Tag Archives: China

Neck and Neck: Russian and Chinese Official Gold Reserves

Note: This article has now been updated to reflect the fact that during September 2017, the Bank of Russia added a further 1.1 million ounces of gold (34 tonnes) to its gold reserves. This information was released by the Bank of Russia on Friday 20 October.

Official gold reserve updates from the Russian and Chinese central banks are probably one of the more closely watched metrics in the gold world. After the US, Germany, Italy and France, the sovereign gold holdings of China and Russia are the world’s 5th and 6th largest. And with the gold reserves ‘official figures’ of the US, Germany, Italy and France being essentially static, the only numbers worth watching are those of China and Russia.

The Russian Federation’s central bank, the Bank of Russia, releases data on its official gold holdings in the Bank’s monthly “International Reserves and Foreign Currency Liquidity” report which is published towards the end of the third week of each month, and which confirms gold reserve changes as of the previous month-end.

The Chinese State releases data on its official gold holdings via a monthly “Official Reserve Assets” report published by the State Administration of Foreign Reserves (SAFE) that is uploaded within the Forex Reserves pages of the SAFE website. This gold is classified as held by the Chinese central bank, the People’s Bank of China (PBoC). The SAFE report is published during the 2nd week of each month, reporting on the previous month-end.

In both reports, official gold reserves (i.e. monetary gold) are specified in both US Dollars and fine troy ounces. Monetary gold is gold that is held by a central bank or other monetary authority as a reserve asset on a central bank’s balance sheet.

Delta: 63 Tonnes

For the Bank of Russia, its latest report, published on 19 September 2017 addressing August month-end, shows the Bank holding 57.2 million fine troy ounces of gold (1779 tonnes). For the Chinese State, the latest SAFE release is reporting Chinese official gold reserves of 59.24 million ounces (1842 tonnes).

Russian gold reserves, as officially reported, now total 1779 tonnes, and are now just 63 tonnes shy of the ‘official’ gold reserves of the Chinese central bank. Given that the Bank of Russia is expected to add about another 36 tonnes of gold to its official reserves during the remainder of 2017,  then if the Chinese State does not reveal any increase in its ‘official’ gold reserves between now and the first quarter of 2018, Russia will most likely surpass China in terms of official gold reserves by April 2018.

While its possible and probable that the Chinese State / PBoC really holds more gold than it claims to hold, any upcoming scenario in which the Bank of Russia surpasses the People’s Bank of China in terms of gold holdings would at least be symbolic in terms of international monetary developments, and would be sure to generate some chatter in the financial press.

Although the official gold reserves of these two key nations are now nearly neck and neck, there are still some interesting contrasts between them, not least the way in which the Bank of Russia’s reported gold holdings have been steadily increasing month on month, while the reported gold holdings of the People’s Bank of China have remained totally unchanged for nearly a year now, since the end of October 2016.

Therefore the situation which is now emerging, i.e. the distinct possibility that Russian official gold reserves will surpass those of China something in early 2018, is a situation which is emerging precisely because the Russian Federation keeps adding to its gold reserves, while the Chinese State seemingly does not.

Differing Styles of Communication

The routes via which these two strategically important nations have amassed their official gold reserves are also quite different, at least at a public reporting level.

Bank of Russia
Bank of Russia Gold Reserves: 2006 – September 2017

It wasn’t so long ago (2007) that the gold reserves of the Russian Federation were still in the region of 400 tonnes. However, beginning in about the third quarter of 2007, the Bank of Russia began a concerted campaign to rapidly expand its official gold holdings, a trend which never subsided and which has been ongoing now for exactly 10 years. By early 2011, official Russian gold reserves had exceeded 800 tonnes. By the end of 2014, the Bank of Russia was reporting holding more than 1200 tonnes of gold. And by the end of 2016, Russian official gold were more than 1600 tonnes. For full details on the Bank of Russia’s gold holdings, including gold storage, gold reserve management, gold purchases and Russian government views on gold, see “Bank of Russia, Central Bank Gold Policies” at BullionStar’s Gold University.

From the above chart, it can be seen that during 2014, 2015 and 2016, respectively, the Bank of Russia added 171 tonnes, 208 tonnes, and 199 tonnes to its gold reserves, or in total 578 tonnes over a 3 year period. In 2017, with the Bank of Russia having added another 164 tonnes of gold for the year to end of August, its official gold reserves now stand at 1779 tonnes.

The route to the Chinese State accumulating 1842 tonnes of gold is a different one to that of the Russians, again at least from a publicly reported angle. While the Bank of Russia has historically published changes to its gold reserves on a monthly basis, the Chinese central bank has chosen to remain very secretive, and between 2001 and mid 2015 had only issued four public updates addressing the size and growth of its gold reserves. These 4 updates were as follows:

  • 4th Quarter 2001: From 394 to 500 tonnes: A 106 tonne increase
  • 4th Quarter 2002: From 500 to 600 tonnes: A 100 tonne increase
  • April 2009: From 600 to 1,054 tonnes: A 454 tonne increase
  • July 2015: From 1,054 to 1,658 tonnes: A 604 tonne increase

Beginning in July 2015, however, the Chinese State started to report changes in its official gold reserves on a monthly basis, and by July 2016 was reporting 1823 tonnes of official gold holdings. The following graphic, taken from a BullionStar infographic on the Chinese gold market, illustrates the sporadic reporting of Chinese official gold reserves between the early 2000s and July 2015. Note that between July 2016 and October 2016, the Chinese State through SAFE reported that the PBoC had acquired another 19 tonnes of gold, taking its total reported gold reserves to 1942 tonnes as of the end of October 2016.

Chinese Official Gold
Chinese Official Gold Reserves, 2003 – 2016 Source: Chinese Gold Market Infographic, BullionStar

The sparse official reporting by the Chinese is also clear in the below chart from the GoldChartsRUS website, which shows cumulative holdings of monetary gold by the People’s Bank of China (PBoC) between 2000 and 2017. Looking at the top panel of the chart, it can be seen that between 2001 and 2015, there were only 4 distinct jumps in the quantity of gold held by the PBoC.

This was followed by a period of about 15 months from July 2015 during which SAFE reported small monthly accumulations in PBoC’s gold holdings, as can be seen from the gradual increases in the bars in the top panel from July 2015 to October 2016, and the corresponding presence of frequent activity in the monthly changes in the lower panel of the chart.

Official Gold Reserves of the Chinese central bank: Divulged Holdings 2000 – 2017. Source:www.GoldChartsRUs.com

By September 2016, Chinese State gold reserve holdings had reached 59.11 million ounces. In October 2016, the SAFE report announced that Chinese official gold holdings had reached 59.24 million ounces, a 0.13 million ounce increase from the previous month. However, then something unusual happened, at least in terms of monthly updates. Since October 2016, Chinese official gold reserves have not changed at all. The SAFE updates are still published each month, but the gold holdings figure has remained unchanged at 59.24 million ounces (1842 tonnes).

Therefore, for nearly a year now, the Chinese authorities are signalling that they have not acquired any new gold. At least that is what they want the public to believe. Hence the constantly recurring headlines from the financial media, such as this one from Reuters a week ago, “China gold reserves steady at 59.24 mln ounces at end-September – central bank”.

But is it true that China only holds 1842 tonnes of gold and that it has not been active during the last year in continuing to accumulate monetary gold as part of its reserve assets? And for that matter, is it the case that the Bank of Russia and Russian Federation only hold 1779 tonnes of monetary gold?

While its difficult to know for sure, it is possible that the People’s Republic of China and the Russian Federation both hold additional gold that is not reported by their monetary authorities. This is so for multiple reasons, including the opaque ways in which these monetary gold reserves are accumulated, the traditional secrecy of both governments, and the fact that both countries have access to other investment pools that might hold gold that can be transferred at short notice into the respective central banks’ official gold holdings.

How Much Gold could the Chinese State really have?

The historical track record of the Chinese State in sporadically communicating the size of its monetary gold holdings shows that there has often been a large gulf between the true size of its gold reserves and what the Chinese claimed to have via its piecemeal and rare updates. For example, even based on its official numbers, the PBoC accumulated over 600 tonnes of gold between April 2009 and July 2015 but did not reveal this until July 2015.

The nearly year-long hiatus between October 2016 and the present, during which the Chinese authorities, via SAFE, claim that the PBoC’s gold holdings have remained at 1842 tonnes, could be true, but only in so far as the Chinese State does not wish to inform the world about its sovereign gold reserves. Beyond this, the true gold holdings of the Chinese central bank may be significantly higher than even official published figures suggest.

There is very little transparency into how the Chinese authorities accumulate monetary gold. In July 2015, when SAFE announced the first update to its gold holdings since 2009, it stated that the “major channels of accumulation” of gold were from purchases in foreign markets, domestic gold production, domestic scrap sources, and other transacting in the domestic market. But beyond this, the Chinese authorities never comment on where they source gold from.

There is lots of evidence that the Chinese State purchases significant quantities of gold in the international market, including in the London Gold Market, and then monetises this gold (i.e. classifies it as monetary gold) , before transporting it back to Beijing. See “PBoC Gold Purchases: Secretive Accumulation on the International Market”, at BullionStar Gold University for further details.

The Chinese State is also a possible candidate for having purchased a tranche of the IMF’s gold during IMF gold sales in 2010. See BullionStar blog  “IMF Gold Sales – Where ‘Transparency’ means ‘Secrecy’” for further details.

There are also plenty of other State entities and state controlled entities in addition to the Chinese central bank that could conceivably be holding gold reserves that could in time be reclassified as PBoC gold, and brought into the sphere of reporting. See section “Gold Transfers from other Chinese State entities” in BullionStar Gold University article “Gold Policies of the People’s Bank of China” for further details.

There is also evidence to suggest the Chinese State is really buying about 500 tonnes of gold per year, and that it has a first step target of holding at least 4000 tonnes of gold. This evidence, which is from 3-5 years ago, comes from senior people in the China Gold Association (CGA). See section “How much gold might the PBoC be buying each year?” in article PBoC Gold Purchases.

A gold reserves-to-FX reserves ratio of 5% would currently put Chinese state gold holdings at nearly 4000 tonnes. A gold-to-GDP ratio of about 1.77%, which is the equivalent of the gold-to-GDP ratio of the US, would currently put Chinese state gold holdings at nearly 5000 tonnes of gold.

Russia: Golden Pipelines and Stockpiles

In its “Methodological Notes to International Reserves of the Russian Federation“, the  Bank of Russia defines “monetary gold”  as:

“standard gold bars and coins with a purity of at least 995/1,000 held by the Bank of Russia and the Government of the Russian Federation. It comprises gold in vault, en route and in allocated accounts, including that which is held abroad. The item monetary gold includes unallocated gold accounts with non-residents.”

The primary source of gold flowing to the Bank of Russia comes from Russian gold mining production, with the Russian Federation acquiring a large percentage of domestic gold mining production each year. In practice, a small group of state influenced Russian banks are authorised to intermediate between the gold mining companies and the State, acting as a gold pipeline between the mines and the Bank of Russia / Government. These banks finance the mining companies, purchase their gold output , have it refined into gold bars by Russian gold refineries, and then offer this gold to the Russian State.

Some of these banks include Sberbank, VTB, Gazprombank and Otkritie. For details see section “Russian Banks as bulk buyers of Russian Gold” in the Russian gold market article in BullionStar’s Gold University.

But its possible that some of this gold ends up not with the Bank of Russia, but with other Russian State entities, one of which is the “Gosfund” or “Precious Metals and Gems fund” operated by “The Gokhran”.

This Gosfund could be buying a portion of Russian gold mining output, stockpiling it, and intermittently releasing some of its stockpile to the Bank of Russia. When I asked the Gokhran last year could it reveal its gold holdings, the Gokhran replied to me that “it does not publish information about the amount of gold reserves in the Russian Gosfund nor any data about its precious metal operations.” See letter reply from Gokhran below (for those who can read Russian).

Gokhran reply January 2016 to query on whether it could publish its Gold Holdings.


Given the high degree of opacity with which both the Russian State and Chinese State accumulate monetary gold, and the fact that they both can probably tap additional gold stockpiles for boosting their official gold reserves, it will be interesting to see whether China, through SAFE, announces any increase in the PBoC’s gold holdings between now and the end of Q1 2018.

Because if China does not do so, the Russian Federation will soon have the distinction of being the world’s 5th largest gold holder, pushing China into 6th place. Will China update its gold holdings before the end of 2017, or at least by early 2018? Nothing is certain, but with an ‘official’ difference of only 63 tonnes of gold between them, the race is on.

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.

RV com

The West lost at least another 1000 tonnes of large gold bars in 2015

Over the last number of years, one of the most interesting trends in the physical gold world is the ongoing conversion of large 400 ounce gold bars into smaller high purity 1 kilogram gold bars to meet the insatiable demand of Asian gold markets such as China and India.

This transformation of 400 ounce bars into 1 kilogram bars is an established fact and is irrefutable given the large amount of evidence which proves it is happening, as has been documented on the BullionStar website and elsewhere.

It is also something which causes plenty of excitement in the gold world as it underscores the huge movement of physical gold from West to East, and the continual depletion of gold inventories from locations such as the London Gold Market.

The general movement is one of 995 purity 400 ounce gold bars coming out of gold-backed ETFs, central bank gold holdings and other wholesale gold holdings, and these bars making their way to the Swiss refineries where they are transformed / smelted / recast into smaller 9999 high purity gold bars. The smaller gold bars are then exported from Switzerland to India, China, Hong Kong, and the Middle East.

At the same time as the wider gold market acknowledges and publicises this trend, the establishment gold world and bullion banks (as represented by the London Bullion Market Association) tend to downplay this conversion of 400 ounce gold bars into 1 kilogram bars, presumably because it directly highlights the continual drain of real physical gold out of the London vaults into China and India, gold which has little chance of ever coming back again.

For an example of significant downplaying of conversion of 400 ounce gold bars into kilogram gold bars, see BullionStar post from September 2015 titled “Moving the goalposts….The LBMA’s shifting stance on gold refinery production statistics” which documents how a mammoth 2000 tonnes of LBMA gold refinery output attributed to the year 2013, mysteriously disappeared from the LBMA’s publications in early August 2015, after the original figure of 6,601 tonnes had been highlighted on this website, with the original figure being replaced by a far lower 4600 tonnes.

While gold refineries in countries other than Switzerland may be involved in these 400 ounce to 1 kilogram gold bar transformations, the Swiss refineries are the big players in this area, as they say so themselves. The names in question are Valcambi, PAMP, Argor Heraeus and Metalor. For a full understanding of the extent to which these large Swiss gold refineries process 400 ounce gold bars into kilobars and the importance that they attribute to this specific category of refinery activity, please see BullionStar blog from November 2015 titled “From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA“.

But if you thought the massive conversion of large gold bars into kilogram bars that occurred in years such as 2013 and 2014 was an anomaly or a one-off, then think again. Because it also happened in 2015, and in a very big way.


LBMA Update – 2015 Gold Refinery Statistics

In early May 2017, the London Bullion Market Association published a revised version of its 4 page ‘LBMA Overview Brochure’, the most notable update of which was that it revealed refinery production statistics for 2015 for the gold and silver refineries around the globe that are on the LBMA’s Good Delivery List.

LBMA gold and silver refinery output 2015. Source:
LBMA gold and silver refinery output, updated for 2015. Source: LBMA Overview Brochure, May 2017

A table in the updated brochure states that in 2015, the “total refined gold production by the refiners on the List was estimated to be 5,034 tonnes”. The corresponding figure for gold in 2014 was 4921 tonnes.

At some point each year, the LBMA will invariable release such refinery statistics, however, the lag in publication is inexplicably long, for example, 2015 data only gets released in May 2017. Why 2016 data is not released in 2017 remains a mystery. This length of lag would not happen in any other industry. Leaving aside this mystery, the 2015 statistics are interesting and worth analysing for a whole lot of reasons, which are discussed below.

This year the LBMA update – of the 2015 data – was a very low-key affair indeed and did not even, in the LBMA’s eyes, merit a press release. This differs to May 2016, when the LBMA published 2014 gold and silver refinery statistics and at least accompanied the announcement with a press release which it titled “4,921 tonnes of gold production in 2014 – LBMA GD refiners”.

The LBMA’s May 2016 press release stated that 2014 refinery gold production by the refiners on the LBMA’s Gold Good Delivery List for gold totalled 4921 tonnes, and importantly, it attributed the excess over ‘world mine production of 4,394 tonnes‘  to be due to “recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars“.

Excerpt from LBMA May 2016 press release
Excerpt from LBMA May 2016 refinery production press release

This reference to ‘world mine production of 4,394 tonnes‘, which was itself attributed to Thomson Reuters GFMS, is incorrect, and the LBMA should have said that “world mine production + scrap recycling + net hedging supply” was 4394 tonnes, as is clear in the Thomson Reuters GFMS table from which the figure of 4394 tonnes was taken. This table is as follows:

GFMS global gold mining production + Scrap Recycling + Hedging, 2014 and 2015. Source: GFMS World Gold Survey 2015 (published in 2016)

The ‘net hedging supply’ category can be ignored as it is not relevant for gold-laden material arriving into gold refineries for processing. What the LBMA should have said in its 2016 press release is that in 2014, the gold refineries on its list (which generate 85% – 95% of world gold refinery output) produced 4921 tonnes of gold, which was in excess of combined gold mining production and scrap recycling i.e. in excess of  3131 + 1158  = 4289 tonnes. This excess was due to “recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars”.

The Swiss Argor-Heraeus refinery identifies Good Delivery gold bars as one of the 3 sources of gold coming into its refinery
Argor-Heraeus – Gold arrives at refinery from mines, scrap and ‘Good Delivery’ gold bars

Given that the LBMA gold refiners only represent 85% – 90% of world gold refinery output, and not 100%, the mine and scrap material that they process is only 85% – 90% of global mine production and scrap production. Therefore, the GFMS figures should be scaled back to represent this 85% to 90% range.

It is however not realistic to expect that bullion banks which supply large 400 ounce gold bars to gold refineries for conversion into smaller gold bars would use non-LBMA accredited gold refineries to do so, since a) bullion banks are all members of the LBMA, and b) the London bullion banks use Swiss gold refineries which are all on the LBMA good delivery list. They would therefore not use a more obscure non-LBMA gold refinery, such as one of the smaller Indian gold refineries, to convert large wholesale / central bank gold bars into smaller gold bars.

Therefore, what the LBMA press release in May 2016 should really have said is as follows:

“In 2014, the gold refineries on the LBMA Good Delivery List (which generate 85% – 95% of world gold refinery output) produced 4921 tonnes of gold. This  was in excess of the 85% – 90% of combined gold mining production and scrap gold recycling that these refineries are known to process. The LBMA refineries’ 4921 tonnes of refinery output in 2014 in excess of their mine and scrap processing of 3646 – 3860 tonnes (85% and 90% of combined mine and scrap supply) was due to recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars.”

Such a statement would then put conversion of large 400 ounce gold bars into kilogram gold bars by LBMA gold refineries in 2014 at between 1060 and 1275 tonnes of gold (4921 – 3860, and 4921 – 3646). It would also mean that large 400 ounce gold bars from existing above-ground stockpiles were topping up ‘normal’ physical gold supply (gold mining output and scrap recycling) by between 25% and 30% during 2014.

These 2014 refinery figures have previously been covered in a BullionStar posting in June 2016. See BullionStar blog “An update on LBMA Refinery Statistics and GFMS”. The important take-away point here is that in 2014 the gold refineries on the LBMA good delivery list generated refined gold output in a distinct category attributed to recycling of material by LBMA good delivery refiners converting large 400 oz bars into kilobars.


Fast forwarding now to the 2015 LBMA figures and the 2015 Thomson Reuters GFMS figures, and repeating the above calculations:

For 2015, the LBMA states that the gold refineries on its list had total refined gold output of 5034 tonnes. In 2015, according to Thomson Reuters GFMS, gold mining production was 3158 tonnes, while scrap gold supply was 1173 tonnes, i.e. a combined mine and scrap gold supply of 4331 tonnes.

Since the gold refineries on the LBMA Good Delivery List for gold represent 85% to 90% of ‘world production’, which by LBMA logic is GFMS gold mining production and GFMS scrap recycling, then, these refineries would have processed between 3681 tonnes and 3898 tonnes (85% – 95%) of mine production and scrap supply during 2015.

This then implies that during 2015, these LBMA gold refineries also processed between 1136 tonnes and 1353 tonnes of gold due to converting large 400 oz bars into kilobars.

If the LBMA had have written a press release in May 2017 to coincide with updating its table of the output of LBMA Good Delivery refineries, it should have read something like the following:

“In 2015, the gold refineries on the LBMA Good Delivery List (which generate 85% – 95% of world gold refinery output) produced 5034 tonnes of gold. This  was in excess of the 85% – 90% of combined gold mining production and scrap gold recycling that these refineries are known to process. The LBMA refineries’ 5034 tonnes of refinery output in 2015 in excess of their mine and scrap processing of 3681 – 3898 tonnes (85% and 90% of combined mine and scrap supply) was due to recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars, which was in the range of 1136 to 1353 tonnes.”

Where would these huge quantities of 400 ounce gold bars have come from that were melted down during 2015, predominantly or even exclusively by the Swiss gold refineries? Because 1136 to 1353 tonnes of large wholesale market gold bars is a lot of gold. The most likely source of this gold is from the London Gold Market. Beyond that, gold which was already stored in Switzerland is also a possible pool from which to draw from.

 2015 UK to Switzerland Gold Exports

During 2015, Switzerland imported 1853 tonnes of non-monetary gold, and exported 1861 tonnes of non-monetary gold. By far the largest source of Swiss gold imports during 2015 was ‘the UK’, which in this case really means the London Gold Market. Non-monetary gold is just gold which is not  monetary (central bank) gold. Non-monetary gold shows up on trade statistics. Monetary gold does not show up on trade statistics since central banks get an exemption from revealing physical movements of monetary gold across national borders.

