This new gold vault data was first released in early April 2017 and covers gold bar holdings at the Bank of England for every month-end for the last 6 years. Going forward, the Bank will publish updates to this dataset every month, on a 3-month lagged basis.
The move by the Bank of England to publish this data was first reported by the Financial Times in February and was supposedly part of a broader gold vault reporting initiative which was to include vault holdings for all 7 of the London Bullion Market Association (LBMA) commercial precious vaults in London. These commercial vaults are run by HSBC, JP Morgan, Brinks (on behalf of itself and ICBC Standard), Malca Amit, Loomis and G4S. While the Bank of England had single-handedly gone ahead with its side of the reporting initiative, the precious metals vault holdings data from the LBMA was conspicuously absent when the Bank of England made its move. As I wrote in my article last week:
“The London Bullion Market Association was also expected to publish gold vault holdings data for the commercial gold vaults in London, but as of now, this data has not been published, for reasons unknown.”
“While the Bank of England has now followed through with its promise to publish its gold vault holdings, the LBMA has still not published gold vault data for the commercial gold vault providers, i.e. its members HSBC, JP Morgan, ICBC Standard Bank, Brinks, Malca Amit, Loomis and G4S. Where is this data, why is there a delay, and why has it not yet been published?”
However, as if by magic, the LBMA has now just issued a press release titled “LBMA to publish Precious Metal holdings in London vaults”. Coincidence, perhaps. But whatever the case, the LBMA development is timely, and the press release, which is actually a combined press release from the LBMA and one of its alter egos, London Precious Metals Clearing Limited (LPMCL), makes interesting reading, but unfortunately at the same time is still quite vague, and appears to suggest that some of the vault operators in question have been dragged kicking and screaming to the start line.
Summer of 2017
The statement from the LBMA reveals that:
“from summer 2017 the LBMA will be publishing the gold and silver physical precious metals holdings of the London vaults, with the platinum and palladium holdings to be published at a later date”
The statement also clarifies that “the data only includes physical metal held within the London environs” and that it will cover “aggregate physical holdings”.
Given that the LBMA and Bank of England work very closely, its disappointing and bizarre that the LBMA didn’t coordinate the vault data release at the same time as the Bank of England, because, at the end of the day, this is just some simple holdings data we are talking about, and all the vaults concerned know precisely how much precious metal they are holding at any given moment.
As a reminder, the Bank of England was established by the LBMA in 1987, the Bank of England is an observer on the LBMA Management Committee, and the former head of the Bank of England Foreign exchange Division, Paul Fisher, is the recently appointed ‘independent‘ chairman of the LBMA Management ‘Board’ (formerly known as the LBMA Management Committee). See “Blood Brothers: The Bank of England and the London Bullion Market Association (LBMA)” for more details.
Representatives of the two large commercial vault operators in London, HSBC and JP Morgan, also sit on the LBMA Board. Additionally, representatives of the vault operators HSBC, JP Morgan, Brinks and ICBC Standard Bank also sit on the LBMA Physical Committee and all of the vault operators are represented on the LBMA’s Vault Managers Working Party.
The reference to ‘aggregate physical holdings‘ in the press releaseis also potentially disappointing as it seems to imply that the LBMA will not break out its vault reporting into how much gold and silver is held by each of the 7 individual vault operators in and around London, but might only publish one combined figure each month end.
A reporting format in which each vault/operator is listed alongside the quantity (tonnes or thousands of ounces) of gold and silver held by that vault operator would be ideal.For example, something along the lines of:
Quantity per vault is the approach taken in the daily precious metals vault reports that COMEX releases on its approved vault facilities in and around New York, as per an example for gold here. HSBC, JP Morgan, Brinks and Malca Amit submit inventory levels to COMEX for that report. Likewise, HSBC, JP Morgan, Brinks and Loomis submit inventory levels in New York to ICE futures for its version of the gold futures inventory report.
Given that the individual vault operators based in New York report precious metals inventory to COMEX and ICE, is it too much to expect that many of the same vault operators cannot do likewise for their London vault facilities?
It remains to be seen which date ‘summer 2017” refers to. This seems like a bizarre non-committal cop out by the LBMA not to have announced a definitive date for beginning to report vault data. Summer 2017 could mean anything. Assuming they are talking about the northern hemisphere, summer could mean anywhere from May to August or beyond.
If the LBMA data is on a 3-month lagged basis in the same way that the Bank of England data is, the first tranche of LBMA vault data could neatly be released after 30 June and would cover month-end March 2017. As a reminder, the Bank of England gold vault data shows:
“the weight of gold held in custody on the last business day of each month. We publish the data with a minimum three-month lag”
Why the vault data on a platinum and palladium can’t be published at the same time as the gold and silver data is also puzzling, because the London Platinum and Palladium Market (LPPM) is now officially integrated into the LBMA following a change in the LBMA’s governance and legal structure in 2016, so both sets of data are now under the remit of essentially the same Association.
It also remains to be seen whether the LBMA data will have a 6-year historical look-back as the Bank of England data does, or whether it will just begin with a one month-end snapshot? For consistency with the Bank of England data, the LBMA vault data should ideally cover the same time period, i.e. every month beginning at January 2011. In short the LBMA press release is lacking quite a lot of detail and unfortunately invites guesswork.
The Importance of the Vault Data
Turning quickly to why this gold vault data is important. Simply put, at the moment there is little official visibility into how much physical gold is stored in the London Gold Market, and how much of this gold is available as “liquidity” to back up the market’s huge fractional reserve gold trading volumes. Albeit for silver.
In my coverage on 28 April of the Bank of England data release, I had phrased the relationship between physical gold and gold trading in the London market as follows:
“this physical gold stored at both the Bank of England vaults and the commercial London vaults underpins the gargantuan trading volumes of the London Gold Market”
Interestingly and somewhat synchronistically, in its 8 May press release one week later, the LBMA uses very similar phraseology, as well as the identical verb ‘underpins’, when it states that:
“the physical holdings of precious metals held in the London vaults underpins the gross daily trading and net clearing in London”
Another coincidence perhaps, but the LBMA is now also saying that the physical gold bars which they will report on starting in summer 2017, and which the Bank of England has just started reporting on, literally ‘underpin’ or support the massive volume of gold trading in the London Gold Market.
“Net clearing” refers to London clearing volumes for gold and silver that are processed through the LMPCL’s clearing system AURUM, and that are published each month by the LBMA, a recent example of which, covering month-end March 2017, can be seen here. In March 2017, an average of 18.1 million ounces of gold (563 tonnes) and 203.2 million ounces of silver (6320 tonnes) were clearedeach trading day.
Since trade clearing nets out actual trading volumes, these clearing figures need to be grossed up to reveal the true trading figures. Using a 10:1 ratio of trading to clearing, which is a realistic multiplier as discussed here, this would be equivalent to 5630 tonnes of gold and 62,200 tonnes of silver traded each day in the London wholesale gold and silver markets. On an annualised basis, for gold, this would imply that the equivalent of over 1.4 million tonnes of gold are traded per year in the London gold market, quite an achievement, seeing that less than 200,000 tonnes of gold is said to have ever been mined throughout history, and half of this total is held in the form of jewellery.
The LBMA press release goes on to say that:
“Publication of aggregate physical holdings is the first step in reporting for the London Precious Metals Market.
The next step is Trade Reporting.
The collection of trade data will add transparency to the market and provide gross turnover for the Loco London market. Previously gross turnover had been calculated from one-off surveys or estimated from the clearing statistics.“
With the LBMA vault reporting being the first step, but only coming out in the summer of 2017, its anyone’s guess as to when LBMA trade reporting will be coming out, a project which has been bandied about in the financial media and by the LBMA for nearly 3 years now, but which must take the record as the slowest fintech formulation and release in the history of London financial markets, ever.
The Bank of England’s latest physical gold holdings for January month-end 2017 is only in the region of 5100 tonnes of gold bars. Furthermore, since the LBMA say that there are only about 6500 tonnes of gold in the entire London market, the LBMA commercial gold vaults in London have to hold far less gold than the Bank of England. Add to this the fact that the gold in the commercial vaults is mostly held on behalf of gold-backed Exchange Traded Funds (ETFs).
Given the above, it becomes increasingly clear than when the LBMA does decide to release gold vault holdings figures sometime in summer 2017, whatever figure(s) is released, will most likely confirm that there is very little gold in the London market which is not claimed to be owned by either a central bank or a gold-backed ETF. It will also provide a field day for all sorts of theories and calculations about the true ratio of gold trading volumes to gold bar vault holdings, and how much of this gold is allocated and earmarked, and how much can be considered a combined bullions banks’ float.
A Quick Calculation
Its possible to go someway towards estimating a minimum figure for how much gold to expect the LBMA to report on the commercial vaults when it begins vaults reporting this summer. The same exercise could be conducted for silver but is beyond the scope of this analysis. For gold, when such a figure is calculated and added to the amount of gold in the Bank of England vaults, it gives a grand total of how much gold is in the combined LBMA and Bank of England vaults in London.
A large number of high-profile gold-backed ETFs store their gold bars in LBMA vaults in London, mainly in the vaults of HSBC and JP Morgan. 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. For the approach used to calculate this type of figure for gold-backed ETFs, please see “Tracking the gold held in London: An update on ETF and BoE holdings“.
ETF gold holdings (most of which are stored in London) have been relatively static since mid March 2017. See chart below. Therefore if the LBMA starts reporting vault gold holdings for a month-end date such as month-end March 2017, it would probably reflect about 1500 tonnes of ETF gold, mostly held by at HSBC and JP Morgan vaults in London. This is assuming that some of the ETF gold is not held in sub-custody at the Bank of England vaults.
Until the LBMA starts its vault reporting, its unclear how much other gold is in the commercial vaults in London above and beyond the ETF holdings. However, non-monetary gold regularly flows in and out of the London Gold Market from gold trade with countries such as Switzerland. While March 2016 to October 2016 was a period in which the UK was a strong net importer of non-monetary gold from Switzerland, since then the UK has been a net exporter of gold to Switzerland, and has exported 325 tonnes of gold from October 2016 to end of March 2017. Therefore, whatever data the LBMA starts reporting, it logically should reflect the renewed outflow of gold from London to places like Switzerland and would tend to suggest that whatever excess bullion bank float gold is in the London commercial vaults, it is less than it would have been in the absence of these renewed outflows.
“6,500 tonnes of gold held in London vaults, of which about three quarters is stored in the Bank of England”
While this web page text is probably slightly out of date, a literal interpretation would imply that 4875 tonnes of gold are in the Bank of England (which is not too far from the actual figure) and that 1625 tonnes are in the commercial vaults (which would mean that very little non-ETF gold is in the commercial vaults).
