BullionStar recently teamed up with Real Vision TV, the unique video-on-demand finance and investment channel, to film a presentation for the Real Vision audience on some topical areas of the gold market.
The video presentation, which was filmed in London in June 2017, covers the fractional-reserve world of bullion bank trading in the London Gold Market, and also some concerns and risks of gold-backed Exchange Traded Funds. It then wraps up by discussing the benefits and attractions of physical gold ownership in light of the dangers and risks of today’s synthetic gold trading market.
Real Vision TV has kindly made this presentation available for viewing by BullionStar customers and readers, and the video presentation, which is 20 minutes long, can be viewed at the following link:
BullionStar would like to thank Real Vision TV for making this presentation possible and for facilitating the broadcasting of the presentation to the BullionStar audience.
Real Vision TV, founded by Raoul Pal and Grant Williams, is a subscription-based video on-demand channel featuring discussions, interviews, presentations and insights from many of the world’s top financial market minds and investment gurus.
Sometime in the coming days, the London Bullion Market Association (LBMA) plans to begin publishing gold and silver vault holding totals covering the network of commercial precious vault operators in London that fall under its remit. This follows an announcement made by the LBMA on 8 May.
There are seven commercial vault operators (custodians) in the LBMA custodian vault network namely, HSBC, JP Morgan, Brinks, Malca Amit, ICBC Standard Bank, Loomis (formerly Viamat), and G4S. Note that ICBC Standard Bank has a vault which is operated by Brinks on behalf of ICBC Standard. It is also quite possible that some of the HSBC vaults, such as the famous GLD gold vault, are located within Brinks facilities.
Adding in the Bank of England gold vaults under the Bank of England’s head office in the City of London, the LBMA vaulting network comprises eight sets of vaults. However, the Bank of England vaults do not store silver, or at least there is no evidence that the Bank of England stores silver. However, the other 7 vault operators can and do store silver, or at least most of them do. It’s unclear whether the G4S vault stores anything on behalf of anyone, but that’s a different story.
The forthcoming LBMA vault data will represent actual physical gold and silver holdings, i.e. real tangible precious metals, as opposed to the intangible and gargantuan paper gold and paper silver trading volumes generated each day in the London precious metals markets.
The LBMA will report physical holdings data on an aggregated basis for each of gold and silver, i.e. one quantity number will be reported each month for vaulted gold, and one quantity number will be reported each month for vaulted silver. The LBMA data will be on a 3-month lagged basis. For example, if the LBMA begins reporting this data in early July (which it probably will), then the first set of data will refer to the end of March period.
The uncertainty as to when the LBMA will begin to publish its vault holdings data is purely because the LBMA has not provided a specific publication commencement date. At first, the LBMA announced that the reporting would begin “in the summer”. Subsequently, it announced that it’s vault reporting would begin in July.
As to whether the LBMA vault holdings numbers published each month will include or exclude the Bank of England gold vaults holdings is also unclear. At the end of April, the Bank of England went ahead and separately began to publish vault holdings numbers for its own gold vaults, also on a 3-month lagged basis. More information on this Bank of England initiative can be read in BullionStar blog “Bank of England releases new data on its gold vault holdings”
Incidentally, the Bank of England has now updated its website (updated 30 June) with the gold holdings figure for its vaults as of the end of March, and is reporting total physical gold holdings of 163.36 million troy ounces, which equates to 5081 tonnes of gold.
When the LBMA begins to publish its numbers, it will be clear as to whether the LBMA gold number includes the Bank of England gold holdings or not, and this will probably even be specified in a footnote of the report. Excluding the Bank of England vaults (or at least the non-loaned gold in the Bank of England vaults which is not under the title of bullion banks), the remaining lion’s share of the LBMA’s gold holdings number comprises gold held by Exchange Traded Funds (ETFs) in London.
“The HSBC vault in London holds gold on behalf of the SPDR Gold Trust (currently 853 tonnes) and ETF Securities (about 215 tonnes). The JP Morgan gold vault in London holds gold on behalf of ETFs run by iShares (about 210 tonnes in London), Deutsche Bank (95 tonnes), and Source (100 tonnes). An ABSA ETF holds about 36 tonnes of gold with Brinks in London. In total, these ETFs represent about 1510 tonnes of gold.”
The approach used to calculate the gold stored by these ETFs in the London vaults can be seen in the article “Tracking the gold held in London: An update on ETF and BoE holdings”. To this 1510 tonnes gold figure we can add gold held on behalf of customers of BullionVault and GoldMoney – which is roughly 12 tonnes of gold between them (4.75 tonnes for GoldMoney, and 7.2 tonnes of gold for BullionVault).
When the LBMA publishes its first gold total for gold held in its vault network, it will also be clear as to whether the LBMA vaults hold any significant amount of physical gold above and beyond the gold allocated within the gold-backed ETFs. There may be some gold tonnage held on an allocated basis by the LBMA bullion banks as a ‘float’, and also some gold held in allocated form by various institutional investors such as hedge funds, but my hunch is that this residual gold will be at most a respectable fraction of the amount of gold stored on behalf of ETFs in London.
However, the silver holdings in the LBMA vault network are a different kettle of fish entirely, and in addition to ETF holdings (which are reported), there could be significant silver holdings in the London vaults which have gone unreported up until now (unreported silver in the form of what consultancy GFMS calls ‘Custodian Vault’ holdings).
Although gold usually generates the most headlines, it’s important not to forget about silver, and the fact that this new LBMA reporting will also provide a monthly aggregated total for the amount of physical silver held in the LBMA vaulting network in London. The silver stored in these LBMA vaults is in the form of variable weight London Good Delivery silver bars.
Since silver has a lower value to weight ratio than gold and is bulkier to store, silver a) takes up more room and b) can be stored in secure warehouses rather than ultra-high secure vaults that are used to store gold. This is particularly true in expensive cities such as London where it is more economical to store silver in locations with lower commercial rental values.
In the LBMA vaulting network, London Good Delivery silver bars are stored 30 bars per pallet, i.e. a formation of 10 bars stacked 3 bars high. Since each bar weighs approximately 1000 oz, each pallet will weigh about 30,000 ozs, i.e. each pallet would weigh about 1 tonne.
At this stage, can we arrive at an estimate of the minimum amount of silver currently held in the LBMA London vaulting network? The answer is yes, for the simple reason that, in a similar manner to gold-backed ETFs, a substantial number of silver-backed ETFs also hold their silver in the vaults of London-based precious metals vaulting custodians, and these ETFs publicly report their silver bar holdings.
In addition, BullionVault and GoldMoney (which are not ETFs), both hold silver with one of the custodians in the LBMA vaulting network – Loomis. But I have included the BullionVault and GoldMoney silver totals below purely because even though they are non-ETF custodian vault holdings, both companies’ silver holdings are publicly reported on their websites.
However, there is probably also a lot more additional silver held in the London vaults above and beyond the silver bars allocated to ETFs and the known silver stored by GoldMoney and BullionVault. Some of this additional silver falls under what Thomson Reuters GFMS classify as ‘Custodian Vault‘ silver, which is silver that is basically in an ‘Unreported’ category but which Thomson Reuters GFMS seems to think it knows about through its own ‘proprietary surveys’ and ‘field research’. This ‘Custodian Vault’ silver probably accounts for a substantial amount of silver in the London vaults. However, it is difficult to know because GFMS does not provide granularity on its numbers beyond an overall ‘Europe’ number. But I have made some assumptions about this ‘Custodian Vault’ silver in London, which is discussed in a final section below.
For the silver-backed ETFs, the first step is to identify which silver ETFs hold silver bars in the LBMA vaults in London. Using the list of silver ETF providers specified on Nick Laird’s GoldChartsRUs website (subscription only), the platform providers and their ETFs which hold silver in the LBMA vaults in London are as follows:
iShares: 1 ETF
ETF Securities: 6 ETFs
SOURCE : 1 ETF
Deutsche Bank: 3 ETFs
Between them, these four providers offer 11 ETFs that hold some or all of their silver in LBMA London vaults. This silver is held with custodians JP Morgan and HSBC, and with sub-custodians, Brinks and Malca Amit. Note, that GoldMoney and BullionVault store silver in London with Loomis as custodian.
As publicly traded vehicles, most of these ETFs publish daily silver bar weight lists or holdings files and they also undergo twice yearly physical audits by independent auditors. These weight lists and audits documents are helpful in pinpointing who the custodians and sub-custodians are, which locations these silver ETF’s store their silver in, and how much silver (in silver bar form) is stored in each location.
iShares Silver Trust (SLV)
The iShares Silver Trust, ticker code SLV, is the world’s largest silver-backed ETF. It’s probably best to think of SLV as the silver equivalent of the mammoth SPDR Gold Trust (GLD).
The custodian for SLV is JP Morgan Chase Bank (London Branch), and Brinks also acts as a sub-custodian for SLV. SLV holds silver in vaults across both London and New York. According to the SLV daily silver bar weight list, SLV’s silver bars are held in two Brinks vaults in London, one JP Morgan vault in London, and one JP Morgan vault in New York.
As of 29 June 2017, SLV reported that it was holding 348,841 Good Delivery silver bars containing a total of 339.89 million troy ounces of silver, or a colossal 10,572 tonnes of silver. The actual SLV bar list, which is uploaded to a JP Morgan website in pdf format using the same filename each day, can be seen here, but be warned that the file is about 5370 pages long, so there’s no real need to open it unless you are curious. A screenshot of the top of the first page is provided below
The SLV weight list specifies that the SLV silver is held in a ‘Brinks London‘ vault, a ‘Brinks London C‘ vault, a ‘JPM London V‘ vault, and a ‘JPM New York‘ vault. Between them, 2 Brinks vaults in London hold 55% of SLV’s silver bars representing 5753 tonnes, or 54% of the silver held in SLV. Adding in the ‘JPM London V‘ vault means that 289,053 silver bars, weighing 8720 tonnes (or 82% of SLV’s entire silver holdings) are held in LBMA London vaults.
The auditor for SLV is Inspectorate. Interestingly, the latest Inspectorate letter for SLV, for record date 10 February 2017, does not make a distinction between the 2 Brinks vaults in London and just reports that SLV’s silver is in:
“Three vaults located in and around London and New York:
– two vaults owned and operated by JP Morgan Chase Bank N.A. with 124,054 bars
– one vault owned and operated by Brinks, as a sub-custodian for JP Morgan Chase Bank N.A. with 220,066 bars
This would suggest that Inspectorate does not see the need to distinguish between the “Brinks London” vault and the “Brinks London C” vault, presumably because both Brinks vaults are in the same building in the Brinks facility (which is beside Heathrow Airport).
Even though the official custodian for SLV is JP Morgan Chase Bank N.A., London Branch (see original SLV Custodian Agreement filed April 2006 here), since it’s launch in 2006 SLV has at different times used quite a diverse group of sub-custodian vaults as well as at least 3 JP Morgan vaults. For example, over the 3 year period from early 2010 to early 2013, SLV stored silver in the following vaults:
Johnston Matthey, Royston
Brinks London A
Brinks London C
Viamat (now known as Loomis)
JP Morgan London A
JP Morgan London V
JP Morgan New York
Royston is about 50 miles north of central London. The above list is taken from the following chart which is from the ScrewTape Files website.
