BullionStar recently teamed up with Real Vision TV, the unique video-on-demand finance and investment channel, to film a presentation for the Real Vision audience on some topical areas of the gold market.
The video presentation, which was filmed in London in June 2017, covers the fractional-reserve world of bullion bank trading in the London Gold Market, and also some concerns and risks of gold-backed Exchange Traded Funds. It then wraps up by discussing the benefits and attractions of physical gold ownership in light of the dangers and risks of today’s synthetic gold trading market.
Real Vision TV has kindly made this presentation available for viewing by BullionStar customers and readers, and the video presentation, which is 20 minutes long, can be viewed at the following link:
BullionStar would like to thank Real Vision TV for making this presentation possible and for facilitating the broadcasting of the presentation to the BullionStar audience.
Real Vision TV, founded by Raoul Pal and Grant Williams, is a subscription-based video on-demand channel featuring discussions, interviews, presentations and insights from many of the world’s top financial market minds and investment gurus.
Given that it’s now just over a year since that last set of calculations, it made sense at this point to update the data so as to grasp how many Good Delivery golds bars held in London is spoken for in terms of ownership, versus how much may be unaccounted for. Estimating gold held in London vaults is by definition a tricky exercise, since it must rely on whatever data and statements are made available in what is a notoriously secret market, and there will usually be timing mismatches between the various data points. However, using a combination of published sources from the Bank of England, the London Bullion Market Association (LBMA), the Exchange Traded Fund websites, and UK gold import/export data, it is possible to produce some factual numbers.
In the Bank of England vaults
Exactly once per year, the Bank of England publishes a snapshot of how much gold it is holding in custody for its central bank and commercial bank customers. This snapshot is featured in the Bank’s annual report which is usually published around July each year, and reports on its financial year-end, as of end of February. In its 2016 Annual Report, the Bank of England states (on page 31) that:
“At end-February 2016, total assets held by the Bank as custodian were £567 billion (2015: £514 billion), of which £135 billion (2015: £130 billion) were holdings of gold”
With an afternoon LBMA Gold Price fix of £888.588 on Monday 29 February 2016, this equates to 151,926,427 fine troy ounces of gold, or 4725 tonnes held in custody at the Bank of England. This equates to approximately 380,000 London Good Delivery gold bars, each weighing 400 fine troy ounces.
The corresponding figure for end of February 2015 was £130 billion, which, valued at the afternoon fix on that day of £787.545 per ounce, equalled 5,134 tonnes. Therefore between the end of February 2015 end of February 2016, the amount of gold held in custody by the Bank of England fell by 409 tonnes. Since, according to World Gold Council data, there were no central bank sellers of gold over that period apart from Venezuela whose gold was predominantly held in Venezuela at that time, then most of this 409 tonne decline must be either due to unreported central bank sales, central bank gold repatriation movements, London bullion bank sales, or some combination of all three.
The year-on-year drop of 409 tonnes came after a previous decline of 350 tonnes to end of February 2015, and before that a drop of 755 tonnes between February 2013 and February 2014. So overall between February 2013 and February 2016, the amount of gold held in custody in the Bank of England’s vaults fell by 1,514 tonnes.
LBMA Ballpark: 6,500 tonnes in London
Up until at least October 2015, the vaulting page on the LBMA website stated that:
“In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”
This is based on a Wayback Machine Internet Archive page cache from 9 October 2015.
The current version of that page on the LBMA website now states:
“In total it is estimated that there are approximately 6,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”
The earliest Internet Archive page cache mentioning 6,500 tonnes is from 8 February 2016. So sometime between October 2015 and February 2016, the LBMA changed its ballpark figure, revising it down by 1000 tonnes. Wayback Machine Archive web crawlers usually update a web page following a change to that page, so its likely that the revision to 6,500 tonnes was done nearer February than October. Using a figure from a LBMA website page is admittedly quite general, but at least it’s an anchor, and someone at the LBMA saw fit to make that actual change from 7,500 tonnes to 6,500 tonnes. In June 2015 (as some readers might recall), the LBMA had said that there were 500,000 Good Delivery gold bars in all the London vaults, which is approximately 6256 tonnes, so perhaps the 6500 tonne estimate was partially based on this statistic from mid-year 2015 that the LBMA was playing catch-up with.
With 6,500 tonnes in London vaults, ~ 75% of which is at the Bank of England, this would mean 4,875 tonnes at the Bank of England, and another 1,625 tonnes at other (commercial) gold vaults in London, mostly at HSBC’s and JP Morgan’s vaults. As per the Bank of England’s annual report as of 29 February 2016, we know now that there were 4,725 tonnes in custody at the Bank, so the LBMA ballpark of 4875 is actually very close to the actual 4725 tonnes reported by the Bank, and the difference is only 150 tonnes. Lets’s move on to the vaulted gold held in London but held outside the Bank of England vaults.
ETF Gold held in London
In the September 2015 calculation exercise, we estimated that there were 1,116 tonnes of gold held in the London vaults within a series of gold-backed Exchange Traded Funds.
The known ETFs and other companies that hold their Good Delivery bar gold in London are as follows:
SPDR Gold Trust: GLD. Custodian HSBC London, all GLD gold held at HSBC vault
The 1,116 tonnes of gold ETF holdings in London, calculated in September 2015, were as follows, with the SPDR Gold Trust accounting for the largest share:
The total figure for all gold held in London that we used in September 2015 was the 6,256 tonne figure implied by the LBMA’s 500,000 gold bars statement from June 2015. With 6,256 tonnes in total, and 5,134 tonnes at the Bank of England (as of end February 2015), this left 1,122 tonnes in London but “not at the Bank of England“, which implied that there was nearly no gold in London outside the Bank of England that was not accounted for by ETF holdings. in other words the ‘London Gold Float’ looks to have been near zero as of September 2015.
Assuming 6,500 tonnes of gold held in London in February 2016, and with 4,725 tonnes at the Bank of England in February 2016, we can repeat this exercise and say that the would leave 1,775 tonnes of gold in London but “not at the Bank of England“, as the following chart shows:
Its well-known by now that the tide of significant gold ETF outflows that occurred in 2015 suddenly turned to very strong inflows into gold ETFs beginning in early 2016. Although our gold ETF holdings data was updated using holdings information as of 30 September 2016, it’s still worth seeing how well the latest London holdings of the gold ETFs help to explain this 1775 tonnes “not in the Bank of England” figure. As it turns out, as of the end of September 2016, the above ETFs collectively held 1,679 tonnes of gold, so right now, if there were 1775 tonnes of gold in London outside of the Bank of England, the ETF holdings would explain all but 96 tonnes of this total.
Taking a quick look at some of the individual ETF holdings, the massive SPDR Gold Trust is currently holding around 950 tonnes of gold in London. The iShares figure reported in the charts of 214.89 tonnes comprises 2 components a) the London held gold within IAU (which can be seen in this daily JP Morgan weight list), and b) the gold bars held in iShares trust SGLN. The bulk of the ETF Securities figure of 276.68 tonnes represents gold held in PHAU (over 150 tonnes), and GBS (over 100 tonnes). The Deutsche Bank total is quite hard to calculate and comprises gold held in 5 Deutsche bank ETFs. Nick Laird receives daily holdings files for these ETFs from Deutsche Bank and performs a number of calculations such as fractional ounces per ETF unit to arrive at a total figure of 88 tonnes. The SOURCE and ABSA ETFs make up the vast majority of the remainder, with the other entities listed, such as BetaShares and Standard Bank ETF, being immaterial to the calculation.
Central Bank gold at the Bank of England
For the purposes of this exercise, data on central bank gold holdings at the Bank of England does not need to be updated since there hasn’t been any reported gold buying or selling activity by any of the relevant central banks since September 2015 (except for Venezuela), so the ‘known figure’ of 3779 tonnes attributed to identified banks in September 2015 remains unchanged. If anything, since the Bank of England revealed last February that its gold under custody fell to 4,725 tonnes, it means that there are now approximately 946 tonnes of gold at the Bank of England that are not explained by known central bank holders.
Given that many central banks around the world will not cooperate in confirming where they store their foreign stored gold, then there are definitely additional central banks storing gold in the Bank of England vaults which would reduce this 946 tonnes of gold with unknown ownership. Therefore some of this total is unknown central bank gold holdings. Some is presumably also gold and borrowed gold held by bullion banks that have gold accounts at the Bank of England. Given that the Bank of England and the LBMA bullion banks maintain a total information blackout about the real extent of the gold lending market out of London, it is difficult to know how much borrowed gold is being held at the Bank of England by bullion bank account holders.
Some of the growth in the SPDR Gold Trust gold holdings this year looks to have been sourced from gold originating from the Bank of England, as was detailed in a July BullionStar article “SPDR Gold Trust gold bars at the Bank of England vaults“, which highlighted that the Bank of England was a subcustodian of the SPDR Golf Trust during Q1 2016. As a SPDR Gold Trust filing stated:
“During the quarter ended March 31, 2016, the greatest amount of gold held by subcustodians was approximately 29 tonnes or approximately 3.8% of the Trust’s gold at such date. The Bank of England held that gold as subcustodian.“
Year to Date ETF changes and UK Gold Imports
It’s important to highlight that the 6,500 tonnes figure reported by the LBMA and the 4,725 tonne figure reported by the Bank of England relate to the February 2016 period, while the ETF gold holdings totals calculated above are from the end of September 2016. So there is a date mismatch. Nick Laird has calculated that during the February to September 2016 period, the London gold ETFs added 399 tonnes of gold, and during the same period the UK net imported (imports – exports) more than 800 tonnes of non-monetary gold. Given the apparent low float of gold in London late last year, its realistic to assume that gold inflows into the London-based ETFs this year were mostly sourced from non-monetary gold imports into the UK because there was apparently no other gold at hand from which to source the ETF gold inflows. ETF demand would also help explain the drivers of UK gold imports year-to-date. Note that monetary gold imports (central bank gold trade flows) are not reported by the respective trade bodies since the opaque basket of deplorables (i.e. central bankers) get an unfair exemption, therefore the 800 tonnes of net gold imports into the UK refers to non-monetary gold imports.
According to the latest comprehensive trade statistics, from January to July 2016 inclusive the UK net imported 735 tonnes of gold from the Rest of the World. To this figure we can add another 84.6 tonnes of gold that the UK net imported from Switzerland in August 2016. This gives total UK gold imports up to August 2016 inclusive of 819.6 tonnes, hence the statement, the UK net imported over 800 tonnes of gold year-to-date.
If 399 tonnes of the 800 tonnes of non-monetary gold imported into the UK during 2016 was channeled into the holdings of gold-backed ETFs, this would still mean that the ‘London Float’ of gold could have been augmented by approximately 400 tonnes year-to-date. However, since most non-monetary gold imports into the UK are for bullion bank customers such as Scotia and Barclays, some of these extra imports could have been for repaying borrowed gold liabilities to central bank customers, and the quantity of gold now held at the Bank of England may be higher than reported by the Bank last February.
In summary, given the large UK gold imports year-to-date, there may now be over 7,000 tonnes of Good Delivery gold bars held in London vaults. But the fact that very large quantities of gold bars had to be imported into the London market during 2016 does suggest that our calculations from September 2015 were valid and that there was a very low float of gold in the London market. This float may now be a few hundred tonnes higher given the imports, but there is still an unquantifiably large number of claims in the form of ‘unallocated gold’ holdings in the London market which are liabilities against the LBMA bullion banks.
Remember that the London Gold Market trades nearly 6000 tonnes of predominantly paper gold each and every day. The latest LBMA ‘gold’ clearing statistics show that on average, 18.8 million ounces (585 tonnes) of ‘gold’ was cleared per trading day in September 2016 which on a 10:1 trading to clearing ratio equates to 5,850 tonnes traded per day, and 128,000 tonnes traded during September. So the LBMA administered market nearly trades as much ‘gold’ connected transaction per day as is held in the entire London vaulting network.
If gold demand from the Rest of the World ticks up, such as from India, then the London market will not have the luxury of being able to import large quantities of gold in the absence of that excess demand putting upward pressure on the gold price. Until then, the London Gold Market looks likely to continue its physical re-stock with one hand, while trading leveraged paper gold with the other hand, all the while rolling over outstanding borrowed central bank gold obligations, such as the short-term gold deposits held by Banco Central de Bolivia, which will be the subject of an upcoming case study into the hidden London gold lending market consortium.
Within the last 2 months, there have been a series of developments in the London Gold Market, each of which has involved Chinese-controlled banking group ICBC Standard Bank Plc.
On 4 April, the London Bullion Market Association (LBMA) announced that ICBC Standard Bank had been reclassified as a LBMA Market Making member for the OTC spot trading markets in gold and silver.
On 11 April, ICE Benchmark Administration announced that ICBC Standard Bank had been approved for direct participation in the daily benchmark LBMA Gold Price auctions beginning on 16 May.
On 3 May, the LBMA announced in its Alchemist magazine that ICBC Standard Bank had joined the LBMA’s Physical Committee. This committee is responsible for aspects of the physical bullion market such as the LBMA’s Good Delivery List and it also liaises with the LBMA’s Vault Managers Working Party.
On 11 May, the relatively obscure but powerful London Precious Metals Clearing Limited (LPMCL)announced that ICBC Standard Bank had joined LPMCL, the first membership addition to London’s monopoly bullion clearing group since 2005.
On 16 May, ICBC Standard Bank announced that it had agreed to acquire a London-based precious metals vault currently owned by Barclays. This precious metals vault was built by, and is operated by Brinks, on behalf of Barclays. ICBC Standard says that the vault acquisition will be completed by July 2016.
Therefore, within a period of approximately 6 weeks, ICBC Standard has positioned itself front and centre of the closely protected London bullion trading, clearing and vaulting infrastructure.
On Monday 16 May 2016, the LBMA also issued its own press release, announcing that ICBC Standard bank had joined LPMCL, and that it would become an ‘active member‘ of LPMCL in early June 2016.
The LBMA press release about LPMCL also quoted LBMA CEO Ruth Crowell as saying:
“I’m delighted to see ICBC Standard Bank join this vital organisation. The LPMCL clearing system is one of the great strengths of the London bullion market. The LBMA welcomes this addition and looks forward to continuing to assist LPMCL in its growth and development.”
Although the same bullion bank representatives, wearing different hats, run, and have always run, all of the precious metals entities that operate in the London market (via a series of different ‘puppet shows’), the ‘assistance’ that the LBMA is now providing to LPMCL is based on the following development that was highlighted by the LBMA CEO at the LBMA conference in Vienna in 2015, when she said:
“I’m delighted to inform you that the London Precious Metals Clearing company took part not only [in the LBMA] review, but we have now agreed to formalise our working relationship, with the LBMA providing Executive services going forward. I’m grateful to the LPMCL directors for their leadership and their support forremoving fragmentation from the market.”
Examination of the Barclays / Brinks vault (most likely near Heathrow in the Brinks complex) which ICBC is now acquiring, is left to a future analysis. This article concentrates solely on the LPMCL clearing system, the protected crux of the London precious metals markets, but an entity which is rarely given anything but a passing glance by the financial media in London or elsewhere.
One important point to mention here though is that it had been widely reported in January (initially by Reuters) that ICBC was acquiring another London-based precious metals vault, a vault that had been built by G4S in Park Royal on behalf of Deutsche Bank, and that had then been leased from G4S by Deutsche Bank. See “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out” for details.
It turns out that the deal for the G4S / Deutsche Bank vault “did not go through“, according to ICBC. It appears that ICBC considered the Barclays / Brinks vault to be the preferred transaction over the Deutsche / G4S vault, and that when the Barclays / Brinks vault came on to the market, ICBC backed out of the transaction with Deutsche, in much the same as house-hunters change their mind when a better house comes on the market.
The future of the G4S / Deutsche vault is therefore still unknown. Possibly Standard Chartered, which was also mentioned as a name wanting to join LPMCL, could be a potential buyer of the Deutsche / G4S vault?
London Precious Metals Clearing Limited (LPMCL) is a UK private company limited by guarantee without share capital, that was incorporated on 5 April 2001, with a company number of 04195299. LPMCL is classified in Companies House with a Standard Industrial Classification (SIC) code of ‘Administration of financial markets‘. LPMCL has a registered address of C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ. Interestingly, this is the same registered address as the London Gold Market Fixing Limited and the London Silver Market Fixing Company Limited, both of which are still active companies and both of which are currently defendants in ongoing New York court class action suits where they and their member banks stand accused of price manipulation in the gold and silver markets, respectively. Hackwood Secretaries Limited is Company Secretary for LPMCL. Hackwood Secretaries is a Linklaters company used for company secretariat services. Linklaters is one of the better known global law firms that is headquartered in London.
LPMCL uses an electronic clearing platform called ‘AURUM’ to clear London-settled precious metals trades. This is done via book entry netting and clearing, entirely using unallocated accounts. The vast majority of the LPMCL clearing trades are processed by HSBC and JP Morgan.
As to the raison d’etre for LPMCL, perhaps the recent LBMA press release sums it up best:
“[the] London clearing system for gold, silver, platinum and palladium [is] managed by London Precious Metals Clearing Limited (LPMCL).
LPMCL operates a central electronic metal clearing hub, with deals between parties throughout the world, settled and cleared in London.
Most global ‘over-the-counter’ gold and silver trading is cleared through the London clearing system. The London bullion market clearing banks provide a service to their clients in providing the settlement of gold and silver transfers. Ultimately each clearer has to have access to reserves of physical metal and provides an array of services tailored to each client’s specific needs; the most important of which is intermediating credit and providing credit facilities.
This last paragraph in the press release was cut and pasted by the LBMA from the LPMCL website FAQ under the question: “Can you explain the benefits of the London bullion clearing system as compared with a clearing house?” so it can also be viewed there.
You will notice from the above press release that:
a) LPMCL is critically important due to its role as global clearer for all 4 precious metals, and
b) Access to physical precious metals plays a secondary role in the LPMCL system compared to ‘credit facilities and intermediating credit (i.e. The LPMCL system is a credit-based fractional-reserve system of unallocated metal holdings and transfers).
LPMCL was founded in 2001 by 7 bullion bank founding members, namely, NM Rothschilds, JP Morgan Chase, HSBC Bank USA, ScotiaMocatta, UBS AG, Deutsche Bank , and CSFB (Credit Suisse). Credit Suisse resigned in October 2001, Rothschilds resigned in June 2004, and then Barclays joined in September 2005. Deutsche bank resigned in August 2015. HSBC Bank USA NA resigned on 11 February 2015, and was replaced by HSBC Bank Plc. Gold and silver were the two metals originally cleared loco London by LPMCL’s system. Platinum and palladium clearing loco London was added to LPMCL’s clearing offering in September 2009. UBS (a LPMCL member) and Credit Suisse (a previous LPMCL member) also offer loco Zurich clearing of platinum and palladium.
Including ICBC Standard Bank, the current membership of LPMCL as of May/June 2016 now consists of JP Morgan, HSBC, Scotia Mocatta, UBS, Barclays, and ICBC Standard. Since Barclays is withdrawing from much of its precious metals business in London, and is selling its London vault , its possible that Barclays will resign from LPMCL in the near future.
All LPMCL members either have their own precious metals vault in London, or access to vaulting facilities at London vaults. Many of the LPMCL members also have vaulting facilities in other financial capitals around the world. Here are some of the vault operations for each of the LPMCL members:
HSBC – vaults in London, New York (Manhattan) and Hong Kong
JP Morgan – vaults in London, New York (Manhattan) and Singapore (Freeport)
Scotia – vaults in Toronto and New York (JFK)
Barclays – vault in London (being sold), vault in Singapore
UBS – vault in Zurich (Kloten) and Singapore (Freeport)
Deutsche Bank (ex LPMCL) – trying to sell a lease on a G4S vault in London; has / had a vault in Singapore (Freeport)
ICBC Standard – buying vault in London from Barclays. Standard Bank had vaulting facilities at JP Morgan’s vault in London. ICBC has many vaults in China.