The Bank of England claims to have about 72 central bank customers with gold accounts, For month-end January 2017, the Bank of England is reporting that there was approximately 5100 tonnes of gold in its vaults. At least 3800 tonnes of this gold is claimed to be owned by 34 known central banks. See “Central Bank Gold at the Bank of England” for more details. That would leave about 1300 tonnes of gold at the Bank of England owned by a selection of other central banks and bullion banks. As to how much gold the bullion banks hold at the Bank of England is not clear, but since central bank gold holdings are relatively static (at least when excluding gold lending), then most of the month-to-month movements in Bank of England gold vault holdings are most likely due to bullion bank activity.
As to how easily bullion bank gold holdings at the Bank of England can switch to or be transported to the vaults of the commercial vault operators in London is also unclear, as logistics is a secretive area of the London Gold Market.
So with (1500 ETF tonnes of gold + X) in the commercial vaults, and 5100 tonnes of gold in the Bank of England vaults, this gives a grand total of 6600 tonnes of gold + X in all the vaults of the London as of early 2017. X could be 400 tonnes, it could be 1400 tonnes, or it could be any other figure of similar magnitude. My guess is that there is not that much gold in the commercial vaults above and beyond whats in the gold-backed ETFs. Maybe a few hundred tonnes or so. However, we will have to wait until the dog days of ‘summer’ in London to know this definitively.
An article in February on BullionStar’s website titled “A Chink of Light into London’s Gold Vaults?” discussed an upcoming development in the London Gold Market, namely that both the Bank of England (BoE) and the commercial gold vault providers in London planned to begin publishing regular data on the quantity of physical gold actually stored in their gold vaults.
Critically, this physical gold stored at both the Bank of England vaults and the commercial London vaults underpins the gargantuan trading volumes of the London Gold Market and the same market’s ‘liquidity’. Therefore, a new vault holdings dataset would be a very useful reference point for relating to London’s ‘gold’ trading volumes as well as relating to data such as the level and direction of the gold price, the volume of gold held in gold-backed Exchange Traded Funds (ETFs), UK gold import and export statistics, and Swiss and Hong Kong gold imports and exports.
The impending publication of this new gold vault data was initially signalled by two sources. Firstly, in early February, the Financial Times (FT) wrote a story claiming that the London Bullion Market Association (LBMA) planned to begin publishing 3 month lagged physical gold storage data for the entire London gold vaulting network, that would, according to the FT:
“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s, which are also members of the LBMA.”
The “gold clearing banks” are the bullion bank members of London Precious Metals Clearing Limited (LPMCL), namely, HSBC, JP Morgan, ICBC Standard Bank, Bank of Nova Scotia – Scotia Mocatta, and UBS. HSBC and JP Morgan operate precious metals vaults in London. See profile of JP Morgan’s London vault and a discussion of the HSBC vault . ICBC Standard Bank also maintains a vault in London which is operated on its behalf by Brinks.
The second publication to address the new gold vault data was the World Gold Council. On 16 February, addressing just the Bank of England vaults, the World Gold Council wrote in its Gold Investor publication that:
“The Bank of England is, for the first time, publishing monthly data revealing the amount of gold it holds on behalf of other central banks.”
“The data reveals the total weight of gold held within the Bank of England’s vaults and includes five years of historical data.”
While I had been told by a media source that the London vault data would be released in the first quarter of 2017, at the time of writing, there is still no sign of any LBMA vault holdings data covering the commercial vault operators in London. However, the Bank of England has now gone ahead and independently released its own numbers covering gold held in the Bank of England gold vaults. These gold vaults, of which there are between 8 – 10 (the number fluctuates), are located on the 2 basement levels of the Bank of England headquarters in the City of London.
In an updated web page on the Bank of England’s website simply titled ‘Gold’, the Bank of England has now added a section titled ‘Bank of England Gold Holdings’ and has uploaded an Excel spreadsheet which contains end-of-month gold holdings data covering every month for a 6-year period up to the end of December 2016, i.e. every month from January 2011 to December 2016 i.e. 72 months.
According to the Bank of England, the data in the spreadsheet shows:
“the weight of gold held in custody on the last business day of each month. We publish the data with a minimum three-month lag.
Values are given in thousands of fine troy ounces. Fine troy ounces denote only the pure gold content of a bar.
We only accept bars which comply with London Bullion Market Association (LBMA) London Good Delivery (LGD) standards. LGD bars must meet a certain minimum fineness and weight. A typical gold bar weighs around 400 oz.
Historic data on our gold custody holdings can be found in our Annual Report.”
Prior to this spreadsheet becoming available, the Bank of England only ever divulged gold vault quantity data once a year within its Annual Report, for year-end reporting date end of February.
You will appreciate that the new spreadsheet, having data for every month of the year, and for 72 months of data retrospectively, conveys a lot more information than having just one snapshot number per year in an annual report. Therefore, the Bank of England has gone some way towards improving transparency in this area.
Before looking at the new data and what it reveals, it’s important to know what this data relates to. The Bank of England provides gold custody (storage) services to both central banks and a number of large commercial banks. Large commercial banks which trade gold are commonly known as bullion banks, and are mostly the high-profile and well-known investment banks.
On its gold web page, the Bank highlights this fact – that it provides gold custody service to both central banks and commercial banks:
“We provide safe custody for the United Kingdom’s gold reserves, and for other central banks. This supports financial stability by providing central banks with access to the liquidity of the London gold market.
We also provide gold accounts to certain commercial firms that facilitate access for central banks to the London gold market.”
In the London Gold Market, the word “liquidity” is a euphemism for gold loans, gold swaps, and gold trading including gold sales. This reference to central banks accessing the London Gold Market as being in some way supportive of ‘financial stability’ is also an eye-opener, since reading between the lines, the Bank of England is conceding that by accessing the London Gold Market’s “liquidity” via bullion banks, these central bank clients are either contributing to direct stabilisation of the gold price in some shape or form, or else are using their gold operations to raise foreign currencies for exchange rate intervention and/or system liquidity. But both routes are aiming at the same outcome. i.e. stability of the financial system.
At the end of the day, the gold price has always been a barometer that central banks strive to keep a lid on and which they aim to stabilise or smoothen the gyrations of, given that the alternative – a freely formed and unmanipulated gold price – would thwart their coordination of fiat currency exchange rates, interest rates and inflation targets.
Interestingly, in addition to the new spreadsheet of gold holdings data, the Bank of England gold web page now includes a link to a new 1 page ‘Gold Policy’ pdf document, which, looking at the pdf document’s properties, was only created on 30 January 2017. This document therefore also looks like it was written in conjunction with the new gold vault data rollout.
The notion of central banks accessing the liquidity of the London Gold Market via bullion banks is further developed in this Gold Policy document also. The document is quite short and merely states the following:
“GOLD ACCOUNTS AT THE BANK OF ENGLAND
1. The Bank primarily offers gold accounts to central bank customers. This is to support financial stability by providing central banks with secure custody for their gold reserves and access to the liquidity of the London gold market (particularly given the Bank’s location).
2. To facilitate, either directly or indirectly, access for central banks to the liquidity of the London gold market, the Bank will also consider providing gold accounts to certain commercial firms. In deciding whether to provide an account, the Bank will be guided by the following criteria.
a. The firm’s day to day activities must support the liquidity of the London gold market. b. Specifically, the Bank may have regard to a number of factors including but not limited to: evidence of active or prospective trading with a central bank customer; or whether the firm has committed to honour buy and sell prices.
3. Access to a gold account remains at the sole discretion of the Bank.
4. The Bank will review this policy periodically.”
The Vault Data
Nick Laird has now produced a series of impressive charts of this new Bank of England data on his website GoldChartsRUS. Plotting the series of 72 months of gold holdings data over January 2011 to December 2016 yields the below chart.
On average, the Bank’s vaults held 5457 tonnes of gold over this 6 year period. The minimum amount of gold held was 4693 tonnes at the end of March 2016, while the maximum quantity of gold held was 6250 tonnes at the end of February 2013.
The overall trend in the chart is downward with a huge outflow of gold bars from the bank’s vaults from the end of February 2013 to the end of March 2016.
As of January 2011, the BoE held just over 5500 tonnes of gold bars in its vaults. Gold holdings rose until the end of August 2011 and peaked at nearly 5900 tonnes before falling to 5600 tonnes at year-end 2011. Overall in 2011, the holdings fluctuated in a 400 tonne range, trending up during the first 8 months, and down during the latter 4 months.
This downtrend only lasted until January 2012, at which point BoE gold holdings totalled about 5450 tonnes. For the remainder of 2012, BoE gold under custody rose sharply, reaching 6200 tonnes by the end of 2012, a level near the ultimate peak in this 6 year chart. The year 2012 was therefore a year of accumulation of gold bars at the Bank during which 750 tonnes were added.
The overall maximum peak was actually 6250 tonnes at the end of February 2013, after which a sustained downtrend evolved through the remainder of 2013. By December 2013, gold under custody at the Bank of England had fallen to 5670 tonnes, creating an overall outflow of 580 tonnes of gold bars during 2013.
The outflow of gold continued during 2014 with another 470 tonnes flowing out of the Bank, leading to end of year 2014 gold holdings of just 5200 tonnes. The outflow also continued all through 2015 with only 4780 tonnes of gold in custody at the end of December 2015. The Bank therefore lost another 440 tonnes of gold bars in 2015.
Overall, that makes an outflow of 1490 tonnes of gold from the Bank’s vaults over the 3 years from 2013 to 2015 inclusive. This downtrend lingered for 3 more months, with another 80 tonnes lost, which brought the end of March 2016 and end of April 2016 figures to a level of about 4700 tonnes, which is the overall trough on the chart. It also means that there was a net outflow of 1570 tonnes of gold bars from the Bank’s vaults from the end of February 2013 to the end of March / April 2016.
A new uptrend / inflow trend began at the end of April 2016 and continued to the end of November 2016, where gold custody holdings peaked again at about 5123 tonnes before levelling off at the end of December 2016 at 5102 tonnes. Therefore, from the end of April 2016 to the end of December 2016, the Bank of England vaults added 400 tonnes of gold bars.
The gold holdings of the vast majority of central banks have remained stagnant over the 2011 – 2016 period, the exceptions being the central banks of China and Russia. But Russia buys domestically mined gold and stores it in vaults in Moscow and St Petersburg, so this would not affect gold holdings at the Bank of England. China’s central bank, the People’s Bank of China (PBoC), is known to buy its gold on the international market, including the London Gold Market. It then monetizes this gold (classifies it as monetary gold), and airlifts it back to China. But these Chinese purchases don’t show up in UK gold exports because monetary gold is exempt from trade statistics reporting. However, if China was surreptitiously buying gold from other central banks with gold accounts at the Bank of England or buying gold from bullion banks with gold accounts at the BoE, then some of the gold outflows from the BoE could be PBoC gold purchases. But without central bank specific data, its difficult to know.
But what is probably true is that the fluctuations in the quantity of gold stored in the Bank of England vaults are more do to with the gold holdings of bullion banks and less to do with the gold holdings of central banks, for the simple reason that central bank gold holdings are relatively static, or the least the central banks claim that their gold holdings are static. This does not take into account the gold lending market which the central banks and bullion banks go to great lengths to keep secret.
