BullionStar recently teamed up with Real Vision TV, the unique video-on-demand finance and investment channel, to film a presentation for the Real Vision audience on some topical areas of the gold market.
The video presentation, which was filmed in London in June 2017, covers the fractional-reserve world of bullion bank trading in the London Gold Market, and also some concerns and risks of gold-backed Exchange Traded Funds. It then wraps up by discussing the benefits and attractions of physical gold ownership in light of the dangers and risks of today’s synthetic gold trading market.
Real Vision TV has kindly made this presentation available for viewing by BullionStar customers and readers, and the video presentation, which is 20 minutes long, can be viewed at the following link:
BullionStar would like to thank Real Vision TV for making this presentation possible and for facilitating the broadcasting of the presentation to the BullionStar audience.
Real Vision TV, founded by Raoul Pal and Grant Williams, is a subscription-based video on-demand channel featuring discussions, interviews, presentations and insights from many of the world’s top financial market minds and investment gurus.
Infographic website Visual Capitalist recently published an eye-catching infographic on behalf of Sprott Physical Bullion Trusts which featured 4 well-known billionaire investors and their supposed investments in gold. The infographic is titled “Why the World’s Billionaire Investors Buy Precious Metals” and can be seen here.
The 4 investors profiled in the infographic are:
Jacob Rothschild (Lord), chairman of London-based investment trust RIT Capital Partners Plc
David Einhorn, president of Manhattan-based hedge fund firm Greenlight Capital
Ray Dalio, chairman and CIO of hedge fund firm Bridgewater Associates, Westport (Connecticut)
Stanley Druckenmiller, chairman and CEO of Manthattan-based Duquesne Family Office (and formerly of Duquesne Capital Management)
Overall, four very famous investors, and four names that should at least be vaguely familiar to almost anyone who has a passing interest in financial markets and investing.
For each of the 4 billionaires, the Sprott infographic provides a few quotes about their views on gold and then moves on to record their recent ‘Moves’ into ‘gold’, or in some cases their recent readjustments of existing ‘gold’ exposures.
However, the trouble with this infographic is that although it’s visually appealing, nowhere does it mention how these famous investors achieve their exposures to ‘gold’, i.e. what form their gold investments take.
This is something which is also regularly bypassed in financial media articles, especially those published by Bloomberg, articles which refer to hedge fund managers such as Druckenmiller, or John Paulson, or Ray Dalio buying ‘gold’, but which all too often are too lazy to do basic research into the actual trades that these hedge fund managers execute to acquire their positions in ‘gold’ and whether these positions are actually in real physical gold or in some form of synthetic or derivative or paper gold.
In fact, the first comment posted on the Visual Capitalist website under said Sprott infographic when it was published asks exactly this question:
“I’d like to know if they are holding physical bullion, presumably in guarded safe vaults, or just paper.”
Given that the infographic is ‘Presented by’ Sprott Physical Bullion Trusts, one might assume that Rothschild, Einhorn, Dalio and Drukenmiller are all investing in physical bullion.
But are they? This is the question I set out to answer and which is documented below. Some of my findings may surprise you.
The Rothschilds: Jacob & RIT Capital Partners
First port of call, the Rothschilds of St James’s Place in London. Given that the Rothschilds are probably the richest family in the world and have been involved in the gold market for hundreds of years, you might assume that the family of the Five Arrows knows a thing or two about the difference between real gold bars and paper gold. And presumably they do. However, no one seems to have told this to the day-to-day managers of RIT Capital Partners Plc, the Rothschild controlled investment vehicle quoted in Sprott’s infographic.
Investment trusts are actually public limited companies (Plcs) which are structured as closed-ended investment vehicles. These vehicles issue a certain number of shares that can then be publicly traded. RIT Capital Partners plc, formally called the Rothschild Investment Trust (hence the name RIT), trades on the London Stock Exchange. Jacob Rothschild (The Lord Rothschild) is chairman of RIT Capital Partners Plc.
As a publicly traded vehicle, RIT Capital Partners Plc publishes annual and half-yearly reports, and is therefore more transparent than its hedge fund brethren. RIT’s latest report, an annual report for year-end 2016, was published on 28 February 2017.
Strangely, although the Sprott infographic was only published on 7 June 2017, it quotes not from the annual report for year-end 2016 but from RIT’s half-yearly report to 30 June 2016, which was published on 15 August 2016.
The Sprott infographic states:
“In a 2016 shareholder update [Jacob] Rothschild outlined bold changes to the RIT Capital Partners’ portfolio, including…increased exposure to gold and precious metals to 8%”
Similarly, in the RIT Chairman’s Statement (page 2) of the 30 June 2016 report, Jacob Rothschild said “We increased gold and precious metals to 8% by the end of June.”
Glancing at either the Chairman’s statement or the Sprott infographic, you might think ‘ok, so RIT holds (or held) 8% of its portfolio in gold and precious metals’. However, this is not the case, a fact which becomes clear when we look at the Investment Portfolio (holdings) of RIT that are detailed in the same report.
RIT is a global investment fund whose holdings span equities, hedge fund investments, private investments, real assets, credit, and bonds. It’s ‘gold’ and ‘precious metals’ holdings are listed under ‘Real Assets’. The entire RIT portfolio is worth £2.73 billion.
The Real Assets section of the RIT report to 30 June 2016 (on page 6 of the report, page 8 of the pdf) lists relevant gold-related line items as:
“BlackRock Gold & General Fund”, described as “Gold and precious metal equities”, valued at £22.9 million, and representing 0.9% of the NAV, with a fund weight of 0.83%
“Gold Futures” with a description “Long, 6.0% notional“, valued at £7.6 million, represents 0.3% of the NAV
“Silver Futures with a description “Long, 1.2% notional” valued at £7.6 million, representing 0.0% (rounded) of the NAV
These are the only gold-related investments in the entire RIT portfolio. Therefore, could this 8% that Jacob Rothschild refers to as “we increased gold and precious metals to 8% by the end of June” be a combination of a 6% notional long on gold futures, a 1.2% notional on long silver futures, and a 0.8% fund weight in gold mining equities through the BlackRock Gold & General Fund holding?
In short, the answer is Yes.
Firstly, looking at the BlackRock Gold & General Fund, this is a UCITS equity fund which exclusively invests in the shares of gold and silver mining companies such as Newcrest, Newmont, and GoldCorp and which is benchmarked against the FTSE Gold Mining Index (an equity index). However, the BlackRock website reminds us that “The Fund does not hold physical gold or metal.” Like all equity investments, this fund exposes its holders to equity risk, currency risk, sectoral risks (in this case the mining sector), possible gold hedging risks, and the general corporate risks that come with stock specific investing in any publicly quoted company, some of which cannot be diversified through portfolio investing.
Next up are the precious metals futures line items. In investment portfolios, notional is literally the gross exposure of a position. In this case, the RIT portfolio being long 6.0% notional in gold futures just means that the portfolio’s notional exposure to gold (via the gold futures position) represented (on 30 June 2016) an amount which was 6.0% of the total (gross) exposure of the portfolio. This is also a leveraged position since it was acquired via the purchase of exchange traded futures and the maintenance of these futures via margin. The amount reflected in the NAV for this position just refers to the margin.
I also checked with RIT investors relations as to whether Jacob Rothschild, when he stated that RIT holds gold, was actually referring to these gold futures positions. RIT investor relations responded:
“Yes, we do refer to long gold futures exposure as “holding gold”. We take this view since we are confident that gold futures are acting as a suitable proxy for gold both from a regulatory perspective and in terms of where we are in the cycle.
However, it should be clear to all that holding gold futures is not the same thing as holding vaulted physical gold. Gold futures may provide exposure to the US Dollar price of gold, but that’s about it, and even if they can be theoretically exercised into physical gold on the COMEX or ICE platforms, no one uses them for this purpose. For example, only 0.04% of COMEX gold futures contracts result in physical delivery each year.
Gold futures also entail exchange risk, risk of not being able to exercise for delivery, margin risk, forced cash settlement risk, etc etc. Gold futures are also derivatives that can come into existence in massive quantities as long as there are counterparties to take the other side of the futures trades.
Allocated physical gold on the other hand is an asset which exists in limited quantities, has no counterparty risk, has intrinsic value and has been used as money and as a store of value for thousands of years.
The “regulatory perspective” that RIT refers to just seems to mean that the fund’s exposure ticks various compliance boxes and is an acceptable security from a compliance and regulatory perspective.
The “where we are in the cycle” phrase probably refers to the interest rate cycle in terms of interest rate movements, inflation, real interest rates etc, but surely this is irrelevant because if you really believe that gold futures prices are a perfect proxy for gold prices, then the existence of a “cycle” and the phases of such a cycle become irrelevant to the investment decision?
In summary, it should be clear that RIT Capital Partners Plc does not hold any gold or other precious metals, because it merely holds gold futures and units in a BlackRock fund which itself only holds gold and silver equities (common shares) and which does not hold physical gold.
Just for completeness, let’s turn to the latest annual report from RIT for year-end 2016 that Sprott did not refer to. Has anything changed compared to 30 June 2016? At year-end 2016, according to Jacob Rothschild:
“We continue to hold gold and gold mining shares amounting to 6% of the portfolio.“
Therefore, by the end of 2016, by RIT’s logic, it now had a 6% exposure to gold (and the exposure to silver futures had disappeared). However, as per the 6 month earlier period, this was really a) exposure to the US dollar price of gold via gold futures and b) an exposure to the common equity of publicly-traded gold mining companies through the BlackRock fund investment.
