Tag Archives: Deutsche Bank

More Bad News for the LBMA Silver Price, but an Opportunity for Overhaul

On Friday 3 March 2017, in a surprise announcement with implications for the global silver market, the London Bullion Market Association (LBMA) informed its members that the current administrator and calculation agent of its recently launched LBMA Silver Price auction, Thomson Reuters and the CME Group respectively, will be pulling out of providing their services to the problematic London-based silver price benchmark within the near future. Thomson Reuters and the CME Group issued identical statements.

This is surprising because Thomson Reuters and the CME Group only began administering / calculating the LBMA Silver Price auction two and a half years ago in August 2014, when, amid much hubris, the duo were awarded the contract after a long-drawn-out and high-profile tender process. Notably, the Thomson Reuters  / CME contract with the LBMA was for a 5-year term running up to and into 2019. So the duo are now pulling out mid-way through a contract cycle.

More surprisingly, in their statements of 3 March, the LBMA / Thomson Reuters and CME allude to the European Benchmark Regulation being in some way responsible for the hasty departure. However, given that the units of CME and Thomson Reuters that are parties to the LBMA contract are their specialist benchmark units “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”, which specialise in administering and calculating benchmarks, this excuse makes no sense.

In essence, this development is an embarrassment for all concerned and could lead to further reputational damage for the parties involved. It also now re-focuses market scrutiny on an area which the LBMA and its associates could well wish to forget, i.e. the former London silver fixing run by the infamous London Silver Market Fixing Limited, a company which itself is still one of the defendants, along with HSBC, Bank of Nova Scotia and Deutsche Bank, in a live New York class action suit that is scrutinizing the manipulation of the London silver price.

LBMA Silver Price: A Regulated Benchmark

Note that the LBMA Silver Price benchmark is now a “Regulated Benchmark” under United Kingdom HM Treasury Legislation, and is one of 8 financial market benchmarks regulated by the UK’s Financial Conduct Authority (FCA). So this is not some backwater obscure benchmark that we are talking about here. This is a benchmark with far-reaching effects on the global precious metals markets and a sister of the LBMA Gold Price benchmark. The reference prices from these benchmarks are used from everything from valuing Exchange Traded Funds (ETFs) to being the price reference points in ISDA swaps and bullion bank structured products such as barrier options.

According to the LBMA’s usual public relations mouthpiece Reuters, which relayed the news to the broader market on 3 March, the LBMA will be:

“looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

This dramatic “exit stage right” by Thomson Reuters and the CME Group is a far cry from their initial and continued corporate spin of being committed to the silver price auction, which they claimed both at auction launch in August 2014, and also as recently as 2016 when they grovelled with promises of process improvement and wider participation in the auction in the wake of the silver price manipulation fiasco in the LBMA Silver Price auction on 28 January 2016.

It was on 28 january 2016 that the midday auction took a whopping 29 rounds to complete and the price derived in the auction was manipulated down by a massive 6% under where silver spot and silver futures prices were trading at that time. See the beginning of BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for further details about the 28 January auction.

TRCMEsquare

 

Where is the Commitment?

On 15 August 2014, the day the LBMA Silver Price auction was launched, William Knottenbelt, MD at CME Group stated:

“Through our existing relationships with market participants and the broader silver marketplace we are uniquely positioned to provide a seamless transition for the spot silver benchmark in London.” 

“CME Group has a long and successful history of offering benchmark risk management and price discovery solutions for the global precious metals markets.” 

Then, on 22 March 2016, when CME and Thomson Reuters introduced some changes to the auction in the wake of the 28 January 2016 auction price manipulation, both parties released more spin on their continued commitment to the auction. Thomson Reuters’ Head of Benchmark Services, Tobias Sproehnle, in a statement that now looks to be hollow, said:

“these changes together with a comprehensive consultation with the broader silver community – producers, intermediaries and consumers - are a further demonstration of Thomson Reuters and CME Group’s commitment to providing innovative, market leading benchmarks for the Silver market.

While Gavin Lee, the head of CME Benchmark Services, led with an equally hubristic statement that:

“in consultation with Silver market participants, we are always looking for new ways to develop this benchmark further

These statements from CME and Thomson Reuters, less than a year ago, run totally contrary to the fact that the duo are now going to abandon the LBMA Silver Price auction ship, which will necessitate the appointment of a replacement administrator and calculation agent. Where is the continued “commitment” to the silver benchmark and the silver market that they were we eager to espouse last March?

Why the Hasty Departure?

According to the Reuters news report last Friday 3 March:

A spokesman for Thomson Reuters confirmed the company was stepping down from the process. CME could not immediately be reached for comment.

Not very informative or cooperative from either party when one of the providers was not even available to explain its exit rationale, and the other merely confirms a fact to its in-house news arm, a fact which the LBMA had already announced earlier that day to its members.

However, if you look at the CME Group website, a short announcement was added to its website on 3 March 2017, which states:

The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements and, in consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction.

This statement was also added to the Thomson Reuters website on 3 March.

Before briefly looking at the relevance of this “European Benchmark Regulation”, which the Reuters news article even failed to mention, its notable that the CME / Thomson Reuters early withdrawal was also covered on 3 March by the MetalBulletin website.

According to MetalBulletin (subscription site), the above statement by CME is apparently part of an identical statement which the LBMA released to it members on Friday 3 March (the LBMA statement).

MetalBulletin adds in its commentary that:

“CME is looking to streamline its precious metals division, with contracts in this area being its fastest growing asset. The exchange wants to focus on its core products, Metal Bulletin understands.”

What MetalBulletin means by this I don’t know. The logic doesn’t make any sense. The sentence doesn’t even make sense. Benchmarks are a core product of CME group. CME even states that it offers:

“the widest range of global benchmark products across all major asset classes”

CME Benchmark Europe Limited was specifically set up in 2014 to provide the calculation platform for the LBMA Silver Price. Furthermore, CME has just launched a suite of silver and gold futures contracts for the London market (launched in late January 2017), the silver contract being the “London Spot Silver Futures (code SSP)“. Even though these CME contracts have had no trading interest so far, the CME claims that it is currently “working with major banks to synchronize their systems to start trading” these contracts (London Spot Silver Futures and London Spot Gold Futures).

So why would CME want to voluntarily ditch the provision of a high-profile London silver benchmark, when it could attain trading synergies between the LBMA Silver Price and its new London silver futures contracts, or at the very least improve brand recognition in the market?  And not to forget CME and Thomson Reuters claim a”commitment to providing innovative, market leading benchmarks for the Silver market“.

European Benchmark Regulation

Turning to the new “European Benchmark Regulation”, what exactly is it, and why would it be relevant for the LBMA and CME and Thomson Reuters to mention the European benchmark Regulation in the context CME and Thomson Reuters pulling out of the LBMA Silver Price auction?

At its outset, the European Benchmark Regulation was proposed by the European Commission. The Commission’s proposal was also issued in coordination with a range of entities and initiatives such as MiFID, the Market Abuse Directive, the benchmark setting processes of the  European Securities and Markets Authority (ESMA) and European Banking Authority (EBA), and also the IOSCO financial benchmark principles.

According to law firm Clifford Chance:

The new [EU] Regulation is a key part of the EU’s response to the LIBOR scandal and
the allegations of manipulation of foreign exchange and commodity benchmarks

“The Regulation imposes new requirements on firms that provide, contribute to or use a wide range of interest rate, currency, securities, commodity and other indices and reference prices.”

“Most of the new rules will not apply until 1 January 2018″

“The new Regulation imposes broad ranging and exacting requirements
on a wide range of market participants. It may reinforce the trend to discontinue benchmarks and reference prices

According to law firm Simmons & Simmons:

The Regulation seeks to:

  • improve governance and controls over the benchmark process, in particular to ensure that administrators avoid conflicts of interest, or at least manage them adequately
  • improve the quality of input data and methodologies used by benchmark administrators
  • ensure that contributors to benchmarks and the data they provide are subject to adequate controls, in particular to avoid conflicts of interest
  • protect consumers and investors through greater transparency and adequate rights of redress.

The Regulation aims to address potential issues at each stage of the benchmark process and will apply in respect of:

  • the provision of benchmarks
  • the contribution of input data to a benchmark, and
  • the use of a benchmark within the EU.

All of these goals aspired to by the legislation of the European Benchmark Regulation seem reasonable and would benefit users of the LBMA Silver Price auction, so given the above, it seems very bizarre that CME and Thomson Reuters and the LBMA stated last Friday 3 March that:

The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements

Remember that the CME and Thomson Reuters service providers to the LBMA Silver Price are their specialist benchmark units “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”. That is what these units do, administer and calculate benchmarks. This European benchmark Regulation has been known about for a few years. Especially known about by the benchmark units of CME and Thomson Reuters. The Regulation didn’t suddenly appear out of nowhere last week, as the above statement is appearing to hint at.

And why such a brief and unclear statement from CME, Thomson Reuters and the LBMA? Is this European Benchmark Regulation just an excuse being thrown out to distract from other issues that might really be behind CME and Thomson Reuters stepping down.

Or perhaps CME and Thomson Reuters are aware of issues within the current administration of the LBMA Silver Price that would make it difficult to comply with the new legislation or that would make it too onerous to comply? But such rationale doesn’t make sense either because why are CME and Thomson Reuters not bailing out of the all the benchmarks that they are involved in? Furthermore, if the European Benchmark Regulation is a factor, why would any other benchmark service provider such as ICE Benchmark Administration (IBA) bother to pitch in the LBMA’s forthcoming tender process to find a replacement for Thomson Reuters and CME?

Perhaps CME and Thomson Reuters are worried about future reputation damage of being associated with the LBMA Silver Price due to some brewing scandal? Or perhaps the powerful bullion banks within the LBMA wanted to scupper any change that there will ever be wider participation or central clearing in any future version of the auction?

I will leave it to readers to do their own research on this and draw their own conclusions.

A Banking Cartel vs. Wider Auction Participation

One issue which has dogged the LBMA Silver Price auction since launch is that it never gained any level of “wider participation” or market representative participation. There are only 7 bullion banks authorised by the LBMA to be direct participants in the auction, and there are zero direct participants from the silver mining, silver refineries, and silver sectors.

This is despite the LBMA, CME and Thomson Reuters all misleading the global silver market on this issue on many occasions, and claiming that there would be very wide participation in the auction after it was launched. See BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for a huge amount of factual evidence to back up this statement, including webcasts by CME, Thomson Reuters and the LBMA, and an interview by Reuters with LBMA consultant Jonathan Spall, formerly of Barclays. Here are a few examples:

The LBMA’s Ruth Crowell was claiming back in July and August 2014 that they were interested in having 111 direct participants:

“clear demand for increased direct participation, and we had 25% of those 444 coming back saying they would be interested, and we’re still interested in having all of those participants on board”

“The advantage with centralised clearing, particularly for the pricing mechanism, is that we can really exponentially grow the amount of direct participants

Jonathan Spall, LBMA Consultant stated that:

“The hope of course is that we get many more participants in the new benchmark process….while it is likely that we will start by having banks involved it is ultimately hoped that the wider market will participate, be they refiners, miners etc.

“Ultimately – and as I said before – the intention is that there is much wider participation. So yes, refiners, miners etc.

Harriett Hunnable, then of the CME Group, stated:

“So this is really the new world, this is not the old fixing…..this is wider participation…and the London bullion market is really encouraging that…this is the new world, or the LBMA Silver Price!”.

According to the CME / LBMA / Thomson Reuters presentations, there was supposed to be a “phase 3 introduction of centralised clearing

Central counterparty clearing will enable greater direct participation in the London Silver Price

In summary, central clearing would allow direct participants to participate directly in the auction without the need for bi-lateral credit lines. However, the plan for central clearing was quietly dropped. The CME and Thomson Reuters have now had 32 months in which to introduce central clearing into the silver auction and it hasn’t happened. Nor will it now. The fact of the matter is that the LBMA banks do not want wider participation and they don’t want central clearing of auction trades either. These banks, which at the end of the day are just costly intermediaries, essentially want to monopolise the silver auction and prevent wider participation, and prevent true silver price discovery. Could it be the banks through their LBMA front that have sabotaged the contract with CME and Thomson Reuters so as to reset the contract and re-start another tender process that will ensure that no wider participation can ever see the light of day?