There is also a noticeable positive correlation between the movement of the US Dollar gold price and the inflows/outflows of gold to and from the Bank of England vaults, as the above chart demonstrates.
Bullion Bank gold accounts at the BoE
One basic piece of information that the Bank of England’s new vault storage data lacks is an indication of how many central banks and how many commercial banks are represented in the data.
In its first quarterly report from Q1 2014,the Bank of England states that 72 central banks operate gold accounts at the bank of England, a figure which includes a few official sector organisations such as the International Monetary Fund (IMF), European Central Bank (ECB), and Bank for International Settlements (BIS). This number would not have changed much in the meantime, so we can assume that the gold holdings of about 72 central banks are represented in the new data. But the number of commercial banks holding gold accounts at the Bank of England is less clear-cut.
The 5 gold clearing banks of the LPMCL all hold gold accounts at the Bank of England. Why? Because it says so on the LPMCL website:
“Each member of LPMCL has vaulting facilities under its control for the storage of gold and/or silver, plus in the case of gold bullion, account facilities at the Bank of England, which have contributed to the development of bullion clearing in London.”
The LPMCL also states that its clearing statistics include:
“Transfers over LPMCL Clearing Members’ accounts at the Bank of England.”
Additionally, the LPMCL website states that their
“clearing and vaulting services help facilitate physical precious metal movement logistics, location swaps, quality swaps and liquidity management.”
The Bank of England’s reference in its new ‘Gold Policy’ document to commercial banks needing to be “committed to honour buy and sell prices” is a reference to market makersand would cover all 13 LBMA market makers in gold, which are the 5 LPMCL members and also BNP Paribas, Citibank, Goldman Sachs, Merrill Lynch, Morgan Stanley, Société Générale, Standard Chartered Bank, Toronto-Dominion Bank. But there are also gold trading banks that make a market in gold which are not officially LBMA market makers, such as Commerzbank in Luxembourg which claims to be one of the biggest bullion banks in the world.
So I would say that lots of other bullion banks (of which there about 40 in total) have gold accounts at the Bank of England in addition to the 13 official LBMA market makers.
More fundamentally, any bullion bank that is engaged in gold lending with central banks (the central banks being the lenders and the bullion banks being the borrowers) would need a gold account at the Bank of England. I counted 28 bullion banks that have been involved with borrowing the gold of just one central bank, the central bank of Bolivia (Banco Central de Bolivia – BCB) between 1998 and 2016. Some of these banks have since merged or exited precious metals trading, but still, it gives an estimate of the number of bullion banks that have been involved in the gold lending market. The Banco Central de Bolivia’s gold lending activities will be covered in some forthcoming blog posts.
Bullion banks that are Authorised Participants (APs) for gold-backed ETFs such as the SPDR Gold Trust (GLD) or iShares Gold Trust (IAU) may also have gold accounts at the Bank of England. I say may have, because in practice the APs leave it up to the custodians such as HSBC and JP Morgan to allocate or deallocate the actual physical gold flowing in and out of the ETFs, but HSBC on occasion uses the Bank of England as a sub-custodian for GLD gold (see “SPDR Gold Trust gold bars at the Bank of England vaults” for details), so if some of the APs want to keep their own stash of allocated physical gold in relation to ETF trading, it would make sense for them to have a gold account at the Bank of England.
As to how much gold the GLD stores at the Bank of England and how regularly this occurs is still opaque because the SEC does not require the GLD filings to be very granular, however there is a very close correlation between inflows and outflows from GLD and the inflows and outflows from the Bank of England vaults, as the following chart clearly illustrates.
As gold was extracted from the GLD beginning in late 2012, a few months later the Bank of England gold holdings began to shrink also. This trend continues all the way through 2013, 2014 and 2015. Then as the amount of gold began to increase in the GLD at the end of 2015, the gold holdings at the Bank of England began to increase also. Could this be bullion banks extracting gold from the GLD, then holding this gold at the Bank of England and then subsequently exporting it out of the UK?
Some of it could, but UK gold net exports figures suggest that gold was withdrawn from both the Bank of England vaults and from the ETF gold stored at commercial gold vaults (run by HSBC and JP Morgan), after which it was exported.
Looking at the above chart which plots Bank of England gold holdings and UK gold imports and exports (and net exports) is revealing. As Nick Laird points out in this chart, over the 2013 to 2015 period during which the Bank of England gold holdings fell by 1500 tonnes, there were UK net gold export flows of 2500 tonnes, i.e. 2500 tonnes of gold flowed out of London gold vaults, so an additional 1000 tonnes had to come from somewhere apart from the Bank of England vaults.
The new monthly vault holdings data from the Bank of England can now also be compared to the amount of gold reported by the Bank of England in its annual reports. The figures the Bank reports in the annual report are as of the end of February. These figures are only reported in Pounds Sterling, not quantities, so they need to be either converted to USD and divided by the USD LBMA Gold Price on the last day of February, or else just divided by the GBP LBMA Gold Price on that day.
For end of February 2015, the calculated total for gold held at the Bank of England (based on the annual report) came out at 5,134 tonnes. Now the Bank of England data says 5126 tonnes which is very close to the calculation. For February 2016, the calculation came out at 4725 tonnes. The new Bank of England data now says 4730 tonnes, so that’s pretty close also.
This new Bank of England data is welcome and the Bank of England has taken a step towards greater transparency. However, it would be more useful if the Bank published a breakdown of how much of this gold is held by central banks and how much is held by bullion banks, along with the number of central banks and number of bullion banks that the data represents. Two distinct sets of data would be ideal, one for central bank custody holdings and the other for bullion bank custody holdings. The Bank most likely would never publish two sets of data as it would show bullion bank gold storage activity for the whole world to see.
While the Bank of England has now followed through with its promise to publish its gold vault holdings, the LBMA has still not published gold vault data for the commercial gold vault providers, i.e. its members HSBC, JP Morgan, ICBC Standard Bank, Brinks, Malca Amit, Loomis and G4S. Where is this data, why is there a delay, and why has it not yet been published?
As a reminder, the Financial Times article in early February said that the LBMA would publish gold vault holdings data that would:
“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s”
The Financial Times article also said that:
“HSBC and JPMorgan, London’s biggest bullion banks, are backing the initiatives by the LBMA to improve transparency.”
With the gold holdings data on the other London vaults still not published, it begs the question, has there been a change of mind by HSBC and JP Morgan, two of the LBMA’s largest and most powerful members?
“Reputedly [the Bank of England vaults are] the second largest vault in the world with approximately 500,000 gold bars held in safe custody on behalf of its customers, including LBMA members, central banks, international financial institutions and Her Majesty’s Treasury.”
A holding of 500,000 Good Delivery gold bars is equal to 6250 tonnes. However, according to the Bank of England’s own figure for month end December 2016, the Bank of England only holds 5100 tonnes of gold in custody (408,000 Good delivery gold bars). Therefore, the LBMA is overstating the Bank of England’s holdings by 1150 tonnes, unless, and it’s unlikely, that the BoE vaults have seen huge gold bar inflows in the last 4 months.
The article “From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA” examined the mountain of evidence concerning the known Swiss conversion of Good Delivery bars into kilobars for export to gold markets in the East. As a further step in this process, it’s worth taking a look at the substantial evidence of these kilobars either being accumulated, or passing through, vault locations in markets such as the Hong Kong gold market. It’s also worth looking at where these gold vaults in Hong are actually located.
Kilobar Accumulation in Hong Kong
In March 2015, the CME Group launched a Hong Kong based gold kilo futures contract. This contract is physically deliverable at various Hong Kong precious metals vaults. Note that most of the trades on this contract are executed OTC through CME appointed market makers, so will not appear as exchange trading volume in CME market data statistics. CME announced a market maker program on 8 January 2015 whereby “Participants must quote continuous two-sided markets in the applicable Product, at predetermined average bid/ask spreads and minimum quote sizes”, the product being the “Gold Kilo (“GCK”) futures that are traded on the CME Globex Platform.” On 16 April 2015, CME modified its market maker program, by increasing the number of designated market makers from 10 to 12.
CME Vault Inventory Analysis
As part of the 2014 pre-launch operational procedures for the CME’s Hong Kong gold contract, the CME analysed the vault inventories of the storage companies that were interested in having their vaults approved, and the CME then submitted various documents to its commodities regulator, the US CFTC.
On 11 September 2014, Brink’s Global Services, USA, Inc, HKIA Precious Metals Depository Limited, and Via Mat Management AG all applied for vault approval for the CME Hong Kong kilobar gold contract (see official CME notice here). Note that HKIA is an abbreviation for Hong Kong International Airport. Three months later on 11 December 2014, CME issued a notice that Malca-Amit had also applied for vault approval for the Hong Kong kilobar gold futures contract (see official CME notice here). On 6 January 2015, CME approved both the Brinks and the Malca-Amit vault applications for the kilobar contract (see exhibits 1 and 2 here), but the HKIA and Via Mat applications, at that time, remained unprocessed (or unapproved).
As part of the CME/CFTC due diligence on the Brinks and Malca-Amit vaults and the estimation of position limits for the gold kilo contract, Brinks and Malca-Amit provided historic monthly gold bar volumes data to CME sometime in the fourth quarter of 2014 so that CME could gauge eligible (kilobar) inventory levels (or deliverable supply) .
On 8 January 2015, the CME published a file containing Brinks and Malca-Amit historical bar volumes up to November 2014. What the file shows, in the ‘Analysis of Deliverable Supply‘ section (pages 16-19 of the pdf) is that both Malca-Amit Hong Kong vault and Brinks Hong Kong vault were storing increasingly large quantities of gold kilobars throughout the second half of 2013 and into 2014, with Malca-Amit storing up to 110 tonnes of kilobars in November 2014, the final month of the dataset.
At the same point in time, Brinks in Hong Kong was storing 49,000 kilobars, i.e. 49 tonnes. The Malca-Amit monthly data sequence commenced in June 2012, while the Brinks data was provided from January 2011 onwards. So with these two datasets we have a window of transparency into the Brinks and Malca-Amit Hong Kong kilobar holdings for the years 2011 – 2014.
As the CME report stated:
“Malca-Amit has provided average monthly inventory levels of gold kilo bars from June 2012 through November 2014. Brinks, Inc. has provided average monthly inventory levels of gold kilo bars from January 2011 through November 2014.”
Since this data is average monthly inventory, if there were regular arrivals and withdrawals of kilobar stocks throughout the monthly periods being measured (as can be seen with the Brinks Hong Kong vault stocks after the CME contract was launched in March 2015), then the average data could have, to some extent, understated the daily activity of kilobar movements in these vaults.
