just means the attributes of the sales including the approach to the gold sales, i.e. the sales strategy. This brief announcement on 21 December 2010 was again bereft of any factual information such as which market was used for the ‘on-market’ gold sales, the identity of executing brokers, the identity of counterparties, transaction dates, settlement dates / deferred settlement dates, method of sale, information on whether bullion was actually transferred between parties, publication of weight lists, and other standard sales transaction details. Contrast this secrecy to the 1976 -1980 IMF gold sales which were conducted by a very public series auction, and which were covered in minute details by the financial publications of the time.

As usual with its treatment of official sector gold transactions, the World Gold Council’s Gold Demand Trends report, in this case its Q4 2010 report, was absolutely useless as a source of information about the IMF gold sales beyond regurgitating the press release details, and there was no discussion on how the gold was sold, who the agent was, who the buyers were etc etc.

Lip Service to Transparency

When the IMF’s ‘on-market’ sales of 191.3 tonnes of gold commenced in February – March 2010, there were attempts from various quarters to try to ascertain actual details of the sales process. Canadian investment head Eric Sprott even expressed interest in purchasing the entire 191.3 tonnes on behalf of the then newly IPO’d Sprott Physical Gold ETF. However, Sprott’s attempts to purchase the gold were refused by the IMF, and related media queries attempting to clarify the actual sales process following the IMF’s blockade of Sprott were rebuffed by the IMF.

A Business Insider article from 6 April 2010, written by Vince Veneziani and titled “Sorry Eric Sprott, There’s No Way You’re Buying Gold From The IMF”, lays out the background to this bizarre stone-walling and lack of cooperation by the IMF. Business Insider spoke to Alistair Thomson, the then external relations officer at the IMF (now Deputy Chief of Internal Communications, IMF), and asked Thomson why Sprott could not purchase the gold that was supposedly available in the ‘on-market’ sales. Thomson’s reply is summarised below:

“The IMF is only selling gold though a qualified agent. There is only one of these agents at the moment and due to the nature of the gold market, they won’t reveal who or what that agent is.”

“Sprott can’t buy the gold directly because they do not deal with institutional clients like hedge funds, pension funds, etc. The only buyers can be central bankers and sovereign nations, that sort of thing.”

The IMF board agreed months ago how they wanted to approach the sale of the gold. Sprott is welcome to buy from central banks who have bought from the IMF, but not from the IMF directly.”

While this initial response from the IMF’s Alistair Thomson contradicted the entire expectation of the global gold market which had been earlier led to believe that the ‘on-market’ gold sales were just that, sales of gold to the market, on the market, Thomson’s reply did reveal that the IMF’s ‘on-market’ gold sales appeared to be merely an exercise in using an agent, most likely the Bank for International Settlements (BIS) gold trading desk, to transfer IMF gold to a central bank or central banks that wished to remain anonymous, and not go through the publicity of the ‘off-market’ transfer process.

Although, as per usual, the servile and useless mainstream media failed to pick up on this story, the IMF’s unsatisfactory and contradictory response was deftly dissected by Chris Powell of GATA in a dispatch, also dated 6 April 2010. After discussing the IMF’s initial reply with Eric Sprott and GATA, Business Insider’s Vince Veneziani then went back to IMF spokesman Alistair Thomson with a series of reasonable and totally legitimate questions about the ‘on-market’ gold sales process.

Veneziani’s questions to the IMF are documented in his follow-up Business Insider article titled “Five Questions About Gold The IMF Refuses To Answer”, dated 27 April 2010. These questions included:

  • What are the incentives for the IMF not to sell gold on the open market or to investors, be it institutional or retail?
  • Did gold physically change hands with the banks you have sold to so far or was the transaction basically bookkeeping stuff (the IMF still holds the physical gold in this case)?
  • Are there available records on the actual serial numbers of bullion? How is the gold at the IMF tracked and accounted for?
  • Does IMF support a need for total transparency in the sale of gold despite the effects it could have on various markets?

Shockingly, Alistair Thomson, supposedly the IMF press officer responsible for answering the public’s queries about IMF finances (including gold sales), arrogantly and ignorantly refused to answer any of the questions, replying:

“I looked through your message; we don’t have anything more for you on this.”

Another example of the world of IMF transparency, where black is white and white is black, and where press officers who have formerly worked in presstitute financial media organisations such as Thomson Reuters fit in nicely to the IMF’s culture of aloofness, status quo protection, and lack of accountability to the public.

International Monetary Fund

Monthly Report on Sales of Gold on the Market

Fast forward to July 2015. While searching for documents in the IMF online archives related to these gold sales, I found 3 documents dated 2010, titled “Monthly Report on Sales of Gold on the Market“. Specifically, the 3 documents are as follows (click on links to open):

Each of these 3 documents is defined by the IMF as a Staff Memorandum (SM), which are classified as ‘Executive Board Documents’ under its disclosure policy. The IMF Executive Board consists of 24 directors in addition to the IMF Managing Director, who was in 2009 the aforementioned Dominique Strauss-Kahn. According to the IMF’s Executive Board synopsis web page, the board “carries out its work largely on the basis of papers prepared by IMF management and staff.

IMF SB March 2010

The most interesting observation about these 3 documents, apart from their contents which we’ll see below, is the fact that only 3 of these documents are accessible in the IMF archives, i.e. the documents only run up to May 2010, and do not include similar documents covering the remainder of the ‘on-market’ sales period (i.e. May – December 2010). Therefore there are 7 additional monthly reports missing from the archives. That there are additional documents that have not been published was confirmed to me by IMF Archives staff – see below.

Each of the 3 reports is only 3 pages long, and each report follows a similar format. The first report spans February – March 2010, specifically from 18 February 2010 to 17 March 2010, and covers the following:

summarizes developments in the first month of the on-market sales, covering market developments, quantities sold and average prices realized, and a comparison with widely used benchmarks, i.e., the average of London gold market fixings

‘Market developments’ refers to a brief summary in graphical chart of the London fixing prices in US Dollars over the period in question. Quantities sold and the currency composition of sales are notable:

Sales Volume and Proceeds: A total of 515,976.638 troy ounces (16.05 metric tons) of gold was sold during the period February 18 to March 17. These sales generated proceeds of SDR 376.13 million (US$576.04 million), based on the Fund’s representative exchange rates prevailing on the day of each sale transaction.

Currency Composition of Proceeds: Sales were conducted in the four currencies included in the SDR valuation basket …., with the intention of broadly reflecting the relative quota shares of these currencies over the course of the sales program.

The 4 currencies in which the sales were conducted during the first month were USD, EUR, GBP and JPY. See table 1 in the document for more information. Perhaps the most revealing point in each document is the confirmation of the use of an agent and specifically an arrangement that the sales prices included a premium paid by the agent:

Sales Prices compared with Benchmarks: The sales were implemented as specified in the agreement with the agent. Sales were conducted at prices incorporating a premium paid by the agent over the London gold fixing, and for sales settled in currencies other than the U.S. dollar, the sales price also reflects market exchange rates at the time of the London gold fixings (10:30 am and 3:00 pm GMT), net of a cost margin.

The use of a premium over the London fixing price is very revealing because this selling strategy, where the agent paid a premium over the average London gold fixing price, is identical to the sales arrangement which the Swiss National Bank (SNB) agreed with the Bank for International Settlements (BIS) when the BIS acted as sales agent for SNB gold sales over the period May 2000 to March 2001.

As Philipp Hildebrand, ex-governor of the SNB, revealed in 2005 when discussing the SNB gold sales strategy that had been used in 2000-2001:

“At the outset, the SNB decided to use the BIS as its selling agent. Between May 2000 and March 2001, the BIS sold 220 tonnes on behalf of the SNB. For the first 120 tonnes, the SNB paid the BIS a fixed commission while the performance risk resided with the SNB. For the next 100 tonnes, the BIS agreed to pay the average price of the AM and PM London gold fixing plus a small fixed premium.

My conclusion is therefore that the IMF also used the Bank for International Settlements in Basel, Switzerland  as selling agent for its ‘on-market’ gold sales over the period February to December 2010, with the sales benchmarked to average London fixing prices in the London Gold Market.

The pertinent details for the IMF’s March – April sales document are as follows:

“A total of 516,010.977 troy ounces (16.05 metric tons) of gold was sold during the period March 18 to April 16.” 

“Sales were conducted in three of the four currencies included in the SDR valuation basket” i.e. USD, EUR and JPY”

The relevant details from the April – May sales document are as follows:

“A total of 490,194.747 troy ounces (15.25 metric tons) of gold was sold during the period April 19 to May 18, 2010; no sales were conducted during the last two business days in April, owing to end of financial year audit considerations.”

“Sales were conducted in three of the four currencies included in the SDR valuation basket” i.e. USD, GBP and JPY

Purely a Pricing Exercise?

The entire ‘on-market’ gold sales program of 181.3 tonnes may well have been just a pricing exercise by the Bank for International Settlements gold trading desk to determine the market prices at which to execute the transfers, with the gold transferring ownership after the event as book entry transfers at the Bank of England in the same manner as was applied to the Indian ‘off-market’ purchase of 200 tonnes.

Taking the sales quantities in the 3 published monthly reports, and incorporating quarterly IMF gold holdings time series data from the World Gold Council, it’s possible to calculate how much gold was ‘sold’ each single day over the entire ‘on-market’ gold sales program. As it turns out, for much of the program’s duration, identical quantities of gold were sold each and every day.  The ‘on-market’ program commenced on 18 February 2010. Between 18 February and 17 March, which was a period of 20 trading days in the London gold market, the agent sold  515,976.638 troy ounces (16.05 metric tons) of gold. Between 18 March and 16 April, which was also a trading period of 20 trading days (even after factoring in 2 Easter bank holidays), the agent sold a practically identical quantity of 516,010.977 troy ounces (also 16.05 metric tons). This is a daily sales rate of 25,800 ozs or 0.8025 tonnes per trading day over these 40 trading days.

