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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

Hanging by a Thread

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

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

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

Attorney for defendants found the report favorably vague:

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

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

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

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

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

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

The Puzzle

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

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

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

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

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

Last Stand

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

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

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

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

The Court: I agree.”

A courtroom in the Thurgood Marshall Courthouse NYC

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


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

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

HSBC’s London Gold Vault: Is this Gold’s Secret Hiding Place?

HSBC’s main gold vault in London regularly comes under the media spotlight for a number of reasons. These reasons include:

a) the HSBC London vault stores a very large amount of gold on behalf of gold-backed Exchange Traded Funds, primarily the well-known SPDR Gold Trust (GLD)

b) along with the Bank of England vaults and JP Morgan vault, the HSBC vault is one of the 3 largest gold vaults in London

c) the location of the HSBC vault in London is not publicised and so the secrecy creates intrigue

d) HSBC every so often throws out some visual or audio-visual media bait about the vault, most famously in the case of CNBC’s Bob Pisani and his camerman and producer visiting and filming inside the actual vault

Despite all of the above, no one seems to have ever tried to figure out where this gold vault is actually located. Until now.

In some ways HSBC has done a very good job keeping the location of its London gold vault under wraps. The main challenge is where does one begin to look for a vault in London from scratch. At first it would appear that there is nothing in the public domain pointing to the HSBC vault location. This is not entirely true however. The gold bullion activities of HSBC in London stem from two companies that over time became part of the HSBC group. My approach was to start by thinking about which London locations HSBC used to be based at. I took this approach because it became obvious that the HSBC London gold vault being used was still a battered looking old vault space in 2004 and 2005, which was after the entire HSBC company had moved to its spanking new London headquarters in Canary Wharf by 2003.

In New York, the location of the HSBC Bank USA precious metals vault in Manhattan is well-known and is even listed in CFTC documents such as here. The vault is at 1 West 39th Street, SC 2 Level , New York, New York 10018 , which is the same building as 450 Fifth Avenue, which is the former Republic National Bank building that HSBC took over in 1999-2000. This Republic building at 450 Fifth Avenue, when it was being built, “had special vault requirements that reportedly added significantly to the project’s cost“. So its hard to see why HSBC makes such a big deal of not revealing its London vault location.

History of HSBC gold operations in London

In 1993, HSBC Holdings plc relocated its headquarters to London after having acquired Britain’s Midland Bank the previous year. Midland in turn had fully acquired Samuel Montagu in 1974 to form Midland Montagu. Samuel Montagu & Co was a City of London bullion broker, and one of the 5 original gold fixing members of the London Gold Fixing, and in turn, Midland Montagu was also a Gold Fixer. In 1999, HSBC began using the name ‘HSBC’ for the Gold Fixing seat of Midland Montagu.

Between 1999 and 2000, HSBC completed the acquisition of Republic National Bank of New York. Republic National Bank of New York had been a big player in the world gold markets, and in 1993, Republic National had bought one of the London Gold Fixing seats from Mase Westpac, meaning that from 1993 both Republic National and Midland Montagu held Gold Fixing seats, and that HSBC ended up with 2 of the 5 Gold Fixing seats. Therefore, in 2000, following the Republic National takeover, HSBC in London sold one of its newly acquired seats to Credit Suisse.

I also have always thought that the HSBC vault is in central London, and not in some far-flung outer London location. The LPMCL website (www.lpmcl.com) still displays text that says that the bullion clearer’s vaults are in ‘central London locations':

“The five London bullion clearing members each maintain confidential secure vaulting facilities within central London locations, using either their own premises, or those of a secure storage agent…”

Anyone who knows London will understand that ‘central London’ refers to a small number of central districts, and not some broader inside the M25 (ring road) definition. Before moving to Canary Wharf in circa 2003, HSBC occupied a number of buildings clustered around the north bank of the River Thames, including 10 Lower Thames Street (the Banks’ Headquarters), 3 Lower Thames Street (St Magnus House), 10 Queen Street Place at the corner of Upper Thames Street (Thames Exchange – containing a trading floor), and Vintners Place (adjoined to Vintners Hall on the other side of Queen Street Place and Upper Thames Street).

HSBC Bank USA NA (London branch)

Until late 2014, the HSBC entity that was the custodian of the SPDR Gold Trust was “HSBC Bank USA NA (London branch)”. NA means National Association. On 21 November 2014, effective 22 December 2014, the custodian for the SPDR Gold Trust switched from HSBC Bank USA, National Association to HSBC Bank plc.

HSBC Bank USA NA (London branch), until 2015, was also the HSBC entity that was listed as a member of London Precious Metals Clearing Limited (LPMCL) on the LPMCL website. See, for example, September 2009 imprint of LPMCL website. The next step is therefore to see where HSBC Bank USA NA (London branch) was formerly located.

The Financial Services Register (FSA Register) lists HSBC Bank USA, Reference number: 141298, effective from 24 January 2000, with a registered address of Thames Exchange, 10 Queen Street Place, London EC4R 1BE. Recalling the Republic National connection, the previous registered name for this entity was “Republic National Bank of New York”, with the same address, effective from 18 December 1995 to 24 January 2000. The FSA Register entry also lists various well-known names of the HSBC gold world alongside this HSBC Bank USA entity, including Jeremy Charles, Peter Fava and David Rose.

Recalling the Samual Montagu / Midland Montagu connection to HSBC, an entity called Montagu Precious Metals is also listed with an old address at “2nd Floor, Thames Exchange, 10 Queen Street Place, London EC4R 1BQ.

An old gold information website called GoldAvenue from the year 2000, written by Timothy Green, also lists HSBC Bank USA (London branch) address as:

London branch
Thames Exchange
10 Queen Street Place
London EC4R 1BQ

That same Gold Avenue web page also correctly listed the HSBC New York vault address as:

452 Fifth Avenue
New York, NY 10018

which is the same building as West 39th Street, New York, in Manhattan.

The precursor to the SPDR Gold Trust was called Gold Bullion Ltd, a vehicle set up by Graham Tuckwell, promoted by the World Gold Council, and listed on the Australian Stock Exchange. Gold Bullion Ltd’s first day of trading was 28th March 2003. Following Gold Bullion Ltd’s launch, the SPDR Gold Trust (GLD) was then launched in 2004, but originally it was called STREETracks Gold Shares, and it even had another former working title of ‘Equity Gold Trust’ in early 2004.

A May 2003 Marketwatch article about Gold Bullion Ltd and the early incarnation of the SPDR Gold Trust (Equity Gold Trust) can be seen here, and a speech by Graham Tuckwell about Gold Bullion Ltd to the LBMA annual conference in Lisbon in 2003 can be seen here.  Most importantly, an early draft Prospectus of Gold Bullion Ltd (in MS Word), dated 10 February 2003, lists the Custodian of Gold Bullion Ltd as:

Thames Exchange
10 Queen Street Place
London EC4R 1BQ

Therefore, Thames Exchange goes to the top of the list for further consideration, as does it’s neighbour Vintner’s Place. Thames Exchange and Vintners Place were both HSBC buildings and both buildings are situated right across the road from each other, with Queen Street Place literally bisecting the 2 buildings. Queen Street Place is also the road that acts as the approach road to Southwark Bridge, with the 10 Queen Street Place building and the Vintners Place building literally creating a canyon either side of the road.

You will see below why Queen Street Place is interesting. Queen Street Place is very near the Bank of England and is in the City of London, so it’s under City of London Police protection. It’s also very near the River Thames, as is the JP  Morgan London vault. To get to the Bank of England from Queen Street Place, you literally walk a mintute north up Queens Street, and then a few minutes north-east along Queen Victoria Street and you’re at the Bank of England.

An official HSBC letter-headed note documenting the Thames Exchange address and proving HSBC occupied this building can be seen here. Similarly, an official letter-headed note documenting the Vintner’s Place address, and proving that HSBC occupied that building can be seen here.

HSBC moves out of the City of London – 2002/2003

A Property Week article from 20 April 2000, titled “JLL to mastermind HSBC’s City exodus“, covered the huge HSBC move out of the City to Canary Wharf in the early 2000s:

Army of firms called in to help co-ordinate bank’s relocation to Docklands by 2002

“HSBC has stepped up its retreat from the City of London by instructing agents to open negotiations on the disposal of its outstanding City liabilities.

In one of the most hotly contested pitches of last year, Jones Lang Lasalle has beaten rivals to secure the lead role as strategic adviser for the bank’s relocation to Docklands [Canary Wharf] in 2002.

In addition to JLL, the bank has instructed another seven firms to mastermind the disposal of its 121,000 sq m (1,302,445 sq ft) City portfolio.”

“HSBC has ruled out acquiring freehold or long-leasehold interests and has instructed agents to negotiate the best surrender or assignment of the occupational leases on its 12 City buildings.”

Morgan Pepper is advising on HSBC’s 17-year lease at Thames Exchange, 10 Queen Street Place, EC4. The Scottish Amicable building is currently under offer to Blackstone Real Estate Advisors for £73m.

Insignia Richard Ellis, Chapman Swabey, Strutt & Parker and Wright Oliphant have positions on the bank’s remaining interests in Vintners Place EC3; Bishop’s Court at Artillery Street, and HSBC’s 37,160 sq m (400,000 sq ft) office complex at St Magnus House and Montagu House.

By the time STREETracks Gold Trust (the original name for the SPDR Gold Trust) was launched in 2004, HSBC Bank USA’s address had moved to HSBC’s new headquarters in Canary Wharf, in the Docklands, east of the City of London. By early 2003, Equity Gold Trust also listed the HSBC custodian with the Canary Wharf address.

An article by engineering company Arup  HSBC Headquarters – Canary Wharf – Arup), describing the new HSBC Canary Wharf building, dated 21 April 2004 stated:

“The phased occupation of the [Canary Wharf] building was completed in February 2003 when the last of over 8000 staff moved in, with HSBC Group Chairman Sir John Bond officially opening the building as the Group’s new head office on 2 April 2003.”

However, the old HSBC gold vault did not ‘move’ at the time the rest of HSBC moved lock, stock, and barrel to Canary Wharf between 2002-2003. In fact, the HSBC vault remained where it was in a slightly rundown shabby space with cream-colored walls. See multiple photos of the vault space below. The HSBC vault did however transform from an ‘old’ vault into a ‘new’ vault sometime between 2006 to early 2007. My belief, which I’ll explain below, is that this vault didn’t move, it just received an extensive renovation.

A diagram of the HSBC headquarters in Canary Wharf where the whole London HSBC workforce moved to by early 2003 can be seen below. Notice the car parks in basements B2, B3 and B4. You can also read about the basement construction in the Arup document above. This is not the location for a beat-up old vault that can be seen in the below old gold vault shots. Besides, the vertical pillars/piles in the old and new HSBC vault are nothing like the huge structural pillars/piles found in the HSBC headquarters in Canary Wharf.

The pillars in the old HSBC vault photos are pillars that would be found in an old arched vault, while the support pillars in the new HSBC vault photos are those that would be found in relatively shallow spaces under a road, such as pillars/supports used in the cut and cover New York subway system.

HSBC Headquarters - Canary Wharf
Arup diagram of HSBC Headquarters, Canary Wharf. lower section and basement

HSBC Gold Vault Photos

December 2004:

Here you can see an early gold vault photo of Graham Tuckwell, joint managing director of Gold Bullion Securities, and Stuart Thomas, managing director of World Gold Trust Services, in the ‘old’ HSBC vault in December 2004 checking a HSBC bar list:


Source: https://web.archive.org/web/20051125081854/http://streettracksgoldshares.com/images/DSC_0130_800.jpg

And another photo, taken at the same time, of Stuart Thomas in the vault in December 2004:


Notice the very old piping around the top of the walls.


In fact, there are lots more photos of the inside of the ‘old’ vault on the StreetTRACKS website here https://web.archive.org/web/20060518124841/http://streettracksgoldshares.com/us/media/gb_media.php

June 2005:

See five photos below of vault in June 2005:


‘Old’ vault looks quite beaten with concrete pillars, old floor, old air conditioning unit, and awful decor, and some type of desk an chair and wiring on the very right hand side of the photo.






October 2005:

Managing Director Stuart Thomas, Director of Corporate Communications, George Milling-Stanley of World Gold Trust Services, and CFO and Treasurer James Lowe (wearing a gold tie) of World Gold Trust Services



6 more vault shots of gold bars stacked on pallets:






When the gold is stacked 6 pallets high, as in the above photo, it nearly reaches up to where the pillars start to broaden out. Recall for a moment the definition of a vault. A vault is any space covered by arches, or an arched ceiling over a void. This is why the Bank of England ‘vaults’ are called vaults, because in the old vaults of the Bank of England (before the Bank of England was rebuilt in the 1920s/1930s), the gold was stored in the arched vaulted basements. The pillars in the shots of this ‘old’ HSBC vault look like pillars/piles that are the lower parts of arches, since they taper outwards as they go higher and they are positioned in a grid like formation.




You can see how all the pallets of gold were located in a space with quite a lot of walls and chunky support pillars that broaden at the top (i.e. support pillars). Very similar pillars can be seen in old parts of the London Underground pedestrian tunnels, and also in the Vintner’s Hall wine vaults, which is next door to the vaults under Queen Street Place.

The NEW HSBC Vault 2007

During the second half of 2007, a series of 4 photos appeared on the STREETTracks website of a ‘New’ HSBC gold vault in London. The headline title of this series of images was

“The gold in trust at HSBC’s gold vault in London. The gold is being held in Trust for the shareholders of GLD. These images as at June 2007″

 This STREETTracks web page can be accessed via the following link, however, the photos don’t render properly.
June 2007 photos intro
However, I did source the photos in other dated instances from a similar link, and uploaded them. See below.

2007 George Milling-Stanley and possibly a bearded Stuart Thomas – June 2007


George Millin-Stanley’s watch puts the time at 11:45am.


Milling-Stanley and 3 others – probably from State Street and BONY – June2007



New vault – wide angle shot 2007



2nd wide angle new vault shot 2007



The MarketWatch website and a GLD SEC submission mentioned the ‘new’ vault move in an article on 11th January 2008:
“…StreetTracks Gold Shares, a wildly popular exchange-traded fund so awash in investor cash that its backers recently scrambled to find a bigger vault to accommodate their ever-growing horde of the precious metal, now valued at $18 billion.”
“Because the StreetTracks reserve expanded faster than expected, its managers had to move the stores to a bigger vault about six months ago to make more room, says George Milling-Stanley, a spokesman for the gold council.”
Graham Tuckwell, Chairman of ETF Securities, also referred to the ‘old’ and ‘new’ vaults at the LBMA Conference in Hong Kong in November 2012. On page 3, section C “Is the Gold Really There?”, Tuckwell shows 2 photos to the audience, one from “10 years ago” and one a recent photo. In the old photo, which is probably this photo
 he says “the fellow on the left is a 10-year younger version of me“. He also says: “That was the old vault when we started doing it, and you can see that we are doing a bit of a check“.
Then Tuckwell goes on to say: “This photograph was taken just over a year ago on a recent vault visit“… “Our gold, from the London product, the GBS, is on the left and the gold from the US product, the GLD, is on the right in this picture“. GBS was the Australian product and GLD being the State Street product, listed in November 2004.

As it turns out, there are vaults beneath the road under Queen Street Place, between 10 Queen Street Place (Thames Exchange) and Vintners Place, and these vaults were renovated during the period that would coincide with the HSBC London gold vault transforming from an ‘old’ vault to a ‘new vault’.

George Milling-Stanley in New Vault

Southwark Bridge and The Queen Street Place Vaults

Southwark Bridge is a bridge over the River Thames connecting the City of London (financial district) on the north bank of the river, to the area of Southwark on the south bank. The first Southwark Bridge (Queen Street Bridge) opened in 1819 and was an arched bridge with “vaults under the north abutment of the bridge“. There is also a reference to the vaults under Queen Street Place in a 1908 Corporation of London Record Office record.

A second bridge, the current Southwark Bridge, replaced the earlier bridge, and it opened in 1921.

A book titled ‘Design Applications of Raft Foundations‘, when discussing the development that became Vintners Place, mentions the vaults under Queen Street Place and shows that the vault space begins maybe 2.0 metres under the roadway, and with the vault space height being about 5 metres high which looks a very similar height to both the ‘old’ and ‘new’ HSBC vault spaces.

Q St Vaults

vintners and vaults


In fact, there were up to 17 vaults under Queen Street Place judging by a planning application from 1992 which listed a Vault Q (assuming Vaults A – Q), and the application said that the vaults had been used for storage.

Vault Q 1992


Alterations to Vaults under Queen Street Place

Keeping in mind that the ‘old’ HSBC gold vault became a ‘new’ HSBC gold vault sometime in 2006, or early 2007, then the following, in my view, becomes highly relevant. In September 2004, a building control planning application was submitted to City of London planning department for Alterations to Vaults in the Thames Exchange building at 10 Queen Street Place. See link for the application. See screenshots also.


10 Queen Street Place - Alteration to Vaults application - 15 September 2004

10 Queen Street Place - Alteration to Vaults application - Date 15 September 2004

Fit Out of Vaults under Queen Street Place

Following this in November 2005, another building control planning application was received by the City of London planning department for “Fit out of Vaults between 10 Queen Street Place and Vintners Place“. See link below and also screenshots.


Fit out of vaults between 10 Queen Street Place and Vintners Place - Vaults application - 4 November 2005

Fit out of vaults between 10 Queen Street Place and Vintners Place - Vaults application - Date 4 November 2005

Thames Exchange – 10 Queen Street Place

Blackstone bought Thames Exchange from Scottish Amicable in 2000 while it was still being leased to HSBC. HSBC then surrendered the lease of the building when it moved to Canary Wharf in 2003. Blackstone then renamed Thames Exchange to 10 Queen Street Place and began renovating it while leasing it to City law firm SJ Berwin for its new London headquarters. However, SJ Berwin only moved its London headquarters from Gray’s Inn Road to 10 Queen Street Place sometime between February and April 2006, so the renovations appear to have gone on during 2003-2005. Norwich Property Trust purchased 10 Queen Street Place from Blackstone in 2006, after it had been renovated. Notably, Norwich retained TFT Consultants to inspect 10 Queen Street Place. TFT Consultants states in a case-study on its website that:

 “We inspected this prominent riverside mixed-use building including extensive vaults underneath Southwark Bridge approach road and prepared a TDD report for Norwich Property Trust.”

Property investor Jaguar bought the 10 Queen Street Place building from Norwich in 2008, and then the Malaysian haji pilgrims fund purchased 10 Queen Street Place from Jaguar in September 2012.
Coincidentally, Vintners Place, which adjoins Queen Street Place on the other side of the vaults was also sold in September 2012 when Downtown Properties and a South Korean consortium bought it from Atlas Capital. The tenants at the time included Jefferies International, and Sumitomo and Thomson Reuters. Vintners Place also adjoins Thames House, Five Kings House, and The Worshipful Company of Vintners also has its headquarters in a building called Vintner’s Hall on the corner of Queen Street Place and Upper Thames Street.

The Plans of the Vaults under Queen Street Place

Detailed plans of the vaults under Queen Street Place before and after the ‘Alterations’ and ‘Fit Out’ can be seen here ( Vault Plans – Before 10 Queen Street Place – Vaults – Lower Ground Floor Plan – Before alterations) and here (Vault Plans – Proposed 10 Queen Street Place – Vaults – Lower Ground Floor Plan – After alterations). Both sets of plans were drawn up by Hurley, Robertson Architects. Click on the links to bring up the actual pdf files of the full plans.

vaults before a
Vaults under Queen Street Place – old layout – dated 28 November 2002


And more zoomed in. Notice all of the individual vaults and doors, and all of the walls with rows of pillars marked between the walls.


vaults before b
Vaults under Queen Street Place – old layout zoomed in


Compare the above plans to the ‘proposed’ plans. In the proposed plans, which are revision C08 dated 06 April 2006, all of the individual vaults have been removed by removing all the doors and walls, leaving just rows of pillars, and beams (given that it’s a top-down view looking down).

vaults after a
Vaults under Queen Street Place – proposed vaults – 2006 updates

You can see the changes a bit more clearly in the following slightly zoomed in version. Notice the facilities added on the right, such as toilets, kitchen, changing rooms, office, telecoms room etc, and also the rows of supports/ pillars on the left hand side, which is about 7 rows of supports / pillars in the open space, 5 of which run at the same angle, then there is a V shape where the pillars then run at a different angle.

vaults after b
Vaults under Queen Street Place – proposed vaults – 2006 updates – zoomed in

Anyone who has the inclination, given these sets of plans of the vaults under Queen Street Place, please check back over the photos of the ‘old’ HSBC vault and ‘new’ HSBC vault and decide for yourself if the photos in the ‘old’ cramped vault with the pillars and cream wall is reminiscent of the pre-alteration plans above. Likewise, decide for yourself if the ‘new’ HSBC London gold vault with the open plan design and layout of vertical steel support columns looks like the plans above of the ‘proposed’ alterations and ‘Fit Out’ of the vaults under Queen Street Place.

When G4S built its subterranean gold vault in Park Royal, London in 2013 / 2014, it fitted it out the area beside the vault with toilets and a kitchen – See second last sentence in red box below from the G4S building contractor document. Because, if you are working down in a vault all day, there will need to be toilets and a kitchen area, as well as changing rooms, phones and desktop computers etc. For background to G4S vault, see “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out“.




The Pisani Files – “This is it folks, this is the Motherlode!”

Now we come to the Bob Pisani videos that were filmed by CNBC in the HSBC London gold vault in 2011. I say videos in plural because there are 4 video segments, and actually 5 segments in total including a trailer. The videos are quite exciting and fast-paced but frustrating because the camera is quite shaky and moves around rapidly for a lot of the vault segments, possibly on purpose. The background music is quite catchy also (at first).

1. The Motherlode

The first video is on a CBNC web page and embedded in an article titled “Gold’s secret hiding place”, however the video is titled “Gold Rush – The Mother Lode”. Its dated Wednesday, 31 Aug 2011 with a byline of “CNBC’s Bob Pisani recently got an exclusive inside look at the HSBC gold vaults in London, where the gold for the SPDR Gold Trust (GLD) is stored.” The video is  4:55 mins long, and introduced by Pisani from the New York studio. The vault shots begin at 1:18, and interestnigly, at 0:40 mins, the camera is in a vehicle travelling down Lower Thames Street.


2. Gold’s Secret Hiding Place

Let’s call this 2nd video “Gold’s Secret Hiding Place”. This version, which is different to the Motherlode, is on YouTube. I’m not sure of the official segment name. This version is 5:06 mins long, and Bob says the vault is “in a super-secret location only known to a few people”. This is also the version where Bob hands in his cellphone and travels in a blacked-out vehicle saying “we have no idea where we’re going. We only know our final destination. The vault!”

There is a neat online app called Pause House which allows you to look at any YourTube clip frame-by-frame, and can be used on the above clip for those who want to get a good look at the vault interior. (Pause House).

3. The Third version

Lets call this the Third version. Its 2:43 mins long. Pisani starts on Waterloo Bridge on the River Thames and he points towards Westminster Bridge (the exact opposite direction to Southwark Bridge). Then he is in the blacked-out vehicle, and then in the vault from 1:04 mins. At this stage the music might be annoying, so luckily, there is no background music when Bob talks in the vault.


4. Inside the Secret Vault

This clip is 2:42 mins long and is dated Thursday, 8 Mar 2012 with a byline of “CNBC’s Bob Pisani gets unprecedented access inside the largest private gold reserve in the world.” Its slightly similar to version 3 above


5. Version 5 is just a 31 second trailer about the CNBC 2011 gold series, published in March 2012, with gold vault footage only appearing for a few seconds.


2005 vs 2011

There is one sentence in both “Motherlode” and “Gold’s Secret Hiding Place” that I consider very interesting. And it relates to the ‘old’ and ‘new’ vaults. What Bob Pisani says has obviously been told to him by someone at HSBC, since he would not know anything about the vault in advance.

At 3:37 mins in Motherlode, Pisani says  “In 2005, there was less than 200 tonnes of gold here, now there’s 6 times as much“. 

At 4:05 mins in  Gold’s secret hiding place, Pisani says “In 2005, there was less than 200 tonnes of gold in this vault backing the GLD. Now there’s 6 times as much.”

Pisani is essentially saying, probably without realising, that it is the same vault. i.e. that the vault in 2005 is the same vault as in 2011. However, given that the vault in 2005 was the ‘old’ vault, and that the vault in 2011 was the ‘new vault’, this suggests that it is the same space, and that the vault space was just renovated. It therefore supports the view that the vaults under Queen Street Place are a very strong candidate to be the HSBC London Gold Vault that stores the GLD gold and the ETF Securities gold.

Fruiterers Passage

You might have spotted above that one of the existing vaults under Southwark Bridge was turned into a riverside walkway. This was probably vault Q, which looked to be the vault nearest the river. This walkway runs under the beginning of the abutment on the north of SouthWark Bridge and is called the slightly humorous name ‘Fruiterers Passage’. The Passage was opened circa the year 2000 (and named after the Worshipful Company of Fruiterers), and is ornately tiled with ceramics, even around its pillar enclosures. Take a look at a photo of Fruiterers Passage and compare it to a photo of the new ‘HSBC’ gold vault that features the yellow-painted steel support pillars. The dimensions and spacings of the pillars in both photos look very similar, even identical.



A video walk-through (2:45 mins) of Fruiterers Passage can be seen here. The first 20-30 seconds shows Southwark Bridge, and then the walk through the Passage begins:

Although there are lots of security cameras around the City of London, the cameras in Fruiterers Passage and security warnings near the entrance to the Passage seem particularly explicit.



Size Matters

A MarketWatch article from 11 January 2008 quoted  George Milling-Stanley as saying that the vault was sizable but “not quite as big as a cricket pitch.” On another occasion, Milling-Stanley used another sporting analogy and described the ‘new’ vault as “about the size of a football field“. Can a sporting analogy (or two) help determine the size of the HSBC London gold vault? Possibly, but it’s not as clear-cut as you might think.

Notwithstanding that a ‘cricket pitch’ is the (smallish) 22 yard strip between the wickets, the quotation was presumably referring to a ‘cricket field’.  However, there is no standard shape of a ‘cricket field’, let alone standardised dimensions, since the ICC rules only state that the field can be circular or oval with a variable diameter of between 450 and 500 feet on the ‘long’ side (sometimes giving 16,000 sq yards). Regarding Milling-Stanley’s ‘football field’, analogy, it’s not clear whether this analogy was intended for a US audience or non-US audience. So it could mean ‘American’ football, or soccer or rugby.

In soccer, there is no standard size ‘field’. The sidelines (touch lines) have to be between 100 and 130 yards (110 to 120 yards for international matches), while the goal lines (end lines) must be between 50 and 100 yards (70 to 80 yards) in international matches. This could result in over 7000 sq meters or over 1.75 acres. The American football field is thankfully standardised, being 120 by 53.33 yards or 6400 sq yards.

Overall, Milling-Stanley’s descriptions give a flavour for permissible dimensions, but based on Bob Pisani’s video tour, I see the vault as a rectangular space but not quite as big as a soccer pitch. So lets look at the space in Google Earth. I’ve just added a yellow rectangle for illustrative purposes to show where the vaults under Queen Street Place are located.

Bird’s Eye View – Queen Street Place looking north from Southwark Bridge – 10 Queen St Place on right, Vintners Place on left

See also some cross-sectional plans that were part of the 2004 Blackstone Thames Exchange planning applications (Cross Section width 10 Queen St Place – from river view and Cross Section length 10 Queen St Place).

QSP night shot
Night shot – Queen Street Place without traffic

The Marketwatch January 2008 article also said that the HSBC vault was “located on the outskirts of London” but how would the journalist know this since the same article also said that “a spokeswoman for HSBC declined to provide vault details, citing security policies”. As financial journalists mostly repeat what is told to them, I think this “located on the outskirts of London” bone was thrown out as a red-herring, and means the exact opposite.


At its peak holdings in December 2012, the SPDR Gold Trust stored 1353 tonnes of gold. Some observations from looking at the vault space in the Pisani videos and from talking to other people, are that:

a) the HSBC vault looks quite full in 2011, but it still looks like the space would be hard pushed to store the 1200 tonnes of gold that Pisani says were there

b) based on modelling the number of realistic-sized pallets that could conceivably fit into the Queen Street Place vault space (as per the vault plans), it also seems that it would be hard pressed to store 1,200 tonnes, unless they were crammed in. And the pallets in the CNBC segments are not fully crammed in to the space.

Remember also that the 1200 tonnes of gold reference only referred to the SPDR Gold Trust holdings in mid-2011 around the time the CNBC video segment was filmed. See blue line in chart below (chart from www.sharelynx.com) for GLD holdings over its lifetime. HSBC is also the gold custodian for ETF Securities’ gold-backed ETF which held about 170 tonnes at the time of Pisani’s visit. That would be nearly 1,400 tonnes of gold just between the GLD and ETFS holdings, which would be about 228 piles of pallets stacked 6 high crammed in. Furthermore, that’s not even taking into account any gold holdings of other HSBC customers, and Pisani also says in the videos that HSBC confirmed to him that its vault also stores gold for a range of clients.


When GLD held 1353 tonnes in December 2012, this in itself would be 225 piles of pallets, each 6 high. ETFS held about 170 tonnes in December 2012 also, which would be another 28 piles of pallets stacked 6 high. If this location is the famous storage area for the SPDR Gold Trust then possibly during the boom times when GLD holdings peaked, the HSBC vault may not have been big enough to accommodate the GLD gold let any other gold. Which would mean that HSBC was storing GLD gold elsewhere such as at the Bank of England vault,  or the JP Morgan vault, both very close to Queen Street Place. It would also mean that GLD sources new gold inflows from gold that is at the Bank of England, i.e. leased central bank gold.

Another point to consider is that if the vaults under Queen Street Place are the correct location for the HSBC vault, then where did the gold that was being stored there in late 2005 / early 2006 go to during the vault alterations? This would have been at least 200 tonnes of gold as of late 2005, rising to over 350 tonnes of gold by late 2006. As the Bank of England is literally up the road from Queen Street Place,  moving it to the Bank of England vaults would be the most likely option during the renovation.

In summary, using publicly available information and evidence, I have described where I think the HSBC London gold vault may be located. Whether I am correct is another matter.


The Gold Vaults of London: Malca-Amit

Following on from the recent blog post “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out“, which discusses the G4S precious metals vault located on Abbey Road in the Park Royal area of London, its instructive to also look at where the other London Gold Market vaults are located.

According to the vaulting pages on the London Bullion Market Association (LBMA) website:

“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?

Having looked at G4S, let’s continue by examining the London vault of Malca-Amit. On its website page which featuring its London vault, Malca-Amit states that:

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.

On 20 September 2012, the LBMA issued an advisory document titled “Best Practice Guidelines; Used by “Loco London” Vaults Opening a new vault for the storage of precious metals“, in which it was advised that “If you wish to store the higher value precious metals then you may find that insurers insist that your vaults are subterranean“. This obviously wasn’t an issue for Malca-Amit’s insurers, since the Malca-Amit vault is in a building that’s above ground.

The Alchemist continues:

“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 plane

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.

This planning document is posted on the www.gov.uk website, and on page 10, it states:

OK0230285 SN


(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)”

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.

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

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

Open plan layout, Full access raised floor, Suspended ceilings with recess
lighting, Gas central heating, Double glazed windows, Passenger lift
Reception area

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

Architect     LDA Ltd Chartered Architects, Surrey”

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.


Malca Amit Arena Parkway TW5 9QA
Malca Amit Arena Parkway TW5 9QA



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


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]


Name     Malca Amit

Address   100 Hatton Garden EC1N 8NX

Architect          Pinnegar Hayward Design, Birmingham

Application Received 31/05/2013

Decision Approved 13/09/2013

The ‘delegated report’ submission states that:

“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 which runs off the access road. This would be 3m wide rising barrier which would be 1m high, RAL 9003 (white) finish with contrasting red banding. There would 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:

Edinburgh Assay Office Heathrow sub office 1st floor Arena Parkway

Cached version of Issue 009

UKAS Issue 009 4 June 2015 Edinburgh Assay Arena Parkway

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.

The Edinburgh Aassy Office’s Heathrow sub-office was profiled in January 2015 in an article on website Jewellery Focus, complete with photo of the office in the Arena building. Notice the Malca-Amit warehouse floor in the background of the photo with the office on the 1st floor. The one year anniversary of the Edinburgh Assay Office sub-office in the Malca-Amit premises was also recorded in an end of January 2016 article from Professional Jeweller titled “Edinburgh Assay Office celebrates one year of Hallmarking in Transit at Heathrow”.

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.


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

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

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

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

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

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

Refinery output 2006-2013

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

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

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

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

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

original - GDL List

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

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

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

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

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

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


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


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

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

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

GDL List in updated version - no change

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

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

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

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

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

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

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

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

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

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

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

Total refined gold production of the refiners on the List

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Thomson Reuters GFMS

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

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

What is GFMS?

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

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

‘LBMA Overview Brochure.pdf’

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

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

31st July 4848

 Why 4,848 tonnes?

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

Murray slide 9 assaying and refining pres refinery prod stats

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

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

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

Murray slide 10 regional refinery breakdown

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

GD gold refiners graph murray

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


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

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

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

brochure final 20150501 connelly 5th aug

overview brochure connelly 5th Aug

So, what is going on here?

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

Previous LBMA documents discussing refined gold production

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

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

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

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

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

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

Another newer version  on 12th August 2015

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

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

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

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

lbma data comparison table

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

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

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


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

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

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

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

Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation

This is Part 2 of a two-part series. Part 1, titled “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“, provided a historical overview of Venezuela’s gold and looked at where the gold, and the claims on gold, were located just prior to repatriation in 2011, especially the gold held abroad.

Part 1 was necessary so as to set the scene for the, in some ways, theatrical gold flights and convoys of Part 2, and to also illustrate that a percentage of Venezuela’s gold (50 tonnes) was retained in the vaults of the Bank of England so as to be available for activation into international gold transactions.

And so, the analysis below covers Venezuela’s actual gold repatriation operations in late 2011 and early 2012, especially the first and last flight. You will see that the first batch of gold bars came in on an Air France cargo flight, which opens up key questions about France and the Banque de France as a source for some of the repatriated gold. You will also see the arrival and unloading of the last flight, a World Airways cargo freighter.

The analysis wraps up with a look at the gold swap discussions between Venezuela and a set of investment banks which culminated in a gold swap being agreed with Citibank. The question then arises as to whether further similar gold swaps are in store for Venezuela’s domestically held monetary gold.


The Repatriation – Flights and Convoys

The Venezuelan gold repatriation transport operation took just over two months to complete, beginning on 25 November 2011, and winding up on 30 January 2012. During this time, 23 shipments (by air) are said to have arrived in Caracas, with 160 tonnes of gold flown in.