Given that there are Brinks vaults in London named ‘Brinks London‘, ‘Brinks London A‘, and ‘Brinks London C‘, this would most likely imply that there is or was also a ‘Brinks London B‘ vault, which, for whatever reason, doesn’t show up in any ETF custodian documentation.
The naming convention of the JP Morgan vaults in London as ‘JPM London A‘ and ‘JPM London V‘ is also interesting. SLV silver started being taken out of the ‘JPM London A’ vault in February 2012, and this vault was depleted of 100 million ounces of SLV silver (~ 3100 tonnes) by October 2012 (blue line in above chart). At the same time, the SLV silver inventory in the ‘Brinks London’ vault ramped up by 100 million ounces of SLV silver also between February 2012 and October 2012.
JPM London A could be JP Morgan’s original vault in the City of London. This would then make the JPM London V vault a separate location. My pet theory (pet rock theory) is that the V in the ‘JPM London V’ could refer to Viamat International, which is now known as Loomis. JP Morgan could have outsourced storage of silver to Viamat by ring-fencing some vault space. JP Morgan could then call this space a JP Morgan vault, even though it would be physically within a location managed by one of the security storage / transport providers.
I now think on balance that HSBC probably took the same approach with its gold vault and has it located in a Brinks facility, but that it calls it a HSBC vault. This could also mean that HSBC uses Brinks to store silver, while referring to it as HSBC storage. As to whether HSBC and JP Morgan store gold at the Bank of England while labelling it as a HSBC or JP Morgan storage area is another interesting question, but is beyond the scope of discussion here.
Note, there is also an iShares Silver Bullion Fund known as SVR which uses Scotia Mocatta as a custodian, which as of 29 June held 2,154 silver bars, however, SVR mostly holds its silver bars mostly in Toronto with Scotia, with a small number of silver bars stored with Scotia in New York. SVR therefore does not store any silver bars in London. See latest SVR weight list here.
ETF Securities – 6 ETFs
Keeping track of all the silver-backed ETFs offered by ETF Securities is challenging to say the least, but in the below discussion I’ve tried to devise a system which will make things at least a little clearer.
ETF Securities operates 6 ETFs which hold physical silver bars that are stored in the LBMA precious metals vaulting network in London. Of these 6 ETFS, 3 of them hold silver bars and nothing else. The other 3 ETFs are precious metals baskets which hold ‘physical’ gold, silver, platinum and palladium. Two of these ETFs are domiciled in the UK, 2 are domiciled in Australia, and the other 2 are domiciled in the US. In each of the UK, Australia and the US, ETF Securities offers 1 silver ETF and 1 precious metals basket ETF.
It’s most convenient to refer to the codes of these ETFs when discussing them. The 2 UK domiciled ETFs, with codes PHAG (silver) and PHPM (precious metals basket), are positioned under a company called ETFS Metal Securities Limited (MSL). The 2 ETFs domiciled in Australia, with codes PMAG (silver) and PMPM (precious metals basket), fall under a company called ETFS Metal Securities Australia Limited (MSAL). The final 2, which are US domiciled, are known as SILV (silver) and GLTR (precious metals basket).
ETFS Metal Securities Limited (MSL) – PHAG and PHPM
ETFS Physical Silver (PHAG) has a primary listing on the London Stock Exchange (LSE) and trades in USD. It’s NAV is also in USD. The custodian for PHAG is HSBC Bank Plc, with a listed vault location of London. Note: There is also another variant of PHAG called PHSP. It’s the same security as PHAG (same ISIN) but its trades in GBP (and its NAV is calculated in GBP). Its best to ignore PHSP as it’s literally the same fund.
ETFS Physical PM Basket (PHPM) is a precious metals Basket ETF that also holds gold, platinum, and palladium, in addition to silver. The custodian is HSBC Bank Plc with a vault location in London. There is also a GBP variant of PHPM called PHPP. Again, just ignore PHPP in this analysis.
ETFS Metal Securities Limited (MSL) officially reports all of its precious metals holdings in the same report (which it reports on each trading day). Since PHAG and PHPM are part of MSL, PHAG and PHPM silver bar holdings are reported together. According to the MSL weight list, as of 30 June 2017, MSL held 62,427 London Good delivery silver bars containing 60,280,155 troy ounces of silver(1875 tonnes). The individual ETFs within MSL also report their own holdings. However, there is a slight mismatch between dates on the individual fund pages and the date in the MSL spreadsheet with PHAG and PHPM reporting 29 June, while MSL has reported 30 June.
It’s not a big deal though. As of 29 June, PHAG held 58,777,148 troy ozs of silver (1828.2 tonnes) and PHPM held 1,480,037 troy ozs of silver (46 tonnes), which together is 60,257,185 troy ounces of silver (1874.25 tonnes), which is very close to the MSL reported number. Overall, PHAG holds 97.5% of the silver that is held in MSL, and PHPM only holds about 2.5% of the silver held in MSL.
Now, here’s the crux. While MSL uses HSBC Bank Plc in London as custodian for its silver, HSBC also uses Malca Amit London as sub-custodian, and the Malca Amit vault holds more than twice the amount of MSL silver (i.e. predominantly PHAG silver) than the HSBC vault. MSL’s reported silver holding are distributed as per the following table:
MSL holds 62,427 London Good Delivery silver bars in LBMA vaults in London, containing 60.28 million ounces of silver (1875 tonnes of silver). The Malca Amit vault stores 42,917 of these bars (1283 tonnes), and a HSBC vault stores another 19,510 silver bars (592 tonnes).
Inspectorate is also the independent auditor for the silver held by MSL. According to the latest Inspectorate audit letter, dated 3 March 2017 but referring to an end audit date of 31 December 2016, the silver in MSL was held in the vaults of HSBC Bank plc, London and at the vaults of Malca-AmitLondon.
ETFS Metal Secs. Australia Ltd (MSAL) – PMAG & PMPM
ETFS Physical Silver (PMAG), domiciled in Australia, is an ETF which only holds silver, and holds this silver in London with custodian HSBC Bank plc at a vault location in London. Note: ETF Securities officially refers to PMAG as ETPMAG.
ETFS Physical PM basket (PMPM) is a precious metals Basket ETF that also holds gold, platinum, and palladium, in addition to silver. The custodian of PMPM is HSBC Bank plc with a vault location in London. Note: ETF Securities officially refers to PMPM as ETPMPM.
In a similar way to UK domiciled MSL, MSAL (the ETFS Australian company) reports on all of its precious metals holdings in one daily spreadsheet including the silver in PMAG and PMPM. As of 30 June 2017, MSAL held 2754 silver bars in a HSBC vault in London, containing 2,664,690 troy ounces of silver (82.88 tonnes of silver).
Of the 2,664,690 ounces of silver held by MSAL, over 98%, or 2617,229 ounces, is held by PMAG, with less than 2% held in PMPM (47,362 ounces). The actual figures are 98.22% vs 1.78%. This means that PMAG roughly holds 2705 silver bars, and PMPM holds 49 silver bars.
Inspectorate is, not surprisingly, also the independent auditor for MSAL’s metal holdings, and as per the latest audit letter for record date 31 December 2016, the silver bars audit location is stated as having been “HSBC Bank plc, London“.
The latest silver bar weight list spreadsheet for the ETFS Silver Trust (SIVR), dated 29 June, which is titled “HSBC US Silver Bar List”, states that the SIVR Trust holds 21,437 silver bars containing 20,363,315 troy ozs of silver (633.4 tonnes of silver). There is no mention of SIVR holding any of its silver with a sub-custodian. The latest independent audit report for SIRV, by Inspectorate, for an audit reference date of 31 December 2016, states that the audit took place “at the vault of HSBC Bank plc, London (the “Custodian”)“, where Inspectorate found “20,108 London Good Delivery Silver Bars with a weight of 19,171,492.300 troy ounces.”
The latest silver bar weight list for the ETFS Precious Metals Basket Trust (GLTR), also dated 29 June, and which is titled “JPM Precious Metals Basket Bar List“, states that the GLTR Trust holds 5,670 silver bars containing 5,496,035 ozs of silver (~ 171 tonnes of silver).
However, while 85% of these bars (144.5 tones of silver) are stored in the ‘JP Morgan V‘ vault, 15% of the silver bars (26.5 tonnes of silver) are stored in a ‘Brinks 2‘ vault. So according to GLTR naming convention, as there is a ‘Brinks 2’ vault, presumably when it was first named, there was also a ‘Brinks 1’. ‘Brinks 2’ could possibly be referring to the same location as the ‘Brinks London A’ vault.
Inspectorate is also the independent auditor for the precious metals held by GLTR. In the latest Inspectorate audit letter for GLTR, with an audit reference date of 31 December 2016, Inspectorate states that its audit was only conducted “at the vault of J.P. Morgan Chase N.A, London (the “Custodian”)” where it counted “4,873 London Good Delivery Silver Bars“. This probably means that GLTR’s holdings of silver bars in the ‘Brinks 2’ vault are quite recent, i.e. they have been acquired since 31 December 2016.
SOURCE – Physical Silver P-ETC
A silver-backed ETF offered by the ETF provider ‘SOURCE’, which is named the Physical Silver P-ETC, holds its silver bars in a London vault of custodian JP Morgan. The SOURCE ETF platform was originally established in 2008 as a joint venture between Goldman Sachs, Morgan Stanley, and Merrill Lynch.
The latest silver bar weight list for the Physical Silver P-ETC (dated 23 June) states that it holds 3,129,326 troy ounces of silver (97.34 tonnes of silver). The list does not state an exact bar count, but looking at the weight list, there are about 3,237 silver bars listed.
Inspectorate is also the independent auditor for the Physical silver P-ETC. The latest Inspectorate audit letter, conducted on 4 January 2017, states that at that time, this ETF held 2,048 silver bars containing 1,982,343 troy ounces of silver. This is interesting because about a week ago, this SOURCE Physical silver P-ETC held about 4 million ozs of silver. Now it holds 3.1 million ounces of silver, and at the start of the year it held under 2 million ounces of silver. So the quantity of silver held in this SOURCE silver ETF fluctuates quite dramatically.
Deutsche Bank ETFs
There are 3 ETCs listed on the Exchange Traded Commodity (ETC) section of the Deutsche Asset Management website which hold physical silver in London. These 3 ETCs are as follows:
db Physical Silver ETC
db Physical Silver ETC (EUR)
db Physical Silver Euro hedged ETC
The Factsheets for these 3 Deutsche ETCs all list the custodian as “Deutsche Bank”, but list the sub-custodian as “JP Morgan Chase Bank”. For example, the Factsheet for the db Physical Silver ETCstates
“Custodian/Sub-custodian: Deutsche Bank AG/JP Morgan Chase Bank N.A.”