In the Real Assets section of the RIT annual report (page 13 of the report, page 15 of the pdf), it lists:
“BlackRock Gold & General Fund”, with a description “Gold and precious metal equities” valued at £20.3 million, representing 0.9% of the NAV, and with a fund weight of 0.7%
“Gold Futures” with a Description “Long, 5.7% notional” representing (0.2%) of the NAV
Again, the 6% Rothschild reference includes the 5.7% long notional on gold via the gold futures, the BlackRock fund with a weight of 0.7%, and possibly the (0.2%) NAV (margin), which altogether net to approximately 6% when rounded down. Since 8% sounds better than 6%, Sprott may have chosen to reference the 30 June 2016 RIT report and not the more recent 30 December 2016 RIT report as this would make Rothschild appear more bullish on gold.
David Einhorn and Greenlight Capital
Hedge funds by their nature are very secretive, and because they are private pools of capital, they have no obligation to report detailed holdings even to their clients, let alone to the general public. Some of the justifications for hedge fund secrecy include preventing other trading parties adversely trading against them and preventing competitors replicating their positions. Note, hedge funds still have to report equity holdings to the US SEC and they do this via their quarterly 13F form submissions, which can be viewed on the SEC EDGAR website about 6 weeks after quarter end.
Sometimes hedge fund stars will drop hints about some of their positions or engage with the financial media, but this is mainly to talk their positions and trading books up. Often however, the “partner letters” (similar to shareholder letters) that hedge fund partnerships send to their clients / investors will give some indication as to their positions and asset allocations, and for whatever reason, some of these letters seem to make it into the public domain pretty quickly. Note that most hedge funds are established as Limited Liability Companies (LLCs), a structure which supports the partnership model.
Following Jacob Rothschild, next up on the Sprott infographic is hedge fund manager David Einhorn and his Greenlight Capital hedge fund firm. Greenlight, as a hedge fund firm, runs a series of funds that invest in equity, debt etc but also include global macro and that are known as the “Greenlight Capital funds” a.k.a. “The Partnerships”. There are at least 6 funds in this group, maybe more.
The Sprott infographic refers to a recent gold-related ‘Move’ that Einhorn that made as follows:
“In early 2017, Einhorn mentioned on an earnings call that he was:…Keeping gold as a top position”
“Gold remains a long-term position with a thesis that global fiscal and monetary policies remain very risky”
So we can assume that Einhorn maintains a gold exposure of some sort. Since there was no information in the above partner letter as to what exactly Greenlight refers to as a gold position, and nothing that I could find on the web, I did what any junior Bloomberg reporter should but doesn’t do, and shot off an email to Greenlight asking how Greenlight Capital attains its long gold exposure? Surprisingly, or maybe not, within about 20 minutes Greenlight answered with a short and sweet one-liner:
“We hold physical allocated gold in all our funds.”
This response came from the top of the Greenlight tree, close to Einhorn. Hint David Einhorn only follows three accounts on Twitter, one of which is Donald Trump another of which is the Einhorn Trust. So now we know that at least one major hedge fund firm holds physical allocated gold.
On a side note, Greenlight also offers two funds called Greenlight Capital (Gold), LP and Greenlight Capital Offshore (Gold), Ltd. These two funds actually offers investors a gold class which denominates investments in that class in gold rather than USD. This is similar to a USD denominated fund offering shareholders a EUR or CHF class, the only difference being that this class is in gold.
Ray Dalio and Bridgewater
Bridgewater Associates, based in Westport in Connecticut, runs some of the largest and most well-known individual hedge funds such as the global macro Pure Alpha as well as other well-known funds called ‘The All Weather’ and ‘Pure Alpha Major Markets’. Ray Dalio is founder, chairman and chief investment officer (CIO) of Bridgewater.
In the Sprott infographic, the gold ‘Move’ which they chose to highlight Dalio for was that:
“In 2016, Dalio said it is prudent to have a ‘well-diversified portfolio’ that is 5-10% gold”
However, unlike the other investors profiled, i.e. Rothschild, Einhorn, and Druckenmiller, who had investment decisions attributed to them that involved taking or extending long positions, there is nothing, at least in the infographic, that refers to Dalio taking on or amending a gold position.
“And so gold is one of the currencies. So we have dollars, we have euros, we have yen and we have gold.”
“Now, it [gold] doesn’t have a capacity — the capacity of moving money into gold in a large number is extremely limited.”
“I think … there’s no sensible reason not to have some — if you’re going to own a currency, … it’s not sensible not to own gold”
“I don’t want to draw an inordinate amount of attention to gold”
“a certain limited amount, at least passably, should be in gold, just like you would hold a certain amount in cash”
“Now, it depends on the amount of gold, but if you don’t own, I don’t know, 10 percent in — if you don’t have that and then it depends on the world, then you — then there’s no sensible reason other than you don’t know history and you don’t know the economics of it.”
Dalio frequently, in various forums, demonstrates his understanding of the historical importance of gold in the monetary system. Based on the language that Dalio uses about capacity of the gold market and his appreciation of the history of gold, my hunch is that Bridgewater does hold physical gold in a similar manner to how Greenlight Capital holds gold.
Although it is quite tricky to contact Bridgewater, I did manage to find Dalio’s email (somehow or other) and like an aspiring Bloomberg reporter (or not), I shot off an email to Dalio asking:
“DoesBridgewater hold physical gold in its funds (e.g. Pure Alpha, All Weather, and Pure Alpha Major Markets) or some other type of long gold exposure?”
The same day, I received back an automated response:
Message from "Ray Dalio"
I recognize from your email address that this is the first message I have received from you since Bridgewater Associates began using Sender Address Verification (SAV).
Your message is very important to me. Like you, we are very concerned with stopping the proliferation of spam. We have implemented Sender Address Verification (SAV) to ensure that we do not receive unwanted email and to give you the assurance that your messages to me have no chance of being filtered into a bulk mail folder.
By pressing REPLY and SEND to this message your original message will be delivered to the top of my inbox. You need only do this once and all future emails will be recognized and delivered directly to me.
However, after replying as per the instructions above using the verification address, there was no further response from Bridgewater. Maybe he is on vacation!
So the jury is still out on how Bridgewater acquires its exposure to gold, assuming that its funds actually have exposure to gold. But my guess is that at least some of Bridgewater’s funds do hold gold, and probably hold real physical allocated gold.
Stanley Druckenmiller and Duquesne
Finally, the Sprott infographic features Stanley Druckenmiller, founder and former chairman and president of Pittsburgh-based Duquesne Capital Management, and also former portfolio manager of Soros’ Quantum Fund. In 2010, ‘Stan’ Druckenmiller wound down Duquesne Capital since he claimed it was becoming harder to deliver consistently high returns, but he continued to manage his own wealth through Duquesne Family Office LLC, which is based out of Manhattan.
According to the infographic, in early 2017 Druckenmiller said:
“Gold was down a lot, so I bought it.”
Stan Druckenmiller, Duquesne
This quote was reported in a 8 February 2017 Bloomberg article which itself was based on a CNBC interview from 7 February:
“I wanted to own some currency and no country wants its currency to strengthen,” Druckenmiller said Tuesday in an interview. “Gold was down a lot, so I bought it.”
As per usual, Bloomberg doesn’t bother to find out or mention what form of gold exposure Druckenmiller was referring to in that interview.
Strangely, Bloomberg says that Druckenmiller bought gold in late December and January having previously sold his ‘gold’ on election night in November when Trump was elected. I say strangely because Druckenmiller is known for getting his US dollar ‘gold exposure’ via the gold-backed ETF the SPDR Gold Trust (GLD) however, the Duquesne Family Office 13F filings with the SEC don’t show GLD activity in Q4 2016 or Q1 2016.
Looking at recent Duquesne Family Office 13F filings which show reportable equity holdings (including GLD since GLD is a listed security and is basically like a share), the last time Duquesne Family Office had a long exposure to the SPDR Gold Trust was in Q1 2016 when it held 2,016,000 call options on the SPDR Gold Trust (Cusip 78463V907) which at the time had a notional exposure of $237.16 million. Druckenmiller had purchased 2,880,000 call options on GLD during Q2 2015 but reduced this to 2,016,000 calls during Q1 2016. Duquesne has not held any SPDR Gold Trust shares or options since Q1 2016.
However, looking at the Duquesne 13F filings for Q3 2016, Q4 2016 and Q1 2017, there are some interesting changes in reported holdings of some gold mining equities over this period.
The timing of Druckenmiller saying that he sold his ‘gold’ on election night in November 2016 and the bought gold in late December 2016 and January 2017 fits very well with the Duquesne trades of selling Barrick Gold and Agnico Eagle so that they appeared in the Q3 13F, but not in the Q4 13F and then reappeared in the Q1 2017 13F. If this is the case, then Druckenmiller’s Duquesne does not hold gold but holds gold mining equities, and Druckenmiller’s recent references to buying gold are really references to holding common shares in publicly-traded gold mining companies.