As Banco Central de Venezuela (BCV) governor Nelson Merentes stated in an end of year 2012 report (page 16):

“In 2012, the central bank completed the repatriation of monetary gold , which began in late 2011. This unprecedented process, which reaffirms the sovereignty of the nation, constitutes the largest movement of physical gold in the world market in recent years . A total of 23 gold shipments were moved, totalling 160 tonnes of metal that had been custodied abroad.”

Notwithstanding the fact that the German Bundesbank claims to have quietly and secretively moved 940 tonnes of its gold from the Bank of England in London to its Bundesbank headquarters in Frankfurt between 2000 and 2001, the Venezuelan gold repatriation is still probably the “largest movement of physical gold in the world market” since that time.

merentes car

The first and last shipments of Venezuela’s gold repatriation arrived into Maiquetía Airport (aka Simón Bolívar International Airport) in Venezuela’s capital, Caracas, so the presumption is that the other shipments did also. Both the first and last shipments received huge media coverage in Venezuela and extensive coverage internationally. Given that the Venezuelan State facilitated and encouraged this domestic media coverage, as well as street scenes thronged with Chavez supporters, this is not surprising. The majority of the other shipments after the first and before the last ones got little or no coverage, probably due to security procedures.

Reuters quoted Nelson Merentes on the day of the first shipment arrived as saying that:

“We cannot give exact dates (for when the rest of the bars will arrive) due to questions of security. When we bring the last shipment, the people will learn about it.

The Reuters report also quoted a Venezuelan government source as saying that there would be ‘several’ cargo flights.

“A senior government source involved in transporting the bars, which amount to 90 percent of Venezuela’s gold held abroad, has told Reuters they will be shipped in several cargo flights that will be completed before the end of the year.

The total cost of the operation will be no more than $9 million, the source said, without elaborating.”

The First Shipment (by air) came from France

The gold from the first shipment, which consisted of 5 tonnes of gold, was moved from Maiquetía airport to the central bank vaults in Caracas on Friday 25 November 2011 amid much fanfare and coverage. Although the airport to bank journey happened on 25 November, an article here claims that the “the repatriation of gold reserves began on 23 November”.

In various news footage videos below, which cover the transport of the gold from the airport on 25 November 2011, there are no shots of any aircraft being unloaded, which may suggest that the first shipment did indeed arrive prior to 25 November, possibly on 23 November. The first shipment was flown in using Air France (see below).

In contrast, during the last operation on 30 January 2012, the arrival of the aircraft into the airport played a starring role in proceedings, possibly because the shipments were then being wrapped up and there was little harm in broadcasting the identify of aircraft, which you will see below was a chartered World Airways MD-11 cargo freighter.

The first video below from 25 November 2011 shows black plastic crates (presumably with the gold in them) on pallets which in turn are on trailers, positioned beside a line of armoured cars ready for loading.

Very interestingly, central bank governor Merentes (at 0:22) states that this first shipment of gold came from European countries “via Francia” (by way of France).

This is very odd that the first shipment came from France. Given that the gold was stored at the Bank of England and with the BIS, none of the Venezuelan gold should ever have been in France. And with air charters from Europe, there would be no need to fly into and out of a French airport en route from London to Caracas.

A November 2013 article from Venezuelan newspaper ‘El Nacional’ stated that the first batch of gold had come directly from France:

Los primeros lingotes vinieron de Francia en medio de un operativo denominado Oro Patrio y en el que participaron más de 500 funcionarios.”

The first ingots came from France in the middle of an operation called Golden Homeland and in which over 500 staff participated.”

The most compelling piece of evidence, however, that the first shipment came from France is the fact that the gold was flown into Caracas on Air France, and there were labels on the side of the crates stating this. See screenshot below taken from one of the videos:

Air France - air waybill

This label above shows the ‘Air Waybill No’ of ‘057-53208470′, the ‘Destination’ of CCS (Caracas), and the ‘Total No of Pieces’ – 10, i.e. 10 crates.

See also the below photo of one of the crates, with the same Air Waybill number 057-53208470, after it was loaded into the back of one of the armoured security cars:

Air France labelled crate on pallet

Air France Cargo fleet consists of 2 long-range Boeing 777- 200LRF cargo freighters, registration numbers F-GUOB and F-GUOC. You can see a video of F-GUOC taking off (from another airport) here.

These 777F aircraft have “a maximum payload of 102 tonnes, a total capacity of 37 pallets and a maindeck that can take 3-metre pallets“. The videos below of the first gold shipment, and the video of the last unloading on 30 January 2012, shows these huge 3-metre pallets on the ground and, in the case of the last shipment, being unloaded.

Since the gold in the first shipment was flown from France, this gold may have come from the Banque de France in Paris, which would suggest that the bullion banks and/or the BIS had to resort to sourcing gold from the Banque de France. BNP Paribas was one of the five bullion banks that had a borrowed gold liability to the BCV, so this fact may be relevant. (See a section below about the French connection).

The second Venezuelan video from 25 November 2011 states that gold which was located in US, Canadian, and English banks was being repatriated to Venezuela. This does not mean, however, that the gold flights originated in all or any of these locations. The US, Canada and England just refer to the headquarters of the bullion banks involved in the repatriation.

The third video from 25 November 2011 refers to “foreign banks,” “principally in Europe,” and mainly English banks.

Reuters quoted Merentes as having said that “The gold comes from several European countries.


1. Length: 2:26 – Nelson Merentes interview, and gold ready for loading. 25 November 2011


2. Length: 2:06 – Armoured cars and convoy getting ready to leave the airport, and then departing the airport. 25 November 2011


3. Length 1:53 – Convoy leaves airport and drives to the central bank. 25 November 2011


4. Length 11:03 – Air France label is shown beginning at 9:42. This longer video has extended footage of the unloading and loading operation. 25 November 2011


The BCV’s 2011 Economic Report (see link above, page 92) states that the first shipment on 25 November 2011 consisted of 5 tonnes of gold. In the media coverage of the first shipment, the exact tonnage of gold involved was not stated beyond the fact that  “Nelson Merentes said a little over 300 million dollars was brought in the first batch of gold that came to the country on Friday.”

At a price of $1,688 per ounce on 25 November 2011, that would be roughly 5.5 tonnes. Whether it was 5 tonnes of 5.5 tonnes is not that important. With each of the crates holding 500 kgs or 0.5 tonnes, that would be 10 – 11 crates in the first shipment. There appear to have been 10 crates given that’s what it said on the crate labels and that’s what the BCV maintain their were.

Once the gold was loaded up into the fleet of security vans, a huge convoy of military vehicles and personnel (said to be between 400 – 500 personnel) accompanied the vans out from the airport (by the ocean) and around the mountain to the central bank building in downtown Caracas, on a route, some of which was lined with Chavez’ supporters, especially where they had congregated near the bank’s entrance.

 As mentioned, there was little coverage after the first shipment, although a local media article referred to a second shipment arriving from Europe on Tuesday 6 December 2011. After this, the media didn’t really cover the repatriation until the last shipment arrived by air on Monday 30 January 2012.

repatriation gold caracas

The Last Shipment – The Final Flight of MD-11, N275WA

The final shipment arrived into Maiquetía – Simón Bolívar airport on Monday 30 January 2012 consisting of 14 tonnes of gold in 28 boxes. The novel significance of the media coverage on this day was that news crews were allowed to film the airplane taxiing into the landing area and unloading its cargo.

The arriving aircraft was a three-engine long-range McDonnell Douglas MD-11 CF (convertible freighter), registration number N275WA, serial number MSN 48631, registered to World Airways. You can see the fleet number (nose code) of ‘275’ above the front (nose) wheel in the photo below.

flight N275WA

Six of these MD-11 CFs were built and World Airways were flying two of them at this time. Ironically, the parent company of World Airways, called Global Aviation Holdings Inc, filed for chapter 11 bankruptcy protection on 5 February 2012, six days after N275WA had delivered the last shipment of Venezuela’s gold to Caracas. Interestingly, Global Aviation Holdings was also “the largest commercial provider of charter air transportation for the US military”.

Other photos of World Airways’ N275WA from around the world can be seen here and here. N275WA, which had been converted into a freighter in 2002, went out of service and into storage in July 2012. Global Aviation Holdings again entered bankruptcy in November 2013, after which time World Airways was shut down. This explains why one of the MD-11 captain for World Airways (possibly captaining some of the gold flights) left World Airways in March 2014.

See video below of aircraft N275WA arriving into Caracas on 30 November 2012


5. Length 1:53 – N275WA arriving and unloading its cargo on 30 November 2012


6. Length 3:27 – This is a well produced promotional video from “Servicio Pan Americano de Protección”, the company that transported the gold from the airport to the bank. The video shows the entire unloading and loading operation from 30 January 2012 and is well worth watching.


An MD-11 CF freighter can transport 26 large pallets and has a maximum payload of 89,000 kgs (or 89 metric tonnes). Technically, Venezuela could have had all of its repatriated gold flown in on a lot less than 23 flights. Insurance and other risk management considerations probably dictated the diversification requirement, as well as the gold possibly only becoming available in piecemeal fashion from November 2011 to January 2012.

BCV address and lot 20

If there were indeed 23 flights over 2 months totalling 160/161 tonnes, each flight could have flown in 7 tonnes of gold, since this adds up to 161 tonnes (23 * 7). Given that the last batch was said to be 14 tonnes and the first batch 5 tonnes, each of the other 21 flights could have carried a batch of about 6.70 tonnes.

However, a number of batches could have arrived on the same flight, such as the last flight which is said to have flown 14 tonnes. Video footage from the last shipment day, 30 January 2012, shows a crate with lot number ’20’ displayed on it – See above screen shot. So there were at least 20 ‘lots’. Overall, there would have been about 360 crates.

Given that Venezuela was able to repatriate 160 tonnes of gold in cargo flights over the Atlantic Ocean from Europe within 2 months, this proves that the German Bundesbank could have easily repatriated its intended target of 300 tonnes of gold from New York in 2013, by flying the entire 300 tonnes over to Frankfurt within 4 months. Venezuela’s successful operation proves that the Bundesbank’s seven-year repatriation plan is laughable, and that the excuses coming out of Frankfurt are hiding something far more critical to the Bundesbank and the Federal Reserve and US Treasury than logistical flight details.


The French Connection – Banque de France

It’s not clear where the last gold shipment on World Airways N275WA aircraft originated from, although Nelson Merentes made the general statement for the overall operation that “the gold comes from several European countries.

However, in the case of the first shipment on Air France from France, there are not that many places where the flight could have come from, the main suspect being from Charles de Gaulle airport (CDG) in Paris, where Air France has one of its two main cargo hubs (the other hub being Amsterdam – i.e. these are Air France-KLM’s two cargo hubs). This then also makes a good case for the first shipment of gold having come from the Banque de France. If this was the case, then it meant that bullion banks and/or the BIS needed to source gold from the Banque de France. Would this have been feasible? Yes.

A May 2012 article from CentralBanking.com (subscription only) quoted George Milling-Stanley, independent gold consultant, and formerly of the World Gold Council, who had some interesting insights into the role of the Banque de France in being able to mobilise gold:

‘”Gold stored at the Bank of England vaults … can easily be mobilised into the market via trading strategies, or posted as collateral for a currency loan. The London vaults of JPMorgan, HSBC, and other bullion dealing investment banks have a similar status,” says Milling-Stanley.’

‘Of the Banque de France, Milling-Stanley says it has “recently become more active in this space [mobilising gold into the market], acting primarily as an interface between the Bank for International Settlements in Basel [BIS] and commercial banks requiring dollar liquidity. These commercial banks are primarily located in Europe, especially in France”.’

Milling-Stanley’s reference to the Banque de France acting as an interface to the BIS and commercial banks in Europe may be implying that the Banque de France was a party to the 2010 BIS gold swaps which involved 10 commercial banks including BNP Paribas, Societe Generale and HSBC.

In July 2010 the FT said that “three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals.” Note that BNP Paribas and HSBC are two of the five bullion banks with which the BCV had outstanding gold loans to in August 2011.

Despite the BIS’ cryptic, short, and obscure explanation that in these swaps, the commercial banks provided gold to the BIS in return for US dollar liquidity, it could be the case that commercial bullion banks borrowed central bank gold held at the Banque de France via financing from the BIS as part of a tripartite transaction.

Under this type of tripartite transaction, which was first proposed by Adrian Douglas, a Venezuelan – Banque de France version would have involved the Banque de France arranging gold lending to the bullion banks who then transfer the title of this gold to the BIS. The BIS transfers US dollars to the bullion banks who then either transfer this currency to the Banque de France, or owe a cash obligation to the Banque de France. The gold is recorded in the name of the BIS but is actually kept in the Banque de France until required by the bullion banks who borrowed it, then, when needed, gold is withdrawn by the bullion banks and used to pay back central bank gold lenders such as Venezuela’s BCV. Either French gold or Banque de France customer gold (such as IMF gold in Paris) could have been used in such a transaction. This would explain why Venezuela received crates of gold flown in to Caracas by Air France cargo.

The FT also noted in its 2010 BIS gold swap article that “In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in “swap operations” in the financial year to March 31.” (2010)

This 346 tonne BIS gold swap figure was said to have continued to grow after March 2010 and was estimated to be as high as 380 tonnes by July 2010.

Venezuela’s 50 tonnes of gold at the Bank of England

At the time of the arrival of the last gold shipment to Caracas in January 2012, Nelson Merentes was reported to have noted that “gold stored in BCV will reach 86% of the total while the rest, about 50 tonnes, will stay in the banks in which the Republic needs to maintain open accounts for international financial operations.” In August 2011, Chavez had referred to wanting to reach a target of 90% of the gold being stored in Caracas, but 86% is quite close.

The 50 ton amount remaining at the Bank of England was possibly chosen as a ’round number’ tonnage by the BCV and its international advisors. From the above bar/ingot total calculations, it seems that there were 4,089 good delivery bars left in London. This 50 tonnes, left in situ in London in January 2012, was to play a far greater role in Venezuela’s international financing arrangements than many envisaged at the time.




The Reactivation of Venezuela’s Gold Reserves

The death of Venezuelan president Hugo Chavez in March 2013, and the election of Nicolás Maduro as his successor marked a re-establishment of the relationship between the international investment banks and the Venezuelan central bank.

Recall that in August 2011 when Chavez called for the repatriation of Venezuela’s gold reserves, he also called for the transfer of the BCV’s operating reserves away from US and European banks. These operating reserves, such as cash deposits and short-term fixed interest investments, had been invested with the BIS (BPI in Spanish), Barclays, JP Morgan, BNP Paribas, Deutsche Bank, the FRB (repos), the World Bank and Bladex (the Panamanian based LatAm trade bank). Sight deposits were with JP Morgan, time deposits with the other commercial banks and the BIS, and it negotiable (fixed rate) instruments with the BIS (FIXBIS). See “Proposed Relocation of the International Reserves“.

Operating Reserves August 2011

Prior to the Chavez about-turn, Venezuela had cultivated close working relationships with some of the biggest global investment banks (or vice-versa), and seemed to be especially fond of Wall Street banks. This is illustrated, obviously, by the manner in which it used the investment banks to invest both the operating and gold components of its international reserves, where the names involved read like a who’s who of investment banking giants. But as important as the deposit taking banks appear to be to Venezuela, the advisory and corporate finance relationships look to be as equally important.

According to the Venezuelan media, in the early 2000s, JP Morgan was said to be very close to the Venezuelan finance ministry and finance minister Alejandro Dopazo, and Credit Suisse New York was also said to have had a close relationship with the government.

The use of Venezuelan gold as loan collateral was also not something new to the Maduro years. A Venezuelan media report from August 2011 claims that a few years prior to 2011, Venezuela was involved in financing discussions with New York based investment banks where the banks raised the issue of gold collateral as a means of lowering the required coupon in the financing strategies and products being discussed. These meetings were said to have taken place in the New York offices of Francisco Illaramendi, former manager of the PDVSA pension funds. According to the media report, Deutsche Bank, Credit Suisse and Barclays separately proposed that in order to  “avoid the penalty of high coupons, Venezuela could place ‘equivalent in gold in the banks’ to support the issue”, with Credit Suisse proposing that Venezuelan gold be deposited with it in London and Barclays proposing likewise.

Since the Maduro presidency, the investment banks, and especially the Wall Street based banks, have been actively involved again in Venezuela’s financial affairs. Late last year, in December 2014, Venezuela sold Goldman Sachs a $4 billion credit owed to Venezuela by the Dominican Republic which was outstanding under the Petrocaribe arrangement. Petrocaribe is a regional oil programme by which Venezuela supplies oil to other countries in the region.

Lazard, the French investment bank, is a financial advisor to the state of Venezuela, and last year Lazard was chosen by Venezuela to handle the sale of Citgo Petroleum on behalf of the Venezuelan state owned oil company PDVSA (Petróleos de Venezuela S.A.). Citgo is a US subsidiary of PVDSA. This sale didn’t go ahead but then Deutsche Bank’s New York office was chosen in January 2014 to handle a bond and loan capital raising exercise for Citgo and advisory services for PDVSA. Deutsche had previously worked with PDVSA.

Bank of America-Merrill Lynch also now has a close relationship with the Venezuelan central bank and the Venezuelan government in the form of its chief economist for the Andean region, Francisco Rodríguez. Rodríguez, was chief economist to the National Assembly of Venezuela from 2000-2004, and joined Bank of America in 2011. More about Rodríguez below.


Goldman Gold Swap Plan

The first sign that Venezuela’s gold was back in the sights of the investment banks came in November 2013, when it was reported that the BCV (and the Venezuelan government) were in negotiations with Goldman Sachs about the arrangement of a gold exchange, in other words, a gold – US dollar swap with gold as collateral. A lot of the reporting at the time did not provide very much detail about this swap, so here are some summary details of the Goldman gold swap.

The gold swap was to be between the Central Bank of Venezuela (BCV) and Goldman Sachs International in London. Eudomar Tovar was BCV president at that time. The swap would involve Venezuela swapping gold from it’s reserves with Goldman Sachs international in exchange for a US dollar loan, with the gold serving as collateral for the loan.

The swap was to be for a four-year duration between 2016 and 2020 (although another media source said it was to be for a seven-year duration from late 2013 until late 2020). The swap was to be for 1.45 million ounces of gold (or nearly 1.45 million ounces according to one media source) which was expected to be deposited at the Bank of England and transferred to Goldman Sachs International at an agreed time. At the time, 1.45m ozs of gold was valued at over $1.85 billion at the then market price of $1,282 per ounce. Venezuela would also pay an annual interest rate of 8% on the loan.

BCV Goldman Adar gold swap

The above screenshot is from a document here.

If the price of gold fell over the life of the swap, the BCV would need to deposit more gold into a margin account. If the price of gold rose, Goldman Sachs International would be required to deposit more currency into a margin account.  At the swap’s maturity, the contributions made by each party into the margin accounts would be returned to the respective parties.

The swap was said to contain a built-in hedge that would benefit Goldman, which reflected a 10% adjustment of the value of the swap if the gold price fell. The gold swap was said to be tradable on the market. The terms of the swap allowed the BCV to repay the loan and keep the gold, but if the BCV didnt repay the loan, the gold would go Goldman. One report said that the gold would continue to appear on the BCV’s balance sheet throughout the term of the swap.

The BCV had contracted Adar Capital Partners (of which Diego Marynberg is a director), as a consultant to design the swap with Goldman Sachs International. Adar Capital Partners would received 0.25% per annum of the value of the gold in the contract at beginning of each year over the life of the contract.

Any dispute between the parties would  be resolved in English courts. Some media articles on the BCV-Goldman gold swap can be viewed in Spanish here and here and here.

Given that there were said to be 16,908 of Venezuela’s gold bars held abroad, of which 12,819 bars were repatriated, this left 4,089 of Venezuela’s bars in the vaults of the Bank of England from early 2012. These 4,089 bars are roughly equal to 51 tonnes, or 1.635 million ounces. It looks like the Goldman swap factored in a 10% adjustment on 50 tonnes of gold (roughly 1,607,500 ozs) at the Bank of England,  to arrive at 1.45 million ounces (i.e. 1,607,500 * 0.9 = 1,446,750 ozs). This is the 10% adjustment referred to above. So Goldman would have had an extra buffer built-in as protection against a downward gold price movement.

The discussion of the swap at the time in November 2013 did not reveal what US dollar amount the BCV was to receive from Goldman in exchange for transferring 1.45 million ozs of gold to Goldman. i.e. it did not reveal the intended discount that the BCV was expected to take on gold with a US dollar value of $1.85 billion.

The BCV maintains that this gold swap with Goldman Sachs International did not go ahead, despite what look like detailed terms and negotiations. But the framework of the gold swap discussed with Goldman Sachs looks very similar to the swap structure that was ultimately chosen in April 2015, so it appears that the BCV re-used in some way the plan that they had drawn up with Adar Capital Partners and Goldman Sachs.

Goldman and Ecuador

Where Goldman did get a Latin American gold swap out the door was Ecuador, approximately six months after its negotiations with Venezuela hit a wall.

In early June 2014, it was announced that Ecuador had agreed to swap 1,165 bars of gold as collateral with Goldman, and in return Goldman agreed to provide Ecuador with “instruments of high security and liquidity” i.e. a loan. This gold swap was for 3 years, from 2014 to 2017 after which it will be reversed and Ecuador will get its gold back and pay the 2017 gold price to Goldman.

Rodríguez, Bank of America and the BCV vault visit

In September 2014, there was a rather unusual story from Bloomberg in which Francisco Rodríguez, the Bank of America economist (see above), related the fact that he had been allowed a rare visit into the Venezuelan central bank gold vault to view the gold bars. Rodríguez maintains that he was at a routine meeting in the BCV headquarters when his request to see the gold was granted, and that he and four other people who had attended the meeting were brought down to the underground vault in which all of the gold was stacked in “five small cells that were not even full to the top”, and that the bars were of “different types”.

While Rodríguez is said to be close to the BCV and the Venezuelan government, it still seems odd that at a routine meeting, a Bank of America representative (and some unnamed others) would pop down to see the gold in the vault, while external attendees at countless other meetings at the BCV’s headquarters would not do this tour. Could it he that the Bank of America was running the slide ruler over the Venezuelan gold in preparation for a loan of their own to the Venezuelan State?

Role Call Recall

At this point its worth recalling some of the banks that were interacting with the Venezuelan state and finance ministry, and/or interacting with the BCV (not including the gold deposits and gold lending).

In 2011, Venezuela’s operating reserves were invested with Barclays, JP Morgan, BNP Paribas and Deutsche Bank. Earlier in the 2000s, JP Morgan, Credit Suisse and Deutsche were said to be close to or working with Venezuela on various financing matters.

It was also said that a few years prior to 2011, Barclays, Credit Suisse and Deutsche, at meetings in New York held in the PDVSA offices, had proposed that Venezuela could put up gold as collateral so as to lower coupons on unspecified products.

Then there was Goldman Sachs purchasing outstanding debt that the Dominican Republic owed to Venezuela. Then there were Lazard and Deutsche advising the PDVSA and/or Citgo in the US. Finally there was Goldman Sachs negotiating a gold swap with Venezuela in 2013, and Bank of America taking a look at the gold in the BCV vaults in 2014.


Investment Bank beauty parade – March 2015

The topic of Venezuelan gold swaps was again raised on 10 March 2015 when Reuters reported that the BCV was said to be in advanced discussions with a group of Wall Street banks about conducting a 4 year gold swap for 1.4 milion ozs of gold, and that the swap operation would be agreed by the end of April. Reuters reported that the discussions involved at least two institutions, namely “Bank of America and Credit Suisse”.

At the time, the swap was said to involve an exchange of 1.4 million ozs (43.5 tonnes) of Venezuelan gold for cash, on which interest would be paid, and that Venezuela had the option of re-purchasing the gold after the expiry of the 4 year term. Interestingly, it was also said that Venezuela “would most likely be able to maintain the gold as part of its foreign currency reserves” during the swap, i.e. double-counting of gold reserves.

Amid the publicity about these March 2015 swap discussions, confusion arose as to whether the Goldman Sachs gold swap had happened or not, but the BCV stated generally that although it had “received proposals to carry out a similar operation” in late 2013, it “denied any agreements had been completed.“

Local media went further, and named additional investment bank names said to be involved in the pitch to secure the gold swap deal. On 5 March 2015, Nelson Bocaranda Sardi claimed in Venezuelan newspaper El Univeral that there was a pitch competition (implied to be for effect) by Credit Suisse, Goldman, BTGP Brazilian, Deutsche, Bank of America and Citibank, and that it was really a three horse race in which Deutsche Bank, Bank of America and Citibank would be chosen for the gold swap, but for $500 million each. Furthermore, Sardi said that Venezuela was paying $70 million to each bank as a risk premium. El Universal was previously said to be critical of Chavez, but may now not be so critical of Maduro.

On 12 March, on a web site of an organisation called Aporrea, Fresia Ipinza retorted (possibly with more up-to-date information) that rumours were saying that the gold swap would be over 4 years for 1.4 million ozs, and that allegedly Bank of America and Credit Suisse were involved. Aporrea were known to be Chavez supporters.

So, its very possible that the list of investment banks pitching to Venezuela for the gold swap were as follows: Bank of America, Credit Suisse, Citibank, Deutsche Bank, Goldman Sachs and BTGP. BTGP refers to BTG Pactual, a Brazilian investment bank.

Citigroup Rescue


The Citibank Gold Swap

In the last week of April 2015, it emerged that Citibank had exclusively won the mandate for the gold swap with Venezuela. It was reported that Citi was chosen from a group of ‘five’ banks that had pitched.

A combination of sources (see links) yield the following details about the gold swap with Citi. The details are said to be derived from newspaper ‘El Nacional’ and also a former director of the BCV, and also from Reuters.

Venezuela (via the BCV) will put up 1.4 million ozs of gold as collateral in exchange for a $1 billion loan of foreign currency from Citibank. Since 1.4 million ozs of gold, valued at the late April 2015 price of $1,200, is roughly $1.68 billion, then Venezuela is having to accept a near 40% discount on the specified gold collateral. Venezuela also pays interest on the loan at between 6% and 7% per annum.

The swap is for a 4 year duration, and Venezuela will have the “right of first refusal” to re-purchase the gold after 4 years. The 1.4 million ozs of gold (43.5 tonnes and just less than 3,500 Good Delivery bars equivalent) will be held at the vaults of the Bank of England. If Venezuela does not pay the interest payments on time, Citibank can gain control of the gold. The loan was expected to be for $1.5 billion but its unclear why this changed, but probably would have something to do with a bigger haircut being imposed.

According to ‘Venezuela Analysis‘ the “current value [of the gold] will continue to appear on the Central Bank’s balance sheet – an advantage that Goldman Sachs denied the country in earlier talks.” ‘Venezuela Analysis’ also said that some sources think Citibank holds title to the gold, while other say Venezuela holds title. Another relevant newspaper link is here.

None of the media commentary mentioned Adar Capital Partners Ltd in conjunction with the Citibank swap but its possible that this company could have been involved in the more recent swap negotiations, given that it was involved in the late 2013 gold swap negotiations involving Goldman Sachs and a lot of the swap terms are similar. On the other hand, the BCV could have just taken its gold swap file on the Goldman proposal out of the top drawer and reused the Goldman – Adar plan.

Why might Venezuela need a loan now?

Does Venezuela really need extra foreign currency now? In some ways, yes. Venezuela’s international reserves keep falling and as Nathan Crooks of Bloomberg said recently, reserves are now under $18.8 billion and at the lowest level since October 2003.

Venezuela’s international reserves fell by about US$2 billion during April from a level of $20.8 billion at the beginning of April. Lower oil prices have impacted the country’s ability to comfortably meet principal and interest payments on foreign bond borrowings and  for financing imports. Inflation in Venezuela is running high, and there are reports of a shortage of essential goods and an impact on some public services. In short, the economy is contracting.

Rodriguez, the Bank of America economist, said that the gold swap was the ‘logical’ course of action for Venezuela to take. As to why Venezuela can’t negotiate oil swap deals in the current environment or get more financing from the BRICS or China, that is probably more of an international political issue and a reputational issue with the international capital markets.


Maria Corina Machado

On 12 March 2015, Maria Corina Machado, a deputy in the Venezuelan National Assembly and political leader of the opposition party, sent an offical letter to Nelson Merentes, president of the BCV, asking the following 5 questions about the gold swap, which at the time, in early March, was being rumoured.

Questions 1 and 2 are quite standard and to be expected in light of the general rumours about the swap, but questions 3, 4, and 5 seem to suggest that Machado had heard something about the negotiations that made her think that the size of the swap was going to be far larger ($2.6 billion), and that there would be a ‘second operation’ with an even larger swap, and that this would require moving gold out of Venezuela again. See the 5 questions below:

  1. ¿Está todo el oro de las reservas venezolanas en las bóvedas del BCV de Venezuela tal como afirmó el ex presidente el Hugo Chavéz 17 de agusto 2011, cuando ordenó “repatriacion de nuestro oro”?

Are all of Venezuela’s gold reserves in the vaults of the Central Bank of Venezuela as stated by the former president Hugo Chavéz on 17 agusto 2011, when he ordered “repatriation of our gold”?

2. ¿Está el BCV en negociación con la banca extranjera para la venta o empeño del oro monetario?

Is the BCV in negotiations with foreign banks for the sale or pawning of monetary gold?

3. ¿Es cierto que en la operacion de empeño del oro actualmente en discusión se pretende disponer de oro por un valor de mercado de 2,6 mil millones US$?
¿Esto representaría comprometer casi el 20% del total de reservas en oro de la Républica en esta primera operación?

Is it true that in the operation to pawn gold currently under discussion, it is intended to dispose of gold with a market value of US$ 2.6 billion?
Does this represent / involve almost the 20% of the total gold reserves of the Republic, in this first operation?

4. ¿Es cierto que estarían negociando una segunda operacion de empeño similar a la anterior por un monto aun mayor?

Is it true that they would be negotiating a second operation similar to the previous one for an even greater amount?

5. ¿Estas operaciones implican sacar el oro de las bóvedas del BCV y regresarlas al exterior?

Do these operations involve removing the gold from the vaults of the BCV and returning it abroad?

In the letter, Machado claimed that “the [gold swap] exchange would jeopardize the achievement of economic stability” and “would compromise the future of the Republic and the welfare of millions of Venezuelans“.

She also called for the monetary gold bullion held by the BCV and the exact amount held abroad  to be “certified by an independent and trusted international body”.

There does not seem to be any publicly available response from the central bank to Machado’s letter, so its unclear as to which answers, if any, Machado received from the BCV. However, given the deteriorating state of Venezuela’s international finances and international reserves at the present time, it may be sooner rather than later before Venezuelan gold could be on the move again out of the country.

One thing is for sure. Gold leaving Venezuela on a flight back to London, New York, or elsewhere, will not get the fanfare and celebration that was accompanied by the same gold’s arrival into Caracas a few short years ago.


The IMF’s Gold Depositories – Part 3, Gold Swaps and the Quality of the IMF Gold

The International Monetary Fund (IMF) is authorized to use its gold holdings to engage in gold location swaps and has done so frequently in the past. This has involved gold location swaps with the entities who maintain the gold vaults where the IMF stores its gold, such as the Federal Reserve Bank of New York, the Bank of England and the Banque de France, and also other entities such as the Bank for International Settlements who also maintain gold accounts at the same vaults as the IMF does.

The quality of the gold that has been held by the IMF at each of its gold depositories varies. In New York and Paris, the IMF gold is/was stored in the form of complete melts of US Assay office gold bars, as well as some coin bars. At the Bank of England, a lot of the IMF gold is/was in the form of Rand Refinery bars. At the Reserve Bank of India in Nagpur, some of the gold was of variable quality, and included confiscated smuggled gold, newly mined gold from indigenous production, good delivery gold from London, and other gold from the Reserve bank of India Issue Department.

For a background to the gold depositories of the IMF and their locations, see “The IMF’s Gold Depositories – Part 1, The Legal Background“. For more details on the depositories’ locations see “The IMF’s Gold Depositories – Part 2, Nagpur and Shanghai, the Indian and Chinese connections“.

IMF Gold Swaps with its Custodians

There have been multiple cases in the past of the IMF executing gold location swaps between its depositories using IMF Article XIII, Section 2(b) as a justification (i.e. the requirement that the Fund hold at least 50% of its gold in New York while holding at least 40% elsewhere).

IMF Staff Memo #17 written by John L Fisher of the Operations Department on 21st January 1947 estimated that  of a total of $1.448 billion in gold subscriptions by member countries (41.3 million ounces), approximately $1.006 billion or 69%  would be paid into the New York depository at the FRBNY,  $332 million (23%) would be paid into London, $80 million (6%) into Paris and $30 million (2%) into Bombay. The memo concluded that “It looks as though we shall get 69% paid in New York.” Since this distribution would not leave 40% or more of the gold in the non-US depositories (since only about 31% of the gold was outside the US), this distribution of the Fund’s gold needed to be amended.

Therefore, the first IMF gold location swap ever was between the Fund’s New York and London holdings in 1947 and involved the Bank of England as counter-party, and was done “in order to bring the initial distribution of the gold holdings of the Fund into conformity with the provisions of the Fund Agreement“.

IMF gold sign

IMF Gold Swap – New York and London: Counter-party Bank of England

The details of the 1947 New York – London swap were as follows:

“Gold Swap with the Bank of England

Under the Fund Agreement initially not more than 60% of the Fund’s gold could rest in New York. Since far more than 60% was deposited in New York, the choice lay in shipping gold immediately to another of the Fund’s depositories, or achieving a swap in the hopes of a later distribution which would obviate the Fund bearing the expense of shipping.

There was no particular reason for the Bank of England to hold gold in New York, but in the circumstance they agreed to make a swap on the following conditions:

(a) The transaction to be free of expense to the Bank of England

(b) The Bank of England to have an option to reverse the swap or to have the gold shipped to London at the Fund’s expense

No time limit was expressed on either side, and since the swap was for the convenience of the Fund and not the Bank of England, the two conditions were eminently fair.
Nevertheless, there is nothing to debar the Fund from asking at any time for the swap to be reversed, and subject to events, there seems no reason why in a few months’ time the Fund should not do so.”

(Source: Staff memo Number 74 written by John L Fisher, Operations Department, March 19, 1947)

The amount of gold swapped was not mentioned in this 1947 memo, however it was specified in the return leg of the swap – see below. It appears that the swap was undertaken with the intention of then reversing it the following year because the same memo stated that:

the managing Director has given instructions that this swap shall be reversed after the close of the fiscal year, providing that analysis at that time indicates that such a reversal will improve the distribution of the gold holdings from the standpoint of the Fund.

It turned out that the swap was not reversed until seven years later, and was reversed at the request of the Bank of England.

In a note titled “Reversal of Gold Swap with Bank of England”, dated 1st June 1954, to the Executive Board, the Acting Secretary wrote;

“The Fund affected a gold swap with the Bank of England on February 28, 1947, by transferring 4,428,582.578 fine ounces to the Bank of England’s gold account at the Federal Reserve Bank of New York against the receipt of an equivalent amount of gold in London.”