Notice also that 4 of the LPMCL member banks, HSBC, JP Morgan, Scotia and UBS are also 4 of the 6 banks represented on the LBMA Management Committee, therefore LPMCL members have a disproportionately large influence on the strategic direction and decision-making of the LBMA.
“to take on and continue the promotion, administration and conduct of precious metals clearing in the London precious metals markets”
According to the original Articles of Association, the registered ‘Office’ of LPMCL was “New Court, St Swithin’s Lane, London EC4P 4DU“, which is the headquarters of N.M. Rothschild & Sons in London. Rothschilds was also the company Secretary at that time. Interestingly, the respective addresses listed for JP Morgan and HSBC in the Memorandum and Articles of Association document are “60 Victoria Embankment”, and “Thames Exchange, 10 Queen Street Place”, which is the location of JP Morgan’s London precious metals vault, and a supposed location of HSBC’s London precious metals vault, respectively.
Why LPMCL was Established
According to the history section of the LPMCL’s website, the London bullion market first felt the need to develop an electronic clearing / matching system in the mid-1990s due to a combination of growing trade volumes, technological change, and also the need for better audit trails. This view is backed up by comments from Peter Smith of JP Morgan in a 2009 article for the LBMA’s Alchemist when he said that:
“Thirteen years ago , the bullion clearers were exchanging transfers between themselves by telephone instructions – a situation that was causing considerable problems in the control and audit departments within those banks. Because of those concerns, the clearers realised that the only sensible and secure solution was to develop a central clearing hub, where transfer instructions could be up loaded and matched. This resulted in the establishment of LPMCL in April 2001″
The LPMCL website’s history section also reveals that the initial legwork on automating London precious metals clearing was done by the LBMA’s physical committee, since this committee “comprised the clearing members”.
Until very recently, the LBMA physical committee was exclusively made up of LPMCL members, indeed, the LBMA physical committee literally looks like an alternate venue for LPMCL members to meet up in. For example, in September 2015, the only members of the LBMA physical committee were representatives from the then 5 members of LPMCL, i.e. JP Morgan, HSBC, Scotia, UBS and Barclays.
The addition of ICBC Standard and Standard Chartered to the LBMA Physical Committee was announced in the LBMA’s Alchemist on 3 May 2016. Currently, all 6 LPMCL members – JP Morgan (chair of physical committee), HSBC, ScotiaMocatta, Barclays, UBS, and ICBC Standard Bank are members of the LBMA physical committee, as is Standard Chartered (a potential member of LPMCL), and TD Bank (Toronto Dominion). Note that Standard Chartered and TD Bank are the 5th and 6th member banks of the LBMA Management Committee. Therefore all 6 bullion banks that are on the LBMA Management Committee are also on the LBMA Physical Committee.
The LBMA physical committee membership is rounded off by Brinks (notably, the vault transaction facilitator between Barclays and ICBC Standard Bank) . Note also, that there is a Bank of England ‘observer’ on the LBMA physical committee, an indication of the Bank of England’s keen interest in monitoring the London Gold Market and the gold market’s physical operations and transactions.
The LPMCL history goes on to say that:
“It was subsequently decided that the most effective way of carrying the electronic matching system project forward would be for the clearing members to form a separate company specifically for the purpose of developing and administering such a system. As a result LPMCL was formed in April, 2001.“
Obscurely, LPMCL was first incorporated on 5 April 2001 with a name of Itemelement Limited (basically a shell company). It changed name to London Precious Metal Clearing Limited on 2 October 2001 (‘Metal’ singular). It then changed name again on 2 November 2001 to London Precious Metals Clearing Limited (‘metals’ plural). The first tranche of LPMCL directors were then installed in November 2001 from the six remaining founder members companies (excluding Credit Suisse First Boston International since CSFB resigned in October 2001).
OM and LBT Computer Services
Its unclear what, if anything, LPMCL did as a company in 2002, however in April 2003 a press release was issued by Swedish technology company OM revealing that:
“London Precious Metals Clearing Limited (”LPMCL”) has chosen OM as an outsourcing partner for Facility Management of their proposed web-based automated bullion matching system to be provided by LBT Computer Services, an Information Technology service provider and partner to OM.”
“We are happy to welcome LPMCL, the leading organization for precious metal clearing, as a Facility Management customer to OM.”
This ‘web-based automated bullion matching system’ is “AURUM”.
The same press release described LPMCL as:
“LPMCL is the administrative company set up by the six clearing members of the LBMA to facilitate the development of an electronic matching system to replace the existing clearing system which is conducted by telephone and / or facsimile.”
In 2003, OM also merged with Finland’s NEX to form OMHEX. Following the merger OM continued to exist as the OM Technology division of OMHEX, providing transaction technology services to the financial and energy industries. OMHEX became OMX in 2004, and was then acquired by NASDAQ in 2007 to form the current group NASDAQ OMX.
However, the relevant entity here is LBT Computer Services, which is still around today as it’s website shows. The LBT web site also still has a short profile of its LPMCL project in the ‘case study’ section of its website, where is states, in a slightly childish way that:
“The LPMCL are the ‘clearing’ organisation for precious metal dealing and are based in London, the centre for such trading. They needed a way of linking together the precious metal bankers to match transactions/deals. They needed to do it in such a fashion that no bank could see anything other than their counterparty bank, and to do it with absolute security.
LBT built an application that is hosted on the Internet and which connects to each bank via a secure link to collect transactions which it then matches to the counterparty bank’s transactions and send the results back to both banks. It runs 24 x 7, unattended, other than via an on-line link. Unfortunately we cannot say more about this innovative solution.“
Why can’t LBT Services say anything more about the LPMCL automated platform? This statement from LBT is perhaps the first clue as to the secrecy, paranoia, and obsessive protectionism that surrounds LPMCL, a company that is the global clearer for all 4 precious metals, yet lies at the heart of the opaque system that is the global precious metals trading system run out of London where real trade-level data that runs through AURUM is never publicly reported.
Between 2003 and the present day, the AURUM platform would obviously have gone through a number of changes, and it may not even be hosted on the LBT platform any longer. Given that lack of publicly available information on the design and functionality of AURUM, its hard to say. There is however a current ‘LPMCL Technical Committee‘ comprising IT and Business Analyst representatives of the member banks (see various Linkedin profiles for details), so perhaps AURUM was brought in-house between the bank members. Many of the in-house systems that AURUM interfaces to would also have changed over the years, requiring various upgrades of the AURUM platform too, and therefore a rationale for the existence of a ‘LPMCL Technical Committee’.
ICBC Standard’s Membership Application to LPMCL
When Reuters reported back in January of this year that ICBC Standard was looking to take on the vault lease for the Deutsche Bank / G4S vault, Reuters also reported in the same article that ICBC Standard had:
“also applied to become a clearing member of the London gold and silver over-the-counter business [LPMCL]”
“These banks are shareholders of the London Precious Metals Clearing (LPMCL) company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months.”
“They [ICBC] are applying for clearing membership at the moment, but that’s still subject to a vote, which has not taken place yet”
Therefore, LPMCL’s announcement that it had allowed ICBC Standard to join wasn’t really a surprise. But the application and voting procedure referred to by Reuters gels with the new membership procedure laid out in the Articles of Association of LPMCL, which states that membership of LPMCL is open to “other eligible persons as the directors in their discretion may admit to membership“. (person here means company entities that wish to become members).
In the LPMCL company each ‘member’ (bank) appoints a director. Each director can also appoint an alternate director. During the ICBC membership application, there were 9 directors listed as current directors of LPMCL, comprising 5 directors from each of the 5 members banks of JP Morgan, HSBC, ScotiaMocatta, UBS and Barclays, and 4 alternate directors from all the member banks except Barclays. A list of the current directors names can be seen here.
According to the 2015 annual accounts of LPMCL, the 5 LPMCL directors are Tony Dean (HSBC), Jane Lloyd (Scotia), Andrew Lovell (JP Morgan), Marco Heil (UBS), and Vikas Chamaria (Barclays). The 4 alternate directors are Peter Smith (JP Morgan), William Wolfe (HSBC), Conway Rudd (Scotia) and Daniel Picard (UBS).
Former Deutsche bank LPMCL director , Raj Kumar, has now moved to ICBC Standard Bank and should be in the front running to be appointed a LPMCL director representing ICBC Standard. If Standard Chartered also joins LPMCL, then former Barclays LPMCL director, Martyn Whithead, who moved to Standard Chartered, may also be expected to re-appear as a LPMCL director representing Standard Chartered.
LPMCL’s latest annual Accounts
The most recent set of annual accounts filed by LPMCL at UK Companies House are the accounts for the full year to 31 March 2015. These accounts were, audited by Kingston Smith LLP, signed off on 8 September 2015, and filed with Companies Office on 8 October 2015. The most interesting items in the accounts are as follows:
- 2015 Turnover (Revenue) totalled £223, 599 and is entirely derived from subscription income. This revenue is accounted for on an accruals basis, meaning that it refers to subscription income for the year to 31 March 2014. With 6 bank members of LPMCL for the period under consideration, thats £38,933 per member, which is very small change for investment banks.
- For the year to March 2015, LPMCL actually made an operating loss of £64,944 because Administrative Expenses were £288,543. The bottom line loss was a similar figure.
- The biggest components of Administrative Expenses were Computer Service Fees: £151,978, and Legal and Professional Fees: £118,384, which together totalled £270,362.
Computer Service Fees obviously refers to costs in running AURUM, running the LPMCL web site, and possibly other technology costs that can be billable by the member banks to LPMCL such as, for example, electronic communications and interfacing software for sending trades to and receive data from AURUM. ‘Fees’ suggests a payment to an external provider.
The ‘Legal and Professional Fees’ line item is more unusual. Why would LPMCL need to spend £118,384 on legal and profession fees in one year, which is 41% of total admin expenses, and 78% as large as the ‘computer service fees’? This legal and professional fees line item is also eye-opening since it increased from £69,194 in 2014 to £118,384, a 71% increase. Auditing fees would be fairly constant from year to year, so there is a relatively new and quite large expense under this category. Could it be a legal expense, and if so why?
What does LPMCL’s AURUM actually do?
The London bullion market’s clearing system is a monopoly bullion clearing system run by LPMCL for bullion settled loco London, with “all bullion transactions between the clearing members of the LBMA settled and cleared by The London Precious Metals Clearing Limited.” “Loco London” traditionally meant gold and silver bullion physically held in London. With the rise of the unallocated account transfer system, to what extent unallocated bullion accounts are backed by physical bullion is debatable. The system is now a fractional-reserve credit system. LPMCL’s electronic clearing platform, AURUM, clears all bullion trades via book-entry netting and clearing using unallocated accounts.
Entities trading in the London bullion market maintain a series of unallocated accounts with one or more of the LPMCL clearers. The LMPCL members maintain unallocated accounts between each other used for clearing. The LPMCL also maintain bullion clearing accounts at the Bank of England. Each day, each client of each bullion clearer sends its LPMCL member clearing bank details of bullion trades between that client and its counter-parties. At the end of each trading day, each LPMCL member then processes position settlements by first netting out, in-house, to whatever extent possible, the bullion trades done by its own clients and clients of those clients.
Following this, the LPMCL members send their netted trade data to AURUM which then clears the clearers’ positions. The majority of LPMCL trades cleared are processed by LPMCL members HSBC and JP Morgan. The clearers also ‘settle’ their own positions with each other between 4pm and 4:30pm each day via broker transfers usually involving 3 brokers. This is done to prevent excessive overnight credit exposure between the clearers. The clearing process also involves “close liaison with the Bank of England and the many overseas bullion depositories“.
According to the LBMA, the LPMCL members:
“utilise the unallocated gold and silver, in accounts they maintain between each other, to make ‘paper transfers’ to settle mutual trades. They also settle third-party loco London bullion transfers, conducted on behalf of clients and other members of the London Bullion Market. This system of ‘paper transfers’ avoids the security risks, costs and impracticality of physically moving metal bars”
An overview of the London clearing process can be read on BullionStar’s Gold University profile of the London gold market here. The LBMA web site also provides a summary here. A similar summary is also in an article titled “Gold and Silver Clearing “Loco London” Through the Central Hub Developed by London Precious Metal Clearing Ltd” in Issue 55 of the Alchemist , dated July 2009. The most visible part of LPMCL and AURUM is the generally useless high level monthly clearing statistics that the LPMCL has produced each month since early 1997, and that are published on the LBMA website. These clearing statistics report the “net volume of loco London gold and silver transfers settled between clearing members of the LBMA.”
For each of gold and silver, the statistics are calculated as daily averages and reported each month as three sets of figures, namely, a figure of millions of ounces transferred per day, the USD value of those ounces transferred per day, and also the number of transfers per day. Note that these clearing figures are just a fraction of what the real underlying trading figures are. Overall trading figures of the London gold market are anywhere up to 10 times or more larger than the clearing figures would suggest, since the clearing figures are ‘netted’ trading figures.
London-settled gold and silver clearing statistics were first published in January 1997, with the first clearing data reported for the Q4 period 1996. This was prior to the automation of the daily clearing operations through AURUM.
Even back then in 1997, the daily clearing figures for gold and silver through London were baffling and opaque since the daily clearing volumes were huge compared to the quantities of physical gold and silver that exists in the entire world, and there was no granular explanation or categorisation as to the trade types and client types that these clearing figures represented. In this regards, nothing has changed. Then as of now, the LPMCL only reveal that the monthly figures include 3 types of data:
- Loco London book transfers from one party in a clearing member’s books to another member in the same member’s books or in the books of another clearing member.
- Physical transfers and shipments by clearing members
- Transfers over clearing members accounts at the Bank of England
For example, the LBMA clearing statistics for April 2016 state that 16.5 million ounces (513 tonnes) of gold were cleared each day during the month. With 21 trading days in April 2016, that would be 346 million ounces (10,777 tonnes) of gold cleared during April. Since there is said to be a 10 :1 ratio between the amount of gold traded in London and the amount of gold cleared through AURUM, these clearing figures can be rolled up by a multiple of 10.
The trouble with this type of high level reporting is that it doesn’t even reveal the percentage of transfers in each of the above three groups, but physical transfers would be very very small percentage of the total, because, by definition, physical transfers couldn’t be any larger given that there is only a fraction of physical gold being transacted in the world on any given day relative to these gigantic clearing & trading figures.
An article called “Clearing Volume on the London Bullion Market” in Issue 6 of the Alchemist, by Peter Smith of JP Morgan, dated January 1997, first introduced these predominantly useless clearing statistics and revealed the 3 categories above. Nothing has changed in the reporting since 1997 and this LBMA lack of transparency remains right up to today. Ironically, Issue 6 of the LBMA’s Alchemist was titled ‘Towards Transparency‘ but there was little transparency divulged at that time, and the same opacity of the London bullion market still remains 20 years later.
Issue 6 of the Alchemist also had an introductory editorial from the then chairman of the LBMA, Alan Baker, whose opening line in the editorial was:
“The bullion market in London is often criticised by observers for being secretive and lacking in information and data. Unfortunately to an extent this is inevitable given the need for a duty of care to clients which dictates that a high level of discretion is an essential element in so much of the business that takes place in the market, particularly for gold.”
Notice the secrecy is inevitable spin. The LBMA has been making excuses for the lack of transparency for at least 20 years now. Frankly, I don’t agree with any of the above explanations on the need for opacity. It’s a fiction. Reporting of trade volumes in all other markets globally such as equities, bonds, FX, money market and exchange-based commodities, is detailed, publicly available, and usually granular by transaction types and client types, and this does not, and has never, compromised client confidentiality in any of these asset classes. Why then do the precious metals markets, and the gold market in particular need to be the exception? They do not.
The excuses by people such as the ex LBMA chairman are merely helping to protect an entrenched system of opacity in which central banks, sovereign institutions, monetary authorities, the Bank for International Settlements, large bullion banks, and other large operators can move within the gold market without being concerned that any of their transactions and interventions will ever be noticed and reflected in gold price discovery. This is not an efficient market. Far from it. This is a protected and hidden physical trading system upon which is overlaid a massive pyramid of fractional-reserve paper gold trading.
The trade types of the trades from which the massive MPMCL clearing figures are generated could easily be reported by LPMCL and the LBMA, but they choose not to report this information. All positional, transactional, account, account type, and physical allocation data in every database table in AURUM and in every bullion trade database table of each LPMCL member bank could be published publicly while stripping out clients’ account-sensitive data and would still not jeopardize client confidentiality.
Trade Types behind the LPMCL Clearing figures
LPMCL provided one glimpse into London bullion market trade types in October 2003, in an article in Alchemist 32, titled “Clearing the Air Discussing Trends and Influences on London Clearing Statistics“, when the then LMPCL chairman, Peter Fava, and JP Morgan’s Peter Smith, both involved in the compilation of the original clearing statistics in 1997, were interviewed about “some changes in the nature of the market and over the intervening years that might have had an impact on the reported numbers.” This is the only insight that I am aware of that provided a small window into some of trade types of bullion transactions that are processed through AURUM.
Fava was asked about the “changes in the overall pattern of trading activity from certain counterparts”. He then gave a rundown of various bullion trading activities that were showing up in the clearing data. The activities mentioned were:
central bank gold deposits, rolling over monthly, and the hedging transactions connected to that borrowing
interest rate swaps and longer-term collateralised agreements
speculative trading activity on a leveraged, forward basis that is closed out before maturity
investment fund participation via spot transactions* (generally netted by the counterparty banks against EFPs – exchange for physicals) but if not netted would show up in clearing
interbank market trading (multiple times per day)
consignment accounts in physical markets, notably Istanbul, Dubai and India” with purchases out of the consignment account hedged loco London
Since that 2003 article was written, there has been a huge growth in Exchange Traded Fund (ETF) trading, a trading activity that can be added to the above list. In 2014, in the LBMA Silver Price competition proposals, ETF Securities’ bid stated that “our physical precious metal ETCs are created and redeemed for physical metal, with the metal being cleared through the LBMA clearing system and the securities being cleared through the CREST clearing system which is used for LSE trading“.
I have analysed the above London bullion market trade types in more depth, but due to space constraints, I’ll cover this is a future posting, but for now, the point to note is that a lot of London bullion trading activity has very little to do with physical metal movements.
Recall also that Stewart Murray (ex LBMA CEO) had said in a 2011 presentation that investment funds had ‘very large’ unallocated positions in the market.
“Various investors hold very substantial amounts unallocated gold and silver in the London vaults”
I wonder if investment funds which presume they own unallocated gold or silver (which is just a long unallocated spot position put on by a bank), are aware that their positions are then offset against futures. Some unsophisticated funds might think they are actually hold pooled gold or silver holdings within a London bank vault.
Circling the Wagons: Protection of LPMCL’s clearing monopoly
In 2014, the daily fixing auctions for all 4 precious metals in the London market were moved to new electronic platforms. In the case of gold and silver, competitions were held (organised by the LBMA) to decide on which companies would become the new administrators and calculation agents for the auctions. Ultimately, Thomson Reuters / CME Group secured the contract to run the new Silver auctions (LBMA Silver Price), and ICE Benchmark Administration secured the contract to run the new Gold auctions (LBMA Gold Price). In the case of the platinum and palladium auctions, as to whether a competition was held is debatable, since neither LPPM nor the London Platinum and Palladium Fixing Company (LPPFC) would confirm this when asked. However, the London Metal Exchange was ultimately awarded the mandate to run the new platinum and palladium auctions (LBMA Platinum Price and LBMA Palladium Price).