Duquesne, however, could hold other ‘gold exposures’ such as gold futures or even real physical allocated gold. But due to the non-obligation of these investment pools to report holdings, this is unclear.
I also sent an email to Stan Druckenmiller at his Duquesne address, asking him:
“Does Duquesne Family Office hold physical gold as part of its exposure to gold within its investments, or is the exposure some other type of long gold exposure such as the gold-backed ETF GLD?”
However, as of the time of writing, Druckenmiller has not responded.
Druckenmiller’s gold exposure via GLD calls between Q2 2015 and Q1 2016 also deserves some commentary. Readers of this website will know that holding a gold-backed ETF such as GLD is not the same as owning real physical gold. Although the Trust behind GLD holds gold bars, GLD units just provide exposure to the US dollar price of gold and there is no conversion option into real gold. With GLD, the holder is a shareholder and not a gold holder. There are many other concerns with GLD, all of which are documented on a BullionStar infographic.
However, Duquesne’s ‘exposure’ is even one more step removed from gold since it was in the more of a derivative (call option) on an underlying (GLD) which itself does not provide ownership of any gold to the holder. So in some ways this could be called a second order derivative.
Paulson & Co
Although Sprott’s infographic doesn’t feature John Paulson of hedge fund firm Paulson & Co, maybe it should have. However, on second thoughts maybe not, because Paulson & Co is currently the 6th largest institutional holder of SPDR Gold Trust (GLD) shares, which as explained above, is not the same as owning real physical gold. According to its latest 13F filing, Paulson & Co holds 4,359,722 GLD shares worth a sizeable $500 million.
Paulson also launched a specific gold fund in 2010 which is now called the PFR Gold Fund, named after Paulson, and the two managers who used to run the fund, namely, Victor Flores and John Reade, hence the PFR. Reade has now left Paulson & Co, and moved to the World Gold Council (WGC), which derives the majority of its revenue from…wait for it….the SPDR Gold Trust, since WGC’s 100% owned subsidiary World Gold Trust Services is the sponsor of the GLD.
RIT Capital Partners Plc claims to hold gold but really holds a) gold futures which provide notional long gold exposure and b) a BlackRock fund which invests in gold mining shares.
Greenlight Capital holds allocated gold in all of its hedge funds (and they are good about replying to emails).
Bridgewater Associates probably holds gold exposure across at least some of its funds. Given Ray Dalio’s grasp of the importance of real physical gold, I would be surprised if Dalio’s funds do not hold real physical gold. But Dalio is a hard man to track down, so the jury is still out on this one.
Stan Druckenmiller’s Duquesne Family Office had a large exposure to the SPDR Gold Trust via call options in 2015 and early 2016 but then closed this exposure. Duquesne also invests in gold mining equities Barrick Gold and Agnico Eagle Mines, and this could be what Druckenmiller is referring to when he said he sold and then bought back gold.
Paulson is a big fan of the SPDR Gold Trust, a vehicle which is in no way the same as owning physical gold, because it merely provides exposure to the US dollar price of gold.
In early February 2017 while preparing for a presentation in Gothenburg about central bank gold, I emailed Sweden’s central bank, the Riksbank, enquiring whether the bank physically audits Sweden’s gold and whether it would provide me with a gold bar weight list of Sweden’s gold reserves (gold bar holdings). The Swedish official gold reserves are significant and amount to 125.7 tonnes, making the Swedish nation the world’s 28th largest official gold holder.
Before looking at the questions put to the Riksbank and the Riksbank’s responses, some background information is useful. Sweden’s central bank, Sveriges Riksbank aka Riksbanken or Riksbank, has the distinction of being the world’s oldest central bank (founded in 1668). The bank is responsible for the administration of Swedish monetary policy and the issuance of the Swedish currency, the Krona.
Since Sweden is a member of the EU, the Riksbank is a member of the European System of Central Banks (ESCB), but since Sweden does not use the Euro, the Riksbank is not a central bank member of the European Central Bank (ECB). Therefore the Riksbank has a degree of independence that ECB member central banks lack, but still finds itself under the umbrella of the ESCB. Since it issues its own currency, the Riksbank is responsible for the management of the Swedish Krona exchange rate against other currencies, a task which should be borne in mind while reading the below.
On 28 October 2013, the Riksbank for the first time revealed the storage locations of its gold reserves via publication of the following list of five storage locations (four of these locations are outside Sweden) and the percentage and gold tonnage stored at each location:
Bank of England 61.4 tonnes (48.8%)
Bank of Canada 33.2 tonnes (26.4%)
Federal Reserve Bank 13.2 tonnes (10.5%)
Swiss National Bank 2.8 tonnes (2.2%)
Sveriges Riksbank 15.1 tonnes (12.0%)
The storage locations of Sweden’s official Gold Reserves: Total 125.7 tonnes
Nearly half of Sweden’s gold is stored at the Bank of England in London. Another quarter of the Swedish gold is supposedly stored with the Bank of Canada. The Bank of Canada’s gold vault was located under it’s headquarters building on Wellington Street in Ottawa. However, this Bank of Canada building has undergone a complete renovation and has been completely empty for a number of years, so wherever Sweden’s gold is in Ottawa, it has not been in the Bank of Canada’s gold vault for the last number of years.
The Swedish gold in Canada (along with gold holdings of the central banks of Switzerland, the Netherlands and Belgium) could, however, have been moved to the Royal Canadian Mint’s vault which is also in Ottawa. Bank of Canada staff are now moving back into the Wellington Street building this year. But is the Swedish gold moving back also or does it even exist? The location of the Swedish gold in Ottawa is a critical question which the Swedish population should be asking their elected representatives at this time, and also asking the Riksbank the same question.
Just over 10% of the Swedish gold is supposedly in the famous (infamous) Manhattan gold vault of the Federal Reserve under the 33 Liberty building. Given the complete lack of cooperation of the Federal Reserve Bank of New York (FRBNY) in answering any questions about foreign gold holdings in this vault, then good luck to Swedish citizens in trying to ascertain that gold’s whereabouts or convincing the Riksbank to possibly repatriate that gold.
A very tiny 2% of Swedish gold is also listed as being held with the Swiss National Bank (SNB). The SNB gold vault is in Berne under its headquarters building on Bundesplatz.
The Riksbank also claims to hold 15.1 tonnes of its gold (12%) in its own storage, i.e. stored domestically in Sweden. Interestingly, on 30 October 2013, just two days after the Riksbank released details of its gold storage locations, Finland’s central bank in neighbouring Helsinki, the Bank of Finland, also released the storage locations of its 49 tonnes gold reserves. The Bank of Finland claims its 49 tonnes of gold is spread out as follows: 51% at the Bank of England, 20% at the Riksbank in Sweden, 18% at the Federal Reserve Bank of New York, 7% in Switzerland at the Swiss National Bank and 4% held in Finland by the Bank of Finland. This means that not only is the Riksbank storing 15.1 tonnes of Swedish gold, it also apparently is also storing 9.8 tonnes of Finland’s gold, making a grand total of 24.9 tonnes of gold stored with the Riksbank. The storage location of this 24.9 tonnes gold is unknown, but one possibility suggested by the Swedish blogger Cornucopia (Lars Wilderäng) is that this gold is being stored in the recently built Riksbank cash management building beside Stockholm’s Arlanda International Airport, a building which was completed in 2012.
On its website, the Riksbank states that its 125.7 tonnes of gold “is equivalent to around 10,000 gold bars”. A rough rule of thumb is that 1 tonne of gold consists of 80 Good Delivery Bars. These Good Delivery Gold gold bars are wholesale market gold bars which, although they are variable weight bars, usually each weigh in the region of 400 troy ounces or 12.5 kilograms. Hence 125.7 tonnes is roughly equal to 125.7 * 80 bars = 10,056 bars, which explains where the Riksbank gets its 10,000 gold bar total figure from.
Using Gold for Foreign Exchange Interventions
On another page on its web site titled ‘Gold and Foreign Currency Reserve’, the Riksbank is surprisingly open about the uses to which it puts its gold holdings, uses such as foreign exchange interventions and emergency liquidity:
“The gold and foreign currency reserve can primarily be used to provide emergency liquidity assistance to banks, to fulfil Sweden’s share of the international lending of the International Monetary Fund (IMF) and to intervene on the foreign exchange market, if need be.”
This is not a misprint and is not a statement that somehow only applies to the ‘foreign currency reserve’ component of the reserves, since the same web page goes on to specifically say that:
“The gold can be used to fund emergency liquidity assistance or foreign exchange interventions, among other things.”
Therefore, the Riksbank is conceding that at least some of its gold is actively used in central bank operations and that this gold does not merely sit in quiet unencumbered storage. On the contrary, this gold at times has additional claims and titles attached to it due to being loaned or swapped.
When the Riksbank revealed its gold storage locations back in October 2013, this news was covered by a number of Swedish media outlets, one of which was the Stockholm-based financial newspaper Dagens Industri, commonly known as DI. DI’s article on the topic, published in Swedish with a title translated as “Here is the Swedish Gold“, also featured a series of questions and answers from personnel from the Riksbank asset management department. Some of these answers are worth highlighting here as they touch on the active management of the Swedish gold and also the shockingly poor auditing of the Swedish gold.