“On May 7, 1954, the Bank of England expressed its desire to exercise its option to reverse the above-mentioned gold swap, and on May 14, 1954, the original swap was reversed by the acceptance of gold in New York from the Bank of England against the release of gold from the Fund’s account with the Bank of England in London.”

 At $35 per ounce, 4.428 million ounces of gold was worth just under $155 million and represented just over 10% of the total gold subscriptions that had been referenced in the 1947 estimates of $1.448 billion. So the swap moved about 10% of the Fund’s gold from New York to London, thus boosting the non-US holdings from about 31% to over 40% as was the intention.

IMF Gold Swap – New York and Paris: Counter-party FRBNY

The IMF also engaged in gold location swaps between its gold holdings in New York and its holdings Paris using the Federal Reserve Bank of New York (FRBNY) as counter-party. This is illustrated by some very interesting gold swaps in the summer of 1968 which suggest that the FRBNY and US Treasury were scrambling to source gold in New York. This would back up the view that the US Treasury had run out of good-delivery gold in March 1968, hence the need to let the London Gold Pool collapse. (See “The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank” for a background on this.)

A letter dated 19th June 1968 from the IMF Managing Director to the Executive Board titled “Gold Holdings” (EBS/68/179), illustrates the proposal for one of these gold swap transactions:

“The Fund’s gold holdings are now approximately $4 million in Paris. We now have the opportunity to carry through a swap of gold with the Federal Bank of New York. The Fund has had gold swaps in the past in order to arrange a more useful distribution of its holdings.

On this occasion the Federal Reserve Bank of New York is willing to swap approximately $110 million of gold as between Paris and New York, with the result that the Fund’s holdings would then be $114 million in Paris. The swap would meet the criteria of the Articles which are that all transfers of gold shall be met with due regard to the costs of transport and the anticipated requirements of the Fund. There will be no costs involved for the Fund in the proposed swap, and the small difference between the gold swapped will be settled in dollars.

The management feels that it would be advantageous for the Fund to accept the proposed offer. Subject to any views that may be expressed before noon, Monday, June 24, 1968, it is proposed to give instructions to the staff to confirm the transaction.“

Memo EBS/68/79, Supplement 1, a week later (on 26th June 1968) confirms that this gold swap was activated:

“This is to notify the Executive Directors that, in accordance with the proposal EBS/68/179, approved by the Executive Directors on June 24, 1968, an amount of gold equivalent to $110,001,164.07 was withdrawn from the Fund’s gold account with the Federal Reserve Bank of New York, New York, against transfer of gold equivalent to $110,001,324.58 to its account with the Banque de France, Paris…..There were no coats involved in this swap.

The gold swap was effected value June 25, 1968”.

There is no indication as to why the IMF management thought “that it would be advantageous for the Fund to accept the proposed offer” from the FRBNY. The rationale for the swap seems to have been purely at the request of the Americans.

At $35 per ounce, the amount of $110 million is approximately 3.14 million ounces or about 98 metric tonnes.

Two additional similar swaps on IMF gold between New York and Paris were activated in July 1968 ($75 million) and September 1968 ($80 million), respectively, bringing the Fund’s gold holdings in Paris to approximately $269 million, with a corresponding reduction of the Funds gold in New York to approximately $2,117 million.

For the July 1968 swap, the (Acting) Managing Director proposed (EBS/68/208, 25 July 1968) that:

“The Fund now has another opportunity to engage in a similar transaction with the Federal Reserve Bank of New York for an amount of gold equivalent to $75 million. This exchange would increase the Fund’s gold holdings in Paris to about $189 million.”

After the swap was completed, Memo ‘Supplement 1 to EBS/68/208‘ confirmed that:

“an amount of gold equivalent to $75,002,578.59 was withdrawn from the Fund’s gold account with the Federal Reserve Bank of New York, New York, against transfer of gold equivalent to $75,002,628.89 to its account with the Banque de France, Paris. ….The gold swap was effected value July 30, 1968.”

 For the September 1968 swap, the Managing Director explained in EBS/68/242 that:

“On two recent occasions the Fund has swapped gold totaling the equivalent of $185 million in its account at the Federal Reserve Bank of New York against the receipt of a similar amount of gold in its account with the Banque de France, Paris (EBS/68/179 and Supplement 1 and EBS/68/208 and Supplement 1). These exchanges involved no costs to the Fund.

The Fund now has another opportunity to engage in a similar transaction with the Federal Reserve Bank of New York for an amount of gold equivalent to $80 million. This exchange would increase the Fund’s gold holdings in Paris to about $269 million and reduce its holdings in New York to about $2,117 million.

When the September swap had been completed on 20 September 1968, ‘EBS/68/242 Supplement 1‘ confirmed that:

“an amount of gold equivalent to $80,002,457.33 was withdrawn from the Fund’s gold account with the Federal Reserve Bank of New York, New York, against transfer of gold equivalent to $80,002,469.58 to its account with the Banque de France, Paris.

The gold swap was effected value September 20, 1968.”

Like the June swap, there was no indication given for the July and September 1968 swaps as to why the IMF management thought “that it would be advantageous for the Fund to accept the proposed offer” beyond the fact that the swaps were helpful to the FRBNY in that the FRBNY secured gold in New York. Unfortunately, the IMF documentation above only specifies the US dollar value of the swaps and not the quality of the gold swapped in each location, i.e. whether the gold in both legs of the swaps was good delivery gold (circa 0.995 fine) or whether the transactions involved coin bars (circa 0.90 fine).

In total, the three swaps totalled $265 million , or approximately 7.57 million ounces (235 metric tonnes), with the IMF giving up this amount of gold in New York and receiving gold with a similar amount of ‘fine ounces’ in Paris.


IMF Gold Swaps with the BIS

Additionally, the IMF has also engaged in gold location swaps with entities other than its gold depository counter-parties, using a very general interpretation of Article XIII, Section 2(b) that “all transfers of gold shall be met with due regard to the costs of transport and the anticipated requirements of the Fund”. For example, in 1970 the IMF entered a gold location swap with the Bank for International Settlements (BIS), which was logistically possible since both parties held gold accounts at the Bank of England and at the Federal Reserve Bank of New York.

A note from the Managing Director to the Executive Board, dated 2nd April 1970 (EBS/70/108), titled “Gold Holdings” states:

“Since January 1, 1970 the Fund’s gold holdings in London have increased by approximately $273.9 million to about $390.5 million. This increase is due primarily to South African sales of gold to the Fund. Further increases in that center might be expected.

At present the distribution of bar holdings is as follows: (in millions of dollars)

Federal Reserve Bank of New York, New York $1,736.6
Bank of England, London $390.5
Banque de France, Paris $271.7
Reserve Bank of India, Nagpur $114.9
Total $2,513.7

The Fund now has an opportunity to engage in a gold swap with the Bank for International Settlements, whereby the Fund would deliver up to the equivalent of $17.5 million in gold to the Bank for International Settlements in London against the receipt of about the same amount in New York.

Any small difference in the gold swap will be settled in US dollars at US$35 per fine ounce. The exchange of gold would meet the criteria of the Articles of Agreement which are that all transfers of gold shall be met with due regard to the costs of transport and the anticipated requirements of the Fund. There will be no costs for the Fund in the proposed transaction. The Fund has in the past engaged in a similar exchange of gold with the Bank of International Settlements.

The management feels that it would be advantageous for the Fund to accept the proposed offer. Subject to any views that may be expressed before the close of business, Friday April 3, 1970, it is proposed to give instructions to the staff to confirm the transaction.”

The total dollar amount of the IMF’s gold holdings in April 1970 (specified above) of $2,513.7 million is equivalent to 2,234 tonnes. Interestingly, the dollar amounts listed in each location work out at 69% in New York, 16% in London, 11% in Paris and 5% in Nagpur, India. This would again mean that only 31% of the IMF’s gold was outside the US, which is not in accordance with IMF Article XIII, Section 2(b).

There is no evidence as to why the Fund thought the April 1970 gold swap with the BIS was advantageous. At $17.5 million, the value of the swap was very small, and the ratios of gold holdings between New York and London would not have altered substantially. Therefore there may have been other factors involved in doing this swap with the Bank for International Settlements. It’s also interesting that the above note states that the IMF had engaged in similar gold swaps with the BIS prior to April 1970.

Quality of Gold held by the IMF at the Depositories

It’s worth highlighting the types and quality of gold that have been held on behalf of the IMF in each location.

New York and Paris – Melts and Coin Bars

In preparation for the IMF gold auctions, a “Gold Sales by the Fund” (EBS/76/46) summary paper in February 1976 confirmed that:

“As regards the specification of the gold to be delivered, most of the IMF’s gold is 0.995/1.000 fine or better, though a small amount is in the form of coin bars which are 0.899-0.916 fine gold. It is proposed that the Fund specify delivery of gold of 0.995/1.000 fineness or better.”

“…most of the gold of the Fund is not in the form of individually stamped and weighed bars but consists, with the exception of the gold held in depositories in the United Kingdom and India, of melts, comprising 18-22 individual bars, which will first need to be identified, weighed, and selected before they can be delivered.”

“A melt is an original cast of a number of bars, usually between 18 and 22. The bars of an unbroken melt are stamped with the melt number and fineness but weight-listed as one unit; when a melt is broken, individual bars must be weighed and stamped for identification. It is the practice in New York and Paris to keep melts intact.”

Gold in New York is primarily held in the form of melts. It is expected that sufficient melts will be broken in time for the first auction. Should this not prove possible, delivery would be made in London.”

This was reiterated in an IMF paper a few months later in April 1976 titled “Preparation for Gold Sales” (EBS/76/182):

“As indicated in the staff paper on Gold Sales (EBS/76/46, 2/2/76), most of the Fund’s gold held with the Federal Reserve Bank of New York and the Banque de France is in the form of melts. Before the gold can he offered in gold auctions a part of these holdings has to be transformed into individually weighed and identified bars.

It is estimated that the cost of stamping and weighing will be approximately US$5 per standard bar of 400 ounces in New York, and approximately F 50 in Paris. This note is to inform Executive Directors that the Managing Director has authorized the Treasurer to instruct, as necessary, the Fund’s depositories in the United States and in France to proceed with weighing and stamping sufficient individual bars for the conduct of the sales program.”

For more background explaining melts and coin bars, see “The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank“.

London – Rand Refinery Bars

Recall above that the Fund’s gold holdings in London had been augmented substantially via South Africa selling gold to the Fund i.e.:

“Since January 1, 1970 the Fund’s gold holdings in London have increased by approximately $273.9 million to about $390.5 million. This increase is due primarily to South African sales of gold to the Fund. Further increases in that center might be expected.”

The South African gold sales to the IMF actually began circa June 1968 but increased in frequency and magnitude after the US negotiated with South Africa to minimize South African gold sales on the open market. This strategy of keeping the South African gold off of the free market was brokered by the US in order to subdue the free market gold price.

A note dated 14th June 1968 titled “South Africa–Sale of Gold to the Fund”, prepared by the Treasurer’s Department highlights an instance where gold bars sold by the South Africans to the IMF in London were Rand Refinery bars. These are good delivery bars. The note states:

“The Executive Director elected by South Africa has informed the Fund that it should expect to receive a communication from the Republic of South Africa stating its desire to purchase 14.5 million U.K. pounds or other appropriate currencies through a sale of gold at par to the Fund, pursuant to Article V. This transaction is of an amount equivalent to US$34.8 million. The amount of gold to be sold is approximately 994,287.987 fine ounces or approximately 2,486 Rand Refinery bars of average weight of 400 troy ounces and fineness of .995 or higher, which are good delivery bars in London. The gold will be delivered to the Fund’s earmarked account at the Bank of England in London.

In fact, nearly all of the 400oz gold bars produced by South Africa and sold by the South African Reserve Bank at that time were Rand Refinery bars. This is confirmed by an IMF document dated 11th July 1968 titled “South Africa – 1967 Article XIV Consultation” (large file):

“About 95 per cent of South Africa’s gold output is refined by the Rand Refinery Limited, a subsidiary company of the Chamber of Mines. The gold is refined to a purity of 996 parts of gold in 1,000 parts.”

“All bars purchased from the gold producers weigh between 400 and 410 fine ounces; the Rand Refinery Limited, and the South African Mint, both stamp bars and issue assay certificates.”

There are numerous transactions in the early 1970s of the IMF selling currencies to South Africa and receiving Rand Refinery gold in return, such as here. All of the transactions can be searched here. It is therefore likely that a significant amount of the IMF’s gold that is held in London (or was held in London) is/was in the form of Rand Refinery bars.


Nagpur – A golden anomaly

The only gold transferred to the IMF’s account at the Reserve Bank of India (RBI) depository in Bombay (and subsequently transferred to the RBI’s vault in Nagpur) appear to have been the gold payments representing India’s initial and subsequent Fund subscriptions. In 1947, as part payment of its initial subscription of $400 million, India paid $27.5 million in gold into the RBI in Bombay. This is the same IMF gold that was transferred to the RBI, Nagpur in 1956.

When IMF quotas were revised upward in 1958-59, India’s quota rose by 50% to $600 million. Of this $200 million increase, 25%, or an additional $50 million had to be paid in the form of gold. One-fifth of this gold payment came from newly-mined and confiscated gold; the rest was purchased via the Bank of England and was shipped and flown to Bombay, and then flown on to Nagpur.

In 1965 as part of another IMF quota review, India’s IMF quota was increased again by 25%, from $600 million to $750 million. Of this $150 million increase, 25% or $37.5 million had to be paid in gold. Instead of buying additional gold via the Bank of England, India did a deal whereby $37.5 million worth of gold from the Reserve Bank’s Issue Department held at Nagpur was transferred internally to the IMF’s account at Nagpur. This $37.5 million in gold appears to have been in the form of confiscated and indigenous gold production.

In 1970, there was another approximate 25% increase in India’s Fund quota to $940 million, which was an increase of $190 million. Again, a quarter of this increase, or $47.5 million was paid in gold into the IMF’s gold account in Nagpur.

Based on India’s subscriptions and gold subscriptions in 1947, 1959, 1965 and 1970, tallying up the gold proportions of these subscriptions that were transferred to the IMF’s Nagpur gold holdings gives a grand total of 144.4 metric tonnes

($27.5m + $50m + $37.5m + $47.5 m) / $35 per ounce = ~ 144.4 metric tonnes

This 144.4 tonne IMF gold holding at the RBI vault in Nagpur is verified by the January 1976 monthly IMF financial report which reports gold held at depositories as follows, including SDR 162,499,440 in gold in the Nagpur vault:

General Account – Gold Account – Gold with Depositories II. Gold Holdings by Depositories

Federal Reserve Bank of New York     SDR 3,759,612,685
Bank of England                                      SDR 1,010,129,296
Bank of France                                         SDR 437,298,127
Reserve Bank of India                           SDR 162,499,440

Total (per Balance Sheet)                      SDR 5,369,539,548

The IMF balance sheet employs a seemingly convoluted valuation of 0.888671 grams of fine gold per Special Drawing Right (SDR). This is because the IMF values each ounce of gold at SDR 35, and with 1 ounce equal to 31.1034768 grams of fine gold, each SDR is worth 31.1034768/35 or 0.888671 grams of fine gold. (This is not a misprint; the IMF values each ounce of gold at a historic cost of SDR 35 and not USD 35.)

Therefore, the IMF’s gold held at the Reserve Bank of India in Nagpur in January 1976  valued at SDR 162,499,440 was equivalent to 144.4 million grams or 144.4 tonnes.

SDR 162,499,440 / SDR 35  = 4,643,841 ounces

4.643 million ounces  / 31,250 ounces per ton = 144.4 metric tons approximately.

See herehere and here for a history of the Reserve Bank of India which, in various places, discusses the IMF gold.

During the late 1970s IMF Gold Restitutions, IMF members could ”select any of the Fund’s gold depositories for the delivery of gold, except that members in those territories the Fund’s gold depositories are located – France, India, the United Kingdom, and the United States – were expected to take delivery of their share of the gold at the depository in their territory.” IMF Annual Report 1976.

Therefore India received some back some gold from the IMF into its Nagpur holding during the IMF Gold Restitutions which would have reduced the 144.4 IMF tonne holding. Its unclear if other countries ever transferred gold to the IMF gold account at Nagpur. Probably not. It’s also unclear if the IMF’s Nagpur holding ever increased beyond 144.4 tonnes after the 1976. Again, probably not. In its annual reports, the IMF no longer shows a breakdown of its gold holdings by depository, so its  difficult to see how much IMF gold is still in Nagpur.

The IMF sold 403 tonnes of gold over 2009-2010. Of this total, 222 tons of the sales were in the form of direct sales to India, Bangladesh, Sri Lanka and Mauritius  (i.e. 200 tonnes to India in October 2009, 10 tonnes to Sri Lanka, 2 tonnes to Mauritius, and 10 tonnes to Bangladesh) and the remainder of approximately 181 tonnes was sold on the open market supposedly.

During and after the IMF’s ‘403 tonnes’ gold sale, the IMF never commented on which depository (or depositories) this gold was sold from. The Reserve Bank of India said sometime after the 2009 purchase from the IMF that all of its gold was held either within India,  at the Bank of England, or with the Bank of International Settlements. However, it’s possible that some of the IMF’s gold sales to India, Bangladesh, Sri Lanka and Mauritius in 2009-2010 were undertaken by transferring gold from the IMF’s Nagpur holding to gold accounts of the Reserve Bank of India, the Central Bank of Sri Lanka, the Bank of Mauritius and the Bangladesh Bank held at Nagpur. It would make some sense to do this, since the three other countries are regionally proximate to India and enjoy good international relations with India, however some of the IMF gold in Nagpur was of variable quality (read non-good delivery), and furthermore the RBI In Nagpur is not a ‘major gold trading center’ so beloved of gold hoarding central bankers.

Selling from Nagpur would have zeroed out and allowed the closure of the IMF’s gold holdings at Nagpur, and left IMF gold in only three countries, namely the US, UK and France. Since the IMF has become far less inclined to share information on its gold holdings and its gold depositories since the heady days of the 1960s and 1970s, the exact structure, quality and distribution of the IMF’s gold holdings is information that only former and current IMF Managing Directors such as Michel Camdessus, Dominique Strauss-Kahn and Christine Lagarde may be privy to.

London Gold Fixing website www.goldfixing.com taken offline, chairperson in the shadows

(Update 23/03/2015: The www.goldfixing.com website was permanently switched off in the early morning of Monday 23rd March 2015)

The last ever ‘Gold Fixing’ will take place on the afternoon of Thursday 19th March 2015 at 3.00pm.

Following the last fixing, the www.goldfixing.com website of the London Gold Market Fixing Limited will be immediately and permanently taken off-line as of close of business 19th March (i.e. the web server will be made inaccessible to web browsers).

London Gold Market Fixing Limited (LGMFL) recently confirmed to me that:

“The Gold Fixing website will be taken down completely as of the close of business on Thursday 19-3-15 and from 20-3-15 the new LBMA Gold Price will appear on their website www.lbma.org.uk. All the historical  gold Fixing price data on the www.goldfixing.com website is already available on the LBMA website.

This power-down and switching off of the web server follows a similar manoeuvre on the evening of 14th August 2014, when the web site of the London Silver Market Fixing Limited, www.silverfixing.com, was immediately and permanently switched off (without warning), leaving no trace of the live website.

By the time you read this, the www.goldfixing.com web site may be switched off.

This is very unusual behavior by the administrators of the fixing web sites and the bullion banks that run the Gold Fixing and Silver Fixing Companies to immediately make the web sites inaccessible. It’s as if the two Fixing Companies want to vanish without a trace from the internet.

The Gold Fixing website domain was first registered on 22 Dec 1999 by emilie.rivoire@rothschild.co.uk, and is listed with a tech support contact of barclaysmsosupport@sapient.com. See  Domain lookup. So there is still a direct reference to Barclays in the web site and in the Sapient app, which is interesting given that Barclays was the firm that was fined by the FCA for manipulating the gold fixing in 2012 and whose trader Daniel Plunkett was also fined for the same offence.

Interestingly, the London Silver Market Fixing Limited has not been wound up, and still exists as a company, and its directors, until recently, represented HSBC, Scotia and Deutsche Bank. The only Deutsche director, New York based Eric Parker, resigned from the company last December. The HSBC and Scotia directors are still in situ.

The London Gold Market Fixing Limited also still exists as a company (obviously), and its directors are representatives of HSBC, Scotia, Barclays and SocGen, and all of these directors are still in situ. The two most recent Deutsche directors, Kevin Rodgers and James Vorley, resigned from the company on 14th May 2014, which was the same day that Deutsche Bank dropped out of the daily Gold Fixing process.

Both the Gold and Silver Fixing Companies have a registered address of c/o Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ. Hackwood Secretaries Limited is a company belonging to Linklaters law firm. See the Linklaters ownership of Hackwood Secretaries here. Hackwood Secretaries is also the registered address of London Precious Metal Clearing Limited (LPMCL), the precious metals clearing company of Barclays, HSBC, Scotia, UBS, JP Morgan and Deutsche Bank.

Gold Price Data

From Friday 20th March 2015, the LBMA Gold Price data will appear on the London Bullion Market Association’s (LBMA) web site at http://www.lbma.org.uk/pricing-and-statistics. From 20th March, the daily fixings are being administered by ICE Benchmark Administration (IBA). There is some historical gold fixing price data already on the LBMA site, however it is less detailed than the historical gold price data which had appeared on the www.goldfixing.com web site.

On the Gold Fixing web site, the daily and  historical data both included the net volume of gold bars bought and sold at the fixing price, as well as the number of participants who had non-zero interest at the fixing price. This extra detail was added to the gold fixing website in the second half of last year. See screen shots below, both daily and historical. Historical data could also be toggled between dollars, euro and pounds.

Daily gold fixing prices


In contrast, the gold price data currently displayed on the LBMA web site does not include net volume of bars bought and sold at the fixing price, nor the number of participants declaring a buy or sell interest at the fixing price. See screenshot below.

Gold Price data

London Gold Market Fixing Limited’s representative confirmed to me recently that all the historical Gold Fixing price data from www.goldfixing.com is already on the LBMA site. But without the volume and participant data, this claim is not entirely accurate. Adding in the volume (in bars) and the participant totals would make the data more complete.

ICE Benchmark Administration do mention a transparency report which will be published after each auction. This report will contain volume and participant numbers. It remains to be seen if this report will be published on the LBMA website. From the LBMA FAQ:

“At the end of the auction process, IBA will publish the benchmark price. IBA will also publish a Transparency Report showing for each round: the price in USD; the aggregated bid and offer volume; the number of participants; and the timings for each round.”

The current gold price data disclaimer on the LBMA web site (for data up to 19th March) states that  “Fixing data reproduced by kind permission of the London Gold Market Fixing Ltd” . Please refer to its website to see licensing requirements for the commercial use of the data as well as the time stamps.”

Incidentally, this existing LBMA disclaimer continues with some very out of date text referring to BBA LIBOR. Now there’s a blast from the past…. “Neither the BBA LIBOR Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, nor the LBMA can be held responsible for any irregularity or inaccuracy of BBA LIBOR (for more details, see “Prices Explained”).”

The new LBMA Gold Price has its own disclaimer which is to be found on the new LBMA Gold Price page, and it reads “LBMA Gold Price (“Benchmark”) is owned by The London Bullion Market Association (“LBMA”), calculated and administered by IBA.”

No Way Back

The reason for highlighting that the Gold Fixing web site is being taken offline is that now there will be no way to access it. This is so because  it has not been archived in any meaningful way. This is so because the Gold Fixing website www.goldfixing.com has a ‘Terms’ page that appeared at the entry page which prevented the Internet Archive / Wayback Machine (www.archive.org) from archiving the site’s pages. This means that all of the non-price data on the site disappears when the web site is switched off.

Policy Documents

On the Gold Fixing web site, under a section called ‘Policy Documentation’ there were seven documents, including the Code of Conduct of the Gold Fixing company, the Terms of Reference of the gold fixing Supervisory Committee, the names of the people on the Supervisory Committee, and a document retention policy. For those interested, these documents can be found here:








Under a link called ‘Trading Timeline’ there was a historical Goldfixing-Timeline-PDF.

Under a section called ‘Notices’, there was  a Clarification-Document-re-Publication-of-Buy-Sell-Volumes document.

The website also contained an essay about the history of the gold fixing, which I noticed also is on another website here. On the Gold Fixing web site, there had been one small recent addition to this essay to reflect the fact that Deutsche Bank had resigned from the auction. This small addition stated “In May, 2014 Deutsche Bank resigned as a member and the line-up became: Barclays, HSBC, Bank of Nova Scotia Mocatta and Societe Generale.”

The Gold Fixing web site had also prominently displayed the four Members and the most recent chairman, and the logos of the Member banks:

Members gold fixing

bank logos gold fixing

Shadowy Chairmen

Finally, there was an interesting section explaining “How is the Price Fixed?” which was not really explained very well elsewhere. This will be of relevance to anyone who wants to compare the old price determination process to the new one, and to gauge how much, or how little, the process has changed.

This is especially relevant because ICE Benchmark Administration will be employing a human chairperson in the new LBMA Gold Price auction to determine the opening price and the starting price of each round, as opposed to an algorithm. There will be a panel of chairpersons operating on a rotational basis.

Note that ICE and the LBMA are refusing to divulge the identity of these chairpersons.

ICE claim that this is to ‘preserve the anonymity of the auction. This is a totally bogus and unacceptable reason because without ICE confirming the identity of the chairperson, their claim that the chairperson is fully independent of the participants in the auction cannot be verified and will cause suspicion.

It is also shocking, especially since the identity of the chairperson in the Gold Fixing auctions has always been known, in every fixing from 1919 all the way through to 19th March 2015 (i.e. see the screen shots above).

The financial media should really be asking ‘Who is this Chairperson?’, and reporting on this issue.

According to Reuters, ICE has now said that there will be four chairpersons rotating over a six month period and that these will be ‘four ex-bankers‘. The identities of these four ex-bankers have not been revealed. If anything, this appears to cement the control of the incumbent bullion banks over the entire London Gold Fixing process. Reuters also says that none of the Chinese banks will be participants in the auctions.

How the Price was Fixed

The “How is the Price Fixed?” process from the Gold Fixing site can be read below:

  1. The fixing process is governed by a set of Rules for the Administration and Conduct of The London Gold Market Fixings (the “Fixing Rules”). The current version of the Fixing Rules, made under Article 15.01 of the London Gold Market Fixing Limited’s Articles of Association, became effective on 14 July 2014.
  2. The Company has a Supervisory Committee which is responsible for the oversight of the fixing process. The Company has various policies and procedures to ensure the integrity and quality of the gold fixing price which are available on the Company’s website.
  3. Pursuant to the Fixing Rules, representatives of the four members of the London Gold Market Fixing Limited (the “Company”) dial-in to a secure conference facility to determine the single trading price for gold at 10:30 am and 3:00 pm London time on each London business day.
  4. The fixing process commences with the chairman of the fixing (the “Chair”) determining and announcing the opening price of gold.
  5. (The opening price): The Chair shall identify the opening price. The opening price should be the prevailing US dollar mid-market price for London gold and is identified by the Chair after appropriate consideration of the prevailing spot price and the prevailing bid/offer price in the gold futures market.
  6. (Declaration of interests): Assuming this price, the fixing members aggregate all orders received from clients (both prior to the fix and those received in real-time during the fix) with their own proprietary trading position. Members then declare whether or not they have a net buying or selling interest or if they have no buying or selling interest at the opening price.
  7. (No buying or selling interest): If there is no buying or selling interest, the Chair will announce the trading price as fixed at the opening price. Similarly, if at any point during the fixing process there is no buying or selling interest at a given price, the Chair will announce the price as fixed.
  8. (Only buying or selling interest): If there is only buying or selling interest at the opening price and those buying or selling interests represent more than two of the fixing members (e.g. there are three sellers and one no interest), the Chair will move the opening price higher or lower.
  9. Alternatively, if those buying or selling interests represent two or fewer of the fixing members (e.g. two buyers and two no interests), the Chair will ask the fixing members to indicate the net quantity of gold that they are willing to buy or sell at that price.
  10. Fixing members must declare their net interest in increments of five gold bars and must not declare any interest of less than five bars. If the total quantity offered or wanted is 50 bars or less, the Chair will declare the price as fixed at the opening price. If the total quantity offered or wanted is more than 50 bars, the Chair will move the opening price higher or lower.
  11. Similarly, if at any point during the fixing process there is only buying or selling interest at a given price, the Chair will act as described in paragraphs 8 to 10 above.
  12. (Two way interest:) If there is two-way interest at a given price, the Chair will ask members to indicate the net quantity of gold that they are willing to buy or sell at that price.
  13. If supply meets demand, or the difference between supply and demand is 50 bars or less, the Chair may declare the trading price as fixed. Otherwise, the Chair will progressively move the price up or down in an attempt to meet supply and demand.
  14. An upwards price adjustment will cause (i) the potential fixing price to exceed some purchase order limits, which will have the effect of reducing demand as those orders drop out of the members’ net buying interests; and (ii) the potential fixing price to exceed some sale order limits, which will have the effect of increasing supply as those orders are included in the members’ net selling interests.
  15. A downwards price adjustment will cause (i) the potential fixing price to fall below some purchase order limits, which will have the effect of increasing demand as those orders are included in the members’ net buying interests; and (ii) the potential fixing price to fall below some sale order limits, which will have the effect of decreasing supply as those orders drop out of the members’ net selling interests.
  16. The Chair will repeat this adjustment procedure until supply and demand meet or the imbalance is 50 bars or less and the Chair is able to declare the price as fixed.
  17. (Price increments:) The fixing price must be moved in increments of at least 5 cents and in multiples of five cents during the fixing process, in all case taking account of prevailing market conditions.
  18. The Chair identifies price increments based on an assessment of the current price of gold in the spot and futures markets and the level of buying and selling interests declared in the fixing process.
  19. (The discretion): Where the Chair has been unable to exactly match supply and demand, the fixing members will pro rata the difference between supply and demand amongst themselves.
  20. For example, if there is more buying than selling interest (with two buyers and two sellers) and the difference is 20 bars, each buyer will reduce their buying interest by five bars and each seller will increase their selling interest by five bars. This pro rata arrangement is purely between the fixing members and only affects the amount of gold traded as between those members; it does not affect underlying customer orders.
  21. Where the Chair is unable, through moving the price in increments of 5 cents, to achieve an imbalance of 50 bars or less and three attempts have been made to fix the price at a particular level, the Chair may ask the other fixing members to accept an imbalance of up to 100 bars. All members must agree to this increase.
  22. (Flags): Throughout the fixing process members communicate with their clients who are able to cancel, increase or decrease their interest depending on price changes and the level of buying and selling interest.
  23. If, at any time, a member or one of its clients choose to increase, decrease or withdraw a previously declared buying or selling order, that member may require a short pause to recalculate its net interest. In these circumstances the member may call a “flag” which brings the fixing process to a temporary halt. The gold price cannot be declared by the Chair during such a pause.
  24. The term flag is a reference to when the fixing members would meet in a single place to determine the gold trading price. When a member required a pause they would raise a small flag. The flag would be lowered again when they were ready to proceed with the fixing process.
  25. (Execution): Following the determination of the fixing price, the members will execute trades for gold amongst themselves at 15 cents above the fixing price and in the amounts offered during the fixing process.
  26. The Chair will specify the trades that should be executed between the members. The Fixing Rules specify that the largest seller’s order is filled first by matching that order with the largest buyer’s order, with members’ orders then being matched in descending order size.
  27. Settlement takes place two London/New York business days after the fix. Execution of trades between the members does not affect any arrangements agreed between the members and their clients.
  28. (Determination of the fixing price in euros and pounds sterling): The trading price is published by the Company in three currencies: pounds sterling, euros and US dollars. The fixing process takes place in US dollars. Once the trading price is fixed, the Chair will provide the equivalent trading prices in pounds sterling and euros. The Chair uses the then prevailing exchange rates published on Bloomberg or Reuters for this purpose.
  29. (Publication of the fixing prices): Immediately following a fixing, the Chair posts the fixing price, the time at which the price was fixed, the final buy/sell volume figures on an anonymised basis and the basis on which the price was fixed if the discretion was increased from 50 bars, on the Company’s website. The Chair also sends an email confirmation of the fixing price and the time that the price was fixed to the other members.
  30. The published price is the price for one troy ounce (just over 30 grams) of gold delivered in London in the form of LBMA Good Delivery Bars (approximately 400 troy ounces each).


Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!

There is a growing assumption in the financial media that a number of Chinese banks will be joining the new LBMA Gold Price auction as direct participants when the auction launches in London on Friday 20th March. This assumption is based on various sources, but primarily on a number of general comments made by the London Bullion Market Association (LBMA) in February, and also some comments made by the LBMA last October.

ICE Benchmark Administration (IBA), the administrator for the LBMA Gold Price, issued a press release on 2nd February in which the Chief Executive of the LBMA, Ruth Crowell said:

“I’m delighted to see a high level of interested participants for the March launch. The intention and the interest has been very positive and creates a more diverse pool of participants which includes Chinese banks. We look forward to having enhanced numbers of participants for day one for the LBMA Gold Price.”

ringin the bell

There are, however, a number of dangers in assuming that some of the Chinese banks will be direct participants in the new gold auction at launch date, not least of which is that the identities of the direct participants will only be revealed on 20th March, but also the fact that the LBMA’s comments above didn’t specifically say that Chinese banks will be direct participants on launch date. The LBMA’s comments merely said that Chinese banks were interested in participating in the auction.

ICE Benchmark has just published an FAQ document on its website, and in answer to “Who are the direct participants in the auction?”, it states “direct participants will be announced on the day of launch.” Note that the LBMA refers to the entities that will participate at launch date as ‘phase one participants’.

Indeed, the vague nature of the reference to Chinese banks in the 2nd February press release forced the major financial media outlets to be non-committal about the Chinese banks as direct participants on launch date.

For example, on 2nd February 2015, Bloomberg published an article titled “Chinese Banks in Talks to Take Part in Gold Fix Replacement”, in which it stated that:

‘There’s a “more diverse pool” of participants, including from China, interested in being part of the LBMA Gold Price, Ruth Crowell, chief executive of the London Bullion Market Association, said in a statement Monday. The LBMA declined to comment on the number and names of those in talks for the new mechanism that will start in March.’

The Financial Times was slightly more definitive with its guesstimate in an article, also published on 2nd February (subscription), titled “Chinese banks to join new gold fix from March”, in which it said:

“The replacement for the near-century-old London gold fix will start in March, with the hope of attracting at least 11 members, including Chinese banks for the first time.”

“The presence of Chinese banks would give the world’s second-largest consumer of the precious metal a greater say in the global gold price.”

Direct Participants

There is also a danger in assuming that the LBMA’s use of the word ‘participant‘ refers to ‘direct participant in the auction‘, although it’s totally understandable that most people would make this assumption. As is often the case, the LBMA’s communications and press release language leaves a lot to be desired when addressing anything to do with the gold and silver fixings, and needs to be read and interpreted carefully. Furthermore, in my view, neither the LBMA nor ICE have publicised and explained the concept of direct participant properly.