In its analysis the CME reported that:
“Gold kilo bar inventory at Malca Amit are all minimum .9999 fineness. Brinks, Inc. inventory consists of gold kilo bars of both .9999 and .995 fineness. Of total inventory at Brinks, Inc., the gold kilo bars of .9999 fineness comprise 90% to 95% of total inventory“
“All gold kilo bar inventory at Malca Amit and Brinks, Inc. are of brands listed as accredited refiners on LBMA and are acceptable for delivery against the Gold Kilo futures contract.”
Added to the above, another window of transparency into the Hong Kong kilobar market opened up when the CME gold kilobar contract was launched in March 2015 (see below).
On 13 March 2015, CME announced that it had approved an application by G4S International Logistics (Hong Kong) to be a carrier for the CME gold kilo contract in Hong Kong. Note that this approval to be a carrier (a secure transporter) is not the same as vault/facility approval. Brinks and Malca-Amit were already, at that time, approved carriers for the CME’s gold kilo contract.
When the CME Hong Kong kilobar contract was launched in March 2015, the huge 110 tonnes of kilobar holdings at Malca-Amit’s Hong Kong vault that had been held there at the end of 2014 had mysteriously dropped to approximately 1 tonne. See CME warehouse report, dated 20 March 2015 for the Hong Kong gold kilo contract. This 110+ tonnes of kilobars in the Malca-Amit vault prior to the end of 2014 could in theory have been moved to the HKIA vault since both vaults are located adjacent to the Hong Kong International Airport. Another possibility is that these kilobars were transported back to the London market so as to arbitrage kilobar premiums.
However, when the CME kilo gold futures contract was launched in March 2015, the amount of kilobar gold at the Brinks facility in Hong Kong remained high, at over 23 tonnes of kilobars in mid-March 2015.
Notice that at launch time in March 2015, only Brinks and Malca-Amit were listed on the above CME warehouse report. This is because the HKIA Precious Metals Depository and Via Mat vaults hadn’t been approved. HKIA was never approved because it withdrew its application (see 3 June 2015 CME official notice that CME had approved the application withdrawal of HKIA).
On 12 June, the CME announced that the Via Mat vault (which by then had changed name to Loomis after the Loomis acquisition of Via Mat) was approved for use by the CME gold kilo contract. Via Mat/Loomis then began appearing on the daily CME report alongside Brinks and Malca-Amit. However, since the inception of the contract, there has been very little kilobar gold reported in any of the Hong Kong vaults except for Brinks.
The below report of CME eligible Hong Kong gold kilo warehouse stocks as of 6 April 2016 shows that the Brinks Hong Kong vault facilities still hold by far the most kilobars out of the three reported facilities. The CME kilobar gold stocks can be viewed daily at this link, although the spreadsheet at the link changes daily, but retains the same spreadsheet name. For example, there were 31.14 tonnes of gold kilobars in the Brinks Hong Kong vault on 6 April.
While the daily vault report almost always shows a lot of kilobars coming into and being withdrawn from the Brinks vault, what is not clear from the daily CME Hong Kong vaults report, but which is clear from tracking the accumulated flows since the inception of the contract, is that a massive 1,121 tonnes of gold kilobars have passed through the Brinks Hong Kong vault since the inception of the CME gold kilo contract in March 2015. This movement is perfectly illustrated in the following startling chart from Nick Laird of Sharelynx who keeps track of this Brinks Hong Kong activity.
In just over 12 months, more than one-third of annual gold mine supply has passed through the Brinks Hong Kong gold vault facilities in the form of gold kilobars. This, I would argue, makes looking at the CME New York COMEX vault reports a side-show exercise compared to where the real physical gold is flowing through.
With such a high ‘churn’ rate of gold arriving into the Brinks Hong Kong vault and then leaving again, this vault must be primarily a distribution vault and not a long-term storage vault.
Notice in the following chart how eligible gold inventory, in the form of gold kilobars, has remained at a fairly static and low-level in the Loomis (Via Mat) Hong Kong warehouse for the last 9 months. Loomis only began reporting its eligible gold kilobar inventory in mid-June 2015.
Notice in the following Malca-Amit eligible inventory chart, the dramatic disappearance of over 100 tonnes of gold sometime between the end of December 2015, and March 2015, and the very low and static eligible inventory since then.
It seems very odd that the volume of kilobar gold held in Malca-Amit’s Hong Kong vault facility dropped dramatically to 1 tonne between the end of 2014 and early 2015. After all, Malca-Amit applied to the CME to have its Hong Kong vault facility approved to be ‘regular for delivery‘ for the kilobar contracts, and furthermore, Malca-Amit’s vaults in Hong Kong have a gold storage capacity of 1000 tonnes, and furthermore, the kilobar, which would show up in eligible holdings, is the gold bar size of choice for the Asian markets.
According to the CME Group, a depository, such as Malca-Amit, is required to report inventory on the ‘facility’ that is ‘regular for delivery’ with the Exchange, and not just report the inventory in one or another of the vaults in that facility. Malca-Amit has 5 vaults in its Hong Kong facility (see below).
The CME told me:
Each Depository is required to report inventory for each one of its facilities that is regular for delivery with the Exchange. Further information on obligations of metal service providers can be found in Rule 703 in Chapter 7 of the NYMEX Rulebook at http://www.cmegroup.com/rulebook/NYMEX/1/7.pdf.
The CME’s terminology “Regular for Delivery” refers to the following CME definitions:
Regular Warehouse: A processing plant or warehouse that satisfies
exchange requirements for financing, facilities, capacity, and location
and has been approved as acceptable for delivery of commodities against
futures contracts. See Licensed Warehouse.
Licensed Warehouse: A warehouse approved by an exchange from which a
commodity may be delivered on a futures contract. See Regular Warehouse.
“Hong Kong’s largest gold-storage facility, which can hold about 22 percent of the bullion now in Fort Knox, will open in September to meet rising demand from banks and the wealthy, according to owner Malca-Amit Global Ltd.
The facility, located on the ground floor of a building within the international airport compound, has capacity for 1,000 metric tons, said Joshua Rotbart, general manager for the Hong Kong-based company’s Malca-Amit Precious Metals unit. Two of the vaults may hold assets, including gold, for banks and financial institutions, and others will be used for diamonds, jewelry, fine art and precious metals, said Rotbart.”
A series of 12 captioned photos, taken inside Malca-Amit’s vaults on 23 July 2012, can be seen in this Getty Images photo sequence, by photographer Jerome Favre (for Bloomberg via Getty Images).
“This room is in asecret location in Hong Kong. We’re not able to show you the exterior of the building for security reasons. Outside it look like an ordinary warehouse. Inside its anything but ordinary.”
It turns out this ‘secret location’ is not so secret after all (and its even listed in a CME Group spreadsheet once you know the address to look for). Bloomberg’s reference to secret location therefore looks far-fetched and dramatic, and is not surprising given that Bloomberg seems to have ceased to provide independent journalism.
The first pointer as to the vault location comes from an article in the publication Security Asia, Issue 3, 2013, pages 10-11, “Hong Kong’s Cave of Wonders“, which profiles the Malca-Amit Hong Kong facility, and states:
“Construction began on Asia’s largest private secure storage facility in February 2012, at significant but undisclosed cost. Spanning two ground floor units of a Chek Lap Kok commercial building, the vault took five months to build using 264 tonnes of reinforced steel and some 600 cubic metres of cement. Essentially, the vault comprises discrete units within the original units.
This state-of–the-art facility is designed, constructed and managed by Malca-Amit and so discreet that it took Security Asia staff a while to find the entrance, to the evident amusement of observers in the control room.
In fact there are five vaults: a common vault, a diamond vault, two smaller vaults for the use of major financial institutions, and a vault specifically designed for storing fine arts and collectibles. The fine art vault is a first for Hong Kong we are told, as it combines full vault security with climate control and FM 200 fire suppression.
Each vault has a colour-coded floor for instant recognition by CCTV operatives in the control room. Security levels escalate as we approach the vault area, with dual and triple access control systems in place.”
The Security Asia article therefore confirms that the vault facility is located in a commercial building in Chek Lap Kok. Chek Lap Kok is the redeveloped island, just north of Lantau Island, where Hong Kong’s International airport is located, hence the reference by Bloomberg to the vault being “located on the ground floor of a building within the international airport compound.”
A quick Google search for [“Chek Lap Kok” and “Malca Amit”] yields a document on the web site of CBRE, the commercial real estate company, which lists the Malca Amit vault address as G30-31, Airport Freight Forward Centre, Check Lap Kok:
Therefore, in October 2011, Malca Amit Far East Ltd entered a new lease for 24,339 sq ft of space for units G30 and G31 at the Airport Freight Forward Centre. Construction on the facility then began in February 2012 (see above).
The Airport Freight Forward Centre (AFFC) is a huge three-floor warehousing facility owned by Sun Hung Kai Properties. Apart from some of the air-side warehousing terminals in the actual airport precinct, the AFFC is the only major warehouse complex in the area. The tenant list of the AFFC even lists Malca Amit Far East Ltd, so again, Bloomberg’s reference to a secret location seems to be for dramatic effect only.
The plan of the ground floor of the AFFC warehouse can be seen here, which reveals that units 30 and 31 are self-contained and distinct from the other units on the ground floor, and are adjacent to the warehouse’s truck ramp.
Therefore, this vast Malca Amit facility at the AFFC, that’s approved by the CME as ‘regular for delivery’ for the gold kilobar contract, only holds just over 1 tonne of gold kilobars, and according to the CME’s daily gold kilobar stocks report, since March 2015, the Malca Amit facility has seen very little throughput (deposits or withdrawals) of gold kilobars. Again, in my view, it is very odd, that the largest gold vaulting facility in Hong Kong reports such low gold kilobar activity.
In Hong Kong, Malca-Amit Far East Ltd uses a company called Security Associates Asset Protection Ltd to operate its drivers/security crew for the Chep Lap Kok vault.
Because Malca Amit’s Hong Kong vault is approved for delivery of the CME group’s Hong Kong kilo gold futures contract, the vault address is also listed in one of the CME’s spreadsheet’s, which is on the CME site here.
That CME spreadsheet also lists the approved Brinks vaulting facility address in Hong Kong, which is located as Kwai Chung Container Terminal.
The Brinks Vault Facility in Hong Kong
The Brinks vault facility is located at Unit 1022W, 1/F, ATL Logistics Centre AC, Kwai Chung Container Terminal, Berth No.3, Kwai Chung. So this is the vault through which more than 1100 tonnes of gold has passed through between March 2015, and April 2016. The ATL Logistics Centre is a huge warehousing complex owned by DP World and the Goodman Group.
A brochure of the ATL Logistics Centre can be seen here. Note that the former precious metals refinery of Johnson Matthey was in Kwai Chung. This refinery facility was acquired by Metalor Technologies (Hong Kong) Ltd in 2007, and Metalor now operates its refinery there. Johnson Matthey Hong Kong had been operating its refinery in Kwai Chung since 1992.