Shockingly, there do not seem to be any recent independent audit documents for any of these Deutsche ETCs anywhere on the Deutsche Asset Management website. The latest ‘Inventory Audit’ document in the ‘Download Center’ of the website is dated November 2012. That audit document can be viewed here. The old audit document stated that on 25 September 2012, ‘DB ETC Plc’ held 13,314 silver bars containing 13,040,194.3 troy ounces of silver (405.6 tonnes of silver), and that the audit was conducted at ‘Custodian and Location‘ of ‘JP Morgan Chase Bank, N.A. London‘. I have scanned the entire website and there is no sign of any other audit documents or any silver bar weight list.
The initial metal entitlement for units issued in each of these 3 ETCs was 10 troy ounces per unit. The latest units issued figures from Deutsche (dated 22 June 2017) for these ETCs is as follows:
db Physical Silver ETC: 277, 500 units issued
db Physical Silver ETC (EUR): 533,000 units issued
db Physical Silver Euro hedged ETC: 878,000 units issued
Total units issued for silver-backed db ETCs = 1,688,500 units
This would mean that in total, these 3 ETCs would have had an initial metal entitlement of 16,885,000 troy ounces of silver. However, due to what looks like operational fees being offset against the metal in these ETCs (i.e. selling silver to pay fund expenses), the effective metal entitlement for each of the 3 ETCs is now stated on the Deutsche website as being less than 10 troy ounces.
For db Physical Silver ETC, the entitlement is 9.6841 ounces. For db Physical Silver ETC, the entitlement is 9.6930 ounces and for db Physical Silver Euro hedged ETC the metal entitlement is a very low 7.9893 ounces.
Therefore, the amount of silver backing these ETCs looks to be (277500 * 9.6841) + (533000 * 9.693) + (878000 * 7.9893) = 14,868,312 troy ounces = 462.5 tonnes. Since there is no bar count, an approximate bar count assuming each bar weighs 1000 oz would be 14,870 Good Delivery silver bars.
Since there are no audit reports and no silver bar weight list for these ETCs, it’s difficult to know if real allocated silver in the form of London Good Delivery silver bars is backing these Deutsche Bank db ETCs, let alone trying to figure how many silver bars are in a JP Morgan vault in London backing these Deutsche products. We can therefore use 462.5 tonne for Deutche but with a caveat that there is no current silver bar weight lists or independent audit documents.
Total ETF Silver held in London LBMA Vaults
Adding up the silver held in the 11 ETFs profiled above yields the following table. In total, the 11 ETFs hold approximately 12,041 tonnes of silver (387.2 million troy ounces) across 4 vault operators. Brinks vaults hold 48% of the total, and JP Morgan vaults hold another 30%. HSBC and Malca Amit hold about 11% each of the remainder.
ETF Silver Holdings – Tonnes, for Silver stored in London LBMA Vaults
In terms of London Good Delivery silver bars, these 11 ETFs hold approximately 400,000 of these silver bars. Since the 3 Deutsche ETFs (ETCs) don’t have an available bar list, I converted the assumed troy ounce holdings to bar totals by assuming each bar held weighs 1000 ozs. Brinks stores over 191,000 of these Good delivery silver bars. That equates to nearly 6,400 pallets with 30 silver bars per pallet. If the pallets were stacked 6 high, and arranged in a square, that would be an area 32 pallets long by about 33 pallets wide. In addition, Brinks may also store silver on behalf of HSBC, or even on behalf of JP Morgan. Who knows?
According to the latest numbers on the BullionVault website (Daily Audit), BullionVault has 349,939.57 kgs of silver stored in London. That equates to 11,250,557 troy ozs of silver, or 350 tonnes of silver. This silver is stored in the form of London Good Delivery Silver Bars. According to the BullionVault website, BullionVault use Loomis as a custodian for storing silver bars in London:
Those with a BullionVault login can go in and view BullionVault’s latest silver bar weight list which has been generated by Loomis, but BullionVault don’t allow this list to be published externally. Suffice to say, the latest list, dated 11 May, lists 11,544 silver bars which are stored across nearly 400 pallets.
The GoldMoney website has a real-time audit page which currently states that GoldMoney has 202,057.614 kgs of silver. That equates to 6,496,153 troy ozs of silver, or 202 tonnes of silver stored in London. This silver is also stored with Loomis. At least some of this silver and probably a lot of it is in the form of London Good Delivery silver bars. Without being able to log in to the site properly, it’s not possible to see a bar list.
So between them, BullionVault and GoldMoney have 550 tonnes of silver stored in Loomis vaults in London. My guess is that Loomis (formerly Viamat) store precious metals in a warehouse in Shepperton Business Park, Govett Avenue, Shepperton, a warehouse which is in the corner of the business park, beside the railway track.
Adding this 550 tonnes of silver to the 12040 tonnes of silver held by the 11 ETFs above gives a figure of 12,590 tonnes. Let’s call it 12,600 tonnes. This is then the lower bound on the amount of physical silver in the LBMA vaults in London.
Thomson Reuters GFMS – “Custodian Vault” silver
On its ‘Silver Supply’ web page, the Silver Institute website has an interesting data table titled “Identifiable Above-Ground Silver Bullion Stocks” which lists 5 categories of above-ground silver stocks, namely ‘Custodian vaults’, ‘ETPs’, ‘Exchanges’, ‘Government’, and ‘Industry’.
What’s notable and striking about this table is that the ‘Custodian Vaults‘ category for 2016 amounts to a very large 1571.2 million troy ounces of silver (50,440 tonnes), and also the fact that this ‘Custodian vaults’ category is distinct from silver held in ‘Exchanges’ (such as COMEX and TOCOM) and ETPs / ETFs (such as the ETF products discussed above). The ‘Custodian Vaults’ category also does not include ‘Government’ stockpiles or ‘Industry’ inventories. The actual table and the data in the table are sourced from the Thomson Reuters GFMS “World Silver Survey” 2017 edition. As you will see below, this ‘Custodian Category’ refers to holdings of silver which are not reported, but which are stored in custodian vaults, including in the London vaults. This category therefore needs to be examined in the context of the LBMA’s imminent reporting of silver holdings in the LBMA London vaulting system.
You can also see from the above table that this 2016 Custodian Vaults figure of 1571.2 million ozs (50,440 tonnes) grew from a 2008 total of 615.6 million ozs (19,148 tonnes), so in eight years has risen more than 250%.
On pages 37-38 of this GFMS World Silver Survey 2017 (pdf – large file), GFMS makes some very interesting assertions. GFMS starts by defining what it calls Identifiable silver bullion stocks. It states:
‘Identifiable bullion stocks can be split into two categories: unreported GFMS stock estimates that are based on confidential surveys and field research; [and secondly] stocks that are reported.
“Unreported stocks include the lion’s share of our government category and our custodian vault category.”
“Reported inventories are predominantly held in ETPs..but also include some of the government and industry stockpiles.”
However, in the accompanying commentary to the above table, GFMS classifies all ETP, Exchange and Industry holdings as “Reported“, and all Custodian Vaults and Government holdings as “Unreported“. Therefore, it is useful to regroup the 2016 figures from the above table into a Reported category and an Unreported category, as the GFMS commentary then makes more sense. A regrouped table of the 2016 data is as follows, and illustrates that ‘Custodian Vault’ holdings of silver (none of which are reported) account for a whopping 61% of all above ground silver:
A GFMS bar chart in the 2017 World Silver Survey also underscores the dominant position of these (unreported) ‘Custodian Vault’ holdings:
GFMS goes on to say that in 2016 “Reported stocks were 36% of identifiable stocks“. Conversely, we can see that ‘Unreported’ silver stocks (Custodian Vaults and Government) were 64% of identifiable stocks.
GFMS says that for 2016 “71% of reported stocks were ETPs“, the rest being Exchange and Industry classifications. Exchanges refers to silver held in warehouses of COMEX (NY), TOCOM (Japan) and the SGE and SHFE (China). COMEX is currently reporting 209 million ouzs of silver in its approved warehouses in New York, of which 172 million ozs in Eligible and 37 million ozs is in the Registered category.
Interesting, but on a side note, GFMS also states in its 2017 silver report that as regards COMEX silver inventories:
“Eligible stocks reported by COMEX contain a portion that is allocated to ETPs”.
“At the end of 2016, the portion of COMEX Eligible stocks that was allocated to ETPs was around 16% of total COMEX eligible stocks.”
This will probably be an eye opener for those interested in COMEX silver warehouse stocks.
Addressing ‘Custodian Vault‘ stocks of silver, GFMS says that Europe’s share of Custodian Vault stocks was 488.7 million ozs (15,201 tonnes) in 2016 and accounted for 31% of total Custodian Vault stocks. Asian ‘Custodian Vault’ stocks of silver were just over 50% of the total with the remainder in North America (Canada and US).
Silver holdings in Custodian Vaults by Region, 2007 -2016. Source – GFMS World Silver Survey 2017
But what do these ‘Custodian Vault’ stocks of silver refer to?
GFMS does not provide a detailed answer, but merely mentions a number of examples, which themselves vary by region. For Asia GFMS says “the bulk of these stocks are located in China, and reflects stocks held in vaults at banks“, and also ” other parts of Asia, such as Singapore, have been increasing in popularity for storage of bars and coins in recent years“, while in India “global bullion banks increasingly seeking this location as a strategic point for silver vaulting in case the need arises.” There are also silver “stocks in Japan”. From a BullionStar perspective, we certainly are aware that there is a lot of silver bullion in vault storage in Singapore, so the GFMS statement is accurate here.
In North America, GFMS attributes the “growth in silver custodian vaulted stocks not allocated to ETPs” to a “drop in coin sales in North America last year“. In the 2016 edition of the World Silver Survey, GFMS said that the growth in custodian vault holdings was partially due to “the reallocation by some North American investors from their ETP holdings” [into custodian holdings].
Turning to Europe, GFMS says that the growth in Custodian vault silver holdings “can be attributed to increased institutional investor interest“. Therefore, according to GFMS, institutional investors in Europe are buying silver and holding real physical silver in Custodian vaults.
With 488.7 million ozs (15,201 tonnes) of silver held in Europe in ‘Custodian vaults’ that is not reported anywhere, at least some of this silver must be held in London, which is one of the world’s largest financial centers and the world’s highest trading volume silver market.
“Custodian vault stock data excludes ETP Holdings, but it is important to note that most custodians of ETP silver stocks also store silver in vaults that are not allocated to ETPs. the same is true of futures exchange warehouses.”
So how much of this 15,201 tonnes of ‘Custodian Vaults’ silver that is said to be in Europe is actually in London vaults? Apart from London, there would presumably also be significant physical silver holdings vaulted in Switzerland and to a lessor extent in countries such as Germany, the Netherlands and maybe Austria etc. So whats’s a suitable percentage for London? Given London’s extensive vaulting network and prominence as a hedge fund and institutional investment centre, a 40-50% share of the European ‘custodian vault’ silver holdings would not be unrealistic, with the other big percentage probably vaulted in Switzerland. This would therefore put previously ‘Unreported’ silver holdings in the London vaults at between 6080 tonnes and 7600 tonnes (or an additional 182,000 to 230,000 Good Delivery Silver bars).