During 2015, Switzerland imported 644.5 tonnes of non-monetary gold from the UK (London). You can see from the below graph that no other source country came anywhere close to supplying non-monetary gold to Switzerland in 2015, with the next largest source countries each only sending less than 70 tonnes of gold to Switzerland. And London does not have any gold mines nor any major scrap gold collection facilities.

Some of the other exporters of gold to Switzerland during 2015 were France, Germany, Italy and UAE/Dubai (none of which are gold mining countries), and South Africa, Russia, Peru (which have gold mining). Some of the gold sent from France, Germany, Italy and UAE was obviously scrap. Some of the gold sent from South Africa, Russia and Peru was most likely gold mining ore or gold doré. But somewhere within these numbers, there was also most likely good delivery gold bars. For example, why would Russia or South Africa send gold mining ore or gold doré or scrap to Switzerland when they have their own perfectly good gold refineries with huge capacity.

The UK (London) was the biggest source of Swiss gold imports during 2015
The UK (London) was the biggest source of Swiss gold imports during 2015. Source: www.GoldChartsRUs.com

Surprising perhaps, the largest gold-backed ETF, the SPDR Gold Trust (GLD) did not lose that much gold during 2015, with only a net 65 tonne gold loss. This is more so because the damage to GLD’s gold holdings had really been done in mostly in 2013 and to a lesser extent in 2014 when holdings had fallen from the 1350 tonne range down to the 700 tonne range. See chart.

SPDR Gold Trust – gold holdings 2007-2017 (black line). 2015 indicated in gold line  Source: www.GoldChartsRUs.com

Based on recently released data from the Bank of England, it can be seen that during 2015 the Bank of England gold vaults lost 13.5 million ounces of gold, with Bank of England total gold holdings dropping from 167.2 million ounces at the end of 2014 to 153.6 million ounces at the end of 2015. This is equivalent to a 421 tonne loss of gold from the Bank of England vaults during 2015. All gold held in the Bank of England is in the form of Good Delivery gold bars (i.e. the large 400 ounce gold bars.

Custody gold at the Bank of England
Custody gold holdings at the Bank of England 2010 – 2017, 2015 indicated in gold line. Source: www.GoldChartsRUs.com

Whether gold lost from the Bank of England vaults during 2015 was central bank gold or bullion bank (commercial bank) gold is unclear since the Bank of England does not provide a breakdown of figures. It’s possible that some of this gold that left the Bank of England during 2015 was converted from monetary gold to non-monetary gold, and then sent to Switzerland to be transformed into kilogram gold bars. This would then show up in the Swiss trade statistics. If extracted from the Bank of England vaults and left as monetary gold and then exported to Switzerland, it would not show up in Swiss trade statistics.

If 644 tonnes of non-monetary gold, as per the Swiss trade statistics, were sent from London to Switzerland during 2015, and another 421 tonnes of monetary gold from the Bank of England were also sent to Switzerland during 2015, this in total would be 1065 tonnes of gold. This quantum would begin to account for the range of 1136 to 1353 tonnes being converted from 400 oz gold bars into 1 kilogram gold bars that the 2015 LBMA gold refinery statistics imply. Add in another 100 – 200 tonnes of Good Delivery bars from sources such as Russia, South Africa and Dubai and this huge scale of 400 ounce bar conversion begins to look achievable. There could also be Good Delivery bars flowing out of Swiss central bank vaults directly, i.e. the Swiss National Bank (SNB) gold vaults in Berne, which would not show up on any inbound gold trade customs statistics.

Within a 3 year period, we can see roughly that the following quantities of large gold bars were melted down into kilogram bars and sent to Asia:

  • 2013: about 2000 tonnes of gold
  • 2014:  between 1060 and 1275 tonnes of gold
  • 2015: between 1136 to 1353 tonnes of gold

Overall, within the 2013 – 2015 period that is about 4200 – 4600 tonnes of gold being converted into kilogram and other smaller denomination high purity gold bars and sent to markets in China, India, Hong Kong and elsewhere in Asia. This is gold above and beyond mine supply and scrap supply. Where has all of this gold come from? Some of it is proven to be from gold-backed ETFs. Some is most probably also from central bank vaults, in which case the central banks do not have the gold that they claim to have. Which everybody know anyway, as much central bank gold has been lent out and is merely a fiction on the central bank balance sheets. But there may also be other stockpiles of Good Delivery gold bars which are also feeding this huge trend. Until the LBMA begins to publish its vault statistics, any grey area unreported gold vault inventories in London are still being kept in the dark.

If the trend of raiding ETFs and borrowing central bank gold to send to Switzerland to convert into kilogram bars for the Asian markets continues, then this is not and cannot be sustainable. The question is how long it can remain sustainable, in other words when will it become unsustainable?

Bank of England releases new data on its gold vault holdings

An article in February on BullionStar’s website titled “A Chink of Light into London’s Gold Vaults?” discussed an upcoming development in the London Gold Market, namely that both the Bank of England (BoE) and the commercial gold vault providers in London planned to begin publishing regular data on the quantity of physical gold actually stored in their gold vaults.

Critically, this physical gold stored at both the Bank of England vaults and the commercial London vaults underpins the gargantuan trading volumes of the London Gold Market and the same market’s ‘liquidity’. Therefore, a new vault holdings dataset would be a very useful reference point for relating to London’s ‘gold’ trading volumes as well as relating to data such as the level and direction of the gold price, the volume of gold held in gold-backed Exchange Traded Funds (ETFs), UK gold import and export statistics, and Swiss and Hong Kong gold imports and exports.

The impending publication of this new gold vault data was initially signalled by two sources. Firstly, in early February, the Financial Times (FT) wrote a story claiming that the London Bullion Market Association (LBMA) planned to begin publishing 3 month lagged physical gold storage data for the entire London gold vaulting network, that would, according to the FT:

“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 “gold clearing banks” are the bullion bank members of London Precious Metals Clearing Limited (LPMCL), namely, HSBC, JP Morgan, ICBC Standard Bank, Bank of Nova Scotia – Scotia Mocatta, and UBS. HSBC and JP Morgan operate precious metals vaults in London. See profile of JP Morgan’s London vault and a discussion of the HSBC vault . ICBC Standard Bank also maintains a vault in London which is operated on its behalf by Brinks.

There are 4 security companies with their own vaults in London, namely, Malca Amit, Loomis, Brinks and G4S. Therefore, including the Bank of England, there are 8 custodians with gold vaults in London that comprise the LBMA gold vaulting network.

The second publication to address the new gold vault data was the World Gold Council. On 16 February, addressing just the Bank of England vaults, the World Gold Council wrote in its Gold Investor publication that:

“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.”

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

While I had been told by a media source that the London vault data would be released in the first quarter of 2017, at the time of writing, there is still no sign of any LBMA vault holdings data covering the commercial vault operators in London. However, the Bank of England has now gone ahead and independently released its own numbers covering gold held in the Bank of England gold vaults. These gold vaults, of which there are between 8 – 10 (the number fluctuates), are located on the 2 basement levels of the Bank of England headquarters in the City of London.

In an updated web page on the Bank of England’s website simply titled ‘Gold’, the Bank of England has now added a section titled ‘Bank of England Gold Holdings’ and has uploaded an Excel spreadsheet which contains end-of-month gold holdings data covering every month for a 6-year period up to the end of December 2016, i.e. every month from January 2011 to December 2016 i.e. 72 months.

BoE vault
Bank of England ‘show’ gold vault

According to the Bank of England, the data in the spreadsheet shows:

“the weight of gold held in custody on the last business day of each month. We publish the data with a minimum three-month lag.

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.

Historic data on our gold custody holdings can be found in our Annual Report.”

Prior to this spreadsheet becoming available, the Bank of England only ever divulged gold vault quantity data once a year within its Annual Report, for year-end reporting date end of February.

You will appreciate that the new spreadsheet, having data for every month of the year, and for 72 months of data retrospectively, conveys a lot more information than having just one snapshot number per year in an annual report. Therefore, the Bank of England has gone some way towards improving transparency in this area.

Before looking at the new data and what it reveals, it’s important to know what this data relates to. The Bank of England provides gold custody (storage) services to both central banks and a number of large commercial banks. Large commercial banks which trade gold are commonly known as bullion banks, and are mostly the high-profile and well-known investment banks.

On its gold web page, the Bank highlights this fact – that it provides gold custody service to both central banks and commercial banks:

“We provide safe custody for the United Kingdom’s gold reserves, and for other central banks. This supports financial stability by providing central banks with access to the liquidity of the London gold market.

We also provide gold accounts to certain commercial firms that facilitate access for central banks to the London gold market.”

In the London Gold Market, the word “liquidity” is a euphemism for gold loans, gold swaps, and gold trading including gold sales. This reference to central banks accessing the London Gold Market as being in some way supportive of ‘financial stability’ is also an eye-opener, since reading between the lines, the Bank of England is conceding that by accessing the London Gold Market’s “liquidity” via bullion banks, these central bank clients are either contributing to direct stabilisation of the gold price in some shape or form, or else are using their gold operations to raise foreign currencies for exchange rate intervention and/or system liquidity. But both routes are aiming at the same outcome. i.e. stability of the financial system.

At the end of the day, the gold price has always been a barometer that central banks strive to keep a lid on and which they aim to stabilise or smoothen the gyrations of, given that the alternative – a freely formed and unmanipulated gold price – would thwart their coordination of fiat currency exchange rates, interest rates and inflation targets.

Interestingly, in addition to the new spreadsheet of gold holdings data, the Bank of England gold web page now includes a link to a new 1 page ‘Gold Policy’ pdf document, which, looking at the pdf document’s properties, was only created on 30 January 2017. This document therefore also looks like it was written in conjunction with the new gold vault data rollout.

The notion of central banks accessing the liquidity of the London Gold Market via bullion banks is further developed in this Gold Policy document also. The document is quite short and merely states the following:


1. The Bank primarily offers gold accounts to central bank customers. This is to support financial stability by providing central banks with secure custody for their gold reserves and access to the liquidity of the London gold market (particularly given the Bank’s location).

2. To facilitate, either directly or indirectly, access for central banks to the liquidity of the London gold market, the Bank will also consider providing gold accounts to certain commercial firms. In deciding whether to provide an account, the Bank will be guided by the following criteria.

a. The firm’s day to day activities must support the liquidity of the London gold market.
b. Specifically, the Bank may have regard to a number of factors including but not limited to: evidence of active or prospective trading with a central bank customer; or whether the firm has committed to honour buy and sell prices.

3. Access to a gold account remains at the sole discretion of the Bank.

4. The Bank will review this policy periodically.”

The Vault Data

Nick Laird has now produced a series of impressive charts of this new Bank of England data on his website GoldChartsRUS. Plotting the series of 72 months of gold holdings data over January 2011 to December 2016 yields the below chart.

Bank of England custodial gold holdings: January 2011 – December 2016. Source www.GoldChartsRUS.com

On average, the Bank’s vaults held 5457 tonnes of gold over this 6 year period. The minimum amount of gold held was 4693 tonnes at the end of March 2016, while the maximum quantity of gold held was 6250 tonnes at the end of February 2013.

The overall trend in the chart is downward with a huge outflow of gold bars from the bank’s vaults from the end of February 2013 to the end of March 2016.

As of January 2011, the BoE held just over 5500 tonnes of gold bars in its vaults. Gold holdings rose until the end of August 2011 and peaked at nearly 5900 tonnes before falling to 5600 tonnes at year-end 2011. Overall in 2011, the holdings fluctuated in a 400 tonne range, trending up during the first 8 months, and down during the latter 4 months.

This downtrend only lasted until January 2012, at which point BoE gold holdings totalled about 5450 tonnes. For the remainder of 2012, BoE gold under custody rose sharply, reaching 6200 tonnes by the end of 2012, a level near the ultimate peak in this 6 year chart. The year 2012 was therefore a year of accumulation of gold bars at the Bank during which 750 tonnes were added.

The overall maximum peak was actually 6250 tonnes at the end of February 2013, after which a sustained downtrend evolved through the remainder of 2013. By December 2013, gold under custody at the Bank of England had fallen to 5670 tonnes, creating an overall outflow of 580 tonnes of gold bars during 2013.

The outflow of gold continued during 2014 with another 470 tonnes flowing out of the Bank, leading to end of year 2014 gold holdings of just 5200 tonnes. The outflow also continued all through 2015 with only 4780 tonnes of gold in custody at the end of December 2015. The Bank therefore lost another 440 tonnes  of gold bars in 2015.

Overall, that makes an outflow of 1490 tonnes of gold from the Bank’s vaults over the 3 years from 2013 to 2015 inclusive. This downtrend lingered for 3 more months, with another 80 tonnes lost, which brought the end of March 2016 and end of April 2016 figures to a level of about 4700 tonnes, which is the overall trough on the chart. It also means that there was a net outflow of 1570 tonnes of gold bars from the Bank’s vaults from the end of February 2013 to the end of March / April 2016.

A new uptrend / inflow trend began at the end of April 2016 and continued to the end of November 2016, where gold custody holdings peaked again at about 5123 tonnes before levelling off at the end of December 2016 at 5102 tonnes. Therefore, from the end of April 2016 to the end of December 2016, the Bank of England vaults added 400 tonnes of gold bars.

The gold holdings of the vast majority of central banks have remained stagnant over the 2011 – 2016 period, the exceptions being the central banks of China and Russia. But Russia buys domestically mined gold and stores it in vaults in Moscow and St Petersburg, so this would not affect gold holdings at the Bank of England. China’s central bank, the People’s Bank of China (PBoC), is known to buy its gold on the international market, including the London Gold Market. It then monetizes this gold (classifies it as monetary gold), and airlifts it back to China. But these Chinese purchases don’t show up in UK gold exports because monetary gold is exempt from trade statistics reporting. However, if China was surreptitiously buying gold from other central banks with gold accounts at the Bank of England or buying gold from bullion banks with gold accounts at the BoE, then some of the gold outflows from the BoE could be PBoC gold purchases. But without central bank specific data, its difficult to know.

But what is probably true is that the fluctuations in the quantity of gold stored in the Bank of England vaults are more do to with the gold holdings of bullion banks and less to do with the gold holdings of central banks, for the simple reason that central bank gold holdings are relatively static, or the least the central banks claim that their gold holdings are static. This does not take into account the gold lending market which the central banks and bullion banks go to great lengths to keep secret.

Bank of England custodial gold holdings and US Dollar Gold Price: January 2011 - December 2016. Source www.GoldChartsRUS.com
Bank of England custodial gold holdings and US Dollar Gold Price: January 2011 – December 2016. Source www.GoldChartsRUS.com

There is also a noticeable positive correlation between the movement of the US Dollar gold price and the inflows/outflows of gold to and from the Bank of England vaults, as the above chart demonstrates.

Bullion Bank gold accounts at the BoE

One basic piece of information that the Bank of England’s new vault storage data lacks is an indication of how many central banks and how many commercial banks are represented in the data.

In its first quarterly report from Q1 2014, the Bank of England states that 72 central banks operate gold accounts at the bank of England, a figure which includes a few official sector organisations such as the International Monetary Fund (IMF), European Central Bank (ECB), and Bank for International Settlements (BIS). This number would not have changed much in the meantime, so we can assume that the gold holdings of about 72 central banks are represented in the new data. But the number of commercial banks holding gold accounts at the Bank of England is less clear-cut.

The 5 gold clearing banks of the LPMCL all hold gold accounts at the Bank of England. Why? Because it says so on the LPMCL website:

“Each member of LPMCL has vaulting facilities under its control for the storage of gold and/or silver, plus in the case of gold bullion, account facilities at the Bank of England, which have contributed to the development of bullion clearing in London.”

The LPMCL also states that its clearing statistics include:

“Transfers over LPMCL Clearing Members’ accounts at the Bank of England.”

Additionally, the LPMCL website states that their

“clearing and vaulting services help facilitate physical precious metal movement logistics, location swaps, quality swaps and liquidity management.”

See BullionStar article “Spotlight on LPMCL: London Precious Metals Clearing Limited” for a full profile of LPMCL.

The Bank of England’s reference in its new ‘Gold Policy’ document to commercial banks needing to be “committed to honour buy and sell prices” is a reference to market makers and would cover all 13 LBMA market makers in gold, which are the 5 LPMCL members and also BNP Paribas, Citibank, Goldman Sachs, Merrill Lynch, Morgan Stanley, Société Générale, Standard Chartered Bank, Toronto-Dominion Bank. But there are also gold trading banks that make a market in gold which are not officially LBMA market makers, such as Commerzbank in Luxembourg which claims to be one of the biggest bullion banks in the world.

So I would say that lots of other bullion banks (of which there about 40 in total) have gold accounts at the Bank of England in addition to the 13 official LBMA market makers.

More fundamentally, any bullion bank that is engaged in gold lending with central banks (the central banks being the lenders and the bullion banks being the borrowers) would need a gold account at the Bank of England. I counted 28 bullion banks that have been involved with borrowing the gold of just one central bank, the central bank of Bolivia (Banco Central de Bolivia – BCB) between 1998 and 2016. Some of these banks have since merged or exited precious metals trading, but still, it gives an estimate of the number of bullion banks that have been involved in the gold lending market. The Banco Central de Bolivia’s gold lending activities will be covered in some forthcoming blog posts.

Bullion banks that are Authorised Participants (APs) for gold-backed ETFs such as the SPDR Gold Trust (GLD) or iShares Gold Trust (IAU) may also have gold accounts at the Bank of England. I say may have, because in practice the APs leave it up to the custodians such as HSBC and JP Morgan to allocate or deallocate the actual physical gold flowing in and out of the ETFs, but HSBC on occasion uses the Bank of England as a sub-custodian for GLD gold (see “SPDR Gold Trust gold bars at the Bank of England vaults” for details), so if some of the APs want to keep their own stash of allocated physical gold in relation to ETF trading, it would make sense for them to have a gold account at the Bank of England.

As to how much gold the GLD stores at the Bank of England and how regularly this occurs is still opaque because the SEC does not require the GLD filings to be very granular, however there is a very close correlation between inflows and outflows from GLD and the inflows and outflows from the Bank of England vaults, as the following chart clearly illustrates.

Gold held in the SPDR Gold Trust (GLD) and custody gold held at the Bank of England: January 2011 - December 2016. Source:www.GoldChartsRUS.com
Gold held in the SPDR Gold Trust (GLD) and custody gold held at the Bank of England: January 2011 – December 2016. Source:www.GoldChartsRUS.com

As gold was extracted from the GLD beginning in late 2012, a few months later the Bank of England gold holdings began to shrink also. This trend continues all the way through 2013, 2014 and 2015. Then as the amount of gold began to increase in the GLD at the end of 2015, the gold holdings at the Bank of England began to increase also. Could this be bullion banks extracting gold from the GLD, then holding this gold at the Bank of England and then subsequently exporting it out of the UK?

Some of it could, but UK gold net exports figures suggest that gold was withdrawn from both the Bank of England vaults and from the ETF gold stored at commercial gold vaults (run by HSBC and JP Morgan), after which it was exported.

Custody gold held at the Bank of England and UK gold imports and exports: January 2011 – December 2016. Source:www.GoldChartsRUS.com

Looking at the above chart which plots Bank of England gold holdings and UK gold imports and exports (and net exports) is revealing. As Nick Laird points out in this chart, over the 2013 to 2015 period during which the Bank of England gold holdings fell by 1500 tonnes, there were UK net gold export flows of 2500 tonnes, i.e. 2500 tonnes of gold flowed out of London gold vaults, so an additional 1000 tonnes had to come from somewhere apart from the Bank of England vaults.

Spot Checks

The new monthly vault holdings data from the Bank of England can now also be compared to the amount of gold reported by the Bank of England in its annual reports. The figures the Bank reports in the annual report are as of the end of February. These figures are only reported in Pounds Sterling, not quantities, so they need to be either converted to USD and divided by the USD LBMA Gold Price on the last day of February, or else just divided by the GBP LBMA Gold Price on that day.

In September 2015, I wrote the article “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults”. This was followed by an October 2016 update titled “Tracking the gold held in London: An update on ETF and BoE holdings”. Both of these articles aimed to calculate how much gold was actually stored in the entire London gold vaulting network by looking at how much gold was held in custody in the Bank of England vaults and how much gold was held by ETFs in London.

For end of February 2015, the calculated total for gold held at the Bank of England (based on the annual report) came out at 5,134 tonnes. Now the Bank of England data says 5126 tonnes which is very close to the calculation.  For February 2016, the calculation came out at 4725 tonnes.  The new Bank of England data now says  4730 tonnes, so that’s pretty close also.


This new Bank of England data is welcome and the Bank of England has taken a step towards greater transparency. However, it would be more useful if the Bank published a breakdown of how much of this gold is held by central banks and how much is held by bullion banks, along with the number of central banks and number of bullion banks that the data represents. Two distinct sets of data would be ideal, one for central bank custody holdings and the other for bullion bank custody holdings. The Bank most likely would never publish two sets of data as it would show bullion bank gold storage activity for the whole world to see.

While the Bank of England has now followed through with its promise to publish its gold vault holdings, the LBMA has still not published gold vault data for the commercial gold vault providers, i.e. its members HSBC, JP Morgan, ICBC Standard Bank, Brinks, Malca Amit, Loomis and G4S. Where is this data, why is there a delay, and why has it not yet been published?

As a reminder, the Financial Times article in early February said that the LBMA would publish gold vault holdings data that would:

“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s”

The Financial Times article also said that:

HSBC and JPMorgan, London’s biggest bullion banks, are backing the initiatives by the LBMA to improve transparency.”