“As per reftel A request and at the direction of the Office of Enforcement Analysis (OEA) of the USDOC Bureau of Industry and Security (BIS), Export Control Officer Philip Ankel (ECO), conducted a pre-license check at Brink’s Hong Kong Limited, 1022W First Floor, Kwai Chung Container Terminal 3, New Territories, Hong Kong (Brink’s Hong Kong). The purpose of the visit was to determine the suitability of Brink’s Hong Kong to be the recipient of 28 tactical police riot helmets and 100 harnesses/chin straps that are the subject of export license application D362247.”
This SGSIA list also shows an address for G4S Cash Solutions (Hong Long) Limited of Securicor Centre, 418 Castle Peak Road, Cheung Sha Wan, Kowloon. Recall that G4S International Logistics (Hong Kong) is a CME Group approved carrier for the CME kilobar gold contract, but not a CME approved storage facility(vault). Looking at this Securicor Centre, 418 Castle Peak Road address in StreetView, it conveniently shows a G4S armoured van exiting a secure gated entrance on to Castle Park Road, right beside the main entrance to the Securicor Centre. Note that Securicor merged with Group 4 in 2004 to form G4S. So possibily G4S has a precious metals storage area in this Castle Peak Road facility. This would have precedent, since G4S Cash Solutions (UK) Ltd is the entity that operates the G4S precious metals vault facility at Park Royal in London, which was previously leased by Deustche Bank and is now leased by ICBC Standard Bank.
The HKIA Precious Metals Depository Limited
HKIA Precious Metals Depository Limited is a fully owned subsidiary of the Airport Authority of Hong Kong, which is itself owned by the Hong Kong SAR Government. The HKIA Depository vault is a 340-square-metre facility located ‘airside’, within the grounds of Hong Kong International Airport. Therefore, there are 2 precious metals vaults in and around Hong Kong Airport, the HKIA Depository, and the Malca -Amit vaults at the AFFC.
A 340 sq metre space (3660 sq feet) is quite a small facility, and this, along with the HKIA facility’s location adjacent to the runways, would suggest that it is a transit vault for inbound and outbound precious metals freight, i.e. high throughput.
According to a 2012 LBMA Alchemist article, HKIA also claims to be a long-term storage vault, as well as a transit vault:
“Since it started offering its services three years ago, the Hong Kong International Airport Precious Metals Depository has focused on providing both long-term and transit storage for LBMA good delivery bars, as well as tael bars that are used in local delivery in the Hong Kong gold market. Silver and other types of precious metals have also been stored at the facility. For LBMA good delivery bars in particular, but also for other precious metals, the Depository has served not only as a storage vault, but also as a physical settlement and delivery venue for traders from around the world.”
The Chinese Gold and Silver Exchange Society, which operates Hong Kong’s Chinese Gold and Silver Exchange (CGSE), also planned to utilise the HKIA precious metals vault since according to a May 2013 press release (CGSE statement May 2013) from the CGSE’s president, Haywood Cheung:
“our Exchange (CGSE) will set up gold and silver vaults at the Hong Kong International Airport and VIAMAT, a professional warehousing and logistics company.”
And at least one Hong Kong based ETF, the Value Gold ETF, uses the HKIA vault as custodian. This ETF is very small and only holds 2,224.78 kgs as of 7 April 2016. the Value Gold ETF gold bar list can be viewed in a link at the bottom right corner of this page, and contains a lot a majority of Heraeus (HK) and Metalor (HK) bars as well as some Perth Mint bars.
The South China Morning Post also reported that the Hong Kong Monetary Authority has stored its gold at the HKIA vault since 2009.
“The Hong Kong Monetary Authority brought all its gold home in 2009 and stored it at the airport depository when the facility came on stream.”
“The city’s ‘Fort Knox’ opened in 2009 at the Chek Lap Kok airport. The 340 square metre depository has double security doors and bulletproof steel walls. After its opening, the HKMA shifted its entire gold reserve – the amount has never been specified – back from London.”
At he end of 2008, the Hong Kong Monetary Authority had a relatively small amount of gold, just over 2 tonnes, specifically, 66,798 ounces of gold.
“At the airport there is a little-known labyrinth of halls, equipped with state-of-the art security cameras and patrolled by heavily armed guards
In a hi-tech treasure vault are billions of dollars worth of gold bullion, gold bars, silver and platinum. They are securely sealed off behind the thick steel doors of the Hong Kong International Airport Precious Metals Depository.”
Finally, where is the Hong Kong Airport Authority’s Precious Metals Depository building. In December 2015, I asked HKIA (firstname.lastname@example.org) where its HKIA Despository vault is located, however, HKIA, probably not surprisingly, did not reply to my email. Given that the HKIA vault location is apparently such a secret (and is not listed in any publicly accessible documentation), some speculation is allowed.
My feeling is that the HKIA Depository is not in a “little-known labyrinth of halls”, but is in one of the buildings in the restricted area down near Cheong Yip Road, past the Regal Airport Hotel, near a building which is the headquarters of Aviation Security Company Limited. Hong Kong airport’s main security company “Aviation Security Company Limited“, provides practically all the security at Hong Kong International Airport. Its address is “1 Cheong Yip Road, Hong Kong International Airport”. At the end of this road is the beginning of a restricted area of a series of silver/grey coloured buildings which are ‘airside’, right beside the runways, and are boarded by North Perimeter Road, Cheong Tat Road and Cheong Yip Road. There are various road entrances to this area, all of which are ‘restricted’.
“There are seven custodians offering vaulting services in the London bullion market, three of whom are also clearing members of the LBMA (Barclays, HSBC and JP Morgan). There are also four other security carriers, who are also LBMA members (Brinks, G4S Cash Solutions (UK), Malca Amit and Loomis International (UK) Ltd). The Bank of England also offers a custodian service (gold only).”
These 8 custodians are then listed in a pdf document on the LBMA website with their head office addresses, but not the vault addresses. So where are the actual vaults?
“The London-based Malca-Amit vault is conveniently located close to Heathrow airport. The vault is graded at level XII CD EX, the highest European Vault classification and is complemented by the most up to date security systems including the Avigilon CCTV suite with cameras capturing 29 megapixels per frame.
The vault is authorised by the members of the London Clearing Company and has LBMA approval for the weighing and inspecting of precious metals.“
Notice the reference to London Clearing Company. This is a reference to the London Precious Metals Clearing Limited (LPMCL), a private precious metals clearing consortium comprising HSBC, JP Morgan, Barclays, The Bank of Nova Scotia – ScotiaMocatta, and UBS.
Driving around in Circles?
The London Bullion Market Association (LBMA) actually featured Malca-Amit’s London vault in a slightly tongue in cheek article by Aelred Connelly titled “Visit to Malca-Amit’s New Vault” which appeared in Issue 68 of the LBMA’s Alchemist magazine in October 2012.
The article begins:
“It was a balmy day when we arrived at Feltham station where we were warmly greeted by our host for the day, Allan Finn, Global Commodities Director for Malca-Amit. Allan told us that the location of the vault was top secret so he deviously drove his car round in circles until we were so disorientated we had no idea where he had taken us.”
And ends with:
“Our tour came to an end. Allan drove his car round in circles again until we were so disorientated that we didn’t know where we had come from. But he made up for it by taking us for a nice lunch on the river at Richmond.
Apart from driving around in circles between Feltham Station and the vault destination, the article also tells us that:
“Malca-Amit became a member of the LBMA in March 2012 and shortly afterwards completed the building of a new vault facility close to Heathrow airport…..
…the new secure storage facility was opened in April 2012 near Heathrow airport.“
So it seems that Malca-Amit was granted Ordinary membership status of the LBMA just prior to its new vault becoming operational. The granting of Ordinary membership was probably a precursor to the Malca-Amit vault being, in the words of Malca-Amit, “authorised by the members of the London Clearing Company ..[with].. LBMA approval for the weighing and inspecting of precious metals.”
The LBMA Alchemist profile goes on to say:
“Built above ground, the Malca-Amit vault is one of a number of new facilities that either have been built or which will be opened shortly within the perimeter of the M25….. Proximity to an airport is an advantage.“
“When we eventually arrived at our destination only the sound of planes overhead gave any indication as to where we were.”
“Before we went in to the building Allan explained that the perimeter fencing can withstand a 7.5-ton vehicle at 50 mph and the internal shutter anti-ram barrier which is located behind the entrance gates can withstand a 7.5-ton vehicle at 30 mph.”
“But the thing that strikes you most is the vault. Allan explained that it is a Chubbsafe grade XII which offers the highest possible level of security and provides capacity for more than 300 metric tonnes of gold and 1,000 tonnes of silver.“
“Gold and silver are not the only precious items in storage: there are also diamonds and other precious stones and jewellery which are kept in storage on behalf of clients.”
Where then could Malca-Amit’s recently opened gold and silver vault be located?
Arena Building, Parkway
It turns out that in a similar manner to G4S when it made a planning application amendment for its new vault building at Abbey Road in Park Royal, Malca-Amit was also not shy of listing its building location on the internet, for it too listed the location of its new vault in a planning application amendment submission dated July 2013.
(0 vehicle(s), 0 trailer(s)) New authorisation at this operating centre will be: 4 vehicle(s), 2 trailer(s)
Which leads us to the questions: what is and where is this Arena Building?
In 2011, the already completed Arena Parkway building, profiled in a glossy brochure, was marketed on a UK commercial real estate website called NovaLoca commercial property finder. This brochure pdf file was created on 14 July 2011. So although Malca-Amit may have “completed the building of a new vault facility” as the LBMA stated, it did not build the building in which the vault is located. The building had already been built prior to 2011.
The ‘Arena’ building is in the ‘Parkway Heathrow M4′ industrial estate off Cranford Lane, in Heston, in the Hounslow area to the north-east of Heathrow airport. Anyone who knows that area around Hounslow will know that the one of the landing routes into Heathrow Airport is a very low approach along a route right above where this building is located.
According to the brochure:
“The Arena provides a modern detached warehouse unit of 23,660 sq ft with a self-contained secure yard and benefits from 24-hour security, an on-site management team and surveillance cameras.”
“The unit is available on a new Full Repairing and Insuring lease basis.”
Additional information in the 2011 brochure includes such facts as:
“NEW DISTRIBUTION/WAREHOUSE UNIT 23,660 sq ft (2,198 sq m)”
Description The Arena is a new high quality warehouse suitable for production, storage, research and development, laboratories and general distribution. It has an impressive reception leading to first floor fully fitted offices. The property is constructed of brick and profile metal composite cladding with double glazed windows fitted with solar shading.
Accommodation The property provides the following approximate gross external floor areas: Warehouse 20,430 sq ft 1,898 sq m FF Offices 3,230 sq ft 300 sq m Total 23,660 sq ft 2,198 sq m
Amenities Warehouse, 8m clear height, Two up and over electric loading doors, 200 kVA 3 Phase power supply, Roof lights to 10% of warehouse floor area, Floor loading of 50Kn/m2
Offices Open plan layout, Full access raised floor, Suspended ceilings with recess lighting, Gas central heating, Double glazed windows, Passenger lift Reception area
Exterior Self-contained property, Large secure yard, Access for articulated lorries Allocated parking
Given that this Arena building was being marketed from July 2011 onwards, and that Malca-Amit began operating the vault facility from April 2012, then it would suggest, as would be expected, that Malca-Amit took possession, and then fitted out the building to its own specific requirements, including the vault, before opening for business in April 2012.