Adding this range of 6080 – 7600 tonnes to the 12,040 tonne figure that the 11 ETFs above hold, gives a total figure of 18,120 – 19,640 tonnes of silver stored in the LBMA vaults in London (545,000 – 585,000 Good Delivery silver bars).
Note, BullionVault and GoldMoney silver is technically part of the ‘Custodian Vault’ figure, so can’t be counted twice.
ps: In its 2017 World Silver Survey, GFMS also stated that in 2016, ETPs (ETFs) held 664.8 million ounces of silver “with 75% of the total custodian vaulted stocks [that were] allocated to ETPs held in Europe and 24% in North America. Asia makes up the balance of less than 1%.“. This would mean that as of the date of the GFMS calculation for 2016, 498.6 million ounces of ETF silver was vaulted in Europe.
Above, I have accounted for 387.1 million ounces of silver that is currently stored in London on behalf of 11 ETFs. There are also 3 Swiss Silver ETFs which store their silver in Switzerland. These are ZKB (currently with 74.9 million ozs), Julius Baer (currently with 13.7 million ozs) and UBS (currently with 5.89 million ozs), giving a total of 94.49 million ozs of silver for these 3 Swiss based platforms. Therefore, between London vaults and vaults in Switzerland, there are currently 14 ETFs that together hold 481.6 million ounces of vaulted silver (14,980 tonnes of vaulted silver).
When the LBMA finally manages to publish its first report on the silver and gold stored in the LBMA vaults in London in the coming days, we will have a clearer picture of how much physical silver is actually in these mysterious and opaque vaults.
A lower bound based on ETF holdings and BullionVault and GoldMoney holdings would be about 12600 tonnes of silver. A higher bound that also reflects ‘Custodian Vault’ holdings could be in the region of 18120 – 19640 tonnes of silver. There would probably also be some LBMA bullion bank float, which may or may not be included in ‘Custodian Vault’ figures, that could push the silver total to over 20,000 tonnes or more.
The LBMA perennially claims that it wants to bring transparency to the London precious metals market. This has been a very hollow mantra for a long time now. However, while some of the LBMA members may want this transparency, others, possibly some of the powerful bullion banks or their clients, certainly don’t want transparency. Take a case in point. At the Asia Pacific Precious Metals Conference (APPMC) in Singapore in early June, the LBMA CEO in a speech to the conference talked about the difficulty of even getting a press release out about the upcoming publication of gold and silver vault holdings data. She said (fast forward to 8:37 in the below video):
“It was actually a huge achievement just to get the press release out.”
For what is supposed to be a mature and efficient financial marketplace, this is a truly bizarre occurrence, and it must be pretty obvious that some of the vested interests in the London gold and silver markets needed to be dragged kicking and screaming over the finish line as regards being in any way open about how much gold and silver is actually in these LBMA London vaults.
But now, according to the LBMA CEO in the same part of her speech, even so-called “credible investors” (as opposed to uncredible investors?) also “find it a little odd that as a marketplace, there’s no data“, which may explain the vampires within the LBMA being dragged into the daylight.
Hopefully with the above analysis and the upcoming aggregated LBMA silver vaulting numbers, these “credible investors” (and the hundreds of millions of other silver investors around the world) will now be less in the dark about the amount of silver in the London LBMA vaulting network, and will now have better information with which to make investment decisions when buying silver and selling silver.
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
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:
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:
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.
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.
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.“
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.
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.
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.
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.
c) the location of the HSBC vault in London is not publicised and so the secrecy creates intrigue
d) HSBC every so often throws out some visual or audio-visual media bait about the vault, most famously in the case of CNBC’s Bob Pisani and his camerman and producer visiting and filming inside the actual vault
Despite all of the above, no one seems to have ever tried to figure out where this gold vault is actually located. Until now.
In some ways HSBC has done a very good job keeping the location of its London gold vault under wraps. The main challenge is where does one begin to look for a vault in London from scratch. At first it would appear that there is nothing in the public domain pointing to the HSBC vault location. This is not entirely true however. The gold bullion activities of HSBC in London stem from two companies that over time became part of the HSBC group. My approach was to start by thinking about which London locations HSBC used to be based at. I took this approach because it became obvious that the HSBC London gold vault being used was still a battered looking old vault space in 2004 and 2005, which was after the entire HSBC company had moved to its spanking new London headquarters in Canary Wharf by 2003.
In New York, the location of the HSBC Bank USA precious metals vault in Manhattan is well-known and is even listed in CFTC documents such as here. The vault is at 1 West 39th Street, SC 2 Level , NewYork, NewYork 10018 , which is the same building as 450 Fifth Avenue, which is the former Republic National Bank building that HSBC took over in 1999-2000. This Republic building at 450 Fifth Avenue, when it was being built, “had special vault requirements that reportedly added significantly to the project’s cost“. So its hard to see why HSBC makes such a big deal of not revealing its London vault location.
History of HSBC gold operations in London
In 1993, HSBC Holdings plc relocated its headquarters to London after having acquired Britain’s Midland Bank the previous year. Midland in turn had fully acquired Samuel Montagu in 1974 to form Midland Montagu. Samuel Montagu & Co was a City of London bullion broker, and one of the 5 original gold fixing members of the London Gold Fixing, and in turn, Midland Montagu was also a Gold Fixer. In 1999, HSBC began using the name ‘HSBC’ for the Gold Fixing seat of Midland Montagu.
Between 1999 and 2000, HSBC completed the acquisition of Republic National Bank of New York. Republic National Bank of New York had been a big player in the world gold markets, and in 1993, Republic National had bought one of the London Gold Fixing seats from Mase Westpac, meaning that from 1993 both Republic National and Midland Montagu held Gold Fixing seats, and that HSBC ended up with 2 of the 5 Gold Fixing seats. Therefore, in 2000, following the Republic National takeover, HSBC in London sold one of its newly acquired seats to Credit Suisse.
I also have always thought that the HSBC vault is in central London, and not in some far-flung outer London location. The LPMCL website (www.lpmcl.com) still displays text that says that the bullion clearer’s vaults are in ‘central London locations’:
“The five London bullion clearing members each maintain confidential secure vaulting facilities within central London locations, using either their own premises, or those of a secure storage agent…”
Anyone who knows London will understand that ‘central London’ refers to a small number of central districts, and not some broader inside the M25 (ring road) definition. Before moving to Canary Wharf in circa 2003, HSBC occupied a number of buildings clustered around the north bank of the River Thames, including 10 Lower Thames Street (the Banks’ Headquarters), 3 Lower Thames Street (St Magnus House), 10 Queen Street Place at the corner of Upper Thames Street (Thames Exchange – containing a trading floor), and Vintners Place (adjoined to Vintners Hall on the other side of Queen Street Place and Upper Thames Street).
HSBC Bank USA NA (London branch), until 2015, was also the HSBC entity that was listed as a member of London Precious Metals Clearing Limited (LPMCL) on the LPMCL website. See, for example, September 2009 imprint of LPMCL website. The next step is therefore to see where HSBC Bank USA NA (London branch) was formerly located.
The Financial Services Register (FSA Register) lists HSBC Bank USA, Reference number: 141298, effective from 24 January 2000, with a registered address of Thames Exchange, 10 Queen Street Place, London EC4R 1BE. Recalling the Republic National connection, the previous registered name for this entity was “Republic National Bank of New York”, with the same address, effective from 18 December 1995 to 24 January 2000. The FSA Register entry also lists various well-known names of the HSBC gold world alongside this HSBC Bank USA entity, including Jeremy Charles, Peter Fava and David Rose.
Recalling the Samual Montagu / Midland Montagu connection to HSBC, an entity called Montagu Precious Metals is also listed with an old address at “2nd Floor, Thames Exchange, 10 Queen Street Place, London EC4R 1BQ.
An old gold information website called GoldAvenue from the year 2000, written by Timothy Green, also lists HSBC Bank USA (London branch) address as:
HSBC Bank USA
London branch Thames Exchange 10 Queen Street Place London EC4R 1BQ
That same Gold Avenue web page also correctly listed the HSBC New York vault address as:
HSBC Bank USA 452 Fifth Avenue New York, NY 10018
which is the same building as West 39th Street, New York, in Manhattan.
The precursor to the SPDR Gold Trust was called Gold Bullion Ltd, a vehicle set up by Graham Tuckwell, promoted by the World Gold Council, and listed on the Australian Stock Exchange. Gold Bullion Ltd’s first day of trading was 28th March 2003. Following Gold Bullion Ltd’s launch, the SPDR Gold Trust (GLD) was then launched in 2004, but originally it was called STREETracks Gold Shares, and it even had another former working title of ‘Equity Gold Trust’ in early 2004.
A May 2003 Marketwatch article about Gold Bullion Ltd and the early incarnation of the SPDR Gold Trust (Equity Gold Trust) can be seen here, and a speech by Graham Tuckwell about Gold Bullion Ltd to the LBMA annual conference in Lisbon in 2003 can be seen here. Most importantly, an early draft Prospectus of Gold Bullion Ltd (in MS Word), dated 10 February 2003, lists the Custodian of Gold Bullion Ltd as:
HSBC Bank USA
10 Queen Street Place
London EC4R 1BQ
Therefore, Thames Exchange goes to the top of the list for further consideration, as does it’s neighbour Vintner’s Place. Thames Exchange and Vintners Place were both HSBC buildings and both buildings are situated right across the road from each other, with Queen Street Place literally bisecting the 2 buildings. Queen Street Place is also the road that acts as the approach road to Southwark Bridge, with the 10 Queen Street Place building and the Vintners Place building literally creating a canyon either side of the road.
You will see below why Queen Street Place is interesting. Queen Street Place is very near the Bank of England and is in the City of London, so it’s under City of London Police protection. It’s also very near the River Thames, as is the JP Morgan London vault. To get to the Bank of England from Queen Street Place, you literally walk a mintute north up Queens Street, and then a few minutes north-east along Queen Victoria Street and you’re at the Bank of England.
An official HSBC letter-headed note documenting the Thames Exchange address and proving HSBC occupied this building can be seen here. Similarly, an official letter-headed note documenting the Vintner’s Place address, and proving that HSBC occupied that building can be seen here.
“Army of firms called in to help co-ordinate bank’s relocation to Docklands by 2002“
“HSBC has stepped up its retreat from the City of London by instructing agents to open negotiations on the disposal of its outstanding City liabilities.
In one of the most hotly contested pitches of last year, Jones Lang Lasalle has beaten rivals to secure the lead role as strategic adviser for the bank’s relocation to Docklands [Canary Wharf] in 2002.
In addition to JLL, the bank has instructed another seven firms to mastermind the disposal of its 121,000 sq m (1,302,445 sq ft) City portfolio.”
“HSBC has ruled out acquiring freehold or long-leasehold interests and has instructed agents to negotiate the best surrender or assignment of the occupational leases on its 12 City buildings.”
“Morgan Pepper is advising on HSBC’s 17-year lease at Thames Exchange, 10 Queen Street Place, EC4. The Scottish Amicable building is currently under offer to Blackstone Real Estate Advisors for £73m.