In the DI article, Göran Robertsson, Deputy Head of Riksbank’s asset management department, noted that historically the Swedish gold was stored at geographically diversified locations for security reasons, but that this same geographic distribution is now primarily aimed at facilitating the rapid exchange of Swedish gold for major foreign currencies, hence the reason that nearly half of the Swedish gold is held in the Bank of England gold vaults – since the Bank of England London vaults are where gold swaps and gold loans take place.
Robertsson noted that over the 2008-2009 period,50 tonnes of gold Swedish gold located at the Bank of England was exchanged for US dollars:
“London is the dominant international marketplace for gold.We used the gold 2008-2009 during the financial crisis when we switched it to the dollar we then lent to Swedish banks”
One of these Riskbank gold-US Dollar swap transaction was also referenced in a 2011 World Gold Council report on gold market liquidity. This report stated that in 2008 following the Lehman collapse:
“In order to be able to provide liquidity to the Scandinavian banking system, the Swedish Riksbank utilised its gold reserves by swapping some of its gold to obtain dollar liquidity before it was able to gain access to the US dollar swap facilities with the Federal Reserve.”
In the October 2013 DI interview, Göran Robertsson also noted that at some point following this gold – dollar exchange, “the size of the reserve was restored“, which presumably means that the Riksbank received back 50 tonnes of gold. As to whether the restoration of the gold holdings was the exact same 50 tonnes of gold as had been previously held (the same gold bars) is not clear.
Sophie Degenne, Head of the Riksbank’s asset management department, also noted that:
“The main purpose of the gold and foreign exchange reserves is to use it when needed, as in the financial crisis”
Auditing of the Swedish Gold
On the subject of so-called transparency and auditing of the gold, Sophie Degenne said the following in the same DI interview:
“Why do you reveal at which central banks the gold is located? It is a part of the Riksbank endeavours to be as transparent as we can. We have engaged in dialogue with the relevant central banks”
How do you verify that the gold is really where it should be? “We have our own listings of where it is.We reconcile these against extracts that we receive once a year.From now on, we will also start with our own inspections.”
Therefore, the Riksbank gold auditing procedure at that time was one of merely comparing one piece of paper to another piece of paper and in no way involved physically auditing the gold bars in any of the foreign locations. These weak audit methods of the Swedish gold were first highlighted by Liberty Silver CEO, Mikael From in Stockholm-based news daily Aftonbladet’s coverage of the Swedish gold storage locations in an article in early November 2013 titled “Questions about Sweden’s gold reserves persist“.
In Aftonbladet’s article, Mikael From stated that while it was welcome that the Riksbank was at that point signalling an ambition to inspect the Swedish gold reserves, it was not clear that the Riksbank would be conducting a proper audit of the gold reserves at the time of inspection, although such a proper audit would be highly desirable. Mikael stated that without such a proper audit, and without witnessing the gold with their own eyes, the Riksbank and the Swedish State could not be certain that the Swedish gold actually existed.
Turning now to the questions which I posed to the Swedish Riksbank in early February 2017 about its gold reserves. I asked the Riskbank two basic and simple questions as follows:
“I am undertaking research into central bank gold reserves, including the gold reserves held by the Riksbank at its 5 storage facilities.
1. Are the gold bars held by the Riksbank in its foreign storage facilities physically audited by the Riksbank (i.e. stored at Bank of England, Bank of Canada, Federal Reserve New York and Swiss National Bank)? In other words, does the Riksbank have a physical audit program for this gold?
2. Secondly, would the Riksbank be able to send me a gold bar weight list which shows the gold bar holdings details for the 125.7 tonnes of gold held by the Riksbank. A weight list being the industry standard list showing bar brand (refiner), serial number, gross weight, fineness, fine weight etc.
A few days after I submitted my questions, the Presschef/Chief Press Officer of the Riksbank responded as follows. On the subject of auditing:
“Answer 1: Yes, the Riksbank performs regularly physical audits of its gold.“
In response to the question about a gold bar weight list, the Chief Press Officer said:
Answer 2: The Riksbank publishes information about where the gold is stored and how much in tonnes is at each place. See table (same distribution table as above). However, the Riksbank does not publish weight lists or other details of the gold holdings.“
So here we have the Riksbank claiming that it personally now performs physical audits of its gold on a regular basis. This is the first time in the public domain, as far as I know, that the Riksbank is claiming to have undertaken physical gold audits of its gold holdings, and it goes beyond the 2013 statement from the Riksbank’s Sophie Degenne when she said “we will also start with our own inspections“.
But critically ,there was zero proof offered by the Riksbank to me, or on its website, that it has undertaken any physical gold audits. There is no documentation or evidence whatsoever that any physical audits have ever been conducted on any of the 10,000 gold bars in any of the 5 supposed storage locations that the Riksbank claims to store gold bars at. Contrast this to the bi-annual physical audits which are carried out on the gold bars in the SPDR Gold Trust (GLD) which are published on the GLD website.
In any other industry, there would be an outcry and court cases and litigation if an entity claimed it had conducted audits while offering no proof of said audits. However, in the world of central banking, perversely, this secrecy is allowed to persist. This is outrageous to say the least and Swedish citizens should be very concerned about this lack of transparency of the Swedish gold reserves.
Official Secrecy about Swedish Gold Reserves
Given the brief and not very useful Riksbank responses to my 2 questions above, I sent a follow on email to the Riksbank asking why the Swedish central bank did not publish a gold bar weight list. My question was as follows:
“Is there any specific reason why the Riksbank does not publish a gold bar weight list in the way, for example, that a gold-backed ETF does publish such a weight list every trading day?
i.e. Why is the Riksbank not transparent about its gold bar holdings?”
This second email was answered by the Riksbank Head of Communications, as follows:
“This kind of information is covered by secrecy relating to foreign affairs, as well as security secrecy and surveillance secrecy in accordance with the relevant provisions in the Swedish Public Access to Information and Secrecy Act.
As far as we are aware of, the Riksbank is among the most transparent central banks, being public with information about the storage locations and volumes, but do let us know if any other central banks are offering the level of transparency you are asking for (except for Germany of course, which we are aware about).”
So here you can see here that gold, which in the words of the Wall Street Journal is just a ‘Pet Rock’, is covered by some very strong secrecy laws in Sweden. Why would a pet rock need ultra strong secrecy laws?
An explanatory document on Sweden’s “Public Access to Information and Secrecy Act” can be accessed here. In Sweden, the rules governing public access to official documents are covered by the Freedom of the Press Act. While its beyond topic to go into the details of Swedish secrecy laws right now, there is a short section in the document titled “What official documents may be kept secret?” (Section 2.2) which includes the following:
“The Freedom of the Press Act lists the interests that may be protected by keeping official documents secret:
National security or Sweden’s relations with a foreign state or an international organisation;
The central financial policy, the monetary policy, or the national foreign exchange policy;
Inspection, control or other supervisory activities of a public authority;
The interest of preventing or prosecuting crime;
The public economic interest;
The protection of the personal or economic circumstances of private subjects; or
The preservation of animal or plant species.
Given that the Riksbank stated that the information in its gold bar weight lists was “covered by secrecy relating to foreign affairs, as well as security secrecy and surveillance secrecy”, I would hazard a guess that the Riksbank would try to reject Freedom of Information requests in this area by pointing to central bank gold storage and gold operations as falling under points 1 or 2, i.e. falling under national security or relations with a foreign state or international organisation, or else monetary policy / foreign exchange policy (especially given that the Riksbank uses gold reserves in its foreign currency interventions). Perhaps the Riksbank would also try to twist point 5 as an excuse, i.e. that it wouldn’t be in the public economic interest to release the Swedish gold bar details.
As to why the Riksbank and nearly all other central banks are ultra secretive about gold bar weight lists and even physical auditing of gold bar holdings usually boils down to the fact that, like the Riksbank, these gold bar holdings are actively managed and are often used in gold loans, gold swaps and even gold location swaps. If identifiable details of the gold bars of such central banks were in the public domain, given that these bars are involved in loans, currency swaps and location swaps, these gold bar details could begin to show up in the gold bar lists of other central banks or of the gold bar lists of publicly listed gold-backed Exchange Traded Funds. This would then blow the cover of the central banks which continue to maintain the fiction that their loaned and swapped gold is still held in unencumbered custody on their balance sheets, and would blow a hole in their contrived and corrupt accounting policies.
A Proposal to the Oldest Central Bank in the World
Since the Riksbank happened to ask me were there any central banks “offering the level of transparency [I was] asking for” i.e. providing gold bar weight lists, I decided to send a final response back to the Riksbank in early March highlighting the central banks that I am aware of that have published such gold bar weight lists, and I also took the opportunity of proposing that the Riksbank should follow suit in publishing its gold bar weight list. My letter to the Riksbank was as follows:
“You had asked which central banks offered a level of transparency on their gold holdings that include publication of a gold bar weight list. Apart from the Deutsche Bundesbank, which you know about, I can think of 3 central banks which have released weight lists of their gold bar holdings.
The 3 examples below (together with the Bundesbank) show that some of the most important central banks and monetary authorities in the world have now deemed it acceptable to include the release of gold bar weight lists as part of their gold communication transparency strategies.
The 4 sets of weight lists below include gold bar holdings at the Bank of England (stored by Mexico, Australia, Germany), and at the Federal Reserve Bank of New York (stored by the US Treasury and Bundesbank). Together these two storage locations account for 60% of the Riksbank’s gold holdings (74.6 tonnes).