With the gold holdings data on the other London vaults still not published, it begs the question, has there been a change of mind by HSBC and JP Morgan, two of the LBMA’s largest and most powerful members?

The vaulting page of the LBMA’s website could also do with an update since currently it erroneously says:

“Reputedly [the Bank of England vaults are] the second largest vault in the world with approximately 500,000 gold bars held in safe custody on behalf of its customers, including LBMA members, central banks, international financial institutions and Her Majesty’s Treasury.”

A holding of 500,000 Good Delivery gold bars is equal to 6250 tonnes. However, according to the Bank of England’s own figure for month end December 2016, the Bank of England only holds 5100 tonnes of gold in custody (408,000 Good delivery gold bars). Therefore, the LBMA is overstating the Bank of England’s holdings by 1150 tonnes, unless, and it’s unlikely, that the BoE vaults have seen huge gold bar inflows in the last 4 months.

The Gold Vaults of Hong Kong: Brinks, Malca Amit, Loomis

The article “From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA” examined the mountain of evidence concerning the known Swiss conversion of Good Delivery bars into kilobars for export to gold markets in the East. As a further step in this process, it’s worth taking a look at the substantial evidence of these kilobars either being accumulated, or passing through, vault locations in markets such as the Hong Kong gold market. It’s also worth looking at where these gold vaults in Hong are actually located.

Kilobar Accumulation in Hong Kong

In March 2015, the CME Group launched a Hong Kong based gold kilo futures contract. This contract is physically deliverable at various Hong Kong precious metals vaults. Note that most of the trades on this contract are executed OTC through CME appointed market makers, so will not appear as exchange trading volume in CME market data statistics. CME announced a market maker program on 8 January 2015 whereby “Participants must quote continuous two-sided markets in the applicable Product, at predetermined average bid/ask spreads and minimum quote sizes”, the product being the “Gold Kilo (“GCK”) futures that are traded on the CME Globex Platform.” On 16 April 2015, CME modified its market maker program, by increasing the number of designated market makers from 10 to 12.

CME Vault Inventory Analysis

As part of the 2014 pre-launch operational procedures for the CME’s Hong Kong gold contract, the CME analysed the vault inventories of the storage companies that were interested in having their vaults approved, and the CME then submitted various documents to its commodities regulator, the US CFTC.

On 11 September 2014, Brink’s Global Services, USA, Inc, HKIA Precious Metals Depository Limited, and Via Mat Management AG all applied for vault approval for the CME Hong Kong kilobar gold contract (see official CME notice here). Note that HKIA is an abbreviation for Hong Kong International Airport. Three months later on 11 December 2014, CME issued a notice that Malca-Amit had also applied for vault approval for the Hong Kong kilobar gold futures contract (see official CME notice here). On 6 January 2015, CME approved both the Brinks and the Malca-Amit vault applications for the kilobar contract (see exhibits 1 and 2 here), but the HKIA and Via Mat applications, at that time, remained unprocessed (or unapproved).

As part of the CME/CFTC due diligence on the Brinks and Malca-Amit vaults and the estimation of position limits for the gold kilo contract, Brinks and Malca-Amit provided historic monthly gold bar volumes data to CME sometime in the fourth quarter of 2014 so that CME could gauge eligible (kilobar) inventory levels (or deliverable supply) .

On  8 January 2015, the CME published a file containing Brinks and Malca-Amit historical bar volumes up to November 2014. What the file shows, in the ‘Analysis of Deliverable Supply‘ section (pages 16-19 of the pdf) is that both Malca-Amit Hong Kong vault and Brinks Hong Kong vault were storing increasingly large quantities of gold kilobars throughout the second half of 2013 and into 2014, with Malca-Amit storing up to 110 tonnes of kilobars in November 2014, the final month of the dataset.

At the same point in time, Brinks in Hong Kong was storing 49,000 kilobars, i.e. 49 tonnes. The Malca-Amit monthly data sequence commenced in June 2012, while the Brinks data was provided from January 2011 onwards. So with these two datasets we have a window of transparency into the Brinks and Malca-Amit Hong Kong kilobar holdings for the years 2011 – 2014.

As the CME report stated:

“Malca-Amit has provided average monthly inventory levels of gold kilo bars from June 2012 through November 2014. Brinks, Inc. has provided average monthly inventory levels of gold kilo bars from January 2011 through November 2014.”

Since this data is average monthly inventory, if there were regular arrivals and withdrawals of kilobar stocks throughout the monthly periods being measured (as can be seen with the Brinks Hong Kong vault stocks after the CME contract was launched in March 2015), then the average data could have, to some extent, understated the daily activity of kilobar movements in these vaults.

In its analysis the CME reported that:

“Gold kilo bar inventory at Malca Amit are all minimum .9999 fineness. Brinks, Inc. inventory consists of gold kilo bars of both .9999 and .995 fineness. Of total inventory at Brinks, Inc., the gold kilo bars of .9999 fineness comprise 90% to 95% of total inventory

“All gold kilo bar inventory at Malca Amit and Brinks, Inc. are of brands listed as accredited refiners on LBMA and are acceptable for delivery against the Gold Kilo futures contract.”

Added to the above, another window of transparency into the Hong Kong kilobar market opened up when the CME gold kilobar contract was launched in March 2015 (see below).

Bron Suchecki of the Perth Mint has written a detailed and informative analysis of this Malca-Amit and Brinks Hong Kong 2011-2014 data as reported by the CME, for those who wish to read more on this subject.

On 13 March 2015, CME announced that it had approved an application by G4S International Logistics (Hong Kong) to be a carrier for the CME gold kilo contract in Hong Kong. Note that this approval to be a carrier (a secure transporter) is not the same as vault/facility approval. Brinks and Malca-Amit were already, at that time, approved carriers for the CME’s gold kilo contract.

When the CME Hong Kong kilobar contract was launched in March 2015, the huge 110 tonnes of kilobar holdings at Malca-Amit’s Hong Kong vault that had been held there at the end of 2014 had mysteriously dropped to approximately 1 tonne. See CME warehouse report, dated 20 March 2015 for the Hong Kong gold kilo contract. This 110+ tonnes of kilobars in the Malca-Amit vault prior to the end of 2014 could in theory have been moved to the HKIA vault since both vaults are located adjacent to the Hong Kong International Airport. Another possibility is that these kilobars were transported back to the London market so as to arbitrage kilobar premiums.

However, when the CME kilo gold futures contract was launched in March 2015, the amount of kilobar gold at the Brinks facility in Hong Kong remained high, at over 23 tonnes of kilobars in mid-March 2015.

Malca Amit

Notice that at launch time in March 2015, only Brinks and Malca-Amit were listed on the above CME warehouse report. This is because the HKIA Precious Metals Depository and Via Mat vaults hadn’t been approved. HKIA was never approved because it withdrew its application (see 3 June 2015 CME official notice that CME had approved the application withdrawal of HKIA).

On 12 June, the CME announced that the Via Mat vault (which by then had changed name to Loomis after the Loomis acquisition of Via Mat) was approved for use by the CME gold kilo contract. Via Mat/Loomis then began appearing on the daily CME report alongside Brinks and Malca-Amit. However, since the inception of the contract, there has been very little kilobar gold reported in any of the Hong Kong vaults except for Brinks.

The below report of CME eligible Hong Kong gold kilo warehouse stocks as of 6 April 2016 shows that the Brinks Hong Kong vault facilities still hold by far the most kilobars out of the three reported facilities. The CME kilobar gold stocks can be viewed daily at this link, although the spreadsheet at the link changes daily, but retains the same spreadsheet name. For example, there were 31.14 tonnes of gold kilobars in the Brinks Hong Kong vault on 6 April.

Brinks HK 6th April 2016

While the daily vault report almost always shows a lot of kilobars coming into and being withdrawn from the Brinks vault,  what is not clear from the daily CME Hong Kong vaults report, but which is clear from tracking the accumulated flows since the inception of the contract, is that a massive 1,121 tonnes of gold kilobars have passed through the Brinks Hong Kong vault since the inception of the CME gold kilo contract in March 2015. This movement is perfectly illustrated in the following startling chart from Nick Laird of Sharelynx who keeps track of this Brinks Hong Kong activity.

Brinks HK vault cumulative to 5th April 2016
Source: www.sharelynx.com

In just over 12 months, more than one-third of annual gold mine supply has passed through the Brinks Hong Kong gold vault facilities in the form of gold kilobars. This, I would argue, makes looking at the CME New York COMEX vault reports a side-show exercise compared to where the real physical gold is flowing through.

With such a high ‘churn’ rate of gold arriving into the Brinks Hong Kong vault and then leaving again, this vault must be primarily a distribution vault and not a long-term storage vault.

Source: www.sharelynx.com
Source: www.sharelynx.com

Notice in the following chart how eligible gold inventory, in the form of gold kilobars, has remained at a fairly static and low-level in the Loomis (Via Mat) Hong Kong warehouse for the last 9 months. Loomis only began reporting its eligible gold kilobar inventory in mid-June 2015.

Source: www.sharelynx.com
Source: www.sharelynx.com

Notice in the following Malca-Amit eligible inventory chart, the dramatic disappearance of over 100 tonnes of gold sometime between the end of December 2015, and March 2015, and the very low and static eligible inventory since then.

Source: www.sharelynx.com
Source: www.sharelynx.com

It seems very odd that the volume of kilobar gold held in Malca-Amit’s Hong Kong vault facility dropped dramatically to 1 tonne between the end of 2014 and early 2015. After all, Malca-Amit applied to the CME to have its Hong Kong vault facility approved to be ‘regular for delivery‘ for the kilobar contracts, and furthermore, Malca-Amit’s vaults in Hong Kong have a gold storage capacity of 1000 tonnes, and furthermore, the kilobar, which would show up in eligible holdings, is the gold bar size of choice for the Asian markets.

According to the CME Group, a depository, such as Malca-Amit, is required to report inventory on the ‘facility’ that is ‘regular for delivery’ with the Exchange, and not just report the inventory in one or another of the vaults in that facility. Malca-Amit has 5 vaults in its Hong Kong facility (see below).

The CME told me:

Each Depository is required to report inventory for each one of its facilities that is regular for delivery with the Exchange.  Further information on obligations of metal service providers can be found in Rule 703 in Chapter 7 of the NYMEX Rulebook at http://www.cmegroup.com/rulebook/NYMEX/1/7.pdf.
The CME’s terminology “Regular for Delivery” refers to the following CME definitions:
Regular Warehouse: A processing plant or warehouse that satisfies
exchange requirements for financing, facilities, capacity, and location
and has been approved as acceptable for delivery of commodities against
futures contracts. See Licensed Warehouse.
Licensed Warehouse: A warehouse approved by an exchange from which a
commodity may be delivered on a futures contract. See Regular Warehouse.

The Malca-Amit Vault Facility in Hong Kong

A Bloomberg article about the Malca-Amit vault facility, “Hong Kong’s Largest Bullion Vault Signals Rising Asia Wealth“, dated 26 July 2012, stated that:

“Hong Kong’s largest gold-storage facility, which can hold about 22 percent of the bullion now in Fort Knox, will open in September to meet rising demand from banks and the wealthy, according to owner Malca-Amit Global Ltd.

The facility, located on the ground floor of a building within the international airport compound, has capacity for 1,000 metric tons, said Joshua Rotbart, general manager for the Hong Kong-based company’s Malca-Amit Precious Metals unit. Two of the vaults may hold assets, including gold, for banks and financial institutions, and others will be used for diamonds, jewelry, fine art and precious metals, said Rotbart.”

A series of 12 captioned photos, taken inside Malca-Amit’s vaults on 23 July 2012, can be seen in this Getty Images photo sequence, by photographer Jerome Favre (for Bloomberg via Getty Images).

Bloomberg has an accompanying video showcasing the Malca-Amit facility, “Where Do You Hide $50 Billion of Gold in Hong Kong?“, withe the narration beginning as follows:

“This room is in a secret location in Hong Kong. We’re not able to show you the exterior of the building for security reasons. Outside it look like an ordinary warehouse. Inside its anything but ordinary.”

It turns out this ‘secret location’ is not so secret after all (and its even listed in a CME Group spreadsheet once you know the address to look for). Bloomberg’s reference to secret location therefore looks far-fetched and dramatic, and is not surprising given that Bloomberg seems to have ceased to provide independent journalism.

The first pointer as to the vault location comes from an article in the publication Security Asia, Issue 3, 2013, pages 10-11, “Hong Kong’s Cave of Wonders“, which profiles the Malca-Amit Hong Kong facility, and states:

“Construction began on Asia’s largest private secure storage facility in February 2012, at significant but undisclosed cost. Spanning two ground floor units of a Chek Lap Kok commercial building, the vault took five months to build using 264 tonnes of reinforced steel and some 600 cubic metres of cement. Essentially, the vault comprises discrete units within the original units.

This state-of–the-art facility is designed, constructed and managed by Malca-Amit and so discreet that it took Security Asia staff a while to find the entrance, to the evident amusement of observers in the control room.

In fact there are five vaults: a common vault, a diamond vault, two smaller vaults for the use of major financial institutions, and a vault specifically designed for storing fine arts and collectibles. The fine art vault is a first for Hong Kong we are told, as it combines full vault security with climate control and FM 200 fire suppression.

Each vault has a colour-coded floor for instant recognition by CCTV operatives in the control room. Security levels escalate as we approach the vault area, with dual and triple access control systems in place.”

The Security Asia article therefore confirms that the vault facility is located in a commercial building in Chek Lap Kok. Chek Lap Kok is the redeveloped island, just north of Lantau Island, where Hong Kong’s International airport is located, hence the reference by Bloomberg to the vault being “located on the ground floor of a building within the international airport compound.”

A quick Google search for [“Chek Lap Kok” and “Malca Amit”] yields a document on the web site of CBRE, the commercial real estate company, which lists the Malca Amit vault address as G30-31, Airport Freight Forward Centre, Check Lap Kok:

CBRE banner

CBRE Malca

Therefore, in October 2011, Malca Amit Far East Ltd entered a new lease for 24,339 sq ft of space for units G30 and G31 at the Airport Freight Forward Centre. Construction on the facility then began in February 2012 (see above).

affc shot

The Airport Freight Forward Centre (AFFC) is a huge three-floor warehousing facility owned by Sun Hung Kai Properties. Apart from some of the air-side warehousing terminals in the actual airport precinct, the AFFC is the only major warehouse complex in the area. The tenant list of the AFFC even lists Malca Amit Far East Ltd, so again, Bloomberg’s reference to a secret location seems to be for dramatic effect only.

Outside the Malca Amit vault at the AFFC
Outside the Malca Amit vault at the AFFC

The plan of the ground floor of the AFFC warehouse can be seen here, which reveals that units 30 and 31 are self-contained and distinct from the other units on the ground floor, and are adjacent to the warehouse’s truck ramp.


Therefore, this vast Malca Amit facility at the AFFC, that’s approved by the CME as ‘regular for delivery’ for the gold kilobar contract, only holds just over 1 tonne of gold kilobars, and according to the CME’s daily gold kilobar stocks report, since March 2015, the Malca Amit facility has seen very little throughput (deposits or withdrawals) of gold kilobars. Again, in my view, it is very odd, that the largest gold vaulting facility in Hong Kong reports such low gold kilobar activity.

In Hong Kong, Malca-Amit Far East Ltd uses a company called Security Associates Asset Protection Ltd to operate its drivers/security crew for the Chep Lap Kok vault.




Because Malca Amit’s Hong Kong vault is approved for delivery of the CME group’s Hong Kong kilo gold futures contract, the  vault address is also listed in one of the CME’s spreadsheet’s, which is on the CME site here.

cme malca

That CME spreadsheet also lists the approved Brinks vaulting facility address in Hong Kong, which is located as Kwai Chung Container Terminal.


The Brinks Vault Facility in Hong Kong

The Brinks vault facility is located at Unit 1022W, 1/F, ATL Logistics Centre AC, Kwai Chung Container Terminal, Berth No.3, Kwai Chung. So this is the vault through which more than 1100 tonnes of gold has passed through between March 2015, and April 2016. The ATL Logistics Centre is a huge warehousing complex owned by DP World and the Goodman Group.

atl aerial
ATL Logistics Centre

A brochure of the ATL Logistics Centre can be seen here. Note that the former precious metals refinery of Johnson Matthey was in Kwai Chung. This refinery facility was acquired by Metalor Technologies (Hong Kong) Ltd in 2007, and Metalor now operates its refinery there. Johnson Matthey Hong Kong had been operating its refinery in Kwai Chung since 1992.

atl shot
ATL Logistics Centre truck entrance
Inside ATL Logistics Centre
Inside ATL Logistics Centre

There are also some other sources confirming that the Brinks vault is in the ATL Logistics Centre. A South China Morning Post article from March 2010, titled “Guard admits stealing HK$1m worth of gold from Brink’s vault“, stated that:

“A security guard has admitted to stealing HK$1 million worth of gold owned by HSBC from a vault holding gold worth more than HK$77 million at the Kwai Chung Container Terminals.”

“The vault, at Terminal Three, belongs to Brink’s Hong Kong..”

A Wikileaks cable, dated 15 September 2006, and titled “EXTRANCHECK: PRE-LICENSE CHECK: BRINK’S HONG KONG LIMITED“,  also confirms the Brinks address :

“As per reftel A request and at the direction of the Office of Enforcement Analysis (OEA) of the USDOC Bureau of Industry and Security (BIS), Export Control Officer Philip Ankel (ECO), conducted a pre-license check at Brink’s Hong Kong Limited, 1022W First Floor, Kwai Chung Container Terminal 3, New Territories, Hong Kong (Brink’s Hong Kong). The purpose of the visit was to determine the suitability of Brink’s Hong Kong to be the recipient of 28 tactical police riot helmets and 100 harnesses/chin straps that are the subject of export license application D362247.”

HK map


The Loomis (Via Mat) Vault Facility in Hong Kong

The Loomis International (HK) Ltd (formerly Via Mat) is located at Unit 701 Global Gateway, 168 Yeung Uk Road, Tsuen Wan, Hong Kong, just a few minutes drive north of Brinks vault.

HK Via

Global Gateway is another huge multi-story logistics warehouse that trucks drive into via a circular ramp.

Global Gateway
Global Gateway
Global Gateway access ramp

Details of Global Gateway, which is also operated by Goodman, can be seen here (Goodman-Global-Gateway-brochure-2015Dec18 and Goodman-Global-Gateway-brochure-2015Nov17).

The Loomis warehouse is on the 7th Floor of Global Gateway, beside the truck ramp.

Loomis Global Gateway
Loomis – Unit 701, Global Gateway

A video of Level 7 of Global Gateway can be seen here:


Global Gateway, Level 7, docking bays:

Loomis 1
Global Gateway, Level 7, units 701 and 702

And a Loomis armoured van exiting unit 701:

Loomis 2
Global Gateway, Level 7, Unit 701, Loomis van

Security Bureau List

All 3 of these secure vault addresses can also be seen on the Hong Kong Government’s Security Bureau website in a “List of licensed security companies engaged in Type II security work” that are members of the Security and Guarding Services Industry Authority (SGSIA).

  • Brinks at the ATL Logistics Centre in Kwai Chung
  • Malca-amit at the AFFC in Chep Lap Kok
  • Loomis at Global Gateway in Tsuen Wan


sgsia 1

sgsia 2

A G4S Vault Facility in Hong Kong

This SGSIA list also shows an address for G4S Cash Solutions (Hong Long) Limited of Securicor Centre, 418 Castle Peak Road, Cheung Sha Wan, Kowloon. Recall that G4S International Logistics (Hong Kong) is a CME Group approved carrier for the CME kilobar gold contract, but not a CME approved storage facility(vault). Looking at this Securicor Centre, 418 Castle Peak Road address in StreetView, it conveniently shows a G4S armoured van exiting a secure gated entrance on to Castle Park Road, right beside the main entrance to the Securicor Centre. Note that Securicor merged with Group 4 in 2004 to form G4S. So possibily G4S has a precious metals storage area in this Castle Peak Road facility. This would have precedent, since G4S Cash Solutions (UK) Ltd is the entity that operates the G4S precious metals vault facility at Park Royal in London, which was previously leased by Deustche Bank and is now leased by ICBC Standard Bank.

G4S at Castle Peak Road, Kowloon, Hong Kong
G4S at Castle Peak Road, Kowloon, Hong Kong


The HKIA Precious Metals Depository Limited

HKIA Precious Metals Depository Limited is a fully owned subsidiary of the Airport Authority of Hong Kong, which is itself owned by the Hong Kong SAR Government. The HKIA Depository vault is a 340-square-metre facility located ‘airside’, within the grounds of Hong Kong International Airport. Therefore, there are 2 precious metals vaults in and around Hong Kong Airport, the HKIA Depository, and the Malca -Amit vaults at the AFFC.

A 340 sq metre space (3660 sq feet)  is quite a small facility, and this, along with the HKIA facility’s location adjacent to the runways, would suggest that it is a transit vault for inbound and outbound precious metals freight, i.e. high throughput.

According to a 2012 LBMA Alchemist article, HKIA also claims to be a long-term storage vault, as well as a transit vault:

“Since it started offering its services three years ago, the Hong Kong International Airport Precious Metals Depository has focused on providing both long-term and transit storage for LBMA good delivery bars, as well as tael bars that are used in local delivery in the Hong Kong gold market. Silver and other types of precious metals have also been stored at the facility. For LBMA good delivery bars in particular, but also for other precious metals, the Depository has served not only as a storage vault, but also as a physical settlement and delivery venue for traders from around the world.”

The Chinese Gold and Silver Exchange Society, which operates Hong Kong’s Chinese Gold and Silver Exchange (CGSE), also planned to utilise the HKIA precious metals vault since according to a May 2013 press release (CGSE statement May 2013) from the CGSE’s president, Haywood Cheung:

“our Exchange (CGSE) will set up gold and silver vaults at the Hong Kong International Airport and VIAMAT, a professional warehousing and logistics company.”