Insignia Richard Ellis, Chapman Swabey, Strutt & Parker and Wright Oliphant have positions on the bank’s remaining interests in Vintners Place EC3; Bishop’s Court at Artillery Street, and HSBC’s 37,160 sq m (400,000 sq ft) office complex at St Magnus House and Montagu House.
By the time STREETracks Gold Trust (the original name for the SPDR Gold Trust) was launched in 2004, HSBC Bank USA’s address had moved to HSBC’s new headquarters in Canary Wharf, in the Docklands, east of the City of London. By early 2003, Equity Gold Trust also listed the HSBC custodian with the Canary Wharf address.
“The phased occupation of the [Canary Wharf] building was completed in February 2003 when the last of over 8000 staff moved in, with HSBC Group Chairman Sir John Bond officially opening the building as the Group’s new head office on 2 April 2003.”
However, the old HSBC gold vault did not ‘move’ at the time the rest of HSBC moved lock, stock, and barrel to Canary Wharf between 2002-2003. In fact, the HSBC vault remained where it was in a slightly rundown shabby space with cream-colored walls. See multiple photos of the vault space below. The HSBC vault did however transform from an ‘old’ vault into a ‘new’ vault sometime between 2006 to early 2007. My belief, which I’ll explain below, is that this vault didn’t move, it just received an extensive renovation.
A diagram of the HSBC headquarters in Canary Wharf where the whole London HSBC workforce moved to by early 2003 can be seen below. Notice the car parks in basements B2, B3 and B4. You can also read about the basement construction in the Arup document above. This is not the location for a beat-up old vault that can be seen in the below old gold vault shots. Besides, the vertical pillars/piles in the old and new HSBC vault are nothing like the huge structural pillars/piles found in the HSBC headquarters in Canary Wharf.
The pillars in the old HSBC vault photos are pillars that would be found in an old arched vault, while the support pillars in the new HSBC vault photos are those that would be found in relatively shallow spaces under a road, such as pillars/supports used in the cut and cover New York subway system.
HSBC Gold Vault Photos
Here you can see an early gold vault photo of Graham Tuckwell, joint managing director of Gold Bullion Securities, and Stuart Thomas, managing director of World Gold Trust Services, in the ‘old’ HSBC vault in December 2004 checking a HSBC bar list:
Managing Director Stuart Thomas, Director of Corporate Communications, George Milling-Stanley of World Gold Trust Services, and CFO and Treasurer James Lowe (wearing a gold tie) of World Gold Trust Services
When the gold is stacked 6 pallets high, as in the above photo, it nearly reaches up to where the pillars start to broaden out. Recall for a moment the definition of a vault. A vault is any space covered by arches, or an arched ceiling over a void. This is why the Bank of England ‘vaults’ are called vaults, because in the old vaults of the Bank of England (before the Bank of England was rebuilt in the 1920s/1930s), the gold was stored in the arched vaulted basements. The pillars in the shots of this ‘old’ HSBC vault look like pillars/piles that are the lower parts of arches, since they taper outwards as they go higher and they are positioned in a grid like formation.
You can see how all the pallets of gold were located in a space with quite a lot of walls and chunky support pillars that broaden at the top (i.e. support pillars). Very similar pillars can be seen in old parts of the London Underground pedestrian tunnels, and also in the Vintner’s Hall wine vaults, which is next door to the vaults under Queen Street Place.
The NEW HSBC Vault 2007
During the second half of 2007, a series of 4 photos appeared on the STREETTracks website of a ‘New’ HSBC gold vault in London. The headline title of this series of images was
“The gold in trust at HSBC’s gold vault in London. The gold is being held in Trust for the shareholders of GLD. These images as at June 2007”
This STREETTracks web page can be accessed via the following link, however, the photos don’t render properly.
The MarketWatch website and a GLD SEC submission mentioned the ‘new’ vault move in an article on 11th January 2008:
“…StreetTracks Gold Shares, a wildly popular exchange-traded fund so awash in investor cash that its backers recently scrambled to find a bigger vault to accommodate their ever-growing horde of the precious metal, now valued at $18 billion.”
“Because the StreetTracks reserve expanded faster than expected, its managers had to move the stores to a bigger vault about six months ago to make more room, says George Milling-Stanley, a spokesman for the gold council.”
Graham Tuckwell, Chairman of ETF Securities, also referred to the ‘old’ and ‘new’ vaults at the LBMA Conference in Hong Kong in November 2012. On page 3, section C “Is the Gold Really There?”, Tuckwell shows 2 photos to the audience, one from “10 years ago” and one a recent photo. In the old photo, which is probably this photo
he says “the fellow on the left is a 10-year younger version of me“. He also says: “That was the old vault when we started doing it, and you can see that we are doing a bit of a check“.
Then Tuckwell goes on to say: “This photograph was taken just over a year ago on a recent vault visit“… “Our gold, from the London product, the GBS, is on the left and the gold from the US product, the GLD, is on the right in this picture“. GBS was the Australian product and GLD being the State Street product, listed in November 2004.
As it turns out, there are vaults beneath the road under Queen Street Place, between 10 Queen Street Place (Thames Exchange) and Vintners Place, and these vaults were renovated during the period that would coincide with the HSBC London gold vault transforming from an ‘old’ vault to a ‘new vault’.
Southwark Bridge and The Queen Street Place Vaults
A second bridge, the current Southwark Bridge, replaced the earlier bridge, and it opened in 1921.
A book titled ‘Design Applications of Raft Foundations‘, when discussing the development that became Vintners Place, mentions the vaults under Queen Street Place and shows that the vault space begins maybe 2.0 metres under the roadway, and with the vault space height being about 5 metres high which looks a very similar height to both the ‘old’ and ‘new’ HSBC vault spaces.
In fact, there were up to 17 vaults under Queen Street Place judging by a planning application from 1992 which listed a Vault Q (assuming Vaults A – Q), and the application said that the vaults had been used for storage.
Alterations to Vaults under Queen Street Place
Keeping in mind that the ‘old’ HSBC gold vault became a ‘new’ HSBC gold vault sometime in 2006, or early 2007, then the following, in my view, becomes highly relevant. In September 2004, a building control planning application was submitted to City of London planning department for Alterations to Vaults in the Thames Exchange building at 10 Queen Street Place. See link for the application. See screenshots also.
Following this in November 2005, another building control planning application was received by the City of London planning department for “Fit out of Vaults between 10 Queen Street Place and Vintners Place“. See link below and also screenshots.
Blackstone bought Thames Exchange from Scottish Amicable in 2000 while it was still being leased to HSBC. HSBC then surrendered the lease of the building when it moved to Canary Wharf in 2003. Blackstone then renamed Thames Exchange to 10 Queen Street Place and began renovating it while leasing it to City law firm SJ Berwin for its new London headquarters. However, SJ Berwin only moved its London headquarters from Gray’s Inn Road to 10 Queen Street Place sometime between February and April 2006, so the renovations appear to have gone on during 2003-2005. Norwich Property Trust purchased 10 Queen Street Place from Blackstone in 2006, after it had been renovated. Notably, Norwich retained TFT Consultants to inspect 10 Queen Street Place. TFT Consultants states in a case-study on its website that:
“We inspected this prominent riverside mixed-use building including extensive vaults underneath Southwark Bridge approach road and prepared a TDD report for Norwich Property Trust.”
Property investor Jaguar bought the 10 Queen Street Place building from Norwich in 2008, and then the Malaysian haji pilgrims fund purchased 10 Queen Street Place from Jaguar in September 2012.
Coincidentally, Vintners Place, which adjoins Queen Street Place on the other side of the vaults was also sold in September 2012 when Downtown Properties and a South Korean consortium bought it from Atlas Capital. The tenants at the time included Jefferies International, and Sumitomo and Thomson Reuters. Vintners Place also adjoins Thames House, Five Kings House, and The Worshipful Company of Vintners also has its headquarters in a building called Vintner’s Hall on the corner of Queen Street Place and Upper Thames Street.
And more zoomed in. Notice all of the individual vaults and doors, and all of the walls with rows of pillars marked between the walls.
Compare the above plans to the ‘proposed’ plans. In the proposed plans, which are revision C08 dated 06 April 2006, all of the individual vaults have been removed by removing all the doors and walls, leaving just rows of pillars, and beams (given that it’s a top-down view looking down).
You can see the changes a bit more clearly in the following slightly zoomed in version. Notice the facilities added on the right, such as toilets, kitchen, changing rooms, office, telecoms room etc, and also the rows of supports/ pillars on the left hand side, which is about 7 rows of supports / pillars in the open space, 5 of which run at the same angle, then there is a V shape where the pillars then run at a different angle.
Anyone who has the inclination, given these sets of plans of the vaults under Queen Street Place, please check back over the photos of the ‘old’ HSBC vault and ‘new’ HSBC vault and decide for yourself if the photos in the ‘old’ cramped vault with the pillars and cream wall is reminiscent of the pre-alteration plans above. Likewise, decide for yourself if the ‘new’ HSBC London gold vault with the open plan design and layout of vertical steel support columns looks like the plans above of the ‘proposed’ alterations and ‘Fit Out’ of the vaults under Queen Street Place.
When G4S built its subterranean gold vault in Park Royal, London in 2013 / 2014, it fitted it out the area beside the vault with toilets and a kitchen – See second last sentence in red box below from the G4S building contractor document. Because, if you are working down in a vault all day, there will need to be toilets and a kitchen area, as well as changing rooms, phones and desktop computers etc. For background to G4S vault, see “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out“.
The Pisani Files – “This is it folks, this is the Motherlode!”
Now we come to the Bob Pisani videos that were filmed by CNBC in the HSBC London gold vault in 2011. I say videos in plural because there are 4 video segments, and actually 5 segments in total including a trailer. The videos are quite exciting and fast-paced but frustrating because the camera is quite shaky and moves around rapidly for a lot of the vault segments, possibly on purpose. The background music is quite catchy also (at first).
1. The Motherlode
The first video is on a CBNC web page and embedded in an article titled “Gold’s secret hiding place”, however the video is titled “Gold Rush – The Mother Lode”. Its dated Wednesday, 31 Aug 2011 with a byline of “CNBC’s Bob Pisani recently got an exclusive inside look at the HSBC gold vaults in London, where the gold for the SPDR Gold Trust (GLD) is stored.” The video is 4:55 mins long, and introduced by Pisani from the New York studio. The vault shots begin at 1:18, and interestnigly, at 0:40 mins, the camera is in a vehicle travelling down Lower Thames Street.
Let’s call this 2nd video “Gold’s Secret Hiding Place”. This version, which is different to the Motherlode, is on YouTube. I’m not sure of the official segment name. This version is 5:06 mins long, and Bob says the vault is “in a super-secret location only known to a few people”. This is also the version where Bob hands in his cellphone and travels in a blacked-out vehicle saying “we have no idea where we’re going. We only know our final destination. The vault!”
There is a neat online app called Pause House which allows you to look at any YourTube clip frame-by-frame, and can be used on the above clip for those who want to get a good look at the vault interior. (Pause House).