It’s also important to note that there is no way for miners and refiners to be direct participants in the auction. This is because the LBMA has designed the auction participant rules to keep out refiners and miners (and anyone else that is not a bullion bank). The rules are specifically designed so that only bullion banks can satisfy the LBMA’s Benchmark Participant criteria. See section 3.13 of the LBMA Silver Price auction methodology document accessible here.

Currently only 7 bullion banks are direct participants in the auction, namely HSBC, JPMorgan Chase, Bank of Nova Scotia (ScotiaMocatta), Toronto Dominion, UBS, Morgan Stanley, and China Construction Bank.  Most of these banks are very influential on the LBMA Management Committee. HSBC, Scotia and Mitsui were in the auction from Day 1 on 15 August 2014. UBS joined the auction on 26 September 2014, JP Morgan Chase Bank joined on 14 October 2014, Toronto Dominion Bank joined on 6 November 2014. Mitsui left in either late 2015 or January 2016 (the exact date is unclear). China Construction Bank only joined the auction on 6 May 2016.

Lastly, Morgan Stanley only joined the LBMA Silver Price auction on 25 October 2016 (which is just 4 months ago), at which point the LBMA / CME and Thomson Reuters had the audacity to spin that 7 LBMA bullion banks trading in a shadowy auction of unallocated silver accounts in London somehow represents the global silver market:

CME: “The addition of another member brings greater depth and diversity to the market and underlines the ongoing globalisation of the Silver Price as a leading, liquid precious metals benchmark.”

Thomson Reuters: “With the addition of Morgan Stanley to the panel, the LBMA Silver Price provides even deeper insight into the global silver market. We continue to welcome new participants to this essential mechanism for the markets.”

LBMA: “They [Morgan Stanley] add depth and liquidity to the auction and I look forward to other market participants joining in the future.”

LBMA Silver Price is NOT Representative of Silver Market

But, to reiterate (and as was stated previously in this blog), the LBMA Silver Price auction is not representative of the global Silver Market whatsoever, and it does not meet some of the simplest IOSCO benchmark requirements:

“IOSCO benchmark principles state that a benchmark should be a reliable representation of interest, i.e. that it should be representative of the market it is trying to measure. Interest is measured on metrics such as market concentration. In the Thomson Reuters methodology document (linked above), on page 11 under benchmark design principles, the authors estimate that there are 500-1000 active trading entities in the global silver market.”

The Thomson Reuters methodology document from August 2014 also admitted that “volumes in the LBMA Silver Price are a fraction of the daily volume traded in the silver futures and OTC markets”.

Why then are 7 LBMA bullion banks allowed to monopolize the representation of 500 – 1000 active trading entities from the global silver market within the auction, an auction that its worth remembering generates a silver reference price which is used as a global silver price reference and pricing source?

BullionStar investment silver bars and coins

Refiners and Miners

Based on the current rules, the vast majority of the world’s silver refiners cannot directly take part in the LBMA Silver Price auction.

Only 8 precious metals refiners are Full Members of the LBMA while 25 refiners are associates of the LBMA. Of the 8 full members, 5 of these refiners are on the LBMA refiner Referee panel, namely, Argor-heraeus, Metalor and PAMP from Switzerland, Rand Refinery from South Africa, and Tanaka Kikinzoki Kogyo from Japan. These refiners were added to the panel as LBMA Associates in 2003, and were only made Full Members in 2012. The only reason they happened to be fast-tracked as full members of the LBMA was due to their status as Referees for the LBMA good delivery list. Even the other major Swiss based refinery Valcambi is still not a full member of the LBMA.

Based on the current participant criteria of the Silver auction, where only full LBMA members could conceivably become direct participants, 25 of the refiners that are LBMA Associates cannot directly take part in the auction even if they wanted to. Candidates for Full LBMA Membership also have to jump through a number of hoops based on sponsorship by existing members, business relationships, due diligence, and involvement in the precious metals markets.

For a refiner to even become a LBMA associate, the refiner must have already attained Good Delivery Status for its silver or gold bars. There are about 80 refineries on the LBMA’s current Good Delivery List for silver. The chance of the vast majority of these refiners taking part in the LBMA silver auction is nil since not only are they not LBMA full members, they aren’t even LBMA associates.

Based on the current auction criteria, it’s without doubt literally impossible for nearly all silver producers / miners on the planet to directly participate in the LBMA Silver Price auction. Precious metal mining companies are not normally officially connected to the LBMA, and would more naturally be members of the Silver Institute or World Gold Council or another mining sector organization. So it’s confusing as to why the LBMA even mentions mining companies as possible auction participants since there are no mining companies that are Full Members of the LBMA, so they cannot be participants in the silver auction. The only mining companies that are even “Associates” of the LBMA are Anglogold Ashanti and Coeur Mining.

In 2014, Coeur Mining’s treasurer, referring to the LBMA Silver auction said:

“We hope to have the opportunity to become a direct participant down the road and look forward to working with the LBMA, CME and other silver producers to drive the evolution of this market.”

The unfortunate Coeur Mining now looks like it has been strung along by the LBMA with empty promises that it can somehow someday participate in the silver auction, but this is literally a fiction given the way the auction rules are currently set up.

Conclusion

In its announcement on 3 March, the LBMA said that it will shortly launch a tender process to appoint a replacement provider. The LBMA told Reuters News:

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

However, given the abysmal track record of the LBMA Silver Price, the question that should really be asked at this time is why is the bullion bank controlled LBMA even allowed to be in charge of such an important “Regulated Benchmark” as a global silver price benchmark, a benchmark that has far-reaching effects on global buyers and sellers of silver.

Take a brief look back at how the last tender process run by the LBMA for the London silver price was handled.

A Silver Price Seminar held by the LBMA on 19 June 2014 was not even open to the wider bullion market. As Ruth Crowell, CEO of the LBMA, told the publication MetalBulletin in an October 2014 interview:

“Not just our members, but ISDA members, and any legitimate members of the market were invited to the seminar. We also had observers from the FCA and the Bank of England. We wanted to keep [attendance] as wide-ranging as possible but to avoid anyone who perhaps would be disruptive

What is this supposed to mean? To prevent anyone attending the seminar who might have a different view on how the global silver price benchmark should be operated that doesn’t align with the view of the LBMA?

The actual process of selecting the winning bid from the shortlist of tender applicants was only open to LBMA Full members and Seminar attendees via a 2nd round voting survey. The independent consultant review that was part of the selection process, was conducted by someone, Jonathan Spall, who was not independent of the former fixings and so should not have been involved in the process.

Promises of wider participation involving refiners and miners were abandoned. Promises of central clearing of auction traded were thrown out the window. Prior to launch, the auction platform was hastily built by Thomson Reuters and CME without an adequate market-wide solution for clearing silver trades. Another of the bidders, Autilla/LME, had a working auction solution which would have allowed wider market participation at August 15 2014 go-live, but this solution was rejected by the LBMA Management Committee, LBMA Market Makers and the LBMA Data Working Group, the groups which had the ultimate say in which applicant won the tender.

There were only 3 participants in the LBMA Silver Price auction (all of them banks) when it was launched in August 2014, and two of which, HSBC and Scotia, were parties to the former London Silver Fixing. The LBMA Silver Price auction was therefore an example of same old wine in a new bottle. The same 2 banks, HSBC and Scotia are now defendants in a silver price manipulation class action suit in New York. There are now only 7 direct participants in the LBMA Silver Price. These are all bullion banks. This is 32 months after the auction has been launched. The LBMA accreditation process specifically prevents refiners and miners from joining the auction. As there are 500 – 1000 trading entities of silver globally, the LBMA Silver Price mechanism is totally unrepresentative of the silver market.

The defection of CME and Thomson Reuters now provides a one-off opportunity for the global silver market to insist that the current scandal ridden current auction be scrapped and taken out of the hands of the bullion bank controlled London Bullion Market Association (LBMA). It is also an opportunity to introduce a proper silver price auction in its place that is structured to allow direct participation by hundreds of silver trading entities such as the world’s silver refiners and miners, an auction that employs central clearing to allow this wider participation, and an auction that is based on trading real physical silver and not the paper credits representing unallocated claims that the participating London bullion banks shunt around between themselves. This could help lead to real silver price discovery in the global silver market. However, the chances of this happening with the LBMA still involved in the new tender process are nil.

A Chink of Light into London’s Gold Vaults?

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

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

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

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

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

“Enhanced transparency from the Bank of England

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

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

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

The Proposed Data

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

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

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

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

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

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

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

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

Bank of England

The Current Data

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

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

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

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

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

BoE-Gold

The Vaults of London

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

brinks1

brinks2
Brink’s letter to SEC, February 2014

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

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

dsc_0102_800.jpg

Conclusion

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

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

 

Guest Post: How to Trigger a Silver Avalanche by a Pebble: “Smash(ed) it Good”

UBS and other precious metals traders on how to wreak havoc in silver markets

Written by Allan Flynn, specialist researcher in aspects of gold and silver.

avalanche

“An avalanche can be triggered by a pebble if you get the timing right” 

Earlier this year at April’s hearings for London Silver and Gold Fix lawsuits, the judge and defendant’s attorney quipped about trader chats named “the mafia” and “the bandits” published in prosecutors findings of Forex investigations but conspicuously absent from precious metals investigation findings, and the silver and gold antitrust lawsuits under consideration.

THE COURT: “Those were bad facts for the defendants.”

LACOVARA: “I think, your Honor, that if we had chat rooms that said “The Cartel”, we might be having a different focus to oral argument today.”

THE COURT: “I think that is correct.”

Given the judges skepticism of the allegations described in an earlier article, it came as a surprise early October when the banks listed were ordered by magistrate Valerie E. Caproni to face charges. More surprising perhaps was the exemption granted Swiss bank UBS, which despite having been found guilty and fined for “precious metals misconduct” by the Swiss Financial Market Supervisory Authority FINMA in November 2014, was granted motion to dismiss from both silver and gold lawsuits.

All that may be about to change according to documents filed in a New York district court December 7th, where plaintiffs claim that transcripts showing conspiracy to manipulate silver, provided by Deutsche Bank as part of an April settlement agreement, includes extensive smoking gun evidence involving UBS and other banks. Plaintiffs describe a “multi-year, well-coordinated and wide-ranging conspiracy to rig the prices of silver and silver financial instruments that far surpasses” that of the previous complaint, including potentially incriminating evidence of UBS precious metals traders allegedly conspiring with other banks.

Five additional banks to the remaining defendants HSBC and Bank of Nova Scotia are mentioned including Barclays Bank, BNP Paribas, Standard Chartered Bank, Bank of America and Merrill Lynch. The Memorandum of Law signed by Vincent Briganti on behalf of Lowey Dannenberg Cohen & Hart for plaintiffs on Wednesday 7th December seeks leave to amend the existing complaint filed with the United States District Court Southern District of New York.

Included in the memo are numerous astounding transcripts indicating coordination between UBS and other banks of “pushing,” ”smashing,” ”bending,” ”hammering,” ”blading,” ”muscling,” and “ramping” the prices of silver and silver financial instruments.

In support of claims of conspiracy to manipulate the price of silver downward the following gem is attributed to UBS Trader A: “so we both went short” “f*cking hell it just kept going higher” “63,65, then my guy falls asleep, it goes to 69 paid!” “then finally another reinforcement came in.

Discussions supposedly of coordination between UBS and their competitors about fixing the price of physical silver by offering only wide spreads between the bid and ask (where a “lac” is reference to an Indian measure equaling 100,000 units) go like this:

UBS Trader B: “what did u quote let me check”

Deutsche Bank Silver Fix Trader-Submitter A: “44/49”

UBS Trader A: “just quote wider if they call me in 1 lac I will quote 7-8 cents”

Deutsche Bank Trader B: “how wide u making 1 lac today 5 cents?”

UBS Trader A: “silver actually steadier than gold i would make 5-6 cents wide in silver”

UBS Trader A: how wide would you quote 5 lacs silver?”