After Thomson Reuters and CME Group had secured the contract for the silver auctions, CME Group maintained (in a public presentation) on 29 July 2014 that it would soon introduce a centrally cleared platform for these auctions trades so as to widen participation in the auctions and eliminate credit risk between participants.
“[for] Extended Participation, we envisage central clearing via CME Clearing Europe under the auspices of the UK and European regulated authoritieswhich should effectively open the door for most participants.”
“We’re basically starting the process as soon as possible. Let’s get this up and running by 15thAugust  andthen it’s all hands to the pumps on the clearing sideso hopefully it will happen soon.”
“The work we’ve got to do is to set this up so that’s it’s part of the platform so it’s a level playing field for participants…”
“Anindya Boral will be starting to do a big drive to enable cleared transactions through our clearing houseand wider participation in August”
In its presentation, CME Group featured a slide which stated that:
“Central counterparty clearing will enable greater direct participation in the London Silver Price”.
We anticipate using CME Group’s London Clearing House – CME Clearing Europe – for the London Silver Price
By serving as the counterparty to every transaction, CME Clearing Europe will become the buyer to every seller and the seller to every buyer, virtually eliminating credit risk between market participants“
Likewise, when the LME announced that it had been awarded the contract by LPPFC to run the platinum and palladium price auctions, the LME issued a press release on 16 October 2014 stating that it planned to introduce clearing of platinum and palladium auction trades using its clearing platform LME Clear, so as to maximise participation and overcome the credit risk obstacle:
“To maximise participation in the London pricing mechanism, the LME also plans to introduce a cleared platinum and palladium service, which will mitigate the difficulty associated with participants taking bilateral credit risk in positions.
LME Clear, launched on 22 September 2014, was built specifically to enable efficient clearing of metals exposures and will extend its existing precious metals clearing functionality to clear platinum and palladium.“
However, the LME mysteriously pulled its press release a few hours after it had been published, and replaced it with an amended version where the above two paragraphs had been deleted. See BullionStar blog “LPPM – The London Platinum and Palladium Market” for full details.
And so, LME Clear was never introduced for clearing platinum and palladium auction trades.
Similarly, in its Executive Summary proposal submitted to the LBMA in October 2014 to run the new gold price auctions, a contract which it ended up winning, ICE Benchmark Administration (IBA) stated that its solution could employ pre-collateralisation to eliminate bi-lateral credit risk between participants, and therefore widen auction participation. ICE also made reference to the logic of using a centrally cleared model, but was shrewd enough at that point in time to defer to the powerful interests of the clearing members who essentially run the LBMA, knowing that the CME Group and LME clearing solutions for Silver and Platinum/Palladium had been shot down:
“It is through the Oversight Committee that the LBMA will continue to have significant involvement in the auction process, including… the decision on whether to move to a centrally cleared model(until that time, weaker credit names can be accommodated via pre-collateralisation).”
“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.”
In its presentation submission to the LBMA in October 2014 during the competition to run the London gold auctions, the LME also seemed to have gotten the message that the LPMCL’s clearing monopoly and its AURUM clearing system were not to be tampered in any proposed LME platform. In a slide titled “Potential credit models” the LME said that a centrally cleared solution “would only be introduced with market support and respecting LPMCL settlement“. See right-hand box in below slide:
Likewise, in the slide that followed the above one, the LME again made it abundantly clear that it had got the message that LMPCL was not to be touched – “LME Clear fully respects existing loco London delivery mechanism and participants“:
The only reference by the LBMA to central clearing counterparties is a short comment on its website about centrally clearing OTC forward trades where itstates:
“..members of a common ‘Central Counterparty’(CCP), that has a facility to clear forwards, may novate their trades and thus avoid bilateral credit risk. In the absence of an exchange, the trade remains one of an OTC nature but has the ability to be cleared. This method of credit mitigation is known as OTC Cleared.”
CME Group already offers a very sparsely used (or not even used) centralised clearing service for OTC unallocated gold forwards using collateral or cash margin. “Delivery occurs at LPMCL member banksvia book entry transfer of ‘London Good Delivery’ gold, which means unallocated loco London book entry gold claims on an LPMCL bank”.
Not surprisingly, the LBMA web site,says nothing about the pros and cons of centrally clearing OTC spot trades nor is there any discussion about exchange-basedtrading and clearing of any London bullion trades.
The LPMCL web site mentions an alternative clearing system (a clearing house), but not surprisingly, this approach is only mentioned as a foil for undermining it, as follows:
Q: Can you explain the benefits of the London bullion clearing system as compared with a clearing house?
A: “…a clearing house usually has a rigid settlement structure, does not provide credit, or assume intra-day or term credit risks, and not being in the banking business, has no ability to use any underlying liquidity. It will thus most likely be less flexible, less efficient and more expensive – particularly as clearing houses by their nature are non-competitive, whereas the London bullion clearing banks compete for clients by providing competitive services and pricing.”
Q: Could a clearing house replace the London bullion clearing system?
“Yes, but it would prove to be less efficient and more expensive than the current arrangement. It would also most likely need strong financial backing and insurance cover – which then directs us back to the London bullion clearing banks, as above, all of whom are first tier global institutions.”
Why is LPMCL being Protected?
In conclusion, why does the LBMA think that LPMCL is a ‘vital organisation’? as the LBMA CEO phrases it.
Firstly, LPMCL keeps the entire pyramid of London’s unallocated precious metals trades spinning. By not reporting any trade information, the LBMA and LPMCL keep the entire gold world in the dark about the extent of the London paper gold trading scheme
Secondly, LPMCL preserves opacity and prevents public reporting of precious metals trades, including central bank gold lending and gold swaps, and therefore keeps this major gold market trading activity out of focus, with the spotlight off the role of the Bank of England in the London Gold Market.
Thirdly, the most powerful banks in the LBMA are the LPMCL members which are also the vaulters in London and the member banks of the LBMA Management Committee. These banks want to maintain the monopoly status quo of LPMCL and to maintain the status quo of the London precious metals vaulting system and their vaulting fees. The same banks run the trading, clearing and vaulting of the entire London bullion system. Perhaps the FCA should be looking at anti-competitive behaviour here, for example vaulting fees, and clearing fees.
Fourthly, the current LPMCL system masks huge amounts of trading for the LBMA members banks and brokers. Huge trading makes large trading commissions. The same system generates the need for the banks to provide credit to bullion market participants, which generates interest income.
Fifthly, by propping up LPMCL, its member banks can push back on any competing initiatives that are proposing a ‘gold exchange’ in London, such as the exchange initiative that’s backed by the World Gold Council and a number of other (non LPMCL) bullion banks.
As the Financial Times said in October 2015 when reporting about the LBMA’s so-called moves to provide trade reporting in light of other initiatives by the LME / World Gold Council and banks such as Goldman, SocGen, Citibank and Morgan Stanley (and previously including ICBC Standard) to move gold trading on to an exchange platform using exchange defined gold contracts:
“In the other camp is the LBMA, the official body set up by the Bank of England in 1987 to regulate the bullion market,which has close ties to the vaulting banks.Many of its biggest members want physical gold trading in London to remain off-exchange, but have conceded that a move towards all trades being cleared in one place could add transparency.”
Look at what the incumbent LBMA banks do, not what they say to newspapers. What the LBMA – LPMCL co-op (same people, different hats) has just done is welcomed another bank (ICBC Standard) into ‘this vital organisation” (the LPMCL), and the LBMA is now looking forward to “continuing to assist LPMCLin its growth and development.”
ICBC Standard had been in the LME / World Gold Council / Goldman / SocGen/ Citi / Morgan Stanley camp, buton the face of it, ICBC now appears to have deserted that faction and fully aligned with the LPMCL cartel of HSBC / JP Morgan / Scotia / UBS and Barclays. ICBC Standard may have been using the LME / Goldman camp as a bargaining tool with which to exert access pressure to join the LPMCL gang, and now that it has done so, it would be surprising if ICBC continues to align itself with the LME’s upcoming gold exchange proposal. However, as a Chinese controlled bank with long-term planning horizons, ICBC may wish to play a strategic game with a seat at both tables.
c) the location of the HSBC vault in London is not publicised and so the secrecy creates intrigue
d) HSBC every so often throws out some visual or audio-visual media bait about the vault, most famously in the case of CNBC’s Bob Pisani and his camerman and producer visiting and filming inside the actual vault
Despite all of the above, no one seems to have ever tried to figure out where this gold vault is actually located. Until now.
In some ways HSBC has done a very good job keeping the location of its London gold vault under wraps. The main challenge is where does one begin to look for a vault in London from scratch. At first it would appear that there is nothing in the public domain pointing to the HSBC vault location. This is not entirely true however. The gold bullion activities of HSBC in London stem from two companies that over time became part of the HSBC group. My approach was to start by thinking about which London locations HSBC used to be based at. I took this approach because it became obvious that the HSBC London gold vault being used was still a battered looking old vault space in 2004 and 2005, which was after the entire HSBC company had moved to its spanking new London headquarters in Canary Wharf by 2003.
In New York, the location of the HSBC Bank USA precious metals vault in Manhattan is well-known and is even listed in CFTC documents such as here. The vault is at 1 West 39th Street, SC 2 Level , NewYork, NewYork 10018 , which is the same building as 450 Fifth Avenue, which is the former Republic National Bank building that HSBC took over in 1999-2000. This Republic building at 450 Fifth Avenue, when it was being built, “had special vault requirements that reportedly added significantly to the project’s cost“. So its hard to see why HSBC makes such a big deal of not revealing its London vault location.
History of HSBC gold operations in London
In 1993, HSBC Holdings plc relocated its headquarters to London after having acquired Britain’s Midland Bank the previous year. Midland in turn had fully acquired Samuel Montagu in 1974 to form Midland Montagu. Samuel Montagu & Co was a City of London bullion broker, and one of the 5 original gold fixing members of the London Gold Fixing, and in turn, Midland Montagu was also a Gold Fixer. In 1999, HSBC began using the name ‘HSBC’ for the Gold Fixing seat of Midland Montagu.
Between 1999 and 2000, HSBC completed the acquisition of Republic National Bank of New York. Republic National Bank of New York had been a big player in the world gold markets, and in 1993, Republic National had bought one of the London Gold Fixing seats from Mase Westpac, meaning that from 1993 both Republic National and Midland Montagu held Gold Fixing seats, and that HSBC ended up with 2 of the 5 Gold Fixing seats. Therefore, in 2000, following the Republic National takeover, HSBC in London sold one of its newly acquired seats to Credit Suisse.
I also have always thought that the HSBC vault is in central London, and not in some far-flung outer London location. The LPMCL website (www.lpmcl.com) still displays text that says that the bullion clearer’s vaults are in ‘central London locations':
“The five London bullion clearing members each maintain confidential secure vaulting facilities within central London locations, using either their own premises, or those of a secure storage agent…”
Anyone who knows London will understand that ‘central London’ refers to a small number of central districts, and not some broader inside the M25 (ring road) definition. Before moving to Canary Wharf in circa 2003, HSBC occupied a number of buildings clustered around the north bank of the River Thames, including 10 Lower Thames Street (the Banks’ Headquarters), 3 Lower Thames Street (St Magnus House), 10 Queen Street Place at the corner of Upper Thames Street (Thames Exchange – containing a trading floor), and Vintners Place (adjoined to Vintners Hall on the other side of Queen Street Place and Upper Thames Street).
HSBC Bank USA NA (London branch), until 2015, was also the HSBC entity that was listed as a member of London Precious Metals Clearing Limited (LPMCL) on the LPMCL website. See, for example, September 2009 imprint of LPMCL website. The next step is therefore to see where HSBC Bank USA NA (London branch) was formerly located.
The Financial Services Register (FSA Register) lists HSBC Bank USA, Reference number: 141298, effective from 24 January 2000, with a registered address of Thames Exchange, 10 Queen Street Place, London EC4R 1BE. Recalling the Republic National connection, the previous registered name for this entity was “Republic National Bank of New York”, with the same address, effective from 18 December 1995 to 24 January 2000. The FSA Register entry also lists various well-known names of the HSBC gold world alongside this HSBC Bank USA entity, including Jeremy Charles, Peter Fava and David Rose.
Recalling the Samual Montagu / Midland Montagu connection to HSBC, an entity called Montagu Precious Metals is also listed with an old address at “2nd Floor, Thames Exchange, 10 Queen Street Place, London EC4R 1BQ.
An old gold information website called GoldAvenue from the year 2000, written by Timothy Green, also lists HSBC Bank USA (London branch) address as:
HSBC Bank USA
London branch Thames Exchange 10 Queen Street Place London EC4R 1BQ
That same Gold Avenue web page also correctly listed the HSBC New York vault address as:
HSBC Bank USA 452 Fifth Avenue New York, NY 10018
which is the same building as West 39th Street, New York, in Manhattan.
The precursor to the SPDR Gold Trust was called Gold Bullion Ltd, a vehicle set up by Graham Tuckwell, promoted by the World Gold Council, and listed on the Australian Stock Exchange. Gold Bullion Ltd’s first day of trading was 28th March 2003. Following Gold Bullion Ltd’s launch, the SPDR Gold Trust (GLD) was then launched in 2004, but originally it was called STREETracks Gold Shares, and it even had another former working title of ‘Equity Gold Trust’ in early 2004.
A May 2003 Marketwatch article about Gold Bullion Ltd and the early incarnation of the SPDR Gold Trust (Equity Gold Trust) can be seen here, and a speech by Graham Tuckwell about Gold Bullion Ltd to the LBMA annual conference in Lisbon in 2003 can be seen here. Most importantly, an early draft Prospectus of Gold Bullion Ltd (in MS Word), dated 10 February 2003, lists the Custodian of Gold Bullion Ltd as:
HSBC Bank USA
10 Queen Street Place
London EC4R 1BQ
Therefore, Thames Exchange goes to the top of the list for further consideration, as does it’s neighbour Vintner’s Place. Thames Exchange and Vintners Place were both HSBC buildings and both buildings are situated right across the road from each other, with Queen Street Place literally bisecting the 2 buildings. Queen Street Place is also the road that acts as the approach road to Southwark Bridge, with the 10 Queen Street Place building and the Vintners Place building literally creating a canyon either side of the road.
You will see below why Queen Street Place is interesting. Queen Street Place is very near the Bank of England and is in the City of London, so it’s under City of London Police protection. It’s also very near the River Thames, as is the JP Morgan London vault. To get to the Bank of England from Queen Street Place, you literally walk a mintute north up Queens Street, and then a few minutes north-east along Queen Victoria Street and you’re at the Bank of England.
An official HSBC letter-headed note documenting the Thames Exchange address and proving HSBC occupied this building can be seen here. Similarly, an official letter-headed note documenting the Vintner’s Place address, and proving that HSBC occupied that building can be seen here.
“Army of firms called in to help co-ordinate bank’s relocation to Docklands by 2002“
“HSBC has stepped up its retreat from the City of London by instructing agents to open negotiations on the disposal of its outstanding City liabilities.
In one of the most hotly contested pitches of last year, Jones Lang Lasalle has beaten rivals to secure the lead role as strategic adviser for the bank’s relocation to Docklands [Canary Wharf] in 2002.
In addition to JLL, the bank has instructed another seven firms to mastermind the disposal of its 121,000 sq m (1,302,445 sq ft) City portfolio.”
“HSBC has ruled out acquiring freehold or long-leasehold interests and has instructed agents to negotiate the best surrender or assignment of the occupational leases on its 12 City buildings.”
“Morgan Pepper is advising on HSBC’s 17-year lease at Thames Exchange, 10 Queen Street Place, EC4. The Scottish Amicable building is currently under offer to Blackstone Real Estate Advisors for £73m.
Insignia Richard Ellis, Chapman Swabey, Strutt & Parker and Wright Oliphant have positions on the bank’s remaining interests in Vintners Place EC3; Bishop’s Court at Artillery Street, and HSBC’s 37,160 sq m (400,000 sq ft) office complex at St Magnus House and Montagu House.
By the time STREETracks Gold Trust (the original name for the SPDR Gold Trust) was launched in 2004, HSBC Bank USA’s address had moved to HSBC’s new headquarters in Canary Wharf, in the Docklands, east of the City of London. By early 2003, Equity Gold Trust also listed the HSBC custodian with the Canary Wharf address.
“The phased occupation of the [Canary Wharf] building was completed in February 2003 when the last of over 8000 staff moved in, with HSBC Group Chairman Sir John Bond officially opening the building as the Group’s new head office on 2 April 2003.”
However, the old HSBC gold vault did not ‘move’ at the time the rest of HSBC moved lock, stock, and barrel to Canary Wharf between 2002-2003. In fact, the HSBC vault remained where it was in a slightly rundown shabby space with cream-colored walls. See multiple photos of the vault space below. The HSBC vault did however transform from an ‘old’ vault into a ‘new’ vault sometime between 2006 to early 2007. My belief, which I’ll explain below, is that this vault didn’t move, it just received an extensive renovation.
A diagram of the HSBC headquarters in Canary Wharf where the whole London HSBC workforce moved to by early 2003 can be seen below. Notice the car parks in basements B2, B3 and B4. You can also read about the basement construction in the Arup document above. This is not the location for a beat-up old vault that can be seen in the below old gold vault shots. Besides, the vertical pillars/piles in the old and new HSBC vault are nothing like the huge structural pillars/piles found in the HSBC headquarters in Canary Wharf.
The pillars in the old HSBC vault photos are pillars that would be found in an old arched vault, while the support pillars in the new HSBC vault photos are those that would be found in relatively shallow spaces under a road, such as pillars/supports used in the cut and cover New York subway system.
HSBC Gold Vault Photos
Here you can see an early gold vault photo of Graham Tuckwell, joint managing director of Gold Bullion Securities, and Stuart Thomas, managing director of World Gold Trust Services, in the ‘old’ HSBC vault in December 2004 checking a HSBC bar list:
Managing Director Stuart Thomas, Director of Corporate Communications, George Milling-Stanley of World Gold Trust Services, and CFO and Treasurer James Lowe (wearing a gold tie) of World Gold Trust Services
When the gold is stacked 6 pallets high, as in the above photo, it nearly reaches up to where the pillars start to broaden out. Recall for a moment the definition of a vault. A vault is any space covered by arches, or an arched ceiling over a void. This is why the Bank of England ‘vaults’ are called vaults, because in the old vaults of the Bank of England (before the Bank of England was rebuilt in the 1920s/1930s), the gold was stored in the arched vaulted basements. The pillars in the shots of this ‘old’ HSBC vault look like pillars/piles that are the lower parts of arches, since they taper outwards as they go higher and they are positioned in a grid like formation.
You can see how all the pallets of gold were located in a space with quite a lot of walls and chunky support pillars that broaden at the top (i.e. support pillars). Very similar pillars can be seen in old parts of the London Underground pedestrian tunnels, and also in the Vintner’s Hall wine vaults, which is next door to the vaults under Queen Street Place.
The NEW HSBC Vault 2007
During the second half of 2007, a series of 4 photos appeared on the STREETTracks website of a ‘New’ HSBC gold vault in London. The headline title of this series of images was
“The gold in trust at HSBC’s gold vault in London. The gold is being held in Trust for the shareholders of GLD. These images as at June 2007″
This STREETTracks web page can be accessed via the following link, however, the photos don’t render properly.
The MarketWatch website and a GLD SEC submission mentioned the ‘new’ vault move in an article on 11th January 2008:
“…StreetTracks Gold Shares, a wildly popular exchange-traded fund so awash in investor cash that its backers recently scrambled to find a bigger vault to accommodate their ever-growing horde of the precious metal, now valued at $18 billion.”