Therefore, many commentators on the new Gold Price auction don’t seem to realise that there is a difference between being a direct participant in the auction and another type of participant in the auction. At the end of the day, this other type of ‘participant’ is basically just a client of a direct participant.

Although ICE says in its FAQ document that “the auction is designed to allow as broad participation as possible”, it does not elaborate.

Where it does elaborate is in the executive summary of its proposal that it used in October to secure the administration of the new Gold Price auction. Here, ICE states that one of the key advantages of its offering is:

“A fair and sustainable fee structure, designed to encourage direct participation from a diverse cross-section of market participants and broad use of the price as a benchmark.”

We have designed our commercial model to promote direct participation in the fixing process and broad usage of the benchmark. And, in designing the commercial model, we have considered the particular nature of the London Gold Fix and its usage in the financial markets.”

It goes on to say:

Traditional clients such as miners, refiners, jewelers and central banks can choose to become a direct participant and deal anonymously in the gold auction. Alternatively, if sponsored by a direct participant, they can be given their own screens and manage their own positions by trading through their sponsor.”

“One of the key benefits of WebICE is its ability to allow clients to participate in the auction process with the same information and order management capabilities as the direct participants. This reduces both operational and regulatory risk for direct participants, even before increasing the number of direct participants or moving to a centrally cleared model.

Interestingly, ICE reveals its view that even though the Gold price auction will not at this time use a centrally cleared model, this should not require the use of credit lines because until a centrally cleared model is introduced, “weaker credit names can be accommodated via pre-collateralisation.” The concept of credit lines is explained below and is another example of where the LBMA has avoided explaining the concept to the global gold public.

On its web site, ICE Benchmark Administration touches on the concept of sponsored clients:

Clients managing their own orders, sponsored by a direct participant – direct participants can choose to provide WebICE screens to their clients, allowing them to enter orders directly into the auction (orders still route through their sponsor/direct participant)….When client orders trade, their counterparty will always be their sponsoring direct participant.”

ICBC London
ICBC London
Bank of China, ICBC and China Construction Bank

At this point it’s worth highlighting that there are only three Chinese banks that could realistically become direct participants in the new LBMA Gold Price auction right now, namely, Bank of China, the Industrial and Commercial Bank of China (ICBC), and China Construction Bank (CCB). Bank of China is a commercial bank and should not to be confused with the People’s Bank of China (PBOC) which is the Chinese central bank.

The reason why only Bank of China, ICBC and China Construction Bank can join the Gold Price auction as direct participants is that these are the only three Chinese banks that are ‘Full’ members of the LBMA, and the LBMA, at a minimum, will not allow any non LBMA members to participate in the auctions as direct participants.

These three Chinese banks have full membership due to being ‘Ordinary’ members of the LBMA. The other category of full membership of the LBMA is of course the LBMA market makers, or which there are currently fourteen of these.

As explained below, these three Chinese banks qualify for directly participating in the recently launched LBMA Silver Price auction, so the Silver Price participant criteria are a good proxy by which to measure the eligibility of the Chinese banks to be direct participants in the LBMA Gold Price auction.

There are of course other giant Chinese banks that are major players in the gold market, such as Bank of Communications and Agricultural Bank of China, however, as they are not LBMA members or even LBMA associates, they would not be able to qualify to be direct participants under the LBMA’s strict and exclusionary auction participant rules.

LBMA Silver Price bait and switch operation

As a quick recap, the current scandal ridden London Gold Fixing which is being discontinued from 19th March is still, at the time of writing, being run twice daily by Barclays (who was fined by the FCA for manipulating the gold price in 2012 during the Gold Fixing),  HSBC, The Bank of Nova Scotia, and Société Générale. In April 2014, Deutsche Bank, which also held a seat in the Gold Fixing, resigned from the Fixing and renounced its fixing seat as of mid May 2014.

Deutsche bank then gave up its seat in the Silver Fixing on 14th August. When the new LBMA Silver Price auction was launched on 15th August last year (administered by Thomson Reuters with CME Group as the auction calculation agent), there were only three initial participants, namely, the HSBC Bank USA NA, Bank of Nova Scotia (Scotia Mocatta) and Mitsui & Co Precious Metals Inc.

Two of these participants, HSBC and Scotia, had been the incumbent members of the triumvirate London Silver Market Fixing Limited company, along with Deutsche Bank. Mitsui, the Japanese bank, in some ways just took the place of Deutsche Bank, or at least, that is how it was viewed in the media.

Despite misleading claims from the LBMA on August 15th that it “fully expects the list of price participants will grow over the coming weeksand that “these participants include banks, trading houses, refiners and producers”, this wider cross-sectional direct participation in the Silver auction never happened.

In a very low-key on-boarding process, only three additional entities joined the new Silver auction following the launch on 15th August, and all three of these entities were bullion banks that joined without the fanfare of press releases from the LBMA or press releases from the banks in question.

UBS joined the Silver auction on 26th SeptemberJP Morgan Chase Bank joined the Silver auction on 14th October, and The Toronto Dominion Bank joined the auction on 6th November.

What’s very interesting about these six banks is that they are all represented on the LBMA’s 10 person Management Committee.

The current Management Committee of the LBMA consist of Grant Agwin of Johnson Matthey (Chairman), Steven Lowe of Bank of Nova Scotia-ScotiaMocatta (Vice-Chairman), Peter Drabwell of HSBC Bank USA NA, Kevin Roberts of JP Morgan Chase Bank, Philip Aubertin of UBS AG, Robert Davis of Toronto Dominion Bank, Jeremy East of Standard Chartered Bank, Simon Churchill of Brinks Ltd, and Ruth Crowell (Chief Executive).

Note: Anne Dennison of Mitsui was appointed as a director of the LBMA on 25th September 2014, but then this appointment was terminated on 20th December 2014.

Readers may wonder if some or all of these six bullion banks were pre-selected or encouraged to participate by the LBMA even before the LBMA Silver Price auction was launched in August. The answer to that would be a definitive ‘Yes’, since, from as early as July 2014, the LBMA and the CME Group had already identified a group of 6 to 7 bullion bank ‘first tier participants’ that they had agreed would be the initial pipeline of benchmark participants to receive LBMA accreditation to take part in the new Silver auction.

This information was conveyed by CME to the London silver market during the CME’s pre-launch information and training sessions. As for wider silver market participation in the auction, this was never part of the phase 1 plan for the silver auction. Phase 2 of the Silver auction using a central counterparty clearing system was also quietly dropped by the LBMA and CME Group despite initial lip-service claiming such as a development was on the immediate horizon.

On 14th August 2014, a day before the Silver Price auction go-live, Reuters ran an article stating that while UBS was looking at the possibility of joining the Silver auction, the other giant Swiss Bank, Credit Suisse, would definitely be joining the auction:

Credit Suisse said on Thursday (August 13) that it would be taking part in the new process, while UBS said in an email that “it is currently evaluating the feasibility of becoming an auction member in the near future.”

In the end, UBS joined but Credit Suisse seems to have had a change of mind.

What are the chances that all six participants that did join the LBMA Silver Price auction would all be bullion banks that are represented on the LBMA Management Committee? Or said another way, what are the chances that six of the seven banks represented on the LBMA Management Committee (apart from Standard Chartered) would end up as the only participants in the new LBMA Silver Price auction? In a random world, the chances of that would be remarkably small.

China Construction CCB

“From a Controls Perspective”

Keeping in mind the above silver auction participant list of banks and this statistically improbable overlap with the make-up of the LBMA Management Committee, the Financial Times (subscription) published an interview with LBMA CEO Ruth Crowell on Monday 13th October 2014,  in which she said that:

several Chinese banks were also interested in joining the Silver Price alongside JP Morgan, HSBC, UBS, Mitsui & Co Precious Metals, and the Bank of Nova Scotia.”

Crowell told the FT that:

It will take some time from a controls perspective for them [Chinese banks] to get where they need to be. But I would imagine they will look to do both gold and silver simultaneously,” said Mrs Crowell. “It will make the London market that much more international.”

As to how much time equals ‘some time’, or what ‘controls perspective’ referred to, Crowell did not elaborate. As discussed below, there are no criteria from a ‘control perspective’ that the large Chinese bank members of the LBMA would not qualify under to participate directly in the gold and silver auctions.

However, it’s notable above that there was an LBMA view that the Chinese participants would join both the Gold and Silver Price auctions at the same time.

On Tuesday 14th October, the day after the above FT interview was published, the Bullion Desk also published an article about the interest by the Chinese banks in the new London daily fixings, in which it stated:

Several Chinese banks are set to join the London Bullion Market Association’s (LBMA) gold and silver pricing benchmarks, with a spokesman indicating that they are simply waiting for the administration to be decided.

A handful of Chinese banks indicated to LBMA chief executive Ruth Crowell during a recent visit to China that they would like to take part in the daily silver pricing benchmarks, the spokesman said.

The interested parties are, however, waiting to discover who will be awarded the administration of the gold pricing benchmark before also taking part in the twice-daily gold pricing sessions, he added.”

The Bullion Desk article again refers to the Chinese wanting to participate in both the Silver and Gold daily auctions, but even more interestingly, it appears that the Chinese banks placed a high value on knowing which administrator was going to run the Gold Price auction.

Its unclear why the Chinese would be so concerned about the identity of the auction administrator. It’s possible they did not approve of one administrator i.e. CME Group, running both auctions. It may also have been a red-herring on the part of the LBMA to raise this as an issue, however now that this information is known, i.e. ICE Benchmark Administration, it would be interesting to know how the Chinese view this outcome.

Finally, in the same week, on Friday 17th October 2014, in an interview with Metal Bulletin (subscription) titled ‘LBMA chief on the new era of precious benchmarking’, LBMA CEO Ruth Crowell said:

“Among those that are interested in participating in the discovery processes are several Chinese banks that the LBMA recently met in China.

These were initially interested in contributing to gold price discovery, but then said they would like to get involved in the silver process, Crowell said.

“It’s been very welcome to see that quite a few banks in China are very interested in taking part. They said they definitely wanted to be there on day one for gold and that they’d look to get involved in silver as well,” she added.

“We spoke about what we did with regard to silver and how we had started the process for gold, so the natural question was, well, will it be more open? There will be more participation. There will be levels of transparency [in gold] that you are seeing with the silver auction,” she said.”

So, the LBMA has gone on record as stating that the Chinese ‘definitely’ want to be participants in the LBMA Gold Price auction on Day one (which is 20th March 2015).


Chairperson Who?

If the Chinese had indeed been curious as to which administrator would be chosen to run the Gold Price auction, perhaps they will be curious about the fact that ICE Benchmark Administration has just announced that over the short-term, it is planning to employ a human (as opposed to an automated) chairperson in the daily Gold Price auctions. However, ICE will not reveal at this time who they have selected as this chairperson. The identity of the chairperson will only be revealed on launch day, 20th March.

The chairperson’s role in the auctions is to “set the starting price and the price for each round based on a set of rules that will be pre-determined and publicly available.”

ICE Benchmark Administration (IBA) state that:

IBA has appointed a chairperson for Day 1. In due course, IBA will evaluate developing an algorithm, in consultation with the market. The chairperson has extensive experience in the gold market, and is appointed by IBA and therefore independent of the auction process.”

Again, to reiterate, ICE will not reveal publicly until launch day as to who this chairperson is. With “extensive experience in the gold market”, it would be unfortunate and probably unacceptable to many entities in the wider global gold market (including the Chinese banks) if this chairperson (for example former Barclays director of the London Gold Market Fixing Limited Jonathan Spall), was closely connected to the LBMA or closely connected to one of the LBMA bullion banks or the soon to be discontinued Gold Fixing, since that would not demonstrate the degree of  independence that IBA is claiming.

Jonathan Spall, ex Barclays
The Participant Criteria

The main requirement for Bank of China, ICBC and China Construction Bank in becoming participants in the LBMA Gold Price auction at launch on Day 1 would be for them to meet the LBMA’s Participant criteria as well as ICE Benchmark Administration’s Participation criteria.

Given that the LBMA and IBA have not yet published these Gold Price auction criteria in the form of a methodology guide, the best approach right now is to look at how the Chinese banks would fulfill the participant and participation criteria that were formulated in July/August 2014 for the LBMA Silver Price auction. Since, as explained above, the Chinese banks actively want to participate in the daily Silver Price auction, they will have to go through this application process anyway.

Additionally, the Silver Price accreditation criteria can be assumed to be very similar to the criteria of the Gold Price auction since the two auction processes are basically identical.

In August 2014  a document titled Commodities Benchmark Methodologies: LBMA Silver Price was published under the name of Thomson Reuters, the administrator of the LBMA Silver Price benchmark. This methodology guide was jointly written by the LBMA, Thomson Reuters, and the CME Group and discusses the methodology that the three partners have established for the silver price benchmark, including the criteria that qualifies an applicant to be authorised as a silver auction participant.

This LBMA Silver Price Methodology document states that:

Participation in the auction is open to all silver market participants who meet the following conditions:

- meet the Benchmark Participant criteria set out by the LBMA

- meet the Participation criteria set out by Thomson Reuters as the Administrator

- meet the requirements set by CME Benchmark Europe Ltd to use the technology platform and participate in the auction market place.

The market participants are accredited by the LBMA; access to the auction platform is approved by CME Benchmark Europe Ltd.

It’s critical to note that these three sets of criteria/requirements are the official basis under which the LBMA plays the role of gatekeeper in deciding which applicants to allow to join the Silver Price auction process, and which to keep out. It’s also important to note the distinction between participant criteria and participation criteria:

And now the most important part. The LBMA’s Benchmark Participant criteria for the Silver auction are as follows:

  • A participant has to be a Full Member (Ordinary or Market Making) of the LBMA.
  • The participant also needs to have a Loco London Clearing account
  • Applications are subject to review and ultimate approval by LBMA
  • The participant has to accept and implement the Thomson Reuters LBMA Silver Price Participant Code of Conduct
  • Participation is additionally subject to the requirements set by CME Benchmark Europe Ltd for use of the technology platform and for participation in the auction (e.g., in respect of credit arrangements)
Meeting the Criteria

All three Chinese banks, i.e. Bank of China, ICBC, and China Construction Bank are already Ordinary members of the LBMA. Bank of China has been an ordinary member of the LBMA since at least 1999. See LBMA member list here from August 1999. Industrial and Commercial Bank of China (ICBC) became an ordinary member of the LBMA in late 2011. On 7th October 2014, China Construction Bank was admitted as an Ordinary member of the LBMA.

So, all three Chinese banks, as Ordinary members of the LBMA, are also Full members of the LBMA, and therefore fulfill the first criterion to be direct participants in the auction.

By definition, to become an Ordinary member of the LBMA  “members must be companies or organisations which are actively involved in the London bullion market. For entities which trade, this means trading gold or silver bullion or related derivatives such as forwards and options in the loco London market.” Additionally an Ordinary member, when trading bullion and derivatives has to trade “in the loco London market with at least three existing members.”

So, given that the three Chinese banks are Ordinary members of the LBMA, by definition they trade, settle and clear gold and silver in the loco London market and by definition they maintain loco London clearing accounts. This fulfills the second criterion for direct participation in the auctions.

All Full members of the LBMA (Ordinary and Market Making members) have to pass ‘know your customer’ (KYC) procedures and ‘declare conformance with the Non-Investment Products Code’ before being accepted as members. Again, by definition, the three Chinese banks fulfill these requirements also since they are already Ordinary members.

Therefore, to become direct participants in the auction, the three Chinese banks would just need to receive LBMA approval and sign up to the ICE auction platform and its participation criteria, which would essentially refer to adopting something that could be called the Gold Price Participant ‘Code of Conduct’, which is just a subset of IOSCO benchmark principles that specifically address ‘code of conduct’.

In the IOSCO Principles, there is a “Submitter Code of Conduct”, which states:

“The Administrator should develop guidelines for Submitters (“Submitter Code of Conduct”), which should be available to any relevant Regulatory Authorities, if any and Published or Made Available to Stakeholders.”

And given that the Financial Conduct Authority (FCA) has decided very recently that the participants in the Silver and Gold Price auctions are not even defined as submitters, then the codes of conduct are even less severe than, for example, in the new LIBOR process. Adhering to the Code of Conduct just allows the administrator (IBA) to maintain a set of internal controls in the auction platform that allows for the collection of the price inputs in an IOSCO compliant way.

In summary, there is nothing in the LBMA participant criteria or administrator participation criteria to exclude Bank of China, ICBC and China Construction bank from being direct participants in the LBMA Gold Price and Silver Price auctions.

One final point on this matter is that the new gold and silver auctions, like the old gold and silver fixing auctions, make use of bilateral credit lines between all of the auction participants. What this means is that to participate in the auctions, an entity has to have large credit lines set up with all other participating entities, which essentially creates a mutual pool of credit, and all the participants share this pool of credit.

The LBMA could easily have introduced a central clearing platform for the trades in the new auctions so as to have prevented the need for large credit lines (both the ICE and the CME systems allowed this, as did the LME solution), but the bullion banks chose to ignore this solution, and are conveniently using the need for credit lines as an excuse to keep out smaller participants who might want to participate directly, such as refiners, miners etc but who do not have credit lines established.

It also conveniently protects  and ring-fences the London Precious Metal Clearing Company’s AURUM unallocated metal clearing platform which is another critical point, but beyond the scope of this current discussion.

Again however, the large Chinese banks would have no problem running large credit lines with the other bullion bank participants, since Bank of China, ICBC and China Construction are some of the largest banks in the world with very high investment grade credit ratings and strong tier 1 capital ratios.

SGE ceremony

 The Big 3 in London

Let’s look at the three Chinese banks that are Full Members of the LBMA, i.e. Bank of China, ICBC, and China Construction.

All three of these Chinese banks have their UK headquarters in the City of London, near the Bank of England and incidentally very near the LBMA’s offices also. Bank of China is at 1 Lothbury, China Construction is at 111 Old Broad Street, and ICBC is at 81 King William Street. These three locations form a triangle, and are literally 5 minutes walk from each other, and coincidentally, the LBMA offices at Royal Exchange Buildings are right at the heart of this triangle.

China Construction Bank

China Construction Bank became an ordinary member of the LBMA on 7th October 2014, and is classified by the LBMA as a bank entity (as opposed to a broker) and is categorised under country classification of China. China Construction’s headquarters is in Beijing.

China Construction Bank (London) Ltd had been based at Heron Quays in Canary Wharf (east of the City) but in June 2014, the Bank purchased a building at 111 Old Broad Street, in the City (of London) to use as its new European headquarters.

On its London website, China Construction Bank (CCB) states that:

“We are also active in money market business and provide a Euro time zone platform for CCB’s foreign exchange and precious metal trading.

CCB is active in the offshore RMB market and in 2012 received the designation as the “first clearing bank outside Asia for the Chinese currency”. In June 2014, CCB was also designated by the Chinese central bank as the London RMB clearing bank. CCB London is the 2nd largest Chinese bank in the UK.

In 2013, CCB was ranked 5th in the “Top 1000 World Banks” by the Banker Magazine, and ranked as 2nd by the Banker in 2014.

There are two CCB entities in the UK, China Construction Bank (London) Limited, regulated by the Financial Conduct Authority effective from 09/03/2009, and China Construction Bank Corporation London Branch regulated by the Financial Conduct Authority and Prudential Regulation Authority effective from 22/12/2014

Both CCB entities are permitted to arrange, deal and transact in investments in the UK including commodities.

Although China Construction Bank Corporation was authorised by the FCA and PRA on Monday 22nd December, it only announced this authorisation in a press release on 2nd February 2015,

“On 22 December 2014, the UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) officially approved the establishment of China Construction Bank Corporation, London Branch…..  Concurrently, the application for a Whole-firm Liquidity Modification waiver for the branch has been approved.”

Industrial and Commercial Bank of China (ICBC)

ICBC is an Ordinary Member of the LBMA and was admitted as an ordinary (Full) member of the LBMA in late 2012. See press release 23rd December 2012. ICBC is classified by the LBMA as a bank, and is categorised under country China, with its headquarters in Beijing.

On its London website, in a December 2012 press release titled “ICBC Is the First Chinese Bank to Quote Precious Metal Prices and Match Deals in Global Market“, the Bank states that:

ICBC provides real-time prices to worldwide buyers and sellers of precious metals including gold or silver in Beijing, London and New York round the clock.

ICBC also runs two main UK entities  ICBC (London) plc, regulated by the Financial Conduct Authority and Prudential Regulation Authority effective 01/04/2013, and Industrial and Commercial Bank of China Limited, regulated by the FCA and PRA effective 08/09/2014. Both entities are permitted to arrange, deal and transact in investments in the UK including commodities.


Bank of China

Bank of China is a Full ordinary member of the LBMA, is classified as a bank by the LBMA, and interestingly, in the LBMA schema is categorised by the LBMA under country UK, and not China. Its Headquarters is 1 Lothbury, which is the street behind the Bank of England. Bank of China issued RMB bonds though its London branch in January 2014. This followed similar RMB issuance from ICBC and CCB.

Bank of China has been an ordinary member of the LBMA since the 1990s. On its London website it states:

“The major currencies that we can provide for FX spot are: Australian Dollar (AUD), Canadian Dollar (CAD), Swiss Franc (CHF), Chinese Renminbi (RMB)….etc…etc… Swedish Krona (SEK), U.S. Dollar (USD), Singapore Dollar (SGD), Silver (XAG), Gold (XAU), South African Rand (ZAR), etc.

There are similar statements for Swaps and Forwards.

There are three Bank of China entities in the UK. Bank of China (UK) Ltd Bank of China Limited, and Bank of China International (UK) Ltd, which are, to various extents, regulated by the FSA and the PRA.

All three Bank of China entities are permitted to arrange, deal and transact in investments in the UK including commodities.

The 11 to 13 Entities

On 7th November 2014, upon announcement of ICE (IBA) being ‘selected’ as administrator of the LBMA Gold Price, Ruth Crowell saidwe are pleased to have eleven entities intending to be Phase One Participants.” These entities (bullion banks) had signalled their interest to the LBMA before, during and after the period from October 24th (an LBMA closed-door seminar about the new gold auction and the various proposals) up to 4th November (LBMA committee meetings to discuss the vote and agree on the winning entry). The “Phase One Price Participants” as the LBMA refers to them, were also involved in these discussions in and around 4th November.

Since this announcement about the “eleven entities intending to be Phase One Participants” was only three weeks after Crowell’s statement that “it will take some time from a controls perspective for them [Chinese banks] to get where they need to be”, this would suggest that the Chinese banks were not part of this group of 11 phase one participants.

While covering the LBMA’s conference in Lima, Peru which was held over the two day period 11th – 12th November, Bullion Desk, who were at the conference, quoted Finbarr Hutcheson, ICE Benchmark Administration president, as saying:

During the consultation process, 11 companies came forward as prospective direct participants. And over the past two days we’ve heard from two more, bringing the total up to 13.”

The same article quoted Ruth Crowell as saying:

“The London Bullion Market Association (LBMA) has already received interest from 13 banks or other firms looking to become direct participants in the new gold price benchmark auction.

We’re now actively recruiting because the last thing we want is for everyone to be staring at a blank screen on that first day. Bringing participants on-board is our number one priority,” Ruth Crowell, LBMA chief executive, said on Monday at the association’s conference here.”

However, and this is an important point, there were no representatives from Bank of China, ICBC, or China Construction in attendance at the LBMA’s Lima conference in November, so the 2 additional interested parties that expressed an interest during the conference were by definition not Chinese, unless they had contacted IBA remotely while the IBA and LBMA executives were in Lima, which seems highly unlikely. See 2014 conference delegate List pdf, and also another version here.

It would be unusual for Chinese banks to be planning to imminently join the Gold Price and Silver Price auctions but not attend the LBMA conference, since this conference was attended by senior executives of the winning administrator, ICE Benchmark Administration, as well as senior representatives from the CME Group and Thomson Reuters.

Small delegations from some Chinese banks did chose to go to the LBMA’s Singapore Bullion Market Forum in June 2014. Here, ICBC’s Zhou Ming, General Manager, Precious Metals Department actually made a presentation, and other ICBC precious metals staff, as well as China Construction staff, attended, but no one from Bank of China.

There was one Bank of China senior executive, Steven Haydon, at the 2013 LBMA annual event in Rome. The LBMA’s 2012 Conference, which was held in Hong Kong, was attended by Yan Wang of Bank of China, London, as well as Xiaoyang Liu and Zheng Zhiguang of ICBC China. But overall the attendance of Chinese Bank delegates at these LBMA conferences over recent years has been patchy at best.

Who approves the Direct Participants? The LBMA!

In its FAQ document, ICE also explains that there is an LBMA Gold Price Oversight Committee, and reveals that “the first meeting of the LBMA Gold Price Oversight Committee was held on February 27, 2015″.

According to the FAQ, one of the roles of this Oversight Committee is to approve the criteria for new direct participants:

“The LBMA Gold Price Oversight Committee’s responsibilities include conducting regular reviews of all aspects of the determination of the LBMA Gold Price, overseeing any changes, setting and overseeing the rules and practice standards, approving the criteria for new direct participants and overseeing IBA’s adherence to its published methodologies”.

The ICE executive summary of its proposal for the Gold auction goes even further and says that:

“It is through the Oversight Committee that the LBMA will continue to have significant involvement in the auction process, including, among many other things, changes to the methodology, approval of direct participants, and the decision on whether to move to a centrally cleared model (until that time, weaker credit names can be accommodated via pre-collateralisation).”

So although the Oversight Committee is responsible for “approving the criteria for new direct participants”, the LBMA is responsible for the specific “approval of direct participants”. There is a difference.

Why is there an Oversight Committee and what type of entities are on the committee? Again, the ICE proposal explains:

“Under the UK benchmark regulation, the governance structure for a regulated benchmark must include an Oversight Committee, made up of market participants, industry bodies, direct participant representatives, infrastructure providers and the administrator.

At the time of writing, neither ICE nor the LBMA have published any details of the identities of the members of the Oversight Committee or who they represent, nor have they published any agenda or minutes of the first meeting that took place on 27th February. And this is the new world of transparency for the LBMA Gold Price?

Who will the 11 – 13 entities be in the Gold Price auction?

It should be noted that in the new Silver and Gold auctions, the participants take part for their own bullion trades and those of their clients, and they are not obliged to represent other non-participant entities. So, for example, if bullion bank A is a participant in the new gold auction, it does not have to take gold fixing orders from bullion bank B for the fixing. Bullion bank B is expected to apply to become a participate itself (unless the LBMA don’t let them participate). The wider and more extended the participation, the more robust the data.

It is quite obvious that the vast majority of the 11-13 entities on Day 1 in the new Gold Price auction (if there are even that many taking part), will be the existing LBMA Market Makers.

In coverage by the Financial Times on 11 July, the day on which the LBMA awarded the CME Group and Thomson Reuters the contract to run the new Silver Price auction, the Financial Times said the following:

Since there is no centralised clearing for precious metals markets, initial users of the new silver benchmark are likely to be the 11 LBMA spot market making members, including JPMorgan, Goldman Sachs and UBS. They can currently only trade through the fixing members.”

On 12 August, just before the launch of the LBMA Silver Price auction, the Financial Times again highlighted this key point about the lack of central clearing in the CME Group’s Silver Price platform, when it stated in nearly the same language, but adding in JP Morgan:

Since there is no centralised clearing for precious metals markets, the initial users of the new benchmark are expected to be the 11 market making members of the LBMA, which include Credit Suisse, JP Morgan, Goldman Sachs, and UBS”.

Therefore, using a list of the LBMA Market Makers is a very good starting point for estimating the identities of the inner core of LBMA bullion banks that in all likelihood will make up the bulk of the 11 – 13 ‘Day 1′ ‘direct participant’ entities in the Gold Price auction.

This is notwithstanding the fact that, again, there was no need for the LBMA not to introduce a centrally cleared model on Day 1 so as to broaden participation, and also since as ICE said, until a “move to a centrally cleared model”, was introduced “weaker credit names can be accommodated via pre-collateralisation”.

Starting with the four existing banks in the current gold fixing, who are sure to re-enter the new auction, the first names on the 11-13 list are Barclays, HSBC, Scotia Mocatta, and SocGen. Since Deutsche Bank left the table, it would be surprising if Deutsche came back to the new gold auction so soon. Therefore I am leaving Deutsche off of my list.

Next to add to this list would be JP Morgan. JP Morgan is one of the six precious metals clearers in London in LPMCL, it runs an LBMA precious metals vault in central London, and it is a participant in the Silver auction.

Next add UBS and Credit Suisse, two huge players in the gold market, especially in Switzerland. Next up would be Goldman Sachs (J. Aron) which is a large player in the gold market and Mitsui, an existing participant in the Silver auction.

All of these banks trade spot market make in the London gold market. I would leave out Bank of America Merrill Lynch for the moment, for no particular reason except it only market makes options in the London gold and silver market.

Fast-Tracking Market Makers into the Gold auction?

To become an LBMA market maker, an Ordinary member LBMA bank has to undergo a three-month probationary period, during which it has to quote bids and offers in silver and gold to all other LBMA market makers. More importantly, all of the other market makers must approve the appointment of a new LBMA market making member.

In a very under covered story, three additional bullion banks very recently became LBMA market making members, namely Citibank, Morgan Stanley and Standard Chartered.

‘Officially’, this 3 month probation is the process that Citibank NA, Morgan Stanley & Co International and Standard Chartered would have gone through recently before they were all successfully reclassified as LBMA market making members in late 2014 and early 2015, which increased the number of LBMA market makers from 11 to 14.

On 25th September 2014, Citibank N.A. was reclassified as a spot LBMA Market Maker for spot and options. On 16th October 2014, Morgan Stanley was reclassified as a LBMA Market Maker for spot and options. On 9th February 2015, Standard Chartered was appointed as a LBMA market maker for spot and options.

This flurry of activity of Ordinary member bullion banks being reclassified as LBMA market making members is unprecedented and suggests that these three banks may have been preparing in some way to be participants in the LBMA Gold Price auction. That’s a 27% jump in the number of market makers from 11 to 14 in five months, with all 3 occurring in the run-up to the launch of the new Gold Price auction.

Before these three reclassifications, the previous transitions by an Ordinary member to become a market maker were Merrill Lynch in 2011, Credit Suisse in 2010, and Mitsui in 2007. That was three new market makers over four years as opposed to three over five months.

Of the 14 current market makers, 13 are spot market makers but only five of these banks make markets in the three products: spot, forwards and options. These banks are HSBC, UBS, JP Morgan, Goldman Sachs and Barclays.

In 2006, the LBMA rules on market makers were altered so that a market maker didn’t have to make markets in all three products.

The other nine banks make markets in one or two of the three products. Credit Suisse, Scotia, SocGen, Standard Chartered, Deutsche, Mitsui, Citi and Morgan Stanley are market makers in spot markets. Scotia also market make in forwards, while Credit Suisse, Deutsche, Standard Chartered and Morgan Stanley also trade options as market makers. Mitsui, SocGen and Citi just do spot market making. Merrill Lynch is only a market maker in options, and notably, does not do spot.

I would add the three newcomer market makers of Citi, Morgan Stanley and Standard Chartered to the ‘direct participant’ list for the Gold auction, since their transitions to market maker status could well be related to some LBMA criteria whereby the LBMA have decided to fast track market makers into the Gold auction.

The running total at this stage is 12 bullion bank entities, and no ‘Ordinary’ bank members have yet been considered.

A few of the above may not be on the list. Likewise, other bullion banks such as Commerzbank, Natixis, ANZ, Standard Bank or BNP Paribas may well be on the list. Until LBMA and ICE actually publish the list, the only alternative is to speculate.

What you can take away from this guessing game list however is that the numbers of 11 and 13 entities being thrown around in November of 2014 by the LBMA and ICE probably did not include the Chinese banks. That is not to say that things might not have moved on since last November and Chinese banks may now be on the direct participant list. A series of delays in launching the Gold Price auction may indicate that participant negotiations were still going on behind the scenes.

Multiple Delays in Launch

The expected launch date for the Gold Price auction was pushed back a number of times between November 2014 and February 2015. One possibility for the delays, in my view, was due to ongoing or reignited negotiations with the Chinese banks. Following the LBMA’s closed-door ‘Market Seminar’ on 24th October, the LBMA said that the new gold solution would be implemented in December/January (see page 4 of presentation). Then in the LBMA’s Lima Conference slides from 11th November it said that the implementation time-frame would be January/February (see timeline in presentation page 2 – Implementation expected for January/February).

An article in Metal Bulletin (subscription) on 4th December titled “February launch likely for new gold price mechanism” quoted Ruth Crowell, as saying:

“‘Mid-February is estimated for the [launch]. We’ve said that is a comfortable deadline, but if it can happen sooner, then great,’ Ruth Crowell, ceo of the LBMA, told delegates at the Mines and Money conference.”

However, there was no other LBMA or ICE public reference to the Gold Price auction again for nearly two months when, on 2nd February, ICE issued a press release in which it said that “the new LBMA Gold Price…is expected to be launched in March 2015“, without providing a definite date or an explanation for the delays.

The actual launch date was only confirmed on 19th February when the LBMA announced that the auction would be launched on 20th March. Then the first LBMA Gold Price Oversight Committee meeting took place on 27th February.

Some people might point to a letter that the LBMA sent to the FCA, dated 30th January, in which it highlighted some regulatory confusion from an FCA paper called CP14/32 about whether the participants in the Gold Price auction would be treated as benchmark submitters or not, and about which the LBMA claimed that lack of clarification on this issue would cause delays in potential participants signing up for the auction.

ICE confirmed to me however that participant sign-off was an internal matter for the participants and they did not appear to think that this submitter matter was an issue.

Anyway, the FCA confirmed in policy statement PS15/6 that this submitter definition was not applicable to the Gold Price auction, so it did turn out to be a non-issue, and does not explain why the launch date has been delayed so long. The gold and silver market knew from August 2014 when the “Fair and Efficient Markets Review” recommendations were published, that the gold and silver price benchmarks were in scope for FCA regulation from 2015.

In the FCA’s policy statement PS15/6, the FCA added “additional perimeter guidance to clarify further who in our view is, or is not, a submitter, and in particular, in respect of auction participants”. Specifically, the FCA said:

“a person who, in the context of an auction or otherwise, submits bids or offers solely for the purpose of transacting in a commodity or financial instrument or any other asset for their own, or their client’s, behalf will not normally be providing information in relation to a specified benchmark” (2.7.20E (A) G) (Annex E – Amendments to the Perimeter Guidance manual: specified benchmark activities)

Therefore, participants in the LBMA Silver Price and Gold Price auctions are not classified as benchmark submitters, and do not have to be regulated as such, so there is no reason why this should now hold up or delay approval of any direct participants for the Gold Price auction.