Deutsche Bank Trader B: “10cu>?”

Deutsche Bank Trader B:”how wide u quote for 3 lacs?”

UBS Trader A: 10 cents”).

Manipulation of the Silver Fix price to benefit their silver trading positions in derivatives by UBS is claimed in the following exchanges:

Deutsche Bank Trader B: “u guys short some funky options” “well you told me to no one u just said you sold on fix”

UBS Trader A: “we smashed it good.”

Deutsche Bank Silver Fix Trader-Submitter A: “UBS boring the market again”…”just like them to bid it up before the fix then go in as a seller…they sell to try and push it back.”

It’s further alleged by plaintiffs that UBS implemented an “11 oclock rule” where both UBS and Deutsche Bank would short silver at 11A.M.

As examples of the comparative ease by which UBS moved the silver market the memo reveals Deutsche Bank Trader B added UBS Trader A to a chat with HSBC Trader B, which UBS Trader A deemed “the mother of all chats,” and leading to the trader’s own analysis:

UBS Trader A to Deutsche Bank Trader B: “if we are correct and do it together, we screw other people harder”

UBS Trader A: “an avalanche can be triggered by a pebble if you get the timing right” and “silver still here, u can easily manipulate silver”, and in reference to UBS supposed manipulative influence by an unnamed party: “u guys WERE THE SILVER MKT.”

hobo

UBS intended to reap financial rewards by manipulation of the price of physical silver and associated financial instruments, the memo says as UBS Trader A suggested: “go make your millions now jedi master…”pls write me a check when u aer a billionare,” and “i teach u a fun trick with silver” to which Deutsche Bank Trader B replied: “show me the money.

Confident of their ability to manipulate UBS made bold predictions according to the following alleged extracts:

UBS Trader A: “gonna bend this silver lower”; “i will bend it lower told u”; ”hah cool its gonna get ugly”; “use the blade on silver rg tnow it’ll hold it up,

Deutsche Bank Trader B: “yeah,

UBS Trader A: “gona blade silver now.

Of course all the secrecy in the world about the operations was required of the chat groups by UBS Trader A stating: “pls keep all these trick to yourself,” “btw keep it to yourself…,” and “ok rule of thumb EVERYTHING here stays here.

Examples of other banks alleged transcripts are included in the following:

Barclays

Deutsche Bank Trader B instructing Barclays trader A: “today u smash,

Barclays Trader A: “yeah” and “10k silver” “im short.

It’s alleged that Barclays and Deutsche Bank shared information so often that Barclays Trader A remarked “we are one team one dream.”

Materials in the memo even include the Deutsche Bank and Barclays precious metals traders agreeing at one stage to “stay away” from silver for a week.

The traders of course knew it was terribly wrong with Barclays Trader A responding to Deutsche Bank’s Trader B instruction to “push silver”: “HAHAHA lol i don’t think this is politically correct leh on chat.

Merrill Lynch

Allegedly fixing the bid-ask spread they offered clients on silver:

Merrill Lynch Trader A: “How wide r u on spot? Id assume 10 cents for a few lacs?

Deutsche Bank Silver Fix Trade-Submitter A: “im getting ntg but stops”

…Merrill Lynch Trader A: “we had similar” “I sweep them…Fuk these guys.

Showing disregard to global regulators even after noting their activities the two continued to “sweep” the silver market, allegedly observing at one stage: “Someone got stopped messily.

smash

BNP Paribas Fortis

Fortis Bank Trader B allegedly conspired with Deutsche Bank to manipulate silver prices, using what he termed a “bulldozer” on the silver market.

Standard Chartered

Conversations between Deutsche Bank Silver Fix Trade-Submitter A and Standard Chartered Trader A as follows:

 “Yeh” “small long out of the fix…” “ok where to sell sivler then?

23.40 thru that use it as a stop profit and let it runnnnnnnnnnnnn

were on the same wavelength

im long silver”…”ilke both [silver and gold] to get the absolute sht squeezed out of them” “im longer silver than i am gold

Conclusion

Assuming the transcripts submitted are accepted and plaintiffs are permitted to file their Third Amended Complaint, the possible pending “avalanche” of settlements in silver lawsuits will speak volumes for the investigative prowess of the CFTC and the DOJ, both of which were commissioned to investigate long running allegations of silver and precious metals market manipulation over recent years, and came up completely empty.

It appears Judge Caproni, former FBI General Counsel, was on the money when considering the potential of ineptitude in government investigations of precious metals markets at April’s gold hearing: “I don’t put a lot of stock in the fact that there are investigations because I was a government lawyer for a long time and I know what you need to open an investigation. By the same token, the fact that they closed it without charging anybody doesn’t mean that everybody is innocent. So I don’t put a lot of stock in it one way or the other.”

The CFTC proudly announced in September 2013 they had spent five years and seven thousand enforcement hours investigating complaints of manipulation in the silver market, including with assistance by the Commission’s Division of Market Oversight, the Commission’s Office of Chief Economist, and outside experts, but yet found nothing.

The Department of Justice Antitrust Division which were so confident of their investigation of collusion in precious metals they went to the extraordinary lengths in January of this year of providing a letter to silver and gold lawsuit defendants advising they had closed their investigation without findings of wrongdoing.

The Swiss Financial Services watchdog FINMA investigated, published and prosecuted UBS for forex and precious metals trading misconduct but yet said so little about precious metals findings in their November 2014 investigation report, it was impossible for the court to withstand UBS motion to dismiss in both metals.

And finally of the ability of authorities to reign in rogue banks in the precious metals or any other markets, the memorandum flags a fact that should draw the attention of those trying to figure out if they can indeed trust that their bullion bank has their best interests at heart simply by banning participation in trader chat rooms.

“The chats contained in the DB material are just the tip of the iceberg, as evidence suggests that Defendants intentionally communicated in undocumented ways to keep their manipulation hidden.”

For example the memo includes the salient reminder that banks will always find a way “to evade detection,” in this case where two traders are described as also communicating “via email and personal cell phone.”

The above article was first published at Allan Flynn’s website here.

Allan Flynn is a specialist researcher in aspects of gold and silver. He is currently investigating for future publication on the same topic and works in property and commercial architecture when he needs to eat. He holds shares in precious metals producers and banks.

 

Tracking the gold held in London: An update on ETF and BoE holdings

Just over a year ago, gold researchers Nick Laird, Bron Suchecki, Koos Jansen and myself took a shot at estimating how much physical gold was accounted for in London within the gold-backed ETFs and under Bank of England custody. The results of that exercise are highlighted in September 2015 articles “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults”, and “Central Bank Gold at the Bank of England”, and also on Nick Laird’s website in a post titled “The London Float” which contains some very impressive charts that visualize the data. Some of the latest updated versions of these charts from www.goldchartsrus.com are featured below.

Given that it’s now just over a year since that last set of calculations, it made sense at this point to update the data so as to grasp how many Good Delivery golds bars held in London is spoken for in terms of ownership, versus how much may be unaccounted for. Estimating gold held in London vaults is by definition a tricky exercise, since it must rely on whatever data and statements are made available in what is a notoriously secret market, and there will usually be timing mismatches between the various data points. However, using a combination of published sources from the Bank of England, the London Bullion Market Association (LBMA), the Exchange Traded Fund websites, and UK gold import/export data, it is possible to produce some factual numbers.

In the Bank of England vaults

Exactly once per year, the Bank of England publishes a snapshot of how much gold it is holding in custody for its central bank and commercial bank customers. This snapshot is featured in the Bank’s annual report which is usually published around July each year, and reports on its financial year-end, as of end of February. In its 2016 Annual Report, the Bank of England states (on page 31) that:

“At end-February 2016, total assets held by the Bank as custodian were £567 billion (2015: £514 billion), of which £135 billion (2015: £130 billion) were holdings of gold”

With an afternoon LBMA Gold Price fix of £888.588 on Monday 29 February 2016, this equates to 151,926,427 fine troy ounces of gold, or 4725 tonnes held in custody at the Bank of England. This equates to approximately 380,000 London Good Delivery gold bars, each weighing 400 fine troy ounces.

The corresponding figure for end of February 2015 was £130 billion, which, valued at the afternoon fix on that day of £787.545 per ounce, equalled 5,134 tonnes. Therefore between the end of February 2015 end of February 2016, the amount of gold held in custody by the Bank of England fell by 409 tonnes. Since, according to World Gold Council data, there were no central bank sellers of gold over that period apart from Venezuela whose gold was predominantly held in Venezuela at that time, then most of this 409 tonne decline must be either due to unreported central bank sales, central bank gold repatriation movements, London bullion bank sales, or some combination of all three.

The year-on-year drop of 409 tonnes came after a previous decline of 350 tonnes to end of February 2015, and before that a drop of 755 tonnes between February 2013 and February 2014. So overall between February 2013 and February 2016, the amount of gold held in custody in the Bank of England’s vaults fell by 1,514 tonnes.

LBMA Ballpark: 6,500 tonnes in London

Up until at least October 2015, the vaulting page on the LBMA website stated that:

“In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”

This is based on a Wayback Machine Internet Archive page cache from 9 October 2015.

The current version of that page on the LBMA website now states:

In total it is estimated that there are approximately 6,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.

The earliest Internet Archive page cache mentioning 6,500 tonnes is from 8 February 2016. So sometime between October 2015 and February 2016, the LBMA changed its ballpark figure, revising it down by 1000 tonnes. Wayback Machine Archive web crawlers usually update a web page following a change to that page, so its likely that the revision to 6,500 tonnes was done nearer February than October. Using a figure from a LBMA website page is admittedly quite general, but at least it’s an anchor, and someone at the LBMA saw fit to make that actual change from 7,500 tonnes to 6,500 tonnes. In June 2015 (as some readers might recall), the LBMA had said that there were 500,000 Good Delivery gold bars in all the London vaults, which is approximately 6256 tonnes, so perhaps the 6500 tonne estimate was partially based on this statistic from mid-year 2015 that the LBMA was playing catch-up with.

With 6,500 tonnes in London vaults, ~ 75% of which is at the Bank of England, this would mean 4,875 tonnes at the Bank of England, and another 1,625 tonnes at other (commercial) gold vaults in London, mostly at HSBC’s and JP Morgan’s vaults. As per the Bank of England’s annual report as of 29 February 2016, we know now that there were 4,725 tonnes in custody at the Bank, so the LBMA ballpark of 4875 is actually very close to the actual 4725 tonnes reported by the Bank, and the difference is only 150 tonnes. Lets’s move on to the vaulted gold held in London but held outside the Bank of England vaults.

ETF Gold held in London

In the September 2015 calculation exercise, we estimated that there were 1,116 tonnes of gold held in the London vaults within a series of gold-backed Exchange Traded Funds.

The known ETFs and other companies that hold their Good Delivery bar gold in London are as follows:

  • SPDR Gold Trust: GLD. Custodian HSBC London, all GLD gold held at HSBC vault
  • iShares Gold Trust: IAU. Custodian JP Morgan, majority of IAU gold held in London
  • iShares Physical Gold ETC: Custodian JP Morgan, code SGLN
  • ETF Securities: Six separate ETFs – their short codes are PHAU, GBS, ASX GOLD, HMSL, PHPM, and GLTR. Custodian HSBC London
  • SOURCE: Custodian JP Morgan, all gold held in London
  • Deutsche Bank: There are 5 Deutsche Bank ETFs that store gold in London. Custodian is JP Morgan London
  • ABSA/NewgoldCustodian Brinks, London
  • BullionVault: Some of BullionVault customer gold is held in London
  • GoldMoney: *It’s not clear how much gold Goldmoney stored in London so the previous figure from September 2015 is used again
  • VanEck Merk Gold Trust: Custodian JP Morgan London
  • Betashares: Custodian JP Morgan, London
  • Standard Bank AfricaGold ETF: Custodian JP Morgan London

The 1,116 tonnes of gold ETF holdings in London, calculated in September 2015, were as follows, with the SPDR Gold Trust accounting for the largest share:

lbma-vaults-etf-gold-in-london-au-06
2015: Vaulted gold held by gold-backed ETFs in London

The total figure for all gold held in London that we used in September 2015 was the 6,256 tonne figure implied by the LBMA’s 500,000 gold bars statement from June 2015. With 6,256 tonnes in total, and 5,134 tonnes at the Bank of England (as of end February 2015), this left 1,122 tonnes in London but “not at the Bank of England“, which implied that there was nearly no gold in London outside the Bank of England that was not accounted for by ETF holdings. in other words the ‘London Gold Float’ looks to have been near zero as of September 2015.