The Arena building is in the London Borough of Hounslow, so it is instructive to examine planning applications made for this building in and around the dates that Malca-Amit took occupancy.
A planning search for TW5 9QA on the Hounslow planning website reveals that plans for this Arena Parkway building were submitted from as early as December 2007, but there seems to have been a long drawn out series of planning applications and amendements made for the construction, the latest being submitted in December 2008 and approved by Hounslow Council in February 2009. Therefore, construction of the building would have commenced sometime after February 2009.
The planning applications for the Arena building, which were submitted by CGNU Life Assurance Ltd / Aviva Investors, summarise the project as follows:
“System Reference: P/2008/3669
Planning Reference: 00315/F/P59(6)
Following approval for demolition of the existing office building and construction of new industrial and warehouse unit with ancillary office accommodation, new entrances off existing access road, car parking, landscaping and roof mounted photo-voltaic panels details submitted pursuant to Condition 6 (waste and recycled materials storage) of permission dated 18/03/08
Name Mr Mark Nevitt CGNU Life Assurance Ltd
Address C/O Aviva Investors No.1 Poultry London EC2R 8EJ
The Arena drawings document submitted with the most recent building application shows a layout in keeping with the size and shape of the structure that was actually built, so it looks like the development was completed in accordance with the last approved set of plans.
Following occupancy by Malca-Amit, the only planning application submitted for the Arena Building since then is application “Planning Reference: 00315/F/P61″ which addressed improved fencing around the site.
“System Reference: P/2013/1670
Planning Reference: 00315/F/P61
Site description THE ARENA PARKWAY TRADING ESTATE CRANFORD LANE HOUNSLOW LONDON TW5 9QA
Date received 31/05/2013
Details: Erection of security fencing and bollards along perimeter of site with sliding gate at yard entrance and rising barrier at car park
Ward: Heston West [note that a ward is a sub-unit of a borough]
“The application seeks to improve the existing security around the site. The existing bollards around the site would be made good to existing low-level shrub planting. The fencing around the part of the site would be a 2.4m high 358 mesh panel fence powder 600 mm high electric fence above. This fencing would be on the north, south and west parts of the site. There would be a 6m cantilevered sliding gate, which would be 2.4m high with serrated top – RAL 9005 (black) finish.
In order to secure parking on site a car park gate has been proposed whichruns off the access road. This would be 3m wide rising barrier which wouldbe 1m high, RAL 9003 (white) finish with contrasting red banding. Therewould be 1m wide exit gate which would be next to the unit.”
The Site Plan and Elevation for the above application put some visuals on the above delegated report text. This fencing is therefore the fencing that Allan Finn of Malca-Amit was referring to when he told the LBMA that the”perimeter fencing can withstand a 7.5-ton vehicle at 50 mph and the internal shutter anti-ram barrier which is located behind the entrance gates can withstand a 7.5-ton vehicle at 30 mph.”
The Edinburgh Assay Office and UKAS
Not only is Malca-Amit located in this Arena Parkway Building, but so is the Edinburgh Assay Office. Although the Edinburgh Assay office has its headquarters in Goldsmiths Hall, Edinburgh, in Scotland, it also operates a laboratory at a Heathrow Sub Office where it is accredited for “Chemical Tests for the purpose of hallmarking”.
This fact is revealed in a series of United Kingdom Accreditation Service (UKAS) reports that were posted on the UKAS website in June 2015. On 8 June 2015, UKAS posted a report about the Edinburgh Assay Office on its website titled “The Edinburgh Assay Office Issue No: 010 Issue date: 08 June 2015″. This report lists a ‘Heathrow Sub Office’ for the Edinburgh Assay Office without specifying its address.
However, 4 days earlier on 4 June 2015, UKAS posted a report titled “The Edinburgh Assay Office Issue No: 009 Issue date: 04 June 2015” in which the Heathrow Sub Office was listed with an address of “1st Floor, Arena Parkway, Cranford Lane, Heston, TW5 9QA”.
Although the Issue 010 report from UKAS replaced its Issue 009 version a few days later, the Issue 009 version remained in the Google cache as a Google search result and also as a complete cached document:
Cached version of Issue 009
The commercial logic for the Edinburgh Assay Office having a presence in Malca-Amit’s Arena building seems to be that, in addition to Malca-Amit storing precious metals and precious stones and jewellery in the building, the location is also convenient for the rest of the Heathrow area where precious metals and jewellery are constantly arriving into and departing from. This is the ‘Hallmarking in Transit’ service offered by the Edinburgh Assay Office, offered in conjunction with Malca-Amit, and explained on the Assay Office website here, and also on Malca-Amit’s website here.
This is not the only UK-based assay office to maintain a sub-office in the premises of a secure precious metals transport and secure storage operator near Heathrow Airport. The Goldsmiths Company – Assay Office, which is headquartered in the City of London, also operates a Heathrow Sub Office in “Unit 7, Radius Park, Faggs Road, Feltham, Middlesex, TW14 0NG”. This is listed in a UKAS report “The Goldsmiths’ Company – Assay Office Issue 016 Issue Date 05 August 2014″. This ‘Unit 7 Radius Park’ is a Brinks building and it too contains a vault, but that’s another vault profile for another day.
“ICBC Standard Bank is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market..”
“ICBC.. has also applied to become a clearing member of the London gold and silver over-the-counter business.“
“The vault became operational in June 2014 and has a capacity of 1,500 tonnes. It was built and is managed by British security services company G4S.“
These moves by ICBC Standard Bank have now put both the G4S vault and LPMCL, (a private company), back in the spotlight.
The Background to the G4S Vault
On 20 March 2012, Deutsche Bank issued a press release announcing that it had contracted security company G4S to construct and manage a precious metals vault on Deutsche’s behalf in London. Critically, this was a substantial long-term partnership between Deutsche Bank and G4S, with G4S doing the actual work of building and then operating the precious metals vault. Deutsche stated at the time in March 2012 that the new vault would be for the exclusive use of Deutsche Bank clients, and that it would available for use by these clients during 2013:
“Deutsche Bank and G4S are pleased to announce that they are to join forcesin establishing a new vault for the storage of precious metals in the UK.”
“The new vault will be built and managed by G4S, the world’s leading international security solutions group, for the exclusive use of Deutsche Bank and its clients and will be an enhancement to Deutsche Bank’s already extensive metal trading and clearing capabilities.”
“‘It will position us well to quickly become a leading metals clearing and custody house,’commented Raymond Key, Global Head of Metals Trading at Deutsche Bank.The vault, which will be constructed and run to industry-leading standards of security, will be available for clients in 2013.“
Likewise, on 20 March 2012,G4S released its own press release in which it revealed that the contract with Deutsche Bank was a 10 year commercial deal and that discussions about building the vault had commenced in 2009:
“Working in partnership with Deutsche Bank, the business has secured a ten year commercial arrangement to establish a state of the art precious metals vault that will be built and managed by G4S, and will enable Deutsche Bank to extend and enhance their metal trading and clearing capabilities.
Discussions started with Deutsche Bank back in 2009 when increased economic volatility started to cause a rise in interest levels among investors for precious metals.”
“James Dinsdale, Managing Director, G4S Cash Solutions, said: ‘We’re delighted to have secured this partnership with Deutsche Bank….. This agreement represents a strategic move in the UK market place for G4S.”
“Clyde & Co has advised global security and logistics company G4S in relation to a project for Deutsche Bank.
G4S will build and manage a gold bullion secure storage vault in the UK for Deutsche Bank.”
What none of the press releases mentioned was that the precious metal vault was being integrated into the basement of a new G4S operating centre in Park Royal, London.
As it turns out, Deutsche did not deliver on its self-publicised deadline for the new vault becoming available to its clients in 2013. However, on 9 June 2014, over 2 years after announcing the London vault project, a much reduced Deutsche Bank London precious metals business that had substantially stepped back from the London Gold Market, confirmed to Reuters that it had finally opened its new London precious metals vault. Note that Reuters is usually the first distribution channel that the London Gold Market PR machine contacts to get its stories out on to the newswires.
“Deutsche’s new vault has been built in partnership with logistics company G4Sand is open to institutional investors, and commercial and central banks.”
“The vault has a capacity of 1,500 tonnes, making it significantly bigger than a 200-tonne storage facility that the bank owns at the Singapore Freeport.“
The period from late 2013 to early 2014 turned out to be a turbulent period for Deutsche Bank’s precious metals operations in London, during which time:
- German financial regulator BaFin began an investigation into the London Gold and Silver Fixings, of which Deutsche Bank was a fixing member (November 2013)
- Deutsche Bank announced that it would withdraw its participation in the London Gold and Silver Fixings and sell the Fixing seats (January 2014)
- Deutsche Bank ceased contributing to the GOFO benchmark and ceased being a LBMA market maker for precious metals forwards (February 2014)
- Deutsche Bank ‘failed to sell’ its gold and silver fixing seats (despite ICBC Standard Bank being interested), and Deutsche then merely resorted to withdrawing from the fixings (April/May 2014)
- Deutsche Bank’s Matthew Keen, who was a director of London Gold Market Fixing Limited (LGMFL), London Silver Market Fixing Limited (LSMFL), and London Precious Metals Clearing Limited (LPMCL) resigned from Deutsche Bank, prompting the appointment of other Deutsche representatives to those company directorships (January 2014)
- Deutsche Bank’s representative on the London Bullion Market Association’s (LBMA) management committee, Ronan Donohoe, resigned from the LBMA management committee on 5 March 2014, only 7 months into a 2 year appointment (March 2014)
Given all the above retrenchments affecting its precious metals activities in London, it is slightly odd that Deutsche Bank still went ahead in June 2014 and announced the opening, at least in name, of its London precious metals vault collaboration with G4S. Perhaps it had a contractual obligation with G4S to do so.
But odder still is that less that 5 months after announcing the opening of the new vault, Deutsche Bank then stepped back even further by closing its physical precious metals trading operation in London in November 2014, and then announced in December 2014 that it would actually be interested in selling its London gold vault. This decision is beyond bizarre given the huge level of commitment that Deutsche Bank had made to the development of the vault for at least 4-5 years beginning in 2009.
“Deutsche Bank is open to offers for its London-based gold vault following the closure of its physical precious metals business, three sources familiar with the matter said on Wednesday. ‘If the right offer came along, then the bank would sell the London vault,’ one source close to the situation said.
The German bank shut its physical precious metals trading arm last month as it further reduced its exposure to commodity markets.”