The Riksbank is the world’s oldest central bank and has a long track record of being progressive and transparent. By releasing the Riksbank’s gold bar weight lists for the gold bars stored over the 5 storage locations (London, New York, Ottawa, Berne and in Sweden), the Swedish central bank would be joining an elite group of central banks and monetary institutions that could be considered the early stage adopters of much needed transparency in this area.”
The RBA list includes refiner brand, gross weight, assay (fineness), and fine weight, as well as bank of England account number.
3. US Treasury
In 2011, the US Treasury’s full detailed schedules of gold bars was published by the US House Committee on Financial Services as part of submissions for its hearing titled “Investigating the Gold: H.R. 1495, the Gold Reserve Transparency Act of 2011 and the Oversight of United States Gold Holdings”.
These US Treasury weight lists are as follows, and are downloadable from the financial services section of the “house.gov” web site.
Weight list of all Treasury gold held at Fort Knox, Denver and West Point – 699,515 bars – pdf format
The Bundesbank list show all the German gold bars held at the Bank of England, NY fed and Banque de France as well as in Frankfurt.”
As of now, the Swedish Riksbank has a) not published a gold bar weight list of any of its gold bar holdings and b) not acknowledged my follow up email where I listed the central banks that have produced such lists and suggested that the Riksbank do likewise.
The Swedish Riksbank claims to hold 10,000 large Good Delivery gold bars in 5 locations across the world and now claims to have conducted physical gold audits of this gold. Yet it has never published any physical gold audit results of any of these gold bars nor published any of the serial numbers of any of the 10,000 gold bars it claims to have in storage. For a so-called progressive democracy this is shocking, although not surprising given the arrogant and unaccountable company that central bankers keep with each other.
If someone with time on their hands, ideally a Swedish citizen, has an interest in this area, it would be worthwhile for them to research the rules of the Swedish Freedom of Information Act, and then craft a few carefully worded Freedom of Information requests to the Riksbank requesting physical audit documents and gold bar weight lists of Sweden’s 125.7 tonnes of gold that is supposedly held in London, New York, Ottawa, Berne and in Sweden, possibly in or around Stockholm or beside Arlanda airport.
While these Freedom of Information requests would probably get rejected due to some spurious secrecy excuse and thrown back at the applicant in short order, at least its worth trying, and might make a good story for one of the Swedish financial newspapers to cover.
This article and a sequel article together chronicle a long-running investigation that has attempted, with limited success to date, to establish a number of basic details about Ireland’s official monetary gold reserves, basic details such as whether this gold is actually allocated, what type of storage contract the gold is stored under, and supporting documentation in the form of a gold bar weight list. Ireland’s gold reserves are held by the Central Bank of Ireland but are predominantly stored (supposedly) with the Bank of England in London.
At many points along the way, this investigation has been hindered and stymied by lack of cooperation from the Central Bank of Ireland and the Irish Government’s Department of Finance. Freedom of Information requests have been ignored, rejected and refused, and there has also been outright interference from the Bank of England. Many of these obstacles are featured below and in the sequel article.
6 Tonnes of Gold
Ireland ‘only’ owns 6 tonnes of gold in its monetary reserves, which is a fraction of the gold holdings that many of the large European central banks are said to hold. For such a small holding, it may be surprising that basic details of the Irish gold remain a closely guarded secret. However, it’s worth remembering that Ireland is a member of the Eurozone, that the Central Bank of Ireland is a member bank of the European Central Bank (ECB), and that the Irish gold is (supposedly) stored at the Bank of England vaults. Given the clubs that the Central Bank of Ireland is in or is a part of, it is arguably ECB policy and Bank of England policy on gold secrecy which primarily dictates what the Central Bank of Ireland is allowed to say or not to say about the Irish gold reserves.
But don’t forget though that central bankers in general, and Irish central bankers included, are an arrogant and narcissistic bunch who consider themselves immune from having to answer to anyone other than themselves and sometimes their governments. Furthermore, the out of control arrogant culture and ‘cult’ of independence of these organisations also explains their disdain for public discourse, especially on a topic as highly sensitive to them as monetary gold.
For many years Ireland held 14 tonnes in its monetary gold reserves. This remained the case until the end of 1998. In January 1999, as part of Eurozone foreign exchange transfers to the newly established ECB, the Central Bank of Ireland transferred 8 tonnes of gold to the ECB at the birth of the Euro, leaving it as the guardian of just 6 tonnes of gold. This 6 tonne holding has remained static ever since, at least at a reporting level. Most of this 6 tonnes of gold is supposedly stored at the Bank of England in London in the form of gold bars. A small residual of the 6 tonnes is held in the form of gold coins and stored at one of the Central Bank of Ireland sites in Dublin.
Central Bank Act (1942) and FOI Acts
The Central bank of Ireland was established via “The Central Bank Act, 1942″ which states that:
“The Bank is a state corporation established under Statute (the 1942 Act) wherein its capital is held by the Minister. The Minister for Finance is the sole shareholder of the Bank.“
In Ireland, the Minister for Finance heads up the Department of Finance and this Minister is also a member of the Cabinet, i.e. the Government or Executive branch. The current Minister for Finance is Michael Noonan who has held this position since March 2011.
Freedom of Information requests in Ireland were introduced in Ireland by the relatively recent Freedom of Information (FOI) Act 1997 which was enacted by a coalition government and which advanced the concepts of transparency and openness in government records and cabinet meetings etc. However, the powers of this 1997 Act were diluted somewhat by a 2003 Amendment to the 1997 Act which aimed to row back on some of the advances of the 1997 Act and which introduced fees for submitting FOI requests.
I first examined the Irish gold reserves in August 2011. At that time the FOI Act covered government departments such as the Department of Finance, but not the Central Bank of Ireland. A subsequent FOI Act of 2014 replaced the 1997 FOI Act and the 2003 FOI Amendment, and also extended the coverage of FOI requests to all public bodies including the Central Bank of Ireland. The 2014 Act (in section 42 and Schedule 1 ) specifies a number of exemptions for certain types of information of certain types of public bodies including a few exemptions for certain types of central bank information. A government website http://foi.gov.ie summaries the basic framework for FOI’s in Ireland. An independent Office of the Information Commissioner (OIC) also exists to review decisions made by public bodies in relation to the FOI.
At the time in 2011, I began noticing the difficulties which gold researchers in other countries were having in obtaining basic information from their central banks about other countries’ gold reserves, and I thought that going through an investigative process with the Irish equivalent might prove easier to navigate given that the Irish gold holdings were far smaller, and given that the Central Bank of Ireland is not exactly as big as the behemoths of the Bundesbank or Banque de France, and so might be more approachable. However, what the process ended up proving was exactly what others had experienced, that the subject of monetary gold reserves is a subject which central banks do their utmost not to discuss any real details of.
This investigative summary into Ireland’s gold reserves is divided into 2 parts. Part 1 here details all of the investigations submitted to the Department of Finance and Central Bank of Ireland prior to my submission of a FOI request to the Central Bank of Ireland in 2015. The Central Bank of Ireland became subject to Freedom of Information requests in 2014 after the FOI Act of 2014 was enacted.
Part 2 looks at the FOI submitted to the Central Bank of Ireland in 2015, how this was rejected, and how it was then appealed and became ‘partially’ successful. I have redacted certain information in emails and FOI letters such as names of FOI officers and various addresses and phone numbers.
2011 – Central Bank First Refusal
The saga began on 26th August 2011 with an email to the Central Bank of Ireland posing a number of seemingly innocuous questions about Ireland’s gold reserves. My questions were as follows:
“Could you clarify a number of points on the gold holdings of the Central Bank of Ireland.
Note 10 on page 98 of the Bank’s 2010 annual report states that ‘Gold and gold receivables represent coin stocks held in the Bank, together with gold bars held at the Bank of England’.
Of the Central Bank of Ireland’s bars held at the Bank of England, could you clarify if any of this holding is swapped or loaned out or has any other receivable status recorded against it, and if so, what percentage? Additionally, is this held in an allocated account and do you have a gold bar list for the custody that you can provide?”
The Central Bank of Ireland responded a week later on 01 September 2011:
We received your query in connection with gold custody, please find our response below.
The notes to our accounts confirm the locations at which the Central Bank of Ireland maintains its Gold Holdings. The Bank is not, however, in a position to provide further information nor to outline its investment strategy in relation to the Gold Holdings.
Trusting this is our assistance to you.”
Knowing at that time that the FOI Act did not cover the Central Bank of Ireland but did cover the Irish Government’s Department of Finance, I emailed the (independent) Office of the Information Commissioner in September 2011 and asked if they thought that a FOI request to the Department of Finance about a topic connected to the central bank would be within the scope of FOI coverage given that the central bank itself was not covered by the Act at that time.
The Office of the Information Commissioner replied to me on 20 September 2011 and advised me as follows:
“you should contact the FOI Central Policy Unit of the Department of Finance for advice in relation to whether or not certain information might be releasable or not under the FOI Acts. Their email address is: firstname.lastname@example.org”
The same day I sent the following email to the Department of Finance FOI CPU:
“I have a hypothetical question regarding a FOI to the Department of Finance, on a matter that might refer to the Central Bank. The scenario would be as follows:
If I made a FOI request to the Department of Finance on a topic that included correspondence between the Department of Finance and the Central Bank, would the information released to me still include items on the Department of Finance side that might reference the Central Bank, or would references or communications with the Central Bank exclude that particular document or communication from the FOI response.”