3. The Third version
Lets call this the Third version. Its 2:43 mins long. Pisani starts on Waterloo Bridge on the River Thames and he points towards Westminster Bridge (the exact opposite direction to Southwark Bridge). Then he is in the blacked-out vehicle, and then in the vault from 1:04 mins. At this stage the music might be annoying, so luckily, there is no background music when Bob talks in the vault.
4. Inside the Secret Vault
This clip is 2:42 mins long and is dated Thursday, 8 Mar 2012 with a byline of “CNBC’s Bob Pisani gets unprecedented access inside the largest private gold reserve in the world.” Its slightly similar to version 3 above
There is one sentence in both “Motherlode” and “Gold’s Secret Hiding Place” that I consider very interesting. And it relates to the ‘old’ and ‘new’ vaults. What Bob Pisani says has obviously been told to him by someone at HSBC, since he would not know anything about the vault in advance.
At 3:37 mins in Motherlode, Pisani says “In 2005, there was less than 200 tonnes of gold here, now there’s 6 times as much“.
At 4:05 mins in Gold’s secret hiding place, Pisani says “In 2005, there was less than 200 tonnes of gold in this vault backing the GLD. Now there’s 6 times as much.”
Pisani is essentially saying, probably without realising, that it is the same vault. i.e. that the vault in 2005 is the same vault as in 2011. However, given that the vault in 2005 was the ‘old’ vault, and that the vault in 2011 was the ‘new vault’, this suggests that it is the same space, and that the vault space was just renovated. It therefore supports the view that the vaults under Queen Street Place are a very strong candidate to be the HSBC London Gold Vault that stores the GLD gold and the ETF Securities gold.
You might have spotted above that one of the existing vaults under Southwark Bridge was turned into a riverside walkway. This was probably vault Q, which looked to be the vault nearest the river. This walkway runs under the beginning of the abutment on the north of SouthWark Bridge and is called the slightly humorous name ‘Fruiterers Passage’. The Passage was opened circa the year 2000 (and named after the Worshipful Company of Fruiterers), and is ornately tiled with ceramics, even around its pillar enclosures. Take a look at a photo of Fruiterers Passage and compare it to a photo of the new ‘HSBC’ gold vault that features the yellow-painted steel support pillars. The dimensions and spacings of the pillars in both photos look very similar, even identical.
A video walk-through (2:45 mins) of Fruiterers Passage can be seen here. The first 20-30 seconds shows Southwark Bridge, and then the walk through the Passage begins:
Although there are lots of security cameras around the City of London, the cameras in Fruiterers Passage and security warnings near the entrance to the Passage seem particularly explicit.
A MarketWatch article from 11 January 2008 quoted George Milling-Stanley as saying that the vault was sizable but “not quite as big as a cricket pitch.” On another occasion, Milling-Stanley used another sporting analogy and described the ‘new’ vault as “about the size of a football field“. Can a sporting analogy (or two) help determine the size of the HSBC London gold vault? Possibly, but it’s not as clear-cut as you might think.
Notwithstanding that a ‘cricket pitch’ is the (smallish) 22 yard strip between the wickets, the quotation was presumably referring to a ‘cricket field’. However, there is no standard shape of a ‘cricket field’, let alone standardised dimensions, since the ICC rules only state that the field can be circular or oval with a variable diameter of between 450 and 500 feet on the ‘long’ side (sometimes giving 16,000 sq yards). Regarding Milling-Stanley’s ‘football field’, analogy, it’s not clear whether this analogy was intended for a US audience or non-US audience. So it could mean ‘American’ football, or soccer or rugby.
In soccer, there is no standard size ‘field’. The sidelines (touch lines) have to be between 100 and 130 yards (110 to 120 yards for international matches), while the goal lines (end lines) must be between 50 and 100 yards (70 to 80 yards) in international matches. This could result in over 7000 sq meters or over 1.75 acres. The American football field is thankfully standardised, being 120 by 53.33 yards or 6400 sq yards.
Overall, Milling-Stanley’s descriptions give a flavour for permissible dimensions, but based on Bob Pisani’s video tour, I see the vault as a rectangular space but not quite as big as a soccer pitch. So lets look at the space in Google Earth. I’ve just added a yellow rectangle for illustrative purposes to show where the vaults under Queen Street Place are located.
The Marketwatch January 2008 article also said that the HSBC vault was “located on the outskirts of London” but how would the journalist know this since the same article also said that “a spokeswoman for HSBC declined to provide vault details, citing security policies”. As financial journalists mostly repeat what is told to them, I think this “located on the outskirts of London” bone was thrown out as a red-herring, and means the exact opposite.
At its peak holdings in December 2012, the SPDR Gold Trust stored 1353 tonnes of gold. Some observations from looking at the vault space in the Pisani videos and from talking to other people, are that:
a) the HSBC vault looks quite full in 2011, but it still looks like the space would be hard pushed to store the 1200 tonnes of gold that Pisani says were there
b) based on modelling the number of realistic-sized pallets that could conceivably fit into the Queen Street Place vault space (as per the vault plans), it also seems that it would be hard pressed to store 1,200 tonnes, unless they were crammed in. And the pallets in the CNBC segments are not fully crammed in to the space.
Remember also that the 1200 tonnes of gold reference only referred to the SPDR Gold Trust holdings in mid-2011 around the time the CNBC video segment was filmed. See blue line in chart below (chart from www.sharelynx.com) for GLD holdings over its lifetime. HSBC is also the gold custodian for ETF Securities’ gold-backed ETF which held about 170 tonnes at the time of Pisani’s visit. That would be nearly 1,400 tonnes of gold just between the GLD and ETFS holdings, which would be about 228 piles of pallets stacked 6 high crammed in. Furthermore, that’s not even taking into account any gold holdings of other HSBC customers, and Pisani also says in the videos that HSBC confirmed to him that its vault also stores gold for a range of clients.
When GLD held 1353 tonnes in December 2012, this in itself would be 225 piles of pallets, each 6 high. ETFS held about 170 tonnes in December 2012 also, which would be another 28 piles of pallets stacked 6 high. If this location is the famous storage area for the SPDR Gold Trust then possibly during the boom times when GLD holdings peaked, the HSBC vault may not have been big enough to accommodate the GLD gold let any other gold. Which would mean that HSBC was storing GLD gold elsewhere such as at the Bank of England vault, or the JP Morgan vault, both very close to Queen Street Place. It would also mean that GLD sources new gold inflows from gold that is at the Bank of England, i.e. leased central bank gold.
Another point to consider is that if the vaults under Queen Street Place are the correct location for the HSBC vault, then where did the gold that was being stored there in late 2005 / early 2006 go to during the vault alterations? This would have been at least 200 tonnes of gold as of late 2005, rising to over 350 tonnes of gold by late 2006. As the Bank of England is literally up the road from Queen Street Place, moving it to the Bank of England vaults would be the most likely option during the renovation.
In summary, using publicly available information and evidence, I have described where I think the HSBC London gold vault may be located. Whether I am correct is another matter.
Each year in June, the Bank of England publishes its annual report which quotes financial data up to the end of February (its financial year-end). The Bank’s annual report also states the amount of gold, valued at a market price in Pounds sterling, that it holds under custody for its customers, which comprise central banks, international financial institutions, and LBMA member banks.
The Bank of England as gold Custodian
In 2014, the Bank of England stated that, as at 28th February 2014, it held gold assets in custody worth £140 billion for its gold account customers, while in 2013, the corresponding figure was £210 billion. In June 2014, Koos Jansen of Bullionstar calculated that the Bank of England therefore held 5,485 tonnes of customer gold at the end of February 2014, and 6,240 tonnes of customer gold at the end of February 2013. This meant that between the two year end dates, end of February 2013 to end of February 2014, the amount of gold in custody at the Bank of England fell by 755 tonnes.
In his personal blog in June 2014, Bron Suchecki of the Perth Mint, also discussed the 2013 and 2014 Bank of England gold custody tonnage numbers, and derived the same 755 tonne drop between February 2013 and February 2014, and he also went back all the way to 2005 and calculated yearly figures for each February year-end from 2005 to 2014. (See table in Bron Suchecki’s blog).
Bank of England gold in custody down another 350 tonnes during 2014
“As of 28 February 2015, total assets held by the Bank as custodian were £514 billion (28 February 2014: £594 billion), of which £130 billion (28 February 2014: £140 billion) were holdings of gold.”
Since 28th February 2015 was a Saturday, the afternoon London Gold Fixing price in GBP on Friday 27th February 2015 was £787.545 per ounce.
£130 billion @ £787.545 per ounce = 5134.37 tonnes = ~ 410,720 Good Delivery bars
This means that between 28th February 2014 and 28th February 2015, the amount of gold stored in custody at the Bank of England fell by another 350 tonnes, from 5,485 tonnes in February 2014, to 5,134 tonnes on 28th February 2015.
Now only 500,000 bars in the entire London vaults system
“In total there is approximately 9,000 tonnes of gold held in London vaults, of which about two-thirds is stored in the Bank of England.”
So that earlier reference would have been (9000 * 0.66) or 6,000 tonnes in the Bank of England and 3,000 tonnes in the other vaults. To summarise:
9,000 tonnes in all London vaults = 720,000 bars
6,000 tonnes in Bank of England (BoE) = about 482,000 bars
3,000 tonnes in London ex BoE vaults = 238,000 bars
7,500 tonnes in all London vaults = ~600,000 bars => lost 120,000 bars (1500 tonnes)
5,625 tonnes in Bank of England = ~ 450,000 bars => lost 32,000 bars (375tonnes)
1,875 tonnes in Ldn ex BoE vaults = ~150,000 bars => lost 88,000 bars (1125tonnes)
Third quotation: June 2015
“There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion”
The London vaults refer to at least the LBMA London vaults, and may include other non-LBMA gold vaults in London, depending on how the LBMA collected these figures from the vault operators. Apart from the Bank of England gold vaults, the LBMA ‘London’ vaults, are the vaults of JP Morgan and HSBC Bank in the City of London, the vaults of Brinks, Malca Amit and Via Mat (Loomis) out near Heathrow, and the vault of G4S in Park Royal, and not to forget the Barclays vault which is run by Brinks.
In the cases of the 9,000 tonnes and 7,500 tonnes quotations, the tonnage figures and the fractions are probably rounded to an extent for simplicity, so are ballpark figures, but a comparison between the two earlier quotations indicates that the Bank of England lost 375 tonnes, and the rest of the London vaults lost 1,125 tonnes. In total that’s 1,500 tonnes less gold in London between the time the first figure was complied and the time the updated (second) figure was published.
Factoring in the “There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion“ quotation, which equates to 6,250 tonnes, this means that another 1,250 tonnes of gold (approximately 100,000 Good Delivery bars) has now gone from the London gold vaults compared to when there was 7,500 tonnes of gold in the London vaults, as quoted on the vaulting page of the LBMA’s web site as recently as earlier this year.
A total of 6,250 tonnes is also 2,750 tonnes (about 220,000 Good Delivery bars) less than the 9,000 tonnes quoted on the LBMA web site in April 2014, which may have referred to a period earlier than 2014.