“Deutsche declined to comment on the status of its vaulting operation.“
“…it could be difficult for Deutsche Bank to find buyers among its nearest peers. But sources familiar with the matter said a Chinese entity could come forward. ICBC is trying to build a presence in London and the sources said it was a likely candidate. ICBC declined to comment.”
The key question is did this Deutsche Bank vault in London, operated by G4S, ever do any precious metals business in the time between June 2014 and November 2014? If it did, then this activity could not have been substantial.
Deutsche Bank clients holding allocated gold and other precious metals with Deutsche in London would not have been impressed if they were told their holdings were being moved to the new vault in the summer of 2014, only to find out a few months later that Deutsche was looking to exit its involvement with the vault.
While the G4S / Deutsche vault sales process seemed to remain on hold for the entire year of 2015 with no announced activity from either Deutsche bank or ICBC, and no media scrutiny, Deutsche continued to exit the physical gold business in London amid a number of other significant developments. In August 2015, Deutsche departed from the London Precious Metals Clearing Limited (LPMCL) company, leaving HSBC, JP Morgan, Bank of Nova Scotia, Barclays, and UBS as the remaining 5 members of the London gold and silver clearing consortium.
“Deutsche Bank is to sever its last link with commodity trading by resigning as a clearing member of the London gold and silver over-the-counter business..” [LPMCL]
It’s a little known fact that London Precious Metals Clearing Limited (LPMCL) (company number 04195299) is a UK private limited company with the same registered address as the London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited. This registered address is C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ. Indeed, Hackwood Secretaries Limited is the Company Secretary for LPMCL. Hackwood Secretaries Limited is one of the companies Linklaters uses to offer its company sectretariat services. And Linklaters is one of the better known ‘magic circle’ global law firms that is headquartered in London.
While LPMCL has so far managed to steer clear of US class actions suits concerning precious metals manipulation accusations, its fellow Linklater registered gold and silver fixing companies, London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited, both of which have had a lot of the same directors as LPMCL, have not been so lucky on the class action front, and both companies are now facing live consolidated class action suits in New York courts.
Each member bank of LPMCL usually appoints two directors who are senior staff members of that investment bank. So with 6 investment banks within LPMCL, there are usually 11-12 LPMCL directors, give or take a few people who would invariably be moving bank at any given time.
Deutsche Bank’s two last-serving directors of LPMCL, Raj Kumar and David Mitchell-Innes, actually resigned from LPMCL on 9th February and 1st September 2015, respectively. The February 2015 LPMCL resignation by Kumar seems to have been precipitated by his internal move within Deutsche Bank for a short while to the role of Global COO for Commodities, but then significantly, Kumar left Deutsche Bank in July 2015 to take up a role in ICBC Standard Bank in September 2015 as a managing director in ICBC Standard’s precious metals business, as Reuters reported on 17 September:
“London-based ICBC Standard Bank Plc named Raj Kumar head of its precious metals business development, effective immediately.
Kumar, who will be based in London, joins from Deutsche Bank AG, where he was managing director of precious metals business.”
This Deutsche Bank – ICBC Standard Bank – LPMCL link in the form of Raj Kumar was undoubtedly useful to ICBC Standard in its move to take on Park Royal vault lease from Deutsche Bank, and could help facilitate ICBC Standard’s stance in an application to become a member of LPMCL.
However, the 20 August Reuters report also interestingly stated that Standard Chartered might be interested in becoming a LPMCL member:
“…there is one other bank, Standard Chartered, that could become a gold and silver clearing member in the next few months.”
Could this be a typo by Reuters when it meant to say Standard Bank? Possibly, but most likely not. Standard Chartered is an important bank in the London Gold Market in its role as a LBMA market maker in spot and options for gold and silver which it secured in February 2015. But Standard Bank is not to be confused with Standard Chartered bank. They are two entirely separate banking institutions, albeit with historical connections.
Standard Chartered is headquartered in London, and is well-known for its emerging markets focus, particularly in Asia and Africa. The ‘Standard’ in Standard Chartered in some ways does refer to the South African ‘Standard Bank’, since Standard Chartered was created in 1969 through the merger of Standard Bank of British South Africa and Chartered Bank of India, Australia and China. However in 1987, Standard Chartered sold its shareholding in Standard Bank.
In April 2015, Reuters said of Whitehead’s pending departure from Barclays:
“Barclays’ global head of metals and mining sales Martyn Whitehead will leave the bank as part of its restructuring and exit from some parts of its commodities business, a source familiar with the situation told Reuters on Monday.
Whitehead was Barclays’ only representative listed with London Precious Metals Clearing Ltd. Barclays is one of the six banks that organise and co-ordinate bullion clearing and vaulting in London.”
Therefore, could two former directors of LPMCL, namely Raj Kumar and Martyn Whitehead, now be spearheading applications on the part of their respective new employers, ICBC Standard Bank and Standard Chartered, to both join the private club that is London Precious Metals Clearing Limited, and have access to the exorbitant privilege of being part of the London Gold Market’s private gold clearing consortium, and preferential treatment form the Bank of England gold and foreign exchange desk?
China’s largest bank, Industrial and Commercial Bank of China (ICBC), has been eager to become a premier player in the London Gold Market for some time now. Although it became an Ordinary Member of the LBMA in 2012, ICBC had stated in 2012 its desire to become a LBMA Market Making Member. ICBC was also interested in buying Deutsche Bank’s seat in the old Gold Fixing in 2014, but strangely this sale never happened. See my BullionStar blog “Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!” from March 2015 under section “ICBC and Standard Bank” for more details on this.
ICBC also stated in June 2015 that it wanted to become a direct participant in the LBMA Gold Price auction, but again strangely this has not yet happened despite 2 other Chinese banks, namely Bank of China and China Construction Bank (CCB), eventually being authorised by the LBMA to join up to the LBMA Gold Price auction on 22 June 2015 and 30 October 2015, respectively.
Prior to the controlling interest purchase by ICBC, Standard Bank was no stranger to London Gold Market gold vaulting, and a 2009 report from Abu Dahbi’s “The National” on United Arab Emirates related bullion stated that gold had:
“moved to the vaults of Standard Bank of South Africa, located in the London offices of JPMorgan Chase at 60 Victoria Embankment, Blackfriars, London.”
The ‘vaults of Standard Bank‘ reference just refers to allocated or sub-leased space in the JP Morgan vault in London in the name of Standard Bank of South Africa.
Finally, ICBC also has a strategic interest in the London platinum group metals market through Standard Bank Plc’s existing participation in the London Platinum and Palladium Market especially through the daily platinum and palladium fix auctions, which are now administered by the LME on behalf of the LBMA.
The Park Royal VAULT
As first revealed by Zerohedge in December 2014, the London precious metal vault that was built by G4S on behalf of Deutsche Bank is located at in the Park Royal area of London at 291 Abbey Road, London NW10 7SA.
This Park Royal location was actually telegraphed by G4S itself as early as July 2013 when ‘G4S Cash Solutions’ advertised for “Precious Metals Vault Officers” for the new vault in a job advert on the careers section of its own website, which listed the job location as ‘Park Royal, West London‘. Not really a very security conscious approach for whats purports to be one of the world’s foremost security companies. The job adverts included the following:
“Precious Metals Vault Officers
Location: Park Royal, West London
Number of Positions:16
Closing Date: November 2, 2013
G4S Cash Solutions, in partnership with one of the world’s leading financial institutions, is launching a Precious Metal Vault in West London. The vault which has been created with innovative, state of the art design and technology is at the leading edge of the global bullion storage industry.
We are now recruiting an exceptional team of Precious Metal Vault Officers who will operate and secure our vault in this exciting, new venture.”
“responsible for processing all inbound, outbound and stock management transactions and movements of Precious Metals”
“The operation and use of a Vault Management System together with specialist Precious Metals equipment”
“The conduct of receipting, weighing and stowing of Precious Metals including their physical movement in and around the Vault “
“G4S is the largest secure solutions company in the world…Our Cash Management Solutions business has expertise in cash and valuables transportation, cash processing, ATM and cash centre outsourcing, secure storage and retrieval.”
“Responsible for the management, security and operations of the precious metals vault including security and traceability of all assets entering and leaving the vault.”
“To work closely with internal management on the strategic global growth of our bullion projects; offering product, operational knowledge and LBMA expertise.”
“To train vault officers to ensure they are working within the LBMA / LPPM / LPMCL guidelines…”
A strong working knowledge of LBMA, LPPM and LPMCL codes of practice and proven experience of implementation of these codes
** Proven experience of working within a Precious Metal vault **
Proven experience of working within LBMA, LPPM and LPMCL codes of practice (including weighing of bullion)”
Planning and implementing the conduct of receipting, weighing and stowing of precious metals including their physical movement in and around the vault
Planning for and implementing the conduct of picking, packing and shipping of precious metals including their physical movement in and around the vault
There were also similar job adverts on the G4S website for other positions at Park Royal including “Precious Metals Shift Manager” (Positions: 4, closing date 31 October 2013), and “Secure Driver” (Positions:15, closing date 23 June 2014, “Deliver cash and valuables to various customers in a physically active role“).
Note that the closing date for the Secure Driver applicants was a few weeks after Deutsche Bank had announced on 6 June 2014 that it had opened the gold vault. So if the drivers hadn’t even been hired in June 2014 and probably not in July 2014 either, then there was nothing being moved in or out of the vault at that time, and there was most likely never any Deutsche Bank precious metals moved in or out of the G4S vault, which would also explain why, in December 2014, “Deutsche declined to comment on the status of its vaulting operation”, and would therefore make the vault an extremely bad and money losing investment decision for Deutsche Bank, as well as a bizarre business decision to commit substantially investment to the vault and then walk away from it 2 years later.
From July to August 2013, G4S even tweeted about these Park Royal roles on its Twitter account and stated the locations of the jobs roles and locations, for example, for “Vault Manager – Precious Metals in Park Royal“.
Not only that, but G4S even advertised these precious metals vault positions to the world on Facebook, complete with the specification of the Park Royal location.
Where is Park Royal? Most people in London, if they know Park Royal at all, would recognise the name as a tube station (train station) and as an area of North West London. Park Royal is just off the North Circular Road, in an industrial area, frequently congested with traffic, just down the road from Hanger Lane roundabout, another often traffic gridlocked area. But as the crow flies, Park Royal is not too far from Heathrow Airport, or the M25 ring-road, or Central London.
As well as telegraphing the general Park Royal area where the new vault was to be built, G4S also went further and specified the exact address of the new operating centre in a planning application document available on the web, conveniently pinpointing the vault building location in this large industrial sprawl, chock full of industrial parks and warehouses:
OFFICE OF THE TRAFFIC COMMISSIONER (LONDON AND THE SOUTH EAST OF ENGLAND) APPLICATIONS AND DECISIONS PUBLICATION DATE: 06 March 2014
Page 13 of document: Reference Number OK0229598 SI
G4S CASH SOLUTIONS (UK) LIMITED
Director(s): KEVIN O’CONNOR, Margaret Ann Ryan, Declan Hunt.