As the LBMA said itself on 2nd February:

“The systems and controls that the Administrator puts in place for non-submitters, namely, the criteria that must be met to participate, the contractual framework, for example the rulebook, participants agreement and code of conduct, should provide appropriate controls to maintain the integrity of these non-submission based benchmarks.” (i.e. the LBMA Gold and Silver Price auctions)

Despite all the above regulatory questions being answered and having had at least 4-5 months of advance preparation to join the new auction, the LBMA is now making more soundings that “Not all participants in ICE gold benchmark will be in place ‘on day one’.

This latest update come from Bullion Desk, who state:

“Some of the parties intending to participate in the new ICE gold benchmarking process may not be able to do so in the first auction on March 20, the LBMA has confirmed.

Internal sign-offs, regulatory procedures and credit lines with other participants may not be completed in time, it said.

New participants unfortunately don’t have the framework in place like the current members of the London Gold Fix do,” an LBMA spokesman said. “The current members were ahead of the game on that front.”

‘It’s fair to say that we will likely have more participants involved after the initial launch. We can’t guarantee that all interested parties will be there on day one,’ he added.”

I think it is fair to say there a lot of hoops for new participants to jump through,” the spokesman added.

This is another astounding part of the entire Gold auction participant drama, that the LBMA is now saying that regulatory procedures and credit lines, and “a lot of hoops” are delaying participants from completing what should really have been a very simple open and transparent process to allow any credible gold market participant worldwide to sign up and participate in an open and transparent new gold price discovery process.

New participants unfortunately don’t have the framework in place like the current members of the London Gold Fix do” according to the LBMA. Isn’t that the whole point, that participants should not need any existing framework to take part? The old London gold fix has been proven to have been corrupted and manipulated. There should be no legacy connection to it in the new system and no excusing from the LBMA or anyone else that potential participants are in some way dis-advantaged because they were not part of the old five fixers club. This is truly unbelievable.

And why should there be “a lot of hoops for new participants to jump through”? The entire fiasco is starting to look like it was designed by the LBMA to be as complex as possible so as to deter new participants from joining the auctions as direct participants.
Standard ICBC
ICBC and Standard Bank

Which brings us back to the Chinese banks. Bullion Desk said on 12th March 2015 in the same update as above that:

“Among others, several Chinese banks are said to be interested in joining some of the traditional members of the current fix in the new system.

Rumours have circulated that one of those banks is Industrial and Commercial Bank of China (ICBC), one of the biggest banks in the world and a major participant in the gold market.”

When Deutsche Bank was attempting to sell its Gold and Silver Fixing seats early in 2014, ICBC was eager to secure Deutsche’s Gold Fix seat through its interest in Standard Bank of South Africa. ICBC was also at that time rumoured to be interested in becoming a market making member of the LBMA. Neither of these events ever materialised however.

On 18th February 2014, Reuters reported that:

South Africa’s Standard Bank, now selling a controlling stake in its markets unit to China’s ICBC, is emerging as a frontrunner to buy Deutsche Bank’s place in the global gold price-setting process, sources familiar with the matter said.”

“Market sources said Standard Bank, in conjunction with ICBC, is in prime position to buy the Deutsche seat. ‘Standard Bank is a shoo-in for the fixing seat – they want it, and it would be acceptable to the other members,’ a senior gold market source told Reuters. ‘It’s just whether they can agree a fee.'”

“‘ICBC have wanted to be a market-making member of the LBMA for a while,’ said another senior gold market source, who saw the bank as having potential interest in the fixing seat.

The same article also pointed out that the previous time a Gold Fixing seat was sold was in 2004 when Rothschild sold its seat to Barclays for the princely sum of $1 million; small change for a giant Chinese bank such as ICBC.

However, on 28th April 2014, Reuters reported that Deutsche Bank had resigned its gold seat since, according to one of their sources:

“It was a case of not being able to agree on terms”.

It seems hard to believe that there was an inability to agree on the price of Deutsche’s Gold Fix seat, given the deep pockets of all the parties concerned. Some other factors must have been at play. Could it have been that the London Fixing banks did not want ICBC (through Standard) to purchase the seat?

It’s very unusual that given ICBC’s desire to become an LBMA market maker, that it has not yet done so, especially considering the rush by Citi, Morgan Stanley and Standard Chartered to become market makers in the last few months.

Even as early as May 2012, ICBC said that it wanted to become an LBMA market maker:

“‘We hope to play a bigger role in the global precious metals market and become a major market maker, like Barclays,’ Shen Shisheng, ICBC vice-general manager of financial markets, told Reuters on the sidelines of a conference in Shanghai.”

Standard Bank Plc, classified under the UK, is also an Ordinary member of the LBMA. On 2nd February 2015, ICBC announced that it acquired 60% of Standard Bank Plc:

The Industrial and Commercial Bank of China (ICBC) announced on Monday the acquisition of a 60-percent stake in Standard Bank Plc.

Based in London, Standard Bank Plc is the international commodities and foreign exchange arm of Standard Bank Group (SBG), the largest African banking group by assets.”

ICBC already owns 20% of the Standard Bank Group. With this new 60% acquisition of a commodities and fx business through Standard Bank Plc, ICBC could well be planning to join the Gold Price auction via the Standard Bank route.

ICBC were also rumoured to be interested in purchasing Deutsche’s empty precious metal vault in Park Royal, London, which is operated by G4S, which could be another interesting development for the Chinese bank as a route into becoming a member of London Precious Metals Clearing Company (LPMCL).

ICBC seems to be clearly indicating that it is ready and willing to be a direct participant at day 1 launch on 20th March. Chinese newspaper, China Daily, in a 3rd March article titled “More Chinese banks to take part in setting the global gold price” stated that:

“ICBC confirmed it had already laid the foundations for its participation in a press release on Monday.”

Monday here refers to Monday 2nd March. There will undoubtedly be a sense of shock and injustice if the LBMA and ICE do not include at least one or two Chinese banks, such as ICBC, on the list of day 1 participants, which, don’t forget, is only being published on launch day, and not before.

The LBMA Gold Price auction should comprise a broad participation auction of banks, trading houses, refiners, miners, jewelers and other gold market participants trading as direct participants if they so choose. It should not be a narrow auction made up solely of incumbent London-based bullion banks which is a system that has proven to have been manipulated and was successfully prosecuted by the FCA.

With prolific LBMA bullion bank representation on the Shanghai Gold Exchange including UBS, Goldman Sachs, Scotia Mocatta, Standard Chartered, HSBC, ANZ, Natixis, and the opening up of the Chinese gold market and Shanghai Gold Exchange to foreign banks, it would be unfortunate if a series of LBMA Gold Price structural barriers such as credit lines, FCA regulatory issues, and ‘a lot of hoops to jump through’ provided the LBMA Management Committee with an excuse not to approve the large Chinese banks to directly participate in the LBMA Gold Price auction on Day 1 on Friday March 20th.

The Bank of England and the London Gold Fixings in the 1980s

With the current structure of the London gold price fixings disappearing in the very near future, there is an unusual story that I’d like to share about the gold fixings. It concerns the Bank of England’s ‘gold activities’ in the daily London Gold Fixings during the 1980s, and my attempts to get the Bank to explain what these ‘gold activities’ consisted of.


These ‘gold activities’ of the Bank came to light within some comments that senior Bank of England employee Oliver Page wrote about fellow senior Bank of England colleague and contemporary Terry Smeeton:


Before looking at Mr. Smeeton’s ‘gold activities’, it’s worth getting a sense of the roles of Terry Smeeton and Oliver Page at the Bank of England by briefly looking at the career profiles of these two gents.

Terry Smeeton and Oliver Page

In the 1980s and 1990s, Terry Smeeton was one of the Bank of England’s experts on the gold market, and he rose to attain the position of Head of Foreign Exchange and Gold at the Bank. Smeeton joined the Bank of England in 1960 and remained at ‘The Old Lady’ until retiring in 1998. After leaving Threadneedle Street in March 1998, Smeeton went on to be a non-executive director of Standard Bank from July 1998 to September 2007, and in 2002 was appointed as advisory board member to the Dubai Metals and Commodities Centre (DMCC) and head of the centre’s Gold Management committee. Terry Smeeton passed away in September 2007.

In the 1990s while still at the Bank, Smeeton was also the Bank of England’s representative on the G-10 Gold and Foreign Exchange Committee at the Bank for International Settlements in Basel, as these Committee meeting minutes from 1997 highlight.

Frank Veneroso of Veneroso Associates, who is well-known for his in-depth analysis of the gold lending market, has stated that it was actually comments about the gold lending market made by Terry Smeeton in 1995 that triggered Veneroso to undertake his ground-breaking gold lending market analysis. Veneroso has also highlighted previously that Smeeton was critical of HM Treasury’s 1999 decision to auction off a substantial part of the UK’s gold reserves.

Oliver Page joined the Bank of England in 1968 and went on to be Chief Manager, Reserves Management in 1989, and Deputy Director, Supervision and Surveillance in 1996. In 1998, when the Financial Services Authority (FSA) was established, Page moved from the Bank of England to become the FSA’s Director of its Complex Groups Division (later called Major Financial Groups Division), and was also the FSA’s representative on the Basel Committee of Banking Supervisors. Page received an OBE in 2004, and retired from the FSA in April 2006, after which he became a non-executive director of Mitsubishi UFJ Securities International. Oliver Page passed away in 2012.

After Terry Smeeton died in September 2007, Oliver Page wrote Mr. Smeeton’s obituary which was published in the industry journal ‘Central Banking’, and on the journal’s website.

In the obituary, Oliver Page said of Smeeton:

On his work, the foreign exchange and gold markets were his great enthusiasms. So his work in the Bank of England, mainly in the Foreign

Exchange Division, suited him perfectly. The gold markets were an aspect of the financial world where he became internationally renowned.

While I was in the foreign exchange division in the 1980s, I was responsible for the risk management and performance system used to monitor activity. Through this period, Terry’s gold activities, often partly aimed at helping the London Market’s daily gold fixes, produced an overall profit.

So he was not just a talker on gold, he was a successful operator. He was very disappointed when large-scale gold sales were made in the 1990s at what turned out to be the 30-year low of the market.”

Certain phrases in Page’s tribute to Smeeton, specifically in relation to the gold fixings, struck me as very odd and raised a number of questions in my mind:

Firstly, what were Smeeton’s ‘gold activities‘ in the daily gold fixes ‘through this period’ during the 1980s?

Secondly, what was the Bank of England foreign exchange and gold division doing entering the London gold fixings to ‘help’ the daily gold fixes? And why did this activity happen ‘often’?

These ‘gold activities’ do not sound like normal Bank of England customer deals being placed into the daily fixings. However it does sound like central bank intervention into the price setting process.

(Note that at this time in the 1980s, NM Rothschild was the permanent chair of the fixings and the Bank used Rothschild as its broker. The other four fixing members during the 1980s were Mocatta, Sharps Pixley, Samuel Montagu/Midland, and Johnson Matthey/Mase Westpac. Rothschild departed from the gold fixings in 2004.)

Thirdly, why exactly is it so noteworthy for Oliver Page to have mentioned that Smeeton “produced an overall profit” from his ‘gold activities‘. Could it be that Smeeton’s activities were not primarily motivated by profit maximisation? Regular Bank of England ‘buy and hold’ or sell orders on behalf of central bank customers would not fall under the ‘noteworthy at having made a profit’ category.

Interestingly, in the London Gold Pool in the 1960s (which comprised both a buying syndicate and a selling syndicate), making a profit on the Pool’s gold transactions was considered a bonus, since that was not the primary purpose of the Pool’s consortium.


The Fix is In

In February 2012, after reading Oliver Page’s observations on Smeeton, I emailed the Bank of England, and asked them to explain Mr. Page’s 1980s references to Mr. Smeeton. My question was:

“What were Terry Smeeton’s “gold activities” while he was in the foreign exchange department that “partly aimed at helping the London Market daily gold fixes” and that produced “an overall profit” over the period, while being monitored by Oliver Page using the risk and performance monitoring system?”

The Bank of England “Public Information & Enquiries Group” responded as follows:

“The Bank of England does not have a role in the daily fixing of gold prices. There are five members (listed below) of the Gold Fixing, all of whom are Market Making members of the LBMA:

•    Bank of Nova Scotia
•    Barclays Capital
•    Deutsche Bank AG London
•    HSBC USA NA London
•    Societe Generale”

Since the bank didn’t address my question, I responded back to the Bank with a second email, reiterating the question:

But if the Bank of England has no role in the fixing then what role was Terry Smeeton in the foreign exchange department playing, with “gold activities” that “partly aimed at helping the London Market daily gold fixes” and that produced “an overall profit” over the period, while being monitored by Oliver Page using the risk and performance monitoring system?

A different person from the Bank’s Public Information & Enquiries Group then responded to my second email as follows:

“The Bank no longer plays a role in the daily gold fixing. But for many years the Bank had a supervisory role in the London gold market,and was involved in the fixing process, as described in the following excerpt from the Bank’s Quarterly Bulletin (1964, p16 ‘The London Gold Market‘):

'The Bank of England are not physically represented at the fixing. But they are able, like any other operator, effectively to participate in the fixing by passing orders by telephone through their bullion broker and at the fixing they use exclusively the services of the chairman of the market, namely, Rothschilds. 

The Bank operate for a number of different parties; they are first the managers of the Exchange Equalisation Account, which may be a natural buyer or seller of gold :

secondly, they are the agent for the largest single regular seller of gold in the world, namely the South African Reserve Bank, which is responsible for the disposal of new production in South Africa : 

thirdly, they execute orders for their many other central bank customers : 

fourthly, the Bank aim, as in the case of the foreign exchange and gilt-edged markets, to exercise, so far as they are able, a moderating influence on the market, in order to avoid violent and unnecessary movements in the price and thus to assist the market in the carrying on of its business.'

From 1968, the Bank was a less regular participant in the daily gold fixings, although contact between the Bank and the members of the gold market remained close.

In particular, the Bank (including Mr Smeeton in his role in the Bank’s Foreign Exchange Division) continued to execute orders for central bank customers of the Bank, and to manage gold held in the Exchange Equalisation Account.

The Bank no longer has supervisory responsibility for the London bullion market. Responsibility for the regulation of the major participants in the market lies with the Financial Services Authority (FSA) under the Financial Services and Markets Act 2000.

Guidelines for the conduct of gold business not covered by the Act are set out in The London Code of Conduct for Non-Investment Products (the NIPs code).”

London gold fixing
Avoiding the Question

Yet again, the second response from the Bank of England didn’t address my question directly, but while circumventing a direct answer, it did contain some very interesting information. Let’s examine the Bank’s second response in more detail.

1. There was no attempt in the Bank’s answer to address the crux of the issue, i.e. what Smeeton was doing in the 1980s ‘helping’ the fixing with ‘gold activities’ that produced an overall profit and that required risk management.

Executing physical gold orders for the Exchange Equalisation Fund (EEA) or for other bank customers via one of the five gold fixing members is not an activity that could reasonably be described as ‘helping’ the fixing and not the type of activity that would be noteworthy as ‘producing an overall profit’, or that would need risk management monitoring.

Nor is gold lending between central bank customers of the Bank of England and the London gold market bullion bank participants something that would have required the Bank’s foreign exchange and gold desk, and Terry Smeeton, to ‘help’ the twice daily London gold price auction fixings.

Gold lending only began in the London gold market in the early to mid 1980s and initially was only undertaken on a limited scale.

So, why the reluctance by the Bank to answer my question directly?

2. Interestingly, the Bank’s response contained an extract (see grayed area above) from a 1964 Bank of England publication about the London Gold Market which explained the four main reasons why the Bank was involved in the gold fixings, and referred to the Bank of England as being “a moderating influence” on the gold market so as “to avoid violent and unnecessary movements in the price.

Was the inclusion of this 1964 extract about the Fixings by the Bank’s Enquiries and Information Office a tacit admission from the Bank that it continued to be a ‘moderating influence’ on the gold price into the 1980s and perhaps beyond? Why include this Fixing explanation from 1964 to explain a question about the 1980s?

3. The Bank’s email response to me also mentioned 1968 and stated that “From 1968, the Bank was a less regular participant in the daily gold fixings”. This reference to 1968 is a reference to the collapse of the London Gold Pool in March 1968 before which the Gold Pool (managed by the Bank of England) attempted to control the gold price and keep it near $35 per ounce. Since I had asked about the 1980s and not 1968, the inclusion of this reference is, in my view, highly unusual but telling.

The comment from the Bank that since 1968 “contact between the Bank and the members of the gold market remained close” is also noteworthy.

4. The Bank’s response said that Smeeton executed orders for central bank customers and also ‘managed gold’ held in the Exchange Equalisation Account. The Bank did not elaborate on what was meant by ‘managing’ EEA gold. (Note, the UK gold reserves are owned by HM Treasury and held within the Exchange Equalisation Account which is somewhat similar to the US Exchange Stabilization Fund. The Bank of England acts as custodian of the UK gold reserves on behalf of HM Treasury.)

If you look at the data on UK official gold reserves over the 1980s, such as in ‘Central Bank Gold Reserves: A historical perspective‘ by Timothy Green, you will see that the official UK gold reserves were totally static throughout the 1980s at between 591 tonnes and 592 tonnes. i.e. They did not change (see table below, last row). In fact, most of the large gold holding countries maintained static gold reserve holdings throughout the 1980s which would suggest very little customer order activity for the Bank of England gold order desk.

Therefore the unchanging nature of the EEA gold reserves during the 1980s again does not explain the Bank’s reference to Smeeton as ‘managing’ the EEA gold in the 1980s.


What were these ‘Gold activities’?

I had previously come across the Bank of England’s 1964 London gold market essay and it’s reference to the Bank acting as a ‘moderating  influence’ on the gold price. The same passage that the Bank quoted to me is also in a 1976 book called “The Arena of International Finance” by Charles Coombs (page 46). Coombs was head of foreign open market operations at the Federal Reserve Bank of New York from the 1950s until the 1970s.

The Bank of England’s 1964 essay is from it’s Q1 quarterly bulletin and was published in March 1964. This was soon after the launch of the London gold pool but the reference to the role of the Bank as a ‘moderating influence’ against ‘violent and unnecessary movements in the price’ goes back to before the beginning of the London Gold Pool.

Prior to the Gold Pool commencing operations in 1962, the Bank of England was already single-handedly intervening into the London good market aiming to ‘smoothen’ the gold price so that it reverted to near $35 per ounce, by participating in the daily fixing (there was only one fixing at that time, the morning fixing). The Bank aimed to keep the London price near the U.S. Treasury gold window price so as to prevent speculative arbitrage between the two prices (excluding 1/4% US Treasury fee and transport costs).

It was based on these Bank of England operations that Charles Coombs at the Federal Reserve Bank suggested to the Bank of England in 1961 that they consider creating a gold pool amongst the U.S. and major European central banks.

Charles Coombs stated in his 1976 book, ‘The Arena of International Finance’ (page 50), that in 1960:

The Bank of England, having assumed some responsibility for selling gold to maintain orderly market conditions, was in the awkward position of being squeezed out of the market by other central bank buyers whenever gold became available.”

A recent history of the Bank of England also refers to the Bank of England’s intervention prior to the commencement of the London Gold Pool in 1962:

“The selling consortium was in operation to prevent an unduly rise in the price when demand was strong. It had to be specifically activated by the members. It’s operations did not affect the extent of intervention in the market and the Bank continued to intervene in its own judgement.”

(Source: Page 190, ‘The Bank of England: 1950s to 1979′ by Forrest Capie, Cambridge University Press).

The Bank of England have historically used the terms ‘smoothing operation’ and ‘stabilisation operation’ when referring to operations and interventions into the gold and foreign exchange markets. A price smoothing operation is a softer, less radical version of a price stabilisation operation.

Upon reading Oliver Page’s comments about Smeeten, my initial theory was that Terry Smeeton and the Bank’s Foreign Exchange Division had also been intervening into the daily gold fixings during the 1980s so as to smoothen the gold price, via offering and bidding from a special account that sold/lent at one price (high) and bought back again at a lower price (low).

Since I asked the Bank to explain Oliver Page’s comments and they declined to do so, this even crystallised my theory somewhat. I usually prefer not to speculate. My approach is to clarify information first and try to validate it. Only if it cannot be validated can some speculation come into play. But if the Bank of England can’t answer a simple question directly, then they are inviting speculation.

My speculation thesis is that in the 1980s, Smeeton and the Bank were using a pool of gold to create artificial supply into the gold fixings so as to influence the gold price, either selling gold directly during the fixings, or lending gold short-term to the chair or lending short-term to some of the four other fixing members.

Intervention of course is two-way, so could also consist of creating demand in the fixings so as to support the price. Keeping a price within a trading ‘band’ is often a goal of financial market intervention. The mechanics of a demand side intervention would merely be the opposite of the possible tactics illustrated below.

Supplying or selling metal into the fixings and buying it back later is a gold trading tactic that would (in the Bank’s eyes) “partially help the fixings” while “producing an overall profit” for the Bank’s Foreign Exchange Division, and also a set of transactions where the trading P & L would need monitoring and risk management (from Oliver Page). The profit creation would be generated by selling high and buying low, much like a trader’s short sell trade and similar to what the Bank of England and the London Gold Pool selling syndicate did in the 1960s.

Within this scenario, I think Smeeton could have been doing a number of things via these ‘gold activities’:

- influencing the opening price of the fixing in the hours before a fixing by trading in the market so that the fixing Chair would call a certain opening price targeted by the Bank

- putting in orders to the fixing from a special gold account so as to affect overall supply and demand and target a certain opening price

- using an open line to the Chair to put in offers based on the market’s natural business and the quotes from the order books on the call

- lending to some of the five gold broker participants on a short-term basis from the EEA account or another account so as to influence supply (the five brokers all had allocated gold accounts at the Bank of England from the late 1970s onwards)

- and finally, buying back or squaring off the above transactions at some point so as to try to “produce an overall profit”

Maternal Eye

By the 1980s the five London gold brokers and fixing members all maintained allocated gold accounts at the Bank of England and had storage space in the  Bank’s vaults. This development occurred in the late 1970s, and was done initially for security reasons so as to minimise the transport of gold bullion around the City of London.

It would therefore be very straightforward in the 1980s for the Bank to manage transfers and allocations between a gold pool account and gold accounts of one or more of the five London gold market brokers held at the Bank.

[In fact, gold transfers between the Bank of England and the London gold market regularly happen to this day in a different guise via the Bank acting as clearer of last resort with the six bullion bank members of London Precious Metals Clearing Ltd (LPMCL).]

As to whether a 1980s Bank of England gold pool would be sourced from EEA gold, or include other customer gold, or would be a distinct separate account is not that important. Even if such an operation within the Bank’s Foreign Exchange Division was stand-alone and not coordinated with other central banks, the G10 central banks would obviously be briefed on it given their perennial close coordination on gold market issues via Basel.

The February 1998 edition of the LBMA’s Alchemist magazine features an interview with Terry Smeeton just before he retired from the Bank of England in March 1998. In the interview, on pages 2 and 3, when asked about his view on the relationship between the Bank and the London gold market, particularly in light of gold market supervision moving from the Bank to the FSA in 1998, Smeeton said:

“When I started in the Bank of England’s foreign exchange area, we really only had the operational role, which we still, of course, have today. There was no formal supervision of the gold market, but the Bank has always maintained a maternal eye on the market, and that remained the case until the Financial Services Act and the introduction of the Section 43 regime.”

Could this Bank of England ‘maternal eye’ that Terry Smeeton refers to have extended to intervention into the gold fixings in the 1980s so as to be a ‘moderating influence’, and to “avoid violent and unnecessary movements” in the gold price?

To answer that question, you’d have to ask the Bank of England. And they probably wouldn’t tell you one way or the other.

Spotlight on Greece’s Gold Reserves and Grexit

With the Greek Government and the Troika back in the news right now, it’s a good time to take a look at Greece’s official gold reserves and examine how much gold Greece claims to hold, where this gold might be located, and explore the impact that the European bailouts or a Greek Euro exit might have on the Greek gold holdings.

The 2012 Annual report of the Bank of Greece, the most recent full annual report available, provides some useful background on the Greek gold reserves. The Bank’s full 2013 annual report has not yet been posted on its website, and the 2014 annual report has not yet been published.

In the 2012 report, the Bank of Greece claims to hold on its balance sheet, ‘gold and gold receivables’ of 4,746,000 fine troy ounces (147.6 tonnes).

As of 31st December 2012, based on a gold price of €1,261.179 per fine ounce, this ‘gold and gold receivables’ asset item was valued in the balance sheet at €5.985 billion.

The 147.6 tonne total of gold reserves might seem a lot higher than figures of 112 tonnes or 117 tonnes that are sometimes quoted in economic statistics or in the media. However, the 147.6 tonne figure includes a claim, by the Bank of Greece on the Greek State, for gold that was paid by the Bank of Greece to the IMF (subscriptions and quota increases etc) on behalf of the Greek State.

As the 2012 annual report states:

“The amounts reported above comprise the Bank’s gold holdings (3,597 thousand ounces) and gold receivables from the Greek State (986 thousand ounces) corresponding to Greece’s participation in the IMF (the gold component of Greece’s quota has been paid by the Bank of Greece on behalf of the Greek State), as well as scrap gold and gold coins for melting (163 thousand ounces). A large part of gold holdings is kept with banks abroad.

(Source: ‘Notes on the balance Sheet’ 2012 Annual Report, Page 209 of the pdf, page A15 of the report).

Gold Claim on Hellenic Republic

Why the Greek State has never paid back this 986,000 oz gold debt to the Bank of Greece is puzzling, but there would appear to be little chance of the repayment happening any time soon given the Greek State’s current fiscal position.

Since Greece was one of the original members of he IMF back in 1945, the Bank of Greece gold claim on the Greek State may be a very long-standing claim and would comprise some or all of the initial gold subscription to the IMF in 1947, and various IMF quota increases that were implemented in 1958-59, 1965 and 1970.

I think it’s misleading for the Bank of Greece to throw in this gold claim against the Greek State within its “gold and gold receivables” line item in the balance sheet. Even though it is a receivable in gold, it is not even the type of gold receivable that the European central banks had in mind when they pressured the IMF back in 1999 to deem the “gold and gold receivable” classification device as a legitimate accounting approach. (See below for a background on that issue).

In my view this 986,000 Oz gold obligation on the Greek State should be itemised separately and not listed as part of the monetary gold holding line item. Where is this 986,000 Ozs of gold? It doesn’t even exist, except as a gold holding of the IMF and should not be double counted.

Excluding this 986,000 oz (30.66 tonnes) IMF related claim on the Greek State, the Bank of Greece says it holds a total of 3.76 million ozs of gold (3,597,000 ozs + 163,000 ozs) which is roughly 117 tonnes. Excluding the scrap gold and gold coins, the figure is 3.597 million ozs, which is approximately 112 tonnes.

The Fantasy of ‘Gold and Gold Receivables’

Note that the 3.76 million ounce figure from 2012, excluding the IMF gold claim, is still in itself ‘gold and gold receivables’ and not necessarily earmarked gold held. The percentage of ‘gold receivables’ within the 3.76 million ounce figure, such as gold lent or gold swapped, is not divulged.

The Bank of Greece uses the ‘gold and gold receivables’ gimmick because the Bank, along with all Eurosystem banks and most other central banks around the world, follows IMF central bank accounting guidelines when accounting for its gold holdings. And IMF accounting guidelines do not follow generally accepted accounting principles in this area.

In 1999, the IMF, following objections from European central bank officials at the Bank of England, Deutsche Bundesbank, European Central bank (ECB) and Banque de France, back-tracked on a plan to introduce individual line item categories for gold and ‘gold receivables’ in the reserves data template of its Special Data Dissemination Standard, because breaking out this data into separate items would have revealed the workings of the gold loan and gold swap market, or what the IMF calls ‘highly market sensitive’ information.

An IMF Executive Board paper from 1999, explains the issue:

“15. Central bank officials** indicated that they considered information on gold loans and swaps to be highly market-sensitive, in view of the limited number of participants in such transactions. Thus, they considered that the SDDS reserves template should not require the separate disclosure of such information but should instead treat all monetary gold assets, including gold on loan or subject to swap agreements, as a single data item. (page 6)

** The ‘central bank officials’ referred to above were as follows:

“7.  ……At the same time the (IMF) staff consulted the Bank of England, the Deutsche Bundesbank, the Banque de France, and the European Central Bank to review practical and methodological difficulties they might encounter in implementing the CGFS template, in light of recent decisions on publication of reserves data in the Eurosystem. (page 4)”

According to the latest IMF official reserves asset data for Greece,  the Bank of Greece now claims to have monetary gold holding of 3.62 million ozs, marginally up from 3.597 million ozs. In fact, the monthly foreign reserves figures for the Bank of Greece (xls) frequently show small increases in the ‘Monetary gold (millions of the troy ounces)’ category, about 9,000 ozs per year or slightly less than 1,000 ozs per month.

This increase in gold holdings could be reflecting interest in the form of gold received on gold deposits (gold loans) with bullion banks, and may suggest that the Bank of Greece has outstanding short-term gold loans that are being rolled over with the bullion banks (in the London gold market). Interest received on central bank gold deposits (time deposits) with bullion banks is often in the form of gold (accrued interest in gold).

Central Bank of Greece

Where is the Greek gold?

On the question of the location of the Bank of Greece gold reserves, the only locational information provided on the gold reserves in the 2012 annual report, was that ‘a large part‘ of the gold was held abroad.

Earlier Bank of Greece annual reports, from 2007 - 2010, state that “The largest part of gold holdings is kept in banks abroad.” It was only since 2011 that the wording ‘a large part is kept abroad‘ was introduced. Semantics maybe, however, the change in wording could indicate that some of the gold that was held abroad had been repatriated back to Greece sometime between 2010 and 2011. This was around the time that the Greek fiscal budget started to deteriorate rapidly.

Alternatively, the previous phraseology could have included the Bank’s IMF gold claim since by definition, this gold is held by the IMF in its gold despositories, which are all located outside of Greece. But it’s not clear from the wording whether the gold claim on the Greek State has ever been included or excluded from the reference to where the gold reserves were located.

Whatever the reason, it became less important on 1st March 2013, when Bloomberg published an article about the size and location of the Greek gold reserves. This article was based on a letter written by the Bank of Greece that had been forwarded by the Finance Ministry to a lawmaker in the Greek Parliament in response to the lawmaker’s query.

The letter stated that as of 31st December 2012, Greek gold reserves totalled 3.76 millon ounces (approximately 117 tonnes). This figure tallies with the figure from the above 2012 annual report.

On the location of the gold, Bloomberg said that, according to the document:

Half is held at the central bank in Greece while the remainder is held at the Federal Reserve Bank of New York, the Bank of England and in Switzerland.”

The same day, 1st March 2013, the Greek Ministry of Foreign Affairs and various Greek news agencies confirmed the Bloomberg story in slightly more detail, with the Ministry of Foreign Affairs releasing a statement stating that:

“Greece’s gold reserves totalled 3.760 million ounces at the end of 2012, worth 4.74 billion euros, the country’s central Bank of Greece (BoG) said on Friday.

In a report to Parliament, communicated through Finance Minister Yannis Stournaras responding to a question by parliament deputies over the country’s gold reserves, the central bank said that Greece’s natural gold reserves at the end of 2012 amounted to 3.760 million ounces, worth 4.74 billion euros, of which half were under the custody of the Bank of Greece and the remaining under the custody of the Federal Bank of New York, the Bank of England and Switzerland.

The central bank noted that gold reserves which had been transferred for custody to the Bank of England during the Second World War were repatriated gradually in 1946-1956.”

The Bank of Greece therefore appears to currently maintain a 50/50 split between domestic and foreign held gold. This again may suggest that something changed after 2010 which altered the wording of ‘the largest part’ of the reserves being stored abroad. Where the domestically stored Greek gold is held, I’m not sure. Possibly in a vault in the Bank’s headquarters in Athens. Who knows.

The Federal Reserve Bank of New York (FRBNY) and Bank of England as gold custodians for Greece’s gold is not surprising given that many foreign central banks store gold with these two institutions.

The Bank of Greece has historically had a gold set-aside account at the Bank of England, not least for the Tripartite Commission’s gold distributions. Separately, in the IMF gold restitutions to its members in the late 1970s, the Bank of Greece did not use the Bank of England or the Banque de France or the Reserve Bank of India to receive restituted gold, so this implies that Greece used the FRBNY and would have needed a gold account at the FRBNY.

The reference to Switzerland by the Greeks would either be a) a gold deposit or earmarked gold held with the Bank for International Settlements (BIS), b) earmarked gold held directly with the Swiss National Bank in Berne, or c) gold held with a Swiss commercial bank in Zurich such as Credit Suisse or UBS.

Swiss National Bank

As to how much of the 50% of the Greek gold that’s stored abroad is in each of the three storage locations (New York, London and Switzerland), or how much of this gold is actually earmarked in custody is unclear. Some or all of this gold could be loaned or swapped or, as central banks like to say in their gold legal agreements, the gold may have other “liens, claims or encumbrances” against it.

Given the perilous state of Greek finances, the custodial status of the Greek gold held with the Bank of England, FRBNY and in Switzerland deserves scrutiny. This would also apply to the 50% of the Greek gold that’s supposedly held by the Bank of Greece within Greece. This scrutiny will probably never be forthcoming however due to the unaccountability and lack of transparency on everything gold related within the world of central banking.

Seizing the Greek Gold? Not like Cyprus

In February 2012 during negotiations on Greece’s 2nd bailout (Second Economic Adjustment Programme of March 2012), the New York Times wrote an article quoting a Greek politician, Louka Katseli, who was unhappy that the loan deal undermined Greek sovereignty and believed that under the bailout deal, Greece’s creditors had a claim over the Bank of Greece gold reserves. As the NYTimes stated:

“Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal, and that future bonds issued will be governed by English law and in Luxembourg courts, conditions more favorable to creditors.”

According to the NYTimes, Katseli stated that:

“This is the first time ever that a European and probably an O.E.C.D. state abdicates its rights of immunity over all its assets to its lenders.

Although the NYTimes referred in its article to “the fine print of the 400-plus-page document — which Parliament members had a weekend to read and sign“, I am not sure which 400 plus page document was being referred to. I cannot find any reference to gold or gold collateral in the European Commission’s ‘Financial Assistance to Greece’ web pages, nor in the Commission’s “The Second Economic Adjustment Programme for Greece” document.

There isn’t, as far as I am aware, any collateral connection between the Bank of Greece gold reserves and the sovereign debt of the Greek State. I only say that because I can’t find the specific documentation that Katseli was referring to. However, Louka Katseli is a very credible source for making such a statement, having worked at a high level in the Greek Government, the OECD, and European Community, amongst other posts.

In comparison to the possible lack of Greek documentation, the Troika’s (ECB, IMF and European Commission) bailout deal of the Cypriot banking sector in 2013 (“The Economic Adjustment Programme for Cyprus”) did explicitly mention Cypriot gold and the possible sale of €400 million worth of gold, as follows:

27. The “programme” scenario takes into account a number of policy measures to strengthen debt sustainability, in particular (i) proceeds generated by privatisation of state-owned assets; (ii) the proceeds from the sale of excess gold reserves owned by the Republic of Cyprus;

29. Sale of excess gold reserves: It is envisaged to use the allocation of future central profits of approx. EUR 0.4 bn, subject to the principle of central bank independence and provided such profit allocation is in line with CBC rules and does not undermine the CBC duties under the Treaties and the Statute. This is estimated to generate one-off revenues to the state.