During the period from 19 April to 18 May 2010, which was 19 trading days excluding the 3rd May UK bank holiday and excluding the last 2 trading days of April on which the IMF program didn’t trade, the agent sold 490,194.747 troy ounces (15.25 metric tons) of gold, which again is…wait for it… 0.8025 tonnes and 25,800 ozs per day (0.8025  * 19 = 15.2475 tonnes & 25,800 * 19 = 490,200 ozs).

Following the combined Indian, Mauritian, and Sri Lankan ‘off-market’ purchases of 212 tonnes during Q4 2009, the IMF’s gold holdings stood at 3,005.32 tonnes at the end of 2009. Based on World Gold Council (WGC) quarterly data of world official gold reserves, the IMF’s gold holdings then decreased as follows during 2010:

– 24.08 MT (Q1) – 47.34 MT (Q2) – 67.66 MT (Q3) – 52.2 MT (Q4) =  – 191.28 metric tonnes (MT)

…resulting in total remaining gold holdings of  2,814.04 tonnes at the end of 2010, an IMF gold holdings figure which remains unchanged to this day.

These WGC figures tally with the IMF monthly report figures. For example, the IMF says that 16.05 tonnes was sold up to and including 17 March, and with another 10 trading days in March 2010, a further 8.205 tonnes (0.8025 daily sales * 10) was sold by the end of March, giving total Q1 sales of 16.05 + 8.025 = 24.075 tonnes, which is identical to the WGC quarterly change figure. The IMF was active on 59 trading days in Q2 during which it sold 47.34 tonnes, which…wait for it…was an average of 0.8024 tonnes per day (47.34 / 59 = 0.8024).

Therefore, over Q1 and Q2 2010 (i.e. between February and the end of June 2010), the ‘on-market’ sales program sold 71.42 tonnes at a consistent ~ 0.8025 tonnes daily rate. This would suggest an algorithmic program trade which offered identical quantities each and every day, or more likely just priced these quantities so as to arrive at a sales consideration amount so that the IMF would receive ‘market prices’ for its gold. Recall that IMF gold has to be sold at market prices according to the Fund’s Articles of Agreement.

Given that 88.3 tonnes had been sold ‘on-market’ by the end of July 2010 as the IMF revealed in its Bangladesh announcement, we can infer that 16.88 tonnes was sold ‘on-market’ during July 2010. This 16.88 tonne sale in July was actually at a slightly lower pace than previous months since there were 22 trading days in July 2010, however the figure was chosen due to the following: With 191.3 tonnes on sale at the outset of the ‘on-market’ program, and 71.42 tonnes sold by the end of June, this left 119.88 tonnes to sell at the end of June. Whoever was choosing the monthly sales quantities wanted to finish July with a round figure of 103 tonnes, and so chose 16.88 tonnes to sell in July (i.e. 119.88 – 16.88 = 103 tonnes). Subtracting the 10 tonnes that Bangladesh bought in September 2010 (which would have been also factored in at that time) left a round 93 tonnes (2.999 million ozs) to sell as of the beginning of August.

The Q3 2010 sales of 67.66 tonnes comprised the 10 tonne ‘off-market’ sale to Bangladesh on 7 September and 57.66 tonnes of on-market sales. Given 16.88 tonnes sold in on-market sales in July, there was therefore 40.78 tonnes sold over August – September, or an average of 20.39 tonnes in each of August and September (which represented a combined 43 trading days). Overall, there were 65 trading days in Q3 and 58 trading days in Q4 (assuming that the sales wrapped up on 21 December as per the IMF announcement). From the beginning of August to the 21 December, a period of 101 trading days, the IMF sold the remaining 93 tonnes, which would be a daily sales pace of 0.93 tonnes per day.

So overall, the IMF’s 403.3 tonnes of gold sales between November 2009 and December 2010 consisted of 222 tonnes sold ‘off-market’ to India, Bangladesh, Sri lanka, and Mauritius, 88.3 tonnes sold ‘on-market’ between February and July 2010, and 93 tonnes sold ‘on-market’ between August and December 2010′.

Given that the IMF’s 4 gold depositories are the Federal Reserve Bank of New York, the Bank of England in London, the Banque de France in Paris and the Reserve Bank of India in Nagpur India, and given that the IMF gold in New York is mostly in the form of US Assay Office melts, and the gold in Nagpur is a hodgepodge of mostly low quality old gold (read non-good delivery gold), then it would be logical for the IMF to sell some of its good delivery gold which is stored in London (which, until at least the late 1970s, was predominantly held in the form of Rand Refinery 400 oz gold bars), or even in Paris, since the Banque de France has been engaged in an ongoing program of upgrading the old US Assay office gold bars in its custody to good delivery bars.

As the Banque de France’s Alexandre Gautier commented in his 2013 speech to the LBMA annual conference in Rome:

“Our bars are not all LGD [London Good Delivery quality], but we have an ongoing improvement programme.”

This Banque de France gold bar upgrading program was also confirmed in February 2011 in a National Geographic Magazine article which stated:

“Buyers don’t want the beat-up American gold. In a nearby room pallets of it are being packed up and shipped to an undisclosed location, where the bars will be melted down and recast in prettier forms.”

Magic 7

Top Secret Foot Notes

There are 2 interesting footnotes on page 1 or each of the 3 above documents. The first footnote states that ‘The Executive Board was briefed on the plans for on-market sales prior to the announcement’, the announcement in question being the IMF’s 17 February 2010 announcement IMF to Begin On-Market Sales of Gold.

The second footnote, which is a footnote to a sales process and sales performance summary, refers to 2 further IMF papers as follows: “Modalities for Limited Sales of Gold by the Fund (SM/09/243, 9/4/09) and DEC/14425-(09/97), 9/18/09“.

Footnotes IMF SM gold sales on market
Footnote ‘2’ of IMF ‘monthly gold sales’ documents, February – May 2010

As mentioned above, SM are Staff Memorandums which are classed under Executive Board Documents. DEC series document are ‘Text of Board Decisions’ (hence the DEC) and these documents are also deemed to be Executive Board Documents. After searching for both of these documents (SM/09/243 and DEC/14425-(09/97)) in the IMF archives, it became apparent that they were not there, i.e. they were not returned and not retrievable under IMF archive search results.

This was surprisingly since the IMF claims to have what it calls its “IMF Open Archives Policy”, part of which is Article IX, Section 5, which is the “Review of the Fund’s Transparency Policy—Archives Policy“. This policy, prepared by the IMF Legal Department includes the following:

Access will be given as follows:

  • 2. (i) Executive Board documents that are over 3 years old

(ii) Minutes of Executive Board meetings that are over 5 years old;

(iv) Other documentary materials maintained in Fund archives over 20 years old.

  • 3. Access to Fund documents specified in paragraph 2 above that are classified as “Secret” or “Strictly Confidential” as of the date of this Decision will be granted only upon the Managing Director’s consent to their declassification. It is understood that this consent will be granted in all instances but those for which, despite the passage of time, it is determined that the material remains highly confidential or sensitive.

Given that the 2 above gold sales documents, as well as 7 other monthly reports about ‘on-market’ gold sales were missing from the archives, but all the while the IMF claimed its on-market gold sales to be “Transparent”, the next logical step was to contact the IMF Archives people and seek explanations. What follows below is the correspondence I had with the IMF Archives staff. The IMF Archives staff were very helpful and their responses were merely communicating what they had found in their systems or had been told ‘from above’. My questions and emails are in blue text. The IMF replies are in red text. My first set of queries were about the SM/09/243 and DEC/14425 documents:

02 August 2015: My first question

Hello Archives,

I’m looking for IMF document SM/09/243 “Modalities for Limited Sales of Gold by the Fund” (Sept 4th 2009) in the IMF Archives catalog (http://archivescatalog.imf.org/search.aspx). However, SM/09/243 does not appear to be in the online Archives.
But, for example SM/09/242 and SM/09/244 are both retrievable in the searchable archives, but not SM/09/243.
Can you clarify where SM/09/243 is?
02 August 2015: My second question
Hello Archives,

Could you clarify how to search for and retrieve a document in the IMF online Archives that has reference “DEC/14425-(09/97)”
This document is dated 9/18/09.  I cannot find it using any of the search parameters.

3 August: IMF Archives reply

Thank you for contacting the IMF Archives. Both documents you are referring to in your recent communication, SM/09/243 and DEC/14425, are not available to the public. Please visit our website to consult on IMF Policy on Access to the Archives.

3 August: me

Can you clarify why these documents are not available to the public? i.e. have they received a certain classification?

4 August: IMF Archives

You are absolutely right, despite the time rule, these two documents are still closed because of the information security classification.  We hope it answers your question.

4 August: me

Thanks for answer. Would you happen to know when (and if) these files will be available…..assuming it’s not a 20 year rule or anything like that.

5 August: IMF Archives

Could you please provide some background information about your affiliation and the need to obtain these documents.  Classified documents undergo declassification process when such a request is submitted.  It can be a lengthy process up to one year.

5 August: me

I was interested in these specific documents because I am researching IMF gold sales for various articles and reports that I’m planning to write.

6 Aug: IMF

Thank you for providing additional information regarding your inquiry.  Please send us a formal request for the declassification of these two documents specifying your need to have access to them.  We will follow through on your behalf and get back to you with a response.

Before I had replied with a formal request, the IMF archives people contacted me again on 12 August 2015 as follows:

12 Aug: IMF

While waiting for your official request we made preliminary inquiries regarding the requested documents. The decision communicated back to us is not to declassify these documents because of the sensitivity of the subject matter.

In the meantime, we want to make sure you have checked publicly available documents on the same topic accessible from the IMF.org: https://www.imf.org/external/np/sec/pr/2009/pr09310.htm

12 August: me

Thank you for the clarification. That’s surprising about the classification given that the IMF on-market gold sales were supposed to be transparent.

Was there any information fed back to Archives on why the ‘subject matter’ is deemed sensitive?