Assuming 6,500 tonnes of gold held in London in February 2016, and with 4,725 tonnes at the Bank of England in February 2016, we can repeat this exercise and say that the would leave 1,775 tonnes of gold in London but “not at the Bank of England“, as the following chart shows:

2016-lbma-gold-vaulted-in-london
2016 – LBMA vaulted gold held in London: Outside vs Inside Bank of England

Its well-known by now that the tide of significant gold ETF outflows that occurred in 2015 suddenly turned to very strong inflows into gold ETFs beginning in early 2016. Although our gold ETF holdings data was updated using holdings information as of 30 September 2016, it’s still worth seeing how well the latest London holdings of the gold ETFs help to explain this 1775 tonnes “not in the Bank of England” figure. As it turns out, as of the end of September 2016, the above ETFs collectively held 1,679 tonnes of gold, so right now, if there were 1775 tonnes of gold in London outside of the Bank of England, the ETF holdings would explain all but 96 tonnes of this total.

etfs-2016-overview
2016: 1679 tonnes held in ETFs in London – Yellow Bar
etfs-2016-details
2016: Vaulted gold held by gold-backed ETFs in London

Taking a quick look at some of the individual ETF holdings, the massive SPDR Gold Trust is currently holding around 950 tonnes of gold in London. The iShares figure reported in the charts of 214.89 tonnes comprises 2 components a) the London held gold within IAU (which can be seen in this daily JP Morgan weight list), and b) the gold bars held in iShares trust SGLN. The bulk of the ETF Securities figure of 276.68 tonnes represents gold held in PHAU (over 150 tonnes), and GBS (over 100 tonnes). The Deutsche Bank total is quite hard to calculate and comprises gold held in 5 Deutsche bank ETFs. Nick Laird receives daily holdings files for these ETFs from Deutsche Bank and performs a number of calculations such as fractional ounces per ETF unit to arrive at a total figure of 88 tonnes. The SOURCE and ABSA ETFs make up the vast majority of the remainder, with the other entities listed, such as BetaShares and Standard Bank ETF, being immaterial to the calculation.

Central Bank gold at the Bank of England

For the purposes of this exercise, data on central bank gold holdings at the Bank of England does not need to be updated since there hasn’t been any reported gold buying or selling activity by any of the relevant central banks since September 2015 (except for Venezuela), so the ‘known figure’ of 3779 tonnes attributed to identified banks in September 2015 remains unchanged. If anything, since the Bank of England revealed last February that its gold under custody fell to 4,725 tonnes, it means that there are now approximately 946 tonnes of gold at the Bank of England that are not explained by known central bank holders.

Totoal gold held at the Bank of England, February 2016: 4725 tonnes
Total gold held in custody at the Bank of England, February 2016: 4725 tonnes

Given that many central banks around the world will not cooperate in confirming where they store their foreign stored gold, then there are definitely additional central banks storing gold in the Bank of England vaults which would reduce this 946 tonnes of gold with unknown ownership. Therefore some of this total is unknown central bank gold holdings. Some is presumably also gold and borrowed gold held by bullion banks that have gold accounts at the Bank of England. Given that the Bank of England and the LBMA bullion banks maintain a total information blackout about the real extent of the gold lending market out of London, it is difficult to know how much borrowed gold is being held at the Bank of England by bullion bank account holders.

Some of the growth in the SPDR Gold Trust gold holdings this year looks to have been sourced from gold originating from the Bank of England, as was detailed in a July BullionStar article “SPDR Gold Trust gold bars at the Bank of England vaults“, which highlighted that the Bank of England was a subcustodian of the SPDR Golf Trust during Q1 2016. As a SPDR Gold Trust filing stated:

During the quarter ended March 31, 2016, the greatest amount of gold held by subcustodians was approximately 29 tonnes or approximately 3.8% of the Trust’s gold at such date. The Bank of England held that gold as subcustodian.

bank-of-england-known-gold
Bank of England vaulted attributed to individual central banks

Year to Date ETF changes and UK Gold Imports

It’s important to highlight that the 6,500 tonnes figure reported by the LBMA and the 4,725 tonne figure reported by the Bank of England relate to the February 2016 period, while the ETF gold holdings totals calculated above are from the end of September 2016. So there is a date mismatch. Nick Laird has calculated that during the February to September 2016 period, the London gold ETFs added 399 tonnes of gold, and during the same period the UK net imported (imports – exports) more than 800 tonnes of non-monetary gold. Given the apparent low float of gold in London late last year, its realistic to assume that gold inflows into the London-based ETFs this year were mostly sourced from non-monetary gold imports into the UK because there was apparently no other gold at hand from which to source the ETF gold inflows. ETF demand would also help explain the drivers of UK gold imports year-to-date. Note that monetary gold imports (central bank gold trade flows) are not reported by the respective trade bodies since the opaque basket of deplorables (i.e. central bankers) get an unfair exemption, therefore the 800 tonnes of net gold imports into the UK refers to non-monetary gold imports.

UK gold imports to July 2016
Net UK gold imports to July 2016: 735 tonnes 

According to the latest comprehensive trade statistics, from January to July 2016 inclusive the UK net imported 735 tonnes of gold from the Rest of the World. To this figure we can add another 84.6 tonnes of gold that the UK net imported from Switzerland in August 2016. This gives total UK gold imports up to August 2016 inclusive of 819.6 tonnes, hence the statement, the UK net imported over 800 tonnes of gold year-to-date.

UK gold imports from Switzerland, August 2016: 84.6 tonnes
UK gold imports from Switzerland, August 2016: 84.6 tonnes

If 399 tonnes of the 800 tonnes of non-monetary gold imported into the UK during 2016 was channeled into the holdings of gold-backed ETFs, this would still mean that the ‘London Float’ of gold could have been augmented by approximately 400 tonnes year-to-date. However, since most non-monetary gold imports into the UK are for bullion bank customers such as Scotia and Barclays, some of these extra imports could have been for repaying borrowed gold liabilities to central bank customers, and the quantity of gold now held at the Bank of England may be higher than reported by the Bank last February.

londongold2016
Full Overview chart courtesy of Jesse’s Café Américain, highlighting ETF and Bank of England gold holdings – Click the above chart to enlarge it

In summary, given the large UK gold imports year-to-date, there may now be over 7,000 tonnes of Good Delivery gold bars held in London vaults. But the fact that very large quantities of gold bars had to be imported into the London market during 2016 does suggest that our calculations from September 2015 were valid and that there was a very low float of gold in the London market. This float may now be a few hundred tonnes higher given the imports, but there is still an unquantifiably large number of claims in the form of ‘unallocated gold’ holdings in the London market which are liabilities against the LBMA bullion banks.

Remember that the London Gold Market trades nearly 6000 tonnes of predominantly paper gold each and every day. The latest LBMA ‘gold’ clearing statistics show that on average, 18.8 million ounces (585 tonnes) of ‘gold’ was cleared per trading day in September 2016 which on a 10:1 trading to clearing ratio equates to 5,850 tonnes traded per day, and 128,000 tonnes traded during September. So the LBMA administered market nearly trades as much ‘gold’ connected transaction per day as is held in the entire London vaulting network.

If gold demand from the Rest of the World ticks up, such as from India, then the London market will not have the luxury of being able to import large quantities of gold in the absence of that excess demand putting upward pressure on the gold price. Until then, the London Gold Market looks likely to continue its physical re-stock with one hand, while trading leveraged paper gold with the other hand, all the while rolling over outstanding borrowed central bank gold obligations, such as the short-term gold deposits held by Banco Central de Bolivia, which will be the subject of an upcoming case study into the hidden London gold lending market consortium.

Guest Post: Hanging by a Thread – “Very skeptical” judge – former FBI/SEC official eyes London gold and silver fix lawsuits

Written by Allan Flynn, specialist researcher in aspects of gold and silver. 

Five months have lapsed without decision, since London gold and silver benchmark-rigging class action lawsuits received a cool response in a Manhattan court. Transcripts from April hearings show, in the absence of direct evidence, the claims dissected by a “very skeptical” judge, and criticized by defendants for lack of facts suggesting collusion, among other things.

Judge Valerie E. Caproni, former white-collar defense attorney, SEC Regional Director and controversial FBI General Counsel, presided over oral arguments for motions-to-dismiss totaling 9 hours on April 18 and 20.

Its “based entirely on statistics with no other,” the judge said, pouring cold water on plaintiff’s claims of bank collusion in gold benchmark rigging. Defense attorney scoffed as much at the silver hearing. “There is not a single fact… that shows an agreement between my client and the other alleged conspirators to fix the fix.”

Seven banks are being sued in separate gold and silver class action lawsuits currently before the US. District Court, Southern District of New York. The plaintiffs: gold and silver bullion traders, and traders of various associated financial instruments, allege banks conspired in secret closed meetings, to rig the London PM Gold Fix, and Silver Fix benchmarks during the period from 2001 to 2013.

If the motions to dismiss are allowed, the complaints will be thrown out. Plaintiffs on the other hand, are hoping to crack open the door to “discovery,” where they get to access confidential bank communications and records. Turning the tables earlier in April Deutsche Bank surprised by promising to provide such evidence ratting out its former fellow defendants. “No. I cannot consider it at all,” the judge said, stonewalling plaintiffs’ arguments mentioning the move. The German mega-bank settled claims a week prior to the hearing but is yet to hand over records.

Evidence

Alleged proof of downward price manipulation is revealed by averaged charts showing “Anomalous” price drops from 2001 to 2013 in the London Silver Fix and PM Gold Fix. In sympathy, even as the gold price quadrupled from around $300 to $1200 through the period, something counter-intuitive happened. Plaintiffs’ claim during London hours between the AM and PM fixes, the average price declined for each of the 13 years, bar one being flat in 2013. More pronounced effects were seen in silver.

“Those were compelling charts,” the judge responded to a presentation of evidence during the silver hearing. “I mean, seriously, they truly show that something happened.”

av-normalized-gold-prices
Image courtesy of Commodity Exchange, Inc., Gold Futures and Options Trading Litigation, Dkt No. 14-MD-2548 (VEC)

Defendants argue rather than collusion, the price drops show normal “parallel conduct.” Loads of precious metals producers all needing to sell, and a bunch of savvy bankers hoping to buy low. Plaintiffs say the banks have a near-perfect record betting on the fix outcome. Well of course, they trade on “the best information in the world about supply and demand,” the banks’ attorneys retorted.

Findings

Inclusion of a non-fixing bank UBS, in the lawsuit, is described by defendants as “unfair,” and just to “suck in” a Swiss regulator’s findings. If the Court is to be believed, the FINMA report may be all the cases have going for them. Of its 19 pages, the dominating subject is foreign exchange misconduct, with only a few lines about precious metals. Tip-toeing around the topic of collusion, the report describes a process of “cooperation” between UBS and others in precious metals trading. It says the bank shared sensitive client trade information such as “client names”, “stop loss orders,” and “flow information on large or imminent orders” with “third parties.”

Sharing of client trade information by banks, including UBS, in currency trading, the UK Financial Conduct Authority (FCA) reported in 2014, was for the purpose of collusion. Such communication enabled different banks to plan trading strategies, and “attempt to manipulate fix rates and trigger client “stop loss” orders (which are designed to limit the losses a client could face if exposed to adverse currency rate movements).”

Strong similarities exist between the methods and tools used by currency traders to rig benchmarks, and those used by precious metals traders. Referring to the detailed description of UBS offences including collusion in currency benchmarks, the FINMA report said, “the conduct and techniques inadmissible from a regulatory perspective, were also applied at least in part to PM spot trading.”

steps1
Thurgood Marshall United States Courthouse, inset Judge Valerie E. Caproni

Hanging by a Thread

One “misconduct” the report emphasized in precious metals trading was UBS’ manipulation of the silver benchmark in the banks proprietary trading. “A substantial element of the conspicuous conduct in PM trading was the repeated front running (especially in the back book) of silver fix orders of one client.” According to the FCA, front running is a kind of insider trading.