CBC is the Central Bank of Cyprus. But as the above ‘adjustment programme’ points make note of, Eurosystem central banks cannot be forced to sell their gold reserves to meet their government’s financing needs. This is due to Article 7 of the protocols on the European System of Central Banks (ESCB) and the ECB which states that the ECB and national central banks can’t seek or take direction from European Union government or institutions and, likewise, European Union governments and institutions are not allowed to influence the national central banks or the ECB.

The Central Bank of Cyprus never did sell any of its gold, but the rumours at the time, especially in April 2013, caused weakness in the gold price and were undoubtedly used by some as justification to accelerate the gold price weakness. Cyprus had, and still has, only 13.9 tonnes of gold and the sale proceeds from any Cypriot gold sale, would, like Greece, have only covered a small fraction of its bailout obligations to the Troika.

By December 2013, Reuters had released an article saying that Cyprus had “no plan to sell gold reserves to fund its €10 billion euro bailout”:

‘”We do not intend to sell the gold,’ a senior official at the central bank told Reuters, declining to be identified.”

“Asked about any alternative method to raise the 400 million euros, the official said: ‘They (the government) have to go back to the troika and say this (a gold sale) is not going to happen.'”

“While the Cypriot government had said sales would be considered, the central bank had typically been cool to the idea. The governor of the central bank would have the final say in such a sale, the central bank sources said.”

With Greek gold reserves eight times the size of those of Cyprus, any talk of Greek gold sales would be sure to have an adverse affect on the gold price. However, given that there does not seem to be any evidence that the Troika have discussed or planned for such gold sales, any suggestions of this in the media would be irresponsible.

dijsselbloem and varoufakis

Grexit and Greece’s gold claim on the ECB

In its balance sheet, the Bank of Greece also lists a claim on the European Central Bank under an item called “Claims equivalent to the transfer of foreign reserves to the ECB” (9.2).

In 1999, the founding member national central banks of the Euro (stage 3 of Economic and Monetary Union) transferred about €40 billion in foreign reserve assets to the ECB, with 85% of this total paid in US dollars and Yen and 15% paid in gold. There are now 19 European national central banks in the Euro, and Greece has a little less than a 2.8% share in the claims on this foreign reserve pool, 15% of which is in gold. The gold in this pool is managed on a decentralised basis by the member national central banks on behalf of the ECB.

In September 2011 (after the first Greek bailout [May 2010] but before the second Greek bailout [March 2012]), when fears of Greece leaving the EU were in full flight, I wrote to the ECB press office and asked them, in quite precise language, what would become of Greece’s gold contribution to the Eurozone if Greece exited from the Euro. My question to the ECB was as follows:

“In a scenario under which a Eurozone member state left the common currency zone, would the foreign reserve assets of that member state which had been contributed by that member state’s central bank to the ECB (i.e. the claims on the ECB established via Article 30 of the ESCB Statute, initially comprising 15% gold and 85% other currencies and subsequent top ups), be reimbursed to the departing members state’s central bank, or, given that a departing member state would most likely have been one to which the ECB had an outstanding loan (and so having a liability to the ECB), would the ECB seek to net the loan against the member state’s claims (made up of major currencies and gold)?”

The Communications Directorate of the ECB’s Press and Information Division promptly responded that:

Please note that there are no legal provisions for a hypothetical scenario of the kind you describe.

You may be interested in the following Legal Working Paper, although the views expressed in it do not necessarily reflect the views of the ECB:


The document that the ECB refered me to is titled Withdrawal and Expulsion from the EU and EMU – Some Reflections – by Phoebus Athanassiou, Legal Working Paper Series. No 10, December 2009.

Coincidentally, or not, Phoebus Athanassiou, the author of the paper, is Greek. According to his faculty profile at the Institute For Law And Finance (ILF) in Frankfurt, Dr Phoebus Athanassiou is “Senior Legal Counsel with the Directorate General Legal Services of the European Central Bank (ECB).”

Athanassiou also has an interesting connection to Cyprus since, according to the ILF profile, he “specialises in European Union, Greek and Cypriot financial law.” Prior to joining the ECB in 2004, Athanassiou “was in private practice, with the Athens Law Firm of Tsibanoulis & Partners, inter alia acting as consultant to the Government of the Republic of Cyprus on the transposition of the acquis in the fields of securities, banking and insurance law.” Acquis refers to Acquis communautaire, which just means the entire body of European laws (treaties, directives and regulations etc).

Athanassiou’s paper is very detailed and technical, and while there has been lots of coverage of it in the media over the last few years, the paper only discusses whether a country is allowed to exit the EU or exit EMU, not whether a departing country would get its gold back if it left EMU.

In summary, Athanassiou says in his 2009 paper:

– that before the Lisbon Treaty of 2007, there was no legal way for a member country to exit from the European Union (EU), and even though there is now (Article 50), it would be still legally problematic;

– that a member country of EMU (in the Euro) could not exit the Euro without exiting the EU;

– that “no right of withdrawal from EMU was ever intended to exist“;

– and that a member of the EU or EMU cannot be forced out because it requires the consent of all members including the member being expelled, i.e. “A Member State’s expulsion from the EU or EMU would inevitably result in an amendment of the treaties, for which the unanimous consent of all Member States is necessary under Article 48 TEU.”

Riot police stand near the euro sign in front of the European Central Bank headquarters during an anti-capitalist "Blockupy" demonstration in Frankfurt

Deal on the Table

With a Greek-Eurogroup deal now back on the table, the Athanassiou legal arguments still look to be sound. Just before the deal, there were reports of the ECB preparing for a Greek exit from the Euro. How this could even be legally undertaken is unclear. On 20th February 2015 Reuters reported that:

“The European Central Bank is preparing for the event that Greece leaves the euro zone and its staff are readying contingency plans for how the rest of the bloc could be kept intact, German news magazine Spiegel reported in a preview of its magazine.”

There is no legal way for a Euro member to exit the Euro. If it did somehow happen, a Greek exit from the Euro would have serious ramifications both financially and politically. Would the Bank of Greece also have to leave the ESCB group?

Anytime the prospect of Greece leaving the Eurozone flares up, there is always chatter that Greece would be somehow forced into selling its gold reserves.

Even though the European Central Bank Gold Agreements (CBGAs) on gold sales are supposedly not legally binding, the Bank of Greece gold holdings, worth less than €4 billion, are tiny in comparison to the colossal sovereign debts the Hellenic Republic faces, and would only make a small dent in the debt repayments.

The gold price should in theory benefit more from the financial volatility of a Grexit than it would suffer from the fear of Greek gold sales. However, the case of the feared Cypriot gold sales in 2013 shows that gold market players can use these fears to their advantage in pushing the gold price around.

If Greece stays in the Eurozone, which looks likely, it cannot independently sell its gold without the go-head of the ECB. This is because the ECB controls, or has a say in, the management of not just the gold transferred to it as part of the foreign reserve transfers of the participating national central banks, but all the monetary gold held as reserve assets by the member national central banks (under the ECB definition, reserve assets includes monetary gold).

Article 31 of the Statute of the ESCB and ECB, which addresses foreign reserve assets held by national central banks, says that beyond certain pre-existing obligations to various international organisations, “all other operations in foreign reserve assets remaining with the national central banks” are “subject to approval by the ECB in order to ensure consistency with the exchange rate and monetary policies of the Union.” So, any Euro member central bank would have to get the approval of the ECB before buying or selling any of its monetary gold.

In conclusion, Greece is not an insignificant holder of monetary gold. Its holding of 110+ tonnes makes it a reasonably sized gold holder amongst the world’s central banks. The supposed storage locations of Greece’s gold are not surprising but as to whether the gold is there and in what form the various holdings are is anyone’s guess.

Greece cannot just walk away from the Euro since such a scenario was never envisaged by the Eurocrates, and they will do whatever it takes to prevent such a scenario happening. As to whether Greece, or any Euro member, would get its gold back if it somehow managed to escape from the Euro, that is a scenario that as the ECB told me, “there are no legal provisions for.”

The IMF’s Gold Depositories – Part 2, Nagpur and Shanghai, the Indian and Chinese connections

Part 1 of the IMF’s Gold Depositories series explained the legal background as to why the IMF originally made the decision to hold gold at the Federal Reserve Bank of New York, the Bank of England, the Banque de France and the Reserve Bank of India.

See Part 1 for details, but as a quick recap, although the current IMF Rule F-1 on the location of its gold depositories states that “Gold depositories of the Fund shall be established in the United States, the United Kingdom, France, and India”, the original 1946 version of the rule, then called Rule E-1, said that “Gold depositories of the Fund shall be established in New York, London, Shanghai, Paris, and Bombay.

It is generally known that the central banks in some of these cities are indeed locations are IMF gold depositories, and the IMF will actually, on occasion, bring itself to confirm these facts.

What is less well understood however are the references to the cities in two of the word’s great gold markets, specifically, the reference to the Reserve Bank’s Bombay office, the transfer of IMF gold to another Indian city, Nagpur, and the fact that Shanghai was only removed “temporarily” and could, in theory, be reinstated as an IMF gold depository.

The Road to Nagpur

The original version of Rule E-1 was adopted on 25th September 1946, and then amended in 1956. This amendment in 1956 was triggered by the Reserve Bank of India (RBI), but it created some far-reaching implications for where the IMF’s gold can be stored.

The trigger for the amendment of Rule E-1 in 1956 was an initiative by the RBI to move their own gold from their Bombay office to a new office in Nagpur which they had just opened. Nagpur is a city in the very heart of India in the state of Maharashtra.

Nagpur in India
Nagpur, at the heart of India

In moving their own gold, the RBI asked the IMF if it objected to the re-location of the IMF gold at the same time. There was actually not much IMF gold held in Bombay, the only gold held there being India’s initial gold subscription to the IMF that had been transferred at the Fund’s inception, worth $27.5 million at $35 an ounce, or just over 24 tonnes. No other founding nation of the IMF had supplied gold to Bombay at that time.

In a 1956 staff document to the IMF Executive Directors, “Gold Depositories of the Fund”, the IMF staff explained the RBI’s move and recommended that the wording of Rule E-1 should be made more flexible so as to take account of future situations where other gold depositories of the Fund might want, or need, to hold gold at alternative locations in their respective countries, other than those locations already specified.

The IMF staff also proposed to the IMF Executive Directors that they should agree to the RBI’s request:

At the moment, the Fund holds the equivalent of US$27.5 million in gold with the Reserve Bank of India in Bombay. The Fund has received a letter from the Reserve Bank stating that it has recently opened an office at Nagpur, which is situated about 520 miles from Bombay in the interior of the country.

The office is in the Bank’s own building, and it contains a special vault for storing the Bank’s stock of gold. The special vault was constructed partly to enable gold to be stored at a comparatively safer place and partly to relieve the pressure on vault accommodation at the Bombay office. The Reserve Bank is transferring its own gold to Nagpur and inquires whether the Fund would object to the movement of the Fund’s gold.”

The staff document went on to explain the logistics of the move:

“The arrangements for transport would be made under the supervision of the military, and safe custody arrangements at Nagpur would be subject to the same security conditions as are observed at present in Bombay. The Fund’s gold would continue to be held under earmark, and the normal procedures which gold depositories follow in relation to the Fund would continue to be observed.”

A critical point in this IMF document, beyond the Indian gold transfer, is that the IMF staff viewed it as an opportunity to propose more general wording for Rule E-1 so as to allow IMF gold to be stored in any location within the designated countries. The Staff proposed to the Executive Directors.:

“Although Rule E-1 is not free from ambiguity, the more obvious reading of it requires that gold held in India shall be held in Bombay.

The question of the physical transfer of gold may be raised by other gold depositories of the Fund. For example, in the United States, there have been occasions when official stocks of gold have been held simultaneously in New York, Denver, San Francisco and Fort Knox.

The staff believes that it would be advisable to amend Rule E-1 so as to give the Fund more flexibility in dealing with a proposal of the kind made by the Reserve Bank of India. Accordingly, it recommends that Rule E-l should be amended…”

(Source: EBS/56/39, “Gold Depositories of the Fund”)

An IMF Executive Board meeting in November 1956 about the move of the Fund’s gold to Nagpur, approved on January 9th, 1957 (Meeting 57/1),  deemed that “it is agreed that the Fund’s gold held with the Reserve Bank of India shall be held at Nagpur.”

The Executive Directors also used the opportunity of the 1956 amendment to Rule E-1 to delete the reference to Shanghai as an IMF gold depository (‘without prejudice’). This is explained below.

And so, in 1956 the Rule E-1 sentence

Gold depositories of the Fund shall be established in New York, London, Shanghai, Paris, and Bombay


Gold depositories of the Fund shall be established in the United States, United Kingdom, France, and India

and the phrase “at places agreed with the Fund” was added as follows:

“The gold of the Fund shall be held with the depositories designated by the members in whose territories they are located at places agreed with the Fund”.

Reserve Bank of India, Nagpur
Reserve Bank of India, Nagpur


IMF gold, anywhere

Since the 1956 Rule E-1 persists into the current Rule F-1 (see Part 1), it opens up the possibility that IMF gold could be stored in any central bank gold vault (or other outsourced vaults) in any of the four jurisdictions of the US, UK, France and India, and even in China in the future if China looked to use its “without prejudice” option to be re-listed in the current day F-1 Rule list.

For example, the wording of Rule F-1 suggests that IMF gold held at the FRB New York vaults could be transferred to another Federal Reserve Bank vault as long as the other Bank had secure storage facilities.

Whether, in terms of Rule F-1, this transferability extends to US Treasury storage locations such as Fort Knox is unclear; the IMF staff document from 1956 seemed to think that US Treasury locations were feasible storage locations since it mentions them as indirect justification for changing the Rule E-1 wording.

There appears to be legal authority for the US Treasury and Federal Reserve Bank to use the Treasury’s Mint institutions for storing foreign central bank gold. Such arrangements were even being discussed as early as the 1940s as the following ‘Treasury Department, Inter Office Communication’ letter from a Mr. Luxford to a Mr. Dietrich makes clear:

“The quantity of gold available in New York for sale to foreign governments for earmarking by the Federal Reserve Bank of New York has declined to such an extent that it will soon be necessary to ship gold from Fort Knox to New York, or make other arrangements for earmarking.

It has been suggested that, to avoid the tying up of transportation facilities and the high cost of shipping, arrangements be made whereby the Federal Reserve Bank can, with the consent of the governments concerned, earmark gold while it is still in the Mint institutions.”

The letter goes on to describe a proposal whereby the FRB could earmark foreign central bank gold in the vault of the Denver branch of the FRB of Kansas City, or even lease private bank vaults in Denver, but if this didn’t solve the space issue, then compartments in Fort Knox and the Denver Mint were available:

“Mr. Howard has contacted the superintendents at the Fort Knox and Denver institutions and I am informed that the following spaces are available:

1. Fort Knox – two compartments which, when filled completely, could hold approximately $1,000,000,000 in gold.

2. Denver – three compartments which, when filled completely, could hold approximately $450,000,000 in gold.”

 Luxford concluded that:

“I believe that there is legal authority for the use of the mint institutions for the purpose outlined above.”

(Source: ‘Treasury Department, Inter Office Communication’, Sept 1943, Clinton Library, gold files)

Fort Knox model

So, there appears to be a legal precedent for foreign central banks, governments and international institutions to hold earmarked gold at US Treasury storage locations. These arrangements would be very useful if the US Treasury needed gold at the FRBNY and, for example, the Treasury conducted a gold location swap with the Bundesbank or IMF, swapping Treasury Fort Knox gold for Bundesbank or IMF gold.

The IMF is legally allowed to engage in location swaps for its gold and has done so numerous times in the past with entities such as the FRB and the BIS. Some of these IMF gold location swaps are covered in Part 3.

According to the current Rule F-1, IMF gold could also be stored, for example, in Bank of England provincial branch office vaults (assuming there are any of these vaults still operational). The Bank of England has in the past stored HM Treasury and other customer gold in its branch offices, for example in Liverpool, Birmingham and Southampton. Some of these branch offices have now closed but the Bank of England still maintains various agency offices across the UK.

In theory it’s possible that IMF gold could be transferred from the Bank of England’s London vaults to secure storage at one of the Bank’s provincial locations or even to emergency storage locations in England or Wales that have, at various times in the past, been considered by HM Treasury and the Ministry of Defence.

The IMF’s Article XIII, Section 2(b) also seems to open up the possibility that the IMF’s gold could be stored in other locations entirely, even in other countries. Remember that Article XIII, Section 2(b) states:

“(b) The Fund may hold other assets, including gold, in the depositories designated by the five members having the largest quotas and in such other designated depositories as the Fund may select”.

The IMF’s Articles will always have precedence over its Rules and Regulations, due to Rule A-1 which states

“A-1: These Rules and Regulations supplement the Articles of Agreement and the By-Laws adopted by the Board of Governors. They are not intended to replace any provision of either the Articles or the By-Laws.”

There is another clause in Article XIII, section 2(b) referring to an emergency, which is pretty self-explanatory:

“In an emergency the Executive Board may transfer all or any part of the Fund’s gold holdings to any place where they can be adequately protected.

There is therefore plenty of legal scope for the IMF’s gold to be stored in locations that at first glance might not appear obvious.


Shanghai Surprise

The IMF Executive Board confirmed the five gold depositories of the Fund in November 1946, including the Central Bank of China, Shanghai. However, no IMF gold was ever held in Shanghai because no IMF member country (including China) ever deposited gold to the IMF at Shanghai.

The removal of the reference to Shanghai as an IMF gold depository during the 1956 amendment had its origins in 1949. In 1949 the IMF Executive Board discussed a proposal that Shanghai should be temporarily removed from the gold depositories list due to political instability in the country at that time.

The following Executive Board minutes illustrate the discussion of the proposal that was recommended by the Board Chairman Camille Gutt. The discussion involved Frank Southard (F A Southard), the US Executive Director to the Fund, who had helped plan the Bretton Woods conference in 1944, and Y C Koo, who was subsequently Treasurer of the IMF, and who was part of the nationalist Chinese delegation that attended Bretton Woods:

Gold Depository

The Executive Board considered a recommendation by the Chairman that, in view of recent developments in China, the Fund should remove Shanghai from the list of gold depositories for the time being.”

“Mr. Southard said he assumed the action would be of a temporary character. Mr. Koo said his Government had no objection on the understanding that the action was temporary. However, the Government would wish to reserve the right to raise the matter again with the Fund at an opportune time.

The decision was: In view of recent developments in China and under the emergency provisions of Article XIII, Section 2(b), Shanghai is for the time being removed from the list of depositories in which the Fund may hold assets, including gold. Members shall be so informed. It is understood that China may, at an opportune time, raise the matter again.”

(Source: Executive Board Meeting 465, 21st July 1949)

Central Bank Of China 1940s gold unit

While the decision to temporarily remove Shanghai as a gold depository had been taken in 1949, it re-emerged as an issue in 1956 when the amendment to Rule E-1 was being discussed at a meeting. This was because the Executive Board wanted to ensure that the changed wording to Rule E-1 did not prejudice the previous decision to temporarily remove Shanghai as a gold depository.

The Acting Chairman in the 1956 meeting was H. Merle Cochran, deputy Managing Director of the Fund. The Executive Director for China (representing the Taiwan based government) was Mr Tann:

The Acting Chairman stated that, in order to make it clear that the proposed action would not prejudice a previous decision temporarily removing Shanghai from the list of depositories, the staff wished to recommend the addition of the following paragraph to the decision proposed:

(c) The amendment of Rule E-1 as set forth in paragraph (a) above is without prejudice to the decision of the Executive Board at Meeting 465 (July 21, 1949)”

“Mr. Tann said he had no objection to the staff’s proposals and particularly welcomed the additional paragraph put forward by the management since it would leave no doubt that the 1949 decision was not being nullified.”

(Source:Executive Board Meeting 56, 29th November 1956)

The 1956 amendment to Rule E-1 was adopted by the IMF Executive Board on 9th January 1957, and then reviewed and accepted by the Fund’s Board of Governors at the 12th IMF annual meeting 1957 where Per Jacobsson, Managing Director and Chairman of the Executive Board highlighted to the Governors that

“On November 29, 1956, Rule E-1 was amended to provide for greater flexibility in the location of the Fund’s gold held with designated depositories.”

(Source: Draft letter by Per Jacobsson to the Chairman of the Board of Governors, twelfth Annual Meeting of the IMF)

On paper, the reinstatement of China as a gold depository of the IMF looks possible, but in reality would be complicated by a number of issues, not least the unravelling of claims and representations that could arise from Taipei and Beijing over the 1949 agreement with the IMF.

With Shanghai now re-emerging as a dominant player in the global gold market, its fitting that the story of the IMF’s Shanghai depository should not be forgotten even though it never really existed.

The Nagpur gold vault, which does exist, is itself a relatively forgotten IMF outpost.  But it still contains, or is said to contain, both IMF and Reserve Bank of India gold. For this reason, the Nagpur gold vault, and some of its details, will be the subject of a future post.

The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank

Part 1 of this series reviewed Federal Reserve Bank of New York (FRBNY) publications that cover the Fed’s gold storage vaults in Manhattan, and illustrated how the information in these publications has been watered down over time. Part 1 also showed that the number of foreign central bank customers storing gold with the FRBNY has fallen substantially since the late 1990s.

Part 2 covered the Fed’s rarely discussed ‘Auxiliary Vault’ and suggested that this auxiliary vault of the Fed is probably located in the neighbouring Chase Manhattan Plaza vault facility, now run by JP Morgan.

Part 3 now looks at ‘Coin Bars’, another rarely discussed topic which is relevant to the gold at the New York Fed and that may well explain why the Deutsche Bundesbank needed to melt down the majority of the gold that it has so far repatriated from New York.

‘Coin bars’ is a bullion industry term referring to bars that were made by melting gold coins in a process that did not refine the gold nor remove the other metals or metal alloys that were in the coins. The molten metal was just recast directly into bar form.

Because it’s a concept critical to the FRBNY stored gold, the concept of US Assay Office / Mint gold bar ‘Melts’ is also highlighted below. Melts are batches of gold bars, usually between 18 and 22 bars, that when produced, were stamped with a melt number and a fineness, but were weight-listed as one unit. The US Assay Office produced both 0.995 fine gold bars and coin bars as Melts. The gold bars in a Melt are usually stored together unless that melt has been ‘broken’.

New York Fed – Coin Bars ‘Я’ Us

I think it’s critical to note that a reference to low-grade ‘coin bars’ in the 1991 version of the Fed’s ‘Key to the Gold Vault’ (KTTGV) has been omitted in subsequent additions of KTTGV.

The text in this 1991 ‘Key to the Gold Vault’ is based on older versions of the same publication that go back to the original version written by Charles Parnow in 1973. See Part 1 for discussion of Charles Parnow and the editions of the KTTGV and the ‘A Day at the Fed‘ publications.

The reference to coin bars in the 1991 version of KTTGV is as follows:

The butter yellow bars in the vault are nearly 100 percent pure and are usually made of newly mined gold.

Reddish bars contain copper and other impurities and generally consist of melted gold coins and jewellery containing alloys. Since 1968, a number of these “coin” bars, dating back to the early 1900s, have been stored in the Bank’s vault.

Silver and platinum impurities make gold white; iron produce shades of green.” (KTTGV 1991)

In comparison, the 1998 and later versions of KTTGV have omitted the reference to ‘coin bars’, and the discussion about gold bars and other metals has been shortened as follows:

Traces of silver and platinum give the gold a whitish shade, copper is most often found in reddish bars, and iron produces a greenish hue.

The butter-yellow bars in the vault are made of newly mined gold.” (KTTGV 1991, 2004, 2008)

There is also no mention of coin bars on the current NY Fed gold information page here. This is despite the fact that there are still coin bars held in the Fed’s New York gold vaults, as illustrated by the US Treasury’s gold bar inventory weight lists at the FRBNY. See below.

New York Fed at night

What exactly are Coin Bars?

In the early 20th century, a lot of countries were on a gold standard and gold coins circulated as part of the money supply, for example in Germany, the US, France and Britain. When countries went off the gold standard (or went off a circulating gold standard), some of these gold coins were melted down into bars in the 1920s and early 1930s.

Historically, gold coins that circulated as money were not made of pure gold since other metals (about 10%) were added to the gold to improve the coin’s strength and durability. So if a batch of coins contained 90% gold and 10% of other metals, the bars made by melting these coins would contain 90% gold and 10% other metals, since no refining of the gold was undertaken after the coins were melted.

Because coin bars were being made in the early 1930s, the London Gold Market (a precursor of the London Bullion Market Association (LBMA)) included an exact definition for coin bars in its 1934 London Good Delivery List, in addition to gold bars of 995 (or above) fineness.


Specification of bars acceptable on the London Gold Market

1. Gold bars conforming to the following specification are Good Delivery in the London market:

(a) Fine bars, i.e. bars assaying 995 per mille or over and containing between 350 and 430 ounces of fine gold;

(b) Coin bars, i.e. bars assaying 899 to 901 per mille or 915 1/2 to 917 per mille and containing between 350 and 420 ounces of fine gold; provided that they bear the stamp of the following:”

(Source: The London Good Delivery List – Building a Global Brand 1750 – 2010)

The 1934 definition specified that if a coin bar was produced by one of nineteen European mints or the United States Assay Office, then it was considered a ‘good delivery’ gold bar at that time. The European mints spanned Britain, France, Germany, Belgium, Holland, Sweden and Switzerland.

The specification of coin bars with a gold content (or fineness) of between 899 to 901 in the definition allowed the inclusion of gold coins from Continental Europe such as French Napoleon coins which had this particular gold content. The gold content of some US gold coins also fell within this range since they were made of 0.899 or 0.9 gold.

The 915 ½ to 917 range was included in the definition since 22 carat gold is 22/24 or 0.91667. This 22 carat gold, known as crown gold, was used in various gold coins such as British Sovereigns, and also some US gold coins.

But coin bars were in some ways a historical anomaly or a product of their time. Even at launch in 1919, the London gold fixing was a price quotation for 400 oz bars of 995 fineness. As gold expert Timothy Green said in the book “The London Good Delivery List – Building a Global Brand 1750 – 2010″ about the 1919 gold fixing launch:

the (fixing) price was now quoted for 400-ounce / 995 Good Delivery bars, rather than the traditional 916 standard coin bars which rapidly became extinct as minting of coin virtually ceased.” 

In the 19th century and very early 20th century, some refineries used to specifically produce ‘916 standard’ coin bars back that were used as a source to make gold coins. But the now famous 400 oz fine gold bars had been accepted by the Bank of England since 1871 when Sir Anthony de Rothschild convinced the Bank of England to accept them. The Bank of England had also begun to accept US Assay Office 400 oz bars of 995 fineness (fine bars) in 1919.

There do not appear to have been that many coin bars made in the early 1930s when mints melted down gold coins. In his book, Green cites a 1930 example of the Royal Mint in London embarking on a 2 year programme to melt down 90 million British Sovereigns (916.7 fine gold coins) into 52,000 bars each weighing 450 ozs. This is about 650 – 700 tonnes of gold. Each of these bars was stamped with the stamp of the Royal Mint as well as the fineness and a serial number on each bar.

Green also explains that although in 1936 the London Gold Market produced an updated good delivery list that added some additional refineries and mints to the 1934 list, there did not seem to be a lot of coin bars produced. Green says:

“The inclusion of mints (in the 1936 list) is interesting, suggesting that some like the Royal Mint in London, were melting coin, but there is little evidence of any producing significant quantities of bars.”

By the late 1920s, gold bar demand had shifted to central banks who wanted fine gold bars for their vaults. Green says that by 1929, 90 per cent of ‘monetary’ gold resided in these central bank vaults.

(Source:  “The London Good Delivery List – Building a Global Brand 1750 – 2010. Authors: Timothy Green (Part I) and Stewart Murray (Part II). Published by the LBMA, 2010)

Roosevelt’s Coin Bars

Apart from melted coins from Europe, there is another significant source of coin bars, namely the coin bars produced from US gold coins that were melted down during the US gold confiscation period circa 1933-1934.

Some of the US Treasury’s coin bars originated from this gold coin confiscation and melting period, and these coin bars were then shipped to the US Mint’s Fort Knox facility in Kentucky when it opened in 1937.

The authoritative source for information on the different producers of gold bars worldwide is a company called Grendon International who have a web site called http://www.goldbarsworldwide.com. This web site produces guides explaining the whole spectrum of gold bar varieties. In its US Assay Office gold bar guide, Grendon states:

“It is understood that the bars (produced by the US Mint / AssayOffices) had a minimum purity of 995+ parts gold in 1,000 parts, with the exception of those 400 oz bars that contained “Coin Gold”.

“Coin Gold” 400 oz bars were manufactured by melting down and then casting into bars gold coins that had been withdrawn from public circulation, mainly as a result of the prohibition in 1933 of private gold ownership in the United States. The gold purity of these bars reflected the purity of U.S. gold coins, usually 900 or 916 parts gold in a 1,000 parts. 

Roosevelt news
In an article about the US confiscation and the US coins that were actually melted, lawyer and coin expert David Ganz demonstrates that there were not a large amount of US gold coins melted by the US authorities in the 1930s.

In his article, Ganz has a table showing the total number of gold coins minted and melted over the 1930s, classified by coin denomination up to the $20 coin. Given that the $20 coin has 0.9675 ounces, and the $10 has 0.48375 ounces etc, you can work out the total number of millions of ounces that were produced from melted coins. Ganz says:

Product of gold confiscation was gold melting; the coins were melted into bricks that ultimately found their way to Fort Knox. Although the Mint had a program from the mid-1860’s until about 1950 to melt or re-coin copper, silver and gold coinage, the majority of gold coins were taken in and destroyed in a Seven year period (1932-1939)“.

Ganz’ statistics come directly from the annual reports of the Treasury’s Director of the Mint. Ganz says “All told, over 124 million coins were melted through the years (102 million gold coins were melted as a result of government assistance from 1933- 1939).”

However when you calculate the amount of gold in these 124 million coins, it only works out at about 85.6 million fine ounces, which is 2,662 tonnes of gold.

Some of the European coin bars made it across the Atlantic circa 1934 when the US raised the price of gold to $35 per ounce and the US Treasury offered to buy all gold at this price, including coin bars from the London Gold Market.

All gold arriving into the US Treasury’s assay offices was apparently remelted into US Assay Office bars but statistics on how many European coin bars entered the US market at that time do not seem to be available.

Since there were not that many European coin bars made by European mints in the 1930s (for example, the Royal Mint 1930 programme made only 650-700 tonnes of coin bars), then there cannot have been more than a few thousand tonnes of European coin bars entering the US at that time.

 999.5 US Assay Office
Coin Bars ceased to be ‘Good Delivery’ bars in 1954

During World War II the London Gold Market essentially closed down and really only re-opened in March 1954 when the Gold Fixing restarted. When the London Gold Market re-opened, a  new 1954 London Good Delivery List for gold was published. This list only included gold bars of 0.995 fineness or higher, and coin bars ceased to be London good delivery standard. As Stewart Murray, former LBMA CEO says: “The new List published in 1954 only allowed fine bars of 995+.” (page 40, “Good Delivery Accreditation – A Short History”).

It’s therefore very strange that the Fed’s 1991 ‘Key to the Gold Vault’ publication states that it was only “since 1968″ that  “a number of these ‘coin bars’, dating back to the early 1900s, have been stored in the Bank’s vault.” This implies that coin bars were not at the New York Fed gold vaults immediately prior to 1968.

Why would these coin bars suddenly appear at the FRBNY vault in 1968? To answer this question, its important to recall that 1968 was the year in which the London Gold Pool collapsed (March 1968).

Since coin bars have not been good delivery bars since 1954, US Treasury coin bars appear to have begun to turn up in the New York gold vaults in 1968 because there was a shortage of good delivery US Assay Office gold bars to satisfy foreign central bank gold transaction settlements.

Scraping the barrel – March 1968

That the US Treasury and Federal Reserve had a major shortage of good delivery gold in March 1968 is illustrated by a Bank of England memo from 14th March 1968, which highlights that the London Gold Pool collapsed because the US monetary authorities were unable to find any good delivery gold in their own stocks, and were confronted with the prospect of having to supply their Fort Knox low-grade ‘coin bars’ to the market.

The Bank of England memo, titled ‘Gold Bars for Delivery in the London Market‘ was written by George Preston (LTGP) and addressed to the Deputy Governor Maurice Parsons and the Chief Cashier John Fforde. It discussed the ramifications of delivering coin bars to the London Gold Market. The memo is referenced as entry ’49’ from file C43/323 i.e. C43/323/49.

Points 1 and 2 in the memo described what was good delivery at that time in 1968, and are included here to illustrate that coin bars were not even being countenanced as good delivery back in 1968. No one had even thought about coin bars since the 1930s.

However, Point 3 is the critical point. A short quote from the memo:

“1. The current specification of bars which are good delivery in the London market requires that they shall be of a minimum fineness of .995 and shall have a minimum gold content of 350 fine ounces and a maximum of 430 fine ounces.”

“2. In the 1930s when the Bank were delivering bars to the market to satisfy French demands for gold, they had to deliver coin bars and the specification in the 1930’s included bars not only .995 fine but coin bars assaying between .899 and .901 and also .915 1/2 to .917. Bars of both varieties had to contain between 350 and 430 ounces of fine gold.”

“3. It has emerged in conversations with the Federal Reserve Bank that the majority of the gold held at Fort Knox is in the form of coin bars, and that in certain cases these bars have a gold content of less than 350 fine ounces. If the drain on U.S. stocks continues it is inevitable that the Federal Reserve Bank will be forced to deliver what bars they have.

Capacity to further refine coin bars to the current minimum fineness of .995 in the United States is entirely inadequate to cope with conversion on the scale that would be required if the Americans wished to continue to deliver bars assaying .995 or better. Equally the capacity in the U.K. is inadequate for this task.”

The Fed asked the Bank of England to discuss the situation with Rothschilds (the chair of the gold market) at partner level. The memo then covers some discussion with Mr Bucks and Mr Hawes of Rothschilds about the acceptability of delivering coin bars to the London Gold Market. Supplying the market with coin bars was thought by the Bank and Rothschilds to be problematic, and the memo concluded, somewhat ominously:

it would appear that the circumstances might well be such that very few bars of the current acceptable fineness could be found” (by the Americans)

Ominously, because, as some readers will be aware, the London Gold Pool collapsed that evening, Thursday 14th March 1968. On the following day, 15th March 1968, an emergency bank holiday was called for British financial markets, the London gold market remained closed (and stayed close for the next two weeks), and the gold price began to float for non-official transactions.