14 Aug: IMF Archives

“Thank you for your follow-up email.  Unfortunately, these particular documents are still deemed classified and no further explanation has been communicated to the Archives.

My next set of questions to IMF Archives in August 2015 addressed the 7 missing monthly gold sales reports that should have covered May – December 2010. Since there is a 3 year rule or maybe at max a 5 year rule under the IMF’s Transparency Policy (Archive Policy), I thought that maybe the May/June, June/July, and July/August 2010 files might be due for  automatic release under the 5 year rule by the end of August 2015.

22 August 2015: Me:

“I have a question about documents which appear in the online Archive after the 5 year schedule.

Is there a scheduled update or similar which puts newly available documents in the Archive when the 5 years has elapsed?

For example, I see some documents in the Archive from June 2010, but not July/August 2010. Is there an automated process that runs, but that hasn’t yet run for July/August 2010, that puts the latest documents into the publicly available Archive?”

24 August: IMF

“Thank you for your inquiry.  The review and declassification of eligible documents that meet the time rule is done by batches. Therefore, publication does not happen in real time.  It is a process that takes time and might cause a delay.  We will let you know when July and August documents are posted.”

2 October 2015: me

“Do you know when documents from June 2010 onwards will be added to the IMF online archive? I still don’t see any yet.

Is there a batch of declassifications for June 2010 / July 2010 / August 2010 happening soon?”

2 October: IMF

“Thank you for contacting the IMF Archives. Unfortunately, we are unable to speculate about the documents website availability and provide a more specific timeframe than the one already communicated in the attached correspondence. As already promised, we will let you know when July and August documents are posted.”

Then about 30 minutes later  (on 2 October 2015) the IMF sent me another email:

2 October: IMF

“Dear Mr. Manly,

I ran a sample search of Executive Board minutes available via IMF Archives catalog and was able to find minutes issued in June and July 2010. Is there a specific document you are looking for which you are unable to find?


2 October: Me

“I was searching for the next months’ reports in the below series, report name “Monthly Report on Sales of Gold on the Market” – see screenshot attached.

The current search retrieval brings back 3 reports spanning February- May 2010, but nothing after May 2010. Report names in the retrieved search results are:


I was wondering if a couple of months in this series after May 2010 are available now?”

5 October: IMF

The reports after May 2010 haven’t been declassified for public access because of the sensitivity of the subject matter, and therefore they are not available for retrieval.

We apologize for any inconvenience this may cause.”

5 October: Me

“Thanks for the reply. Out of interest, why were the reports from February to May 2010 declassified, since surely the June-December 2010 monthly reports are identical to the first three months in that they are also just providing monthly updates on the same batch of gold ~180 tonnes of gold which was being sold over the 10 month period?”

7 October: IMF

“Dear Mr. Manly,

This series of reports is under review at the moment, and according to security classification they are currently closed.


IMF Archives”

And there you have it folks. This is IMF transparency. As per the IMF Archive disclosure policy, only Christine Lagarde, current IMF Managing Director, has the authority to consent to the declassification of classified Executive Board documents.

Sensitivity of Subject Matter – China and Bullion Banks

The above IMF responses speak for themselves, but in summary, here we have an organization which claims to be transparent and which claims to have run a transparent ‘on-market’ gold sales program in 2010, but still after more than 6 years it is keeping a large number of documents about the very same gold sales classified and inaccessible to the public due to the ‘sensitivity of the subject matter’. What could be so sensitive in the contents of these documents that the IMF has to keep them classified? Matters of national security? Matters of international security? And why such extremely high level security for an asset that was recently described by the august Wall Street Journal as a ‘Pet Rock’?

The secrecy of keeping these documents classified could hardly be because of sensitivity over the way in which the sales were executed by the agent, since this was already revealed in the February – May reports that are published, and which looks like a normal enough gold sales program by the Bank for International Settlements on behalf of the IMF? Could it be to do with the identities of the counterparties, i.e. the buyer(s) of the gold? I think that is the most likely reason.

Two counterparties that spring to mind that might request anonymity in the ridiculously named ‘on-market’ sales process would be a) the Chinese State / Peoples Bank of China, and b) a group of bullion banks that were involved in gold swaps with the BIS in 2009/2010.

Chinese discretion – Market Speculation and Volatility

Bearing in mind another one of the IMF’s mantras during the 2009-2010 gold sales processes that it wanted to “avoid disruption of the gold market”, and the Chinese State’s natural surreptitiousness, the following information reported by China Daily on 24 February 2010 (which was the first week of ‘on-market’ sales) is worth considering. The article, titled ‘China unlikely to buy gold from the IMF‘, stated the following:

“Contrary to much speculation China may not buy the International Monetary Fund’s (IMF) remaining 191.3 tons of gold which is up for sale as it does not want to upset the market, a top industry official told China Daily yesterday.

It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility,” said the official from the China Gold Association, on condition of anonymity.”

To me, these comments from the ‘anonymous’ China Gold Association official are a clear indication that if China was the buyer of the remaining 181.3 tonnes (ie. 191.3 tonnes – 10 tonnes for Bangladesh), then China certainly would have conducted the purchase in secrecy, as ‘it does not want to upset the market’, and any purchase or even intent to do so would trigger market speculation and volatility”

In the same China Daily article, there was also a comment reported from Asian Development Bank economist Zhuang Jian, who was in favor of China buying the IMF gold, as he thought that “buying IMF gold would not only help China diversify its foreign exchange reserves but also strengthen the yuan as an international currency”, and that China would “have a bigger say in the IMF through the gold purchasing deal”.

Zhuang Jian also stated that “China can start with small purchases on the international market like the 191.3 tons of IMF gold. In the short-term, the market will see volatility, but in the long-term the prices will return to normal”.

BIS Swaps and Bullion Bank Bailouts

In late June 2010, the Bank for International Settlements (BIS) published its annual report to year-end March 2009. This report revealed that the BIS had, during its financial year, taken on gold swaps for 349 tonnes. The Wall Street Journal (WSJ) initially reported in early July 2010 that these swaps were with central banks, however the BIS clarified to the WSJ that the gold swaps were in fact with commercial banks. The Financial Times then reported in late July 2010 that “Three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements.” Notice that two of the named banks are French banks.

Since the BIS refuses to explain anything material about these swaps, which was most likely a gold market fire-fighting exercise, the details remain murky. But the theory that best explains what actually happened was advanced by the late Adrian Douglas of GATA in early July 2010. Douglas proposed that bullion bank gold bailout tripartite transactions actually created the BIS gold swaps. Since IMF gold is stored at both the Bank of England vaults in London and at the Banque de France vaults in Paris, IMF ‘on-market’ gold held in Paris or London would be very easy to transfer to a group of bullion banks who all hold gold accounts at the Bank of England and, it now appears, also hold gold accounts at the Banque de France.

In May 2012, George Milling-Stanley, formerly of the World Gold Council, provided some insight to the publication Central Banking about the role of the Banque de France in being able to mobilize gold. Milling-Stanley said:

“Gold stored at the Bank of England vaults … can easily be mobilised into the market via trading strategies, or posted as collateral for a currency loan”

‘Of the Banque de France, Milling-Stanley says it has ‘recently become more active in this space [mobilising gold into the market], acting primarily as an interface between the Bank for International Settlements in Basel [BIS] and commercial banks requiring dollar liquidity. These commercial banks are primarily located in Europe, especially in France’.”

It’s interesting that two of the three banks named by the Financial Times as being involved in the BIS gold swaps are French, and that Milling-Stanley mentioned that most of the commercial banks that interfaced with the BIS are French banks. Given that the then Managing Director of the IMF, Dominique Strauss-Kahn, is French, as is his successor Christine Lagarde, could some of the ‘on market’ IMF gold sales been a case of the French controlled IMF bailing out French bullion banks such as SocGen and BNP Paribas?

Applied to the IMF gold sales, and under a tripartite transaction, as I interpret it, the following transactions would occur:

IMF gold is transferred by book entry to a set of bullion banks who then transfer the title of this gold to the BIS. The BIS transfers US dollars to the bullion banks who then either transfer this currency to the IMF, or owe a cash obligation to the IMF. The sold gold is recorded in the name of the BIS but actually remains where it is custodied at the London or Paris IMF Gold Depositories, i.e. at the Bank of England or Banque de France vaults.

In this scenario, the IMF gold could have been transferred to bullion banks and further transferred to the BIS during 2009, with the ‘on-market’ pricing exercise carried out during 2010. With the BIS as gold sales agent, the entire set of transactions would be even more convenient since the BIS gold trading desk would be able to oversee the gold swaps and the gold sales.

So, in my opinion, the IMF ‘on-market’ gold on offer was either a) bought by the Chinese State, or b) was used in a gold market fire-fighting exercise to bail out a group of bullion banks, or c) a combination of the two.

Modalities of Gold Sales

As to why the IMF paper “Modalities for Limited Sales of Gold by the Fund” (Sept 4th 2009) SM/09/243″ is under lock and key and can only be declassified by the IMF Managing Director Christine Lagarde, the conclusion is that it too must contain references to something that the IMF are extremely worried about allowing into the public domain. For the simple reason is that a similarly named IMF paper from 25 June 1999, titled “Modalities for Gold Sales by the Fund” (EBS/99/110)” is accessible in the IMF Archives, and while revealing in a number of respects, it hardly contains ‘sensitive material’. This paper was prepared when the IMF had been thinking about conducting gold sales back in 1999 which never materialized, except in the form of an accounting trick to sell to and simultaneously buy back a quantity of gold to and from Mexico and Brazil. This 1999 paper “Modalities for Gold Sales by the Fund” is very interesting though for a lot of reasons as it sketches out the limitations on IMF gold sales, the approaches to the sales that were considered by the IMF at that time, and it’s also is full of pious claims that the gold sales process should be ‘transparent’, such as the following:

“it will be critical to ensure transparency and accountability of the Fund’s gold operations through clear procedures for selecting potential buyers and determining prices, and through public disclosure of the results of the sales after they have taken place. The need for transparency and evenhandedness, which is essential for an international financial institution, argues for providing as much information as possible to the public.”