“transaction for a “person’s own benefit, on the basis of and ahead of an order (including an order relating to a bid) which he is to carry out with or for another (in respect of which information concerning the order is inside information), which takes advantage of the anticipated impact of the order on the market or auction clearing price.”

Commenting on the brevity of plaintiffs’ evidence in silver, and the FINMA findings, Judge Caproni pointed out, “your hanging your hat pretty heavily on one line in that report.”

Attorney for defendants found the report favorably vague:

“Your Honor, I apologize. I must say he has made a misstatement three times. The FINMA settlement, Section 3.2.3 talks about UBS conduct with respect to silver. There’s not a not a word or hint about coordination with any other bank. It is between UBS and one of its customers or maybe more than one but no collusion.”

The judge responded, “We have the FINMA report. I knew that wasn’t exactly what it said.”

Confusion about the Swiss findings wasn’t helped by the events of the day. The conference call in German, reported FINMA boss Mark Branson alluding to perhaps more than the report dare, in, “clear attempts to manipulate precious metals benchmarks.” FINMA declined a request to supply a transcript or recording of the conference call, with a spokesperson responding, “We do not publish a transcript, and besides we have nothing to add to the report.”

A couple of things may help explain the regulators haziness, and thus the challenges for sensitive cases as these. Switzerland is a country long associated with gold and banking. In 1970 Zurich was home to the worlds largest gold market. Most of the worlds’ gold is imported to Switzerland for refining. Consider then this impressive feat: An official inquiry is conducted of Switzerland’s largest bank caught up in a scandal involving “precious metals.” Offenses were identified in its Zurich office. The agency reports “serious misconduct” in precious metals trading including sharing of secret client trade orders with “third parties.” The agency head rallies against manipulation of “precious metals benchmarks.” Action against 11 bank personnel, including industry bans of between one and five years, were brought against two managers and four traders for, “serious breaches of regulation in foreign exchange and precious metals trading.” But yet, the word “gold” is absent from the entire report and announcements.

Secondly, FINMA’s 2015 Annual Report describes the sanctions against four now-former UBS traders. It may concern some, that justice is left to financial market regulators when:

“Four further enhancement actions against UBS foreign exchange traders were discontinued in August 2015. Since there were indications that their behavior had contributed to serious breaches of regulatory provisions, FINMA issued reprimands without taking further action against these individuals.”

The Puzzle

If the cases proceed, US commodity futures markets may also come under scrutiny. The Court spotted a not-so-obvious paradox concerning allegations the banks suppress gold prices. “Why would they drive the price down when they are sitting on I don’t know how much bullion? They are driving down the price of their own asset,” Judge Caproni posed.

Plaintiffs claim the banks hold a majority of short gold and silver futures on the US-based Chicago Mercantile Futures Exchange, paper instruments tied to the value of London silver and gold, which increase in value as the bullion prices fall. The banks argue that it’s impossible to tell from mandatory government filings, which banks prosper during the declines, and to what extent. The judge agrees, and defendants are pleased. “I’m very skeptical they have a well-pleaded factual allegation of what the banks’…COMEX position is,” the judge said.

“Mr Feldberg: Then your Honor has said that much better than I ever could.”

Where direct evidence of collusion isn’t available, antitrust law allows the pleading of additional circumstantial evidence that lends plausibility to allegations. Other circumstantial evidence, or “plus-factors,“ listed by gold plaintiffs, namely problematic antitrust facts arising out of the very clubby arrangement of the fix meetings themselves, failed to impress particularly.

“The Court: But weren’t all of your plus factors just the natural – they are just a function of the fix?..I thought every plus factor you pointed to was just that’s the nature of the fix.”

Last Stand

The unconvinced magistrate was likely close to a decision, before four weeks back when the banks had one last throw at dismissal. The court in the silver case was asked to apply a recent ruling where warehouse aluminum price manipulation was deemed not to have impacted end users of aluminum. Any decision on this in silver will likely impact the gold case also.

The question of standing, or which plaintiff’s are close enough to the alleged activity to have suffered injury, was well discussed back in April. For example the Court put to defense: “I’m not saying the two guys at a swap meet from Ohio would be a particularly compelling class representative, but why wouldn’t they have standing?” Plaintiffs seemed to have convinced that the issue could be decided later, if it gets to that. Judge Caproni just wasn’t sure firstly if all the statistics, and facts complained were plausible enough to infer collusion, reminding frustrated gold plaintiffs where the balance lies.

“Unfortunately for you I’m the one who has to make the decision here.

Mr Brocket: Again, with the greatest respect, I am trying to resurrect this here but, look. Every fact alone doesn’t prove collusion.

The Court: I agree.”

inside-shot-of-thurgood-marshall-courthouse
A courtroom in the Thurgood Marshall Courthouse NYC

Decisions regarding motions to dismiss in the London gold and silver benchmark-rigging class actions against banks, initially expected around the end of August, could come any day sooner or later according to someone familiar with the cases.

 

The above article was first published at Allan Flynn’s website here.

Allan Flynn is a specialist researcher in aspects of gold and silver. He is currently investigating for future publication on the same topic and works in property and commercial architecture when he needs to eat. He holds shares in precious metals producers and banks.

Deutsche Bank agrees to settle with Plaintiffs in London Silver Fixing litigation

In a surprising development, a group of plaintiffs in an antitrust litigation case against Deutsche Bank, HSBC Bank plc, the Bank of Nova Scotia, and UBS AG, have just announced that Deutsche Bank is in the process of negotiating the formal terms of a settlement agreement with the plaintiffs. Deutsche Bank, HSBC and Scotia are the only members of the London Silver Market Fixing Limited, a private company that had operated the London Silver Fixing auctions until mid August 2014, after which time that auction was superseded by the LBMA Silver Price auction.

The case (# 1:14-md-02573-VEC) is being overseen as a class action suit by federal judge Valerie E Caproni in the US District Court for the Southern District of New York. A large number of different plaintiffs had taken similar actions and the cases were consolidated into one class action suit. The plaintiffs allege in the suit that Deutsche Bank, HSBC and Scotia colluded to fix the price of silver futures by publishing false silver prices, so that they, as members of London Silver Market Fixing Company would benefit (from the price movements).

The full 1 page letter from the plaintiffs legal representatives Lowey Dannenberg, Cohan & Hart can be read here -> Deutsche letter to Caproni – 13 April 2016 – London Silver Fixing – Lowey Dannenberg Cohen Hart.

In a shocking development for the remaining defendants and the entire future of the current LBMA Silver Price auction, owned by the LBMA, administered in London by Thomson Reuters and calculated by the CME Group,  the letter states that:

“In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.

The plaintiffs include Modern Settlings LLC (of New York and Florida), American Precious Metals Ltd, Steven E Summer, Christopher Depaoli, Kevin Maher, Jerry Barrett, Rebeccca Barrett, KPFF Investment Inc, Don Tran, and Laurence Hughes.

The defendants include Deutsche Bank AG and various other Deutsche Bank entities, HSBC Bank Plc, HSBC Bank USA NA, HSBC Holdings Plc, and various other HSBC entities, The Bank of Nova Scotia, and various other Scotia entities, and finally The London Silver Market Fixing Ltd.

Coming on the heels of the unresolved and unexplained fiasco that is the LBMA Silver Price auction and the broken promises by the London Bullion Market Association (LBMA) about greater auction transparency and wider participation in the new Silver auction (see BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing“) it seems difficult to envisage that the LBMA Silver Price can survive in its current form, with its current participants, of which 2 of the remaining 5 participants are HSBC and Scotia. It will also be interesting to see what the Financial Conduct Authority (FCA) will say about this development with Deutsche Bank, especially in light of the fact that HSBC and Scotia are now participating in a ‘Regulated Benchmark’ (the LBMA Silver Price), where price manipulation can be criminally prosecuted.

London Silver Market Fixing Limited

The directors of the London Silver Market Fixing Limited company in the months before it ceased doing the London Silver Fixing auctions, were Simon Weeks of Scotia, Matthew Keen of Deutsche Bank, and David Rose of HSBC, with alternate directors of David Wilkinson of Scotia, James Vorley of Deutsche Bank and Peter Drabwell of HSBC. Since the above list was drawn up, UK Companies House filings show that, for London Silver Market Fixing Limited, David Rose ceased to be a director on 5 January 2016, David Wilkinson ceased to be a director on 16 October 2015, James Vorley ceased to be a director on 27 May 2014, and Matthew Keen ceased to be a director on 18 February 2014. According to those filings, it means that Simon Weeks of Scotia and Peter Drabwell of HSBC are still directors of the company that is a defendant in the above New York class action suite.

Surprisingly to some, Simon Weeks of Scotia is listed on the website of LBMA Silver Price administrator Thomson Reuters as still being a member of the LBMA Silver Price Oversight Committee. See list here. Furthermore, the same Simon Weeks is still listed as being a member of the LBMA Gold Price Oversight Committee, chaired by ICE Benchmark Administration. See list here.

Some of the above directors names will also be familiar to readers as directors of the London Gold Market Fixing Limited company, as profiled in the ZeroHedge article “From Rothschild To Koch Industries: Meet The People Who “Fix” The Price Of Gold“.

Venezuela exported 12.5 tonnes of gold to Switzerland on 8 March 2016, via Paris

Following on from last month in which BullionStar’s Koos Jansen broke the news that Venezuela had sent almost 36 tonnes of its gold reserves to Switzerland at the beginning of the year, “Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January“, there have now been further interesting developments in this ongoing saga.

It has now come to light that on Tuesday 8 March, the Banco Central de Venezuela (BCV) sent another 12.5 tonnes of gold by air freight to Switzerland (via Paris), and fascinatingly in this instance, the exact details of the transfer are already available, including the cargo manifest, courtesy of Venezuelan newspaper El Cooperante which broke the news on 11 March.

As per the January gold exports to Switzerland, which most likely were part of a gold swap to generate much-needed financing for the crisis-ridden Venezuelan economy, this latest shipment appears likewise.

Air France flight AF 385 and Brinks Switzerland

The BCV’s 12.5 tonne gold shipment was flown out of Caracas International Airport (Maiquetia Simon Bolivar) on Air France flight AF 385 to Paris, leaving at 5:49pm local time on Tuesday 8 March, and arriving into Paris Charles de Gaulle Airport at 7:54am on Wednesday 9 March.

Air france 385 on 8 March 2016
FlightAware screenshot of Air France flight 385 on 8 March 2016 – Source: El Cooperante

The sender of the shipment was Banco Central de Venezuela, and the consignee (initial receiver) was Brinks Switzerland. Given that Brinks Switzerland was listed as the consignee for a flight arriving into Paris Charles de Gaulle at 8am, then there would have been a second flight from Paris to presumably Zurich in Switzerland which is the main destination airport for gold arriving into Switzerland. As giant Swiss refiner Valcambi says under Transportation Services, it provides “Import services and transportation from Zürich airport to Valcambi“.

The 3 immediate direct flights from Paris Charles de Gaulle to Zurich after 8:00am are Swiss Air flight LX 655 at 09:55, Air France flight AF 1614 at 12:55, and Swiss Air flight LX 639 at 15:05. Brinks has its operations centre headquarters in Zurich at Zurich Airport (and also a Geneva office at Geneva Airport).

The Cargo Manifest

The Cargo Manifest from Maiquetia Airport (Caracas International Airport) shows that the BCV’s gold shipment was described as ‘GOLDS BARS’, with tracking number 057-91145645, and comprised 12,561 kilos,  packed in 318 packets, which are listed somewhat surprisingly as being ‘caja de carton’ (which translates as cardboard box). Super-strong cardboard presumably.