And at least one Hong Kong based ETF, the Value Gold ETF, uses the HKIA vault as custodian. This ETF is very small and only holds 2,224.78 kgs as of 7 April 2016. the Value Gold ETF gold bar list can be viewed in a link at the bottom right corner of this page, and contains a lot a majority of Heraeus (HK) and Metalor (HK) bars as well as some Perth Mint bars.

The South China Morning Post also reported that the Hong Kong Monetary Authority has stored its gold at the HKIA vault since 2009.

“The Hong Kong Monetary Authority brought all its gold home in 2009 and stored it at the airport depository when the facility came on stream.”

“The city’s ‘Fort Knox’ opened in 2009 at the Chek Lap Kok airport. The 340 square metre depository has double security doors and bulletproof steel walls. After its opening, the HKMA shifted its entire gold reserve – the amount has never been specified – back from London.”

At he end of 2008, the Hong Kong Monetary Authority had a relatively small amount of gold, just over 2 tonnes, specifically, 66,798 ounces of gold.

A relatively over-the-top article from May 2010 about the HKIA vault said that:

“At the airport there is a little-known labyrinth of halls, equipped with state-of-the art security cameras and patrolled by heavily armed guards

In a hi-tech treasure vault are billions of dollars worth of gold bullion, gold bars, silver and platinum. They are securely sealed off behind the thick steel doors of the Hong Kong International Airport Precious Metals Depository.”

Finally, where is the Hong Kong Airport Authority’s Precious Metals Depository building. In December 2015, I asked HKIA (media@hkairport.com) where its HKIA Despository vault is located, however, HKIA, probably not surprisingly, did not reply to my email. Given that the HKIA vault location is apparently such a secret (and is not listed in any publicly accessible documentation), some speculation is allowed.

My feeling is that the HKIA Depository is not in a “little-known labyrinth of halls”, but is in one of the buildings in the restricted area down near Cheong Yip Road, past the Regal Airport Hotel, near a building which is the headquarters of Aviation Security Company Limited. Hong Kong airport’s main security company “Aviation Security Company Limited“, provides practically all the security at Hong Kong International Airport. Its address is “1 Cheong Yip Road, Hong Kong International Airport”. At the end of this road is the beginning of a restricted area of a series of silver/grey coloured buildings which are ‘airside’, right beside the runways, and are boarded by North Perimeter Road, Cheong Tat Road and Cheong Yip Road. There are various road entrances to this area, all of which are ‘restricted’.

Cheong Yip
Cheong Yip Road – entrance to restricted section of Cheong Yip Road, Hong Kong Airport
Cheong Tat Rd
Cheong Tat Road roundabout – Gatehouse 1 entrance to North Perimeter Road, Hong Kong Airport


From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA

In early September 2015, I wrote an article titled “Moving the goalposts….The LBMA’s shifting stance on gold refinery production statistics”, in which I explained how the London Bullion Market Association (LBMA) had, on Wednesday 5 August, substantially lowered its 2013 gold and silver refinery production statistics literally a few days after I had commented on the sizeable figure of 6601 tonnes of 2013 refined gold production that the LBMA had previously published in May 2015.


  • On 5 August, the LBMA substantially altered and republished Good Delivery List gold and silver refinery production statistics in two of its published files: LBMA Brochure Final 20120501.pdf and LBMA Overview Brochure.pdf
  • For gold, the alterations were most pronounced in the 2013 refined production figure which was reduced from 6601 tonnes to 4600 tonnes, i.e. a 2001 tonne reduction
  • Other years’ figures for refined gold refinery output (2010-2012) were also reduced, with the 2008-2009 figures being increased
  • As part of the update, the LBMA linked its amended figures solely to GFMS estimates of gold mining and scrap output,  adding the words ‘estimated to be‘ in front of the 4,600 tonnes figure, and the words ‘owing to recycling of scrap material‘, thereby framing the revised figure solely in terms of scrap gold in excess of 2013 gold mining supply. This use of GFMS data is bizarre because all refiners on the LBMA’s Good Delivery List provide exact refinery production statistics to the LBMA Executive as part of the LBMA Pro-Active Monitoring programme, so there are no need to reference estimates from external data providers
  • In the updated versions of the brochures, the LBMA made no reference to why the gold figures had been reduced, nor what the original figures referred to, particularly for the huge difference of 2,000 tonnes of gold refinery output in 2013 between its two sets of figures
  • By 12 August, the LBMA had again updated its 2013 gold refinery output figure to 4579 tonnes

In my Part 1 article, I had concluded that:

“There are 2,300 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the  6,601 tonnes figure which was removed from the LBMA’s reports on 5 August 2015.

Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?”

Note that for 2013, Gold Field Mineral Services (GFMS) estimated gold mining production to be 3,022 tonnes, and gold scrap supply to be 1,280 tonnes for 2013, so in total GFMS estimated gold mining + scrap supply at 4,302 tonnes in 2013. Therefore, the LBMA’s original figure for 2013 gold refinery production of 6,601 tonnes exceeded the combined GFMS mine and scrap supply by 2,300 tonnes.

Whose interests are served by replacing actual refinery output figures with far lower estimates comprising GFMS gold mine production and scrap recycling data? What happened to the third major source of gold supply to refineries during 2013, i.e. London Good Delivery gold bars, and why won’t the LBMA reference this? Why would the LBMA go to great lengths to de-emphasise the huge volume of Good Delivery gold bars being sent to gold refineries (especially in 2013) for conversion into 9999 fine kilobars, when its obvious for all to see that this huge migration of bars happened?

This article, which is Part 2 of the analysis into the LBMA’s 2013 gold refinery statistics, looks into this 6,601 tonne number and the 2,300 tonne delta compared to GFMS estimates, specifically examining the mountain of evidence that highlights the huge volume of Good Delivery bars that were processed through the Swiss gold refineries in 2013, and the huge associated shipments of gold from the UK to Switzerland, and onward from Switzerland to Asia.

Part 2 also looks at the extent to which GFMS and the World Gold Council, through their report text and data, addressed, and did not address, the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013.

When Part 1 was written, I had also planned that Part 2 would examine the 2013 gold withdrawals from the London-based gold ETFs, and the 2013 withdrawal of gold from the Bank of England, however, these topics were subsequently addressed in a separate piece titled “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“.

That article itself had found a lot of interesting information including:

  • that the entire London LBMA vault network (including the Bank of England) lost 1,500 tonnes (120,000 bars) between 2011 and early 2014, shrinking from 9,000 tonnes to 7,500 tonnes
  • Between the end of February 2013 and the end of February 2014, the amount of gold in custody at the Bank of England fell by 755 tonnes
  • In 2013, the large physically-backed gold ETFs which store their gold in London saw a 720 tonne outflow of gold (GLD 561, IAU 60, ETF Securities’ PHAU 52, ETS Securities GBS 42, ‘Source’ Gold 31)
  • The full set of gold ETFs storing their gold in London can, nearly down to the exact tonne, account for all of the LBMA vaulted gold held outside the Bank of England vaults (See  start of my article titled “Central bank gold at the Bank of England” for an explanation of this)

Note: Deutsche Bank gold ETFs and an ABSA gold ETF also store their gold in London, and during 2013, these 2 sets of ETFs lost approximately a combined 12 tonnes of gold (~9 tonnes from Deutsche and ~3 tonnes from ABSA, so this would increase the 720 tonne ETF loss above, to about 732 tonnes.


Yet another Change to the LBMA Brochure in September 2015

On 29 September 2015, the LBMA made a further alteration to the 4-page LBMA Overview Brochure, the brochure that had featured the shifting gold and silver refinery output statistics.

On this occasion, although the data in the table remained unchanged, some unusual footnotes were added underneath the table of refining statistics. The text, table and the new footnotes are as follows:

LBMA brochure refining Sept 2015 text

The footnotes are highlighted as per yellow box:

LBMA brochure refining Sept 2015 footnotes and table

Let’s look at these 3 footnotes one by one.

Note 1): The data for 2008-2013 contains estimates which will be updated when actual data becomes available.

This note is illogical, since the LBMA already has all of the exact data of gold and silver output per refinery. This was stated in the previous versions, and it’s all detailed in my previous article.

Also, specifying ‘Figures correct as at September 2015’ is illogical since the LBMA states that the data is ‘estimates’ and not ‘actual data’. Correct relative to what? How can ‘estimates’ be deemed to be correct if the ‘actual data’ is not published?

That would also explain the bizarre note number 2.

Note “2) Refined production should include only the refinery’s output that has gone through a refining process”.

Footnotes to tables are normally used to explain data, not to justify the data. This Note 2 sounds more like a pronouncement or a direction from a LBMA communication to the refineries rather than an explanatory footnote.

In English grammar, ‘Should‘ means to give advice, a recommendation or a suggestion, and to express obligation or expectation. This footnote looks like it has been lifted out of a directive from the LBMA to the member refineries.

Converting a 995 fine Good Delivery ~400oz bar into a series of 999 kilo bars does involve a a chemical refining process in addition to melting and pouring. The transformation by the refineries of large bars into smaller bars is still throughput, and is a refinery process (as you will see below).

Also problematic to the LBMA’s footnote is that converting 9999 fine scrap (in the form of old bars) to new 9999 bars, which sometimes happens, would not necessarily be captured in the above LBMA footnote, so this approach to seemingly attempt to tie in the LBMA data to GFMS mining and scrap refining data opens up a can of worms.

Note 3): the production of newly accredited refiners excludes production in the years prior to accreditation.

Note 3 should be obvious, and besides, it wouldn’t change much in terms of the huge gaps in the numbers between 6601 tonnes in 2013, and the GFMS figure of 4302 tonnes.


Macquarie 2013 – Where has the ETF gold gone

In August 2013, Macquarie Commodities Research, in its report “Where has the ETF gold gone” commented that:

“over 1H 2013 it [the UK] has exported 797 tonnes [of gold], equivalent to 30% of annual gold mine production”

“…gold bars from ETFs have gone to Switzerland, where most of the world‟s gold refining capacity is, to be remelted into different size bars and coins and then sold on end consumers, predominantly in Asia, specifically China and India.

“Trade data also backs up this movement of gold – Hong Kong customs reported imports of gold from Switzerland of 370t in 1H 2013, up 284t on 1H 2103 (fig 3), while Indian imports from Switzerland appear to have risen by more than 100t YoY.

It is not really very surprising that the gold has found its way from vaults in London (and most likely the US and Switzerland) to Asia via Swiss refineries. We have repeatedly noted that gold ETFs are part of the physical gold market and if investors don’t want the gold it has to go somewhere else.”

Since the four large Swiss gold refineries account for the lions share of worldwide annual gold refinery output (See my article “Swiss Gold Refineries and the sale of Valcambi“), its important to examine what the Swiss gold refineries had to say about the smelting of London Good Delivery gold bars into smaller bars in 2013, as well as their comments about the dramatic reduction in gold scrap coming into the refineries during that time.

Note that London Good Delivery gold bars are variable weight bars that weigh about 400oz each (12.5kgs). These are the standard type of gold bars stored in central bank vaults and held in physically backed gold Exchange Traded Funds (ETFs) such as the SPDR Gold Trust (GLD).

 Swiss Gold Imports from the UK: 2013

In 2013, Switzerland imported more than 2,600 tonnes of gold and exported approximately 2,800 tonnes of gold. That year’s gold import and export totals were the highest ever annual totals recorded for Switzerland. See chart below from Nick Laird’s Sharelynx.

Although Switzerland doesn’t possess any major gold mines, it does host one of the largest physical gold markets in the world, which regarding investment gold, primarily comprises the large Swiss gold refineries along with some bullion banks (including UBS and Credit Suisse), the Swiss National Bank and the Bank for International Settlements (BIS), and the Swiss wealth management and private banking sector. But the throughput and precious metal processing of the four large gold refineries accounts for nearly all the country’s gold imports and exports.


The UK is consistently the largest import source of gold into Switzerland. In 2013, Switzerland imported nearly 1,400 tonnes of gold from the UK during the year, with hardly any gold moving back in the opposite direction. Notwithstanding the fact that the UK does not have any producing gold mines, 1,400 tonnes is 46% of GFMS 2013 global gold mining production estimate of 3022 tonnes. And despite the fact that GFMS itself stated that the UK only contributed 41 tonnes of gold scrap to the 1280 tonne global gold scrap total in 2013, 1400 tonnes of UK gold exports to Switzerland is 109% of GFMS’s 2013 global gold scrap estimates.

So why is the LBMA not including all of this 1400 tonnes of UK to Switzerland gold exports in its 2013 gold refinery production statistics?


Even Swiss gold imports from the United States in 2013, at 267 tonnes, paled into comparison compared to Switzerland’s imports of 1,373 tonnes of gold from the UK, and left all other import sources such as Italy and France in a distant third.


Thanks to Nick Laird of Sharelynx for permission to use the above 3 charts.

Swiss Refineries – From the Horses’ Mouths

Let’s look at what the Swiss gold refineries had to say about the conversion of Good Delivery gold bars into smaller bars during 2013. You will see that the large Swiss refining companies treat Good Delivery bars as one of three sources of supply coming in to their refineries.

It’s important to note that the transformation of London Good Delivery bars of 995 fineness into, for example, kilobars of 9999 fineness, still involves the use of chemicals in reactions, albeit smaller amounts than when refining mining ore, and is not just a simple melting and re-casting exercise.

Argor-Heraeus’s perspective on Good Delivery bars in 2013

In its 2013 Corporate Sustainability Report, Argor-Heraeus had the following comments to say about the 400oz bar to smaller bar transformations:

In 2013, we consumed 3,120,603 kg of chemicals, 4% less than in 2012, despite a slight increase in precious metals processing. This decrease derives from the fact that a large percentage of gold processing involved the re-smelting of metal already in circulation (Good Delivery) to obtain high-fineness ingots, which are in great demand. The processing of a metal that is already pure requires smaller amounts of chemicals in reactions, as opposed to the refining of raw materials from mines.”

Argor-Heraeus even divides the gold inputs that go into its refining process into three distinct categories, namely, a) Scrap, b) Mines and c) Good Delivery, such is the importance of the Good Delivery refining activity to the refinery. See the following graphic from the Argor-Heraeus 2013 Sustainability report, complete with descriptive icons of the three input sources inputs of metal:

AH flow


The text box from the left-hand corner of the above graphic has been zoomed in and magnified below to aid readability:

AH text

Elsewhere in the same report, Argor-Heraeus reiterates the same 3 sources of gold supply that come in to its refineries for ‘Transformation and Processing‘.

AH graphic

Argor-Heraeus picks up the Good Delivery bar theme again in its 2014 Corporate Sustainability Report, where it produces a similar but slightly more detailed graphic, complete with the icons, and which explains that the Good Delivery bars can be either ‘grandfathered or non-grandfathered‘ and that the materials are ‘already certified Good Delivery, or already high-quality‘. High quality but not good delivery could be signifying gold bar brands on the former London Good Delivery list, or else lower grade coin bars, that had originally been made from melting down and casting into bars the gold coins that were previously  in circulation. Coin bars were at one time on the London Good Delivery list up until 1954.

Grandfathered is a term used by the LBMA in its discussions of ‘Responsible Gold Guidance‘ and is defined as:

Grandfathered Stocks: Gold investment products (ingots, bars, coins and grain in sealed containers) held in bullion bank vaults, central bank vaults, exchanges and refineries, with a verifiable date prior to 1 January 2012, which will not require a determination of origin. This includes stocks held by a third-party on behalf of the listed entities.

 The Argor-Heraeus 2014 graphic referencing Good Delivery bars is as follows:

AH 2014 graphic1


Metalor’s information on Good Delivery bars in 2013

In its 2013 Annual Report (large file 3.4 MBs), within the review of 2013 performance section, large Swiss based gold refinery Metalor Technologies highlights a steady demand for ‘recasting of gold bars for banks':

“Full-year net sales in the Refining business unit declined by 16 percent as precious metal prices remained low, reflecting a weak global economy. The drop in prices negatively impacted the price/volume mix, as reduced quantities were retained at lower prices. This was partly offset by steady demand in less profitable activities, such as the recasting of gold bars for banks.”

Metalor also provided a host of pertinent insights into other drivers of the 2013 gold market:

“The spot-price of gold and silver declined by more than 30 percent over a six-month period, and this prompted sharp sell-offs of the gold stored in ETF (Exchange-Traded Funds) vaults. The consensus is that this surplus was absorbed by strong China based bullion purchases, while price-dependent scrap flow fell rapidly.”

High grade precious metal bearing scrap flows worldwide dropped sharply due to sustained price erosion. This market development created an overhang in refining capacity, and a much more competitive pricing environment, although some of the volume reduction in scrap flows was offset by new mining doré contracts. The drop in price led to strong bullion purchases, mainly driven by China.”

The Refining business unit saw a challenging 2013, due to reduced gold prices. This resulted in a continuous slowdown in the scrap market. …….a decreasing volume of mining doré coming from abroad, due to changes in country regulations.”

“In Asia, the Hong Kong refinery was able to sustain a high level of activity due to strong demand and a high premium on bullion products.”


Valcambi on refining of Banks’ gold

Valcambi has an annual refining capacity “in excess of 1,200 tons for gold and 400 tons for silver“, so is known for having potentially unused refining capacity.

Following the July 2015 Valcambi acquisition by Indian company Rajesh Exports, the acquirer clarified to Indian newspaper ‘Business Standard’ that it was a regular activity for Valcambi to use its excess capacity to meet “emergency” refining requirements for gold held by bullion banks.

In fact, on the recently updated Valcambi website, an entire web page is now devoted to describing how transportation works for banker clients, in addition to clients that are miners, scrap dealers, other refineries, and watch makers. See ‘Transportation for Bankers‘ web page which details the import and exports procedures which the Valcambi refinery offers its banker clients.

Valcambi bankers

Valcambi 1

Under its Assaying web page, Valcambi even sees fit to specifically explain the process for the incoming ‘shipments of Good Delivery (GD) bars‘ which are merely checked to confirm that they haven’t been tampered with, as opposed to the shipments of ‘Non Good Delivery (NGD) precious metals‘, which are subjected to homogeneity checking, sampling and analysis. This shows that the volume of Good Delivery bar shipments into Valcambi is significant enough to warrant specific coverage on its website.

Valcambi Assaying

Valcambi good delivery

Under its Refining web page, Valcambi again details its ‘3’ sources of incoming gold, namely “primary doré supplied by mines”,  “industrial scrap and recycling“, and “metals invested and owned by financial and governmental institutions“, i.e. London Good Delivery Bars.

Valcambi refin

Valcambi refining

On the phenomenon of a low gold price leading to a decline of gold scrap coming into Valcambi, the CEO, Michael Mesaric, recently had the following to say while talking with Indian publication Bullion Bulletin at the India International Gold Convention (IIGC) 2015 in Goa:

Bullion Bulletin: The gold price is coming down continuously, is there any impact on the refinery segment?

Michael Mesaric: There is a small impact as well because if the gold price is very low there is very little scarp coming in.”


Argor-Heraeus interviews -They’re bringing in good delivery bars”

On 4 December 2013, Alex Stanczyk from Anglo Far-East group, in an interview with Koos Jansen published on his BullionStar blog, said that he (Stanczyk) and colleague Philip Judge, accompanied by Jim Rickards, had just returned from a visit to Switzerland where they had met with the managing director of one of the large Swiss refineries. Although the identity of  the refinery was not revealed, Alex Stanczyk said that the refinery MD informed them that there was huge demand for fabrication at his refinery and that:

“They put on three shifts, they’re working 24 hours a day, and originally he (the MD) thought that would wind down at some point. Well, they’ve been doing it all year. Every time he thinks its going to slow down, he gets more orders, more orders, more orders. They have expanded the plant to where it almost doubles their capacity. 70 % of their kilobar fabrication is going to China, at a pace of 10 tons a week.”

They’re bringing in good delivery bars, scrap and doré from the mines, basically all they can get their hands on.”

“…sometimes when they get gold in, it’s coming from the back corners of the vaults. He knew this because these were good delivery bars marked in the (nineteen) sixties.”

The same Swiss gold refinery executive was interviewed by Jon Ward of the Physical Gold Fund in September 2015, with the interview published as a podcast and as a transcript.

Jon Ward: In 2013, I recall you commented on the tightening of physical supply in the gold market and even the difficulties you were having in sourcing material. In fact, as I remember, you remarked that in 30 years, you’d never seen anything like it.”

The exact identify of the Swiss refinery executive was also not revealed in the September 2015 interview, however the executive is most certainly from the Argor-Heraeus refinery. Why? Because, the introduction to the 2015 interview states that:

“The gentleman we are interviewing  is part of senior management of one of the largest Swiss refineries.  His refinery is one of only 5 global LBMA referees…”

The LBMA appoints 5 refinery assay laboratories to help it to maintain the Good Delivery system. These appointees are known as ‘Good Delivery Referees’ and they meet on a quarterly basis at the LBMA. The 5 Good Delivery Referees are Argor-Heraeus, Metalor Technologies and PAMP (all from Switzerland), Rand Refinery (South Africa), and Tanaka Kikinzoku Kogyo (Japan).

Therefore, the interviewee has to be from one of three Swiss refineries, namely, Argor-Heraeus, Metalor or PAMP.

Furthermore, and this is the critical point, during the interview, the refinery executive states that his company has just opened in Santiago, Chile.

“Head of Refinery: ..looking at mining partnerships, we are expanding in Latin America. We have just opened in Santiago, Chile, and are trying to provide even more competitive services for the Latin American mining industry.”