On the actual approaches to gold sales, the 1999 Modalities paper introduces the topic as follows:

“This paper considers four main modalities for the sale of gold by the Fund: (i) direct sales to another official holder of gold; (ii) placements into the market through a private intermediary or a group of intermediaries, such as bullion banks; (iii) placements into the market through the intermediation of a central bank with experience in gold sales or the BIS; and (iv) direct sales to the market through public auctions, as was the case with the gold sales by the Fund between 1976 and 1980″

 On the topic of publication of sales results, the 1999 paper states:

Publication of results: In all cases, the Fund would make public at regular, say monthly, intervals the quantity sold and the prices obtained, as well as, depending on the modality decided by the Board, the names of the buyers. In the case of a forward sales strategy involving an intermediary, the Fund would make public the quantities and delivery dates of the forward sales. It would be for consideration whether the Fund would announce the names of the intermediaries selected by the Fund to sell the gold, if that modality would be chosen”

On the topic of limitations to IMF gold sales, the 1999 paper says:

“Under the Articles, the Fund is only authorized to sell gold; that is, to transfer ownership over gold on the basis of prices in the market, taking into account reasonable transactions costs. The Articles prescribe the objective of avoiding the management of the price, or the establishment of a fixed price, in the gold market (Article V, Section 12 (a)). This implies that the Fund “must seek to follow and not set a direction for prices in the gold market.“

Under the Articles, the Fund cannot engage in gold leasing or gold lending operations, enter into gold swaps, or participate in the market for gold options or other transactions that do not involve the transfer of ownership over gold.”

A second shorter 1999 IMF paper on the modalities of gold sales, titled “Concluding Remarks by the Chairman Modalities of Gold Sales by the Fund, Executive Board Meeting 99/75, July 9, 1999, BUFF/99/81″ gave some indication on which approach (modality) the Executive Board were leaning to at that time to execute gold sales:

“Directors generally expressed the view that private placements of gold, either through a group of private institutions or through the intermediation of central banks or the BIS, had many advantages in terms of flexibility, both in terms of timing as well as in the discretion that the Fund’s agents could employ in the techniques that they could use to channel gold into the market.

And from the discussion, using the services of the BIS (or another central bank) appeared to be most favorable option:

“Directors further noted that there would be considerable practical difficulties in the choice of the institution or group of institutions through which the sales of gold could be conducted, even though these would be limited-but not entirely eliminated-by choosing a central bank or the BIS.

IMF Comedians

In conclusion, for sheer comedy reading,  there is a tonne of material in the IMF’s latest ‘transparency’ smoke and mirrors claims, dated 24 March 2016, which contains such comedy gems as:

Greater openness and clarity by the IMF about its own policies and the advice it provides to its member countries contributes to a better understanding of the IMF’s own role and operations, building traction for the Fund’s policy advice and making it easier to hold the institution accountable. Outside scrutiny should also support the quality of surveillance and IMF-supported programs.”

“The IMF’s efforts to improve the understanding of its operations and engage more broadly with the public has been pursued along four broad lines: (i) transparency of surveillance and IMF-supported programs, (ii) transparency of its financial operations; (iii) external and internal review and evaluation; and (iv) external communications.”

The IMF’s approach to transparency is based on the overarching principle that it will strive to disclose documents and information on a timely basis unless strong and specific reasons argue against such disclosure.” 

Again, what could these “strong and specific reasons” arguing “against such disclosure” be for the 2010 IMF gold sales?

By now you will begin to see that the IMF’s interpretation of transparency on gold sales diverges massively from any generally accepted interpretation of transparency. The IMF appears to think that merely confirming that a gold sale took place or will take place is the epitome of transparency, when it would more accurately be described as obfuscation and a disdain for actual communication with the public. IMF transparency is anything but transparent.

Perhaps the usually useless mainstream financial media may finally sit up and next time they bump into the IMF’s Ms Lagarde at a press conference, ask her why the IMF continues to block access to its 2010 gold sales documents, which remain classified due to, in the IMF’s own words, “the sensitivity of the subject matter”. Here’s hoping.

Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation

This is Part 2 of a two-part series. Part 1, titled “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“, provided a historical overview of Venezuela’s gold and looked at where the gold, and the claims on gold, were located just prior to repatriation in 2011, especially the gold held abroad.

Part 1 was necessary so as to set the scene for the, in some ways, theatrical gold flights and convoys of Part 2, and to also illustrate that a percentage of Venezuela’s gold (50 tonnes) was retained in the vaults of the Bank of England so as to be available for activation into international gold transactions.

And so, the analysis below covers Venezuela’s actual gold repatriation operations in late 2011 and early 2012, especially the first and last flight. You will see that the first batch of gold bars came in on an Air France cargo flight, which opens up key questions about France and the Banque de France as a source for some of the repatriated gold. You will also see the arrival and unloading of the last flight, a World Airways cargo freighter.

The analysis wraps up with a look at the gold swap discussions between Venezuela and a set of investment banks which culminated in a gold swap being agreed with Citibank. The question then arises as to whether further similar gold swaps are in store for Venezuela’s domestically held monetary gold.


The Repatriation – Flights and Convoys

The Venezuelan gold repatriation transport operation took just over two months to complete, beginning on 25 November 2011, and winding up on 30 January 2012. During this time, 23 shipments (by air) are said to have arrived in Caracas, with 160 tonnes of gold flown in.

As Banco Central de Venezuela (BCV) governor Nelson Merentes stated in an end of year 2012 report (page 16):

“In 2012, the central bank completed the repatriation of monetary gold , which began in late 2011. This unprecedented process, which reaffirms the sovereignty of the nation, constitutes the largest movement of physical gold in the world market in recent years . A total of 23 gold shipments were moved, totalling 160 tonnes of metal that had been custodied abroad.”

Notwithstanding the fact that the German Bundesbank claims to have quietly and secretively moved 940 tonnes of its gold from the Bank of England in London to its Bundesbank headquarters in Frankfurt between 2000 and 2001, the Venezuelan gold repatriation is still probably the “largest movement of physical gold in the world market” since that time.

merentes car

The first and last shipments of Venezuela’s gold repatriation arrived into Maiquetía Airport (aka Simón Bolívar International Airport) in Venezuela’s capital, Caracas, so the presumption is that the other shipments did also. Both the first and last shipments received huge media coverage in Venezuela and extensive coverage internationally. Given that the Venezuelan State facilitated and encouraged this domestic media coverage, as well as street scenes thronged with Chavez supporters, this is not surprising. The majority of the other shipments after the first and before the last ones got little or no coverage, probably due to security procedures.

Reuters quoted Nelson Merentes on the day of the first shipment arrived as saying that:

“We cannot give exact dates (for when the rest of the bars will arrive) due to questions of security. When we bring the last shipment, the people will learn about it.

The Reuters report also quoted a Venezuelan government source as saying that there would be ‘several’ cargo flights.

“A senior government source involved in transporting the bars, which amount to 90 percent of Venezuela’s gold held abroad, has told Reuters they will be shipped in several cargo flights that will be completed before the end of the year.

The total cost of the operation will be no more than $9 million, the source said, without elaborating.”

The First Shipment (by air) came from France

The gold from the first shipment, which consisted of 5 tonnes of gold, was moved from Maiquetía airport to the central bank vaults in Caracas on Friday 25 November 2011 amid much fanfare and coverage. Although the airport to bank journey happened on 25 November, an article here claims that the “the repatriation of gold reserves began on 23 November”.

In various news footage videos below, which cover the transport of the gold from the airport on 25 November 2011, there are no shots of any aircraft being unloaded, which may suggest that the first shipment did indeed arrive prior to 25 November, possibly on 23 November. The first shipment was flown in using Air France (see below).

In contrast, during the last operation on 30 January 2012, the arrival of the aircraft into the airport played a starring role in proceedings, possibly because the shipments were then being wrapped up and there was little harm in broadcasting the identify of aircraft, which you will see below was a chartered World Airways MD-11 cargo freighter.

The first video below from 25 November 2011 shows black plastic crates (presumably with the gold in them) on pallets which in turn are on trailers, positioned beside a line of armoured cars ready for loading.

Very interestingly, central bank governor Merentes (at 0:22) states that this first shipment of gold came from European countries “via Francia” (by way of France).

This is very odd that the first shipment came from France. Given that the gold was stored at the Bank of England and with the BIS, none of the Venezuelan gold should ever have been in France. And with air charters from Europe, there would be no need to fly into and out of a French airport en route from London to Caracas.

A November 2013 article from Venezuelan newspaper ‘El Nacional’ stated that the first batch of gold had come directly from France:

Los primeros lingotes vinieron de Francia en medio de un operativo denominado Oro Patrio y en el que participaron más de 500 funcionarios.”

The first ingots came from France in the middle of an operation called Golden Homeland and in which over 500 staff participated.”

The most compelling piece of evidence, however, that the first shipment came from France is the fact that the gold was flown into Caracas on Air France, and there were labels on the side of the crates stating this. See screenshot below taken from one of the videos:

Air France - air waybill

This label above shows the ‘Air Waybill No’ of ‘057-53208470′, the ‘Destination’ of CCS (Caracas), and the ‘Total No of Pieces’ – 10, i.e. 10 crates.

See also the below photo of one of the crates, with the same Air Waybill number 057-53208470, after it was loaded into the back of one of the armoured security cars:

Air France labelled crate on pallet

Air France Cargo fleet consists of 2 long-range Boeing 777- 200LRF cargo freighters, registration numbers F-GUOB and F-GUOC. You can see a video of F-GUOC taking off (from another airport) here.