The Department of Finance FOI CPU responded same day:
Under the Freedom of Information Act, the decision to grant or not grant records lies with the decision maker in the organization that holds the records. The Central Bank does not come under the remit of Freedom of Information. More information can be found at www.foi.gov.ie;”
Slightly cryptic and not very helpful, so I decided to submit a FOI request to the Department of Finance.
Department of Finance – Irresponsible or Incompetent?
On 8 November 2011, I submitted the following FOI request to the Department of Finance:
“Please direct this email to FOI officer XXXX XXXXXXX, or the appropriate FOI officer at the Department of Finance.
I would like to make the following request under the FOI Act.
In accordance with the Freedom of Information Act, I request access from the Department of Finance of all records and correspondence between 1997 and 2011 relating to:
The Irish State’s gold reserves managed by the Central Bank of Ireland, which are custodied at the Bank of England
The investment strategy of the State’s gold reserves
The Irish State’s gold reserves transferred to the ECB between 1999 and 2011″
More than four weeks later I had still not received either an acknowledgement or a response from the Department of Finance about my FOI submission. Under the Irish FOI Acts, a lack of reply within 4 weeks of your initial application is deemed a refusal of your request and allows you to seek to have the refusal decision re-examined.
On 13 December 2011, I sent the following email to the Department of Finance FOI unit:
“Since you have not sent me a decision on my FOI request within the four-week deadline as stipulated by the Office of the Information Commissioner, and I note that I did not receive a reply or even an acknowledgement, this issue has now become a “refusal of my FOI request by non-reply” and I wish to escalate this as an ‘internal review’.
Can you confirm receipt of this internal review request immediately or I will be informing the Office of the Information Commissioner of this matter by end of day tomorrow.”
Two days later the Department responded as follows with what can only be described as an incredible excuse:
“Thank you for your e-mail and apologies for the delay in processing your case. Unfortunately the FOI Officer in the division has been out for sometime. If you could give me a call on 669xxxx we can go through it. Requests are processed on receipt of a €15.00 fee. I am not quite sure what happened in your case but I am happy to discuss it further with you. I am in the Office in the mornings only.
Kind regards, Xxxxxxx Xxx, FOI Unit, Extn xxxx
To which I replied:
“What happened is that no one responded to me within the four-week timeframe and I have informed the Office of the Information Commissioner of this lack of coverage at your department. If an FOI officer is unavailable, there has to be an alternative officer available. That is part of the OIC guidelines. That is why I also stated in my original email that the request was to “FOI officer Xxxx Xxxxxxx, or the appropriate FOI officer”.
As per the FOI Acts, “A person should be available to handle queries from members of the public in each organisation.”
Additionally, since your department hosts the FOI Central Policy Unit [for the entire Irish Government], I find it hard to believe that you don’t have multiple FOI officers.
So I would like a full explanation of why my request was ignored and a fee waiver since I have been waiting for over 5 weeks now.”
On 20 December 2011, just before Christmas, I received a phone call from a FOI officer at the Department of Finance. The FOI Officer told me, and I quote the conversation, since I jotted it down:
“there are no records or correspondence of gold reserves. I talked to various people in the Department and they told me to tell you there are no records. They said responsibility for gold reserves was transferred to the central bank prior to 1999.”
The FOI Officer said she would send a letter confirming this, and said that I could appeal, and that “a principal officer will check the type of searches undertaken”.
The next day, an email from the same FOI Officer arrived which stated:
“Further to our telephone conversation. A request for Internal Review has to be submitted to this Office within 15 days of receipt of our letter. The cost of an Internal Review is €75. The letter will issue to-morrow.”
Your request was received by email in this Department on 9th November. I as the deciding officer have today made a final decision on your request. I may be contacted by telephone. The delay in responding to your request is regretted.
I regret to inform you that a search of the Department has not yielded any of the records sought by you. Consequently I must refuse your request in accordance with section 10(1)(a) of the FOI Act.
…Right of Appeal (as above)”
Given that I had no confidence in a Department of Finance internal review finding anything after being told on the phone that “they told me to tell you there are no records“, I did not see the point of wasting €75 in confirming this with an internal review. As an aside, unless an internal review is pursued, the independent Information Commissioner cannot normally review the FOI. As the Office of the Information Commissioner told me when I reported the Department of Finance shenanigans to them:
“Under the terms of the FOI Acts, requesters must, apart from a number of exceptional circumstances, avail of their right to seek internal review by the public body before the Commissioner can review the matter.
If after three weeks (15 working days) you have received no internal review decision, or if you are not satisfied with the internal review decision that the Department issues, you can then apply to this Office for a review of your case by the InformationCommissioner.”
However, for a number of reasons, it’s quite unbelievable that the Irish Department of Finance would have zero records or correspondence about the Irish gold reserves.
Firstly, it was only a few months earlier on 16 June 2011, in Dáil Éireann (the Irish Parliament), that the very head of the Department of Finance, the Minister for Finance, Michael Noonan, in answer to a parliamentary question, stated that he had been “informed by the Central Bank that the value of gold and gold receivables held by the Bank at the end of 2010 was some €203.792 million (€147.975 million at end-2009)”. To wit:
Deputy Seamus Kirk asked the Minister for Finance if the suggestion that gold profits in the EU central banks should be used to tackle the debt crisis in the peripheral countries in the eurozone such as Greece, Portugal and Ireland; and if he will make a statement on the matter. [15924/11]
Minister for Finance (Deputy Michael Noonan):I am informed by the Central Bank that the value of gold and gold receivables held by the Bank at the end of 2010 was some €203.792 million (€147.975 million at end-2009). Gold is valued at the closing market price and securities at mid-market closing prices at year-end. The increase in the balance sheet entry for the value of the Bank’s gold holdings at end-2010 is due to the change in the market value of gold during the year.
Note that Noonan did not say that he or one of his juniors had looked in the central bank’s annual report. He said that he was informed by the central bank. If Noonan was informed by the central bank, this would have to have been documented in Department of Finance files as part of official departmental and parliamentary business. If these files don’t exist as the FOI response from the Department of Finance claimed, then it would indicate that the Department of Finance engages in sloppy record keeping and operates in an unprofessional and irresponsible manner. If files do exist about Noonan’s interactions with the central bank concerning the gold reserves, it shows that the Department of Finance had records about Irish gold reserves and lied when they said to me that they didn’t.
More fundamentally, the Irish Nation and people of Ireland essentially entrust to the care of the Irish State and it’s Department of Finance, the Nation’s gold reserves. In turn, the Department of Finance employs the Central Bank of Ireland as an agent or custodian, and so the Central Bank of Ireland is answerable to the Minister for Finance on these gold reserves. Also, the Bank of England is (on paper) acting as sub-custodian (or maybe deposit taker) to the Central Bank of Ireland.
The FOI response and phone call from the Department of Finance stating that it had no record whatsoever of the Irish gold reserves, no records of how these reserves are managed, and no records of the gold transferred to the ECB, if true, indicates complete lack of oversight by the Irish Government and Department of Finance into an important component of Ireland’s foreign exchange reserves, and indicates a complete dereliction of due diligence over a substantial monetary asset of the Irish State.
2012 – Central Bank Second Refusal
The Central Bank of Ireland annual report is usually published in late April of the year following financial year-end. After the 2011 Central Bank of Ireland Annual Report was published in late April 2012, I decided in May 2012 to submit some additional questions about the gold reserves to the central bank in the hope that whoever answered might be more cooperative than the previous non-cooperative individual in September 2011 (see above).
On 24 May 2012, after reading the relevant sections of the annual report and establishing how the auditors and bank staff prepared the annual accounts in relation to the balance sheet items, I posed the following seven specific and reasonable questions about the Irish gold reserves to the email@example.com email address of the central bank:
“Hello, I have some questions on an item in the annual accounts 2011 Central Bank of Ireland annual report.
Item 1 in the balance sheet on page 98 as of 31 December 2011 lists “Gold and gold receivables“ of € 234,967,000. Note 10 to the accounts on page 112 states that “Gold and gold receivables represent coin stocks held in the Bank, together with gold bars held at the Bank of England“.
Given that the valuation difference in this line item between 2010 and 2011 represents an increased gold price and no holding increase, the 2011 valuation represents approximately 193,000 fine troy ounces, which is equivalent to 6 fine troy tonnes, or about 485 london good delivery bars.
My questions are as follows –
Is the Central Bank of Ireland bar gold held at the Bank of England on a specific bar basis or a fine ounce basis?
Is the Central Bank of Ireland bar gold held at the Bank of England earmarked in a set-aside account or is it construed as a gold deposit?
Is the Central Bank of Ireland bar gold held at the Bank of England held under a contract of bailment (with the Central Bank of Ireland as bailor and the Bank of England as bailee), or is the relationship a creditor/debtor relationship?
Is the Central Bank of Ireland bar gold held at the Bank of England beneficially and legally owned by the Central Bank of Ireland free and clear of liens, charges, encumbrances, claims or defects?
Is any of the Central Bank of Ireland bar gold held at the Bank of England currently loaned or swapped out to the Bank of England or other parties?