Maiquetia Manifiesto de Carga 8 March 2016
Cargo Manifest for 12.5 tonnes of gold on Air France flight 285 from Caracas to Paris – Source: El Cooperante

If each bar weighed approximately 400 ozs, there would have been about 1,009 or 1,010 bars in the shipment. With 318 packets, and with 12,561 kgs = 403,845.53 troy ounces = 12.56 tonnes, then on average there were 39.5 kgs per packet (12561 / 318 = 39.5), which is a little but more than 3 bars per packet. But since gold bars can’t obviously be divided, then these gold bars may have been slightly larger US Assay Office bars weighing more than 400 ozs. Remember that the London Bullion Market Association (LBMA) Good Delivery specification for gold bars ranges from 350 oz up to 430 oz. Alternatively, most of the packets could have contained 3 bars each and the remaining packets 4 bars each.

Air France has a web-based cargo tracking number website but unfortunately, it does not return any information on tracking number 057-91145645. See screenshot:

Air France tracking 057-91145645

However, the Air France website doesn’t return any data on other known gold shipments of Venezuelan gold, for example Air France tracking number 057-53208470 from late 2011, which was actually displayed on Venezuelan TV (see below bar code).  Therefore, tracking information on gold shipments may not be publicly available for security reasons.

Air France - air waybill
Some of the repatriated gold (inbound to Venezuela) was flown in on Air France in late 2011, tracking number 057-53208470

Swiss Refineries

It’s important to consider the extent to which this latest  BCV gold shipment may be scraping the barrel in terms of the BCV’s remaining unencumbered gold reserves. My theory at this stage is that the gold bars being sent to Switzerland are being sent to Swiss refineries to be refined into modern Good Delivery bars, and not to be refined into 1 kilo gold bars for the Asian market. This would be the case if all of the 160 tonnes of gold (in modern good delivery form) that had been repatriated during late 2011 / early 2012, was already in play (i.e. encumbered, under lien or claim or pledge).

This is assuming that the gold in transit are the gold legs of USD – gold swaps, whereby the gold is then held (and used) by a commercial bank counterpart or via some gold swap arrangement between the BCV and a commercial bank facilitated by the Bank for Settlements (BIS) in Basel. Furthermore, the legal wording of gold swaps would normally stipulate that gold held as part of a gold swap would need to be deposited into the gold vault of an institution such as the Bank of England, FRBNY, or the BIS’ storage facility at the Swiss National Bank etc.

Consider some facts about the BCV’s gold reserves and the gold swap activity and rumoured gold swap activity by the BCV in the recent past, using a reverse timeline:

  • The BCV exported 12.56 tonnes of gold to Switzerland on 8 March 2016
  • Venezuela (assumed to be the BCV) exported 35.8 tonnes (specifically 35.835 tonnes) of gold to Switzerland in January 2016 (from Swiss Customs Data)
  • Venezuela exported 24 tonnes of gold to Switzerland in 2015, nearly 35 tonnes in 2014, and approximately 8 tonnes in 2013, after exporting far smaller amounts in any of the 7 prior years (about 0-4 tonnes per annum over 2006 -2012). See chart from Nick Laird’s www.sharelynx.com below.

SWAUAexportsVE05.php

  • The BCV had carried out gold swaps with the Bank for International Settlements ‘in recent years’, with up to 7 swap transactions (Reuters February 2016). These swaps would have to have used gold held outside of Venezuela, i.e. either at the Bank of England or using gold that was exported from Venezuela to Switzerland in 2013-2015
  • The BCV shipped an unspecified quantity of gold out of Caracas airport to an international destination on 2nd, 3rd and 7th July 2015 (re-exported for pledging)
  • BCV’s gold reserves fell by 60 tonnes over the period March – April 2015

(For the above 2 points see “Venezuela says Adiós to her gold reserves“)

  • The BCV entered into a 4 year gold swap with Citibank (announced in April 2015). This Citibank swap most likely used the 50 tonnes of Venezuelan gold that had been left at the Bank of England in 2011.
  • Venezuelan opposition leader, Maria Corina Machado, had information in March 2015 that suggested the BCV was engaging in an even larger gold swap that the Citi bank swap: “¿Es cierto que estarían negociando una segunda operacion de empeño similar a la anterior por un monto aun mayor?

(For the above points, see “Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation“)

  • 12,819 good delivery bars (160 tonnes) were repatriated to Venezuela in late 2011 / early 2012
  • About 4,089 bars (about 51 tonnes) of Venezuela’s gold was left in London after the 2011/ 2012 repatriation
  • There were 12,357 bars (about 154.5 tonnes of gold) held in the BCV vaults in Caracas before the gold repatriation started in late 2011. These bars that were originally in Caracas are mainly if not exclusively US Assay office bars since they were repatriated from the FRB in New York in the late 1980s
  •  There were 25,176 bars (about 315 tonnes) in the BCV vaults when the repatriation to Caracas completed (in early 2012)

(For the above bar number quotes, see “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“).

Conclusion

Approximately 50 tonnes of BCV gold has been exported from Venezuela to Switzerland within the first 10 weeks of 2016. How much longer can this outflow continue? This gold is being exported by the BCV in order to participate in swaps (or maybe even outright sales) in order to provide external financing to the Venezuelan Government. The fact that the gold is being picked up by Brinks Switzerland suggests it is being brought to a Swiss gold refinery. The main reason gold is sent to Switzerland is so that it can be refined or recast.

At least 3 entities have been associated with this external financing so far, namely Citibank, Deutsche Bank and the Bank for International Settlements. Bullion banks and the BIS hold gold in long-term holdings in the form of Good Delivery Bars, and enter into gold transactions using Good Delivery bars, not kilobars. With 50 tonnes of Venezuela’s gold left behind at the Bank of England in 2011, there were only another 160 tonnes of gold bars at the BCV vaults that were not old US Assay Office bars. The gold now going from the BCV to Switzerland is, in my view, old US Assay Office bars. This would suggest that more than 200 tonnes of Venezuela’s gold is already in play, as well as the 50 tonnes from Q1 2016.

With the BCV being totally opaque about the real state of its gold holdings, and with the IMF / World Gold Council still reporting the fantasy that the BCV  / Venezuela holds 361 tonnes of gold in its official reserves,  some speculation is in my view acceptable, and the above information should go someway towards illuminating a truer state of Venezuela’s gold holdings, but what that true state of play is, only the BCV, Venezuelan Government and associated insider bullion banks and central banks know.

Note, that it’s also possible that Venezuela exported gold to Switzerland (or elsewhere) in February 2016. Swiss customs data, which shows (non-monetary) gold imports and exports, including de-monetised gold, is available each month but with a lag of 3 weeks. Therefore the February 2016 data is available on Tuesday 22 March, on the Swiss Customs website.

G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out

On 8 January 2016, Reuters broke the news that ICBC Standard Bank has purchased the lease on Deutsche Bank’s gold vault in London, and that ICBC Standard intends to become a member of the clearing syndicate, London Precious Metals Clearing Limited (LPMCL):

“ICBC Standard Bank is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market..”

ICBC.. has also applied to become a clearing member of the London gold and silver over-the-counter business.

The vault became operational in June 2014 and has a capacity of 1,500 tonnes. It was built and is managed by British security services company G4S.

These moves by ICBC Standard Bank have now put both the G4S vault and LPMCL, (a private company), back in the spotlight.

The Background to the G4S Vault

On 20 March 2012, Deutsche Bank issued a press release announcing that it had contracted security company G4S to construct and manage a precious metals vault on Deutsche’s behalf in London. Critically, this was a substantial long-term partnership between Deutsche Bank and G4S, with G4S doing the actual work of building and then operating the precious metals vault. Deutsche stated at the time in March 2012 that the new vault would be for the exclusive use of Deutsche Bank clients, and that it would available for use by these clients during 2013:

“Deutsche Bank and G4S are pleased to announce that they are to join forces in establishing a new vault for the storage of precious metals in the UK.”

The new vault will be built and managed by G4S, the world’s leading international security solutions group, for the exclusive use of Deutsche Bank and its clients and will be an enhancement to Deutsche Bank’s already extensive metal trading and clearing capabilities. 

“‘It will position us well to quickly become a leading metals clearing and custody house,’ commented Raymond Key, Global Head of Metals Trading at Deutsche Bank. The vault, which will be constructed and run to industry-leading standards of security, will be available for clients in 2013.

Likewise, on 20 March 2012, G4S released its own press release in which it revealed that the contract with Deutsche Bank was a 10 year commercial deal and that discussions about building the vault had commenced in 2009:

“Working in partnership with Deutsche Bank, the business has secured a ten year commercial arrangement to establish a state of the art precious metals vault that will be built and managed by G4S, and will enable Deutsche Bank to extend and enhance their metal trading and clearing capabilities.

Discussions started with Deutsche Bank back in 2009 when increased economic volatility started to cause a rise in interest levels among investors for precious metals.”

“James Dinsdale, Managing Director, G4S Cash Solutions, said: ‘We’re delighted to have secured this partnership with Deutsche Bank….. This agreement represents a strategic move in the UK market place for G4S.”

Law firm Clyde & Co acted as advisor to G4S for the Deutsche vault project, and it too issued its own press release on 19 March 2012:

“Clyde & Co has advised global security and logistics company G4S in relation to a project for Deutsche Bank.

G4S will build and manage a gold bullion secure storage vault in the UK for Deutsche Bank.”

What none of the press releases mentioned was that the precious metal vault was being integrated into the basement of a new G4S operating centre in Park Royal, London.

Deutsche

As it turns out, Deutsche did not deliver on its self-publicised deadline for the new vault becoming available to its clients in 2013. However, on 9 June 2014, over 2 years after announcing the London vault project, a much reduced Deutsche Bank London precious metals business that had substantially stepped back from the London Gold Market, confirmed to Reuters that it had finally opened its new London precious metals vault. Note that Reuters is usually the first distribution channel that the London Gold Market PR machine contacts to get its stories out on to the newswires.

According to Reuters’ coverage of the June 2014 Deutsche opening announcement:

“Deutsche’s new vault has been built in partnership with logistics company G4S and is open to institutional investors, and commercial and central banks.”

The vault has a capacity of 1,500 tonnes, making it significantly bigger than a 200-tonne storage facility that the bank owns at the Singapore Freeport.

The period from late 2013 to early 2014 turned out to be a turbulent period for Deutsche Bank’s precious metals operations in London, during which time:

- German financial regulator BaFin began an investigation into the London Gold and Silver Fixings, of which Deutsche Bank was a fixing member (November 2013)

- Deutsche Bank announced that it would withdraw its participation in the London Gold and Silver Fixings and sell the Fixing seats (January 2014)

- Deutsche Bank ceased contributing to the GOFO benchmark and ceased being a LBMA market maker for precious metals forwards (February 2014)

- Deutsche Bank ‘failed to sell’ its gold and silver fixing seats (despite ICBC Standard Bank being interested), and Deutsche then merely resorted to withdrawing from the fixings (April/May 2014)

- Deutsche Bank’s Matthew Keen, who was a director of London Gold Market Fixing Limited (LGMFL), London Silver Market Fixing Limited (LSMFL), and  London Precious Metals Clearing Limited (LPMCL) resigned from Deutsche Bank, prompting the appointment of other Deutsche representatives to those company directorships (January 2014)

- Deutsche Bank’s representative on the London Bullion Market Association’s (LBMA) management committee, Ronan Donohoe, resigned from the LBMA management committee on 5 March 2014, only 7 months into a 2 year appointment (March 2014)

Given all the above retrenchments affecting its precious metals activities in London, it is slightly odd that Deutsche Bank still went ahead in June 2014 and announced the opening, at least in name, of its London precious metals vault collaboration with G4S. Perhaps it had a contractual obligation with G4S to do so.

But odder still is that less that 5 months after announcing the opening of the new vault, Deutsche Bank then stepped back even further by closing its physical precious metals trading operation in London in November 2014, and then announced in December 2014 that it would actually be interested in selling its London gold vault. This decision is beyond bizarre given the huge level of commitment that Deutsche Bank had made to the development of the vault for at least 4-5 years beginning in 2009.

As Reuters reported on 24 December 2014:

“Deutsche Bank is open to offers for its London-based gold vault following the closure of its physical precious metals business, three sources familiar with the matter said on Wednesday. ‘If the right offer came along, then the bank would sell the London vault,’ one source close to the situation said.