All of the gold in the Bank of England would be London Good Delivery bars (i.e. variable weight bars each weighing about 400 oz or 12.5kgs), and most, if not all, of the gold in the other London vaults would also be London Good Delivery bars, because importantly, all the gold held by the ETFs in London, primarily the SPDR Gold Trust at the HSBC vault in London, is required by the ETF prospectuses to be in the form of London Good Delivery gold bars.
In fact, Stewart Murray, the then CEO of the LBMA stated at a presentation held in Paris in November 2011 that the gold in the London vaults was “Virtually all in the form of Good Delivery bars”, although by August 2015, a very recent presentation (slow file to load) by current LBMA CEO Ruth Crowell in Goa India, stated that, in the London gold market, “Almost all gold is held in the form of Good Delivery bars“.
Symantics maybe between ‘virtually‘ and ‘almost all‘, but there are probably some kilobars held in the London gold vaults now that might not have been as common in 2011. Note that the LBMA and the Shanghai Gold Exchange recently executed a mutual recognition agreement for a 9999 gold kilobar standard, so each body now recognises the kg bars manufactured by all of the gold refiners that each body has accredited.
The LBMA has also recently made reference to a potential 995 gold kilobar standard which it has referred to as a ‘draft for discussion and possible endorsement”. See the Goa presentation from Ruth Crowell, above.
What time period did 9,000 tonnes refer to?
LBMA launched a new version of its website in approximately March 2014. It’s not clear what exact month this 9,000 tonnes of gold in the London vaults figure refers to, but a lot of the text on the new LBMA website in 2014 was already on the previous version of the website prior to the revamp, so the tonnages specified on the new website in April 2014 could have been on the previous version of the website before April 2014 and merely been copied across to the new website. However, there is a way to infer the latest date at which the 9,000 tonne figure could have been referring to.
“At our premises at Threadneedle Street, London, we have approximately £200 billion worth of gold stored over 10 vaults.”
On 11th March 2013, the GBP price for an ounce of gold was £1059 (average of AM and PM fixes in Sterling). At £1059 per oz, $200 billion of gold is 188,857,412 ounces, or 5,874 tonnes, or about 469,940 Good Delivery bars.
Recalling the two totals discussed above at the Bank of England of 6,000 tonnes and 5,625 tonnes, this 5,874 tonnes figure is quite close to being halfway between 6000 and 5625 (i.e. 6000 + 5625 / 2 = 5812.5 tonnes). So its realistic to assume that Luke Thorn’s number lay somewhee in time between the two LBMA quotations, and that therefore, the 6,000 tonnes total at the Bank of England, and by extension the 9,000 tonne total in all London vaults, most likely referred to the state of the London gold market before 11 March 2013.
In other words, the 9,000 tonnes in the London vaults, and the 6,000 tonnes in the Bank of England, were referring to the amount of gold in the London vaults before the major drop in the gold price in April 2013 and June 2013, and before the huge 2013 withdrawals of gold from the gold ETFs which store their gold in London, and before most of the 755 tonnes of gold was withdrawn from the Bank of England (BoE) between 28th February 2013 and 28th February 2014.
Only 90,000 Good Delivery bars outside BoE vaults – this includes all London ETF gold
If there are now only 500,000 Good Delivery bars in the London vaults, as LBMA CEO Ruth Crowell’s presentation of June 2015 states, then with 410,000 Good Delivery gold bars in the Bank of England vaults (5,134 tonnes from 28th February 2015), then there are only 90,000 Good Delivery gold bars in the other London gold vaults, which is 1,125 tonnes.
Not only that, but nearly all of this 1,125 tonnes in the other London vaults is gold belonging to the physical gold-backed ETFs which store their gold in London. The ETFs that store their gold bars in London are as follows:
(Note: PHAU and PHGP are the same ETF. They are just two ISINs of the same underlying ETF. PHAU is in USD, PHGP is in GBP. The same structure applies to the other ETF Securities ETF known as GBS. GBS and GBSS are the same ETF. GBS is the USD ISIN and GBSS is the GBP ISIN).
The SPDR Gold Trust (GLD) currently holds 682 tonnes of gold in the vault of HSBC in London. That leaves only 443 tonnes of gold from the 1,125 tonnes above that is not in the GLD.
The iShares Gold Trust (IAU) gold is held in 3 vaults in 3 countries, namely the JP Morgan vault in London, the JP Morgan vault in New York, and the Scotia vault in Toronto. On the surface, this is an unusual vaulting arrangement for IAU. This arrangement just arose due to the way the IAU prospectus was worded in 2004, and the way the original iShares Gold Trust custodian, Scotia Mocatta, stored the gold in London, New York and Canada. JP Morgan took over as custodian for IAU in the second half of 2010, and just maintained this 3 vaults in 3 countries arrangement for whatever reason. Some of the Authorised Participants of IAU include Barclays, Citibank, Credit Suisse, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, Scotia, and UBS.
In the JP Morgan vault in London, IAU currently holds 7,265 Good Delivery gold bars (2.907 million ounces), which is 90 tonnes. That leave only 353 tonnes in the London vaults, that is not at the Bank of England, not in the SPDR Gold Trust, and not in the iShares Gold Trust.
As of 3rd September 2015, the ETFS Physical Gold ETF (PHAU)held 3,271,164 troy oz of gold in London at HSBC’s vault. That’s 101.7 tonnes in PHAU, which leaves only 251 tonnes unaccountedfor in the London vaults.
There is also another ETFS physical gold ETF called Gold Bullion Securities (GBS) which also holds its gold in the HSBC London vault. As of 3rd September 2015, GBS held 2,233,662 troy oz of gold. That’s 69 tonnes. Subtracting this 69 tonnes from the residual 251 tonnes above, leaves only 182 tonnes of unaccounted for gold in the London vaults.
Some of the Authorised Participants of the ETFS ETFs are Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Merrill Lynch, Morgan Stanley, Scotia, and UBS.
The ‘Source Physical Gold ETC (P-ETC)‘ also stores its allocated gold in the JP Morgan vault in London. This gold is held for the trustee Deutsche Bank by the custodian JP Morgan Chase. The Authorised Participants for this Source ETC are Goldman Sachs, JP Morgan, Bank of America, Morgan Stanley, Nomura and Virtu Financial. According to a Source gold bar list dated 28th August 2015, the Source Physical gold ETC held 1.571 million fine ozs of gold in bars that weighed 1.574 million gross ozs, so that’s about 3,925 Good Delivery bars, which is about 49 tonnes.
Subtracting this 49 tonnes from the remaining 182 tonnes above, which are not held within the Bank of England, and which are not held by the other physically backed gold ETFs described above, leaves only 133 tonnes of unaccouted for gold in the London vaults.
Other companies store some of their customer gold in the London vaults, such as GoldMoney and BullionVault. Based on its daily update, BullionVault had 6709 kgs of gold, or 6.7 tonnes, stored in London, while GoldMoney, based on an audit from 1st December 2014, had 410 Good Delivery bars, or about 5.14 tonnes, stored in Via Mat’s (Loomis) London vault. Combined, that’s another ~14 tonnes of gold which can be substracted from the 133 tonnes above, leaving only 119 tonnes that is not accounted for.
To put a figure such as 119 tonnes of gold into perspective, this is about the same amount as 1-2 weeks worth of gold withdrawals from the Shanghai Gold Exchange, or about 1 month’s worth of official gold imports into India.
Unallocated Musical Chairs, without any chairs
In a May 2011 presentation at the LBMA Bullion Market Forum in Shanghai, while discussing London gold vaults, former LBMA CEO Stewart Murray had a slide which read:
Investment – more than ETFs
Gold Holdings have increased by ~1,800 tonnes in past 5 years, almost all held in London vaults
Many thousands of tonnes of ETF silver are held in London
Central banks hold large amounts of allocated gold at the Bank of England
Various investors hold very substantial amounts unallocated gold and silver in the London vaults
There are 2 interesting things about the above slide. If central banks ‘hold largeamounts of allocated gold at the Bank of England”, which totalled 6,000 tonnes and then 5,625 tonnes, and more recently 5,134 tonnes, and if this is a proxy for an amount being ‘large’, then the 2nd statement with the quantum “very substantial amounts’ and especially the qualifier ‘very’, implies that the unallocated amounts represent larger amounts than the ‘allocated’ amounts, perhaps ‘very’ much larger amounts.
That 2nd statement is also a contradiction in terms. Unallocated gold is not necessarily held in vaults or held anywhere. Unallocated is just a claim against the bank that the investor holds an unallocated gold account with. There are no storage fees on an unallocated gold account in the London Gold Market precisely because one cannot charge a storage fee when there is not necessarily anything being stored.
So the ‘very substantial amounts‘ being held really means that investors have very substantial amounts of claims against the banks which offer the unallocated gold accounts, or in other words, the banks have very substantial liabilities in the form of unallocated gold obligations to the gold account holders. As to how much physical gold is on the balance sheets of the banks to cover these liabilities, if the figure of 500,000 bars in the entire set of London vaults is accurate, then there is hardly any gold in London to cover the unallocated gold accounts.
LBMA Member gold accounts at the Bank of England
A 2014 quarterly report of the Bank of England said that 72 central bank customers (including a smaller number of official sector financial organisations) held gold accounts with the Bank of England. That reference is on page 134 of the report, however, a small subset of the report, including page 134 can be viewed here (and is not a large file to download).
“The Bank of England acts as gold custodian for about 100 customers, including central banks and international financial institutions, LBMA members and the UK government.”
If central bank customers with gold accounts, whose numbers would not change that much from 2011 to 2014, represented ~72 gold accounts, that would mean that up to 28 LBMA members could have gold accounts at the Bank of England.
Is that number of LBMA member bullion banks a feasible number for maintaining a gold account at the Bank of England? Yes it is, primarily because of the gold lending market, but also due to the way the London gold clearing market works.
Bolivia’s gold and the Bullion Banks
Just as an example, the Central Bank of Bolivia’s gold that it lent to bullion banks in 1997 and that has never been returned to the Central Bank of Bolivia, has gone through the hands of at least 28 bullion banks between 1997 and the present day. These entities, some of which have merged with each other (*), and a few of which imploded, include Swiss Bank Corp*, Republic National Bank of New York*, Midland Bank (Montagu)*, Credit Suisse, SocGen, Natixis, BNP Paribas, Standard Chartered, ANZ, Scotia Mocatta, Barclays, Morgan Stanley, HSBC, Macquarie, Deutsche, Dresdner*, Bayerische Landesbank, Westdeutsche Landesbank*, JP Morgan*, Commerzbank*, Citibank, Rabobank, Morgan Guaranty* and Bayerische Vereinsbank. The IBRD (World Bank) even took on to its books the borrowed gold positions of the bullion banks during the financial crisis in 2009 because it had a higher credit rating than the investment banks after the Lehman crisis.