Migration of Coin Bars from FRBNY to the Bank of England

That foreign central banks were provided with coin bars at the New York Fed is a fact, as illustrated by the following.

In 2004, speaking at a conference of the American Institute for Economic Research (AIER), (AIER Conference May 2004 Gold Standard), H. David Willey, formerly of the Federal Reserve Bank of New York,

Gold held by foreign authorities under earmark at the Federal Reserve Bank of New York may be in the form of coin bars only approximating 400 ounces and with a much lesser purity.

In the last decades, there has been a gradual migration of central bank coin bars from the New York Federal Reserve vaults to the Bank of England. These bars have been first re-refined into London good delivery form. Once at the Bank of England, the bars can readily be used for gold loans or sales.

H. David Willey was “formerly Vice President of the Federal Reserve Bank of New York in charge of the discount window, and later responsible for oversight of the Federal Reserve’s accounts (including gold) with foreign central banks (1964-82); advisor to Morgan Stanley’s gold and fixed-income business (1982-2000).

(Source: Page 62: https://www.aier.org/sites/default/files/publications/GC%20%2704%20-%20Text.pdf)

A central bank would only be confronted with a need to convert its FRBNY coin bar holdings to good delivery gold and move them to London if it didn’t have any 995 fine gold at the FRBNY. As to how many banks engaged in this activity and sent their coin bars to the refineries is unclear.

US Treasury coin bars

While some foreign central banks seem to have tried to get rid of their non-good delivery coin bars over the years by having them melted down, there are still coin bars held in the New York Fed vault(s).

The US Treasury claims to hold gold at four locations, namely Fort Knox in Kentucky, Denver in Colorado, West Point in up-state New York, and at the Federal Reserve Bank of New York in Manhattan, NY.

According to the US Treasury’s own full gold inventory schedule (which have never been independently and physically audited), over 80% of the US Treasury gold bars listed are not good delivery bars and are in the form of coin bars and other low fineness gold bars. See pdf here for a detailed list of the gold the US Treasury claims to hold at Fort Knox, Denver and West Point. An excel version of the US Treasury list is here in xls.

There is a neat table summarising the weight and purity of the US Treasury’s gold bar ‘lists’ here, taken from the goldchat blog site.

There has been very little gold bar activity in or out of Fort Knox since 1968. If there was nothing, or next to nothing, except coin bars at Fort Knox in March 1968 (as the FRB told the Bank of England in March 1968), then how could there now be over 147 million ozs of gold (over 4,500 tonnes) at Fort Knox if its all or nearly all in the form of coin bars? The numbers don’t add up.

Said another way, if the US melted around 2,600 tonnes of US gold coins in the 1930s into coin bars, and if some European coin bars were converted into US Assay Office coin bars (also in the 1930s), how could this add up to even 4,500 tonnes, let alone add up to all the coin bar gold that the US Treasury claims to hold at Fort Knox, Denver and West Point combined, and all the coin bars held by foreign central banks at the FRBNY?

Historical Melts FRBNY

US Treasury coin bars at the FRBNY

Surprisingly, the US Treasury lists how many coins bars it holds at the FRBNY. According to its custodial inventory statement, about 5% of the US Treasury’s gold is held at the FRBNY in the form of 31,204 bars stored in 11 compartments (listed as compartments A – K).

The US Treasury gold claimed to be stored at the FRBNY is listed in weight lists here, starting on page 132 of the pdf (or page 128 of file).

FRBNY - Schedule of Inventory of Gold Held by US Treasury at FRBNY - New

Of the US Treasury’s eleven compartments listed at the FRBNY, coin bars are listed as being held in four of these compartments, namely compartments H, J, K and E.

Compartment H of the US Treasury’s gold at the FRBNY contains coin bars produced by the US Assay Office. These bars are listed in ‘melts’, with more than 60 melts listed, each with about 20+ bars. This would be in excess of 12-13 tonnes. See the following screenshots as examples.

FRBNY Compartment H - coin bars of the US Treasury - New

FRBNY Compartment H - coin bars of the US Treasury B - New

All the bars listed in the Treasury’s Compartment J are US Assay Office coin bars, listed in melts. This amounts to 968,000 fine ounces, or about 30 tonnes. See the following two screenshots.

FRBNY Compartment J - coin bars of the US Treasury 1 - New

FRBNY Compartment J - coin bars of the US Treasury 2 - New

Compartment K also contains about 5 tonnes of coin bars belonging to the US Treasury. Screenshot not shown for brevity.

Additionally, Compartment E contains approximately 1 tonne of coin bars that are not US Assay Office coin bars. These coin bars are listed as being produced by refiners such as Marret-Bonnin, Rothschild, Comptoir-Lyon and the Royal Canadian Mint. All four of these refiners were listed on the 1934 Good Delivery List of refiners of coin bars.

FRBNY Compartment E - non US Assay Office coin bars of the US Treasury B - New

FRBNY Compartment E - non US Assay Office coin bars of the US Treasury C - New

Source: http://financialservices.house.gov/uploadedfiles/112-41.pdf

Overall, a quick calculation of the above weight lists suggests that the US Treasury holds about 50 tonnes of coin bars at the New York Fed. Interestingly, this is roughly the same amount of gold that the Bundesbank says that it melted/smelted in 2014 after repatriating it from the New York Fed.

Melt Bars stacked

US Assay Office 0.995 fine bars vs US Assay Office coin bars

Its important to understand the difference between good delivery US Assay Office gold bars and US Assay Office coin bars (circa 0.90 fine). US Assay Office gold bars that have a gold content of 0.995 fine or higher are still good delivery in the London Gold Market and in international transactions because US Assay Office 0.995 bars are still on the ‘former’ London good delivery list.

The LBMA’s London Good Delivery List is a list of refineries worldwide whose gold bars are acceptable by the London Gold Market. This list contains two parts, a current list and a former list. The former list includes refineries whose gold bars are still accepted by the London Gold Market but who no longer produce these gold bars.

In September 1997, the LBMA transferred ‘US Assay Office’ gold bars to the former list because they were no longer produced by the US Assay Office after this date. These are bars that were produced by the New York Assay Office and the San Francisco and Denver Mints.

Gold bars that are on the former list are still accepted as London Good Delivery as long as they have been produced prior to the date of transfer to the former list, and as long as the bars meet the London Good Delivery standards.

Therefore, US Assay Office gold bars (995 fine) are still accepted as London good delivery bars. Just look at the bar list for the SPDR Gold Trust (GLD) and you will see plenty of US Assay Office gold bars listed. These bars have appeared at various times recently with a variety of descriptions such as ‘US ASSAY OFFICE NY’, ‘U.S Assay Office’, ‘United States Assay Offices & Mints’, ‘US ASSAY OFFICE NEW YORK’, ‘UNITED STATES ASSAY OFFICE’ etc etc.

US Assay Office gold bar MELTS

Its important to grasp what a MELT is as applied to US Assay Office Gold because it applies to a lot of the gold held at the FRBNY vaults. Non US refineries and mints also produced gold bars in batches but they didn’t make use of a melt numbering system in such an obvious way as the US Assay Office.

Here’s the Federal Reserve Board explaining 0.995 Melts:

“US Assay Office bars, like bars in other countries, are produced in melts or a series of bars, numbered in succession. For instance, melt No. I contains 20 bars. Hence, the bars are stamped 1-1, 1-2, etc… , 1-20.”

“US Assay Office bars are gold bars that are originally issued by the US Assay Office and that have not been mutilated and which, if originally issued in the form of a melt, are re-deposited as a complete melt. These bars are not melted and assayed. They weigh approximately 400 troy ounces, the fineness of their gold content is .995 (99.5% purity or better), and they come in complete melts.

“When an US Assay Office bar is removed from a melt, it is referred to as a mutilated US Assay Office bar.”

Source: ‘Final report of the gold team’, draft June 30th, 2000. Page 13 of document: (http://www.clintonlibrary.gov/assets/storage/Research-Digital-Library/holocaust/Holocaust-Theft/Box-227/6997222-final-report-of-gold-team.pdf)

Here’s a very good description of Melts from none other than the International Monetary Fund. This description comes from an IMF document in 1976 when they were preparing their gold auctions and restitutions:

“..most of the gold of the Fund (IMF) is not in the form of individually stamped and weighed bars but consists, with the exception of the gold held in depositories in the United Kingdom and India, of melts, comprising 18-22 individual bars, which will first need to be identified, weighed, and selected before they can be delivered. 1/ “

Footnote 1/ on the same IMF page describes ‘Melts’ as:

“1/ A melt is an original cast of a number of bars, usually between 18 and 22. The bars of an unbroken melt are stamped with the melt number and fineness but weight-listed as one unit; when a melt is broken, individual bars must be weighed and stamped for identification. It is the practice in New York and Paris to keep melts intact.”

Swiss National Bank refining operations

The Swiss National Bank (SNB) admits that it too has held non-good delivery gold, and has sought, over a 30 year period from 1977-2007, to get it refined to good delivery status:

The National Bank has commissioned numerous refining operations during the last thirty years in order to obtain the ‘good delivery’ quality label for its entire gold holdings.

Swiss gold refining firms were prepared to undertake these operations free of charge, as the SNB provided them, in return, with a ‘working capital’ of several tonnes – more than was strictly necessary for their activity on behalf of the central bank.

This mutually profitable arrangement was challenged in 1982, when the SNB’s legal services concluded that it raised a number of problems, in particular that it effectively constituted an unsecured advance, similar to a gold loan. The National Bank’s deposits with refining firms were therefore liquidated in the same year, and subsequently, the cost of refining operations was invoiced directly to the SNB.

(page 433, section 8.2 The National Bank’s gold operations, from the 800+ page publication “The Swiss National Bank 1907 – 2007” (large file: 800+ pages.)

The SNB  had a lot of gold at the FRBNY up until at least the mid to late 1990s (since there are large FRBNY gold outflows during that period), and the Swiss gold sales appear to have targeted this New York gold, however, the Swiss gold sales settled out of London so it looks like Swiss gold may have been on the move in the late 1990s, even before the SNB had got the go-ahead to engage in gold sales over the 2000-2004 period. Perhaps the SNB’s Swiss refinery operations cited above involved some of the SNB’s New York gold as it stopped off in Switzerland on its way to London?

The Curious Case of the German Bundesbank

There has been widespread coverage of the Deutsche Bundesbank’s attempts to repatriate some of its gold reserves from New York and Paris back to Frankfurt. A lot of this coverage is, in my view, failing to ask the right questions about the fineness of the gold bars repatriated.

In January 2014, the Bundesbank announced that it had repatriated a paltry 5 tonnes of gold from the New York Federal Reserve Bank during 2013.

The Bundesbank press release from 20th January 2014, quoted Bundesbank Executive Board member Carl-Ludwig Thiele as follows:

‘”We had bars of gold which did not meet the ‘London Good Delivery’ general market standard melted down and recast. We are cooperating with gold smelters in Europe,” Thiele continued. The smelting process is being observed by independent experts. It is set up in such a manner that the Bundesbank’s gold cannot be commingled with foreign gold at any time.’

Since the Bundesbank is fond of using the term ‘smelting‘ and ‘smelters‘ in their gold bar discussions, what exactly does ‘smelting’ mean?

SMELT dictionary definition: Smelt (verb):

1. to fuse or melt (ore) in order to separate the metal contained

2. to obtain or refine (metal) in this way.

To me, it appears that the Bundesbank melted down and refined coin bars into London Good Delivery bars, otherwise why else would they need to bring gold up to good delivery standard? After all, normal US Assay Office gold bars of 0.995 fineness are already good delivery. So I emailed the Bundesbank at that time (January 2014) and asked them straight out:

How many tonnes of coin bars does the Bundesbank hold at the Federal Reserve in New York in addition to the 5 tonnes of coin bar gold recently remelted? And will all the gold (circa 300 tonnes) that is planned to be brought back from New York be in the form of coin bars? Regards,

The Bundesbank replied, directing me back to their press release:

in the Link attached you will find more information about your matter.

Since I had asked about ‘coin bars’ and the Bundesbank had sent me a link to the press release about smelting, could the Bundesbank have been conceding that the smelting was of coin bars? Quite Possibly.

On 19th February 2014, Carl-Ludwig Thiele popped up again referring to the  ‘smelting’ operation in an interview conducted with German newspaper Handelsblatt:

Some of the bars in our stocks in New York were produced before the Second World War.”

“Our internal audit team was present last year during the on-site removal of gold bars and closely monitored everything. The smelting process is also being monitored by independent experts.”

“The very same gold arrived at the European gold smelters that we had commissioned.”

“The gold was removed from the vault in the presence of the internal audit team and transported to Europe. Only once the gold had arrived in Europe was it melted down and brought to the current bar standard.”

The frequent use of the words ‘smelting’ and ‘smelters’, in my opinion, suggests that not only were the Bundesbank’s gold bars melted and reformed into fresh bars, but that the gold was smelted and refined from a lessor purity to a ‘good delivery’ purity. This is why the opaque manoeuvres of the Bundesbank suggest ‘coin bars’.

Thiele’s reference to “some of the bars in our stocks in New York were produced before the Second World War” is again hinting at the 1930s, and to me is clearly suggesting ‘Coin Bars’.

Bundesbank bar display

From 5 to 50 tonnes

The 2013 five tonne smelting mystery was merely a prelude to much more of the same in 2014, because in January 2015, the Bundesbank issued a press release in which it claimed to have repatriated 85 tonnes of gold from the FRB in New York, of which approximately 50 tonnes was melted and recast.

Smelting/Melting expert Carl-Ludwig Thiele was again on hand to explain:

“The Bundesbank took advantage of the transfer from New York to have roughly 50 tonnes of gold melted down and recast according to the London Good Delivery standard, today’s internationally recognised standard.”

I then emailed the Bundesbank and asked:

“The Bundesbank press release from yesterday (see link below) refers to the fact that 50 tonnes of gold that was repatriated from the Federal Reserve in New York was recast / remelted before being received by the Bundesbank.

Can you clarify what the gold fineness (parts per thousand of gold in the bars) of these 50 tonnes of bars was before they were recast / remelted?


The Bundesbank replied to my email:

“Please understand that we do not provide any information on the physical details of single gold bars owned by Deutsche Bundesbank. Nevertheless, we would like to draw your attention on the fact that no irregularities where found concerning the gold melted down and recast according to the London Good Delivery standard. Please take into account that this standard asks i.a. for a minimum fineness of 995 parts per thousand.

(i.a.= inter alia = among other things)

Notwithstanding that I didn’t ask about single gold bars, its very interesting that the Bundesbank mentions 995. Why mention the fineness of 995? If the bars were already 995, why melt them down in the first place?

I then sent the Bundesbank a follow-up email:

“Thanks for the reply but I wasn’t asking about the details of single gold bars. 

My question is what was the average fineness of the 50 tonnes of gold bars that the Bundesbank had remelted in 2014. That’s the average fineness on approximately 4,000 bars. 

The Bundesbank replied:

“Please understand that we do not provide any further information on the
details of specific gold bars or a specific amount of gold bars owned by
Deutsche Bundesbank.”

In my view, the Bundesbank’s complete secrecy on this smelting issue speaks volumes. And you also see now that the Bundesbank cannot give a straight answer when asked simple questions about its gold.

In both January 2014 and January 2015, the Bundesbank claims that the Bank for International Settlements (BIS) was in some way involved in the Bundesbank’s gold smelting shenanigans. This makes little or no sense unless there was some type of location swap involved or the BIS has some deal with a refinery such as Metalor in Neuchâtel.

In January 2014 Thiele said:

“The Bundesbank has repatriated the gold from New York City in close cooperation with the Bank for International Settlements. “The Bank for International Settlements is a repository of expertise in the repatriation of gold. It is a very trustworthy institution.”

In January 2015 Thiele said:

“We also called on the expertise of the Bank for International Settlements for the spot checks that had to be carried out. As expected, there were no irregularities.”

Carl-Ludwig Thiele

The BIS trades gold ‘loco Berne’ using its account at the Swiss National bank (SNB) vaults, and the BIS maintains safekeeping and settlements facilities that are “available loco London, Berne or New York.”

Bundesbank gold looks like it left the FRBNY vaults during 2013 and 2014 in batches of 5.16 tonnes. See the Fed’s foreign earmarked gold statistics here. But on a net basis there is a shortfall of about 32 tonnes in 2014  between the amount of gold that left the FRBNY vaults and the amount of gold that the Bundesbank and De Nederlandsche Bank combined claim that they repatriated from the FRBNY during 2014.

Therefore, there may have been a gold location swap involved somewhere along the line. For some of the Bundesbank’s melting operations, gold may not have moved physically from the FRBNY at all. A gold location swap could have been done between a BIS FRBNY gold account and a BIS SNB gold account. Since the gold needed to be remelted / recast (to bring it to good delivery status), that would mean there were coin bars at the SNB.

The Metalor gold refinery (one of the 4 big gold refineries in Switzerland and one of the 6 biggest in the world) is very near the SNB’s Berne vault. Its located at Neuchâtel, about 50kms from Berne. The three other large Swiss gold refineries are all quite far from Berne as they are situated in southern Switzerland near the Italian border within a mile or two of each other, (Valcambi is in Balerna, Pamp in Castel San Pietro, and Argor-Heraeus is in Mendrisio).

If the BIS did some location swaps between the FRBNY and the SNB, it could get coin bars at the SNB vaults remelted at Metalor and then get the new gold bars flown to the Bundesbank in Frankfurt.

This would prevent the need to fly gold from New York City, and it would explain the “close cooperation” of the BIS in the operations.

Going Dutch

In contrast, that other great gold repatriating nation of 2014, namely the  Netherlands, did not see the need to melt any of the bars that it repatriated. In its press release in November 2014, the De Nederlandsche Bank simply said they had repatriated their gold to Amsterdam, apparently in quite a quick fashion.

And why would the Dutch need to melt anything, since after all, their gold in New York was in 995 Melts, as confirmed by Dutch Central Bank official Jan Lamers.

Here is Lamers in 2005 talking about the DNB’s gold bar holdings at the FRB, which were held in normal US Assay Office Melts:

“The New York stock does not meet the standards prevailing on the international gold market, the so-called London “good delivery” standards. The biggest difference is that the bars in New York are not individualized, but are part of a package of about 20 bars, wherein the package as a whole has an overall weight and number. The bars in the package would need to be weighed and numbered individually to meet ‘good delivery’ standards.”

I translated the above, so here is the original Dutch from Lamers:

“De voorraad in New York voldoet echter niet aan de standaarden die gelden op de internationale goudmarkt, de zogenoemde Londense ‘good delivery’ standaard. Het grootste verschil is dat de baren in New York niet zijn geïndividualiseerd, maar onderdeel zijn van een pakket van circa 20 baren waarbij het pakket als geheel een gewicht en nummer heeft. Door de baren in het pakket individueel te wegen en te nummeren, konden deze op‘good delivery’ standaard worden gebracht.”

(Source: “Gold Management of the Bank” by Jan Lamers, Senior Policy, Financial Markets Division. http://web.archive.org/web/20081117183716/http://www.dnb.nl/binaries/goudbeheer%20van%20DNB_tcm46-146095.pdf pages 7-8 of the pdf.)

So, the fact that the Dutch didn’t need to smelt anything but the German’s did shows that the bars that the Germans sent to the European Smelters were not regular 995 fine US Assay Office bars. If the Germans had possessed 995 US Assay Office bars, they would just need to be weighed and individually stamped with their weights, not melted down and recast.

The fact that the Bundesbank will not publish any weight lists is very suspicious. Even the US Treasury published their weight lists of their bars held at the FRBNY (see above).

Peter Boehringer, of the German ‘Repatriate our Gold’ campaign, says that allegedly, the bar lists of the gold that the Bundesbank had melted have now been destroyed. If this has happened, then this is further bizarre behaviour from the Bundesbank.

There are various other theories apart from ‘coin bars’ as to why the Bundesbank may have wanted to melt down gold bars from New York but the other alternatives are also embarrassing to the bar holder.

The old bars may have had cracks or fissures in them. This has happened to some of the old gold that is stored in the Bank of England as this report from 2007 shows.  The Bank of England spokesman at the time said:

“This is not about purity, this is about physical appearance.”

Speaking of Peter Boehringer, a recent Bloomberg article from February 2015 about Boehringer and the Bundesbank gold quoted a Bundesbank spokesman as telling Bloomberg, on the subject of gold melting, that:

meeting the London good delivery standard “cannot be reduced entirely to the weight of a gold bar but needs to take various other features into account, one criterion being the outer appearance.”

However, this Bloomberg article is the first time that the Bundesbank has mentioned ‘appearance’ of bars, and to me it looks like a story that keeps changing, possibly with some inspiration from the Bank of England 2007 story.

Cracks and fissures in 55 tonnes of gold would be quite alarming given that the LBMA said that ‘defects’ are ‘fortunately not typical!’ (see slide 13 here), and this would throw the quality of all the Fed’s New York held gold into doubt.

The quality of US Assay Office 995 fine bars was seen to be less than perfect by London refiners in 1968, as demonstrated by this 2012 article from Zerohedge, but if the Bundesbank was melting down US Assay Office 995 fine bars this would also be an alarm bell for all holders of similar gold. And why would the Dutch not think its necessary to melt down their repatriated US Assay Office bars if the Germans thought this was a problem?

The Bundesbank gives some details of a gold swap with the FRB back in 1968, and claim that a portion of the gold returned to the  Bundesbank (the return leg of the gold swap) was gold of a lessor quality than good delivery. They say “the remaining bars with a countervalue of $750 million were of a different quality”. This is absolutely not correct. All of the gold bars returned to the Bundesbank in that potion of the swap were good delivery US Assay Office bars and a lot of it came from Ottawa where the Fed had sourced some bars from the Canadians.

I have the details on that swap from Bank of England gold ledgers and the 1,200 gold bars (sent to Johnson Matthey) out of over 50,000 bars shipped to London were merely being ‘adjusted’ into good delivery bars, and were supposed to be good delivery bars, hence the need to remelt and recast.  I will cover this Bundesbank gold swap in a future article. The Bundesbank seems to be using this gold swap as as some sort of ambiguous evidence of why they are melting down 55 tonnes of gold but it is misleading to do so.

So, in conclusion, I would lean towards the probability that the Federal Reserve Bank of New York has given the Deutsche Bundesbank tonnes of coin bars and the smelting operations have been bringing this gold up to London Good delivery purity levels. This begs the question, where did all the other Bundesbank gold bars stored at the New York Fed disappear to?

The alternative to the coin bar thesis, that the Bundesbank does not trust the gold purity of supposedly 995 fine US Assay Office bars, is probably more concerning since it undermines confidence in the purity levels of all US Assay Office fine gold Melts.

The IMF’s Gold Depositories – Part 1, The Legal Background

The International Monetary Fund (IMF) is the world’s third largest official sector holder of gold behind the United States and Germany. According to the Fund’s web site, as at October 2014 “the IMF holds around 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories.”

The IMF’s gold holdings were accumulated between 1946 and the late 1970s via Members’ initial quota subscriptions to the Fund, various quota increases, and through a number of additional methods where a Member either sold gold to the Fund or transferred gold to the Fund as part of a repayment obligation. Likewise, gold sometimes flowed in the other direction back to Members, in payment for a Member’s currency, during the 1970s gold restitutions, and via other sales to Members.

With renewed interest in central bank and official gold holdings at international storage locations, it is worth examining what exactly the IMF means by designated depositories and which specific depositories its gold was deposited into.

At this stage its worth stating that the designated gold depositories of the IMF really just mean that a gold account was opened by various authorised signatories in the name of the IMF at certain central banks that offered gold vaulting or storage facilities. There are no stand-alone IMF gold depositories, just gold accounts at existing third-party depositories.

There are many ways to verify the identity of the IMF’s gold depositories. However, the legal approach is the most complete, and also highlights some little known facts.

“Depositories” is a specific legal term appearing in the Articles and Rules and Regulations of the Fund. All aspects of the governance and functioning of the IMF are based on the Fund’s Articles of Agreement, supplemented by its By-Laws, and its Rules and Regulations.

Bank of England

Rule F-1 of the Rules and Regulations relates to the establishment of gold depositories. Article XIII, Section 2(b) also addresses gold depositories and holdings.

The current Rule F-1 reads:

Rule F-1. Gold depositories of the Fund shall be established in the United States, the United Kingdom, France, and India. The gold of the Fund shall be held with the depositories designated by the members in whose territories they are located at places agreed with the Fund.” (Adopted September 25, 1946, amended November 29, 1956, and April 1, 1978)

Note that Rule F-1 has been amended twice. These amendments are key to understanding the genesis of the designated depositories, their locations and their potential locations. The last amendment was applied on 1st April 1978, and before that on 29th November 1956.

In April 1978 the IMF implemented the Second Amendment to its Articles, By-Laws, and Rules and Regulations so as to reflect a number of changes in the international economy including the shift from a par value system to a system of flexible exchange rates, and a reduced role for gold in the international system. As part of the Second Amendment, the Rules and Regulations underwent an extensive overhaul with rules deleted, rewritten and even renamed.

The rule on gold depositories required amending because Members were no longer required to pay subscriptions in gold. During this amendment the gold depository rule was renamed as Rule F-1. It had previously been called Rule E-1.

Rule E-1 prior to the 1978 change read:

Gold depositories of the Fund shall be established in the United States, the United Kingdom, France, and India. The gold of the Fund shall be held with the depositories designated by the members in whose territories they are located at places agreed with the Fund. A member may pay its gold subscription to the Fund at one or more of the specified gold depositories within the terms of Article XIII, Section 2.

According to comments on the revision of the Rules in 1977, the IMF’s Legal Department staff wrote that “The first two sentences of the provision have been transferred to Rule F-1. The last sentence has been omitted because of the changes in the provisions governing the payment of subscriptions.” Likewise, a comment beside the newly named Rule F-1 stated that “This provision incorporates the first two sentences of the present Rule E-1”.

SM/77/134 “Implementation of the Second Amendment: Revised Rules and Regulations – A through N”


Since gold was no longer used to pay subscriptions following the Second Amendment in 1978, the reference to paying gold to gold depositories, based on Article XIII, Section 2, was no longer needed.

Article XIII, Section 2(b) specifies the framework on how gold depositories are designated, the target percentages between which the Fund’s gold was to be initially held between the designated depositories, and the way transfers could occur between locations, including emergency transfers.

Article XIII, Section 2(b) reads as follows:

Section 2. Depositories (b) The Fund may hold other assets, including gold, in the depositories designated by the five members having the largest quotas and in such other designated depositories as the Fund may select.

Initially, at least one-half of the holdings of the Fund shall be held in the depository designated by the member in whose territories the Fund has its principal office and at least forty percent shall be held in the depositories designated by the remaining four members referred to above.

However, all transfers of gold by the Fund shall be made with due regard to the costs of transport and anticipated requirements of the Fund. In an emergency the Executive Board may transfer all or any part of the Fund’s gold holdings to any place where they can be adequately protected.

Whereas the current Rule F-1 and the pre-1978 Rule E-1 list only four country locations as gold depositories, there is a reference in Article XIII, Section 2 to designated gold depositories of five members. This difference can be understood by looking at the version of Rule E-1 prior to the November 1956 amendment. This is the original version adopted on 25th September 1946 that persisted until 1956.

The originally adopted, pre-1956 version of E-1 read as follows:

Gold depositories of the Fund shall be established in New York, London, Shanghai, Paris, and Bombay. The gold of the Fund shall be held with the depositories designated by the members in whose territories they are located. A member may pay its gold subscription to the Fund at one or more of the specified gold depositories, within the terms of Article XIII, Section 2.

Banque de France entrance door

These five locations of New York, London, Shanghai, Paris and Bombay were chosen since the United States, the United Kingdom, China, France and India were given the five largest quotas (in that order) when the Fund went live, and these countries each designated a depository in these five locations.

India appeared onto the top five quota member list when the Soviet Union declined to join the IMF in late 1946, despite the Russian delegation having attended the Bretton Woods conference and being involved in detailed Fund negotiations after the conference.

In fact, early IMF drafts about the five depositories include Moscow on the list in addition to New York, London, Shanghai and Paris. Interestingly, South Africa also seemed eager to host an IMF gold depository despite not qualifying on quota size grounds.

On 4th September 1946 at Executive Board Meeting 49, just prior to the Fund’s Rules and Regulations being finalised for adoption, Gijsbert Bruins (G W J Bruins) the Executive Director representing the Netherlands and South Africa “raised the request of South Africa that one of the gold depositories should be located there. It was decided to consider this later”.

Although nothing came of this South African request, it’s notable that four of the five current day BRICS countries were in various ways, at the inception of the Fund, in contention for hosting an IMF gold depository. Perhaps the new BRICs Development Bank has taken note of this historical connection.

So, which gold depositories were nominated by the five largest members in respect of New York, London, Shanghai, Paris and Bombay?

Executive Board Document No. 46, Supplement 1 prepared by the Operations Department and dated 5th November 1946 confirms the five depositories, and the quality of gold that would be accepted:


1. The nominated gold depositories of the Fund are:-

(1) The Federal Reserve Bank of New York, New York City,

(2) The Bank of England, London.

(3) The Banque de France, Paris.

(4) The Reserve Bank of India, Bombay.

(5) The Central Bank of China, Shanghai.

2. The Fund requires that part of a Member’s quota payable in gold shall be delivered to one or more of the above-mentioned depositories.

3. The gold must be delivered to the Fund in the form of bars having a fineness of .995 or higher and weighing approximately 400 ozs, i.e., the normal size of bars used in international transactions. The Fund is not prepared to accept gold coin. Members may, however, deliver bars of lower fineness and weight by agreement with the Fund. In such an event, Members must be prepared in gold an amount, which would be estimated by the Fund, to cover the conversion of such gold into bars of the required weight and fineness.

4. Bars tendered by Members must be in a condition and have an assay which would be acceptable to the depository in question if such depository were called upon to buy such bars. The assay therefore, must be recognized by the depository in question, and bars must not be mutilated.

5. The weight of the bars tendered must be verified by the depository to which they are tendered

6. Members will bear all the charges made by the depositories for taking into custody for the Fund the Member’s gold subscriptions. Members will themselves make their own arrangements with the depositories concerned in this regard. “All gold must therefore be received by the Fund free of charges.

FRBNY brass plate

A note from John L. Fisher, Head of the Operations Department, to Andre Van Campenhout, Head of the Legal Department dated 16th September 1946 indicates that there was a view that having gold in New York and London would be most useful from an operational point of view, and that there was also concern about possible security risks in China and India at that time.

Initially, at least 50% of the Fund’s gold must be held in the U.S.A. and 40% in depositories designated by the four Members (other than the U.S.A.) having the largest quotas. But there is a proviso that the Fund shall hold gold where it anticipates that it will want it, subject to its being safe there. The anticipation of the Fund may change from time to time, but in present circumstances it might be thought that the two places where gold might be most useful to the Fund would be the U.S.A. and the UK.

….gold put up for subscriptions, repurchases and charges, should be put up in the centre where the Fund anticipates that it will need it. So far as subscriptions are concerned, the anticipations can only be guesses, since the Fund will have had no experience to guide it. But the factor of security should be considered and it is pertinent to observe that there is civil war in China and political unrest in India.


Prior to the payment of member’s initial quota payments into the Fund in 1946-1947, the IMF sent requests to each prospective member informing them of the location of the gold depositories, and asking each country to specify a preferred depository to which it would send its gold payment.

This request appears was made so as to predict whether the Fund would need to actually instruct Member’s to use specific depositories, most likely to direct gold into the depositories so as to satisfy the 50% New York rule, but also so as to result in gold being in “the most useful” locations of New York and London.

The request was in the form of a letter to each country’s Minister of Foreign Affairs, signed by Camille Gutt, Managing Director of the IMF.

My dear Mr. Minister:

I have the honor to inform you that the International Monetary Fund will have gold depositories at New York, London, Shanghai, Paris and Bombay. The gold subscription of your Government will be payable at one of these depositories.

It is desired that, so far as possible, each member deposit its gold subscription at any depository it selects. It is essential, however, that the Fund comply with the provisions of Article XIII, Section 2(b) concerning the initial distribution of gold holdings of the Fund.

In order that it may be determined whether any instructions will be necessary concerning the depository at which your Government’s gold subscriptions should be paid, it is requested that you furnish the Fund, as soon as possible, with the following information:

(1) The depository at which your Government would prefer to make its
gold payment,

(2) The approximate amount of gold which your Government will pay to the Fund on account of its subscription.

Sincerely yours,

Camille Gutt, Managing Director

(Draft Letter to the Minister of Foreign Affairs of each member relative to Gold Depositories



Having an existing gold account in the name of a central bank or a sovereign at a depository such as the FRBNY, Bank of England or Banque de France also most likely affected the choice of depository each Member made. Whatever the reasons behind the initial gold transfers to the various depositories, by the end of June 1947, the IMF’s gold holdings were distributed as follows:

Gold with Depositories, as at 30 June 1947 (fine ounces and per cent distribution)

USA – Federal Reserve Bank of New York 21.782 million 56.72%

UK – Bank of England 13.558 million 35.30%

France – Banque de France 2.283 million 5.94%

India – Reserve Bank of India 0.785 million 2.04%

TOTAL 38.408 million 100%

(Appendix VIII, Schedule 1, Annual Report 1947)

Note that no country deposited gold to the credit of the IMF at the Bank of China in Shanghai, and only India’s initial gold subscription was transferred to the Reserve Bank of India, Bombay.

The Keys to the Gold Vaults at the New York Fed – Part 2: The Auxiliary Vault

The FRBNY’s Auxiliary Vault

As mentioned in Part 1 of Keys to the Gold Vaults at the New York Fed, there are two gold vaults at the New York Fed, the main vault and the auxiliary vault. Very little is written anywhere about the FRBNY’s auxiliary vault, or the ‘aux vault’ as it has sometimes been referred to.

The auxiliary vault also fails to make an appearance during the New York Fed’s famous gold vault tour. It’s as if the Fed specifically wants to keep this aux vault off the radar, or at least flying under the radar.

Although neither the 1991 nor the 1998 versions of the Fed’s publication ‘Key to the Gold Vault’ (KTTGV) refer to the auxiliary vault, the 2004 and 2008 versions do (in passing) as follows:

Bullion at the Federal Reserve Bank of New York belonging to some 60 foreign central banks and international monetary organizations is stored in 122 separate compartments in the main and auxiliary vaults.” (page 5, 2004)

Bullion at the Federal Reserve Bank of New York belonging to some 36 foreign governments, central banks and official international organizations is stored in 122 separate compartments in the main and auxiliary vaults.” (page 5, 2008)

All four of the on-line versions of ‘Key to the Gold Vault’ that I sourced (from 1991 – 2008, see Part 1) state that the “main vault was opened in September 1924” and so this statement indirectly implies that there is another ‘non-main’ vault.

The reference to the auxiliary vault in the more recent 2004 and 2008 versions of KTTGV seems to imply that the aux vault is still in active use for gold storage. Otherwise, why would the Fed mention it?