Out of the short-list of Argor-Heraeus, Metalor, and PAMP, the only one of the three to open an operation in Santiago, Chile in 2015 (and the only one of the three to even have an operation in Chile) is Argor-Heraeus. See Argor-Heraeus new item below from the news page of its website dated 16 September 2015:

AH Santiago

The press release for the above Chilean plant announcement is only in Italian, but can be read here.

Lets look at what the Argor-Heraeus refinery executive says about conversion of Good Delivery bars to kilobars, both in 2015 and during the few years prior to that. From his September 2015 interview:

Jon Ward: Over the last couple of years, has this meant that you actually had to melt down and re-refine a whole lot of 400-ounce bars for China? If you have, I’d like to know where the bars come from.

Head of Refinery: The bars are coming from what you could call “the market.” Looking back, there were all these ETF liquidations, and the ETFs were holding bars in the form of 400-ounce bars. At that time a lot of the physical liquidity maintained in the London gold market was actually in 400-ounce large bars. The final customers were not interested in 400-ounce bars, so it was one of our jobs to take these bars, melt them down, refine them up to the 999.9 standard, and cast them into kilo bars.

Jon Ward: Were a whole lot of these bars coming from London?

Head of Refinery: Regarding the ETF liquidations, this gold had to go somewhere, and that was all converted. This is a thing you see every year. You also see some liquidations of physical gold held with COMEX and NYMEX. More or less, these are the sources of gold other than newly mined.

 PAMP – Three Shifts and Full Capacity – Barkhordar

In January 2014, in an article titled “Gold Flows East as Bars Recast for Chinese Defying Slump“, Bloomberg highlighted that the PAMP refinery, owned by MKS (Switzerland) SA, was at full capacity during parts of 2013,  and the article quoted PAMP Managing Director Mehdi Barkhordar as saying that they had to add production shifts to cope with processing demand:

“Gold’s biggest slump in three decades has been a boon for MKS (Switzerland) SA’s PAMP refinery near the Italian border in Castel San Pietro, whose bullion sales to China surged to a record as demand rose for coins, bars and jewelry.”

To keep up with orders, MKS added shifts at the PAMP refinery, located about 4 miles (6.4 kilometers) from the Italian border, Barkhordar said in November…”

Furnaces that can process more than 450 tons a year were at full capacity from April to June, melting mined metal, scrap jewelry and ingots at 1,000 degrees Celsius (1,832 degrees Fahrenheit) into the higher purities and smaller sizes favored by Asian buyers.”

“The surge in orders meant some parts of the refinery worked three shifts instead of the usual two, Barkhordar said.”

Again, you can see that there were three sources of supply for the PAMP refinery in 2013, i.e. mining, scrap and ingots (bars). According to GFMS, global scrap gold supply fell by 354 tonnes (21%) from 1634 tonnes in 2012 to 1280 tonnes in 2013, so this did not account for the ‘surge in orders’ and the need to add extra refinery shifts. Likewise, global gold mining output only increased by 160 tonnes (5%) from 2860 tonnes in 2012 to 3022 tonnes in 2013, and much of this increase was in China, Russia, Australia, Kyrgyzstan, and Indonesia which refine their own gold domestically, so this would also not explain the surge in orders, which therefore can only be attributable to recasting existing large gold bars into “smaller sizes favored by Asian buyers“.

Therefore, all 4 of the 4 large Swiss gold refineries are on the record that London Good Delivery gold bars were a very significant source of gold supply into their refineries during 2013 and even since then. So why did the LBMA amend its 2013 gold refining production statistics and seek to purely link its revised ‘estimate’ numbers to GFMS estimates of gold mine supply and gold scrap supply? There is an entire third source of gold supply to the refiners being overlooked because the LBMA dramatically reduced its 2013 gold refining production figure of 6,601 tonnes. Classifying Good Delivery bars as a supply source for refining is as legitimate as classifying gold scrap as a supply source for refining, and both come from above ground gold stocks.


GFMS and the World Gold Council

The well-known gold research consultancy GFMS, as well as gold mining lobby group the World Gold Council, between them produce a number of gold supply and demand reports each year. [Note: GFMS, formerly known as Gold Fields Mineral Services, is now part of Thomson Reuters].

Each year GFMS publishes a gold survey and related update reports later in the year. In 2013, this GFMS gold survey included two update reports. The 2013 survey and its updates were sponsored by Swiss refiner Valcambi and Japanese refiner Tanaka, with ‘generous support‘ from a selection of entities including Swiss refiner PAMP (part of the MKS Group),  South African refiner Rand Refinery, US gold mining companies Barrick and Goldcorp, bullion bank Standard Bank, US futures exchange CME Group, and the gold mining sector backed World Gold Council.

Its notable that the GFMS reports are ‘sponsored’ by some of the large Swiss gold refiners, yet there is nothing in the GFMS reports that puts cold hard factual numbers on the amount of Good Delivery bars processed through the refineries. As you will see below, GFMS mentions the good delivery bar processing in passing in its text, but not in its 2013 gold supply-demand ‘model’.

What, if anything, did GFMS have to say about conversion of London Good Delivery gold bars into smaller gold bars, such as kilobars, during 2013?

In its GFMS Gold Survey for 2013 – Update 1 (large file 11MBs) report, published in September 2013, the report states that:

“Strong trade flows were recorded between the UK and Switzerland, where Good Delivery metal was refined to smaller bars and shipped to India and China.”

The GFMS Gold Survey for 2013 – Update 2 (large file 9.8 MBs), published in January 2014, reiterated this point about large bar to small bar refining. On page 5 of the Update 2 report it states:

The duality of disinvestment in the developed world and an increase in physical demand from Asia was witnessed by the largest movement of gold, by value, in history as bars were shipped to Asia, often being melted down into smaller bars en route.

Notice that not all Good Delivery bars were converted to smaller bars before shipment to Asia. Some shipments went straight to Asia without being melted and converted.

And on page 9 of the same Update 2 report, the source of some of these smaller bars is given, i.e. the source was UK ETF gold holdings:

As a consequence, UK-led ETF outflows found their way to Switzerland, where refiners melted the metal into smaller bars, and shipped them East, in order to satisfy the surge in demand.”

The World Gold Council (WGC), regularly issues its own gold supply demand reports called ‘Gold Demand Trends‘, and publishes these reports in the form of an annual version, followed by shorter quarterly updates. In ‘Gold Demand Trends Q3 2013′, published in November 2013, the WGC said:

“Gold continued to work its way through the supply chain, to be converted from London Good Delivery bar form, via the refiners, into smaller Asian consumer-friendly kilo bars and below. This process is borne out by recent trade statistics. Data from Eurostat show exports of gold from the UK to Switzerland for the January – August period grew more than 10 fold to 1016.3 tonnes. This compares to a total of just 85 tonnes for the same period in 2012.”

In its Full Year 2013 edition of ‘Gold Demand Trends’, published in February 2014, the World Gold Council had this to say about the London Good Delivery bar shipments going to refineries, being transformed into smaller bars, and then recommencing their onward journey to the East:

No review of 2013 would be complete without a mention of the unprecedented flow of gold from western vaults to eastern markets, via refiners in North America, Switzerlandand Dubai.”

These shifts resulted in the shipment and transformation – on an epic scale – of 400oz London Good Delivery (LGD) bars into smaller denominations more suitable for consumers’ pockets.”

Notice the reference to refiners in North America and Dubai also, in addition to Switzerland.

In its ‘Gold Demand Trends Q1 2014‘ published in May 2014, the WGC stated that:

As illustrated last year when gold flowed out of western ETFs, through refineries in Switzerland and to consumers in the East, official trade data can provide insights into global gold flows.”

The full GFMS Gold Survey for 2013 (large file 6.2 MBs), i.e the report before the 2 updates, was originally published in April 2013, and was written too early in 2013 (probably written in March 2013) to really capture the flows of Good Delivery gold bars from the UK to Switzerland that were smelted into smaller bars. This was before the massive gold price smash of April 2013 that got the ETF gold sales going. That report mentions ETF gold outflows of 148 tonnes up to 11th March 2013, including 111 tonnes from the SPDR Gold Trust (GLD), but the 2 GFMS update reports from September 2013 and January 2014 were written at a later date, with a better vantage point, when the 400oz bar to smaller bar trend had gathered momentum.

Where was the Swiss refinery output going to in 2013?

On the outbound export route, Swiss gold exports of 2,800 tonnes in 2013 went primarily to Hong Kong (939 tonnes), India (520 tonnes), China (254 tonnes), Singapore (179 tonnes), Thailand (149 tonnes), Turkey (147 tonnes) and the United Arab Emirates (125 tonnes), with the residual 500 tonnes going to other destinations as detailed in the below chart from Nick Laird’s Sharelynx.




GFMS – Masking the Swiss refining of Good Delivery Bars?

Given that the LBMA decided to compare its amended gold (and silver) refinery production statistics against GFMS ‘estimates’ of gold supply (especially out of sync for 2013), then its important to look at what GFMS claimed gold supply and demand to be in 2013. This may help in determining a possible rationale the LBMA had for reducing its refinery output figures.

So, does the 2013 GFMS gold supply and demand data model show this “largest movement of gold, by value, in history” “on an epic scale” phenomenon from the UK to Swiss refiners to Asia? The answer is explicitly NO, neither in 2013, nor in any prior year, but to a limited extent yes, but only after drilling down into the sub-components of an obscure GFMS balancing items within the GFMS supply-demand equation.

But GFMS precious metals supply data and the way it’s presented does not seem to want to highlight the ‘largest movement of gold, by value, in history‘. So even though GFMS mentions (in passing – see above) the historically important 2013 movement of 400oz bars to refineries through places like Switzerland and their transformation into smaller bars by the large gold refineries, the GFMS gold supply statistics keep some of the relevant numbers locked away and jumbled up within a rather odd rolled up figure that it calls “implied net (dis)investment“. Other relevant data, such as OTC demand data, is not even detailed by GFMS, it’s just assumed.

 GFMS gold supply – Disaggregating the implied figure

Here is how GFMS gold supply statistics looked for 2013, taken from the GFMS Update 2 2013 report published in January 2014. In 2013 GFMS used 4 supply categories, namely, ‘Mine production‘, ‘Old gold scrap‘, ‘Net producer hedging‘ and ‘Implied net disinvestment‘.

GFMS-style gold supply and demand figures, 2013 - from GFMS Update #2 report
GFMS-style gold supply and demand figures, 2013 – from GFMS Update #2 report

The first thing to notice is that there is no GFMS supply category called ‘Good Delivery bars’, unlike the large Swiss gold refiners themselves which actually list Good Delivery bars as a distinct gold supply category, such is the importance of that supply source.

Neither is there any category for Gold ETF outflows. So even though 6,600 tonnes of gold came out of LBMA gold refineries in 2013, if you looked at a GFMS supply demand model from 2013, you would never know this. Apart from gold mine production of 2,982 tonnes and old scrap supply of 1,371 tonnes (which together totalled 4,353 tonnes), the only other non-zero supply figure in the GFMS model was ‘implied net investment’ of 383 tonnes.

On the demand side in 2013, GFMS listed jewellery fabrication (2,198 tonnes), other fabrication (792 tonnes), central bank purchases (359 tonnes), physical bar investment (1338 tonnes), and producer de-hedging of 50 tonnes. Again, looking at this demand side, you would not know that gold refinery output in 2013 reached 6,600 tonnes, and that this figure was 2,300 tonnes more than combined mine production and scrap recycling.

There was also a footnote to the above GFMS supply and demand summary table which defines the GFMS definitions of ‘Net producer dehedging‘ and ‘Implied net disinvestment/investment‘.

GFMS defines ‘Implied net disinvesment‘ or “Implied net investment‘ as a residual figure in its supply-demand table (i.e. a plug figure), and states that this “captures the net physical impact of all transactions not covered by the other supply/demand variables“, So basically, it’s a catch-all plug figure. GFMS says that “the implied net (dis)investment  figure is not independently calculated, but derived as the item which brings gold supply and demand into balance.” See full GFMS explanation below:

GFMS disclaimer

This ‘Implied net’ (investment/disinvestment)’ figure is where the 2013 GFMS supply and demand figures become, in my view, completely convoluted and opaque. GFMS says, in both its 2013 Update 1 and Update 2 reports that:

“It is interesting to examine how the implied figure compares to information on activity within the different arenas of investment over the year, (although given aforementioned limitations in this information, it is not possible to dis-aggregate accurately the implied figure into these components)”.

How GFMS exactly makes sense of its ‘Implied net’ (investment/disinvestment)” figures is hard to fathom because there is no proper explanation of the ‘aforementioned limitations‘ that GFMS alludes to except the fact that it doesn’t seem to be able to offer estimates for physical bar movements in Comex nor physical bar movements in OTC activity, part of which it considers the bar shipments to Switzerland to be.

GFMS could also maybe ask the gold refineries in Switzerland and elsewhere for the throughput figures on what they refined in 2013, be it gold mine doré, scrap metal, or Good Delivery bars, and then use that data also. And GFMS could also ask the SPDR Gold Trust Authorised Participants how much gold each of them took out of the GLD in 2013 and how this gold made its way to Switzerland and elsewhere, did the banks send the gold to Switzerland themselves using secure transporters such as Brinks, or did they sell it to other parties who then sent it to the refineries etc etc. The same question could be asked of the Bank of England and the amount of gold withdrawn from its gold vaults and the bullion bank identities of who withdrew it.

In the GFMS world, demand has to equal supply, so whichever side of the equation is greater, the other side has to have a plug figure. In 2013, GFMS put the above items into the demand side, and arrived at an estimate of 4,737 tonnes for demand. It then did an estimate for supply using only 2 components (mining and scrap), and arrived at 4,353 tonnes for supply. Since demand did not equal supply, GFMS then said that implied dis-investment was 383 tonnes. (The figures are 1 tonne out due to what must be a rounding error).

Here is my quick and easier to read version of the GFMS 2013 gold supply – demand table:

gfms 2013 reformat

GFMS then takes the plug figure of 383 tonnes and thinks about an explanation for it.

In its 2013 gold surveys, GFMS also produced another figure which it called ‘World Investment‘, which it defined as “the sum of implied net investment, physical bar investment, and all coins“. It provided this ‘world investment’ figure for both H1 and H2 2013.

This ‘world investment’ figure includes investment demand for physical gold bars and coins, gold medallions, and imitation coins (made of gold), but it also includes investment in products such as gold-backed ETFs. So if there is a huge outflow of gold from the gold ETFs, as there was in 2013, GFMS did not consider this to be gold supply, but rather, GFMS considered it to be negative demand, that it then buries in the implied net investment category.

Since the Authorised Participants of the large gold ETFs redeemed huge amounts of gold from these ETFs in 2013, especially in the first half of 2013, GFMS refers to this as gold ETF ‘investors’ redeeming gold from the ETFs. This is not entirely true because only large investors can redeem from an ETF such as GLD. Small investors just sell their shares in GLD. GFMS calls these 2013 ETF redemptions ‘implied disinvestment’, and it is this phenomenon that caused the GFMS ‘implied disinvestment’ category to be negative in the first half of 2013, but not in the second half of 2013, when GFMS insists that there was positive ‘implied net investment’.

GFMS calculated that there were 550 tonnes of gold outflows from ETFs in the first half of 2013, and 330 tonnes of gold outflows from the same ETFs in the second half of 2013, making a total outflow of 880 tonnes for 2013. Somehow, although the 550 tonnes of gold that left ETFs in H1 2013 caused the H1 implied net investment to be a negative 613 tonnes (as would be expected), the 330 tonnes of outflow from gold ETFs in H2 2013 did not, in GFMS’s eyes, have the same effect, and GFMS’s implied net investment in H2 2013 was a positive 230 tonnes, meaning that although ETFs had an 880 tonne outflow for the full year 2013, the GFMS implied net investment was only -383 tonnes. This then creates another residual number which would have to have been a positive 497 tonnes from some other type of investment demand.

gfms world inv 2013

What else is buried in this GFMS implied net investment apart from ETF flows? It seems to have been Comex exchange activity and OTC activity that is within this implied figure, but GFMS avoids putting numbers on it, hence the confusion.

The reason given by GFMS for a positive net investment of 230 tonnes in the second half of 2013, which cancelled out approximately 500 tonnes of the ETF gold outflows, was what it calls  “significant net buying” in the OTC market.

GFMS refers to its implied net investment figure as “a proxy for institutional investor activity” and said that it “shifted to negative territory” in H1 2013. I’ve included the GFMS 2013 discussion below, just to should how convoluted and unsatisfactory this GFMS logic was. Firstly, the GFMS Update 1 report discussion on ‘implied net investment':

“The implied net (dis)investment figure is not independently calculated, but derived as the item which brings gold supply and demand into balance. The figure should therefore not be seen as an exact tonnage equivalent but instead an indication of investment activity separate from retail bar and coin demand. Additionally, although a substantial majority of this tonnage will reflect such activity, implied net (dis)investment could also include other flows that, technically, are outside the definition of investment. One example is the impact of any central bank activity that is not being picked up in our official sector figures and that would, as a result, be absorbed within our implied net (dis)investment category.”

“Despite this caveat, implied net (dis)investment typically does provide a clear indication of the overall impact of investor activity on the market for the period discussed. Furthermore, using information collected through field research and publicly available data, Thomson Reuters GFMS performs a ‘reality check’ on these values.”

“It is interesting to examine how the implied figure compares with information on activity within the different arenas of gold investment (although given aforementioned limitations in this information, it is not possible to disaggregate accurately the implied figure into these components).

Due to the nature of gold ETFs and other similar products, we are certain that the near 580-tonne decline in ETF holdings had a one-to-one impact on the volume of investment. The picture is somewhat more opaque when it comes to the futures and OTC markets. As for the former, at end-June, noncommercial and non-reportable net positions in Comex futures were 477 tonnes lower than the end-2012 figure. Turning to the OTC market, however, the first half-year saw robust volumes of investment.

 “As a shortage of bullion rapidly developed in many regional markets and local premia jumped, transactions that were related to physical gold transfer jumped in the London market. Feedback from our contacts, gold trade data and clearing statistics published by the LBMA indicate that a substantial amount of large gold bars (from redemptions of ETFs and sales from unallocated accounts) were shipped to Switzerland from mid-April to be converted to small bars for markets in Asia and the Middle East”.

In its 2013 Update 2 report, GFMS then stated the following. Notice how a lot of the text is copied over from the previous Update 1 report. Update 2:

GFMS update 2 implied

Therefore, GFMS throws a number of items into its OTC category but steers clear from committing itself to really explaining what it means by OTC activity. It states that “the OTC
market is dominated by institutional investors“. It states that  “a substantial amount of large gold bars (from redemptions of ETFs and sales from unallocated accounts) were shipped to Switzerland from mid-April to be converted to small bars for markets in Asia and the Middle East“.

It alludes to “direct shipments, albeit more restrained, from the United Kingdom to the Far East also jumped, as refineries reached full capacity.”

GFMS hazily refers to ‘metal accounts’, which I would consider to be unallocated accounts, and not directly related to absorbing physical ETF gold outflows. GFMS says in its 2013 Update 1 report that “Metal accounts held by western high-net-worth investors also posted a net rise, largely reflecting gold’s traditional role as a means of wealth preservation. This was also partly related to the ongoing shift out of gold ETFs, as metal accounts offered lower fees, while transactions in the OTC market were less transparent than in ETFs.

By the time it wrote its Update 2 report for 2013, GFMS had concluded that:

GFMS update 2 otc

So an 880 tonne outflow of gold from the large ETFs (which are predominantly based in London), as well as hundreds of tonnes of gold outflows from the Bank of England, that led to 1373 tonnes of gold being exported from the UK to Switzerland in 2013, the lions share of which were transformed into kilobars and then shipped to the Asian markets, somehow, according to GFMS, turned into only a negative 383 tonne implied net investment due to “significant net buying for the year as a whole” in the OTC market. There is no attempt to explain the 1373 tonnes of gold exported from the UK to Switzerland in 2013.

If you classify gold ETF outflows as a distinct supply category of gold, which seems logical to me and which the large Swiss gold refineries also consider it to be, then a GFMS supply-demand model would look like this:

gfms 2013 reformat ETFs

The trouble (for GFMS) then is, that the model doesn’t balance, and they are left with a 496 (or 497 tonne) item on the demand side that they can’t explicitly explain what it refers to.

World Gold Council version of GFMS 2013 data

The World Gold Council (WGC) also publishes gold supply and demand data in its annual and quarterly ‘Gold Demand Trends‘ publication. Until 2015, the WGC used GFMS data as a data source, after which it switched to using gold supply and demand data from the Metals Focus consultancy (see below for discussion of the WGC – Metals Focus switch). The WGC uses a different (and easier to understand) layout format for presenting the gold supply and demand data, but for the 2013 format, it still subscribed to the approach of putting ETF withdrawals in the demand category as a negative number.

In its ‘Gold Demand Trends – Full Year 2014′ report, which has the most complete data for 2013, the WGC states in a footnote that the source is

“Source: GFMS, Thomson Reuters; The London Gold Market Fixing Ltd; World Gold Council. Data in the table are consistent with those published by GFMS, Thomson Reuters in their Gold Survey but adapted to the World Gold Council’s presentation

WGC 2013 table

The above WGC model puts gold ETF outflows (Good Delivery bars) into its own line item, but instead of including it as Supply, the WGC puts this in a negative demand. There is also another line item under demand that the WGC calls ‘OTC investment and stock flows‘, which it defines as “Partly a statistical residual, this data is largely reflective of demand in the opaque over-the-counter (OTC) market, with an additional contribution occasionally from changes to fabrication inventories.