“Because the StreetTracks reserve expanded faster than expected, its managers had to move the stores to a bigger vault about six months ago to make more room, says George Milling-Stanley, a spokesman for the gold council.”
Graham Tuckwell, Chairman of ETF Securities, also referred to the ‘old’ and ‘new’ vaults at the LBMA Conference in Hong Kong in November 2012. On page 3, section C “Is the Gold Really There?”, Tuckwell shows 2 photos to the audience, one from “10 years ago” and one a recent photo. In the old photo, which is probably this photo
he says “the fellow on the left is a 10-year younger version of me“. He also says: “That was the old vault when we started doing it, and you can see that we are doing a bit of a check“.
Then Tuckwell goes on to say: “This photograph was taken just over a year ago on a recent vault visit“… “Our gold, from the London product, the GBS, is on the left and the gold from the US product, the GLD, is on the right in this picture“. GBS was the Australian product and GLD being the State Street product, listed in November 2004.
As it turns out, there are vaults beneath the road under Queen Street Place, between 10 Queen Street Place (Thames Exchange) and Vintners Place, and these vaults were renovated during the period that would coincide with the HSBC London gold vault transforming from an ‘old’ vault to a ‘new vault’.
Southwark Bridge and The Queen Street Place Vaults
A second bridge, the current Southwark Bridge, replaced the earlier bridge, and it opened in 1921.
A book titled ‘Design Applications of Raft Foundations‘, when discussing the development that became Vintners Place, mentions the vaults under Queen Street Place and shows that the vault space begins maybe 2.0 metres under the roadway, and with the vault space height being about 5 metres high which looks a very similar height to both the ‘old’ and ‘new’ HSBC vault spaces.
In fact, there were up to 17 vaults under Queen Street Place judging by a planning application from 1992 which listed a Vault Q (assuming Vaults A – Q), and the application said that the vaults had been used for storage.
Alterations to Vaults under Queen Street Place
Keeping in mind that the ‘old’ HSBC gold vault became a ‘new’ HSBC gold vault sometime in 2006, or early 2007, then the following, in my view, becomes highly relevant. In September 2004, a building control planning application was submitted to City of London planning department for Alterations to Vaults in the Thames Exchange building at 10 Queen Street Place. See link for the application. See screenshots also.
Following this in November 2005, another building control planning application was received by the City of London planning department for “Fit out of Vaults between 10 Queen Street Place and Vintners Place“. See link below and also screenshots.
Blackstone bought Thames Exchange from Scottish Amicable in 2000 while it was still being leased to HSBC. HSBC then surrendered the lease of the building when it moved to Canary Wharf in 2003. Blackstone then renamed Thames Exchange to 10 Queen Street Place and began renovating it while leasing it to City law firm SJ Berwin for its new London headquarters. However, SJ Berwin only moved its London headquarters from Gray’s Inn Road to 10 Queen Street Place sometime between February and April 2006, so the renovations appear to have gone on during 2003-2005. Norwich Property Trust purchased 10 Queen Street Place from Blackstone in 2006, after it had been renovated. Notably, Norwich retained TFT Consultants to inspect 10 Queen Street Place. TFT Consultants states in a case-study on its website that:
“We inspected this prominent riverside mixed-use building including extensive vaults underneath Southwark Bridge approach road and prepared a TDD report for Norwich Property Trust.”
Property investor Jaguar bought the 10 Queen Street Place building from Norwich in 2008, and then the Malaysian haji pilgrims fund purchased 10 Queen Street Place from Jaguar in September 2012.
Coincidentally, Vintners Place, which adjoins Queen Street Place on the other side of the vaults was also sold in September 2012 when Downtown Properties and a South Korean consortium bought it from Atlas Capital. The tenants at the time included Jefferies International, and Sumitomo and Thomson Reuters. Vintners Place also adjoins Thames House, Five Kings House, and The Worshipful Company of Vintners also has its headquarters in a building called Vintner’s Hall on the corner of Queen Street Place and Upper Thames Street.
And more zoomed in. Notice all of the individual vaults and doors, and all of the walls with rows of pillars marked between the walls.
Compare the above plans to the ‘proposed’ plans. In the proposed plans, which are revision C08 dated 06 April 2006, all of the individual vaults have been removed by removing all the doors and walls, leaving just rows of pillars, and beams (given that it’s a top-down view looking down).
You can see the changes a bit more clearly in the following slightly zoomed in version. Notice the facilities added on the right, such as toilets, kitchen, changing rooms, office, telecoms room etc, and also the rows of supports/ pillars on the left hand side, which is about 7 rows of supports / pillars in the open space, 5 of which run at the same angle, then there is a V shape where the pillars then run at a different angle.
Anyone who has the inclination, given these sets of plans of the vaults under Queen Street Place, please check back over the photos of the ‘old’ HSBC vault and ‘new’ HSBC vault and decide for yourself if the photos in the ‘old’ cramped vault with the pillars and cream wall is reminiscent of the pre-alteration plans above. Likewise, decide for yourself if the ‘new’ HSBC London gold vault with the open plan design and layout of vertical steel support columns looks like the plans above of the ‘proposed’ alterations and ‘Fit Out’ of the vaults under Queen Street Place.
When G4S built its subterranean gold vault in Park Royal, London in 2013 / 2014, it fitted it out the area beside the vault with toilets and a kitchen – See second last sentence in red box below from the G4S building contractor document. Because, if you are working down in a vault all day, there will need to be toilets and a kitchen area, as well as changing rooms, phones and desktop computers etc. For background to G4S vault, see “G4S London Gold Vault 2.0 – ICBC Standard Bank in, Deutsche Bank out“.
The Pisani Files – “This is it folks, this is the Motherlode!”
Now we come to the Bob Pisani videos that were filmed by CNBC in the HSBC London gold vault in 2011. I say videos in plural because there are 4 video segments, and actually 5 segments in total including a trailer. The videos are quite exciting and fast-paced but frustrating because the camera is quite shaky and moves around rapidly for a lot of the vault segments, possibly on purpose. The background music is quite catchy also (at first).
1. The Motherlode
The first video is on a CBNC web page and embedded in an article titled “Gold’s secret hiding place”, however the video is titled “Gold Rush – The Mother Lode”. Its dated Wednesday, 31 Aug 2011 with a byline of “CNBC’s Bob Pisani recently got an exclusive inside look at the HSBC gold vaults in London, where the gold for the SPDR Gold Trust (GLD) is stored.” The video is 4:55 mins long, and introduced by Pisani from the New York studio. The vault shots begin at 1:18, and interestnigly, at 0:40 mins, the camera is in a vehicle travelling down Lower Thames Street.
Let’s call this 2nd video “Gold’s Secret Hiding Place”. This version, which is different to the Motherlode, is on YouTube. I’m not sure of the official segment name. This version is 5:06 mins long, and Bob says the vault is “in a super-secret location only known to a few people”. This is also the version where Bob hands in his cellphone and travels in a blacked-out vehicle saying “we have no idea where we’re going. We only know our final destination. The vault!”
There is a neat online app called Pause House which allows you to look at any YourTube clip frame-by-frame, and can be used on the above clip for those who want to get a good look at the vault interior. (Pause House).
3. The Third version
Lets call this the Third version. Its 2:43 mins long. Pisani starts on Waterloo Bridge on the River Thames and he points towards Westminster Bridge (the exact opposite direction to Southwark Bridge). Then he is in the blacked-out vehicle, and then in the vault from 1:04 mins. At this stage the music might be annoying, so luckily, there is no background music when Bob talks in the vault.
4. Inside the Secret Vault
This clip is 2:42 mins long and is dated Thursday, 8 Mar 2012 with a byline of “CNBC’s Bob Pisani gets unprecedented access inside the largest private gold reserve in the world.” Its slightly similar to version 3 above
There is one sentence in both “Motherlode” and “Gold’s Secret Hiding Place” that I consider very interesting. And it relates to the ‘old’ and ‘new’ vaults. What Bob Pisani says has obviously been told to him by someone at HSBC, since he would not know anything about the vault in advance.
At 3:37 mins in Motherlode, Pisani says “In 2005, there was less than 200 tonnes of gold here, now there’s 6 times as much“.
At 4:05 mins in Gold’s secret hiding place, Pisani says “In 2005, there was less than 200 tonnes of gold in this vault backing the GLD. Now there’s 6 times as much.”
Pisani is essentially saying, probably without realising, that it is the same vault. i.e. that the vault in 2005 is the same vault as in 2011. However, given that the vault in 2005 was the ‘old’ vault, and that the vault in 2011 was the ‘new vault’, this suggests that it is the same space, and that the vault space was just renovated. It therefore supports the view that the vaults under Queen Street Place are a very strong candidate to be the HSBC London Gold Vault that stores the GLD gold and the ETF Securities gold.
You might have spotted above that one of the existing vaults under Southwark Bridge was turned into a riverside walkway. This was probably vault Q, which looked to be the vault nearest the river. This walkway runs under the beginning of the abutment on the north of SouthWark Bridge and is called the slightly humorous name ‘Fruiterers Passage’. The Passage was opened circa the year 2000 (and named after the Worshipful Company of Fruiterers), and is ornately tiled with ceramics, even around its pillar enclosures. Take a look at a photo of Fruiterers Passage and compare it to a photo of the new ‘HSBC’ gold vault that features the yellow-painted steel support pillars. The dimensions and spacings of the pillars in both photos look very similar, even identical.
A video walk-through (2:45 mins) of Fruiterers Passage can be seen here. The first 20-30 seconds shows Southwark Bridge, and then the walk through the Passage begins:
Although there are lots of security cameras around the City of London, the cameras in Fruiterers Passage and security warnings near the entrance to the Passage seem particularly explicit.
A MarketWatch article from 11 January 2008 quoted George Milling-Stanley as saying that the vault was sizable but “not quite as big as a cricket pitch.” On another occasion, Milling-Stanley used another sporting analogy and described the ‘new’ vault as “about the size of a football field“. Can a sporting analogy (or two) help determine the size of the HSBC London gold vault? Possibly, but it’s not as clear-cut as you might think.
Notwithstanding that a ‘cricket pitch’ is the (smallish) 22 yard strip between the wickets, the quotation was presumably referring to a ‘cricket field’. However, there is no standard shape of a ‘cricket field’, let alone standardised dimensions, since the ICC rules only state that the field can be circular or oval with a variable diameter of between 450 and 500 feet on the ‘long’ side (sometimes giving 16,000 sq yards). Regarding Milling-Stanley’s ‘football field’, analogy, it’s not clear whether this analogy was intended for a US audience or non-US audience. So it could mean ‘American’ football, or soccer or rugby.
In soccer, there is no standard size ‘field’. The sidelines (touch lines) have to be between 100 and 130 yards (110 to 120 yards for international matches), while the goal lines (end lines) must be between 50 and 100 yards (70 to 80 yards) in international matches. This could result in over 7000 sq meters or over 1.75 acres. The American football field is thankfully standardised, being 120 by 53.33 yards or 6400 sq yards.
Overall, Milling-Stanley’s descriptions give a flavour for permissible dimensions, but based on Bob Pisani’s video tour, I see the vault as a rectangular space but not quite as big as a soccer pitch. So lets look at the space in Google Earth. I’ve just added a yellow rectangle for illustrative purposes to show where the vaults under Queen Street Place are located.
The Marketwatch January 2008 article also said that the HSBC vault was “located on the outskirts of London” but how would the journalist know this since the same article also said that “a spokeswoman for HSBC declined to provide vault details, citing security policies”. As financial journalists mostly repeat what is told to them, I think this “located on the outskirts of London” bone was thrown out as a red-herring, and means the exact opposite.
At its peak holdings in December 2012, the SPDR Gold Trust stored 1353 tonnes of gold. Some observations from looking at the vault space in the Pisani videos and from talking to other people, are that:
a) the HSBC vault looks quite full in 2011, but it still looks like the space would be hard pushed to store the 1200 tonnes of gold that Pisani says were there
b) based on modelling the number of realistic-sized pallets that could conceivably fit into the Queen Street Place vault space (as per the vault plans), it also seems that it would be hard pressed to store 1,200 tonnes, unless they were crammed in. And the pallets in the CNBC segments are not fully crammed in to the space.
Remember also that the 1200 tonnes of gold reference only referred to the SPDR Gold Trust holdings in mid-2011 around the time the CNBC video segment was filmed. See blue line in chart below (chart from www.sharelynx.com) for GLD holdings over its lifetime. HSBC is also the gold custodian for ETF Securities’ gold-backed ETF which held about 170 tonnes at the time of Pisani’s visit. That would be nearly 1,400 tonnes of gold just between the GLD and ETFS holdings, which would be about 228 piles of pallets stacked 6 high crammed in. Furthermore, that’s not even taking into account any gold holdings of other HSBC customers, and Pisani also says in the videos that HSBC confirmed to him that its vault also stores gold for a range of clients.
When GLD held 1353 tonnes in December 2012, this in itself would be 225 piles of pallets, each 6 high. ETFS held about 170 tonnes in December 2012 also, which would be another 28 piles of pallets stacked 6 high. If this location is the famous storage area for the SPDR Gold Trust then possibly during the boom times when GLD holdings peaked, the HSBC vault may not have been big enough to accommodate the GLD gold let any other gold. Which would mean that HSBC was storing GLD gold elsewhere such as at the Bank of England vault, or the JP Morgan vault, both very close to Queen Street Place. It would also mean that GLD sources new gold inflows from gold that is at the Bank of England, i.e. leased central bank gold.
Another point to consider is that if the vaults under Queen Street Place are the correct location for the HSBC vault, then where did the gold that was being stored there in late 2005 / early 2006 go to during the vault alterations? This would have been at least 200 tonnes of gold as of late 2005, rising to over 350 tonnes of gold by late 2006. As the Bank of England is literally up the road from Queen Street Place, moving it to the Bank of England vaults would be the most likely option during the renovation.
In summary, using publicly available information and evidence, I have described where I think the HSBC London gold vault may be located. Whether I am correct is another matter.
“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.“
Those predictions now seem to have come to pass because there is now evidence that the Banco Central Venezuela (BCV) shipped gold out of Maiquetía Airport (Caracas international Airport) in early July 2015, and there is also separate evidence that Venezuela’s official gold reserve holdings, which are managed by the BCV, dropped by 60 tonnes between March and April 2015. These are two distinct events.
The 60 tonne drop in gold reserves in March-April
On 28 and 29 October respectively, Bloomberg and Reuters filed reports highlighting a decline in Venezuela’s gold reserves through the end of May 2015. The Bloomberg report is here, the Reuters report is here. Both reports merely focused on the currency value of Venezuela’s gold reserves, and neither report addressed the critical metric that is needed in any discussion of central bank physical gold dealings, i.e. quantity or weight of gold. Furthermore, neither Bloomberg nor Reuters seems to grasp how the BCV values its gold reserves.
“Venezuelan central bank gold holdings declined in value by 19 percent between January and May, according to its financial statements, likely reflecting gold swap operations and lower bullion prices…
..Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May“
“The value of the central bank’s bullion holdings fell 28 percent at the end of May from a year earlier, while the spot price for the metal declined just 12 percent.”
The problem with the above is that comparing the change in value of Venezuelan gold reserves over two points in time relative to the spot price change of gold over those same two points in time is not the correct approach because the BCV does not use the latest market price to value its gold holdings. The BCV uses a nine month rolling average valuation price methodology.
Without knowing the correct valuation price used at each month-end valuation point, the quantity of gold being valued cannot be calculated accurately. Conversely, doing some simple research (looking up the footnotes to the BCV accounts) and a few quick spreadsheet calculations gives a very accurate estimate of quantity of gold held at each month-end valuation point. Perhaps next time the major financial news wires can go the extra mile.
[Note: The Spanish translations in this article use a combination of Google Translate and Yandex Translate, and some instinctive re-sequencing.]
“Oro monetario…se valora mensualmente utilizando el promedio móvil de los nueve (9) últimos meses del fixing a.m. fijado en el mercado de Londres,
“Monetary gold…is valued monthly using the moving(rolling) average of the last nine (9) months of a.m. fixings set in the London market“
Because the BCV holds a small percentage of its monetary gold in the form of gold coins, the valuation methodology also addresses how to value the coins, which, although not material to this discussion, is as follows:
“..más un porcentaje del valor promedio de la prima por el valor numismático que registren las monedas que conforman este activo.”
“..plus a percentage of the average value of the premium for the numismatic value of the coins which comprise this asset”
To check this moving average calculation and how it works, you can apply it to the 2014 year-end monetary gold valuation figure and make use of note 7 in the same set of accounts. Note 7 states:
“Nota 7 – Oro monetario
Al 31 de Diciembre de 2014, las existencias de oro monetario se encuentran contabilizadas a un precio promedio de USD 1.257,80 por onza troy y totalizan Bs. 91.879.349 miles, equivalentes a USD 14.620.691 miles y su composición y valoración se corresponde con los criterios descritos en la nota 3.3”
“At December 31, 2014, the stock of monetary gold is recorded at an average price of USD 1257.80 per troy ounce and total Bs. 91,879,349 thousands, equivalent to USD 14,620,691 thousands, and its composition and valuation corresponds to the criteria described in Note 3.3”
The Venezuelan accounting convention of USD 14.620.691 miles just means USD 14.6 billion.
361 tonnes of gold at year-end 2014
As at 31 December 2014, in its balance sheet, the BCV valued its monetary gold at Bs 91,879,349,000 (bolívares fuertes). Technically, since 2007, the Venezuelan currency is called the bolívar fuerte (strong bolivar) since at that time the Venezuelan government re-based the previous inflation ravaged bolivar and re-set 1000 old bolivars = 1 ‘strong’ bolivar. The updated name is in retrospect ironic given that the Venezuelan currency is now one of the weakest fiat currencies in the world as the Venezuelan economy begins to experience out-of-control price inflation.
This brings us to the next part of the BCV gold valuation equation. The BCV uses an ‘official’ Venezuelan exchange rate in its financial accounts. This official rate is a static 6.3 bolivars to the US dollar and is based on a February 2013 government edict called “Convenio Cambiario N° 14“.
Again, this exchange rate is another fantasy when compared to the unofficial market exchange rate for the Venezuelan bolivar in terms of the US dollar. This unofficial exchange rate, for example, is currently ~786 according to the Dolartoday website. The bolivar’s unofficial rate versus major currencies will no doubt go even higher in the near future as the currency continues to crumble and potentially goes into hyperinflationary territory.
The final part of the gold valuation equation is the London gold fixing (a.m.~morning) price (more recently LBMA Gold Price), whose daily price dataset can be downloaded here. Note that prior to 20th March 2015, the London gold auction ‘fixed’ price was known as the London gold fixing. Even though the London gold price is now still ‘fixed’ (in more ways than one) during the re-gigged auctions, the LBMA has opted for the less loaded name of the ‘LBMA Gold Price’ auction.
I calculate that the 9 month rolling average of the London morning gold price from 1 April 2014 to 31 December 2014 was USD 1257.49. This is pretty close to the BCV specified value of USD 1257.80 above. The BCV’s extra 31 basis points may reflect the numismatic premium on its gold coin holdings or some other calculation difference.
However, the important point to all of this is that the manual calculation method of arriving at the BCV’s gold valuation price (by calculating the 9 month moving average directly) looks accurate and is in line with the BCV’s number. Based on the BCV’s 31 December 2014 monetary gold value of Bs 91,879,349,000, and the BCV’s USD 1257.80 valuation price, Venezuela held 360.64 tonnes of gold at year-end 2014. This 360.64 tonnes figure is pretty close to the figure reported by the World Gold Council of 361.02 tonnes as at end of fourth quarter 2014 (which itself is not set in stone).
The Sale of 61 tonnes?