The German bank shut its physical precious metals trading arm last month as it further reduced its exposure to commodity markets.”

Deutsche declined to comment on the status of its vaulting operation.

 “…it could be difficult for Deutsche Bank to find buyers among its nearest peers. But sources familiar with the matter said a Chinese entity could come forward. ICBC is trying to build a presence in London and the sources said it was a likely candidate. ICBC declined to comment.”

The key question is did this Deutsche Bank vault in London, operated by G4S, ever do any precious metals business in the time between June 2014 and November 2014? If it did, then this activity could not have been substantial.

Deutsche Bank clients holding allocated gold and other precious metals with Deutsche in London would not have been impressed if they were told their holdings were being moved to the new vault in the summer of 2014, only to find out a few months later that Deutsche was looking to exit its involvement with the vault.

While the G4S / Deutsche vault sales process seemed to remain on hold for the entire year of 2015 with no announced activity from either Deutsche bank or ICBC, and no media scrutiny, Deutsche continued to exit the physical gold business in London amid a number of other significant developments. In August 2015, Deutsche departed from the London Precious Metals Clearing Limited (LPMCL) company, leaving HSBC, JP Morgan, Bank of Nova Scotia, Barclays, and UBS as the remaining 5 members of the London gold and silver clearing consortium.

On 20 August 2015, Reuters reported that:

“Deutsche Bank is to sever its last link with commodity trading by resigning as a clearing member of the London gold and silver over-the-counter business..” [LPMCL]

It’s a little known fact that London Precious Metals Clearing Limited (LPMCL) (company number 04195299) is a UK private limited company with the same registered address as the London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited. This registered address is C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ.  Indeed, Hackwood Secretaries Limited is the Company Secretary for LPMCL. Hackwood Secretaries Limited is one of the companies Linklaters uses to offer its company sectretariat services. And Linklaters is one of the better known ‘magic circle’ global law firms that is headquartered in London.

While LPMCL has so far managed to steer clear of US class actions suits concerning precious metals manipulation accusations, its fellow Linklater registered gold and silver fixing companies, London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited, both of which have had a lot of the same directors as LPMCL, have not been so lucky on the class action front, and both companies are now facing live consolidated class action suits in New York courts.

Each member bank of LPMCL usually appoints two directors who are senior staff members of that investment bank. So with 6 investment banks within LPMCL, there are usually 11-12 LPMCL directors, give or take a few people who would invariably be moving bank at any given time.

Deutsche Bank’s two last-serving directors of LPMCL, Raj Kumar and David Mitchell-Innes, actually resigned from LPMCL on 9th February and 1st September 2015, respectively. The February 2015 LPMCL resignation by Kumar seems to have been precipitated by his internal move within Deutsche Bank for a short while to the role of Global COO for Commodities, but then significantly, Kumar left Deutsche Bank in July 2015 to take up a role in ICBC Standard Bank in September 2015 as a managing director in ICBC Standard’s  precious metals business, as Reuters reported on 17 September:

“London-based ICBC Standard Bank Plc named Raj Kumar head of its precious metals business development, effective immediately.

Kumar, who will be based in London, joins from Deutsche Bank AG, where he was managing director of precious metals business.”

 This Deutsche Bank – ICBC Standard Bank – LPMCL link in the form of Raj Kumar was undoubtedly useful to ICBC Standard in its move to take on Park Royal vault lease from Deutsche Bank, and could help facilitate ICBC Standard’s stance in an application to become a member of LPMCL.

However, the 20 August Reuters report also interestingly stated that Standard Chartered might be interested in becoming a LPMCL member:

“…there is one other bank, Standard Chartered, that could become a gold and silver clearing member in the next few months.”

Could this be a typo by Reuters when it meant to say Standard Bank? Possibly, but most likely not. Standard Chartered is an important bank in the London Gold Market in its role as a LBMA market maker in spot and options for gold and silver which it secured in February 2015. But Standard Bank is not to be confused with Standard Chartered bank. They are two entirely separate banking institutions, albeit with historical connections.

Standard Chartered is headquartered in London, and is well-known for its emerging markets focus, particularly in Asia and Africa. The ‘Standard’ in Standard Chartered in some ways does refer to the South African ‘Standard Bank’, since Standard Chartered was created in 1969 through the merger of Standard Bank of British South Africa and Chartered Bank of India, Australia and China. However in 1987, Standard Chartered sold its shareholding in Standard Bank.

In another LPMCL related link that could involve Standard Chartered, Martyn Whitehead, former director of LPMCL for Barclays, left Barclays in May 2015, and joined Standard Chartered in August 2015, as MD and head of Commodity Sales.

In April 2015, Reuters said of Whitehead’s pending departure from Barclays:

“Barclays’ global head of metals and mining sales Martyn Whitehead will leave the bank as part of its restructuring and exit from some parts of its commodities business, a source familiar with the situation told Reuters on Monday.

Whitehead was Barclays’ only representative listed with London Precious Metals Clearing Ltd. Barclays is one of the six banks that organise and co-ordinate bullion clearing and vaulting in London.”

Therefore, could two former directors of LPMCL, namely Raj Kumar and Martyn Whitehead, now be spearheading applications on the part of their respective new employers, ICBC Standard Bank and Standard Chartered, to both join the private club that is London Precious Metals Clearing Limited, and have access to the exorbitant privilege of being part of the London Gold Market’s private gold clearing consortium, and preferential treatment form the Bank of England gold and foreign exchange desk?

Standard ICBC

ICBC

China’s largest bank, Industrial and Commercial Bank of China (ICBC), has been eager to become a premier player in the London Gold Market for some time now. Although it became an Ordinary Member of the LBMA in 2012, ICBC had stated in 2012 its desire to become a LBMA Market Making Member. ICBC was also interested in buying Deutsche Bank’s seat in the old Gold Fixing in 2014, but strangely this sale never happened. See my BullionStar blog “Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!” from March 2015 under section “ICBC and Standard Bank” for more details on this.

One key development for ICBC was crystalised in February 2015,  when ICBC finalised its acquisition of 60% of Standard Bank Plc (the UK arm of Standard Bank) from Standard Bank of South Africa, to create the entity now known as ICBC Standard Bank. See also the press release ICBC completes acquisition of 60% of Standard Bank Plc 20150129. The LBMA website nows list ICBC Standard Bank as an Ordinary Member of the LBMA in lieu of listings for both ICBC and Standard Bank.

ICBC also stated in June 2015 that it wanted to become a direct participant in the LBMA Gold Price auction, but again strangely this has not yet happened despite 2 other Chinese banks, namely Bank of China and China Construction Bank (CCB), eventually being authorised by the LBMA to join up to the LBMA Gold Price auction on 22 June 2015 and 30 October 2015, respectively.

Prior to the controlling interest purchase by ICBC, Standard Bank was no stranger to London Gold Market gold vaulting, and a 2009 report from Abu Dahbi’s “The National” on United Arab Emirates related bullion stated that gold had:

“moved to the vaults of Standard Bank of South Africa, located in the London offices of JPMorgan Chase at 60 Victoria Embankment, Blackfriars, London.”

The ‘vaults of Standard Bank‘ reference just refers to allocated or sub-leased space in the JP Morgan vault in London in the name of Standard Bank of South Africa.

Finally, ICBC also has a strategic interest in the London platinum group metals market through Standard Bank Plc’s existing participation in the London Platinum and Palladium Market especially through the daily platinum and palladium fix auctions, which are now administered by the LME on behalf of the LBMA.

 

The Park Royal VAULT

As first revealed by Zerohedge in December 2014, the London precious metal vault that was built by G4S on behalf of Deutsche Bank is located at in the Park Royal area of London at 291 Abbey Road, London NW10 7SA.

This Park Royal location was actually telegraphed by G4S itself as early as July 2013 when ‘G4S Cash Solutions’ advertised for “Precious Metals Vault Officers” for the new vault in a job advert on the careers section of its own website, which listed the job location as ‘Park Royal, West London‘. Not really a very security conscious approach for whats purports to be one of the world’s foremost security companies. The job adverts included the following:

Precious Metals Vault Officers

Location: Park Royal, West London

Number of Positions: 16

Closing Date: November 2, 2013

G4S Cash Solutions, in partnership with one of the world’s leading financial institutions, is launching a Precious Metal Vault in West London.  The vault which has been created with innovative, state of the art design and technology is at the leading edge of the global bullion storage industry.

We are now recruiting an exceptional team of Precious Metal Vault Officers who will operate and secure our vault in this exciting, new venture.”

  • “responsible for processing all inbound, outbound and stock management transactions and movements of Precious Metals”
  • “The operation and use of a Vault Management System together with specialist Precious Metals equipment”
  • “The conduct of receipting, weighing and stowing of Precious Metals including their physical movement in and around the Vault “

Other roles at the new vault were also advertised on the G4S website, such as  “Vault Manager – Precious Metals” which included information such as:

Vault Manager – Precious Metals

Location: Park Royal

Number of Positions: 1

Closing Date: November 2, 2013               

G4S is the largest secure solutions company in the world…Our Cash Management Solutions business has expertise in cash and valuables transportation, cash processing, ATM and cash centre outsourcing, secure storage and retrieval.”

“Responsible for the management, security and operations of the precious metals vault including security and traceability of all assets entering and leaving the vault.”

  • “To work closely with internal management on the strategic global growth of our bullion projects; offering product, operational knowledge and LBMA expertise.”
  • “To train vault officers to ensure they are working within the LBMA / LPPM /  LPMCL guidelines…”  
  • A strong working knowledge of LBMA, LPPM and LPMCL codes of practice and proven experience of implementation of these codes
  •  ** Proven experience of working within a Precious Metal vault **
  • Proven experience of working within LBMA, LPPM and LPMCL codes of practice  (including weighing of bullion)”

 

…and a Weighmaster job role which included:

“Weighmaster

Location: Park Royal

Number of Positions: 1

Closing Date: December 31, 2015

 

  • Planning and implementing the conduct of receipting, weighing and stowing of precious metals including their physical movement in and around the vault
  • Planning for and implementing the conduct of picking, packing and shipping of precious metals including their physical movement in and around the vault

 

There were also similar job adverts on the G4S website for other positions at Park Royal including  “Precious Metals Shift Manager” (Positions: 4, closing date 31 October 2013), and “Secure Driver” (Positions:15, closing date 23 June 2014, “Deliver cash and valuables to various customers in a physically active role“).

Note that the closing date for the Secure Driver applicants was a few weeks after Deutsche Bank had announced on 6 June 2014 that it had opened the gold vault. So if the drivers hadn’t even been hired in June 2014 and probably not in July 2014 either, then there was nothing being moved in or out of the vault at that time, and there was most likely never any Deutsche Bank precious metals moved in or out of the G4S vault, which would also explain why, in December 2014, “Deutsche declined to comment on the status of its vaulting operation”, and would therefore make the vault an extremely bad and money losing investment decision for Deutsche Bank, as well as a bizarre business decision to commit substantially investment to the vault and then walk away from it 2 years later. 

From July to August 2013, G4S even tweeted about these Park Royal roles on its Twitter account and stated the locations of the jobs roles and locations, for example, for “Vault Manager – Precious Metals in Park Royal“.

Not only that, but G4S even advertised these precious metals vault positions to the world on Facebook, complete with the specification of the Park Royal location.

Park Royal

Where is Park Royal? Most people in London, if they know Park Royal at all, would recognise the name as a tube station (train station) and as an area of North West London. Park Royal is just off the North Circular Road, in an industrial area, frequently congested with traffic, just down the road from Hanger Lane roundabout, another often traffic gridlocked area. But as the crow flies, Park Royal is not too far from Heathrow Airport, or the M25 ring-road, or Central London.

As well as telegraphing the general Park Royal area where the new vault was to be built, G4S also went further and specified the exact address of the new operating centre in a planning application document available on the web, conveniently pinpointing the vault building location in this large industrial sprawl, chock full of industrial parks and warehouses:

OFFICE OF THE TRAFFIC COMMISSIONER (LONDON AND THE SOUTH EAST OF ENGLAND) APPLICATIONS AND DECISIONS       PUBLICATION DATE: 06 March 2014

Page 13 of document: Reference Number OK0229598 SI

G4S CASH SOLUTIONS (UK) LIMITED

Director(s): KEVIN O’CONNOR, Margaret Ann Ryan, Declan Hunt.