SUTTON PARK HOUSE, 15 CARSHALTON ROAD , SUTTON SM1 4LD
New operating centre: PARK ROYAL, 291 ABBEY ROAD LONDON NW10 7SA
New authorisation at this operating centre will be: 45 vehicle(s), 0 trailer(s)
In this case, the planning reference was referencing an increase in the number of vehicles allowed on the site. However, the more interesting planning applications are to be found not in the Office of the Traffic Commissioner, but in the website of Brent Council. These plans give a good overview of some of the details of the basement and vault that ICBC Standard Bank has just taken on the long-term lease for.
Planning applications for 291 Abbey Road NW10 7SA
The Park Royal area, including 291 Abbey RoadNW10 7SA, is under the remit of Brent Council Borough of London. Brent Council planning applications are available on the Brent Council Planning web site. On the Brent Council web site, there are 5 planning application ‘Case Numbers’ for 219 Abbey Road NW10 7SA submitted since 2012. The sequential nature of there being 5 case numbers just means that after the initial application was made, various details of the application were amended, which necessitated the applicant making subsequent submissions to the Council requesting the changes. This allows the amended plans of the G4S development to be compared to the initial plans. Each of the 5 applications have multiple scanned documents uploaded and attached to the applications.
Case Number 12/2112: This is the original planning application
“Erection of new 2-storey storage facility (Use Class B8)”. Use Class B8 means Distribution or Storage. B8 building use is for storage or as a distribution centre. This application was submitted on 9 August 2012, and the application was granted on 9 November 2012.
Pick Everard architectural practice describes itself on its website as “a leading independent, multi-professional consultancy practice working within the property, infrastructure and construction industry.”
Notice that on the diagram, there is a square-shaped basement specified on the floor plans, listed as ‘Basement Storage’, and this basement is specified as 1178 square metres. This 1178 sq mt space is approximately 34 metres * 34 metres. Furthermore, the ground floor level is listed as “Industrial Warehouse”, 1132 sq metres, with “Vehicle Loading Bays” at the rear, and the 2nd Floor level is listed as “Offices”.
“If you wish to store the higher value precious metals then you may find that insurers insist that your vaults are subterranean.”
It appears that these guidelines were specifically written for Deutsche Bank and G4S to follow since they were the only parties submitting a planning application for a new precious metals vault in London at that time, and the dates fit exactly. Case Number 12/2112 also includes an initial site location plan Project Park Royal – Document 120437 A 001 J Site Location Plan showing an overview of the site, with car park at front, building in the middle with truck loading bays at the back of the buildings, and truck parking at the rear of the site.
Case number 12/3371: Some small extra details
Case 12/3371 is just an application containing extra details about construction materials etc and security gates, barriers etc. This application was submitted on 18 December 2012, and granted on 12 February 2013.
Case Number 12/3344: Some small extra details
Case 12/3344 just covers some extra details such as car park spaces at the front of the site, for 32 cars, 30 staff/visitor spaces, and 2 disabled spaces. That application was submitted on December 2012, and granted on 13 February 2013.
Case Number 13/0722: Some important revisions to the Project, including a reduction in the size of the Basement
Case Number 13/0722 is interesting in that it included a reduction in the size of the basement from 1178 sq metres in the original application, to 750 sq metres. This application was submitted on 25 March 2013, and granted on 22 April 2013.
The accompanying Delegated Report specified a “Non-material amendment application to: (a) reduce basement area, and other changes such as (e) alterations to fencing, (f) reduction in number of vehicle loading bay shutters from 6 to 5.
“It is proposed to reduce the size of the basement from 1178sqm (as approved) to 750sqm. This is below ground level and will not have a material impact.”
In the revised floor plan Project Park Royal – Document 120437 A 105 C Typical floor plans and sections, the basement, still listed as ‘Basement Storage’, has been remodelled as a rectangular space and reduced in size to 750 square metres from 1178 sq metres, i.e. a reduction of 428 square metres compared to the original submission. This new 750 sq metre size, as a rectangular area, is roughly 19 metres * 38 metres. See revised floor plans. While a smaller basement does not necessarily mean a smaller vault, the basement size was more than likely reduced specifically because the vault size had been reduced.
If this was the case, then its possible that Deutsche Bank communicated to G4S that the vault size was to be reduced due to gold bullion exiting London for Asia (via Switzerland) in 2012 and especially during early 2013, and a fear that the previous planned size for the vault would be too big for the intended London bullion activity requirements.
The floor plan diagram specifying the reduced basement was actually created on 26 April 2013, which is coincidentally the week following the historic two-day gold price smash that occurred over Friday 13th and Monday 16th April 2013. Said another way, the amended planning application which specified the basement size reduction was submitted 2 weeks before the historic gold price smash of 13-16 April 2013, and the application amendment to the floor plans was granted the week after the historic gold price smash of 13-16 April 2013.
When the Deutsche/G4S vault opened in June 2014, Reuters reported that the vault’s capacity was 1,500 tonnes of gold. It’s not clear if this capacity statistic was the capacity from a larger vault that would have been in the larger basement area, i.e. 1178 sq mtrs, which a source may have supplied to Reuters at an earlier time, or whether it referred to a smaller vault within the smaller and revised 750 sq mtr basement area. For if the vault can now hold 1,500 tonnes of gold within a smaller basement, the original basement, being 57% larger, may have been designed to hold in excess of 2,300 tonnes of gold.
It’s either a fortunate or unfortunate set of timings that Deutsche/G4S applied to reduce the size of one of the largest ever precious metals vaults in London within a few weeks of the gold price being critically injured by huge gold futures contract short trading over the 13-16 April 2013 period. It would be interesting to know who made the decision to reduce the area of the basement, and on what rationale this decision was based.
Again, as to how much precious metal, if any, Deutsche Bank ever processed or held in the Park Royal vault is debatable, since a) the vault was not operational until June 2014 and b) Deutsche Bank was rapidly exiting the London Gold Market at that time. It therefore makes this LinkedIn profile of the person who actually performed the job of Precious Metals Manager at the vault all the more interesting, a role which is stated to have lasted from December 2013 to May 2015, but a profile in which the references to physically related precious metal activities just refer to the job spec bullet points, and the achievements listed predominantly concern the vault and not the contents of the vault.
Likewise, the ‘Bullion Operations Manager‘ at the G4S vault, a vault which was exclusively for Deutsche’s clients, must have seen fallow periods in which no metal passed over the vault’s threshold with the LinkedIn profile predominantly listing job spec bullet points. However, interestingly, the profile refers to ‘Leasing with [a] major financial corporation to ensure compliance to contractual agreements‘, so there were, as would be the case, contractual agreements between Deutsche and G4S. On the Deutsche side, these contractual agreements would raise the question of what penalties, if any, Deutsche Bank incurred in exiting contractual obligations with G4S, and whether Deutsche would have received a get-out exemption by delivering ICBC Standard Bank as the willing recipient of the vault lease.
The planning applications submitted to Brent Council also include a “Method Statement & Logistics Plan” report written by the construction contractor Galliford Try for the project. On its website, Gallilford Try describes its Construction division as “a leading construction company, carrying out building and infrastructure works across the UK.”
Galliford Try’s Method Statement & Logistics Plan report, which is useful as a comparison benchmark to the actual construction that was completed, reckoned that the construction would take 50 weeks to complete, which probably explains why the vault and building was only complete in mid-2014, given that the amended planning application was only granted by Brent Council on 22 April 2013. It still however does not help in explaining why Deutsche Bank initially thought in 2012 that the vault would be ready for its clients to use in 2013.
Crucially, page 4 of the Galliford Try report, in a section titled “Internal Finishes (weeks 27-50)“, sub-section “Basement (weeks 26 -40)“, confirms that “Once the ceiling grid works have been completed the steel / vault doors will be installed“, which proves beyond doubt that the vault is located in the basement of the G4S operating centre. There are also kitchen and toilet areas in the basement as per other London subterranean precious metals vaults.
On page 3, when discussing the basement excavation and basement concrete slab floor, it also states that “Pockets will be formed in the floor for the fitting of the security doors etc“, and that “the lift pits…will be installed.”
From page 2:
From page 3:
From page 4:
The Park Royal site on which G4S built the operating centre and vault was first put on the market in November 2011 by Clay Street Property Consultants. The site occupies 1.89 acres and was sold (presumably to a G4S related company) in April 2012 for £4.5 million:
291 Abbey Road & 2-4 Penny Road, Park Royal , London
Marketed in November 2011 the 1.89 acre site attracted a broad range of interest including institutional investors, property companies, developers and owner occupiers.
Securing 15 bids all at in excess of the asking price the site was sold in April 2012 to an owner occupier for £4,500,000 reflecting a price of £2.38m per acre.
A Google Earth image from July 2013 shows the site with the new development in full flight, and the construction of the basement in progress, and so allows a determination of whether the construction was following the last set of plans approved by Brent Council:
Zooming in on the construction of the basement area from July 2013, the image shows the rectangular darker area where the vault was being positioned, and the lift-pits to the right of the image, one lift shaft at the front, and two towards the rear, which would be adjacent to the truck loading bays. This shape is very much in keeping with the basement size reduction to 750 square metres in the ultimate set of plans approved by Brent Council.
Finally, a Google Earth image from June 2015 shows an aerial view of the completed G4S development.
The hasty exit of Deutsche Bank from the London Gold Market has never been adequately explained by the media. It remains an elephant in the room that the mainstream media does not seem to want to touch. The composition and operating mechanisms of the private LPMCL club is also another elephant in the room that mainstream media journalists have never adequately analysed and are unlikely to do so.
Now that ICBC Standard Bank has taken on the remaining term of the 10 year G4S lease that was vacated by Deutsche Bank, the key questions for ICBC are to what use will the state-controlled Chinese bank put this precious metals vault to, and whether the 5 incumbent LPMCL members will formally (along with the Bank of England informally) give the go-ahead to allow ICBC become a member of the private syndicate that is London Precious Metals Clearing Limited. The other outstanding question is whether Standard Chartered will also be involved in any extension of membership of LPMCL.
Another little appreciated fact is that during the pitches for the replacements to the Gold Fixing and Silver Fixing auctions, most of the exchanges and companies making the pitches, such as, CME, LME, ICE, all offered working solutions that included centralised on-exchange clearing of precious metals for the London Gold and Silver Markets. These solutions were even included in the various presentation materials of CME, ICE and LME, and made it into market presentations and press releases etc, however, the LBMA and its various associated accomplishes such as the LPMCL, pushed back completely on any part of solution that would have encroached on the existing LMPCL clearing mechanism.
The question of why LMPCL was so ‘precious’ that it needed protection from a transparent on-exchange clearing platform is also a question that mainstream financial journalists seem to have entirely missed. I will write a future blog post on LPMCL so as to shed some light on this thoroughly protected private syndicate of bullion bank clearers.
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