GFMS changes its Supply-Demand Methodology in 2014

When the GFMS 2014 Gold Survey was published in April 2014,  GFMS had surprisingly altered the methodology and formatting of its supply-demand data model to include gold ETF outflows as an explicit line item. GFMS also ditched the implied investment concept, but came up with a physical surplus /deficit plug figure instead. I say surprisingly because GFMS had used its previous supply-demand model for a long number of years. GFMS did not dwell on why this had not been done earlier, choosing instead to highlight the benefits of such a change:

GFMS 2014 methodology

Could it be that GFMS subscribers questioned as to why the huge ETF withdrawals were not explicitly listed in the 2013 GFMS supply-demand model, that forced the change? Perhaps.

The inclusion of ETF gold flows (and gold flows from gold futures exchanges) were explained as follows. The OTC category continued to seem to cause problems to GFMS. See below:


gfms meth 3

The actual re-gigged GFMS supply-demand model, redone for 2013 was as follows. The figures for 2013 are slightly different from the ones that GFMS published during 2013, since the table below was published in April 2014 when GFMS probably had updated data about 2013 compared to the reports it published during 2013:

gfms 2014

The above GFMS revised model can also be reformatted as below, moving ETF and Exchange ‘build’ to the supply side, since they are supply and not demand:

gfms 2013 using its 2014 formatting

How the 99 tonnes of Exchange Inventory supply is calculated is not clear. Net Balance of 277 became 276 due to rounding differences. Even including ETFs and Exchange Inventory, there is no explanation by GFMS of what the Net Balance referred to beyond a vague reference to OTC activity.

This GFMS 2014 Survey report was sponsored by Swiss refiner Valcambi, and Japanese refiner Tanaka, with support from Swiss refiner PAMP, the CME Group, the World Gold Council, German refiner Heraeus, Italian refiner Italpreziosi (Italy), Rand Refinery of South Africa, and Istanbul Gold Refinery. Again my question would be why not ask all of these refiners (especially the Swiss refiners) what their throughput of Good Delivery bars was during 2013.

Instead, GFMS still seemed to struggle with explaining what it calls ‘OTC trade’. It even discussed (with a straight face) the huge London gold market clearing volumes of paper gold in 2013, seemingly trying to use this as some sort of vague connection to physical bar movements:

gfms otc

As to GFMS’ assessment (on page 26) of OTC activity, there is nothing concrete offered by GFMS as to what the OTC investment consists of. It mentions bars being shipped to Switzerland and on to Asia, but why is this activity not captured in physical demand?

However, GFMS does have a section in its 2014 (discussing 2013) titled “Supply from Above-Ground’ Stocks”.

“If we include the sales of ETF holdings, then the visible supply of gold to the market from above-ground stocks was 2,160 tonnes, equivalent to 42% of total demand in 2013. The figure comprises 1,280 tonnes of scrapped fabricated products and 880 tonnes of sales from ETF stockpiles.”

And it also included a table of ‘Visible Supply’ in which it did add ETF withdrawals of 880 tonnes to the ‘SUPPLY’ side for 2013, which created a total of 5,182 tonnes of gold supply for 2013. So this is further proof that the amended LBMA gold refinery figures for 2013 are completely out of sync with reality, since even GFMS now includes this ETF supply.

GFMS Visible Supply 2013

But still, 5182 tonnes of supply does not explain 6600 tonnes of gold refining output for 2013. What about all the gold that was withdrawn from the Bank of England in 2013 and shipped to Switzerland? Does GFMS capture this central bank related flow?I can’t see anywhere in the GFMS model where these type of gold flows are captured.

GFMS claims that for official sector transactions, it uses sources such as the IMF and central bank websites, and also “our own proprietary data on undeclared central bank activity, compiled using information collected through field research“. Then why does it not capture all the gold at the Bank of England that has been lent by central banks to bullion banks which has then been withdrawn from the vaults of the Bank of England and flown to Zurich during 2013?

And even for some central bank purchases that it has learned about, GFMS won’t reveal who the purchasers were due to ‘respect of confidentiality’. What does this say for accuracy of a supply-demand model if the nontransparency of central bank transactions prohibits gold transactions being publicised? See example from GFMS Update 1 report 2013:

“South Korea raised its bullion holdings by 20 tonnes in March. The balance of gross buying in the public domain consisted of small gains in gold reserves in a handful of countries. The overwhelming majority of these purchases were made by Asian countries, including Nepal, Mongolia, Brunei and Indonesia. Apart from the aforementioned buyers, over 40% of gross purchases or some 80 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market.”

 By the time it wrote its Update 2 report for 2013, GFMS listed some additional central bank buyers during 2013, and then stated that:

“Apart from the aforementioned buyers, over 60% of gross purchases or some 225 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market.”

That’s more than 135 tonnes of central bank purchases during 2013 that were not captured in the GFMS model.


Borrowing Gold in London

In my 7 September article “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“, I included a quotation from the Financial Times on 2nd September 2015 which stated:

“The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.”

And I concluded that:

“it begs the question, why do the dealers need to borrow, and who are they borrowing from. And if the gold is being borrowed and sent to Swiss refineries, and then shipped onward to India (and China), then when will the gold lenders get their gold back?”

Scotia Mocatta, a bullion bank which is very active in the Indian and Hong Kong/Chinese gold markets, vindicated this point in its ‘Metals Monthly September 2015‘  (page 3):

“The recent low Gold price has spurred physical buying interest to the extent that lease rates have climbed as metal is borrowed and delivered to refineries to be melted into the required bar sizes (such as kilobars) before being shipped to its final destination.

 So, where in the GFMS and World Gold Council data models is this “metal that is borrowed and delivered to refineries to be melted into the required bar sizes (such as kilobars)” being reflected? It appears that these gold bar movements are not being reflected at all.


World Gold Council switch from GFMS to ‘Metals Focus’

Earlier this year, the World Gold Council (WGC) switched from using GFMS as a data provider of gold supply and demand data. In an announcement, the WGC said:

“Starting in May 2015, we will be publishing gold supply and demand data provided by Metals Focus, a leading precious metals consultancy. These data will feature in Gold Demand Trends First Quarter 2015 onwards. Previously, we sourced gold supply and demand data from GFMS Thomson Reuters. The decision to change data providers was based on rigorous market research and a competitive pitch process. For more information, please see the focus box in Gold Demand Trends First Quarter 2015”

The focus box in Gold Demand Trends First Quarter 2015 states:

When new data sets become available and new methodologies are developed, we review how these might complement and advance our own methods. To that end, in 2014 we conducted a rigorous assessment of the gold market data landscape – a process which involved an in-depth review of a number of leading data providers. Following this review we appointed Metals Focus as the provider of our core demand and supply statistics.

“The World Gold Council is committed to publishing the most accurate gold demand data available. We are confident that the move to Metals Focus supports this aim.”

What the WGC didn’t mention in its press release nor in its Gold demand Trends Q1 2015  report is that in October 2013, the WGC purchased a 50% shareholding in Metals Focus Data Limited via its subsidiary WGC (UK) Ltd. The other 50% is owned by Metals Focus Limited. Surely this 50% shareholding is material information that should have been divulged by the WGC in its ‘focus box’ statement above? With its recent emphasis on costs savings, the WGC may have opted for switching from GFMS to Metals Focus partially because it may save money by using a data provider that it has an ownership interest in.

From the WGC 2014 financial statements:

WGC Metals Focus

WGC (UK) Ltd (Company No. 07867682) is a fully owned subsidiary of the World Gold Council, operating out of the same address as the parent company, 10 Old Bailey, London.

Metals Focus Data Limited is a joint venture for “the collection of data relating to the supply and demand for precious metals and licensing of data to third parties”.

What is Metals Focus Limited?

Metals Focus Ltd (Company No 08316950) was incorporated in December 2012, and was founded by Nikos Kavalis, Charles de Meester and Philip Newman, all of whom have previously worked at GFMS. Kavalis (through Premier Metals Consulting Ltd), de Meester and Newman each own a 28.87% shareholding in Metals Focus according to CompanyCheck. Metals Focus 2013 accounts can be seen here.

Metals Focus Data Limited, the 50-50 joint venture between the World Gold Council and Metals Focus Ltd, whose latest accounts can be seen here, has the following directors: Nikos Kavalis, Philip Newman and Lisa Mitchell of Metals Focus, and Terry Heymann, an MD at the World Gold Council.

Some of the sponsors of Metals Focus and its reports include Swiss refiners Valcambi and PAMP/MKS PAMP, other refiners Asahi Refining,  TCA (Italian precious metals refining), the World Gold Council (obviously), Brady Commodity Software Solutions, the CME Group, and G4S. So Metals Focus could also obtain very direct data from at least these Swiss refineries as to their throughput of Good Delivery gold bars.

Although the World Gold Council has now switched data suppliers to Metals Focus since earlier this year, in its 2015 Q1 Gold Demand Trends, it still uses the same supply-demand presentation format as previously,  with ETFs in 2013 being classified as negative demand and not supply. Interestingly, in the Metals Focus data, the ETF line item for 2013 has now risen to 916 tonnes.

wgc metals focus pres



With 6,600 tonnes of Good delivery refinery gold refining production confirmed by the LBMA to have taken place during 2013 (before the LBMA altered its data), you can see in the above analysis that this is problematic for the models of GFMS, the World Gold Council and possibly the model of Metals Focus too. Since the LBMA is sent refining data by its members, then, if it chose to, the LBMA could generate very accurate data for gold and silver refinery output for all of 2014 and nearly all of 2015.

Almost all other industries are able to publish accurate industry production figures with a minimal lag of maybe 2-3 months that provide an up-to-date snapshot of that industry’s activity. This is also true of economic data such as labour statistics and housing starts. Why then is it so hard for the LBMA to publish full and comprehensive gold refinery output data on a quarterly basis?

If this reporting procedure was put in place, the global gold industry would have far more clarify and insight into the huge flows of kilobar gold that are, on a daily and weekly basis, now being flown from Switzerland into Delhi, Ahmedabad, Chennai, Bangalore, Hyderabad and Kolcata in India, and that are also flowing at a torrential rate through Brinks vaults in Hong Kong and on into China.


Moving the goalposts….The LBMA’s shifting stance on gold refinery production statistics

On Friday 31st July 2015, I released an article discussing the sale of Swiss gold refiner Valcambi to Indian jewellery company Rajesh Exports. In my report, in a section about Valcambi’s annual gold refining capacity, I made passing reference to 2013 gold refining production statistics that had been published by the London Bullion Market Association (LBMA) on 1st May 2015. These same gold refinery production statistics had also been quoted by the LBMA as recently as July 2015 in the news section of Issue 78 of its ‘Alchemist’ magazine, (published on 21st July 2015, just a week before my article).

The reference in my article to 2013 LBMA gold refiner production statistics discussed the unprecedented 6,601 tonnes of gold that was refined in 2013 by gold refineries on the LBMA’s Good Delivery List. My reference to this 6,601 tonnes on 31st July, including a short table of LBMA data, was as follows:

“Rajesh Exports just revealed in its press release that over the last 3 years, Valcambi has refined an annual average of 945 tonnes of gold and 325 tonnes of silver (2835 tonnes of gold and 975 tonnes of silver over 3 years). Presumably the last 3 years that Rajesh mentions refers to the last 3 calendar years of 2012-2014.

The London Bullion Market Association (LBMA) doesn’t reveal annual production data of its refinery members on an individual level, however, the LBMA recently published high level totals of the refined gold production of its accredited refiners (LBMA Good Delivery List) over the years 2006 to 2013. What was striking about the data was that total refined gold production of its refinery members reached 6,601 tonnes in 2013, which was 42% higher than total refined gold production in 2012, and also more than double global mine production of 3,016 tonnes of gold in 2013. See table below from LBMA publication:

Total annual refined gold and silver production by LBMA refiners 2006-2013 (tonnes)

Refinery output 2006-2013

So with Valcambi being the largest gold refinery in the world, it would be realistic to suggest that its annual average of 945 tonnes of refined gold output over the last 3 years probably hides the higher refined gold production that it too experienced in 2013 versus 2012.”

In the first quoted paragraph, above the table, I had hyperlinked the word ‘publication’ to a LBMA source document URL which pointed to a pdf document named ‘LBMA Brochure Final 20150501.pdf’.

The ‘LBMA Brochure Final 20150501.pdf’ file was a 4 page document titled “A guide to The London Bullion Market Association”, with the refinery production statistics appearing on page 3 under a page title “The LBMA Good Delivery List”. The file ‘LBMA Brochure Final 20120501.pdf’ was created on 2015-05-01 at 10:09:50 using the applications Adobe InDesign CS 5.5 (7.5) and Abode PDF Library 9.9.

In the refinery section of the LBMA Brochure Final 20120501.pdf’ document, the LBMA’s commentary first explained what the Good Delivery ‘List’ refers to, as well as listing the number of gold and silver refineries on the List, and then proceeded to comment on the ‘Total refined gold production of the refiners on the Listin 2013, which it stated was 6,601 tonnes. The LBMA commentary also highlighted that this 6,601 tonnes of refined gold production by the refiners on the List was ‘more than double‘ 2013 world mine production of 3,061 tonnes.

The ‘List’ specified 72 refineries which refined gold, and 83 refineries which refined silver. It also showed that 16 refineries which refined gold were in Europe, 43 in Asia, 11 in the Americas, and 1 each in Africa and Oceania. So the 6,601 tonnes of gold statistic for 2013 represented 72 refineries on the Good Delivery List which refined gold. And the LBMA made clear in its commentary that refiners on the Good Delivery List represent 85%-90% of world gold production:

original - GDL List

From Page 3 of 'LBMA Brochure Final 20120501.pdf'
From Page 3 of ‘LBMA Brochure Final 20120501.pdf’

As mentioned above, the LBMA also printed the same 2013 gold refining figure of 6,601 tonnes in Issue 78 of its magazine, ‘Alchemist’, which was published on 21st July 2015. Alchemist is published in both hard copy magazine format and on-line. In the ‘LBMA News’ section of Issue 78, viewable here and here(Alch78LBMANews), the LBMA Chief Executive, Ruth Crowell, provided a news update on the Association’s Physical Committee, stating:

Total refined gold production represented by the accredited refiners on the LBMA’s Good Delivery List was 6,601 tonnes in 2013, more than double mine production of 3,061 tonnes. For silver, refined production by listed refiners was 24,570 tonnes, marginally below the 25,494 tonnes of mine production in the same year.”

 [The full issue of Issue 78 of The Alchemist can be viewed here (large file)]

According to the LBMA, the ‘Physical Committee is made up of industry experts from the physical bullion market“, therefore this physical committee is well aware of the 6,601 tonnes of gold refinery production figure in 2013, not least because it’s printed in the committee’s news section in the latest edition of the Alchemist.

The explosion in gold refining activity in 2013, and the huge throughput of Good Delivery bars being transformed into smaller higher fineness bars for the Asian gold market was without doubt one of the biggest stories in the gold world during 2013. I had cited the 6,601 tonnes figure to help support a calculation about Valcambi refining capacity, and my reference wasn’t really central to the main topic of my Valcambi article. But it was a topic that I was planning to re-visit, and I tweeted about it on 4th June when I first read the LBMA report that contained the 6,601 tonnes data:


All of the above seems logical and easy to understand. It was therefore surprising to notice that on Wednesday 5th August 2015, three business days after my Valcambi articles was published, the LBMA substantially amended the gold refinery figures in the file ‘LBMA Brochure Final 20150501.pdf‘, and dramatically lowered the 2013 refined gold production figure from 6,601 tonnes to 4,600 tonnes, while substantially altering the wording and meaning of the paragraph commenting on the refined tonnage. The document content was amended and re-saved with the same file name LBMA Brochure Final 20150501.pdf‘, and left in the same web directory. So anyone viewing the LBMA document for the first time would not know that the gold refining figures in the report had been altered and substantially reduced. The file directory in question is here, and contains the altered report:


(The ‘%20’ instances are just space delimiters within the URL)

Luckily, the original version of ‘LBMA Brochure Final 20150501.pdf‘ from 1st May 2015 can be viewed here -> LBMA Brochure Final 20150501.

Let’s look at what was changed between the two versions. Here is the exact updated LBMA text and data table after the Wednesday 5th August changes, including the matrix displaying the number of gold and silver refineries on the ‘List’. The number of refineries remained unchanged. However, notice the 2013 gold refining figure became 4,600 tonnes:

GDL List in updated version - no change

Page 3 of the 5th August changed version of 'LBMA Brochure Final 20120501.pdf'
Page 3: changed version of ‘LBMA Brochure Final 20120501.pdf’ 5th Aug

If you compare the original and altered versions of this LBMA report, you will see substantial differences. Here is a description of the changes, which I have highlighted using italics, underline and bold in various places, and the LBMA’s text is indented:

a) For gold, the LBMA reduced the 2013 total refinery production figure from 6,601 tonnes to 4,600 tonnes, a reduction of 2,000 tonnes of gold. To put the sheer magnitude of 2,000 tonnes of gold into perspective, 2,000 tonnes of gold is nearly twice as much gold as the Swiss National Bank (SNB) officially reports that it holds. [The SNB claims to have 1,040 tonnes of gold].

The LBMA added that words ‘estimated to be‘ in front of the 4,600 tonnes figure, and the words ‘owing to recycling of scrap material‘ were added after the figure. The ‘more than double‘ reference to the 6,601 tonnes of gold being more than double world mine production, was deleted and replaced by the word ‘above‘. The words ‘source Thomson Reuters GFMS‘ were added in brackets at the end of the sentence. The wording of “total refined gold production by the refiners on the List was retained and not altered.

“Total refined gold production by the refiners on the List was estimated to be 4,600 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes (source Thomson Reuters GFMS).”

b) For silver, the 2013 total refinery production figure of 24,570 tonnes was increased to 29,984 tonnes, an increase of 5,500 tonnes. The words ‘estimated to be‘ were also added in front of the 29,984 tonnes figure. Unlike gold, no wording was added about recycling of scrap material. Since the LBMA upped the 2013 silver total so much, it was now far above mine production, so the previous words ‘marginally below‘ were replaced by the word ‘above‘.  Again, the words ‘source: Thomson Reuters GFMS‘ were added in brackets at the end of the sentence.

For silver[,] refined production by listed refiners in 2013 was estimated to be 29,984 tonnes, above the 25,981 tonnes of mine production in 2013 (source: Thomson Reuters GFMS).

c) The altered text still retained all of the references to the Good delivery refiner ‘List’, and still stated that the figures in the table were for ‘estimated annual refined gold and silver production by the refiners on the List’.

“The Gold refined by refiners on the List make up about 85-90% of world production. Total estimated annual refined gold and silver production by the refiners on the List are shown in the table below (tonnes).”

 d) The years 2006 and 2007 were removed entirely from the table in the changed version from 5th August, with the revised version only covering the years 2008 – 2013 and not 2006 – 2013 as per the original.

As the number of gold refiners in the ‘List’ above remained the same in this altered version as in the original version, there can be no doubt that this refers to the same group of gold refiners which had combined production output of 6,601 tonnes of gold in 2013 yet also, simultaneously (and impossibly) according to this altered version of the report, had a combined 4,600 tonnes of gold production output in 2013.

Total refined gold production of the refiners on the List

Question: How does the LBMA know that “Total refined gold production of the refiners on the List” was 6,601 tonnes in 2013?

Answer: Because the Good Delivery refiners provide annual refinery production figures to the LBMA. It’s as simple as that.

Every refiner on the LBMA’s Good Delivery list is required to provide production data to the LBMA on an annual basis. This information is required by the LBMA as part of its obligatory Pro-Active Monitoring (PAM) programme of Good Delivery refiners. The PAM programme is defined by the LBMA as follows:

“The PAM programme reviews the assaying competence of refiners on a three-yearly basis. In addition, it checks that they continue to meet the minimum requirements for refined production and tangible net worth on an annual basis.”

This production data was supplied to the LBMA on a three-yearly basis until 2011, but the rules were changed in 2011 to an annual basis. From ‘Alchemist’ issue 65, December 2011:

“Some important changes in the Rules have been agreed recently. The first is that refiners will have to provide data on their tangible net worth and production on an annual, rather than a three-yearly, basis.”

In the LBMA’s most recent Good Delivery Rules from March 2015, ‘Section 10 Pro-Active Monitoring’ states that:

All current Good Delivery refiners are also required to submit their production and audited financial data on an annual basis to the Executive. “

Annex A of the same document, clarifies the compliance date and states:

“With effect from 1st January, 2012, all current Good Delivery refiners are required to submit their refined production and audited financial data on an annual basis to the Executive.”

Additionally, refiners applying to be accepted on the LBMA’s Good Delivery list need to submit a three year operating history with three years of production figures as part of the application. Annex A (Application Form), addressing what to include with an application, states that required documents include:

  • Figures for the last three years’ annual production of refined * gold/silver in tonnes.
  • Estimate of next two years’ annual production of refined * gold/silver in tonnes.

The asterick (*) states that ‘refined’ refers to “metal which has gone through a refining process, such as electrolysis, Miller Process or Aqua Regia refining“. These processes would apply to Good Delivery bars that were being converted into 9999 fineness kilobars for the Asian gold market.

Therefore, the LBMA knows exactly, down to the exact tonne, the figure for “total refined gold production of the refiners on the List” in 2013.

In issue 74 of the LBMA’s ‘Alchemist’ published in June 2014, when the LBMA’s Physical Committee was providing a news update on ‘Pro-active Monitoring’, and reviewing the 2011 refinery production statistics which had just been finalised at that time, the Committee highlighted the following:

A number of issues arising from proactive monitoring of refiners on the list have also been discussed….Two very interesting numbers arising from this work are the figures for total refined production represented by the accredited refiners. Although it takes time to complete this data collection, the figures for 2011 are now complete. The total for gold is 4,695.8 tonnes and for silver is 28,395.5 tonnes, in both cases significantly above the respective world mine production of 2,838.1 tonnes and 23,545 tonnes.

It appeared that the writer of that paragraph thought that the two refining numbers were interesting enough to be comment worthy because the numbers were ‘significantly above‘ the world mine production figures.