These 777F aircraft have “a maximum payload of 102 tonnes, a total capacity of 37 pallets and a maindeck that can take 3-metre pallets“. The videos below of the first gold shipment, and the video of the last unloading on 30 January 2012, shows these huge 3-metre pallets on the ground and, in the case of the last shipment, being unloaded.

Since the gold in the first shipment was flown from France, this gold may have come from the Banque de France in Paris, which would suggest that the bullion banks and/or the BIS had to resort to sourcing gold from the Banque de France. BNP Paribas was one of the five bullion banks that had a borrowed gold liability to the BCV, so this fact may be relevant. (See a section below about the French connection).

The second Venezuelan video from 25 November 2011 states that gold which was located in US, Canadian, and English banks was being repatriated to Venezuela. This does not mean, however, that the gold flights originated in all or any of these locations. The US, Canada and England just refer to the headquarters of the bullion banks involved in the repatriation.

The third video from 25 November 2011 refers to “foreign banks,” “principally in Europe,” and mainly English banks.

Reuters quoted Merentes as having said that “The gold comes from several European countries.


1. Length: 2:26 – Nelson Merentes interview, and gold ready for loading. 25 November 2011


2. Length: 2:06 – Armoured cars and convoy getting ready to leave the airport, and then departing the airport. 25 November 2011


3. Length 1:53 – Convoy leaves airport and drives to the central bank. 25 November 2011


4. Length 11:03 – Air France label is shown beginning at 9:42. This longer video has extended footage of the unloading and loading operation. 25 November 2011


The BCV’s 2011 Economic Report (see link above, page 92) states that the first shipment on 25 November 2011 consisted of 5 tonnes of gold. In the media coverage of the first shipment, the exact tonnage of gold involved was not stated beyond the fact that  “Nelson Merentes said a little over 300 million dollars was brought in the first batch of gold that came to the country on Friday.”

At a price of $1,688 per ounce on 25 November 2011, that would be roughly 5.5 tonnes. Whether it was 5 tonnes of 5.5 tonnes is not that important. With each of the crates holding 500 kgs or 0.5 tonnes, that would be 10 – 11 crates in the first shipment. There appear to have been 10 crates given that’s what it said on the crate labels and that’s what the BCV maintain their were.

Once the gold was loaded up into the fleet of security vans, a huge convoy of military vehicles and personnel (said to be between 400 – 500 personnel) accompanied the vans out from the airport (by the ocean) and around the mountain to the central bank building in downtown Caracas, on a route, some of which was lined with Chavez’ supporters, especially where they had congregated near the bank’s entrance.

 As mentioned, there was little coverage after the first shipment, although a local media article referred to a second shipment arriving from Europe on Tuesday 6 December 2011. After this, the media didn’t really cover the repatriation until the last shipment arrived by air on Monday 30 January 2012.

repatriation gold caracas

The Last Shipment – The Final Flight of MD-11, N275WA

The final shipment arrived into Maiquetía – Simón Bolívar airport on Monday 30 January 2012 consisting of 14 tonnes of gold in 28 boxes. The novel significance of the media coverage on this day was that news crews were allowed to film the airplane taxiing into the landing area and unloading its cargo.

The arriving aircraft was a three-engine long-range McDonnell Douglas MD-11 CF (convertible freighter), registration number N275WA, serial number MSN 48631, registered to World Airways. You can see the fleet number (nose code) of ‘275’ above the front (nose) wheel in the photo below.

flight N275WA

Six of these MD-11 CFs were built and World Airways were flying two of them at this time. Ironically, the parent company of World Airways, called Global Aviation Holdings Inc, filed for chapter 11 bankruptcy protection on 5 February 2012, six days after N275WA had delivered the last shipment of Venezuela’s gold to Caracas. Interestingly, Global Aviation Holdings was also “the largest commercial provider of charter air transportation for the US military”.

Other photos of World Airways’ N275WA from around the world can be seen here and here. N275WA, which had been converted into a freighter in 2002, went out of service and into storage in July 2012. Global Aviation Holdings again entered bankruptcy in November 2013, after which time World Airways was shut down. This explains why one of the MD-11 captain for World Airways (possibly captaining some of the gold flights) left World Airways in March 2014.

See video below of aircraft N275WA arriving into Caracas on 30 November 2012


5. Length 1:53 – N275WA arriving and unloading its cargo on 30 November 2012


6. Length 3:27 – This is a well produced promotional video from “Servicio Pan Americano de Protección”, the company that transported the gold from the airport to the bank. The video shows the entire unloading and loading operation from 30 January 2012 and is well worth watching.


An MD-11 CF freighter can transport 26 large pallets and has a maximum payload of 89,000 kgs (or 89 metric tonnes). Technically, Venezuela could have had all of its repatriated gold flown in on a lot less than 23 flights. Insurance and other risk management considerations probably dictated the diversification requirement, as well as the gold possibly only becoming available in piecemeal fashion from November 2011 to January 2012.

BCV address and lot 20

If there were indeed 23 flights over 2 months totalling 160/161 tonnes, each flight could have flown in 7 tonnes of gold, since this adds up to 161 tonnes (23 * 7). Given that the last batch was said to be 14 tonnes and the first batch 5 tonnes, each of the other 21 flights could have carried a batch of about 6.70 tonnes.

However, a number of batches could have arrived on the same flight, such as the last flight which is said to have flown 14 tonnes. Video footage from the last shipment day, 30 January 2012, shows a crate with lot number ’20’ displayed on it – See above screen shot. So there were at least 20 ‘lots’. Overall, there would have been about 360 crates.

Given that Venezuela was able to repatriate 160 tonnes of gold in cargo flights over the Atlantic Ocean from Europe within 2 months, this proves that the German Bundesbank could have easily repatriated its intended target of 300 tonnes of gold from New York in 2013, by flying the entire 300 tonnes over to Frankfurt within 4 months. Venezuela’s successful operation proves that the Bundesbank’s seven-year repatriation plan is laughable, and that the excuses coming out of Frankfurt are hiding something far more critical to the Bundesbank and the Federal Reserve and US Treasury than logistical flight details.


The French Connection – Banque de France

It’s not clear where the last gold shipment on World Airways N275WA aircraft originated from, although Nelson Merentes made the general statement for the overall operation that “the gold comes from several European countries.

However, in the case of the first shipment on Air France from France, there are not that many places where the flight could have come from, the main suspect being from Charles de Gaulle airport (CDG) in Paris, where Air France has one of its two main cargo hubs (the other hub being Amsterdam – i.e. these are Air France-KLM’s two cargo hubs). This then also makes a good case for the first shipment of gold having come from the Banque de France. If this was the case, then it meant that bullion banks and/or the BIS needed to source gold from the Banque de France. Would this have been feasible? Yes.

A May 2012 article from CentralBanking.com (subscription only) quoted George Milling-Stanley, independent gold consultant, and formerly of the World Gold Council, who had some interesting insights into the role of the Banque de France in being able to mobilise gold:

‘”Gold stored at the Bank of England vaults … can easily be mobilised into the market via trading strategies, or posted as collateral for a currency loan. The London vaults of JPMorgan, HSBC, and other bullion dealing investment banks have a similar status,” says Milling-Stanley.’

‘Of the Banque de France, Milling-Stanley says it has “recently become more active in this space [mobilising gold into the market], acting primarily as an interface between the Bank for International Settlements in Basel [BIS] and commercial banks requiring dollar liquidity. These commercial banks are primarily located in Europe, especially in France”.’

Milling-Stanley’s reference to the Banque de France acting as an interface to the BIS and commercial banks in Europe may be implying that the Banque de France was a party to the 2010 BIS gold swaps which involved 10 commercial banks including BNP Paribas, Societe Generale and HSBC.

In July 2010 the FT said that “three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals.” Note that BNP Paribas and HSBC are two of the five bullion banks with which the BCV had outstanding gold loans to in August 2011.

Despite the BIS’ cryptic, short, and obscure explanation that in these swaps, the commercial banks provided gold to the BIS in return for US dollar liquidity, it could be the case that commercial bullion banks borrowed central bank gold held at the Banque de France via financing from the BIS as part of a tripartite transaction.

Under this type of tripartite transaction, which was first proposed by Adrian Douglas, a Venezuelan – Banque de France version would have involved the Banque de France arranging gold lending to the bullion banks who then transfer the title of this gold to the BIS. The BIS transfers US dollars to the bullion banks who then either transfer this currency to the Banque de France, or owe a cash obligation to the Banque de France. The gold is recorded in the name of the BIS but is actually kept in the Banque de France until required by the bullion banks who borrowed it, then, when needed, gold is withdrawn by the bullion banks and used to pay back central bank gold lenders such as Venezuela’s BCV. Either French gold or Banque de France customer gold (such as IMF gold in Paris) could have been used in such a transaction. This would explain why Venezuela received crates of gold flown in to Caracas by Air France cargo.

The FT also noted in its 2010 BIS gold swap article that “In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in “swap operations” in the financial year to March 31.” (2010)

This 346 tonne BIS gold swap figure was said to have continued to grow after March 2010 and was estimated to be as high as 380 tonnes by July 2010.

Venezuela’s 50 tonnes of gold at the Bank of England

At the time of the arrival of the last gold shipment to Caracas in January 2012, Nelson Merentes was reported to have noted that “gold stored in BCV will reach 86% of the total while the rest, about 50 tonnes, will stay in the banks in which the Republic needs to maintain open accounts for international financial operations.” In August 2011, Chavez had referred to wanting to reach a target of 90% of the gold being stored in Caracas, but 86% is quite close.

The 50 ton amount remaining at the Bank of England was possibly chosen as a ’round number’ tonnage by the BCV and its international advisors. From the above bar/ingot total calculations, it seems that there were 4,089 good delivery bars left in London. This 50 tonnes, left in situ in London in January 2012, was to play a far greater role in Venezuela’s international financing arrangements than many envisaged at the time.




The Reactivation of Venezuela’s Gold Reserves

The death of Venezuelan president Hugo Chavez in March 2013, and the election of Nicolás Maduro as his successor marked a re-establishment of the relationship between the international investment banks and the Venezuelan central bank.