The BCV publishes monthly balance sheets (including the monetary gold valuation figure), but currently there is a 4 month lag on date publication, so the latest balance sheet is from May 2015 (the same month-end date that Bloomberg and Reuters referred to above). The monthly balance sheets for January to May 2015 can be downloaded here, here, here, here and here:
Using the valuation methodology described above, and some simple reverse engineering, shows that over the two month period between the end of February 2015 and the end of April 2015, the BCV’s gold holdings dropped by over 60 tonnes, with a 33 tonne drop in gold reserves during March, followed by a 27.7 tonne drop in April. The data below is taken from the 6 monthly balance sheets from Dec 2014 to May 2015, and the LBMA daily price dataset.
My calculations for month-end January 2015 show Venezuela’s gold holdings to be 360.39 tonnes, nearly identical to the BCV’s month-end version for December 2014. I haven’t included any numismatic premium for gold coin holdings since its immaterial. My calculations show a 2.4 tonne increase in gold holdings at February month-end. I’m not sure what this increase refers to but it could be the monetization of some domestic gold mining production by the BCV (purchasing some Venezuelan mining output and classifying it as monetary gold), or conversion of some small residual BCV non-monetary gold holdings into monetary gold.
Adding domestically produced gold to monetary gold holdings in Venezuela has a precedent. So does conversion of already held non-monetary gold. For example in 2011 the BCV purchased 1.6 tonnes of domestic gold. The same year the BCV also converted 3.6 tonnes of ‘non-currency gold’ that it was already holding into monetary gold. For details, see section “Changes to Venezuela’s gold reserves since early August 2011″ in my article “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“.
For March 2015, my calculations indicate that the BCV’s gold holdings witnessed a 33.17 tonne reduction, and ended the month at 329.64 tonnes. Similarly, in April 2015, my calculations find that the BCV gold reserves saw another outflow of 27.74 tonnes, bringing total holdings down to 301.90 tonnes. Between March and April, the combined gold reduction amounts to 60.91 tonnes. There was no material change in gold holdings between April and May, save a tiny 0.27 tonne increase, which could be calculation noise. The main damage to the gold holdings happened in the narrower time period of March and April, a fact that was not highlighted in the Reuters 4 month period reference, and the Bloomberg 1 year period reference.
Interestingly, this WGC spreadsheet states that as of the end of Q4 2014, Q1 2015, and Q2 2015, Venezuela’s gold reserves remained unchanged at 361.02 tonnes, and the WGC does not reflect any of the above monthly reductions in Venezuela’s gold holdings. The WGC spreadsheet also states in a disclaimer that “While the accuracy of any information communicated herewith has been checked, neither the World Gold Council nor any of its affiliates can guarantee such accuracy.”
This just goes to show the many problems that can arise by relying solely on IMF and WGC data sources for official sovereign gold holdings, in addition to the more problematic ‘gold receivables’ accounting fictions employed by central banks.
BCV operations: First and Second?
To see what was happening with Venezuela’s gold holdings in March and April 2015, it is worth reading the last few sections of my “Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation” article, especially the last section about the 5 questions Maria Corina Machado, parliamentarian and opposition party leader in Venezuela, posed to Nelson Merentes, president of the BCV on 12 March 2015.
Also important to know from that article are:
a) the details of the Venezuelan gold swap with Citibank which emerged in late April and was for only 1.4 million ounces (43.5 tonnes post haircut), and the gold to be used in the swap was the 50 tonnes of gold that had been left by the BCV in the Bank of England vaults in January 2012
b) the BCV was in discussions with a number of investment banks about harnessing its gold reserves, and that the BCV revealed on 5 March that six investment banks were making a pitch to the BCV, namely Credit Suisse, Goldman, BTGP Brazilian, Deutsche, Bank of America and Citibank. The favourites were said to be from a short-list of Deutsche Bank, Bank of America and Citibank, but another Caracas media source thought that Credit Suisse and Bank of America were involved
c) Goldman Sachs had previously been discussing a gold swap with the BCV, this news becoming public in November 2013
The 61 tonne reduction in Venezuela’s gold reserves over March-April 2015 cannot be accounted by the Citi gold swap since a) the Citi gold swap was for less than 45 tonnes, b) gold swaps usually stay on central bank balance sheets as an asset of the central bank, and c) if there was a gold swap transaction that did get taken out of the balance sheet, it would not be a reduction over 2 months, it would be one transaction.
Therefore, I think that this 61 tonne reduction over March-April 2015 represents something else entirely. It could be another transaction with one or more of the other investment banks above, or it could be an entirely separate gold sale to another entity such as the Chinese government.
Since Banco Central Venezuela is entirely non-cooperative in answering questions about gold posed by the media, some speculation is, in my opinion, acceptable. For example, for the articles referenced above, Bloomberg states that “The central bank’s press department declined to comment on the decline in gold holdings.” Reuters states that “The central bank declined to comment“. Another example of arrogant central bankers who consider themselves above normal standards of accountability and transparency.
A few clues about the gold holdings reduction are in the letter Maria Corina Machado sent to Nelson Merentes on 12 March. In the letter Machado asked these 5 questions of Merentes:
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”?
Is the BCV in negotiations with foreign banks for the sale or pawning of monetary gold?
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 20% of the total gold reserves of the Republic, in this first operation?
Is it true that they would be negotiating a second operation similar to the previous one for an even greater amount?
Do these operations involveremoving the gold from the vaults of the BCV and returning it abroad?
Machado’s questions are very specific, i.e. US$2.6 billion, almost 20% of gold reserves, first operation, second operation, physical removal of gold, return of gold to abroad etc, and suggest that her questioning was based on sources that appear to have thought that this specific information was indeed factual.
In early March 2015, 20% of Venezuela’s gold reserves of 360 tonnes would be 72 tonnes, (while 61 tonnes would be 17% of gold reserves). Based on an average gold price of $1,200 in the first week of March, US$2.6 billion would be 67.4 tonnes. These figures are far closer to the actual reduction of gold holdings in March and April of 61 tonnes and suggest that there was a ‘first operation’ that was distinct from the gold swap with Citibank, and that necessitated the actual removal of 61 tonnes from the BCV balance sheet.
Then what about a ‘second operation‘ that could be ‘for an even greater amount‘ in the words of Machado?
Gold Flights from Caracas in July 2015
Caracas international Airport, where the flights laden with Venezuela’s repatriated gold arrived at during the period November 2011 to January 2012, is officially known as Simón Bolívar International Airport, but colloquially known as Maiquetía Airport since it’s in an area of Caracas called Maiquetía (the airport is beside the ocean).
On 01 July 2015, Venezuelan news site La Patilla published an article titled “El BCV reexporta para empeñarlo el oro que Chávez repatrió” (BCV re-exported for pledging, the gold that Chavez had repatriated), in which it featured two snippets from a letter written by the Banco Central Venezuela (BCV) to Maiquetia International Airport Air Customs (SENIAT) sometime just before July, probably written in June. SENIAT is the Venezuelan customs and tax authority, officially called Servicio Nacional Integrado de Administración Aduanera y Tributaria, or National Integrated Service for the Administration of Customs Duties and Taxes.
The first snippet of the BCV letter to SENIAT, and highlighted by La Patilla, stated:
“Tengo el agrado de dirigirme a usted en ocasión de manifestarle que el Banco Central de Venezuela realizará exportación de valores, cuyas especificaciones y demás características se detallarán en actas a suscribirse con con funcionarios del Ministerio del Poder Popular de Economía, Finanzas y Banca Pública -Seniat y este instituro, las cuales serán presentadas a las autoridades competentes el día de salida en la Aduana Principal Aérea de Maiquetía“
“I have the pleasure of addressing you on the occasion to inform you that the Central Bank of Venezuela will export values, whose specifications and other characteristics will be detailed in Minutes to be signed with officials from the Ministry of Popular Power for Economy, Finance and Public Bank -Seniat and this Institute, which will be presented to the competent authorities on the day of departure in Maiquetía’s Main Air Customs”
The La Patilla article commented that:
“Los “valores” a los que se refiere la comunicación sería oro monetario según nos respondieron dos economistas con experiencia en las operaciones del BCV.”
“According to two economists with experience of BCV operations who responded to us, the ‘values’ to which the communication refers to is monetary gold.“
The 2nd snippet of the letter, with the BCV stamp, is even more interesting, and I have included it below:
Although not fully legible on the very left hand side of the photo, the text, as far as I can make out, says:
“…el reconocimiento, pesaje y embalaja de la materia en referencia, en el Departamento de administracion del Efectivo, ubicado en el sótano 2 del elemento Sede de esta instituto. La…[ ]… actividad, se tiene previsto realizarla en los dias 02, 03 y 06/07/2015, a partir de las 8:00…[ ]. En caso de que la referida actividad se extienda más del tiempo prevista, le será notificado…[ ]
“acknowledgement, weighing and packing of the material in question, in the Cash Management Department, located in Basement 2 of the Headquarters of this Institute. The .. [ ].. activity is planned for the days 02, 03 and 07.06.2015, from 8:00…[ ]. In the event that the referred to activity extends beyond the planned time, you will be notified…[ ]”
It’s not unusual for letters about specific gold shipments from central banks to security carriers or other agencies to avoid to mention the actual cargo. I have seen the same approach used in historical Bank of England letters to companies like MAT Transport and the Metropolitan Police, phrases such as “we would like to go ahead with the matter we discussed’, and ‘we have now completed the aforementioned assignment bla bal bla, I trust everything was in order”. It’s merely phrased this way for security reasons.
Venezuela is short of hard currency bank notes such as USD and EUR. Venezuela would hardly be flying out hard currency cash. Nor would it be flying out worthless bolivar bank notes. The BCV letter refers to weighing and packing, which can only mean gold bullion.
The letter snippets in this ‘La Patilla’ news article look to be what they purport to be, and they do indeed appear genuine, so there is a high probability that the BCV was flying out cargos of monetary gold from Caracas International Airport on 2nd July (Thursday), 3rd July (Friday) and 7th July 2015 (Tuesday), and maybe after 7th July if the operation needed extended time as the contingency in the letter planned for.
When the last flight of repatriated gold flew into Caracas from Eorope on 30 January 2012, it was carrying 14 tonnes of gold in 28 crates. Based on this metric, 3 flights going out from Caracas in early July 2015 could carry 42 tonnes of gold, if not more. Therefore there is a realistic upper bound of at least 42 tonnes to the amount of gold that the BCV could have been flying out of Maiquetía airport on 2nd, 3rd and 7th July 2015.
This article has focused on two sets of events, 1) the drop in Venezuela’s monetary gold reserve holdings in March and April 2015 which looks to be distinct from the Bank of England vaulted gold used in the BCV-Citibank gold swap, and 2) a series of cargo flights of what looks like BCV monetary gold being flown out of Caracas International Airport in early July 2015.
Venezuela’s international reserves, managed by the BCV, are now down to USD 15.120 billion as at 29th October 2015, from USD 16.4 billion at the end of September 2015. Investment bank reports and the financial media are abuzz with speculation that (to paraphrase) “Venezuela will need to use its gold reserves to raise international funds for imports etc etc“. Which is no doubt true, but what the analyst reports and media reports are missing, in my opinion, is that a good chunk of Venezuela’s gold reserves are already in play and that any new repos, swaps or sales will have to line up and utilise whatever Venezuelan gold reserves are not already under lien, claim, encumbrance or collateralisation.
In the second half of October, Barclays’ two New York based Latin American economists, the two Alejandros (Arreaza and Grisanti) said that:
“Our quarterly cash flow model suggests that Venezuela will have a deficit of approximately USD10bn just during this quarter and will have to finance almost all of it with its own assets. Currently, liquid international reserves are likely less than USD0.5bn. The rest of the reserves are gold, SDRs and the position at the IMF. Therefore, assets besides reserves will need to be used.
We estimate that disposable assets (in and out of reserves) are about USD15.1bn. Assuming a gold repo of USD3.0bn before year-end, the disposable assets could end the year at about USD8.0bn. With these assets and a possible additional use of gold reserves, we expect Venezuela to meet its debt obligations at least until Q1 16″
Which is all very fine, except the fact that if the BCV gold reserves are 61 tonnes lighter due to outflows in March and April, and if there were additional gold outflows via international cargo flights in July, which looks likely, then a further USD 3 billion repo (circa 80 tonnes without deep haircut) will have to use additional BCV vaulted gold, a lot of which is in US Assay Office melt bars, which are not necessarily up to the expected quality of modern-day Good Delivery bars.
From my Part 1 article, I had calculated that “there were 12,357 bars held in the BCV vaults in Caracas before the gold repatriation started, and 25,176 bars in the BCV vaults when the repatriation completed“, since “12,819 good delivery bars” (160 tonnes) were repatriated. About 4,089 bars were left in London in 2012. The bars that were originally in Caracas are mainly if not exclusively US Assay office bars.
If the Caracas vaulted gold is being sold by Venezuela in the international market, it most likely would be of current Good Delivery standard (not US Assay office bars). With 160 tonnes of repatriated Good Delivery bars in 2011-2012, then if 61 tonnes was sold in March-April, and various flights happened in July 2015, there may not be enough modern Good Delivery bars remaining in Caracas to satisfy an additional USD 3 billion transaction.
In my Part 2 article in May, I had said:
“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.“
Note that 1.4 million ounces is about 43.5 tonnes.
Interestingly, Barclays analysts Feifei Li and Dane Davis in their ‘Metals Markets Outlook’ piece from 26 October 2015 (last week) titled ‘Mixed Messages’ reiterated the above view and said:
“Earlier this year Venezuela executed a gold swap to raise $1bn. About 45 tonnes of gold was committed, indicating a haircut of around 40% for gold prices at the time. If we apply a similar haircut to the current gold price, it would imply that close to 140 tonnes of gold would be needed for $3bn. Thus if $3bn extra gold swaps were executed, half of Venezuela’s 361 tonne gold reserve would have been utilised.”
But 140 tonnes of gold will bring into play a lot of Venezuela’s US Assay Office bars, given that some other counterparties have already raided the Caracas vaults to get the best bars. While a lot of Venezuela’s US Assay office bars probably contain the fine gold count that they claim to hold, some probably don’t, as was illustrated in the sardonic yet jovial Zerohedge article “No Indication Should, Of Course, Be Given To The Bundesbank…” published back in September 2012.
So its buyer beware time for the counterparties that are now queued up to get their hands on Venezuela’s last remaining ingots of gold, before the entire Caracas stash may well get looted.
That article highlighted that the amount of gold stored in custody at the Bank of England (BoE) fell by 350 tonnes during the year to 28 February 2015, after also falling by 755 tonnes during the year to end of February 2014. Therefore, by 28 February 2015, there was, according to the BoE’s own statement, £140 billion or 5134.37 tonnes of gold in custody of the BoE, or in other words ~ 410,720 Good Delivery gold bars.
The article also reviewed snapshots of the total amount of gold stored in the London vaults at various recent points in time.
Firstly, a reference on the London Bullion Market Association (LBMA) web site for a date sometime before 2013 stated that there had been 9,000 tonnes of gold (i.e. 720,000 Good Delivery bars) stored in London with two-thirds of this amount, or 6,000 tonnes, stored in the Bank of England (about 482,000 bars), and 3,000 tonnes stored in London ex Bank of England vaults (238,000 bars). (Nick Laird of Sharelynx subsequently pointed out to me that the earliest reference to this 9,000 tonne figure was from a LBMA presentation from November 2011.)
Secondly, by early 2014, the LBMA web site stated that there were only 7,500 tonnes of gold in all London vaults, i.e. ~600,000 bars, and of this total, three-quarters or 5,625 tonnes were at in Bank of England, ~ 450,000 bars, and only one-quarter or 1,875 tonnes was stored at LBMA London gold vaults excluding the Bank of England’s gold vaults.
So, the entire London market including the Bank of England had lost 1,500 tonnes (120,000 bars) between 2011 and early 2014, with 375 tonnes less in the BoE and 1,125 tonnes less in the London market outside the BoE.
Finally, on 15 June 2015, the LBMA stated that “There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion”. This ~ 500,000 bars equates to 6,256 tonnes. (On 15th June 2015, the morning LBMA Gold Price was set at $1178.25, which would make $237 billion worth of gold equal to 201.145 million ounces, which is 6,256 tonnes).
Therefore, another ~1,250 tonnes of gold (approximately 100,000 Good Delivery bars) departed from the London gold vaults compared to the early 2014 quotation of 7,500 tonnes of gold in the London vaults.
So overall, between the 9,000 tonnes quotation in 2011, and the 6,256 tonnes 2015 quotation, some 2,750 tonnes (~ 220,000 Good Delivery bars) disappeared from the London gold vaults. With 6,256 tonnes of gold stored in the entire London vault network in 2015, and with 5,134 tonnes of this at the Bank of England, that would leave 1,122 tonnes of gold in London outside the Bank of England vaults.
To reiterate, “the London gold vaults“, in addition to the Bank of England gold vaults, refer to the storage vaults of JP Morgan and HSBC Bank in the City of London, the vaults of Brinks, Malca Amit and Via Mat (Loomis) located near London Heathrow Airport, the vault of G4S in Park Royal, and the Barclays vault managed by Brinks.
Because the Bank of England reveals in its annual report each year the value of gold it has stored in custody for its customers (central banks, international official sector institutions, and LBMA member banks), then it is possible to compare 3 years of gold tonnage figures, namely the years 2011, 2014 and 2015, and then show within each year how much of this gold is stored at the Bank of England, and how much is stored in London but outside the Bank of England vaults.
Nick Laird of www.sharelynx.com / www.goldchartsrus.com has done exactly this in the following sets of fantastic charts which he has created to graphically capture the above London gold trends, and a lot more besides. These charts are just a subset of a suite of inter-related gold charts that Nick has created to address this critical subject in the London Gold Market.
Although the Bank of England is not a LBMA member, the Bank of England gold vaults are a critical part of the LBMA gold vaulting and gold clearing system, and LBMA bullion banks maintain gold accounts with the Bank of England which facilitate, among other things, gold lending and gold swaps transactions with central banks. Hence the above and below charts are titled “LBMA Vaulted Gold in London”.
My “How many Good Delivery gold bars are in all the London Vaults” article had also quantified that nearly all of this ~1,122 tonnes consists of gold from physical gold-backed ETFs which store their gold in the London vaults. (previously rounded up to 1,125 tonnes for ease of calculation).
I had included 5 gold ETFs in my previous analysis namely, SPDR Gold Trust (GLD), Shares Gold Trust (IAU), ETF Securities – ETFS Physical Gold ETF (PHAU & PHGP), ETF Securities – Gold Bullion Securities (GBS & GBSS), and Source Physical Gold ETC (P-ETC), and also some smaller holdings at BullionVault and GoldMoney. In total these ETFs and other holdings accounted for just over 1,000 tonnes of gold in the London market.
However, I had missed a few other gold ETFs which also store their gold in the London vaults. Nick Laird, whose Sharelynx website maintains up-to-date gold ETF data and gold holdings, took the initiative to fill in the missing ETF blanks and Nick re-calculated the more comprehensive ETF holdings figures for London, which worked out at an exact 1,116 tonnes of gold, astonishingly close to the implied figure represented by the 1,122 tonnes outside the Bank of England vaults.
The additional gold backed ETFs also included in Nick Laird’s wider catchment were Deutsche Bank db Physical Gold ETC and associated Deutsche ETFs, ABSA gold ETF (of South Africa), Merk Gold ETF, and some smaller holdings from Betashares and Standard Bank. The following chart from Sharelynx shows the full data for physically backed gold ETFs storing their gold in London:
We then discussed an approach, in conjunction with Koos Jansen and Bron Suchecki, to identify known central bank gold stored in the Bank of England vaults by tallying up this storage data on a country level basis. So, for example, assuming 5,134 tonnes of gold stored at the Bank of England in early 2015, the aim would be to try to account for as much of this gold as possible using central bank sources.