The LBMA also administers a ‘Responsible Gold Audit Programme’ for gold refiners on its Good Delivery List. The audit seeks to determine whether a refiner complies with the LBMA’s ‘Responsible Gold Guidance’. The actual audits are carried out by independent auditors that have been approved by the LBMA, but the audit results are passed back to the LBMA. For example, in February 2014, the LBMA issued a press release announcing  that 4 refiners had successfully passed the audit. The announcement mentioned that:

the audit reviewed the refiners’ production over a 12 month period. The LBMA received a large volume of reports in late 2013, and will continue to report in the coming weeks as each batch is reviewed.”

Therefore, the audits are another way in which the LBMA keeps track of the refiners production, in addition to the reporting coming in from the Pro-active Monitoring programme. Either way, the LBMA knows the refinery production statistics of the Good Delivery refiners and does not need to get estimates from GFMS or any other body.


Thomson Reuters GFMS

Given the above, then why the sudden need by the LBMA on 5th August 2015 to include a reference to  “source Thomson Reuters GFMS“? By including the reference to “owing to recycling of scrap material”, it is clear that the intention was to solely relate the 4,600 tonnes of gold quoted to just two sources, namely, gold mining and gold scrap recycling. Furthermore, why had the figure suddenly become an ‘estimate’ and who was responsible for the estimate? There is no need for estimates of refinery production when every refinery on the Good Delivery ‘Lists’ provides the exact real production figures to the LBMA.

Additionally, what was the reason for suddenly throwing a perfectly logical paragraph out the window which had referred to gold refinery production statistics for 2013 collected by the LBMA, and replace it with an estimate about gold mining and scrap recycling from a company, GFMS, which does not specialise in collecting gold refinery production statistics?

What is GFMS?

GFMS was a metals analysis consultancy firm, that was acquired by Thomson Reuters in August 2011. GFMS was formerly known as Gold Fields Mineral Services. The group within Thomson Reuters is now known as Thomson Reuters GFMS. GFMS gathers supply and demand figures for gold and other precious metals, and publishes an annual gold survey and related update reports.

GFMS’s supply data for gold mine production and gold scrap is not the same metric as gold refinery production output, and is not even close to being the same metric, especially in 2013 when there were huge amounts of Good Delivery gold bars re-smelted and re-cast into smaller gold bars in Switzerland and other places for onward shipment to Asia.

‘LBMA Overview Brochure.pdf’

The LBMA also makes reference to annual gold and silver refinery figures in another document on its website, in a file named ‘LBMA Overview Brochure.pdf‘. This document is located in a ‘presspack’ directory, presumably for use by the LBMA’s Fleet Street press contacts. This document has, in its various iterations, included a paragraph with identical phraseology  about refinery production statistics i.e. ‘Total refined gold production by the refiners on the List‘, and has also included a similar table of gold and silver production statistics of LBMA accredited refineries.

On Saturday 1st August, the version of this other file, the ‘LBMA Overview Brochure.pdf‘ document on the LBMA web site, had also been altered with some very strange temporary alterations inserted for 2013 gold and silver refinery production statistics. All of the annual refinery figures in the entire table had been blanked out of the table with the shorthand ‘n/a‘ substituted in each row. The text had also been changed, and 4,848 tonnes had been inserted as the gold refineries’ production figure for 2013, and 30,934 tonnes for silver, with the word ‘above‘ added before world mine production for both metals. The overwritten figures and text appeared in a  slightly scrawled text font (see below). GFMS was not mentioned in this file. The file, on 1st August, in its web directory (http://www.lbma.org.uk/assets/downloads/presspack/) rendered in a web browser as follows, when this image was recorded:

31st July 4848

 Why 4,848 tonnes?

So, where did this 4,848 tonnes figure for gold, and 30,934 tonnes for silver come from? These numbers are another entirely different set of figures for 2013, a third set if you will. To answer where these numbers came from, we need to turn to a presentation given by Stewart Murray, former LBMA CEO, at the LBMA’s Assaying and Refining Conference held in London between 8th – 10th March 2015. In a presentation titled ” The LBMA Good Delivery List, Recent and Future Changes“, on 9th March, Murray utilised slides which, on page 9 showed the following:

Murray slide 9 assaying and refining pres refinery prod stats

Notice, that for 2013, the figures are 4,848 tonnes for gold, and 30,934 tonnes for silver. This dataset also only goes from 2008 to 2013.

GFMS also makes another appearance in this slide, with a GFMS combined mine production and recycled scrap figure for 2013 being quoted as 4,302 tonnes for gold, and 31,460 tonnes for silver, respectively.

The next slide in that presentation, slide 10, even gives a regional breakdown of the 4,848 tonnes and 30,934 tonnes figures, attributing 1,790 tonnes of gold refining to Europe in 2013. Keep these figures in mind as we go through this maze of numbers.

Murray slide 10 regional refinery breakdown

Slide 6 of the same presentation showed a line graph of the Good Delivery gold refiners that were referred to in the production figures in slide 9. You can see that the numbers of refiners in each line as at 2014 equate to the numbers of gold refiners in the ‘List’ of the original ‘LBMA Brochure Final 20150501.pdf‘ file, i.e. 16 gold refiners in Europe, 43 in Asia, 11 in the Americas, 1 in Australia (which was Oceania in the List – the Perth Mint), and 1 in Africa (Rand Refinery). So again, there can be no doubt that they are the same refiners being referred to here that had a production output of 6,601 tonnes of gold in 2013, and at the same time 4,848 tonnes. So the same refiners have been at work in 3 parallel universes during 2013, or so it may seem.

GD gold refiners graph murray

By Wednesday 5th August, the ‘LBMA Overview Brochure.pdf‘ file had also been updated and re-saved, and contained the exact same commentary text and the exact same table of refinery production output figures as the altered ‘LBMA Brochure Final 20150501.pdf‘, i.e. the 4,848 tonnes figure was gone and was replaced by 4,600 tonnes, and the file was re-saved by the LBMA with the same file name, and left in the same file directory that it had been in, i.e.


Again, a first time viewer would not know by looking at the report that the gold and silver refinery production figures had been altered and the text edited.

What do the document properties of the re-saved ‘LBMA Brochure Final 20150501.pdf‘ and ‘LBMA Overview Brochure.pdf files, saved on Wednesday 5th August tell us?

LBMA Brochure Final 20150501.pdf‘ was saved at 15:49:48 on 5th August by author name Aelred Connelly. Then 29 seconds later at 15:50:17 on 5th august,  file LBMA Brochure Final 20150501.pdf‘ was also saved by author name Aelred Connelly. Aelred Connelly is the LBMA’s Public Relations Officer, ex Bank of England for more than 25 years, where he was a gold bullion analyst and a relationship manager for the Bank’s central bank and government customers.

brochure final 20150501 connelly 5th aug

overview brochure connelly 5th Aug

So, what is going on here?

Could it be that the LBMA’s original figure of 6,601 tonnes of refinery gold production in 2013 should not have been published for some reason, and needed to be quickly changed, for example, that the publication of this metric breached refiner confidentiality, or that it just made the GFMS supply numbers look way out of line with reality?

Previous LBMA documents discussing refined gold production

There are a number of other slightly older LBMA reports, brochures and other documents which discussed and recorded Good Delivery refinery annual production statistics. The interesting aspect of these other files, apart from the numbers, is that the syntax and wording is identical to the version from 1st May 2015 which I had quoted and which disappeared by 5th August. Furthermore, none of the older versions match (in style) the new versions that use ‘estimates’ and that refer to Thomson Reuters GFMS.

The previous syntax also seemed totally adequate for use by regulatory agencies such as the US SEC, and the UK Treasury’s Fair and Efficient Markets Review.

A file here refers to 2009 refinery figures. The same statistics were quoted in version created on 19th April 2012, for use in a LBMA meeting with the US Securities Exchange Commission (SEC) on 18th April 2012:

“Total refined gold production by the refiners on the List was more than 4,000 tonnes in 2009, well above world mine production of 2,611 tonnes. For silver, refined production by listed refiners of 22,800 tonnes was marginally greater than the 22,342 tonnes of mine production in the same year.”

Then there is another version that was saved as 23rd May 2014 but refers to 2011. It was also used in January 2015, in a letter from the LBMA to the Fair & Effective Markets Review, Bank of England:

“Total refined gold production by the refiners on the List was 4,695.8 tonnes in 2011, well above world mine production of 2,838.1. For silver, refined production by listed refiners of 28,395.5 tonnes was greater than the 23,545 tonnes of mine production in the same year.”

Another newer version  on 12th August 2015

There is also an even newer version of a file specifying “total refined gold production by the refiners on the List” now uploaded on the LBMA web site. This latest document, called “A guide to The London Bullion Market Association August 2015“,  is from 12th August 2015.

“Total refined gold production by the refiners on the List was estimated to be 4,579 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes (source: Thomson Reuters GFMS). For silver, refined production by listed refiners in 2013 was estimated to be 28,013 tonnes, above the 25,981 tonnes of mine production in 2013 (source: Thomson Reuters GFMS). The Gold refined by refiners on the List make up about 85-90% of world production. Total estimated annual refined gold and silver production by the refiners on the List are shown in the table below (tonnes).”

In this version, a refinery in China (Daye Nonferrous Metals Company) was accredited to the Good Delivery List for gold in June 2015, and so it was moved from the silver only category to the gold and silver category on the List. Why the 2013 gold production figure was then reduced again from 4600 tonnes to 4579 tonnes is unclear,  and even more mysterious is why the 2013 silver production figure became 28,103 tonnes,when in the two report versions from 5th August LBMA , the 2013 silver production total had been 29,984 tonnes. That’s a reduction of 1,871 tonnes of silver between 2 LBMA reports that were published a week apart.

Table: Comparisons – LBMA refinery production (1st May vs 5th August vs 9th March)

lbma data comparison table

It is not just 2013 where the refinery production statistics deviate significantly for both gold and silver. For gold, the altered figures were applied to 2012, 2011 and 2010 also. For 2009 and 2008, the revised data is actually higher for gold than the 1st May 2015 published version. The differences in 2010, 2011, and 2012, and indeed, 2008 and 2009 require explanations also.

For silver, the altered figure for 2013 is, as mentioned earlier, more than 5000 tonnes higher in the newer version. This article has focused on gold. I have not looked at the silver angle. Other people may wish to explore the silver angle.

The figures in the newer LBMA documents of 5th August are very close to the figures used by Stewart Murray in his 9th March presentation, except for 2013 in gold and silver, and in silver in 2012. There is still however, a 248 tonne difference between the 4,848 tonnes 2013 gold production figure quoted by Murray on 9th March, and the lower 2013 gold figure of 4,600 tonnes added into the LBMA documents on 5th March.


There are 2,300 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the  6,601 tonnes figure that was removed from the LBMA’s reports on 5th August 2015.

Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?

The objectives of HM Treasury’s Fair and Efficient Markets Review (FEMR) include transparency and openness. It would appear that altering already published gold refinery statistics, especially for 2013, seems not to be in the spirit of these FEMR objectives.

Part 2 of this analysis of the LBMA’s 2013 gold refinery statistics looks behind the 6,601 tonne number at the phenomenon of Good Delivery bars being processed through the Swiss gold refineries in 2013, the gold withdrawals from the London-based gold ETFs, and the huge shipments of gold from the UK to Switzerland in 2013. Part 2 also examines the 2013 withdrawal of gold from the Bank of England, and how GFMS and the World Gold Council tried to, or tried not to, explain the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013.

Swiss Gold Refineries and the sale of Valcambi

The normally low-key Swiss gold refining market has been thrown into the spotlight with the announcement that private company Valcambi, the world’s largest gold refinery, is being acquired by Indian group Rajesh Exports Ltd (REL), the world’s largest gold jewellery manufacturer.

This acquisition is worth analysing for a number of reasons, namely will the Valcambi-Rajesh transaction impact marginal gold supply out of Switzerland and elsewhere, and how will the transaction, if at all, increase the likelihood of other large gold refineries becoming future acquisition targets?

Mesaric Mehta

Telegraphed Transaction

The announcement of the Valcambi acquisition should not come as a surprise because it was telegraphed in early July by the Economic Times of India. In its article, the Economic Times revealed that Rajesh Exports was in discussions to acquire a large stake in a Swiss gold refinery, and although the identity of the acquiree was not confirmed at that time, the Times said that Rajesh had “sounded out Valcambi…on a possible transaction”.

Since both Rajesh and majority Valcambi shareholder Newmont Mining declined to comment at the time (with Rajesh citing stock exchange rules), the Times and its industry sources were left to speculate that two of the other three large Swiss refineries, Argor-Heraeus or Metalor, might instead be targets, as opposed to Valcambi. Notably, the 4th large Swiss gold refinery, PAMP, was not mentioned in the Economic Times report.

The Times report would suggest that Rajesh Exports took the initiative in searching for a leading precious metals refinery to purchase. However, now that the acquisition has been announced, Rajesh Exports states that it was the Valcambi shareholders who initiated the search for a buyer. In its press release Rajesh states that:

the owners of Valcambi conducted a global search for divesting Valcambi, after an extensive search selected Rajesh Exports to acquire Valcambi.

That the search was prolonged was confirmed by India’s Business Standard, which also highlighted that Rajesh Exports was simultaneously on the look-out for a suitor:

Valcambi shareholders were looking for a buyer for quite some time. We (Rajesh) were also looking to deploy our cash at a safe place, which could generate a fair amount of business interest and help us grow. So, both of us came together and the transaction was concluded.”

But the transaction looks predominantly to have been a strategically planned sale of Valcambi by its holding company European Gold Refineries (i.e. its owners Newmont Mining and a private Swiss investor group), with what looks like input and advice from investment bank Credit Suisse.

A Quick Recap on Valcambi

Before discussing the Valcambi acquisition, its important to understand the Valcambi shareholding structure and the various parties involved with the refinery over its 54 year history.

Balerna based Valcambi was originally incorporated in the southern Swiss Canton of Ticino as Valori & Cambi SA on 15 May 1961, and changed name to Valcambi SA on 30 June 1967. The founders of the original Valori & Cambi, like its successor, seem to have wanted to maintain low profiles, because other than the fact that it was founded by ‘5 Swiss businessmen/entrepreneurs from Mendrisio”, there is little in the public record to identify who these 5 individuals were, since the online company register records don’t so back that far.

In 1967, Credit Suisse bought 50% of the Valcambi refinery, followed by the purchase of another 30% stake in 1968. The final 20% shareholding was purchased in 1980, giving Credit Suisse 100% control of Valcambi from 1980 up to December 2003. In that era, it was not unusual for a large Swiss bank to own a gold refinery, and the other 2 large Swiss banks of the day, UBS and SBC, also owned their own gold refineries (UBS owned Argor and SBC owned Metalor).

In December 2003, some of the same founders of Valcambi (from 1961) joined up with Newmont Mining and established a company called European Gold Refineries SA (EGR), which was 50% owned by Newmont and 50% owned by a group of Swiss investors (whose identities are not easily discernible). EGR then simultaneously bought 100% of Valcambi SA from Credit Suisse, and at the same time acquired a 66.65% shareholding in a company called Finorafa SA, which was a large gold distribution and financier business into the Italian jewellery market.

In their 2003 funding of EGR, Newmont and the Swiss private investor group each put up CHF 15 million in equal combinations of equity and debt.

In early July 2007, Mitsubishi International Corporation (MIC) of Japan bought a 6.55% shareholdings in EGR, with an option to buy a further 26.78% stake by 15 August 2007 (i.e. over 33% in total). Mitsubishi failed to take up its option in August 2007 to buy a larger shareholding in ERG, so this left Newmont and the Swiss investor group each with a shareholding of 46.725%, since their 50% stakes were each reduced by half of the Mitsubishi International Corporation of 6.55%, i.e. reduced by 3.275% each.

Newmont then bought another 15,960 shares in EGR from some of the private investors in April 2008, which increased its stake from 46.725 to 56.67%. This left the Swiss investor group and Mitsubishi holding a combined 43.33%. By this time ERG owned 100% of Finorafa SA as well as 100% of Valcambi, but Finorafa SA was by that time inactive.

Then in mid-November 2008, Mitsubishi had a change of mind and sold its 6.55% stake back to Newmont and the Swiss private investor group. These resold shares seem to have been split fairly equally between Newmont and the private investor group, bringing Newmont’s stake up to 60% By 2009, Finorafa, although owned by EGR, was in liquidation.

For the Valcambi transaction, Rajesh Exports has actually bought European Gold Refineries SA (EGR), which has full ownership of Valcambi SA. To purchase EGR, Rajesh established a Swiss company called Global Gold Refineries AG, which happens to be registered in the Canton of Lucerne (See company register here).

In turn, Global Gold Refineries AG is 95% owned by REL Singapore Pte Ltd, and 5% owned by Rajesh Exports Ltd India (and REL Singapore is fully owned by Rajesh Exports India). See here for the corporate structure of Valcambi and the holding companies. According to Rajesh, REL Singapore was set up primarily to execute international acquisitions and to source gold from mines.

Valcambi plant

Who were the Swiss Investor Group?

Note that since the acquisition of Valcambi by Rajesh Exports, there are now only 2 directors listed under the Valcambi Board of Directors, namely Valcambi CEO Michael Mesaric, who is staying on as CEO, and new chairman Federico Domenghini. Domenghini is also listed as the only director of the holding company Global Gold Refineries (see above). Interestingly, Michael Mesaric worked in senior roles at Credit Suisse between 1990 and 2002 before joining Valcambi, and is the first of our Credit Suisse connections.

The penultimate board of directors of Valcambi before the acquisition consisted of 6 individuals, 5 of who have now left the board. This penultimate list of directors can be seen here.

Although the full details of the Swiss investors behind Valcambi appear to be hard to find, some potentially relevant facts can be gleaned from the commercial register of the Canton of Ticino and also from the most recent pre-acquisition list of Valcambi board of directors. In addition, Rajesh mentioned one of the main private investors in its stock exchange press release (see below).

European Gold Refineries SA (EGR) was incorporated in Ticino in December 2003. Since 2003, the members of the board of EGR have been a selection of Newmont appointee directors, a selection of Mitsubishi appointees (for a short period), and a handful of other appointees. It is this third group of directors which may provide clues as to who the ‘Swiss private investors’ are, or at least who represents them.

Looking at EGR’s extract from the commercial register, in reverse date order, the most recent directors of EGR representing Newmont Mining (up until late July 2015) were Thomas Mahoney (chairman), Andrew Strelein, and David Farley. In addition, Carlo Camponovo, Luciano Martelli, and Michael Mesaric were listed as directors. Given that Mesaric is the CEO, this leaves Carlo Camponovo and Luciano Martelli as potential representatives of the Swiss investors, because logically, the Swiss private investors would need representatives on the board.

Going back further, ex-directors of Valcambi include Frank Hanagarne, Darren Morcombe, and Pierre Lassonde, all of Newmont, and Haydar Odok and Toshiro Sakai of Mitsubishi. After that we are left with 3 other directors, namely, Davide Camponovo, Emilio Camponovo, and Marco Cavuoto.

From the recent Valcambi board of directors profiles, Luciano Martelli works at Aurofin SA, and is also a director of Aurofin SA. Martelli has in the past also worked at Credit Suisse. Aurofin is a precious metals trading and financing company that was established in 1969 by Emilio Camponovo. Emilio Camponovo is still chairman of Aurofin.

Carlo Camponovo’s Valcambi profile states that he also worked at Credit Suisse from 1993 to 1997, and then worked at Finorafa SA, which is the second company that EGR owned from 2003 until it was liquidated in 2009. Marco Cavuoto was also a director of Finorafa until 2008.

The main reason for illustrating the above is to show the connections between Valcambi, Aurofin, Finorafa, and tangentially Credit Suisse, and also the Camponovo connections. Furthermore, it illustrates the low-key approach that Valcambi seems to have had in specifically naming its private shareholders.

The Valcambi web site even states that “In Switzerland and beyond: our firm deliberately keeps a low profile but has over the years become a key player in the precious metals refining industry” and to prove the point, the quotation is attributed to an unnamed ‘board member’!

Ironically, in the acquisition press release, Rajesh Exports dropped the low-key approach and provided some additional information about the Valcambi shareholders when it mentioned “Mr. Emilio Camponovo” as “the founder and current major share holder of Valcambi“. This suggests that the Camponovos were in the driving seat for the Valcambi sale alongside Newmont (and possibly Credit Suisse as navigator).

The Deal

Since Valcambi SA and European Gold Refineries SA are both private companies, there is little financial information available about either company. This has even stumped some of Newmont’s sell side analysts on Wall Street, who in their coverage of the sale admit that since Valcambi is a private company, they don’t have much visibility into Newmont’s disposal of Valcambi beyond knowing the net proceeds of the deal.

The Economic Times article on 1 July appears to have had very knowledgeable sources in India since it accurately foresaw that the deal was an all-cash deal for $400 million, 70% of which would be financed from Rajesh’s resources, and the other 30% from “overseas borrowings”.

This was highly prescient, since the announced acquisition turned out to be an all cash deal for $400 million, and Rajesh Exports confirmed at its press conference on 27 July that 30% – 35% of the consideration will be financed by long-term debt (provided by Credit Suisse, no less).

The Rajesh Exports press release states that over the last 3 years, Valcambi booked revenues of US$ 38 billion per annum, and earnings before interest, tax, depreciation and amortization (EBITDA) of US$ 33 million. These revenues look astronomical but they represent the annual average precious metals flows through the refinery being booked at market values (i.e. 945 tonnes of gold and 325 tonnes of silver per annum at market values).

Newmont (the 60% shareholder) will receive net proceeds from the sale of US$119 million. That could mean $200 million net proceeds to the entire shareholder base. Although its unclear as to exactly how much (in net proceeds) the private investor group received. Given that Rajesh is paying $400 million for Valcambi, Rajesh is also taking over or paying down some of the debt of EGR or Valcambi, or else Valcmabi has a quantum of cash on its balance sheet, or both.