Given that the quantity of the Central Bank of Ireland bar gold held at the Bank of England did not vary between 2010 and 2011, what verifications and checks did the members of the Central Bank Commission use for gold and gold receivables when preparing the 2011 Statement of Accounts?
And finally, given that the quantity of the Central Bank of Ireland bar gold held at the Bank of England did not vary between 2010 and 2011, what sources of material did the Comptroller and Auditor General use for verification of gold and gold receivables in his audit of the 2011 accounts?”
On 12 June 2012, the Central Bank of Ireland responded as follows:
“Thank you for your email request of 24th May 2012 to our Publications email address . As I do not have a postal address for you, I am responding by this email.
I can inform you that the gold bars held by the Central Bank of Ireland are held in safe custody at the Bank of England.
It is not Bank policy to enter into financial/commercial detail (beyond that contained in the Bank’s Annual Report & Accounts) relating to these or other financial assets that are held. You will note that the Bank’s external auditors have certified that its statement of Accounts gives a true and fair view of the Bank’s affairs.
Xxxxxxx Xxxxxxx, Strategy, Planning & Publications, General Secretariat Division”
On the same day, 12 June 2012, I sent a follow-up email to the central bank employee from this Strategy, Planning & Publications group.
“Dear Mr Xxxxxxx,
Thank you for your reply. Could you direct me to the published Bank Policy, statutory, compliance or otherwise, that covers Bank discussion of its financial assets and investments, so that I can relate this policy to my questions?“
On 20 June 2012, I received a reply from this individual:
“Dear Mr Manly, Thank you for your email of 12th June 2012.
The Bank’s management and staff comply with an employment provision that the Bank’s business must not be disclosed, or discussed with, outside parties.
The duties and obligations of management and staff in this regard are governed by Section 33AK of the Central Bank Act, 1942 (as inserted). All staff are given copy of this Section on appointment and are required to familiarise themselves with its provisions and to comply with them at all times.
Xxxxxxx Xxxxxx, Strategy, Planning & Publications, General Secretariat Division”
Section 33AK of the Central Bank Act of 1942 is a long and restrictive section that was only inserted into Act in 2003. It details specific circumstances of the central bank not disclosing confidential information, one part of which relates to:
“any matter arising in connection with the performance of the functions of the Bank or the exercise of its powers”
Importantly, Section 33AK of the Central Bank Act of 1942 has been routinely criticised in Ireland as a ridiculous secrecy cop-out by the Department of Finance and Central Bank to allow them not to answer all manner of questions in relation to the activities of the central bank, for example it has been used by the Minister of Finance to avoid discussing multiple issues related to Ireland’s economic collapse and subsequent bail-outs. The frequent abuses of Section 33AK were succinctly summed up in an Irish bailout blog in 2013 in an article titled “Is 33AK undermining the banking sector in Ireland?“:
“Section 33AK had never been mentioned by Minister Noonan before November 2012, but 33AK is now routinely used by Minister Noonan to tell pesky TDs (Members of Parliament) to “get lost” when they try to ask important questions about the banking sector…”
“No doubt the mandarin discoverer of Section 33AK in the Department of Finance is regularly patted on the back, but for the sake of our Republic, shouldn’t this legislation be repealed?”
“primarily from the obligations of ‘professional secrecy’ that arise as a result of certain EU law obligations contained within what were previously called the Supervisory Directives and are now called the supervisory EU legal acts”.
In my opinion, this invocation of Section 33AK by the above mentioned Central Bank of Ireland employee of the Strategy, Planning & Publications group to decline answering simple questions about Ireland’s gold reserves and the central bank’s published financial statements is pure obstruction, it is an abuse of power, it is an abuse of the legislation, it is an outrage, it has nothing to do with the EU, and it goes far beyond the meaning of the legislation’s original intention.
Freedom of Information Act (2014) – A New Hope
In October 2014, the Irish President signed the Freedom of Information Act (2014) into law. This repealed and replaced the FOI Acts of 1997 and 2003. The FOI Act (2014) extended “FOI bodies” to “all Public Bodies” unless specifically exempted. Exemptions were either full or partial. Importantly, the Central Bank of Ireland was included under the FOI Act (2014) but with partial exemptions. But for new public bodies (with exemptions), the Act only covers access to information and records created from 21 April 2008 onwards.
Part 2 of this article (forthcoming) details a FOI request about the Irish gold reserves that I made to the Central Bank of Ireland in the 2015 on the back the introduction of this updated FOI Act. As you will see, the central bank deciding officer initially refused all parts of my request and even liaised with the Bank of England on a number of occasions where they discussed by FOI request. That refusal contained such gems as:
“the release of detailed information regarding the gold bars held at the Bank of England on behalf of the Central Bank of Ireland could have a serious, adverse effect on the financial interests of the State”
“‘the record concerned [a gold bar weight list] does not exist or cannot be found after all reasonable steps to ascertain its whereabouts have been taken,’
I appealed this FOI refusal. The appeal was partially successful in producing some very limited details of the supposed Irish gold reserve holdings, including at the Bank of England and gold coins within storage in Dublin, Ireland. Full details in Part 2.
Earlier this year, the director of marketing and sales at the Austrian Mint confirmed to Bloomberg in an interview that the Mint’s combined gold bar and gold coin sales in 2015 had totalled 1.32 million troy ounces, a 45% increase on 2014, while the Mint’s silver sales in 2015 had reached 7.3 million ounces, a figure 58% higher than in 2014.
Since Münze Österreich, or the Austrian Mint in English, only publishes its annual report in July of each year, we had to wait a few months to see the granular details behind these sales numbers. Now that the Austrian Mint’s 2015 Annual Report has been published, the detailed sales figures are as follows.
Gold Philharmonics – 23.5 tonnes
In 2015, the Austrian Mint sold 756,200 troy ounces (23.52 tonnes) of Vienna Philharmonic gold coins, of which 647,100 troy ounces (20.18 tonnes) were in the form of its flagship 1 oz Vienna Philharmonics, with the remainder comprising ½ oz, ¼ oz, 1/10 oz and 1/25 oz gold Philharmonic coins, as well as a handful of the Mint’s very large 20 oz gold Philharmonics. Gold Philharmonic sales in 2015 were 56% higher than comparable sales of 483,700 ozs in 2014, and were also higher than 2013’s figure of 652,600 ozs.
Philharmonic gold coin sales in 2015 were the third best year on record, just slightly lower than 2008’s total sales of 795,000 ozs, but still well short of 2009’s bumper sales total of 1,036,000 ozs, when that year’s finanical crisis was in full flight.
Gold Bars – 16.3 tonnes
Turning to gold bars, the Mint sold 524,722 troy ounces (16.32 tonnes) of its branded gold bars in 2015, over half of which comprised sales of 1 kg, 500 gram and 250 gram gold bars. The 2015 gold bar sales were nearly 28% higher than 2014 gold bar sales of 410,300 ozs, but slightly less than 2013’s comparable sales of 711,200 ozs.
In addition to gold Philharmonic coins and gold bars, the Austrian Mint also produces a series of historic re-strikes of original Austrian circulation gold coins in the form of gold ducats, gold guilders and gold crowns. In 2015, sales of these gold re-strike coins, mostly ducats, accounted for 37,700 troy ounces of gold (1.17 tonnes), which was a 128% increase on the previous year’s sales of 16,500 ozs.
Overall, in 2015, the Austrian Mint sold gold coins (Philharmonics and historic coins) and gold bars containing 1,318,700 ozs (41 tonnes) of gold. In 2015, the gold Vienna Philharmonic’s largest markets were Europe followed by Japan and North America, and notably the gold Philharmonic was the best-selling major gold bullion coin in both the European and the Japanese markets.
Looking at the long-term chart above, you can see that total gold sales (by volume) at the Austrian Mint during 2015 were noticeably higher than in 2014 and approached the gold sales figures of 2013, however they were still below the multi-year high sales figures from 2008, 2009 and 2011. Notice also that for the last 8 years there has been a trend of the Austrian Mint’s gold sales following a high one year, lower the next year pattern, possibly due to risk on / risk off sentiment among gold investors depending on how the general financial markets were performing.
Silver Philharmonics – Strong North American sales
As the Austrian Mint does not fabricate silver bars, the Mint’s silver bullion sales are exclusively from the silver coins it produces, specifically the 1 ounce silver Vienna Philharmonic coin. In 2015, the Mint sold 7.3 million silver bullion coins containing 227 tonnes of silver. The largest markets for the Mint’s silver coin sales in 2015 were North America, followed by Europe. Silver sales in 2015 were also notable in that it was the first time that the Mint’s silver coins sales in the North American market surpassed those in Europe. Looking at a long-term chart of Austrian Mint silver sales, you can see that 2015 was a year of recovery following relatively low sales in 2014, which was partially due to an increase in VAT on silver sales in Germany in 2014.
The Mint’s silver coin range also includes historic re-strikes of a Maria Theresa Taler coin in uncirculated and proof editions. These coins contain 23.39 grams of pure silver (approximately 0.2 tonnes). These coin sales are classified separately from silver bullion coin sales and their sales are quite minimal. In 2015, sales of these Taler coins reached 9,777 pieces, slightly down on 2014’s sales of 11,470 pieces.