As mentioned in the ‘How many gold bars‘ article, the Bank of England stated in 2014 that 72 central banks (including a few official sector financial organisations) held gold accounts with the Bank. It is not known if any of these gold accounts are inactive or whether any of these accounts have zero gold holdings. The LBMA stated in 2011 that “The Bank of England acts as gold custodian for about 100 customers, including central banks and international financial institutions, LBMA members and the UK government”. Therefore there could also be more than 25 LBMA member commercial banks with gold accounts at the Bank of England.
Some of the Bank of England 5,134 tonne total would therefore be gold held in LBMA member bank gold accounts at the Bank of England, for which data is not public. Likewise, a lot of central banks do not reveal where their gold is stored, let alone how much is stored in specific vaults such as at the Bank of England and Federal Reserve Bank of New York.
However, many central banks have more recently begun to provide some information on where they say their official reserve gold is stored. Other central banks have always been to some extent transparent. Overall, a variety of sources, where possible, can be used to source locational data regarding central bank gold storage locations. There will continue to be gaps however, since some central banks remain non-cooperative, even when asked directly about where they stored their gold.
Tallying this type of central bank gold storage data will probably be a work in progress. However, there has to be a cut-off point for doing a first pass through the data, and this is a first pass. As a group, the European central banks have been especially forthcoming with gold storage data, compared to even 3-4 years ago (except for Spain). For other central banks, I looked in various places such as their financial accounts, and I contacted some of them by email with varying degrees of success. About half of the 72 central banks on the Bank of England’s list were identified, again, with varying degrees of accuracy.
The following fantastic chart by Nick Laird captures an overview of this Bank of England gold storage data. Essentially the chart shows that the banks listed hold, or have stated that they hold, the respective quantity listed, and in total the named banks could account for x tonnes gold stored at the bank of England. This is labelled ‘Known Gold‘. Given ‘Known Gold’, this leaves the residual as ‘Unknown Gold‘.
The remainder of this article explains the logic and the sources behind each country, and why that country appears on the list. When a central bank claims to have stored gold at the Bank of England, or the evidence suggests that, it does not necessarily mean that the gold in question is held in custody in a gold set aside account or that it is allocated in identifiable bars, or even that it is actually there. Many central banks engage in gold lending, or have done so in the last 15-20 years, and have at times, or permanently, transferred control of that gold to LBMA bullion banks.
Until all central banks come clean about what form their gold holdings are in, which will never happen, then the amount of central bank gold that’s encumbered by bullion banks or under claims, liens, loan agreements etc will not be apparent.
Germany holds 3,384 tonnes of gold, and 12.9%, or 438 tonnes are stored at the Bank of England. The Bundesbank’s ongoing repatriation of gold from New York and Paris does not alter the amount of Bundesbank gold held at the Bank of England.
“Most of Danmarks Nationalbank’s gold is stored at the Bank of England, where it has been since it was moved for safety reasons during the Cold War. In March 2014, Danmarks Nationalbank inspected its stock of gold in the Bank of England.”
Therefore, the assumption here is that 62.7 tonnes of Danish gold is stored at the Bank of England.
Note the Danmarks Nationalbank’s assertion that in order for gold to be lent it has to be moved to the London, since London is the centre of the gold lending market.
In 1999 “Almost 99 per cent, or 93 per cent of the Nationalbank’s total gold stock, had been lent.” The same 1999 Danish central bank article also said that:
I have underlined the above sentence since it’s of critical importance to understanding that in gold lending, central bank gold lent to LBMA bullion banks at the Bank of England does not necessarily move out of the Bank of England vaults. Lent gold may or may not move out the door, depending on what the borrower plans to do with the borrowed gold.
It also means that the total gold in custody figure that the Bank of England reveals each year (for example £140 billion in February 2015), consists of:
a) central bank gold stored at the Bank of England
b) bullion bank gold stored at the Bank of England
c) central bank gold that has been lent or swapped with bullion banks (gold deposits and gold swaps) and that has not been moved out of the Bank of England vaults. This category of gold is still in custody at the Bank of England. The central bank claims to still own it, the bullion bank has control over it, and the Bank of England still counts it as being in its custody.
The Netherlands holds 612.5 tonnes of gold, and 18%, or 110 tonnes are stored at the Bank of England.
Notice that the UK gold reserves includes holdings of gold coin, as well as gold bars.
Ireland hold 6 tonnes of gold in its official reserves, a small amount of which is in the form of gold coins, but nearly all of which is in the form of gold bars stored at the Bank of England.
Recently, I submitted a Freedom of information (FOI) request to the Central Bank of Ireland requesting information such as a weight list of Ireland’s gold stored at the Bank of England. After the FOI request was refused and the Central Bank of Ireland claimed there was no weight list, I appealed the refusal and was provided with a SWIFT ‘account statement’ from 2010 that the Bank of England had provided to the Central Bank of Ireland. See below:
This statement shows that as of 31 December 2010, the Central Bank of Ireland held 453 gold bars at the Bank of England with a total fine ounce content of 182,555.914 ounces, which equates to an average gold content of 402.993 fine ounces per bar. It also equates to 5.678 tonnes, which rounded up is 5.7 tonnes of gold stored at the Bank of England.
The fact that no weight list could be tracked down is highly suspicious, as is the fact that Ireland had in earlier years engaged in gold lending, so did not, at various times in the 2000s have all of its gold allocated in the Bank of England. How a central bank can claim to hold gold bars but at the same time cannot request a weight list of those same bars is illogical and suggests there is a lot more that the Central Bank of Ireland will not reveal.
Belgium holds 227 tonnes of gold, most of which is stored at the Bank of England with smaller amounts held with the Bank of Canada and with the Bank for International Settlements. Banque Nationale de Belgique (aka Nationale Bank van België (NBB)) does not publish an exact breakdown of the percentage stored at each location, however, in March 2013 in the Belgian Parliament, the deputy Prime Minister and Minister for Finance gave the following response in answer to a question about the Belgian gold reserves:
“Most of the gold reserves of the National Bank of Belgium (NBB) is indeed held with the Bank of England. A much smaller amount held with the Bank of Canada and the Bank for International Settlements. A very limited amount stored in the National Bank of Belgium.”
Furthermore, there were a series of reports in late 2014 and early 2015 that would suggest that Belgium stores 200 tonnes of its gold at the Bank of England. Firstly, in December 2014, VTM-nieuws in Belgium reported that the NBB governor Luc Coene had said that the NBB was investigating repatriating all of its gold. See Koos Jansen article here.
On 4 February 2015, Belgian newspaper Het Nieuwsblad said that Belgium would repatriate 200 tonnes of gold from the Bank of England, but the next day on 5 February 2015, another Belgian newspaper De Tijd reported that NBB Luc Coene denied the repatriation report, and quoted him as saying:
“There are other and more effective ways to verify if the gold in London is really ours. We have an audit committee that inspects the Belgian gold in the UK regularly”.
Therefore, the assumption here, backed up by evidence, is that Belgium stores 200 tonnes of gold at the Bank of England.
Australia holds approximately 80 tonnes of gold in its official reserves, with 1 tonne on loan, and 99.9% of gold holdings stored at the Bank of England. See 2014 annual report, page 33. According to a weight list of its gold held at the Bank of England, released via an FOIA request in 2014, Australia stores approximately 78.8 tonnes of gold at the Bank of England.
South Korea (Bank of Korea) holds 104.4 tonnes of gold, 100% of which, or 104.4 tonnes is stored at the Bank of England. The Bank confirmed this to me in an emailon 11 September 2015. See email here ->
International Monetary Fund
The IMF currently claims to hold 2,814 tonnes of gold after apparently selling 403.3 tonnes over 2009 and 2010 (222 tonnes in ‘off-market transactions and 181.3 tonnes in ‘on-market transactions’). Prior to 2009, IMF gold holdings had been 3,217 tonnes, and had been essentially static at this figure since 1980 [In 1999 IMF undertook some accounting related gold sale transactions which where merely sale and buyback bookkeeping transactions].
Although the IMF no longer provide a breakdown of how much of its gold is stored in each location where it stores gold, the amount of gold held by the IMF at the Bank of England can be calculated by retracing IMF transactions from a time when the IMF did provide such details. In January 1976, the IMF held 898 tonnes of gold at the Bank of England in London, 3,341 tonnes at the Federal Reserve Bank of New York, 389 tonnes at the Banque de France in Paris, and 144 tonnes at the Reserve Bank of India in Nagpur, India. Therefore, of the IMF’s total 4,772 tonnes holdings at that time, 70% was stored in New York, 19% in London, 8% in Paris and 3% in India. See here and here.
In the late 1970s, the IMF sold 50 million ounces of gold via two methods, namely, 25 million ounces by ‘public’ auctions, and 25 million ounces by distributions to member countries.
In the four-year period between mid-1976 and mid-1980, the IMF sold 25 million ounces of gold to the commercial sector via 45 auctions. Thirty five of these auctions delivered gold at the FRBNY, 7 of these auctions delivered gold at the Bank of England, and 3 of the auctions delivered gold at the Banque de France.
Of the 7 auctions that delivered the IMF’s gold at the Bank of England, these auctions in total delivered 3.74 million ounces [Dec-76: 780,000 ozs, Aug-77: 525,000 ozs, Nov-77: 525,000 ozs, May-78: 525,000 ozs, Oct-78: 470,000 ozs, Mar-79: 470,000, and Dec 79:444,000 ozs], which is 116 tonnes. See IMF annual report 1980.
The IMF also sold 25 million ozs of gold to its member countries within four tranches over the 3 year period from January 1977 to early 1980. These sales, which were also called gold ‘distributions’ or ‘restitutions’ and covered between 112 and 127 member countries across the tranches, were initially quite complicated in the way they were structured since they involved IMF rules around quotas which necessitated the gold being transferred to creditor countries of the IMF and then transferred to the purchasing countries. In the later sales in 1979 and 1980 countries could purchase directly from the IMF.
Countries could choose where to receive their purchased gold, i.e. London, New York, Paris or Nagpur, however, the US, UK, France and India, which had the largest IMF quotas and hence the largest gold distributions, all had to receive their gold at the respective IMF depository in their own country. I don’t have the distribution figures to hand at the moment for the 25 million ozs sold to countries, but about 18 countries took delivery from the Banque de France in Paris, with the rest choosing delivery from New York and London.
Therefore an assumption is needed on the amount of gold the IMF ‘distributed’ to member countries from its Bank of England holdings between 1977 and 1980. Of the 25 million ounces distributed, the US received 5.734 million ozs, the UK received 2.396 million ozs (75 tonnes), France received 1.284 million ozs, and India received 805,000 ozs. Subtracting all of these from 25 million ozs leaves 14.78 million ozs which was distributed to the other ~120 countries. Since the IMF held 70% of its holdings at the FRBNY in 1976, 19% at the Bank of England and 8% at the Banque de France, apportioning these three weights to the remaining 14.78 million ozs would result in 10.76 million ozs (332 tonnes) being sold from the FRBNY, 2.867 million ozs (89 tonnes) from the Bank of England and 1.24 million ozs (38.5 tonnes) from the Banque de France.
Adding this 89 tonnes to the 75 tonnes received by the UK would be 164 tonnes distributed from the Bank of England IMF gold holdings. Add to this the 116 tonnes of London stored IMF gold sold in the auctions equals 280 tonnes. Subtracting this 280 tonnes from the IMF’s London holdings of 898 tonnes in January 1976 leaves 618 tonnes.
In 2009 the IMF said that it had sold 200 tonnes of gold to India, 2 tonnes to Mauritius, 10 tonnes to Sri Lanka,and then 10 tonnes to Bangladesh in 2010. The Bangladesh figures reflect its 10 tonne purchase. However, at the moment, there has been no exact confirmation that the 200 tonnes that India bought is in London. It probably is in London, but leaving this amount under the IMF holdings instead of in India’s holdings makes no difference. Subtracting the Bangladesh sale of 10 tonnes, and rounding down slightly, there are 600 tonnes of IMF gold (excluding the 2009 India 200 tonnes sale) storedat the Bank of England.
The IMF sales of gold to Sri Lanka and Mauritius in 2009 of a combined total of 12 tonnes probably came out of the IMF’s London holdings also. The IMF’s sale of 181.3 tonnes of gold in 2010 via ‘on-market transactions’ may also have come out of the IMF’s London stored gold. These ‘on-market transactions” look to have used the BIS as pricing agent, and the IMF have gone to great lengths to hide the full details of these sales from public view. More about that in a future article.
The Reserve Bank of India holds 557.75 tonnes of gold. Of this total, a combined 265.49 tonnes are stored (outside India) at the Bank of England and with the Bank for International Settlements. In 2009 India purchased 200 tonnes of gold from the IMF via an ‘off-market transaction‘. A slide from this presentation sums up this information.
The questions then are, is the 200 tonne purchase from the IMF stored at the Bank of England, and how much of the earlier 65.49 tonnes is stored at the Bank of England.
A 2013 article in the Indian Business Standard which was reprinted from “Reserve Bank of India history series. Volume 4, 1981-1997, Part A”, explains that in 1991, the Reserve Bank of India entered 2 separate gold loan deals, one deal with UBS in Switzerland (which required 18.36 tonnes of RBI gold to be sent to Switzerland) and the other deal with the Bank of England and Bank of Japan (where 46.91 tonnes was required to be sent to the Bank of England). Together those 2 transactions equals 65.27 tonnes which is 0.222 tonnes short of the 65.49 total.
After the gold loan deals expired, it looks like 18.36 tonnes of Indian gold were left in Switzerland and transferred to safekeeping or deposit with the BIS, and 46.91 tonnes of Indian gold was left at the Bank of England.
Regarding India’s purchase of 200 tonnes of gold in 2009, the IMF only has gold 4 depositories, namely, the Bank of England, Federal Reserve Bank of New York, Banque de France, and the Reserve Bank of India in Nagpur, India. Given that the Indian gold stored abroad is “with the Bank of England and the Bank for International Settlements“, then for the 200 tonnes of IMF gold to end up being classified as ‘with’ the BIS, it would have to have either been transferred internally at one of the IMF depositories to aBIS account, or transferred via a location swap or a physical shipment to a BIS gold account at the vaults of the Swiss National Bank in Berne.
For now, the 200 tonnes of gold sold by the IMF to India in 2009 is reflected in the IMF holdings and not the India holdings. It does not make a difference to the calculations, since the 200 tonnes is still at the Bank of England.
Bulgaria has 40.1 tonnes of official gold reserves. The latest BNB annual report states that 513,000 ozs are in standard gold form, and 775,000 ozs are in gold deposits.
The Bank for International Settlements (BIS), headquartered in Basle, Switzerland does not have run any gold vaults of its own. However, the BIS is a big player in the global central bank gold market, and it offers its central bank clientele gold safekeeping (and settlement) services using central bank vaults in London, New York and Berne. These services are possible because the BIS maintains gold accounts at the Bank of England, the Federal Reserve Bank of New York, and the Swiss National Bank in Berne. BIS gold accounts can act like omnibus accounts in that many central banks can hold gold in sub-accounts under a BIS gold account at each of these institutions in London, New York and Berne.
Gold can then be transferred around locations using gold swaps where one of the counterparties to the gold swap is the BIS.
The BIS is involved with gold in 3 main categories.
a) the BIS holds gold in custody for customers, off of the BIS balance sheet
b) the BIS has its own gold holdings which are classified as its gold investment portfolio, and which are on its balance sheet
c) the BIS accepts gold deposits from central banks. These gold deposits appear as a liability on the BIS balance sheet. Then the BIS turns around and places these gold liabilities in the market under its own name. These placing are also in the form of gold deposits and gold loans with other institutions including commercial banks. These ‘assets’ are then classified on the BIS balance sheet as BIS’ “gold banking” assets.
a) In its latest annual report, as of the end of March 2015, the BIS stated that it holds 443 tonnes of gold under earmark for its central bank customers on a custody basis. This gold is not on the BIS balance sheet. i.e. it is ‘off-balance sheet’ gold held by the BIS.
b) The BIS also holds 108 tonnes of its own gold (on balance sheet within an investment portfolio). This BIS gold is either kept in custody or transferred to bullion banks as gold deposits. The BIS does not provide granular data in its annual report as to how much of its own gold is ever put into gold deposits.
c) As of 31 March 2015, the BIS had 510 tonnes of gold assets on its balance sheet. Of this total, 108 tonnes was the BIS’ own gold, leaving 403 tonnes as banking assets (i.e. customer gold . Of this same 510 tonnes total, 55 tonnes were classified as gold loans, so 457 tonnes were not gold loans. If all 55 tonnes of gold loans were from customer gold, this would leave 348 tonnes of customer backed gold banking assets. On the same date (31 March 2015), the BIS held 356 tonnes of gold deposits from customers (sight deposits and short-term deposits) on the liability side of its balance sheet which originate entirely from central banks depositing gold with the BIS in sight and term deposits.
The question then is how to reflect BIS gold storage holdings at the Bank of England. While most if not all gold deposit transactions between central banks/BIS and bullion banks take place in London, the data is not readily published.
It was therefore decided, in the spirit of being conservative, to make an assumption on the BIS gold, and only use BIS customer custody gold and BIS own gold as inputs, and because BIS has gold accounts with 3 vaults (London, NY and Berne), to then just divide by 3 and say that one-third of BIS own gold and one-third of BIS ‘central bank custody gold’ is in London This would be 183.66 tonnes, i.e. (108+443)/3.
Therefore, this model states that 183.66 tonnes of BIS gold is stored in the Bank of England. This is probably being very conservative, especially given that no on-balance gold deposited by BIS customers is reflected in this figure.
In September 2010, the IMF sold 10 tonnes of gold to Bangladesh Bank, bringing total gold holdings up from 3.5 tonnes to 13.5 tonnes. The fact that this gold is stored at the Bank of England shows that the IMF sold this gold from its holdings that were stored at the Bank of England. (Note, Bangladesh has recently added some small amounts of domestic confiscated gold to its reserves).
Mexico’s central bank, Banco de Mexico (Banxico) currently hold 122.1 tonnes of gold. At the end of 2012, Mexican official gold reserves totalled 4,034,802 ounces (125 tonnes), of which only 194,539 ounces (6 tonnes) was in Mexico, and 119 tonnes abroad.
With Banxico now holding 122 tonnes according to the World Gold Council, and not 125 tonnes, the assumption is that the 3 tonne reduction came from domestic holdings.
Poland holds 102.9 tonnes of gold in its reserves. Poland’s central bank (Narodowi Bank Polski (NBP)) published a guide to Poland’s gold in 2014 in which it confirmed that nearly all of its gold is at the Bank of England. See pages 86-90 of the guide.
“How much gold did Poland possess before 1998? Approximately 746,463 ounces, of which almost 721 thousand was invested in deposits in commercial banks. In turn, the gold kept in the country was mainly coins, gold bars and various types of gold “scrap” bought by NBP.” (page 86)
Before 1998, only 25,463 ozs of NBP gold was kept in Poland, and 721,000 ozs (22.43 tonnes) was deposited with bullion banks. Poland then bought 80 tonnes of gold in 1998, bringing its gold reserves up to nearly 103 tonnes. The purchase was done as follows:
“…we used the services of a bank which constantly carries out similar transactions. Next, we made a location swap and the whole of NBP’s foreign gold reserves were deposited onto our account in the Bank of England.” (page 88)
It is likely that the NBP is referring to the BIS as the bank which purchased the gold on behalf of Poland, and then transferred it from one of the BIS gold accounts at the Bank of England to the NBP gold account at the Bank of England.