Just to clarify what auxiliary means. Various dictionary definitions of ‘Auxiliary’ include the following: supplementary, additional, subsidiary capacity, backup reserve. In the context of space, auxiliary refers to additional space.

New York Fed writer Charles Parnow’s ‘A Day at the Fed – Charles Parnow’ publication (first published in 1973) explicitly refers to the auxiliary vault with a quite precise reference. This is probably the only detailed description of the auxiliary vault that’s on record, and it states:

A smaller auxiliary vault built in 1963 holds three accounts. One account with 107,000 bars of gold is stacked with bricklayer precision into a solid wall 12 feet high, 10 feet wide, and 18 feet deep.” (From: ‘A Day at the Fed’)


The above photo from the NY Fed shows a self-described ‘wall of gold’. If you look closely to the very left of the photo, the number ‘2’ is visible about half way up the white column beside the wall. This vault layout is very different to the small cages or compartments featured in most of the FRBNY’s gold vault photos. Therefore this wall of gold shot appears to be from a totally different location than the main vault.

Could this be a shot taken in the auxiliary vault? Most probably. Apart from the above photo, there are two additional photos below that I believe are also shots taken within the auxiliary vault. One shows 3 men with clipboards, presumably Fed staff and auditors, looking at a wall of gold. The other shots shows 2 Fed vault workers, with protective magnesium shoe covers, adding bars to a wall of gold, and out of shot a third person consulting some type of weight list.

If, in the early 1970s, when Charles Parnow’s above comment was first penned, the aux vault stored gold for only three customers, then the Fed may have simply just used three areas or alcoves in the aux vault, listed as 1, 2 and 3, in which to store customer gold for three customers. However, without knowing the vault layout its difficult to say.

Wall of Gold

This literal ‘wall of gold’ is also mentioned in the 1991 ‘Key to the Gold Vault’ but is attributed to a ‘compartment’ and there is no mention of the auxiliary vault. Another mysterious omission by the Fed. The comment is as follows:

The gold in compartment number 86, which faces the vault entrance, is arranged as a display. The compartment contains 5,160 bars valued at about $87.1 million at the official rate of $42.2222. Its capacity of about 6,000 bars makes it one of the smaller compartments.

The largest compartment contains about 107,000 bars—literally a wall of gold 10 feet high, 10 feet wide and 18 feet deep.”

(KTTGV 1991 – notice the dimensions quoted of the wall are slightly different in height to those specified in the previous specification 12 x 10 x 18).

As an aside, who would be holding 107,000 bars of gold (more than 1,300 tonnes) at the FRBNY back in 1973? By a process of elimination, I think it was the Swiss National Bank (SNB). This is so because, in my view, the only other realistic candidates that held so much gold in New York were the IMF and West Germany, and each of these customers held more than 1,300 tonnes of gold at the NY Fed at that time.

Tours of the Vault(s)

Since the FRBNY never really writes about the aux vault, I emailed the ‘Media Relations Department’ of the FRBNY last year (2014) and asked them to explain the reference to the auxiliary gold vault that was opened in 1963.

The Fed replied by email that “the auxiliary vault is a vault located near the main gold vault; hence it’s referred to as an auxiliary vault.

Not a very full answer, but at least it’s a confirmation from the NY Fed that there is an auxiliary vault and that it is located ‘near’ the ‘main gold vault’. And the Fed didn’t deny that it was opened in 1963.

When I worked in New York in 1999 my employer booked us a tour of the Fed’s gold vault. During the tour, there was no mention of the auxiliary vault and the gold vault visit just consisted of going into the entrance of the main vault where some gold was brought out from the weighing room for people to pass around.

The FRBNY gold vault tour (open to the public) is quite famous and has been written about extensively, but neither the promotional material for the tour nor the media coverage ever seem to mention the auxiliary vault.

Just to double check what the current tour covers, I recently emailed the Fed gold vault tour people and asked them if the auxiliary vault is included in the current tour in addition to the main vault. Their succinct reply was that “the tour covers the main vault“. Yet again, another very short reply  from the Fed and in this case no extra information about the auxiliary vault was volunteered.

Since discussion of the FRBNY’s  auxiliary vault is quite rare, its worth looking at the few web references to the aux vault which do exist.

One such reference about the aux vault comes from well-known New York writer Andrew Tobias who appears to have visited the auxiliary vault while on a private or customised tour of the NY Fed in June 2010. In his blog, Tobias wrote that “the door to the auxiliary vault weighs 30 tons, yet is so precisely balanced that I was able to swing it open and shut.”


Where is the Aux Vault?

The exact location of the FRBNY’s auxiliary vault appears to be something that the Fed doesn’t wish to discuss. It’s therefore interesting that there is a comment on the web that appears to state exactly where the aux vault is located.

In July 2002, a forum contributor called Woodman wrote in a bulletin board at www.freerepublic.com that the Federal Reserve aux vault is located at Level B5 of 1 Chase Manhattan Plaza.

While discussing the gold supposedly stored under the WTC, Woodman wrote “…all of the Gold stored in the WTC was really stored 3 blocks east in the basement vaults of the Federal Reserve Bank and the aux. at 1 Chase Manhattan Plaza B5.

For those not familiar, the vault at 1 Chase Manhattan Plaza (CMP) on the fifth sub-level (B5) is the famous Chase (now JP Morgan) vault, supposedly the largest bank vault in the world. Some of the details of this vault were uncovered in 2013 and can be read here on Zerohedge.

The interesting angle about the 2002 comment is that, how, in 2002, could someone refer to the Chase Manhattan Plaza (CMP) B5 vault as the aux (auxiliary) of the FRBNY vault unless they knew details about these two adjacent vaults?

Back in 2002, the Chase – JP Morgan merger had only just been completed the previous year, and JP Morgan’s 1 CMP B5 vault was not yet a licensed Comex depository for gold and silver (it only became Comex licensed in 2011). So, in 2002 the Chase (JP Morgan) vault wasn’t yet on the radar (even to the CFTC) as a JP Morgan Comex precious metals vault.

Therefore, in 2002, to refer to the FRB’s aux as 1 Chase Manhattan Plaza – B5, was a very specific statement.

To recap, the main Fed New York gold vault is in basement E of the fifth sub-level. The Chase vault is on B5, also on the fifth sub-level. Indeed, it was highlighted (via a ZeroHedge contributor) that there is a tunnel between the FRBNY and CPM vaults. While discussing the Fed’s gold vault facility, the contributor wrote:

Chase Plaza (now the Property of JPM) is linked to the facility via tunnel… I have seen it. The elevators on the Chase side are incredible. They could lift a tank.”

Ironically, this Zerohedge comment was originally posted to an article about ‘Key to the Gold Vault’, on 24th January 2012.

Given that the FRBNY auxiliary vault was opened in 1963, around the same time that 1 Chase Manhattan Plaza was completed, it would seem logical that the Fed’s aux vault was built in parallel with the construction of the Chase Manhattan Plaza vault.

Where Charles Parnow states that this auxiliary vault was ‘built in 1963’ he probably means opened in 1963, since like the main vault, although it was opened in 1924, it’s construction was part of a building project which took a few years over 1921-1923.

The Chase Manhattan Plaza building and vault construction project ran from around 1959 to 1963, and the Chase building was fully functional by 1963. Parts of the building were fully functional and occupied in 1962.

Working on a gold wall at the FRBNY

Mosler vault doors

The precisely balanced door of the auxiliary vault (referred to above by Andrew Tobias) sounds very different to the cylindrical design of the vault entrance of the main FRBNY vault, opened in 1924.

In the 1991 ‘Key to the Gold Vault’, the ‘door’ of the main vault is described as follows:

There are no doors into the gold vault. Entry is through a narrow 10-foot passageway cut in a delicately balanced 9-feet tall, 90-ton steel cylinder that revolves vertically in a 140- ton steel and concrete frame. The vault is opened and closed by rotating the cylinder 90 degrees so that the passageway is clear or blocked.

If, as was claimed above, the Fed´s auxiliary gold vault is situated in the Chase Manhattan Plaza vault facility, or is even part of the Chase vault, then the door of  this auxiliary vault would be similar to the vaults doors of the Chase Plaza vault.

As explained below, Andrew Tobias’s description of a 30 tonne door that swings open and shut sounds very similar to the doors of the Chase / JP Morgan vault across the road at 1 Chase Manhattan Plaza, level B5. These vault doors were built by Mosler.

A number of newspaper articles from 1960 and 1961 provide additional perspective on the Chase Manhattan Plaza vault doors, with slightly differing door details.

This newspaper article from July 1961 says that there are actually 6 doors to this cavernous Chase vault:

On the lowest level, ninety feet below the street, is the world’s largest bank vault, 350 feet wide and 100 feet long. The vault has six massive doors, each twenty inches thick, which weigh a total of 250 tonnes.

This New York Times article from May 1960 states that:

The Chase-Manhattan bank building is on a two-block site bounded by Nassau, William, Liberty and Pine. 8th May 1960.

With delivery last week, of six doors weighing an average of forty-five tons each, a bank vault that will be the world’s largest is rapidly nearing completion.”

The vault weighing 985 tonnes and occupies 35,000 square feet of floor space.”

newspaper article from August 1961 confirms the above vault details, and includes a description of the vault doors being able to be opened and closed with one finger, which is uncannily like Andrew Tobias description.

The new skyscraper bank just finished here naturally has the world’s largest bank vault, I found on peeking in. its length is 350 feet and width 100 feet, with the height being over 8 feet. Concrete walls seven feet thick encase it and the whole thing weighs about a thousand tons.

Although these stainless steel doors weigh 45 tons each, they can be opened or closed with one finger, I was told.

Recall Tobias´s phrase of “so precisely balanced that I was able to swing it open and shut.”

A photo of one of the six doors of the vault under 1 Chase Manhattan Plaza can be seen here in this old Mosler advert. See photo 7. Notice how the door is of the standard rectangular swinging variety.

The vault doors at Chase Plaza  are said to be Mosler Century  doors, some weighing 45 tons and 20 inches thick and also some 35 tonnes doors. If 4 of the 6 doors each weighed 45 tons, and the remaining 2 doors weigh 35 tons each, that would give a total weight of 250 tons, as quoted above.

These vault doors were also featured in a reference to the November 1961 issue of Mosler’s newsletter “Mosler Messenger”, as mentioned here. Why there would need to be 6 separate doors to the Chase Plaza bank vault is not clear. Perhaps there are 6 different sections to the vault, each with a distinct entrance door.

Unfortunately, there is little or no information in the public domain about the Chase Plaza vault, despite the fact that there apparently used to be tours of the Chase Plaza building (and vault areas) back in the 1960s.

Corner of Liberty Nassau at Fed

Structure of the main vault

To appreciate possible construction approaches to the Fed’s auxiliary vault in the early 1960s, and why it would have made sense at the time to leverage the nearby Chase Plaza vault area, it’s worth examining the structure of the FRBNY’s main vault and how it was constructed.

It’s possible that an auxiliary vault could have been built in the early 1960s within the Fed´s existing level E basement by, for example, converting an existing storage room or similar into a reinforced vault room. Whether such a suitable available space would have been adjacent the main vault is unclear.

However, if space constraints dictated the need for further excavations beyond the perimeter of the building at basement level E, then evidence suggests that creating this space would be most practical by excavating south near the corner of Nassau Street and Liberty. The fact that, luckily enough, there were already excavations being done south of Liberty in 1958-1960, makes it entirely logical that the New York Fed piggybacked on the Chase Manhattan vault project.

The main gold vault lies at the bottom of the FRBNY’s, 5 basement level, headquarters in Manhattan. The building is bordered by four streets, namely, Maiden Lane, William St, Liberty, and Nassau St. For ease of explanation, (but simplified slightly) Maiden Lane is roughly to the north of the building, William St to the east, Liberty to the south, and Nassau St to the west.

The main gold vault is actually the bottom level of a three-tier vault structure known as basement levels C, D and E. This three-tier vault was lowered into an excavation that had been dug down to the Manhattan bedrock.

The vault sits within this excavation or ‘hull’, with a corridor running all the way around between the vault and the outer walls of the hull. The walls of the vault, as well as the walls of the corridor are lined with reinforced concrete. Hence the main vault has been, at times, described as a double-vault.

In a section about the HQ building, the Fed’s current website has a few references to the main vault as a “triple-tiered vault system” with a “nine-foot door and door frame (weighing 90 and 140-tons, respectively)” that was “lowered to the bedrock foundation”. Notably, the ‘About the Building’ web page says nothing about the auxiliary vault.

The perimeter of the FRBNY HQ is a trapezoid with the west side wider than the east side, i.e. the length of the perimeter adjacent to Nassau St is a lot longer than the perimeter adjacent to William St.

FRBNY basement A plan and layout

Floor plans of some of the higher basement levels of the FRBNY HQ are viewable on Cryptome.org here, and were sourced from  the Avery Library at Columbia University. You can see the blueprints of Basement A here. Notice that the largest open type space of the basement (with what looks like pillars) is to the west of the building, running north to south.

Staircases and elevators etc are positioned more in the centre, or core, of the building. A narrower open space seems to run west to east parallel to liberty. Thick external walls (and possibly corridors) seem to be indicated around the entire plan and also within the plan one third the way to the left. Although this is said to be Basement A, this drawing would be in keeping with the description of the lower basement levels:

The main vault is described in some detail in the Fed´s older educational material:

The gold is secured in a most unusual vault, an impressive chamber nearly half the length of a football field”. KTTGV 1991

The gold vault is actually the bottom floor of a three story bunker of vaults arranged like strongboxes stacked on top of one another. The massive walls surrounding the vault are made of reinforced structural concrete” KTTGV 1991

The vault’s interior, encased by steel-and-concrete walls several yards thick, resembles a cell block with 122 triple-locked storehouse compartments.” A Day at the Fed 1997

Additional details of the main gold vault structure can be gleaned from old newspaper coverage, including the corridor running all the way around:

A four-foot corridor surrounds the vault itself and at each turn a mirror is arranged so that a guard standing before the vault may look all the way around it without moving.Newspaper article 1925

Completely around this double gold-vault ran a narrow alleyway, with mirrors set at the corners, so that a guard standing at any one point could see the entire circuit. The outer face of this passageway was a concrete wall, set in the foundation rock.” Newspaper article 1931

The vault below has three floors: bar gold and coins on the bottom, currency on the second, securities on the third.” New Yorker, September 1931


The construction of the main vault faced a number of construction challenges, but you have to go right back to 1921 when it was still being constructed to grasp what these challenges were. Additional information from 1930 provides some more background.

During the FRBNY HQ foundation excavation, the bedrock of Manhattan first appeared at a depth of 87 feet at the corner of Nassau and Liberty streets (south-west). The presence of this bedrock meant that the gold vault couldn’t be much lower than about 80-85 feet below street level (curb), even though the rock undulated lower over other parts of the site.

Because it’s so far down, there was also the problem of the water table to deal with, especially in an area (Manhattan) surrounded by rivers. The water issue was most problematic on the three sides away from the Nassau/Liberty corner.

Page 41 of the FRBNY 1921 Annual Report states that:

The rock underlying the site has proved to have an undulating surface. At the corner of Liberty and Nassau streets it is 87 feet below the curb. At other parts of the site it is as much as 117.3 feet below this same curb. Owing to this condition, to the varying kinds of foundations which support the adjacent buildings, and to the depth of the excavation, the construction of the foundation is considered to be one of the most difficult and exacting pieces of foundation engineering ever undertaken.

Page 40 of the same FRBNY annual report states:

The vault is a three story structure with its lowest floor 80 feet below the curb at Liberty and Nassau streets. The entire vault is below tidewater level.” 

A 1930 edition of Popular Mechanics expands on the water issue while constructing the main vault:

eighty-five feet below high curb line of the street and fifty-six feet below ground water level. On one side of what used to be a hole there is a piece of the solid rock of Manhattan. The other three sides are held against the pressure of underground water from the East and North rivers by walls of iron rods and concrete, ten feet thick, even stronger than the natural rock.

This is the hull of the bank’s vault, a massive vessel, five stories deep, protected on three sides by a terrific pressure of muck and water. Within that buried hull is the vault itself, a structure of three levels contained within walls of steelcrete – a combination of metal and concrete – a construction developed particularly to protect the treasure of the federal reserve banks.

(The World’s Greatest Treasure Cave”, Popular Mechanics, January 1930, Volume 50, Number 1, by Boyden Sparks)

With such treacherous and water problem surroundings, especially in the surroundings away from the corner of Nassau and Liberty, any extension of space in those directions would be challenging. The easier option would be to excavate or extend to the south from the area near the Nassau / Liberty corner.

With the Chase vault being built to the south under Liberty, the only construction work to do from the Fed side would be the construction of a link corridor or tunnel to connect the two facilities.

The effort and cost put in by the Fed in the 1920s in researching the structure and strength of the main vault should not be underestimated, as this somewhat humorous quotation demonstrates (1921 FRBNY Annual Report):

During 1920-21 the Federal Reserve Board conducted a series of tests of different types of vault construction by attacking them with explosives and other modern implements, at the conclusion of which this and other Federal Reserve Banks were enabled to add greatly to the strength of their vaults, and at the same time greatly to reduce their cost. It is believed that the vault of the Federal Reserve Bank of New York will be not only by far the strongest, but by far the cheapest for its size ever built.”

Presumably the Fed Board didn´t carry out these vault attacks themselves. In fact, Popular Mechanics suggests hat they outsourced this job:

the vault was built in accordance with the findings of a group of scientists of the bureau of standards, army engineers and architects. Previously there had been tests in which every known type of construction was subjected to attack with explosives, oxyacetylene torches that cut steel as a knife cuts cheese, and pneumatic hammers and chisels which are equally effective on concrete. As a result it was found that a fabric of concrete and steel formed an alliance which best resisted all these forms of attack.

On a more serious note, the above shows that the construction of a standalone auxiliary vault on Basement Level E by converting an existing space within the basement isn´t the simple task of putting a vault door on to a store room. The vault walls would also have to be built up and strengthened substantially.

Would it not be as easy to just burrow through a linked tunnel under Liberty, near the Nassau / Liberty corner and fit out a corridor to the environs of the Chase vault? In that case the aux vault would still be very near the main vault and at the same subterranean level, and substantial construction work in the tight space of the existing E level basement would be avoided.

One Chase Manhattan Plaza - the model

Why the Secrecy?

When JP Morgan’s 1 CMP B5 vault became a licensed depository of NYMEX/COMEX in 2011, COMEX’s owner, the CME Group, submitted to the CFTC a summary of requirements document as part of the vault application. This summary of requirements (for the JP Morgan vault to act as a licensed vault) took the form of two appendices (Appendix A and Appendix B). This would have included a vault inspection description and vault classification report.

As part of the application, the CME also requested confidential treatment of the vault details from the CFTC on the grounds that disclosure of Appendix A and/or Appendix B would reveal confidential commercial information of the submitters (NYMEX and COMEX) and of other persons.

The CME also requested that this confidential treatment continue “until further notice from the Exchanges”, and that if any Freedom of Information Act (FOIA) requests were received by the CFTC about the vault that the CFTC should notify the CME “immediately after receiving any FOIA request for said Appendix A, Appendix B or any other court order, subpoena or summons for same.

Unbelievably, the CME also requested that they “be notified in the event the Commission intends to disclose such Appendix A and/or Appendix B to Congress or to any other governmental agency.

So why would JP Morgan, as a commercial precious metals vault operator, be asking for an FOIA exemption when two other vault operators, namely Brinks and Scotia Mocatta, submitted vault licensing applications, here and here that did not see the need to ask for confidential treatment on the basis of “confidential commercial information”?

Looking at a list of possible FOIA exemptions, there is nothing in the list that would apply to JP Morgan but not to Scotia Mocatta and/or Brinks, except perhaps the first type of FOIA exemption in a scenario in which, were the aux vault at level B5 in the Chase Manhattan Plaza complex, then it could be included under foreign policy considerations i.e. “Those documents properly classified as secret in the interest of national defense or foreign policy”. i.e. that the Chase vault facility conducts business for a ´Federal´client and on behalf of foreign central banks and international monetary organisations.

In summary, there is a lot of circumstantial evidence to suggest that the Fed’s aux vault is indeed located at 1 Chase Manhattan Plaza, B5, accessible from the Fed’s Vault E via a link corridor or tunnel structure.

Until the FRBNY writes publicly about its auxiliary vault, which seems unlikely, then circumstantial evidence remains as the only evidence on which to go on.

The Keys to the Gold Vaults at the New York Fed – Part 1

Over time, the Federal Reserve Bank of New York (FRBNY) has become increasingly less transparent in sharing information about its Manhattan gold vaults. I use gold vaults in the plural because there are two gold vaults at the New York Fed’s headquarters, namely, the main vault and the auxiliary vault.

During the 1970s, New York Fed financial writer Charles Parnow wrote some informative and revealing material profiling the Fed’s Manhattan gold storage arrangements, however, the original text from these publications has been gradually rewritten, distilled, and watered down over time, and today hardly anything of substance about the Fed’s gold vaults makes it on to the New York Fed’s web site.

Luckily, most of this older information is still available from various on-line sources including a number of versions of an FRBNY publication titled ‘Key to the Gold Vault’, and another publication called ‘A Day at the Fed’. Old newspaper articles provide additional coverage.

Although most of the information in the Fed’s brochures has been covered elsewhere and is fairly well-known, there are a number of important and mostly forgotten facts from the early editions of these brochures which I think make an analysis of this material worthwhile. These facts centre on the following:

a) The FRBNY’s Auxiliary vault and its probable location

b) The arrival of low-grade Coin Bars at the FRB in New York in 1968

c) The substantial withdrawals of gold from New York from 1991 to the present day

d) The noticeable decline since the late 1970s in the number of central banks with gold holdings at the FRBNY

Entering the Main Vault - FRBNY

Chink of Light?

In October 2010 the Financial Times touched upon a small part of the FRBNY’s gold operations in an article titled ‘Chink of light shed on New York Fed gold’. The article, written by the FT’s Jack Farchy, reported that the FRBNY had revised down from 60 to 36 the number of foreign central bank customers that it claimed to hold gold on behalf of.

According to the FT, this change shed “a rare chink of light on the opaque activities of central banks in the gold market.”

The New York Fed was prompted to explain its gold customer revision after the FT had asked the FRB why a 2004 version of its ‘Key to the Gold Vault’ brochure claimed to hold gold for 60 foreign central banks while the 2008 version of the same publication cited the figure of 36 central banks.

The Fed’s explanation to the FT was that “the revision was the result of a change in the way it counts the countries that use its services to store gold” and that “its previous claim of approximately 60 countries referred to the number of foreign central banks with accounts at the NY Fed, including those that did not hold any gold.

From 60 to 36 gold customers?

However, as we shall see below, the 2004 publication (and a 1998 version) explicitly referred to “Bullion at the Federal Reserve Bank of New York belonging to some 60 foreign central banks and international monetary organizations”, so this Fed explanation to the FT contradicts what it actually stated in its own publications in 2004 and 1998.

Adding to the confusion, the Fed spokesperson also told the FT (in 2010) that “there has been no change in the number of accounts with active gold holdings in recent years.”

Since gold at the Fed is supposed to be held solely under earmark via distinct bar holdings and weight lists (i.e. not fungible), it’s unclear as to what the Fed meant by ‘active gold holdings’.

The Financial Times also pointed out that after they had contacted the NY Fed in October 2010, “the central bank removed the old (2004) brochure (pdf) from its website.”

The Fed seems to have a penchant for removing gold information from its web site, because in late 2012, the 2008 version of the ‘Key to the Gold Vault’, which used to be here, was also removed from the NY Fed web site, and replaced by the FRBNY’s current rather sketchy gold vault information offering which can be found on its web site here. Interestingly, late 2012 was when the Deutsche Bundesbank first announced that it planned to repatriate some of its gold holdings from the New York Fed.

The current gold information on the FRB´s website merely consists of a spartan one page summary of text from previous versions of the ‘Key to the Gold Vault’, but in my view, most of the important information has been omitted.

Weighing US Assay Office bars - FRBNY


While the FT thought that the two ‘Key to the Gold Vault’ brochures, dated 2004 and 2008, were “the only known information about the vault”, this is not the case. In total I sourced four versions of this document on the web in addition to a lot of other relevant information.

Both the 2008 and 2004 versions of the ‘Key to the Gold Vault’, as well as a 1998 version, are available to download from old imprints of the Fed’s web site using the Internet Archive (or WayBack Machine). There is also a 1991 version of the document available elsewhere on the web.

The 1991 version contains far more details about the New York gold than the subsequent versions in 1998, 2004 and 2008, and reading through the versions, you can see that nearly everything in the later editions seems to have been replicated from the 1991 version.

You can see all four on-line versions as follows:

Key to the Gold Vault, 2008 version

Key to the Gold Vault, 2004 version

Key to the Gold Vault, 1998 version

Key to the Gold Vault, 1991 version

A limited extract from the 1991 version of ‘Key to the Gold Vault’ is also featured on the Minneapolis Fed web site, here.

There is also another revealing FRBNY publication called ‘A Day at the Fed’ which is relevant to the Fed’s gold vaults. Unfortunately, the ‘A Day at the Fed’ document does not appear to be available on-line any longer and is not accessible via the Wayback Machine. There is a copy of the ‘A Day at the Fed’ uploaded here – A Day at the Fed – Charles Parnow.

Charles Parnow

The 1991 version of ‘Key to the Gold Vault’ was itself based on far earlier versions of the brochure going all the way back to 1973, so some of these forgotten details about the gold go back over 40 years, to an era in which the NY Fed seemed to be, for whatever reason, less secretive.

According to Worldcat, the global library cataloging web site, the ‘Key to the Gold Vault’ was originally authored by Charles J Parnow, with the first edition published by the FRBNY in 1973. Additionally, the ‘A Day at the Fed’ booklet was also authored by Charles Parnow in 1973. Many of the subsequent versions of these documents just appear to have been reprints and reissues, with small rewrites, and then gradually, large chunks of the material were edited out over time.

Both of these publications have also been widely drawn on by journalists over the years when writing newspaper and on-line articles about the Fed’s New York gold vault(s).

Here are the various WorldCat entries for ‘Key to the Gold Vault’ and the ‘A Day at the Fed’

“Key to the Gold Vault” Author C J Parnow, Publisher: Federal Reserve Bank of New York, Public Information Dept: 1974 and 1976

“Key to the Gold Vault”: Federal Reserve Bank of New York: 1973, 1989, 1991, 1998, 2006

“A Day at the Fed”: 1973, 1974, 1977, 1980, 1983

“A Day at the Fed” 1991

The version of ‘A Day at the Fed’ that I found is from 1997 (by Charles Parnow), but this appears to be just a reprint of an earlier version.

So who was Charles Parnow? From his obituary in 2010:

After graduating from NYU with a B.S. degree in journalism and finance, Mr. Parnow’s career in writing began as a financial writer for United Press International (UPI). He subsequently held positions at the Federal Reserve Bank of New York where he composed print and multimedia educational material for both adults and children, and was the editor of the company magazine. Before retiring Charles was a senior writer of public information for the New York Stock Exchange. Mr. Parnow was a member of the New York Financial Writer’s Association and the Overseas Press Club.”

Charles Parnow was therefore an insider at the New York Fed and everything that he wrote for publication would have been well researched and based on fact. Parnow also appears to have been a well-regarded author on financial matters, and is probably familiar to financially savvy New Yorkers of a certain age. His accomplished writing style comes across while reading the earlier versions of the Fed material.

It’s unclear as to what input if any Parnow would have had after writing the original versions of the publications in the early 1970s. Its also unclear how long Parnow stayed working at the FRB. It would appear that other Fed media staff just re-edited his publications over the years as they saw fit.

NY Federal Reserve Gold

Central banks pull back their holdings back from the NY Fed

While the 1991 version to the key to gold vault does not state the number of central bank customers that the FRB holds gold on behalf of, the 1998, 2004 and 2008 versions do, as follows:

Bullion at the Federal Reserve Bank of New York — the world’s largest repository of gold — belongs to some 60 foreign central banks and international monetary organizations.” (page 5, 1998)

Bullion at the Federal Reserve Bank of New York belonging to some 60 foreign central banks and international monetary organizations is stored in 122 separate compartments in the main and auxiliary vaults.” (page 5, 2004)

Bullion at the Federal Reserve Bank of New York belonging to some 36 foreign governments, central banks and official international organizations is stored in 122 separate compartments in the main and auxiliary vaults.” (page 5, 2008)

Notice the reference to the Auxiliary vault in the 2004 and 2008 statements but not the 1998 version.

International Monetary Organizations or Official International Organizations just refers to institutions such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS).

As you can see from above, the phrase ‘bullion….belonging to some 60 foreign central banks” can’t really have more than one meaning, so the FRBNY’s explanation to the FT in 2010 about the sharp drop in the number of gold customers between 2004 and 2008 makes little sense, i.e. that the “previous claim of approximately 60 countries referred to the number of foreign central banks with accounts at the NY Fed, including those that did not hold any gold”,

The Fed’s explanation makes absolutely no sense at all in light of the fact that this 60 customer figure of gold holders was also quoted by the Fed in 1998, six years prior to 2004, and has been quoted extensively by newspapers and other media from 2004 onwards without the Fed attempting to correct or clarify the total.

For example, in January 2005, in an article about a rare 1933 double eagle $20 gold piece being stored at the FRB’s main gold vault, the New York Times wrote:

Until last week, the world’s most expensive coin was hidden in the world’s most valuable gold vault. That is to say, in the brilliantly lighted blue-and-white stronghold of E Level, the deepest sanctuary of the Federal Reserve Bank of New York, the city’s bank of banks.
The coin was locked in a compartment at bedrock, 80 feet below Liberty Street in Lower Manhattan, surrounded by $90 billion worth of gold bars — some 550,000 of them — from 60 foreign institutions.

In November 2006, the American Museum of Natural History wrote on its web site:

The Federal Reserve Bank of New York holds the world’s largest accumulation of monetary gold. Only a small portion belongs to the U.S. government. The bank serves as guardian for it, as well as the gold monetary reserves of approximately 60 foreign governments, central banks and international organizations.”

Perhaps the 2004 reference to 60 foreign central banks was copied from the 1998 version of Key to the Gold Vault. In that case, the 60 gold customer total would have been correct as of 1998 but not in 2004.

This would suggest that the large decline in central bank customer gold holders took place prior to 2004, some of it most likely due to gold being withdraw for central bank sales and leasing activities, and some possibly after the September 11, 2001 Trade Center destruction, which would certainly have made foreign central banks more reluctant to hold gold in down town Manhattan vaults.

So, we can conclude that at least 24 central banks ceased to have gold holdings at the NY Fed between the late 1990s and 2008.

If you go back even further and search on-line newspaper archives, there are also some references in the 1970s to the number of central banks that stored gold at the New York Fed.

For example, this October 1978 article states that “about 85 individual countries are represented” as gold customers of the FRBNY. You may notice that most of the text in this newspaper article was taken directly from one of the ‘Key to the Gold Vault’ brochures:

A March 1973 article stated that “the (gold) owners are spread among 70 foreign central banks, government agencies, and international monetary agencies”.

This December 1960 article states “the bank stores for free the gold of 72 foreign governments, central banks, and international agencies.” It also says there were 96 cages (not 122 cages), some of which were sub-divided into smaller units.

This July 1963 article also mentions 96 compartments (not 122) and holdings of a massive 13,000 tonnes:

13,000 tonnes in the vault on level E, with 960,000 bars stored in 96 compartments and owned by 70 foreign governments.

So, from about 70 countries in the 1960s and early 1970s, the number of countries holding gold at the Fed seems to have peaked at around 85 in the late 1970s before dropping to a range near 60 in the 1990s, and then 36 in 2008. Notice the huge decline of ~50 gold account holders between 1978 and 2008.

The rise customer numbers in 1978 was no doubt partially due to some central banks opening up gold accounts at the Fed in order to receive restituted gold from the IMF during the gold restitutions around that time.

Remembering that the US Treasury also holds about 5% of its supposed gold reserves at the FRBNY, then, as of 2008 there were 36 foreign central banks and the US Treasury (i.e. 37 institutions) holding gold reserves at the FRBNY.

Surprisingly, the US Treasury in its gold custodial inventory of gold held at the FRBNY lists claims that it holds 31,204 bars in 11 compartments, but the schedule lists these 11 compartments as letters from A to K, and not numbers as are written on the compartments/cages in the FRBNY main vault.

The US Treasury gold supposedly stored at the FRBNY is listed here, starting on page 132 of the pdf (or page 128 of file).

FRBNY desk reflection

Millions of Ozs in the Vaults

Since the early 1970s there has been a consistent drop in the amount of gold held by foreign account holders at the NY fed. Some quotes follow:

(The vault) contained approximately 315 million troy ounces of gold early in 1991, comprising approximately 28 percent of the world’s official monetary gold reserves.” (Introduction, Key to the Gold Vault (KTTGV) 1991)

In 1997, the New York Fed held about 275 million troy ounces of gold, or 8,600 tons, worth approximately $12 billion at the official U.S. Government price ($42.22 per fine troy ounce)” (A Day at the Fed 1997)

“In the middle of 1997, the Fed’s vault contained roughly 269 million troy ounces of gold.” (page 6, KTTGV 1998).

In mid – 2004, the Fed’s vault contained roughly 266 (226) million troy ounces of gold”. (page 6, 2004 KTTGV)

Note:The 266 million ounces was a typo in the 2004 brochure, and they meant to write 226 million ounces because they quoted a valuation of $90 billion based on a price of $400 per ounce. See explanation below.

As of early 2008, the Fed’s vault contained roughly 216 million troy ounces of gold.” (page 6, KTGV 2008).

As of 2012, the vault housed approximately 530,000 gold bars, with a combined weight of approximately 6,700 tonsCurrent NY Fed gold page on web site. This would be 212 million troy ounces if all the bars were 400oz good delivery bars (of 995 fineness or above).

Note: The NY Fed also used their 2010 update to the Financial Times to state that whereas their 2004 brochure claimed that they held 266 million ounces of gold on behalf of central bank customers, this should in fact have said 226 million ounces. This discrepancy is definitely just a typo since the same sentence in the brochure quoted a total gold holding value of $90 billion at $400 per ounce, which equates to 225 million ounces..

So, gold holdings at the FRBNY fell from 316 million ounces in 1991, to between 269 – 275 million in 1998, to 226 million in 2004, and 216 million in 2008, and 212 million in the last few years. That’s a 100 million ounce drop from 1991 to 2008 , or 3110 tonnes.

That this 100 million ounce outflow of gold from the Fed´s New York vaults took place in conjunction with a marked decline in the number of foreign central bank gold account holders at the Fed, suggests that some of the customers withdrew all of their New York gold holdings and ceased to be gold customers.

Part 2 of The Keys to the Gold Vaults at the New York Fed will focus on the FRB´s rarely talked about Auxiliary Vault, while Part 3 will shed some light on ‘coin bars’ and look at why coin bars arrived at the Fed’s Manhattan vaults, and where they might have gone since then.