Gold Bullion Sales Drove Total Revenues
In terms of Austrian Mint revenues, gold bullion coins (gold Philharmonics) generated revenues of €788.9 million in 2015, up 70% on 2014’s €464.2 million. Gold Philharmonics were also 48.5% of total Mint revenues in 2015. Gold bar revenues of €547.3 million were 40% higher than in 2014, and accounted for another 34% of all Mint revenues. Silver coin sales in 2015 reached €111.3 million, 58% higher than in 2014. Adding revenues from gold coin re-strikes of €40.4 million, the total revenues from gold and silver coin products reached €1.37 billion, which was 84.7% of total Mint revenues for 2015.
In terms of revenues, annual gold sales at the Austrian Mint are far higher than its silver sales. In volume terms, the Austrian Mint also produces more gold products than its counterparts but far less silver products than its counterparts. So the Austrian Mint could be said to be a gold specialist.
For example, in 2015, and just looking at bullion coin sales, the US Mint sold gold bullion coins (American Eagles and American Buffalos) containing 31.8 tonnes of gold, but silver bullion coins (predominantly American Eagles) containing 1,495 tonnes of silver. Likewise, in 2015, the Royal Canadian Mint sold gold bullion coins (gold Maple Leafs) containing 29.6 tonnes of gold, and silver bullion coins (silver Maple Leafs) containing 1067 tonnes of silver.
Based on 2015 volumes sold of 227 tonnes of silver coins and 24.69 tonnes of gold coins, the Austrian Mint had a silver coin sales to gold coin sales ratio of only 9.19, whereas comparable ratios for the US Mint and Royal Canadian Mint were 47 and 36, respectively.
Non-bullion revenue at the Austrian Mint is generated by activities such as producing Euro circulation coins, and producing semi-finished products and medals. Non-bullion revenues accounted for €248 million or approximately 15% of total Mint revenues during 2015. Interestingly though, although the Mint does not report the geographic origin of its revenues on a segmented basis, it does report the share of revenue derived in Austria vs derived outside Austria. For 2015, €1.258 billion in revenue was generated in Austria vs €360.6 million internationally, meaning that international markets contributed only 22.3% of Mint revenues.
Therefore, the domestic Austrian market is still the Mint’s primary market in terms of bullion sales. In one way this is not surprising because the Austrian population has a very strong appetite for gold coin and gold bar products, especially gold products from the Austrian Mint in Vienna. The Mint’s gold coins and bars are sold widely throughout Austria in banks such as Bank Austria, the Raiffeisen banks, the Steiermärkische Sparkasse savings banks and through the Erste Bank und Sparkassen group, as well as through the retail branches of gold bullion wholesalers such as Schoeller Muenzhande, which is a fully owned subsidiary of the Austrian Mint. See BullionStar Gold University’s profile of the Austrian Gold Market for more details on the vast network of Austrian bank and wholesalers that sell physical gold coins and bars.
Within the world of central bank and government gold reserves, there is often an assumption that these gold holdings consist entirely of gold bullion bars. While this is true in some cases, it is not the fully story because many central banks and governments, such as the US, France, Italy, Switzerland, the UK and Venezuela, all hold an element of gold bullion coins as part of their official monetary gold reserves.
These gold coin holdings are a legitimate part of gold reserves since under International Monetary Fund (IMF) definitions, “monetary gold consists of gold coins, ingots, and bars”. In central banking parlance, monetary gold is simply gold that is held by a central bank or government as a reserve asset. Other central bank reserve assets include foreign exchange holdings and holdings of IMF Special Drawing rights.
Elsewhere in IMF definitions, it is stated that “monetary gold is generally construed to be at least 995/1000 pure.” Many government and central bank gold coin holdings consist of previously circulated gold coinage. Since gold coins often had – and still have – a purity of less than 99.5% gold due to the addition of other metals for added durability, this ‘generally construed’ leeway in the IMF definition is undoubtedly a practical consideration that allows gold coins to be classified as monetary gold.
Central banks and governments hold gold for the same reasons that private citizens hold gold. Gold is real money with no counterparty risk, gold is a store of value, and gold is a safe haven asset. In general, central banks and governments are as happy holding bullion in gold bar form as in gold coin form. This is because physical gold is physical gold, and a gold coin and a gold bar will both provide their holders with the same benefits and protections. Only the physical form differs. In practice, the types and quantities of gold coins held by central banks and governments are extensive and varied as a quick tour d’horizon reveals.
Starting with the largest official sector gold holders, 3 of the top 5 gold holding countries have substantial gold coin holdings in their claimed reserves. The Banque de France, the guardian of France’s gold reserves, holds 2435.4 tonnes of gold consisting of a massive 100 tonnes of gold coins, and 2,335 tonnes of gold bars. Of these gold coins, 45% are French gold coins (probably Napoleans) and 55% are foreign gold coins, some of which are from the US. In the past, the Banque de France had melted part of its gold coin holdings into gold bars without considering their potential numismatic value. But after finding some US 20 dollar gold coins were worth USD 20,000 a piece, the Bank’s current policy is to scrutinise every coin.
Banca d’Italia stores approximately half of Italy’s 2451.8 tonnes of gold under its headquarters in Rome, with most of the other half stored at the Federal Reserve in New York. Of the 1199.4 tonnes of Italian gold in Rome, Banca d’Italia states that it holds 4.1 tonnes of gold coins, in the form of 871,713 coins. This would give each gold coin an average gold content of 0.151 troy ounces. This hoard most likely includes historic gold Italian 10 Lira and 20 Lira coins.
The US Treasury, the official holder of the US gold reserves, claims to hold gold coins containing 73,829.5 fine ounces of gold (2.3 tonnes) in the custody of the Federal Reserve Bank of New York. While a small subset of these coins weighing 377.4 ounces is on display in New York, the remaining coins, containing 73,451 fine ounces of gold, are held in The New York Fed’s vault compartment K in 384 bags weighing a gross 80,855.70 ounces. These coins are all either 0.9 fine or 0.9167 fine gold. For details see page 132 here. These US Treasury held gold coins at the Fed are in addition to the 2,783,218.6 (86.5 tonnes) of gold coins that the US Treasury claims to hold within the US Mint’s working stock.
Venezuela’s gold holdings, which have practically all been sold off or swapped for foreign exchange recently, also contain gold coin holdings in the form of historic gold US Eagles, as well as gold US Liberty and ‘Indian Head’ coins (see page 17 here). Notably, the Venezuelan central bank says that these coins would have a numismatic premium valuation depending on their scarcity, design and condition. Given the ongoing and deteriorating economic situation in Venezeula, expect these gold coins to be either sold on the market or else melted down and shipped out of the country, probably to Switzerland.
Speaking of Switzerland, the Swiss National Bank (SNB) in its publications, says that its “gold holdings are mainly in the form of gold bars, with the remainder in gold coins“. The SNB doesn’t elaborate on what type of gold coins it holds, and when asked recently, in the spirit of central bank secrecy, it not surprisingly declined to elaborate. Most likely this Swiss hoard includes historic Swiss Franc gold coins, and even old Latin Monetary Union gold coins.
The United Kingdom, through HM Treasury’s Exchange Equalisation Account (EEA), claims to hold 310.3 tonnes of gold in its reserves, all of which is held in custody at the Bank of England. The EEA 2014/2015 accounts states that “The gold bars and gold coin in the reserves were stored physically at the Bank’s premises“. As to what type of gold coins the UK holds, HM Treasury didn’t repond to a recent query, but undoubtedly, the Treasury holds gold Sovereigns as HM Treasury archives reveal.
Among other central banks, Romania holds 14% of its monetary gold in the form of gold coins, amounting to approximately 14.43 tonnes. The Central Bank of Peru includes 552,191 troy ounces (17.7 tonnes) of gold coins in its monetary gold holdings. These coins are described as “commemorative coins” and are held domestically “in the vault of the Central Bank”. Interesting the Peruvians apply a small valuation provision for “for cost of converting gold coins to high purity or ‘good delivery’ gold bars” for potential use on the wholesale gold market. The Central Bank of Ireland is custodian for Ireland’s circa 6 tonnes of gold, 5.7 tonnes of which is supposedly stored in bar form at the Bank of England in London, while approximately 10,000 ozs are in gold coin form stored at the Central Bank’s currency centre facility in Dublin.
Even Canada made headlines with its gold coin holdings recently when the Bank of Canada sold off the last of that country’s eventually tiny gold holdings which had been exclusively in the form of gold coins since the early 2000s. These gold coins were King George $5 and $10 Canadian coins, the best examples of which were sold to collectors with the rest melted down into gold bars by the Royal Canadian Mint and sold on the wholesale gold market, yet again highlighting gold’s high liquidity.
Central banks will always downplay the existence of gold on their balance sheets since gold competes against national fiat paper currencies. However, the actual course of action of central banks and governments in holding vast amounts of gold bars, as well as substantial quantities of gold coins, demonstrates that central banks and sovereigns continue to view gold as a strategic reserve asset and as the ultimate money. Luckily, private individuals too can replicate the holdings of these giants by also acquiring and accumulating gold bars and gold coins for the same reasons as sovereign entities and monetary authorities do. Doing as central banks do, not as they say, is certainly a better strategy than blind faith in today’s distorting and reckless centrally planned monetary policies.
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