So that is 102.9 tonnes stored at the Bank of England.
Note also that, the Polish central bank explains that “It can be assumed that the gold that has been placed on the market at any time is precisely the gold that is held by the central banks in London“. In other words, central banks that have places gold on deposit (lent it) have done so with gold that they have stored in the Bank of England. See the following screenshot:
Note 6.1 on page 136 of the 2013 NBP annual report states:
“Gold and gold receivables The item comprises gold stored at NBP and deposited in a foreign bank account. As at 31 December 2013, NBP held 3,308.9 thousand ounces of gold (102.9 tonnes).”
This statement about the “gold stored at NBP and deposited in a foreign bank account” has been in a few of the recent NBP annual reports. In April 2013, before the NBP had published the guide to its gold, I asked the NBP by email, based on the statement, to clarify if the gold held abroad is held in custody, for example at the Bank of England or FRBNY or held in time deposits with commercial banks?”
The NBP responded: “Narodowy Bank Polski does not make gold time deposits with commercial banks”.
This may be true if the NBP is using sight deposits, but the 2013 answer, like so many other central banks currently, avoided providing any real information to the question.
Given that nearly all NBP’s 102.9 tonnes of gold was in the Bank of England when the 80 tonnes purchase was made in 1998, the assumption here is that still is the case, and that for simplicity, 100 tonnes of Poland’s gold is at the Bank of England.
Romania has 103.7 tonnes of gold in its official reserves.
In percentage terms, as at 31 December 2014, 27% of Romania’s gold was in ‘standard form’ which presumably means Good Delivery Bars (400 oz bars), 14% in gold coins, and 59% in ‘Deposits’ abroad. (59% of 103.7 tonnes is 61.2 tonnes)
Note the gold deposits with Bank of Nova Scotia and Fortis Bank Bruxelles in 2005 and additionally with the same two banks and with Barclays and Morgan Stanley NY in 2004.
Since the percentage breakdownbetween Romania’s bullionbankdeposits (59%), standardbars (27%) and coins (14%) hasn’t varied much since 2005, and was at a similar mix over various years that I checked such as 2011 and 2014, the conclusion is that Romania has had more than 50% of its gold on constant deposit since at least 2004 (i.e. the original allocated gold is long gone).
The 2005 annual report also states that there were 61 tonnes of Romanian gold stored at the Bank of England. Since Romania had just under 105 tonnes of gold in 2005, this 61 tonnes was referring to the gold deposits, which central banks, as illustrated in numerous other examples, continue to count as their gold even though it has been lent to bullion banks.
Romania therefore had or has 61 tonnes of gold stored at the bank of England.
Note also the reference to central vault, which probably refers to a vault in Bucharest.
The Philippines hold 225 tonnes of gold in its official reserves. In November 2000, when the Bangko Sentral ng Pilipinas (BSP) held 225 tonnes of gold, it explained in a press release titled ‘Shipment of Gold Reserves‘ that it ended up storing 95% of its gold at the Bank of England due to the use of location swaps with a counterparty (probably the BIS) that took delivery of BSP gold, and transferred gold to the BSP account at the Bank of England.
Since 2000, the BSP gold reserves have risen, fallen, and risen again and now total 195 tonnes. Assuming the ‘95% of its gold’ storage arrangement is still in place, then the Philippines has 95% of 195 tonnes, or 185 tonnes stored at the Bank of England.
Greece claims to hold 112.6 tonnes of gold. In 2013, the Greek finance ministry on behalf of the Greek central bank stated that half of Greece’s gold reserves were ‘under custody’ of the Bank of Greece, and the other half was ‘under custody’ of the Federal Reserve Bank of New York (FRBNY), the Bank of England and (very vaguely) Switzerland. Who actually controls Greece’s gold reserves at this point in time is anybody’s guess.
Given that the Federal Reserve Bank of New York was listed by the Greek MinFin as a foreign gold storage location ahead of the Bank of England, the assumption here is that of the 50% of Greece’s gold held abroad, the FRBNY holds more of this portion than the Bank of England. And so the assumption is that the Bank of England holds 40% of the foreign half, i.e. 20% of the total of Greece’s gold, with the FRBNY holding 50% of the foreign half. Taking 112 tonnes of gold as Greece’s total gold holding, 40% of this is 22.4 tonnes stored at the Bank of England. (Note, Greek gold reserves keep increasing incrementally each month by small amounts. As I am not sure what these increases relates to, a recent rounded figure of 112 tonnes has been chosen).
The Banca d’Italia holds 2.451.8 tonnes of gold. Although in 2014, the Banca d’Italia released a document in which it confirmed that some of this gold is held at the Bank of England, there is no evidence to suggest that Italy’s gold in London amounts to more than a few tonnes left over from 1960s transactions.
Bank of England gold set-aside ledgers show that in 1969 there were less than 1000 ‘Good Delivery’ gold bars in the Banca d’Italia gold account at the Bank of England, weighing less than 400,000 ozs in total. This is equal to about 12 tonnes. Most of the Italian gold at the Bank of England was flown back to Rome (and Milan) in the 1960s.
Since there is no public documentation that Banca d’Italia has ever engaged in gold lending (as far as I am aware), then there would be no need for Italy to keep a lot of gold at the Bank of England. Nearly all of Italy’s foreign held gold (over 1,200 tonnes) looks to be in New York (assuming it hasn’t been swapped or used as loan collateral). Italy could have engaged in non-public gold transactions from the Bank of England using gold location swaps from the FRBNY, or from Rome, but there is no evidence of this.
So, this model assumes 12 tonnes of Italian gold is stored at the Bank of England.
Brazil hold 67.2 tonnes of gold reserves. In 2012, Banco Central do Brasil told me by email that all of its gold reserves were in the form of ‘fixed term gold deposits at commercial banks only’. Since the gold would be required to be stored at the Bank of England for these gold deposit transactions to take place, Brazil therefore holds 67.2 tonnes of gold at the Bank of England. See email below:
Banco Central del Ecuador conducted a 3 year gold swap with Goldman Sachs in June 2014 where it swapped 466,000 ozs for US dollar cash This swapped amount of gold has been factored into the World Gold Council data for Ecuador, and the Ecuadorian reserves dropped by 14.5 tonnes in Q2 2014. from 23.28 tonnes to 11.78 tonnes. This swapped amount of 14.5 tonnes is most probably stored at the Bank of England, since Goldman Sachs proposed a similar deal with Venezuela in 2014 where the gold was required to be at the Bank of England for the swap to be initiated.
Bolivia Central de Bolivia holds 42.5 tonnes of gold, all of which is permanently on deposit with bullion banks. The Bolivian Central Bank is very transparent in explaining where its gold is ‘invested’. Hence, it has (until recently) even provided in its financial accounts, the names of the bullion banks which happened to hold its ‘gold deposits’ and the amounts held by each bank.
A recent Banco Central de Bolivia report for 2014 is less revealing and only shows the country distribution of the gold deposits, with 39% in the UK and the rest in France. While this probably refers to the headquarters of the actual bullion banks in question, i.e. Natixis is French etc, it could mean the gold is being attributed to the Bank of England and the Banque de France, so, a conservative approach here is to attribute 39% of 42.5 tonnes to the Bank of England, i.e. 16.6 tonnes stored at the Bank of England.
Peru holds 34.7 tonnes of gold in its official reserves.
At the end of December 2013, Banco Central de Reserva del Peru held 552,191 ounces (17 tonnes) of gold coins which were stored in the Bank’s own vault, and 562,651 troy ounces of “good delivery” gold bars (17.5 tonnes) which were stored in banks abroad, of which 249,702 ounces were in custody and 312,949 ounces in the form of short-term interest bearing deposits. See 2013 annual report.
Since the gold bars are all ‘good delivery’ bars (which is not the case at the FRBNY), and since Peru has still recently been engaging in gold lending, then the evidence suggests that 17.5 tonnes of Peru’s gold is stored at the Bank of England.
Latvia hold 6.62 tonnes of gold in its official reserves after joining the Euro on 1 January 2014 and after transferring just over 1 tonne of gold to the European Central Bank (ECB). All of Latvia’s gold is stored at the Bank of England, therefore Latvia stores 6.62 tonnes of gold at the Bank of England.
Before this transfer of gold to the ECB, Latvia had 248,706 ozs of gold, and it transferred 35,322 ozs to ECB, leaving 213,384 ozs.
The ECB holds 504.8 tonnes of gold. This gold was transferred by the Euro members to the ECB at the launch of the Euro by 1 January 1999. All the ECB gold is de-centrally managed, meaning that it stays where it was when transferred and is still locally ‘managed’ by the bank which transferred that gold to the ECB. Some banks may have transferred gold stored at FRBNY in fulfillment of their requirement, some banks may have transferred gold at the BoE, and countries such as France and Italy may have transferred amounts which are still stored at Banque de France and Banca d’Italia etc. Some of the ECB gold, such as the smaller amount transferred by Latvia, is in the Bank of England. Other amounts of the ECB’s gold are most certainly also at the Bank of England in London.
It would be a separate project to track these transfers. The 1 tonne of Latvian gold transferred to the ECB at the start o 2014 was included in the figures here just as a placeholder, so as to acknowledge that ECB gold is at the Bank of England. Given that the Euro is a competing currency to the US Dollar, the ECB may have more gold than not stored in Europe and not at the Federal Reserve Bank of New York, since ECB gold would logically be safer not stored in the main Reserve Bank of a competing currency bloc.
In its 2014 annual report, the Bank of Iceland said that “The Bank resumed lending gold for investment purposes in June 2014“, and “The Bank loaned gold to foreign financial institutions during the year”.
The Bank of Iceland lent 99.7% of its gold during 2014 because this is the percentage of the gold reserves which are not payable on demand, but are payable in less than 3 months. See below screenshot.
For the purposes of this exercise, Iceland stores 2 tonnes of gold at the Bank of England.
Ghana’s central bank, the Bank of Ghana, holds 8.7 tonnes of gold in its official reserves (precisely 280,872.439 ozs). Of this total, 39.3%, or 3.42 tonnes is held at the Bank of England, with 27.5% at the Federal Reserve Bank of New York, and 29.5% with investment bank UBS. See 2014 annual report.
Interestingly, Ghana refers to its gold account at the Bank of England as a ‘gold set aside’ account, which is the correct name for a Bank of England gold custody account of allocated gold. Probably more interestingly is that most central banks do not use this ‘set aside’ term.
A number of central banks refuse to confirm the location of their gold reserves. I will document this in a future posting. Some of the large holders undoubtedly hold quite a lot of gold at the Bank of England, as do a number of smaller holders. Countries that could fit into this category include Spain, France, Colombia, Lithuania, Sri Lanka, Mauritius, Pakistan, Egypt, Slovenia, Macedonia, Malaysia, Thailand and South Africa. In fact any central bank which has engaged in gold lending is a candidate for having some of its gold stored at the Bank of England.
Spanish people take note. Spain refused to say where its 281.6 tonnes of gold is stored, and Banco de España has the dubious record of being Europe’s least transparent bank as regards gold reserves storage locations. Maybe a project for Spanish journalists.
Banque de France keeps 9% of its 2,435 tonnes of gold reserves abroad, and has in the past engaged in gold lending. So this 9%, or 219 tonnes, is probably stored at the Bank of England.
The ECB and BIS no doubt have more gold stored at the Bank of England than the figures currently reflect. This would also increase the ‘known gold’ total. Egypt is another country which has had a gold set aside account at the Bank of England so is in my view an obvious candidate for the list.
Adding to the known total is therefore a work in progress.
It’s now been 6 months since the LBMA Gold Price auction, the much touted replacement to the London Gold Fixings, was launched on an ICE Benchmark Administration (IBA) platform on Friday 20 March 2015.
For anyone not au fait with the gold price auction, the LBMA Gold Price is a twice daily auction that produces the world’s most widely used gold price benchmark, which is then used as a daily pricing source in gold markets and gold products across the globe.
The 6 month anniversary of the LBMA Gold Price’s launch thus provides an opportune time to revisit a few unresolved and little-noticed aspects of this recently launched auction a.k.a. global benchmark.
Manipulative Behaviour and the FCA
From 1 April 2015, the LBMA Gold Price also became a ‘Regulated Benchmark’ of the UK’s Financial Conduct Authority (FCA) along with 6 other systemically important pricing benchmarks, namely, the LBMA Silver Price, ISDAFix, ICE Brent, WM/Reuters fx, Sonia, and Ronia. These 7 benchmarks join the infamously manipulated LIBOR in now being ‘Regulated Benchmarks’.
Manipulating or attempting to manipulate prices in a Regulated Benchmark is now a criminal offence under the Financial Services Act 2012.
The specifics are set out in Chapter 8 of the FCA’s Market Conduct sourcebook (“MAR”), with the details on ‘identifying potentially manipulative behaviour’ covered in MAR 8.3.6 which says that a benchmark administrator must:
“identify breaches of its practice standards and conduct that may involve manipulation, or attempted manipulation, of the specified benchmark it administers and provide to the oversight committee of the specified benchmark timely updates of suspected breaches of practice standards and attempted manipulation“
“notify the FCA and provide all relevant information where it suspects that, in relation to the specified benchmark it administers, there has been:
(a) a material breach of the benchmark administrator’s practice standards
(b) conduct that may involve manipulation or attempted manipulation of the specified benchmark it administers; or
(c) collusion to manipulate or to attempt to manipulate the specified benchmark it administers.”
and furthermore that the arrangements and procedures referred to above:
“should include (but not be limited to):
(1) carrying out statistical analysis of benchmark submissions, using other relevant market data in order to identify irregularities in benchmark submissions; and
(2) an effective whistle-blowing procedure which allows any person on an anonymous basis to alert the benchmark administrator of conduct that may involve manipulation, or attempted manipulation, of the specified benchmark it administers.”
Section 91 of the UK Financial Services Act 2012 deems it a criminal offence to intentionally engage “in any course of conduct which creates a false or misleading impression as to the price or value of any investment” which creates “an impression may affect the setting of a relevant benchmark”.
Recent Manipulation of Auction Starting Price
All of these FCA rules and the criminalisation of price manipulation offences sound very good in principle.
“4. Findings since go-live: IBA shared with the Committee that:
• IBA, and some direct participants, had observed the price of futures spiking during the minutes immediately before the afternoon gold auction starts.
IBA are now de-emphasising use of the futures as a related market to consider when determining the starting price .”
The fact that IBA has deemed it necessary to follow this course of action (i.e. de-emphasise the use of futures as a starting price determinant), and the fact that some entity or entities have been pushing around futures prices as a means of influencing the LBMA Gold Price starting price suggests that nothing has changed in the gold market since the introduction of the new auction, and that the same players who were actively manipulating the gold price back in 2012 are still doing so, despite this becoming a criminal offence under UK law.
4.12. At the start of the 28 June 2012 Gold Fixing at 3:00 p.m., the Chairman proposed an opening price of USD1,562.00. However, the proposed price quickly dropped to USD1,556.00, following a drop in the price of August COMEX Gold Futures (which was caused by significant selling in the August COMEX Gold Futures market, independent of Barclays and Mr Plunkett).
“4.18. …before the price was fixed, there were a number of further changes in the levels of buying and selling in the 28 June 2012 Gold Fixing, which coincided with an increase in the price of August COMEX Gold Futures.
4.19. As a result of these changes, the level of buying at USD1,558.50 exceeded the level of selling (155 buying/45 selling), and the proposed price was likely to move higher. Given that the price of August COMEX Gold Futures was trading around USD1,560.00 at this time, if the Chairman did move the proposed price in the 28 June 2012 Gold Fixing higher, it was likely to be to a similar price level (which was higher than the Barrier).”
You can read the entire FCA account of the saga of the 28 June 2012 afternoon fixing here, and think about the consequences and meaning of the IBA move to de-emphasis futures prices and what it signals.
Publicly Available Procedures – Not!
Which brings us to the procedures for establishing the auction starting price and subsequent prices for each round of the auction. On 28 April 2015, the IBA LBMA Gold Price web page, under ‘Auction Process’, stated that:
“The chairperson sets the starting price and the price for each round based on publicly available procedures.“
I was interested in reading these publicly available procedures, and learning about the price sources and price hierarchies used within the set of price determinants, so on 28 April 2015, I emailed the IBA communication group and asked:
“I have a question on the LBMA Gold Price methodology.
On the IBA LBMA Gold Price web page (https://www.theice.com/iba/lbma-gold-price) under ‘Auction Process’, point 1 states that “The chairperson sets the starting price and the price for each round based on publicly available procedures“.
Can you direct me to where these ‘publicly available procedures’ are view-able?
Incredibly, IBA received my email that day, and then changed point 1 under ‘Auction Process’ by deleting the original reference to ‘publicly available procedures’ and by copying and pasting in the FAQ answer that I had referred to about ‘in line with current conditions and activity in the auction.”
IBA then responded to my email on the same day, 28 April, without answering the question. The IBA response was:
“Please note the updated text: ‘The chairperson sets the starting price and the price for each round in line with current market conditions and the activity in the auction’. Thank you for pointing this out.“
So, not only did IBA avoid explaining the ‘publicly available procedures‘, they also covered it up and had the cheek to thank me for pointing it out to them. You can see for yourself the reactionary and firefighting tactics used by IBA in perpetuating non-transparency.
Furthermore, the fact that the original web page said that the procedures were publicly available and then they pulled it suggests that at least someone with responsibility in IBA, maybe naively, originally had been of the view that the pricing procedures were to be publicly available.
I emailed IBA again and said:
“This FAQ answer (to the question “How are the prices set for each round of the auction?) doesn’t really explain anything at all.
My question though is, apart from this one line FAQ answer, are there no more in depth ‘publicly available procedures’ available that explain how the opening price is set, what the price sources used are, what pricing hierarchy is used to select an opening price etc..?”
I’ve looked on your web site and in the FAQs and can’t find them. The only brief reference to price determination in the FAQs is that the chairperson”sets the price in line with current market conditions and activity in the auction.”
To which IBA replied:
“This information is not available on our website. However, as you seem to have a few questions, would you be interested in me setting up an off the record briefing with IBA in the next few weeks?”
I did not take IBA up on that offer since I do not think that an off the record briefing is appropriate for something that should be in the public domain. It also highlights the extent to which the vast majority of the financial media are happy to use unidentified sources, off the record briefings, and quotes, and willingly act as the mouthpieces for entities that they are too scared of offending lest they will not get ‘access’ to write their next regurgitated press release for, nor get invited to that entity’s Christmas party.
“‘The names of those selected to oversee ICE’s new gold price benchmarking process will not be disclosed, Finbarr Hutcheson, president of ICE Benchmark Administration (IBA), said.
“We are keeping that anonymous – we don’t think that it’s meaningful to the marketplace to know who’s running that auction and, frankly, the more we kind of feed the story, there’s just going to be more speculation around that,” he said at a briefing at its offices here.
“There’s a legitimate desire to know but actually we don’t want this process to focus on any individual or names of people,” he added.
Not “meaningful to the marketplace to know who’s running the auction“? What sort of statement is that in a free market? If there is a legitimate desire to know, as Hutcheson concedes there is, then why hide the identities?
If anyone needs reminding, the predecessor to the LBMA Gold Price auction was a trading process which, on 23 May 2014, the UK Financial Conduct Authority (FCA) saw fit to fine Barclays £26 million “for failings surrounding the London Gold Fixing.” This was also the first and only precious metals trading process in the UK ever to receive a fine from the FCA.
I would suggest that given the history of a ‘proven to have been manipulated daily gold price auction’, whose successor on launch day primarily consisted of the 4 incumbent participants that comprised the previous Gold Fixings auction (including Barclays), then it certainly is meaningful to the marketplace to know who’s running the new auction.