Recall that in August 2011 when Chavez called for the repatriation of Venezuela’s gold reserves, he also called for the transfer of the BCV’s operating reserves away from US and European banks. These operating reserves, such as cash deposits and short-term fixed interest investments, had been invested with the BIS (BPI in Spanish), Barclays, JP Morgan, BNP Paribas, Deutsche Bank, the FRB (repos), the World Bank and Bladex (the Panamanian based LatAm trade bank). Sight deposits were with JP Morgan, time deposits with the other commercial banks and the BIS, and it negotiable (fixed rate) instruments with the BIS (FIXBIS). See “Proposed Relocation of the International Reserves“.

Operating Reserves August 2011

Prior to the Chavez about-turn, Venezuela had cultivated close working relationships with some of the biggest global investment banks (or vice-versa), and seemed to be especially fond of Wall Street banks. This is illustrated, obviously, by the manner in which it used the investment banks to invest both the operating and gold components of its international reserves, where the names involved read like a who’s who of investment banking giants. But as important as the deposit taking banks appear to be to Venezuela, the advisory and corporate finance relationships look to be as equally important.

According to the Venezuelan media, in the early 2000s, JP Morgan was said to be very close to the Venezuelan finance ministry and finance minister Alejandro Dopazo, and Credit Suisse New York was also said to have had a close relationship with the government.

The use of Venezuelan gold as loan collateral was also not something new to the Maduro years. A Venezuelan media report from August 2011 claims that a few years prior to 2011, Venezuela was involved in financing discussions with New York based investment banks where the banks raised the issue of gold collateral as a means of lowering the required coupon in the financing strategies and products being discussed. These meetings were said to have taken place in the New York offices of Francisco Illaramendi, former manager of the PDVSA pension funds. According to the media report, Deutsche Bank, Credit Suisse and Barclays separately proposed that in order to  “avoid the penalty of high coupons, Venezuela could place ‘equivalent in gold in the banks’ to support the issue”, with Credit Suisse proposing that Venezuelan gold be deposited with it in London and Barclays proposing likewise.

Since the Maduro presidency, the investment banks, and especially the Wall Street based banks, have been actively involved again in Venezuela’s financial affairs. Late last year, in December 2014, Venezuela sold Goldman Sachs a $4 billion credit owed to Venezuela by the Dominican Republic which was outstanding under the Petrocaribe arrangement. Petrocaribe is a regional oil programme by which Venezuela supplies oil to other countries in the region.

Lazard, the French investment bank, is a financial advisor to the state of Venezuela, and last year Lazard was chosen by Venezuela to handle the sale of Citgo Petroleum on behalf of the Venezuelan state owned oil company PDVSA (Petróleos de Venezuela S.A.). Citgo is a US subsidiary of PVDSA. This sale didn’t go ahead but then Deutsche Bank’s New York office was chosen in January 2014 to handle a bond and loan capital raising exercise for Citgo and advisory services for PDVSA. Deutsche had previously worked with PDVSA.

Bank of America-Merrill Lynch also now has a close relationship with the Venezuelan central bank and the Venezuelan government in the form of its chief economist for the Andean region, Francisco Rodríguez. Rodríguez, was chief economist to the National Assembly of Venezuela from 2000-2004, and joined Bank of America in 2011. More about Rodríguez below.


Goldman Gold Swap Plan

The first sign that Venezuela’s gold was back in the sights of the investment banks came in November 2013, when it was reported that the BCV (and the Venezuelan government) were in negotiations with Goldman Sachs about the arrangement of a gold exchange, in other words, a gold – US dollar swap with gold as collateral. A lot of the reporting at the time did not provide very much detail about this swap, so here are some summary details of the Goldman gold swap.

The gold swap was to be between the Central Bank of Venezuela (BCV) and Goldman Sachs International in London. Eudomar Tovar was BCV president at that time. The swap would involve Venezuela swapping gold from it’s reserves with Goldman Sachs international in exchange for a US dollar loan, with the gold serving as collateral for the loan.

The swap was to be for a four-year duration between 2016 and 2020 (although another media source said it was to be for a seven-year duration from late 2013 until late 2020). The swap was to be for 1.45 million ounces of gold (or nearly 1.45 million ounces according to one media source) which was expected to be deposited at the Bank of England and transferred to Goldman Sachs International at an agreed time. At the time, 1.45m ozs of gold was valued at over $1.85 billion at the then market price of $1,282 per ounce. Venezuela would also pay an annual interest rate of 8% on the loan.

BCV Goldman Adar gold swap

The above screenshot is from a document here.

If the price of gold fell over the life of the swap, the BCV would need to deposit more gold into a margin account. If the price of gold rose, Goldman Sachs International would be required to deposit more currency into a margin account.  At the swap’s maturity, the contributions made by each party into the margin accounts would be returned to the respective parties.

The swap was said to contain a built-in hedge that would benefit Goldman, which reflected a 10% adjustment of the value of the swap if the gold price fell. The gold swap was said to be tradable on the market. The terms of the swap allowed the BCV to repay the loan and keep the gold, but if the BCV didnt repay the loan, the gold would go Goldman. One report said that the gold would continue to appear on the BCV’s balance sheet throughout the term of the swap.

The BCV had contracted Adar Capital Partners (of which Diego Marynberg is a director), as a consultant to design the swap with Goldman Sachs International. Adar Capital Partners would received 0.25% per annum of the value of the gold in the contract at beginning of each year over the life of the contract.

Any dispute between the parties would  be resolved in English courts. Some media articles on the BCV-Goldman gold swap can be viewed in Spanish here and here and here.

Given that there were said to be 16,908 of Venezuela’s gold bars held abroad, of which 12,819 bars were repatriated, this left 4,089 of Venezuela’s bars in the vaults of the Bank of England from early 2012. These 4,089 bars are roughly equal to 51 tonnes, or 1.635 million ounces. It looks like the Goldman swap factored in a 10% adjustment on 50 tonnes of gold (roughly 1,607,500 ozs) at the Bank of England,  to arrive at 1.45 million ounces (i.e. 1,607,500 * 0.9 = 1,446,750 ozs). This is the 10% adjustment referred to above. So Goldman would have had an extra buffer built-in as protection against a downward gold price movement.

The discussion of the swap at the time in November 2013 did not reveal what US dollar amount the BCV was to receive from Goldman in exchange for transferring 1.45 million ozs of gold to Goldman. i.e. it did not reveal the intended discount that the BCV was expected to take on gold with a US dollar value of $1.85 billion.

The BCV maintains that this gold swap with Goldman Sachs International did not go ahead, despite what look like detailed terms and negotiations. But the framework of the gold swap discussed with Goldman Sachs looks very similar to the swap structure that was ultimately chosen in April 2015, so it appears that the BCV re-used in some way the plan that they had drawn up with Adar Capital Partners and Goldman Sachs.

Goldman and Ecuador

Where Goldman did get a Latin American gold swap out the door was Ecuador, approximately six months after its negotiations with Venezuela hit a wall.

In early June 2014, it was announced that Ecuador had agreed to swap 1,165 bars of gold as collateral with Goldman, and in return Goldman agreed to provide Ecuador with “instruments of high security and liquidity” i.e. a loan. This gold swap was for 3 years, from 2014 to 2017 after which it will be reversed and Ecuador will get its gold back and pay the 2017 gold price to Goldman.

Rodríguez, Bank of America and the BCV vault visit

In September 2014, there was a rather unusual story from Bloomberg in which Francisco Rodríguez, the Bank of America economist (see above), related the fact that he had been allowed a rare visit into the Venezuelan central bank gold vault to view the gold bars. Rodríguez maintains that he was at a routine meeting in the BCV headquarters when his request to see the gold was granted, and that he and four other people who had attended the meeting were brought down to the underground vault in which all of the gold was stacked in “five small cells that were not even full to the top”, and that the bars were of “different types”.

While Rodríguez is said to be close to the BCV and the Venezuelan government, it still seems odd that at a routine meeting, a Bank of America representative (and some unnamed others) would pop down to see the gold in the vault, while external attendees at countless other meetings at the BCV’s headquarters would not do this tour. Could it he that the Bank of America was running the slide ruler over the Venezuelan gold in preparation for a loan of their own to the Venezuelan State?

Role Call Recall

At this point its worth recalling some of the banks that were interacting with the Venezuelan state and finance ministry, and/or interacting with the BCV (not including the gold deposits and gold lending).

In 2011, Venezuela’s operating reserves were invested with Barclays, JP Morgan, BNP Paribas and Deutsche Bank. Earlier in the 2000s, JP Morgan, Credit Suisse and Deutsche were said to be close to or working with Venezuela on various financing matters.

It was also said that a few years prior to 2011, Barclays, Credit Suisse and Deutsche, at meetings in New York held in the PDVSA offices, had proposed that Venezuela could put up gold as collateral so as to lower coupons on unspecified products.

Then there was Goldman Sachs purchasing outstanding debt that the Dominican Republic owed to Venezuela. Then there were Lazard and Deutsche advising the PDVSA and/or Citgo in the US. Finally there was Goldman Sachs negotiating a gold swap with Venezuela in 2013, and Bank of America taking a look at the gold in the BCV vaults in 2014.


Investment Bank beauty parade – March 2015

The topic of Venezuelan gold swaps was again raised on 10 March 2015 when Reuters reported that the BCV was said to be in advanced discussions with a group of Wall Street banks about conducting a 4 year gold swap for 1.4 milion ozs of gold, and that the swap operation would be agreed by the end of April. Reuters reported that the discussions involved at least two institutions, namely “Bank of America and Credit Suisse”.

At the time, the swap was said to involve an exchange of 1.4 million ozs (43.5 tonnes) of Venezuelan gold for cash, on which interest would be paid, and that Venezuela had the option of re-purchasing the gold after the expiry of the 4 year term. Interestingly, it was also said that Venezuela “would most likely be able to maintain the gold as part of its foreign currency reserves” during the swap, i.e. double-counting of gold reserves.