SUTTON PARK HOUSE, 15 CARSHALTON ROAD , SUTTON SM1 4LD

New operating centre: PARK ROYAL, 291 ABBEY ROAD LONDON NW10 7SA

New authorisation at this operating centre will be: 45 vehicle(s), 0 trailer(s)

In this case, the planning reference was referencing an increase in the number of vehicles allowed on the site. However, the more interesting planning applications are to be found not in the Office of the Traffic Commissioner, but in the website of Brent Council. These plans give a good overview of some of the details of the basement and vault that ICBC Standard Bank has just taken on the long-term lease for.

Park Royal tube

Planning applications for 291 Abbey Road NW10 7SA

The Park Royal area, including 291 Abbey Road NW10 7SA, is under the remit of Brent Council Borough of London. Brent Council planning applications are available on the Brent Council Planning web site. On the Brent Council web site, there are 5 planning application ‘Case Numbers’ for 219 Abbey Road NW10 7SA submitted since 2012. The sequential nature of there being 5 case numbers just means that after the initial application was made, various details of the application were amended, which necessitated the applicant making subsequent submissions to the Council requesting the changes. This allows the amended plans of the G4S development to be compared to the initial plans. Each of the 5 applications have multiple scanned documents uploaded and attached to the applications.

Case Number 12/2112:  This is the original planning application

Erection of new 2-storey storage facility (Use Class B8)”. Use Class B8 means Distribution or Storage. B8 building use is for storage or as a distribution centre. This application was submitted on 9 August 2012, and the application was granted on 9 November 2012.

Applicant: S Williams, G4S, Sutton House, 15 Carshalton Road, Sutton, Surrey, SM1 4LD

Architects: Pick Everard, Leicester

Pick Everard architectural practice describes itself on its website as “a leading independent, multi-professional consultancy practice working within the property, infrastructure and construction industry.

There are a number documents in the Case Number 12/2112 planning application, the most interesting of which is the initial floor plan diagram of the construction project: Project Park Royal – Document 120437 A 105 B Typical floor plans and sections.

Notice that on the diagram, there is a square-shaped basement specified on the floor plans, listed as ‘Basement Storage’, and this basement is specified as 1178 square metres. This 1178 sq mt space is approximately 34 metres * 34 metres. Furthermore, the ground floor level is listed as “Industrial Warehouse”, 1132 sq metres, with “Vehicle Loading Bays” at the rear, and the 2nd Floor level is listed as “Offices”.

On 20 September 2012,  the London Bullion Market Association (LBMA) published the following guidelines on the location of new precious metals vaults in London: Best Practice Guidelines Used by ‘Loco London’ Vaults – Opening a new vault for the storage of precious metals, in which it stated:

If you wish to store the higher value precious metals then you may find that insurers insist that your vaults are subterranean.

It appears that these guidelines were specifically written for Deutsche Bank and G4S to follow since they were the only parties submitting a planning application for a new precious metals vault in London at that time, and the dates fit exactly. Case Number 12/2112 also includes an initial site location plan Project Park Royal – Document 120437 A 001 J Site Location Plan showing an overview of the site, with car park at front, building in the middle with truck loading bays at the back of the buildings, and truck parking at the rear of the site.

Case number 12/3371: Some small extra details

Case 12/3371 is just an application containing extra details about construction materials etc and security gates, barriers etc. This application was submitted on 18 December 2012, and granted on 12 February 2013.

Case Number 12/3344: Some small extra details

Case 12/3344 just covers some extra details such as car park spaces at the front of the site, for 32 cars, 30 staff/visitor spaces, and 2 disabled spaces. That application was submitted on December 2012, and granted on 13 February 2013.

Case Number 13/0722: Some important revisions to the Project, including a reduction in the size of the Basement

Case Number 13/0722 is interesting in that it included a reduction in the size of the basement from 1178 sq metres in the original application, to 750 sq metres. This application was submitted on 25 March 2013, and granted on 22 April 2013.

The accompanying Delegated Report specified a “Non-material amendment application to: (a) reduce basement area, and other changes such as (e) alterations to fencing, (f) reduction in number of vehicle loading bay shutters from 6 to 5.

“It is proposed to reduce the size of the basement from 1178sqm (as approved) to 750sqm. This is below ground level and will not have a material impact.”

Applicant: Stacy Williams, G4S, Sutton House, 15 Carshalton Road, Sutton, Surrey, SM1 4LD

In the revised floor plan Project Park Royal – Document 120437 A 105 C Typical floor plans and sections, the basement, still listed as ‘Basement Storage’, has been remodelled as a rectangular space and reduced in size to 750 square metres from 1178 sq metres, i.e. a reduction of 428 square metres compared to the original submission. This new 750 sq metre size, as a rectangular area, is roughly 19 metres * 38 metres. See revised floor plans.  While a smaller basement does not necessarily mean a smaller vault, the basement size was more than likely reduced specifically because the vault size had been reduced.

If this was the case, then its possible that Deutsche Bank communicated to G4S that the vault size was to be reduced due to gold bullion exiting London for Asia (via Switzerland) in 2012 and especially during early 2013, and a fear that the previous planned size for the vault would be too big for the intended London bullion activity requirements.

The floor plan diagram specifying the reduced basement was actually created on 26 April 2013, which is coincidentally the week following the historic two-day gold price smash that occurred over Friday 13th and Monday 16th April 2013.  Said another way, the amended planning application which specified the basement size reduction was submitted 2 weeks before the historic gold price smash of 13-16 April 2013, and the application amendment to the floor plans was granted the week after the historic gold price smash of 13-16 April 2013.

When the Deutsche/G4S vault opened in June 2014, Reuters reported that the vault’s capacity was 1,500 tonnes of gold. It’s not clear if this capacity statistic was the capacity from a larger vault that would have been in the larger basement area, i.e. 1178 sq mtrs, which a source may have supplied to Reuters at an earlier time, or whether it referred to a smaller vault within the smaller and revised 750 sq mtr basement area. For if the vault can now hold 1,500 tonnes of gold within a smaller basement, the original basement, being 57% larger, may have been designed to hold in excess of 2,300 tonnes of gold.

It’s either a fortunate or unfortunate set of timings that Deutsche/G4S applied to reduce the size of one of the largest ever precious metals vaults in London within a few weeks of the gold price being critically injured by huge gold futures contract short trading over the 13-16 April 2013 period. It would be interesting to know who made the decision to reduce the area of the basement, and on what rationale this decision was based.

Again, as to how much precious metal, if any, Deutsche Bank ever processed or held in the Park Royal vault is debatable, since a) the vault was not operational until June 2014 and b) Deutsche Bank  was rapidly exiting the London Gold Market at that time. It therefore makes this LinkedIn profile of the person who actually performed the job of Precious Metals Manager at the vault all the more interesting,  a role which is stated to have lasted from December 2013 to May 2015, but a profile in which the references to physically related precious metal activities just refer to the job spec bullet points, and the achievements listed predominantly concern the vault and not the contents of the vault.

G4S spec

Likewise, the ‘Bullion Operations Manager‘ at the G4S vault, a vault which was exclusively for Deutsche’s clients, must have seen fallow periods in which no metal passed over the vault’s threshold with the LinkedIn profile predominantly listing job spec bullet points. However, interestingly, the profile refers to ‘Leasing with [a] major financial corporation to ensure compliance to contractual agreements‘, so there were, as would be the case, contractual agreements between Deutsche and G4S. On the Deutsche side, these contractual agreements  would raise the question of what penalties, if any, Deutsche Bank incurred in exiting contractual obligations with G4S, and whether Deutsche would have received a get-out exemption by delivering ICBC Standard Bank as the willing recipient of the vault lease.

G4S bullion

 

 Galliford Try

The planning applications submitted to Brent Council also include a “Method Statement & Logistics Plan” report written by the construction contractor Galliford Try for the project. On its website, Gallilford Try describes its Construction division as “a leading construction company, carrying out building and infrastructure works across the UK.

Galliford Try’s Method Statement & Logistics Plan report, which is useful as a comparison benchmark to the actual construction that was completed, reckoned that the construction would take 50 weeks to complete, which probably explains why the vault and building was only complete in mid-2014, given that the amended planning application was only granted by Brent Council on 22 April 2013. It still however does not help in explaining why Deutsche Bank initially thought in 2012 that the vault would be ready for its clients to use in 2013.

Crucially, page 4 of the Galliford Try report, in a section titled “Internal Finishes (weeks 27-50)“, sub-section “Basement (weeks 26 -40)“, confirms that “Once the ceiling grid works have been completed the steel / vault doors will be installed“, which proves beyond doubt that the vault is located in the basement of the G4S operating centre. There are also kitchen and toilet areas in the basement as per other London subterranean precious metals vaults.

On page 3, when discussing the basement excavation and basement concrete slab floor, it also states that  “Pockets will be formed in the floor for the fitting of the security doors etc“, and that “the lift pits…will be installed.”

GT1

From page 2:

GT2

From page 3:

GT3

From page 4:

GT4

The Park Royal site on which G4S built the operating centre and vault was first put on the market in November 2011 by Clay Street Property Consultants. The site occupies 1.89 acres and was sold (presumably to a G4S related company) in April 2012 for £4.5 million:

  • 291 Abbey Road & 2-4 Penny Road, Park Royal , London
  • Marketed in November 2011 the 1.89 acre site attracted a broad range of interest including institutional investors, property companies, developers and owner occupiers.
  • Securing 15 bids all at in excess of the asking price the site was sold in April 2012 to an owner occupier for £4,500,000 reflecting a price of £2.38m per acre.

A Google Earth image from July 2013  shows the site with the new development in full flight, and the construction of the basement in progress, and so allows a determination of whether the construction was following the last set of plans approved by Brent Council:

July 2013
Google Earth July 2013

 

Zooming in on the construction of the basement area from July 2013, the image shows the rectangular darker area where the vault was being positioned, and the lift-pits to the right of the image, one lift shaft at the front, and two towards the rear, which would be adjacent to the truck loading bays. This shape is very much in keeping with the basement size reduction to 750 square metres in the ultimate set of plans approved by Brent Council.

Basement Excavation - July 2013
Basement Excavation – July 2013

 

Finally, a Google Earth image from June 2015 shows an aerial view of the completed G4S development.

June 2015
Google Earth June 2015

 

Conclusion

The hasty exit of Deutsche Bank from the London Gold Market has never been adequately explained by the media. It remains an elephant in the room that the mainstream media does not seem to want to touch. The composition and operating mechanisms of the private LPMCL club is also another elephant in the room that mainstream media journalists have never adequately analysed and are unlikely to do so.

Now that ICBC Standard Bank has taken on the remaining term of the 10 year G4S lease that was vacated by Deutsche Bank, the key questions for ICBC are to what use will the state-controlled Chinese bank put this precious metals vault to, and whether the 5 incumbent LPMCL members will formally (along with the Bank of England informally) give the go-ahead to allow ICBC become a member of the private syndicate that is London Precious Metals Clearing Limited. The other outstanding question is whether Standard Chartered will also be involved in any extension of membership of LPMCL.

Another little appreciated fact is that during the pitches for the replacements to the Gold Fixing and Silver Fixing auctions, most of the exchanges and companies making the pitches, such as, CME, LME, ICE, all offered working solutions that included centralised on-exchange clearing of precious metals for the London Gold and Silver Markets. These solutions were even included in the various presentation materials of CME, ICE and LME, and made it into market presentations and press releases etc, however, the LBMA and its various associated accomplishes such as the LPMCL, pushed back completely on any part of solution that would have encroached on the existing LMPCL clearing mechanism.

The question of why LMPCL was so ‘precious’ that it needed protection from a transparent on-exchange clearing platform is also a question that mainstream financial journalists seem to have entirely missed. I will write a future blog post on LPMCL so as to shed some light on this thoroughly protected private syndicate of bullion bank clearers.