The lent gold of Central American banks during the 2000s, such as the gold of Guatemala, El Salvador, Honduras and Nicaragua, had been on the books of additional banks Mitsui & Co, J Aron (Goldman), Mitsubishi, AIG, and N.M. Rothschild. Bullion banks ebb and flow as to their involvement in the gold market, and some merge and go bust or get forceably rescued and shoved together, but a lot of other banks are also LBMA members that are not in the aforementioned names, such as RBC, ICBC Standard Bank, Toronto Dominion Bank, Merrill Lynch and Zurcher Kantonalbank, not to mention the other Chinese and Russian bank members of the LBMA. So overall, it is quite conceivable that 28 LBMA member bullion banks each have a gold account at the Bank of England.
How much gold did the London-based gold ETFs lose in 2013
The year 2013 was a year of huge gold outflows from the gold backed ETFs. Of the ETFs based in London, or more correctly, the ETFs with gold stored in London, the gold outflows were as follows:
The SPDR Gold Trust had an outflow of 561 tonnes of gold in 2013. It started 2013 holding 1,349 tonnes of gold, and ended 2013 with 798 tonnes. At the end of March 2013, GLD held 1,221 tonnes, at the end of Q2 it held less than 1000 tonnes (passing through the 1000 tonne barrier on 18th June 2013. By the end of Q3 2013 (actually on 2nd October 2013) GLD held 900 tonnes. Then by the end of 2013 its gold holdings dipped below 800 tonnes. During 2014, GLD lost another 80 tonnes, taking it to 709 tonnes at December month-end 2014.
In Q2 2013, GLD was hammered. Its gold holdings went from 1,221 tonnes to 1078.5 tonnes in April, a loss of 143 tonnes, then down to 1,013.5 tonnes at the end of May, another 62 tonnes loss, and by the end of June it held 969.5 tonnes, a June loss of 43.5 tonnes. Overall in Q1 2013, GLD lost 128 tonnes, then 249 tonnes in Q2 (and 379 tonnes in H1), then 100 tonnes in Q3, and another 100 tonnes in Q4 2013 (200 tonnes in H2). The near rounded 100 tonne withdrawals from GLD in both Q3 and Q4 2013 are uncanny. As if someone said “let’s take another 100 tonnes out of GLD this quarter”.
The iShares Gold Trust (IAU) lost approximately 60 tonnes of gold in 2013. Assuming the mix of IAU gold holdings in 2013 across London, New York, and Toronto was the same as it is now (i.e with 56% of the gold in London, 41% in New York, and 3% in Toronto, then IAU would have lost about 34 tonnes from London. More of the IAU gold probably flowed out of the JP Morgan’s London vault in 2013 than the other IAU storage locations, because London is the world’s main gold market for Good Delivery bars, and furthermore, that is where the gold.
ETF Securities’ PHAU lost 52 tonnes in 2013. ETS Securities GBS ETF lost 42 tonnes. The ‘Source’ Gold ETF lost 31 tonnes.
The above shows that (561 + 34 + 52 + 42 + 31) = 720 tonnes of gold was withdrawn from London gold vaults in 2013 via ETF gold redemptions. About 880 tonnes of gold in total was withdrawn from gold backed ETFs in 2013 but some of this was from ETF’s based in Switzerland and elsewhere.
Remember that the only entities which can usually redeem gold from gold backed ETFs are the Authorised Participants (APs), which in nearly all cases are the same banks as act as custodians or sub-custodians for those ETFs, and these are also the same banks that either have vaults in London or that have vaulting facilities in London, and these banks are also in a lot of cases members of the private gold clearing company London Precious Metals Clearing Limited (LPMCL) and lastly, these banks all hold gold accounts at the Bank of England.
Can ETF gold, such as GLD gold, be held in the Bank of England vaults?
Recalling that the amount of gold withdrawn from the Bank of England between 28th February 2013 and 28th February 2014 was 755 tonnes, can any of the gold that was withdrawn from the ETFs in 2013 have been the same gold that was in these the Bank of England withdrawals in 2013?
The answer is that technically, it can’t be the same gold because the ETFs are supposed to store their gold at the vault premises of the specified custodian. ETF gold can be stored at a vault of a sub-custodian, but has to be physically transferred to the vault of the custodian using “commercially reasonable efforts”.
“Custody of the gold bullion deposited with and held by the Trust is provided by the Custodian at its London, England vaults. The Custodian will hold all of the Trust’s gold in its own vault premises except when the gold has been allocated in the vault of a subcustodian, and in such cases the Custodian has agreed that it will use commercially reasonable efforts promptly to transport the gold from the subcustodian’s vault to the Custodian’s vault, at the Custodian’s cost and risk.”
The subcustodians that the SPDR Gold Trust currently uses (and that it used during 2013) are “the Bank of England, The Bank of Nova Scotia-ScotiaMocatta, Barclays Bank PLC, Deutsche Bank AG, JPMorgan Chase Bank and UBS AG.”
These banks, along with HSBC, but excluding Deutsche Bank, are the 5 members of London Precious Metals Clearing Limited (LPMCL). (Although the GLD Sponsor might want to think about deleting Deutsche Bank from the list).
Shockingly, the GLD Prospectus also says that:
“In accordance with LBMA practices and customs, the Custodian does not have written custody agreements with the subcustodians it selects.”
The GLD prospectus goes on to explain that LBMA custodians are obliged to provide gold holder entities with details (including locational details) of the gold that they or their subcustodians hold on behalf of a relevant entity gold holder that enquires, but this is just based on “LBMA practices and customs”. It also states:
” Under English law, unless otherwise provided in any applicable custody agreement, a custodian generally is liable to its customer for failing to take reasonable care of the customer’s gold and for failing to release the customer’s gold upon demand.”
Coming from a background of equity and bond portfolio management, I find the fact that there are no custody agreements with the GLD gold subcustodians very odd. Custodians of financial assets such as Citibank, PNC, Northern Trust, and State Street, would all insist on having custody agreements with each other when appointing sub-custodians. To organise it in any other way is crazy.
This is something that GLD institutional and hedge fund investors should enquire about with World Gold Trust Services (the SPDR Gold Trust Sponsor) when performing their next set of due diligence exercises on the GLD, just to make sure they understand how the sub-custodian arrangements work. It does look like the gold in the LBMA system is acting like one big happy pool of gold..like the 1960s London Gold Pool.
All of the GLD annual and quarterly filings for 2013 and every year state, in the ‘Results of Operations” section, that “As of [Date], Subcustodians held nil ounces of gold in their vaults on behalf of the Trust.” For example:
“As at September 30, 2013, subcustodians held nil ounces of gold in their vaults on behalf of the Trust.”
The same is true for December 31, June 30, 2013, and March 31, 2013. The annual full gold bar audit undertaken on the SPDR Gold Trust would also suggest that no GLD gold is stored at sub-custodians, including the Bank of England. For example in the full 2013 GLD gold bar audit (click the exact link here -> //www.spdrgoldshares.com/media/GLD/file/Inspectorate_Certificate_Aug30_2013.pdf), it states that the location of the audit was the “London Vaults of HSBC Bank USA National Association“:
“We performed a full count of 77,709 bars of gold, based upon the gold inventory as at 28th June 2013, between 8th July and 29th August 2013 at the Custodian’s premises”
The bars were described as “77,709 London Good Delivery, large Gold Bars”. There is also a separate partial audit on the GLD gold bars each year. The earlier partial audit of GLD in March 2013 stated that there was a random audit of the “105,840 London Good Delivery, large Gold Bars” held by the GLD “based upon the gold inventory as at 22nd February 2013, between the 4th March and 15th March“. This audit was also specified as occurring at the “London Vaults of HSBC Bank USA National Association”.
Although I don’t think the HSBC London vault was big enough to store all the GLD gold during 2013 when it held up to 1353 tonnes, as well as storing the ETFS Securities gold and other HSBC customer gold , the GLD audits and SEC filings seem to indicate that all the GLD gold was at the HSBC London vault.
Incidentally, the ETF Securities gold ETFs which also use HSBC as custodian, specify a list of subcustodians that includes the commercial security companies Brinks, Malca Amit and Via Mat (Loomis) in addition to the LPMCL members:
“The Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, N.A., UBS AG, Barclays Bank PLC, Brink’s Global Services Inc., ViaMat International and Malca-Amit Commodities Ltd.”
As the Perth Mint’s Bron Suchecki pointed out in his personal blog in June 2014, central banks were net buyers of gold during 2013, not net sellers, so it appears that it was LBMA member banks with gold accounts at the Bank of England that were withdrawing gold bars from the Bank of England during 2013. Even the gold repatriated by the Central Bank of Venezuela in late 2011 and early 2012 appears to have been flown to Caracas from France and not from the Bank of England.
From March 2006 until February 2011, the amount of gold stored in custody at the Bank of England’s gold vaults rose by 2,065 tonnes (See Bron Suchecki’s table at the previous link). It then dipped by 68 tonnes from March 2011 to February 2012 before rising by another 722 tonnes from March 2012 to February 2013. That was a net 2,719 tonnes increase from March 2006 to February 2013. What percentage of this increase in custody gold holdings at the Bank of England was delivered by central bank customers and what percentage was delivered by LBMA bullion bank customers is unclear.
Then, as mentioned above, 755 tonnes of gold was withdrawn from the Bank of England between March 2013 and February 2014, and 355 tonnes withdrawn from March 2014 to February 2015.
If the ~720 tonnes of gold withdrawn from the gold backed London-based ETFs is not the same gold as was withdrawn from the Bank of England, then this means that (720 tonnes + 755 tonnes) = 1475 tonnes of London Good Delivery bars came out of the London market in 2013.
Which is very interesting, because the UK exported approximately 1,400 tonnes of gold to Switzerland during 2013 (Eurostat – HS Code 7108.1200 “Unwrought Gold” – Source www.sharelynx.com).
“Australian bank Macquarie, citing trade data from EU statistics agency Eurostat, said the UK exported 1,739 tonnes of gold in 2013, with the vast majority sent to Switzerland.”
There is a possibility, as Bron Suchecki mentioned, that some of the Authorised Participants (APs) of the gold ETFs, which have gold accounts at the Bank of England, redeemed ETF shares for gold held at the London vaults of JP Morgan and HSBC, and that HSBC or JP Morgan transferred gold from their own accounts at the Bank of England to the gold accounts of the APs at the Bank of England, who then withdrew it.
But with over 1,400 tonnes of gold withdrawn from the London gold market in 2013 (since 1400 tonnes of gold was transported from the UK to Switzerland), this suggests that the gold that went to Switzerland in 2013 was in the form of Good Delivery bars from both the London based gold ETFs vaults (HSBC and JP Morgan), and from the Bank of England vaults.
If the calculations above are correct about the 500,000 Good Delivery bars in the London vaults whittling down to about 130 tonnes of gold that’s not accounted for by ETFs and other known gold holders, and that’s not accounted for by the Bank of England vault holdings, then there is surely very little available and unencumbered gold right now in the London Gold Market.
“The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.”
“‘[The rise] does indicate that there is physical tightness in the market for gold for immediate delivery’, said John Butler, analyst at Mitsubishi.”
And it begs the question, why do the dealers need to borrow, and who are they borrowing from. And if the gold is being borrowed and sent to Swiss refineries, and then shipped onward to India (and China), then when will the gold lenders get their gold back?
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