Amid the publicity about these March 2015 swap discussions, confusion arose as to whether the Goldman Sachs gold swap had happened or not, but the BCV stated generally that although it had “received proposals to carry out a similar operation” in late 2013, it “denied any agreements had been completed.“

Local media went further, and named additional investment bank names said to be involved in the pitch to secure the gold swap deal. On 5 March 2015, Nelson Bocaranda Sardi claimed in Venezuelan newspaper El Univeral that there was a pitch competition (implied to be for effect) by Credit Suisse, Goldman, BTGP Brazilian, Deutsche, Bank of America and Citibank, and that it was really a three horse race in which Deutsche Bank, Bank of America and Citibank would be chosen for the gold swap, but for $500 million each. Furthermore, Sardi said that Venezuela was paying $70 million to each bank as a risk premium. El Universal was previously said to be critical of Chavez, but may now not be so critical of Maduro.

On 12 March, on a web site of an organisation called Aporrea, Fresia Ipinza retorted (possibly with more up-to-date information) that rumours were saying that the gold swap would be over 4 years for 1.4 million ozs, and that allegedly Bank of America and Credit Suisse were involved. Aporrea were known to be Chavez supporters.

So, its very possible that the list of investment banks pitching to Venezuela for the gold swap were as follows: Bank of America, Credit Suisse, Citibank, Deutsche Bank, Goldman Sachs and BTGP. BTGP refers to BTG Pactual, a Brazilian investment bank.

Citigroup Rescue


The Citibank Gold Swap

In the last week of April 2015, it emerged that Citibank had exclusively won the mandate for the gold swap with Venezuela. It was reported that Citi was chosen from a group of ‘five’ banks that had pitched.

A combination of sources (see links) yield the following details about the gold swap with Citi. The details are said to be derived from newspaper ‘El Nacional’ and also a former director of the BCV, and also from Reuters.

Venezuela (via the BCV) will put up 1.4 million ozs of gold as collateral in exchange for a $1 billion loan of foreign currency from Citibank. Since 1.4 million ozs of gold, valued at the late April 2015 price of $1,200, is roughly $1.68 billion, then Venezuela is having to accept a near 40% discount on the specified gold collateral. Venezuela also pays interest on the loan at between 6% and 7% per annum.

The swap is for a 4 year duration, and Venezuela will have the “right of first refusal” to re-purchase the gold after 4 years. The 1.4 million ozs of gold (43.5 tonnes and just less than 3,500 Good Delivery bars equivalent) will be held at the vaults of the Bank of England. If Venezuela does not pay the interest payments on time, Citibank can gain control of the gold. The loan was expected to be for $1.5 billion but its unclear why this changed, but probably would have something to do with a bigger haircut being imposed.

According to ‘Venezuela Analysis‘ the “current value [of the gold] will continue to appear on the Central Bank’s balance sheet – an advantage that Goldman Sachs denied the country in earlier talks.” ‘Venezuela Analysis’ also said that some sources think Citibank holds title to the gold, while other say Venezuela holds title. Another relevant newspaper link is here.

None of the media commentary mentioned Adar Capital Partners Ltd in conjunction with the Citibank swap but its possible that this company could have been involved in the more recent swap negotiations, given that it was involved in the late 2013 gold swap negotiations involving Goldman Sachs and a lot of the swap terms are similar. On the other hand, the BCV could have just taken its gold swap file on the Goldman proposal out of the top drawer and reused the Goldman – Adar plan.

Why might Venezuela need a loan now?

Does Venezuela really need extra foreign currency now? In some ways, yes. Venezuela’s international reserves keep falling and as Nathan Crooks of Bloomberg said recently, reserves are now under $18.8 billion and at the lowest level since October 2003.

Venezuela’s international reserves fell by about US$2 billion during April from a level of $20.8 billion at the beginning of April. Lower oil prices have impacted the country’s ability to comfortably meet principal and interest payments on foreign bond borrowings and  for financing imports. Inflation in Venezuela is running high, and there are reports of a shortage of essential goods and an impact on some public services. In short, the economy is contracting.

Rodriguez, the Bank of America economist, said that the gold swap was the ‘logical’ course of action for Venezuela to take. As to why Venezuela can’t negotiate oil swap deals in the current environment or get more financing from the BRICS or China, that is probably more of an international political issue and a reputational issue with the international capital markets.


Maria Corina Machado

On 12 March 2015, Maria Corina Machado, a deputy in the Venezuelan National Assembly and political leader of the opposition party, sent an offical letter to Nelson Merentes, president of the BCV, asking the following 5 questions about the gold swap, which at the time, in early March, was being rumoured.

Questions 1 and 2 are quite standard and to be expected in light of the general rumours about the swap, but questions 3, 4, and 5 seem to suggest that Machado had heard something about the negotiations that made her think that the size of the swap was going to be far larger ($2.6 billion), and that there would be a ‘second operation’ with an even larger swap, and that this would require moving gold out of Venezuela again. See the 5 questions below:

  1. ¿Está todo el oro de las reservas venezolanas en las bóvedas del BCV de Venezuela tal como afirmó el ex presidente el Hugo Chavéz 17 de agusto 2011, cuando ordenó “repatriacion de nuestro oro”?

Are all of Venezuela’s gold reserves in the vaults of the Central Bank of Venezuela as stated by the former president Hugo Chavéz on 17 agusto 2011, when he ordered “repatriation of our gold”?

2. ¿Está el BCV en negociación con la banca extranjera para la venta o empeño del oro monetario?

Is the BCV in negotiations with foreign banks for the sale or pawning of monetary gold?

3. ¿Es cierto que en la operacion de empeño del oro actualmente en discusión se pretende disponer de oro por un valor de mercado de 2,6 mil millones US$?
¿Esto representaría comprometer casi el 20% del total de reservas en oro de la Républica en esta primera operación?

Is it true that in the operation to pawn gold currently under discussion, it is intended to dispose of gold with a market value of US$ 2.6 billion?
Does this represent / involve almost the 20% of the total gold reserves of the Republic, in this first operation?

4. ¿Es cierto que estarían negociando una segunda operacion de empeño similar a la anterior por un monto aun mayor?

Is it true that they would be negotiating a second operation similar to the previous one for an even greater amount?

5. ¿Estas operaciones implican sacar el oro de las bóvedas del BCV y regresarlas al exterior?

Do these operations involve removing the gold from the vaults of the BCV and returning it abroad?

In the letter, Machado claimed that “the [gold swap] exchange would jeopardize the achievement of economic stability” and “would compromise the future of the Republic and the welfare of millions of Venezuelans“.

She also called for the monetary gold bullion held by the BCV and the exact amount held abroad  to be “certified by an independent and trusted international body”.

There does not seem to be any publicly available response from the central bank to Machado’s letter, so its unclear as to which answers, if any, Machado received from the BCV. However, given the deteriorating state of Venezuela’s international finances and international reserves at the present time, it may be sooner rather than later before Venezuelan gold could be on the move again out of the country.

One thing is for sure. Gold leaving Venezuela on a flight back to London, New York, or elsewhere, will not get the fanfare and celebration that was accompanied by the same gold’s arrival into Caracas a few short years ago.


El Salvador’s gold reserves, the BIS, and the bullion banks

According to a Reuters report from 24 April, the central bank of El Salvador, Banco Central de Reserva de El Salvador (BCR), sold approximately 80% of its gold reserves during March 2015. This sale comprised 5.412 tons of gold and raised $206 million for the Bank.

Reuters initiated its story based on updates to the International Monetary Fund’s gold reserve data, which this month was updated on 24 April. Each month, the IMF updates its International Financial Statistics dataset with economic data (on a one to two month lag) including country gold reserve data reported to it by member countries.

However, the Reuters story was very brief and failed to explain any of the details about El Salvador’s gold or the March gold sales. Therefore, to correct this situation, the full story is explained below.


IMF gold reserve data by country

The IMF elibrary web site is the entry point for retrieving monthly country gold reserve data (by volume in fine troy ounces) for any IMF member country. Note that on the IMF’s site, gold reserve data is part of the International Financial Statistics (IFS) dataset and not part of the International Reserves dataset. The IFS dataset was subscription-based until January 2015, after which the IMF made a number of datasets, including IFS, free to access.

The IMF’s elibrary platform is located at http://elibrary-data.imf.org/DataExplorer.aspx, but this platform is being phased out soon since the IMF has launched a replacement platform called data.imf.org which will contain the same data including free IFS data.

IFS gold reserve data for El Salvador shows that starting with a total of 223,000 ounces of gold in November 2014, the central bank’s gold reserves fell by 5,000 ozs to 218,000 ozs in December 2014, before dropping by another 174,000 ozs to 44,000 ozs in March 2015, making an overall fall of 179,000 ozs between November and March. See table below:

IMF gold reserve data for El Salvador excel

Looking at El Salvador’s quarterly gold reserve data since Q2 2014, as well as its annual gold reserve data since 2011, shows that the only movements in the country’s gold holdings over the last 4 years were the December 2014 and March 2015 gold sales. See table below:

IMF gold reserve data for El Salvador excel 2

However, the best source of information on the Banco Central de Reserva de El Salvador’s (BCR) gold holdings, is of course, the bank’s own publications. The BCR, like a number of other central banks in the region, divulges relatively more information about its gold holdings than most other central banks in other parts of the world.

The Bank for International Settlements, Barclays and Scotia

The most recent BCR publication (in Spanish) that lists the central bank’s gold reserves is the 30th September 2014 edition of the ‘Statement of Assets backing the Liquidity Reserve’, or ‘Estado de los Activos que respaldan la Reserva de Liquidez’ Sept 2014. This ‘statement’ was audited by the local San Salvador office of KPMG .