Now that the deal has been announced, Newmont has pitched the sale of its stake as a disposal of a non-core asset which it claims will help pay down its debt and focus on its core business. So, being the largest shareholder of Valcambi, and actively wanting to dispose of non-core assets, this reinforces the view that Newmont was the primary driver of the entire ‘global search’ for a buyer of Valcambi.

As mentioned above, Credit Suisse has a long history of involvement with the Valcambi refinery, having fully owned Valcambi from 1980 to 2003. Credit Suisse’s involvement in the new deal also points to ongoing or rekindled relationship with the Swiss private shareholders and Newmont, since it sold the refinery to them in late 2003.

Until 2008, Newmont managed the Valcambi asset through its Merchant Banking group. This group, among other things, took care of “merger and acquisition analysis and negotiations”. Although Newmont’s Merchant Banking group was phased out in 2008, skilled corporate finance individuals at Newmont undoubtedly lent a hand to in the Valcambi disposal project.

Theoretically, Rajesh Exports could have just bought Newmont’s stake in Valcambi and become the new majority shareholder alongside the existing private investors. The fact that they didn’t go down this route could either mean that Rajesh wanted full corporate control, or that the investor group wanted to redeem its investment, or both.

Valcambi SA campus

Ramifications of the Valcambi Sale

The sale of the Valcambi refinery now raises questions as to whether its customer base and the mix of destinations for its gold exports from Switzerland will change, and what impact, if any, will the acquisition have on the ability of other countries to acquire Valcambi refined gold.

Rajesh Exports was an existing customer of Valcambi before the acquisition, and probably quite a large Valcambi customer.

In a 2011 presentation, Rajesh Exports stated that:

Top Suppliers include Australian Gold Refinery, ANZ Bank and Valcambi Refinery who constitute 90% of total supply of Raw gold to REL

So Valcambi was already an important supplied to Rajesh. Although Rajesh Exports only consumed about 170 tonnes of gold over its financial year 2014-2015, Rajesh Mehta, chairman of the group stated in his press release that:

The acquisition is also of national importance for India, as India is the largest consumer of gold in the world, it would be a step in the right direction by an Indian company to own a world-class asset like Valcambi. On a theoretical basis Valcambi is capable of supplying the entire gold requirement of India.

Gross gold imports (excluding smuggling) into India totals about 750-800 tonnes per annum at the moment. In its 2013 Sustainability Report  Valcambi states that its refinery has an annual capacity for gold refining of 1600 tonnes, and a total annual ‘precious metals’ refining capacity of 2000 tonnes. This is what Rajesh Mehta is referring to ‘in theory’ above.

Will Valcambi start supplying all of its output to India? Most probably no. Could this mean that Valcambi will start supplying more of its output to India? Probably yes. Even if it does though, Valcambi still has a lot of spare refinery capacity.

Rajesh Exports seems to have done the Valcambi acquisition for multiple reasons and not just to secure a source of refined gold supply. Rajesh claims that it wants to become a fully integrated major global gold player. (See above link to presentation where Rajesh even had a ‘Mission 2016′ plan to be a ‘fully integrated jewellery company’ by 2016).

Rajesh also had spare cash which it needed to invest in what it referred to as a safe place (i.e. “We were looking to deploy our cash in a safe place” – See Business Standard quote above). And Switzerland remains a universally known ‘safe place’ to deploy cash.

Rajesh already owns some gold mines, and a refinery, as well as gold manufacturing plants, wholesalers and a retailer network of jewellery showrooms which it plans to expand. The Valcambi acquisition allows Rajesh to move back along the gold supply chain. It also presumably will lead to cost savings on acquiring refinery output.

One of the less tangible benefits will be increased information flow about the gold market, both to Rajesh and to Valcambi. Another benefit to Rajesh will be refinery knowledge and skills transfer. Although headquartered in Bangalore in the state of Karnataka in the southwest of India, Rajesh Exports currently has a gold refinery in Uttarakhand in the north of India. This refinery has a gold output of 200 tonnes per annum. Rajesh plans to upgrade this refinery and turn it a subsidiary of Valcambi and then apply for LBMA gold and silver accreditation for  the refinery.

One of the main reasons why Valcambi (and its competitors PAMP and Argor-Hereaus)  set up in southern Switzerland near the Italian border was that Italy used to be the world’s largest jewellery manufacturer, consuming vast amounts of refined gold as is occurring in present day India. So in some ways, the acquisition of Valcambi by Rajesh Exports Ltd, as the world’s largest gold jewellery manufacturer, is just taking the supply chain logic a step further and going back to the traditional source of the Italian jewellery manufacturers (i.e. Ticino).

All of the above suggest that the acquisition will not end up diverting huge volumes of Valcambi output to India to such an extent that it would impact other customers’ reliance on Valcambi.

Additionally, Valcambi’s CEO, Michael Mesaric said of the deal that “the coming together of REL and Valcambi would ensure that Valcambi improves on it’s global share of gold business, by opening up new markets in India, Middle East and China.” Although Valcambi never broke down its gold exports by destination, about 80% of total Swiss gold exports in 2014 already went to Asia, with India, Hong Kong and China being the top 3 destinations. So what Mesaric is referring to appears to be more of the same, albeit even higher reliance on the existing top export markets.

Furthermore, Valcambi shareholders would not have agreed to the sale to Rajesh if it jeopardised its existing global customer base. Newmont has reiterated its support and will continue to use Valcambi “under the new ownership structure” since it has “long-term contracts with Valcambi for refining the gold produced” from a number of it mines.

In its 2013 sustainability report, Valcambi states that its clients are:

“some of the largest mining companies in the world, premium luxury watch manufacturers,the largest international banks, governments, central banks and scrap dealers”

The report also revealed that on a geographic basis,  Valcambi’s ‘business turnover’ was 33% in Europe, 36% in Europe (non EU), 15% in  North/South America, 9% in Africa, 4% in Asia, and 3% in Oceania.

Given that the gold exports trade statistics out of Switzerland do not align with the regions of this business turnover data, these figures (which would also include mining company and bullion bank business) must represent where Valcambi books its sales to and/or where the actual clients are based, rather than the ultimately destinations of the refined gold and silver output that are exported from Switzerland,. For example, a London-based bullion bank client of Valcambi that wanted gold refined in Balerna and sent to China would probably be accounted for by Valcambi as a European client, and the China destination of the gold would not get captured in the revenue records.

Valcambi’s refining capacity

Even if Rajesh Exports requires a higher share of the Valcambi refinery output, there is still plenty of spare refinery capacity in the Balerna facility.

Valcambi’s 2013 sustainability report also said that the refinery had an actual ‘product throughput’ of ‘3.8 tons bars and coins per day’ of gold and ‘1.8 tons bars and grain per day’ of silver. Assuming a 5 day week (250 day work year), that would be 950 tonnes of gold throughput and 450 tonnes of silver per annum.

Rajesh Exports just revealed in its press release that over the last 3 years, Valcambi has refined an annual average of 945 tonnes of gold and 325 tonnes of silver (2835 tonnes of gold and 975 tonnes of silver over 3 years). Presumably the last 3 years that Rajesh mentions refers to the last 3 calendar years of 2012-2014.

The London Bullion Market Association (LBMA) doesn’t reveal annual production data of its refinery members on an individual level, however, the LBMA recently published high level totals of the refined gold production of its accredited refiners (LBMA Good Delivery List) over the years 2006 to 2013. What was striking about the data was that total refined gold production of its refinery members reached 6,601 tonnes in 2013, which was 42% higher than total refined gold production in 2012, and also more than double global mine production of 3,016 tonnes of gold in 2013. See table below from LBMA publication:

Total annual refined gold and silver production by LBMA refiners 2006-2013 (tonnes)

Refinery output 2006-2013

So with Valcambi being the largest gold refinery in the world, it would be realistic to suggest that its annual average of 945 tonnes of refined gold output over the last 3 years probably hides the higher refined gold production that it too experienced in 2013 versus 2012. Unfortunately, there is no LBMA 2014 data. Doing a quick hypothetical calculation of Valcambi’s annual gold output over 2012-2014 where 2013 production was 42% higher than 2012, and 2012 production equaled 2014 production, then Valcambi would have refined 828 tonnes of gold in both 2012 and 2014, and a massive 1179 tonnes in 2013. This however would still be below the refinery’s gold output capacity of 1400 tonnes per annum.

So, whichever way you look at it, on average, the Valcambi refinery is not yet running at full capacity for gold, it probably hasn’t ever reached full capacity (even in 2013), and it still has plenty of spare capacity. So even if Rajesh Exports ramps up gold flow from Valcambi to India, other export destinations such as China, South East Asia and the Middle East needn’t suffer as long as mining and bullion bank clients of the refinery can provide metal to make use of the reserve refining capacity.

The other Swiss Gold Refineries

Does the sale of Valcambi foreshadow the sale of any of the other large Swiss gold refineries or increase the likelihood of a similar transaction? I’d say no, but to answer these questions, you may find it helpful to look at the shareholder structure of Valcambi’s competitors in Switzerland, and then decide.

Apart from Valcambi, there are 3 other large gold refineries in Switzerland and 2 smaller refineries. Valcambi’s 3 big competitors are PAMP, Metalor and Argor-Heraeus.

The refineries owned by PAMP and Argor-Heraeus are also located in the south of the Canton of Ticino, literally within walking distance from Valcambi, in what’s known as the golden triangle of gold refineries in the southern tip of Switzerland. As mentioned above, these refineries were established in this area in order to be as near as possible to Milan and the Italian gold industry. Looking at the map below you will see the municipalities of Mendrisio (Argor-Heraeus), Balerna (Valcambi), and Castel San Pietro (PAMP). Balerna is only 4kms from Mendrisio, and 2kms from Castel San Pietro. Notice also the Swiss – Italian border at the bottom of the map south of Chiasso.

Along with Metalor, which is in Marin-Epagnier in the Canton of Neuchâtel in north-west Switzerland, these Big 4 refineries refine the bulk of Switzerland’s (and the world’s) gold. Valcambi, PAMP, Argor-Heraeus and Metalor are all Associates of the LBMA, and PAMP, Argor-Heraeus and Metalor are three of the five refiners on the LBMA’s refiner referee list which helps maintain the LBMA’s Good Delivery System for gold and silver.

Mendrisio 2

Two other smaller companies refine gold in Switzerland in addition to the Big 4. These two companies, also in the Canton of Neuchâtel and located quite close to Metalor, are PX Précinox in La Chaux-de-Fonds, and Cendres + Metaux in Biel. Together they arguably form another golden triangle of refineries, close to the Swiss gold watch industry and incidentally close to the headquarters of the Swiss National Bank in Bern (home of the SNB’s gold vaults and where the BIS’s also stores gold).


The good delivery bars of Valcambi, PAMP, Argor-Heraeus, Metalor and PX Précinox are on the LBMA’s current Good Delivery list for gold, while the bars of Cendres + Metaux are on the LBMA’s former Good Delivery list for gold (transferred to the former list in April 2015).

Because PX Précinox and Cendres + Metaux are smaller than the Big 4, the analysis below only focuses on Metalor, PAMP and Argor Hereaus, all three of which are privately held Swiss companies.


Metalor here refers to Metalor Technologies International SA. Currently the Metalor group is majority owned by French private equity company Astorg Partners SA (www.astorg-partners.com) headquartered in Paris. The remainder of the shares are owned by Swiss individuals and by Metalor management.

The Metalor group is not just a refinery group. It has two others divisions, Advanced Coatings (for electronics and jewellery) and Electrotechnics (silver conductivity electrical contacts used in electrical applications). The refinery division has 4 refineries worldwide, in Neuchatel Switzerland, in the US (North Attleboro, which is south of Boston and is the headquarters of the refining division), in Hong Kong, and in Singapore. The 2012 Metalor annual report states that the group’s refining capacity of fine gold was 650 tonnes per annum in the Swiss, US and Hong Kong refineries. The Singapore refinery was opened in 2013, and since this has a refinery capacity of 150 tonnes,  that boosts the total refinery capacity to about 800 tonnes per annum now.

Metalor is the oldest of the Swiss gold refineries and was under the ownership of Swiss Bank Corporation (SBC) from 1918 until 1998. In 1998 a group of Swiss private investors comprising Ernst Thomke, Martin Bisang, Rolf Soiron and Giorgio Behr acquired the majority of shares from UBS. UBS still retained a minority shareholding following this transaction. Thomke then became Metalor chairman until April 2004, after which Bisang was appointed chairman.

Metalor then raised additional capital from another group of Swiss private investors who operated through a British Virgin Islands company called ‘Partners Only’. Zurich business magazine Bilanz speculated as to the identities of these ‘Partners Only’ investors in an article published in 2005, and another published in 2009. These articles list a number of well-known Swiss investors connected to Roche.

In September 2009, Metalor announced that in July 2009, a majority of the private investor shareholders had sold their shareholdings to Astorg Partners SA in an equity funded transaction. The press releases stated that two of the largest investors would invest their proceeds back in with the Astorg transaction, and that Metalor’s management including Scott Morrison, the Metalor CEO, would also become long-term shareholders. One of these 2 ‘largest shareholders’ who stayed on was Martin Bisang (see above). (Metalor press release and Astorg Partners Press Release).

Swiss newspaper NZZ (Neue Zürcher Zeitung) confirmed in 2010 that Belgium headquartered private equity company Sofina had co-invested alongside Astorg Partners, and together they had acquired almost 60% of the shares, which left the remainder of the shares owned by Metalor management as well as Martin Bisang and Daniel Schlatter. Both Bisang and Schlatter are connected to Bellevue Group, a boutique bank in Zurich, owning 20% and 5% of Bellevue shares, respectively. Bellevue actually acted as co-lead financial advisor to Metalor in its sale to Astorg which lists the transaction as spanning 2008-2009. Astorg lists its Metalor investment as being part of its Astorg IV fund.

The board of Metalor now includes Joël Lacourte, Managing Partner of Astorg Partners, Sophie Pochard,  Jean-Hubert Vial,  and Benjamin Dierickx, all of Astorg Partners, Martin Bisang and Daniel Schlatter of Bellevue Holding AG, and Metalor CEO Scott Morrison. See Neuchâtel company register extract and Bloomberg.

Of the 2008-2009 sale, Martin Bisang has said previously that “it was extremely difficult to find a buyer” for Metalor. This in some ways was because the Lehman induced financial crisis of 2008/2009 impacted transactional values at that time. However, Astorg was looking for acquisition targets in Switzerland at  that time, which obviously helped the sale.

Metalor CEO in 2009 Philippe Royer, said that Astorg was a “long-term majority shareholder”. While this is true, private equity companies in most cases eventually want to crystalise their investments, and so its hard to put an exact time-frame on a PE company’s definition of ‘long term’. Maybe 10 years+. The same may be true of the remaining private investors including from Bellevue. A hostile acquirer looking to purchase just the Metalor refineries would have to take on board the other divisions and navigate the complexity of the company. In a similar way a friendly acquirer in the jewellery or investment gold sectors might be put off by the industrial divisions of the group.

Verdict: No change at Metalor in the medium-term.



The Argor-Hereaeus group, located a few minutes drive from Valcambi and PAMP in southern Ticino, has an “annual refining capacity of 450 tonnes for both gold and silver” according to a 2013 company report.

As well as refining, the group produces a range of bars and coins and high precision products for the watch and jewellery sectors.

The current shareholding structure of Argor-Heraeus is quite diverse and consists of parties from three contiguous central European countries, namely, German engineering conglomerate Heraeus, German bank Commerzbank, The Austrian Mint, as well as Argor-Heraeus management. The fragmented shareholder base evolved as follows:

The company, as Argor SA, was established in 1951. Swiss bank Union Bank of Switzerland (UBS) acquired an 80% stake in 1960, and full ownership in 1973. In 1986, Heraeus of Germany purchased a 25% stake from UBS and entered a joint venture with UBS. In 1999 UBS departed leaving Heraeus and the company management with 100% of the shares. Then in April 1999, Commerzbank took a 35% stake, which resulted in Heraeus having 35%, Commerzbank having 35% and Argor-Heraeus management having 30%.

In 2002, the Austrian Mint (owned by the Austrian central bank) acquired a 24.3% interest, which left then Heraeus with 26.5%, Commerzbank with 26.5% and management were said to have 22.7%.

According to the 2013 annual report of the Austrian Mint, it now claims to own 28.6% of the shares of Argor-Heraeus, with an equity value of CHF 122.4 million (and a profit share for 2013 of CHF 19.5 million). According to the 2014 Commerzbank annual report, Commerzbank now owns 31.2% of Argor Heraeus shares with an equity value of CHF 152.7 million (and a 2014 profit share of CHF 22.7 million). In its latest annual report, Heraeus does not reveal its holding in Argor-Heraeus, but if the Austrian Mint and Commerzbank won a combined 59.8%, then that leaves 40.2% for Heraeus and Argor-Heraeus management.

On the website, Heraeus is listed at the top of the shareholder list, so this may indicate that Heraeus has the largest shareholding, which would be above 31%. This would leave management with the remainder.

A complex and diverse shareholder base means a diverse board of directors, and from the Argor-Heraeus SA company registry filing, the board of directors includes, as expected, a cross-section of directors from Commerzbank, the Austrian Mint, and Heraeus, including Gerhard Starsich, CEO and board member of the Austrian Mint, Hans-Jürgen Deutsch of Heraeus Precious Metals, and David Burns, head of commodities at Commerzbank.

All three parties often refer to the strategic benefits of being a shareholder in the Argor-Heraeus refinery so, it seems that the existing formula, whatever it is, is working well.

For example, Commerzbank states that it has a “long-standing cooperation with the refinery Argor-Heraeus S.A. allows us to combine well-founded experience in physical metals with strong expertise in structuring“. Likewise, the Austrian Mint refers to using Argor-Heraeus as a source of refined metal supply, presumably on preferred terms. All parties also presumably get access to information flow about the Swiss gold refining industry and gold demand and supply trends in and out of Switzerland, which is helpful.

In its 2013 annual report, the Austrian Mint said that Argor-Heraeus achieved “large increases in sales and profits in comparison to the preceding year”, so the refinery appears to be a good investment for the various parties also.

It therefore doesn’t seem likely that any of the 3 external shareholders would need to, or want to, dispose of their shareholdings. An acquirer would have to navigate negotiations with a central bank (Austria), a large German bullion bank, and a large German conglomerate, in addition to the Argor-Heraeus management.

Verdict: No change in Argor-Heraeus ownership over the foreseeable future


PAMP (Produits Artistiques Métaux Précieux)

PAMP SA of Castel San Pietro in Ticino, a neighbour of Valcambi and Argor-Heraeus, operates two precious metals refineries, one in Ticino and the other as a joint venture with MMTC in Delhi in India. PAMP SA is fully owned by MKS (Switzerland) Finance SA of Geneva.

Together the two refineries have an annual capacity for  550+ tonnes of gold, and 1200+ tonnes of silver. According to its website, “PAMP handles over 400-metric-tonnes of gold per year”, therefore there is still spare capacity.

MKS, a private company founded in 1979, is actually headquartered in the Netherlands, and has 16 offices around the world. MKS could be described as a physical precious metals refining and distribution company, and also a precious metals trading and financing company. The main office is in Geneva. MKS also owns precious metals bar and coin wholesaler Manfra, Tordella & Brooke (MTB) in New York which will be familiar to some readers as an approved Comex depository for gold. MKS Finance SA is also an Associate of the LBMA.

According to its company registry filing in the Canton of Geneva, the board of MKS (Switzerland) SA includes chairman Marwan Shakarchi, vice-chairman Karma Shakarchi-Liess, Venkata Gopalakrishnan, Hans Isler, Jean-Pierre Roth, and Stanley Walter.

The PAMP SA company filing from Ticino can be seen here.

In India, the PAMP refinery, India’s largest gold and silver refinery, is a joint venture established in 2008 with MMTC, and is known as MMTC-PAMP. MMTC is a ‘Government of India Undertaking’ or Central Public Sector Enterprise (CPSE), and is a huge trading company and the biggest precious metals importer in India. A few of MMTC’s directors are Indian Government appointees and the company’s website even uses a government web site domain (http://mmtclimited.gov.in/).

According to its profile:

“MMTC is the largest importer of gold and silver in the Indian sub-continent, handling about 174 MT of gold and 1165 MT of silver during 2011-12. MMTC supplies gold on loan and outright basis to the exporter, bullion dealers and jewellery manufacturers on all India basis.”

MMTC also has its own nationwide retail jewellery showroom network. From an Indian prespective, it’s not surprising that Rajesh Exports would have steered clear of looking to acquire PAMP because of PAMP’s existing relationships with MMTC. Recall that PAMP was not mentioned by the sources quoted by the Economic Times of India as a potential Swiss refinery target, while Valcambi, Metalor and Argor-Heraeus were mentioned. MMTC-PAMP, is the only precious metals refiner in India currently on the LBMA’s good delivery list.

An acquisition of PAMP SA of Switzerland would probably have to  be a full acquisition of the entire MKS Finance group becasue PAMP and MKS are closely integrated across a lot of their respective functions. Since MKS seems to be thriving independently, its doubtful if they’d be interested in being taken over. Perhaps they’d be more open to collaboration. Negotiating with one owner as opposed to multiple owners  in an acquisition scenario would undoubtedly be easier though.

It’s still unclear though as to how the exact shareholdings of MKS and PAMP are structured. MKS states that it’s a family-owned business and that would mean either exclusive or majority ownership by the founding Shakarchi family. It probably has some management ownership also. But being a private company, its hard to determine if MKS has, or does not have, a set of external private investors.

Verdict: PAMP and MKS will probably remain independent but watch this space