Section 7 of this statement addresses the BCR’s gold deposits (Depósitos en Oro) and is quite detailed in the information that it provides. See screenshot below:

As of 30th September 2014, the BCR claimed a gold holding of 223,113.213 troy ounces. Exactly 85% of this gold holding (189,646 ozs) was said to be held as deposits of physical gold (Depósitos de oro físico) with the Bank for International Settlements (BIS). The BIS offers gold “safekeeping and settlements facilities” that are “available loco London, Berne or New York“, i.e. the BIS maintains gold accounts in three locations, so El Salvador’s gold could have been held with the BIS in any of these three locations.

The remainder of the gold holdings comprised 31 day time deposits in gold (Depósitos a plazo en oro) placed with two bullion banks, and derivative coverage (Derivado de Cobertura) with the BIS in the form of two put options entered into in March 2014.

The time deposits in gold were placed in equal sizes with Barclays Bank and the Bank of Nova Scotia. Each of these time deposits represented 7.5% of El Salvador’s gold holdings, specifically 16,733 ozs with Barclays and  16,734 ozs with Scotia, and 15% in total. The combined deposits also totalled 33,467 ozs, just over 1 ton. Interest on gold deposits is usually paid in gold that accrues and is added to the outstanding deposit total, so this amount in excess of 1 ton may represent interest payable to the BCR by the bullion banks.

Note that both Barclays and Scotia were two of the member banks of the recently defunct London Gold Market Fixing Company which managed the daily London gold fixings, and the two banks are also now two of the seven participants in the new LBMA Gold Price auction which recently replaced the gold fixings. Barclays and Scotia are also two of the six member bullion clearing banks which constitute London Precious Metals Clearing Ltd (LPMCL).

There was also a residual line item under the BCR’s time deposits in gold attributed to a third bullion bank, Standard Chartered. Finally, the BIS derivatives coverage line item accounted for 2,180 ozs.

At the stated valuation price of $1,216.50 per ounce, the above totals add up to 225,293 ozs of gold, but subtracting the derivatives line item of 2,180 ozs yields 223,113 ozs, which is the total gold holding that the BCR claims to hold. The gold representing the derivatives (put options explained below) line item seems to represent a loss on the puts expressed in gold that the BCR makes an adjustment for by subtracting it from its ‘total’ gold holding, hence it reported a gold holding of 223,113 ozs.

BCR sept 2014

The last notes to the above section 7 state that:

“On March 12, 2014, two put options with a maturity of one year were entered into, with a notional value of 11,200 and 211,913.213 troy ounces respectively, at an exercise price of US $ 1,100.00 per troy ounce.

The gold deposits are free of charge and / or pledge.”

Enter Standard Chartered

Going back another three months to June 2014, the 30 June 2014 edition of the BCR’s ‘Statement of Assets backing the Liquidity Reserve’, or ‘Estado de los Activos que respaldan la Reserva de Liquidez’ June 2014, shows very similar information to September 2014, with an identical amount of gold placed with the BIS at 189,646 ozs.

However, on 30 June the BCR had an active time deposit in gold placed with Standard Chartered as well as with Barclays and Scotia, and so was using three bullion banks for placing its gold deposits.

Using a valuation price of $1,315 per troy ounce, the June report shows that Barclays held a time deposit in gold for the BCR of 16,733 ozs, Scotia held a deposit of 8,467 ozs and Standard Chartered held a deposit of 8,267 ozs. These deposits also rolled over with a one month maturity.

The gold deposit with Barclays in June 2014 is identical to that of September 2014, so it was just being renewed by the BCR every month and rolling over with Barclays. Note that the Scotia and StanChar deposits of 8,267 ozs and 8,467 ozs respectively, add up to 16,734 ozs, so between June and September, these two deposits were combined at some point when they matured and were then placed together with Scotia.

In the June accounts, the amount of gold attributed to the ‘derivatives’ (put options) is only 711 ozs, or US$935,761 and so the total amount of gold listed below adds up to 223,825 ozs. Subtracting the  711 ozs (loss) again gives 223,113 ozs, the BCR’s published gold holding. Gold was trading at about $1,300 in June 2014 but there was still about 9 months left until the expiration date of the options.

BCR june 2014

Gold Deposits = Gold Lending

It’s important to grasp what these gold deposits with bullion banks are. This is merely gold lending by a central bank which has lent this gold out to LBMA bullion banks at very low deposit rates of maybe 0.5% – 1.00%. The LBMA bullion banks, at the time the lending first occurred, obtained the physical gold and immediately sold it.


These are short-term gold deposits, which keep maturing every month or so, therefore a central bank has to keep renewing them, either with the same LBMA bullion bank or another LBMA bullion bank which is in the market quoting to take these deposits. The central banks do this by sending MT60* series SWIFT messages to the bullion banks. These gold deposits that a central bank puts out can stay out for years and years after they were first entered into. For example, Bolivia has had gold deposits out with LBMA bullion banks since 1997, or over 17 years. I will write about Bolivia’s gold lending in detail at some point.

None of the LBMA bullion banks actually has this gold on deposit, since its been sold. The banks just take over the obligation to pay the gold back to the central bank. So the claims that the central bank has to the bullion banks just keep switching around. One month the claims could be on Barclays, Scotia and Standard Chartered. A few months later the claims could be to Natixis, BNP Paribas and HSBC etc etc.

Lots of central banks engage in this activity, they just don’t report it in as much detail as, for example, El Salvador or Bolivia. The Austrian federal auditors recently published a report which showed that Austria’s central bank, the OeNB, was actively engaging in gold lending with multiple bullion banks, with up to 10 counter-parties in 2009. See here.

Selling its Gold did not make sense for El Salvador

In its 24 April story, Reuters reported from San Salvador that a central bank of El Salvador  official had said that the gold sales were to “diversify risk and take advantage of the metal’s appreciation”, as well as to protect the Bank’s reserve portfolio “against market volatility”. This explanation doesn’t make a lot of sense especially since the put options were out of the money in March 2015.

Firstly, the gold price has not appreciated very much recently, and in US dollar terms it has fallen notably since September 2011. El Salvador’s gold holdings did not change at all over 2011-2014 and their value went down, not up. So, at this time, the reference to the “metal’s appreciation” is bogus, since even if the cost price was substantially lower, a far better time to sell would have been in 2011-2012.

Secondly, gold as a reserve asset in a central bank reserve portfolio is held precisely because it provides diversification and can act as an inflation hedge, currency hedge and also represents a reserve asset or war chest of last resort. In the World Gold Council’s latest ‘World_Official_Gold_Holdings_as_of_April2015_IFS’ report from early April, when El Salvador was listed as holding 6.8 tons of gold, this represented 9.9% of the BCR’s total reserves.

Emerging market central banks have been actively increasing their gold reserves in recent years, so as to increase the gold percentage in their reserves to something approaching 10%. Since El Salvador had an enviable ratio of nearly 10% of gold to total reserves that many emerging central banks are striving to reach, it does not make any sense as to why the BCR suddenly turned around and ruined this ratio, by selling nearly four-fifths of its gold. The BCR’s gold to total reserves ratio is now a miniscule 2% of its total reserve portfolio. There may therefore have been other considerations at play between El Salvador and the BIS such as the BIS suggesting the sale.

BIS dark

So, which gold did El Salvador sell?

Recall that the BCR’s two put options with the BIS were entered into on 12 March 2014 and had a maturity of one year and a strike price of US$ 1,100 per troy ounce. One put was for a notional value of 11,200 troy ounces and the other was for a notional value of 211,913.213 troy ounces. But with the strike price at $1,100 there was no value in exercising them.

For the month of March, the US dollar gold price traded in a range from about $1,220 down to $1,150. From 2nd to 12th March, gold also traded roughly in a range from near $1,220 at the start of the month, down to near $1,150 on 12th March, but still above $1,100.

Recall that as of 30 September 2014, the central bank of El Salvador had 223,113 ozs of gold, of which 189,646 ozs was held in “deposits of physical gold” with the BIS, and 33,467 ozs was held as time deposits of gold with commercial bullion banks.

In November 2014, as stated, the Salvadoreans sold 5,000 oz, leaving 218,113 ozs, and then the major sale occurred in March 2015 of 174,000 oz (or 5.412 tons). In total that’s 179,000 ozs of sales, leaving El Salvador with 44,000 ozs.

Since the Salvadoreans had 189,646 ozs on deposit with the BIS and needed to sell 179,000 ozs, the gold sold was most definitely sold to the BIS or to another party with the BIS acting as agent. On its website, under ‘foreign exchange and gold services”, the BIS states that it offers “purchases and sales of gold: spot, outright, swap or options“.

It would not make sense to sell some or all of the time deposits that are out with the bullion banks such as Barclays and Scotia, since a large chunk of the BCR gold at the BIS would have to be sold also. It would be far easier to just deal with one set of transactions at the BIS. And additionally, the bullion banks do not have El Salvador’s gold, they would need to use their own stocks or go out into the market to buy gold in order to repay the BCR.

The above would leave the time deposits of 33,467 ozs (and accrued interest) out with the bullion banks, rolling over each month as usual. The other roughly 11,000 ozs that the BCR held with the BIS could be left with the BIS, or else this too could be put out on deposit with the bullion banks.


The case of the El Salvador gold sales demonstrates that central banks can and do use the gold depositing facilities of the Bank for International Settlements, and also the gold lending services of LBMA commercial bullion banks such as Barclays, the Bank of Scotia and Standard Chartered amongst many others. The case of El Salvador also shows that central banks actively use derivatives such as put options within the management of the gold component of their reserve portfolios.

It would be naive to think that the bullion banks and the BIS are just providing these services to small emerging market central banks in Central America. It would be more realistic to suggest that the bullion banks and the BIS are providing these gold reserve portfolio services (with scale) to many central banks.

It’s also a shame that neither Reuters nor any other financial news organisation sees fit to write anything of substance about El Salvador or other central banks and the real workings of the interbank and BIS gold market given that it’s not that difficult to produce an article such as the above within a few hours of research and writing.