“’We have a panel of chairpeople that we are going to use and we have internal expertise as well on that, but we are not disclosing the names of those chairmen,’ Hutcheson said. “It will rotate through the panel but we have a significant bench of available external expertise with back-up if you like.”
Hutcheson declined to name how many chairpeople are on the panel.
But if the oversight committee were to feel that it was appropriate for the names to be disclosed, this stance may change, he suggested.”
And why would the oversight committee feel it to be appropriate or not to divulge the names of the chairpersons of the most important gold pricing benchmark in the world?
The Changing of the Guard
Its interesting to see how ICE Benchmark Administration’s description of the chairpersons evolved over a short period after the LBMA Gold Price auction was launched on 20 March.
This was the initial version of the ICE IBA web site description of the Chairperson on 20 March (see screenshot 1 below also):
“The chairperson has extensive experience in the gold market, and is appointed by IBA, and therefore independent of the auction process.”
A week later, a revised, more lengthy version of the Chairperson description had appeared on the ICE IBA web site (see screenshot 2 below also):
“The Chair is appointed by IBA and is independent of any firm associated with the auction, including direct participants. The chair is externally sourced, but works with the IBA team to deliver a robust process for determination of the LBMA Gold Price.”
The Chair facilitates the determination of the LBMA Gold Price by providing his extensive market experience to assist in setting the price in each round of an IBA gold auction.”
By July, the second paragraph of the second version above had been changed to read:
“Both the initial and subsequent round prices are selected by the Chair using their extensive market experience and applied based on an agreed pricing framework.”
So, there is a panel of chairpeople, as Hutcheson told Bulliondesk, who are 4 ‘ex-bankers’ according to Reuters, and who have ‘extensive experience in the gold market’ according to the IBA web site. So these people were previously bankers (which means investment bank staff) who gained their experience of the gold market in investment banks, and who have extensive knowledge of how a gold auction works, and since they are working with London-based IBA on a London-based daily auction, the chairpersons are either London-based or live proximate to London. And finally, according to one of the web site versions above, it’s a ‘He’ or set of ‘Hes’ so we know they are male.
And yet these same people are said to be “independent of any firm associated with the auction, including direct participants.”
Given that there are now 11 direct participants in the LBMA Gold Price auction, namely, Barclays, Bank of China, Goldman Sachs, HSBC Bank USA, JPMorgan Chase Bank, Morgan Stanley, Societe Generale, Bank of Nova Scotia – ScotiaMocatta, Toronto-Dominion Bank, Standard Chartered and UBS, how could ex-bankers based in London with extensive experience of the gold market collectively be independent of all of these banks?
And that’s just the direct participants. What about all the firms associated with the auction, for example, indirect participants who route their auction orders via direct participants?
It would be interesting to hear what IBA and the LBMA define as ‘independent’. Is there any precedent on a definition of ‘independent’ for persons connected to a daily gold auction? Luckily, there is.
“appoint up to two independent qualified individuals to serve on the Committee. A person will be considered to be independent for the purposes of these Terms of Reference if he/she is not, and has not been at any time in the preceding year, an employee or consultant of any Member and does not otherwise have a personal interest in the fixing price or the Fixing Process.”
While this document was referring to a committee whose Members were the directors of the banks running the former auction, at least there is some semblance of a definition of the concept of ‘independent‘ when applied to a gold auction.
So using that yardstick, it would be interesting to measure up the ex-banker chairpersons in the current auction as to how long exactly have they and their handler have been ‘ex’ bankers. Less than a calendar year before 20 March 2015 (i.e. 01 January 2014) would not cut it under a “has not been at any time in the preceding year, an employee or consultant of any Member” test.
And it also begs the question, why is the automated algorithm alluded to by ICE not being used in this LBMA Gold Price auction instead of a human chairperson?
Chairperson description 1
Chairperson description 2
Chairperson description version 3
You will notice from the first description screenshot of the chairperson (above) that on 20 March 2015, ICE IBA stated that:
“Feedback from the market is that the price in the first round of the auction, as well as the prices for the following rounds, is of paramount importance.
As a result, BA has appointed a chairperson from Day 1. In due course, IBA will evaluate developing an algorithm in consultation with the market.“
Then notice that in the second version screenshot about the chairperson, there is no mention of any algorithm. It just vanished.
A slightly different version of the algorithm text appeared in the IBA gold price FAQ document published at launch time:
“Why are you using a Chairperson and not an algorithm for day one?
Feedback from the market is that the setting of the initial price of the first round of the auction, as well as prices for the following rounds, are important. As a result, it is appropriate to have a Chairperson on day one. In due course, IBA will consult on automating the auction process using an automated algorithm.”
A point of information at this juncture. When IBA and LBMA refer to ‘the Market’ they are referring exclusively to LBMA members of the wholesale gold market and not to any of the other hundreds of thousands of global gold market participants who rely on the LBMA Gold Price benchmark as a pricing source. In fact it seems that ‘the Market’ means whatever the LBMA Management Committee decide it means.
It is also worth pointing out that many of the LBMA’s claims on consulting ‘the Market’ are just empty rhetoric, and the consultations are purely for window dressing for decisions that they have already decided on, a case in point being the EY bullion market review commissioned by the LBMA earlier this year that was announced on 27 April and wrapped up by June 2015. This is not too dissimilar to the way FIFA operates, as one correspondent pointed out.
In the case of the above ‘feedback from the market’ about wanting a chairperson, this could very well mean the 4 members of London Gold Market Fixing Limited (LGMFL) who all transitioned from the old auction to the new auction as if nothing had changed. It appears that they did not want anything to change. The old London Gold Fixing with 4 members had a chairperson (most recently Simon Weeks from Scotia) who rotated annually through the directors of (LGMFL), i.e. from Barclays, Scotia Mocatta, HSBC and SocGen.
Finbarr Hutcheson had also referred to this price calculation ‘Algorithm’ on 19 March, the day before the LBMA Gold Price launch. To quote Bulliondesk again:
“The panel of the independent chairs will be responsible for overseeing the process although ICE has indicated that it will be looking to make the process electronic in future.“
The LBMA Silver Price Algorithm
The LBMA Silver Price auction has a separate administrator, Thomson Reuters and a separate platform provider, CME Group. Thomson Reuters has this to say about the opening price on page 8 of its LBMA Silver Price methodology guide:
3.7 Starting Price
The auction platform operator (CME Benchmark Europe Ltd) is responsible for operating the LBMA Silver Price auction, including entering the initial auction price.
The initial auction price value is determined by the auction platform operatorby comparing multiple Market Data sources prior to the auction opening to form a consensus price based on the individual sources of Market Data. The auction platform operator enters the initial auction price before the first round of the auction begins….
For intra-auction prices for each round, the methodology guide says that:
3.8 Manual Price Override
In exceptional circumstances, CME Benchmark Europe Ltd can overrule the automated new price of the next auction round in cases when more significant or finer changes are required. When doing so, the auction platform operator will refer to a composition of live Market Data sources while the auction is in progress.
In the LBMA Silver Price methodology, only the first round is manually input. Subsequent rounds are calculated automatically by the ‘platform’. See page 7 of the guide:
“3.4 End of Round Comparison
[bullet point 2] If the difference between the total buy and sell quantity is greater than the tolerance value, the auction platform determines that the auction is not balanced, automatically cancels orders entered in the auction round by all participants, calculates a new price, and starts a new round with the new price.”
So this is different to the LBMA Gold Price where:
“The chairperson sets the starting price and the price for each round in line with current market conditions and the activity in the auction.”
Six months after the fanfare launch on 20 March 2015, unanswered questions remain:
How robust is the LBMA Gold Price auction mechanism, when within 3 months of launch date, IBA have to tinker with the price sources used to determine the starting price, and de-emphasise one price source due to volatile and seemingly delibrately manipulative futures price movements?
Why does the LBMA Gold Price auction needs a human chairperson throughout the auction and the LBMA Silver Price does not?
What happened to the plans for introducing an algorithm into the auction?
Why have ICE gone to great lengths to prevent the public knowing the identities of the chairpersons?
Why did ICE backtrack on a reference to ‘publicly available procedures‘ that would have explained how the starting price and round prices are determined?
What’s going to happen when the initial six months of the chairpersons’ rotating duties run out on Monday 21 September, as Reuters alluded to back in March?
To that list some further questions could be added:
Where are the Chinese banks ICBC and China Construction, Bank which both expressed interest in becoming direct participants in the LBMA Gold Price auction, going to join?
Where are all the gold mining and gold refining entities that have expressed interest in being direct participants going to join, participants that the ICE auction platform can accommodate right now?
When will the LBMA Gold Price auction move to central clearing on an exchange distinct from LMPCL’s monopoly on clearing predominantly unallocated metal?
When will the prohibitive credit lines enforced by the LBMA be removed as as to allow other non-bank participants to directly participate in the auction without maintaining credit arrangements with the incumbent bullion banks?
These are just some of the questions which financial journalists cannot bring themselves to write about when covering this topic.
Each year in June, the Bank of England publishes its annual report which quotes financial data up to the end of February (its financial year-end). The Bank’s annual report also states the amount of gold, valued at a market price in Pounds sterling, that it holds under custody for its customers, which comprise central banks, international financial institutions, and LBMA member banks.
The Bank of England as gold Custodian
In 2014, the Bank of England stated that, as at 28th February 2014, it held gold assets in custody worth £140 billion for its gold account customers, while in 2013, the corresponding figure was £210 billion. In June 2014, Koos Jansen of Bullionstar calculated that the Bank of England therefore held 5,485 tonnes of customer gold at the end of February 2014, and 6,240 tonnes of customer gold at the end of February 2013. This meant that between the two year end dates, end of February 2013 to end of February 2014, the amount of gold in custody at the Bank of England fell by 755 tonnes.
In his personal blog in June 2014, Bron Suchecki of the Perth Mint, also discussed the 2013 and 2014 Bank of England gold custody tonnage numbers, and derived the same 755 tonne drop between February 2013 and February 2014, and he also went back all the way to 2005 and calculated yearly figures for each February year-end from 2005 to 2014. (See table in Bron Suchecki’s blog).
Bank of England gold in custody down another 350 tonnes during 2014
“As of 28 February 2015, total assets held by the Bank as custodian were £514 billion (28 February 2014: £594 billion), of which £130 billion (28 February 2014: £140 billion) were holdings of gold.”
Since 28th February 2015 was a Saturday, the afternoon London Gold Fixing price in GBP on Friday 27th February 2015 was £787.545 per ounce.
£130 billion @ £787.545 per ounce = 5134.37 tonnes = ~ 410,720 Good Delivery bars
This means that between 28th February 2014 and 28th February 2015, the amount of gold stored in custody at the Bank of England fell by another 350 tonnes, from 5,485 tonnes in February 2014, to 5,134 tonnes on 28th February 2015.
Now only 500,000 bars in the entire London vaults system
“In total there is approximately 9,000 tonnes of gold held in London vaults, of which about two-thirds is stored in the Bank of England.”
So that earlier reference would have been (9000 * 0.66) or 6,000 tonnes in the Bank of England and 3,000 tonnes in the other vaults. To summarise:
9,000 tonnes in all London vaults = 720,000 bars
6,000 tonnes in Bank of England (BoE) = about 482,000 bars
3,000 tonnes in London ex BoE vaults = 238,000 bars
7,500 tonnes in all London vaults = ~600,000 bars => lost 120,000 bars (1500 tonnes)
5,625 tonnes in Bank of England = ~ 450,000 bars => lost 32,000 bars (375tonnes)
1,875 tonnes in Ldn ex BoE vaults = ~150,000 bars => lost 88,000 bars (1125tonnes)
Third quotation: June 2015
“There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion”
The London vaults refer to at least the LBMA London vaults, and may include other non-LBMA gold vaults in London, depending on how the LBMA collected these figures from the vault operators. Apart from the Bank of England gold vaults, the LBMA ‘London’ vaults, are the vaults of JP Morgan and HSBC Bank in the City of London, the vaults of Brinks, Malca Amit and Via Mat (Loomis) out near Heathrow, and the vault of G4S in Park Royal, and not to forget the Barclays vault which is run by Brinks.
In the cases of the 9,000 tonnes and 7,500 tonnes quotations, the tonnage figures and the fractions are probably rounded to an extent for simplicity, so are ballpark figures, but a comparison between the two earlier quotations indicates that the Bank of England lost 375 tonnes, and the rest of the London vaults lost 1,125 tonnes. In total that’s 1,500 tonnes less gold in London between the time the first figure was complied and the time the updated (second) figure was published.
Factoring in the “There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion“ quotation, which equates to 6,250 tonnes, this means that another 1,250 tonnes of gold (approximately 100,000 Good Delivery bars) has now gone from the London gold vaults compared to when there was 7,500 tonnes of gold in the London vaults, as quoted on the vaulting page of the LBMA’s web site as recently as earlier this year.
A total of 6,250 tonnes is also 2,750 tonnes (about 220,000 Good Delivery bars) less than the 9,000 tonnes quoted on the LBMA web site in April 2014, which may have referred to a period earlier than 2014.
All of the gold in the Bank of England would be London Good Delivery bars (i.e. variable weight bars each weighing about 400 oz or 12.5kgs), and most, if not all, of the gold in the other London vaults would also be London Good Delivery bars, because importantly, all the gold held by the ETFs in London, primarily the SPDR Gold Trust at the HSBC vault in London, is required by the ETF prospectuses to be in the form of London Good Delivery gold bars.
In fact, Stewart Murray, the then CEO of the LBMA stated at a presentation held in Paris in November 2011 that the gold in the London vaults was “Virtually all in the form of Good Delivery bars”, although by August 2015, a very recent presentation (slow file to load) by current LBMA CEO Ruth Crowell in Goa India, stated that, in the London gold market, “Almost all gold is held in the form of Good Delivery bars“.
Symantics maybe between ‘virtually‘ and ‘almost all‘, but there are probably some kilobars held in the London gold vaults now that might not have been as common in 2011. Note that the LBMA and the Shanghai Gold Exchange recently executed a mutual recognition agreement for a 9999 gold kilobar standard, so each body now recognises the kg bars manufactured by all of the gold refiners that each body has accredited.
The LBMA has also recently made reference to a potential 995 gold kilobar standard which it has referred to as a ‘draft for discussion and possible endorsement”. See the Goa presentation from Ruth Crowell, above.
What time period did 9,000 tonnes refer to?
LBMA launched a new version of its website in approximately March 2014. It’s not clear what exact month this 9,000 tonnes of gold in the London vaults figure refers to, but a lot of the text on the new LBMA website in 2014 was already on the previous version of the website prior to the revamp, so the tonnages specified on the new website in April 2014 could have been on the previous version of the website before April 2014 and merely been copied across to the new website. However, there is a way to infer the latest date at which the 9,000 tonne figure could have been referring to.
“At our premises at Threadneedle Street, London, we have approximately £200 billion worth of gold stored over 10 vaults.”
On 11th March 2013, the GBP price for an ounce of gold was £1059 (average of AM and PM fixes in Sterling). At £1059 per oz, $200 billion of gold is 188,857,412 ounces, or 5,874 tonnes, or about 469,940 Good Delivery bars.
Recalling the two totals discussed above at the Bank of England of 6,000 tonnes and 5,625 tonnes, this 5,874 tonnes figure is quite close to being halfway between 6000 and 5625 (i.e. 6000 + 5625 / 2 = 5812.5 tonnes). So its realistic to assume that Luke Thorn’s number lay somewhee in time between the two LBMA quotations, and that therefore, the 6,000 tonnes total at the Bank of England, and by extension the 9,000 tonne total in all London vaults, most likely referred to the state of the London gold market before 11 March 2013.
In other words, the 9,000 tonnes in the London vaults, and the 6,000 tonnes in the Bank of England, were referring to the amount of gold in the London vaults before the major drop in the gold price in April 2013 and June 2013, and before the huge 2013 withdrawals of gold from the gold ETFs which store their gold in London, and before most of the 755 tonnes of gold was withdrawn from the Bank of England (BoE) between 28th February 2013 and 28th February 2014.
Only 90,000 Good Delivery bars outside BoE vaults – this includes all London ETF gold
If there are now only 500,000 Good Delivery bars in the London vaults, as LBMA CEO Ruth Crowell’s presentation of June 2015 states, then with 410,000 Good Delivery gold bars in the Bank of England vaults (5,134 tonnes from 28th February 2015), then there are only 90,000 Good Delivery gold bars in the other London gold vaults, which is 1,125 tonnes.
Not only that, but nearly all of this 1,125 tonnes in the other London vaults is gold belonging to the physical gold-backed ETFs which store their gold in London. The ETFs that store their gold bars in London are as follows:
(Note: PHAU and PHGP are the same ETF. They are just two ISINs of the same underlying ETF. PHAU is in USD, PHGP is in GBP. The same structure applies to the other ETF Securities ETF known as GBS. GBS and GBSS are the same ETF. GBS is the USD ISIN and GBSS is the GBP ISIN).
The SPDR Gold Trust (GLD) currently holds 682 tonnes of gold in the vault of HSBC in London. That leaves only 443 tonnes of gold from the 1,125 tonnes above that is not in the GLD.
The iShares Gold Trust (IAU) gold is held in 3 vaults in 3 countries, namely the JP Morgan vault in London, the JP Morgan vault in New York, and the Scotia vault in Toronto. On the surface, this is an unusual vaulting arrangement for IAU. This arrangement just arose due to the way the IAU prospectus was worded in 2004, and the way the original iShares Gold Trust custodian, Scotia Mocatta, stored the gold in London, New York and Canada. JP Morgan took over as custodian for IAU in the second half of 2010, and just maintained this 3 vaults in 3 countries arrangement for whatever reason. Some of the Authorised Participants of IAU include Barclays, Citibank, Credit Suisse, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, Scotia, and UBS.
In the JP Morgan vault in London, IAU currently holds 7,265 Good Delivery gold bars (2.907 million ounces), which is 90 tonnes. That leave only 353 tonnes in the London vaults, that is not at the Bank of England, not in the SPDR Gold Trust, and not in the iShares Gold Trust.
As of 3rd September 2015, the ETFS Physical Gold ETF (PHAU)held 3,271,164 troy oz of gold in London at HSBC’s vault. That’s 101.7 tonnes in PHAU, which leaves only 251 tonnes unaccountedfor in the London vaults.
There is also another ETFS physical gold ETF called Gold Bullion Securities (GBS) which also holds its gold in the HSBC London vault. As of 3rd September 2015, GBS held 2,233,662 troy oz of gold. That’s 69 tonnes. Subtracting this 69 tonnes from the residual 251 tonnes above, leaves only 182 tonnes of unaccounted for gold in the London vaults.
Some of the Authorised Participants of the ETFS ETFs are Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Merrill Lynch, Morgan Stanley, Scotia, and UBS.
The ‘Source Physical Gold ETC (P-ETC)‘ also stores its allocated gold in the JP Morgan vault in London. This gold is held for the trustee Deutsche Bank by the custodian JP Morgan Chase. The Authorised Participants for this Source ETC are Goldman Sachs, JP Morgan, Bank of America, Morgan Stanley, Nomura and Virtu Financial. According to a Source gold bar list dated 28th August 2015, the Source Physical gold ETC held 1.571 million fine ozs of gold in bars that weighed 1.574 million gross ozs, so that’s about 3,925 Good Delivery bars, which is about 49 tonnes.
Subtracting this 49 tonnes from the remaining 182 tonnes above, which are not held within the Bank of England, and which are not held by the other physically backed gold ETFs described above, leaves only 133 tonnes of unaccouted for gold in the London vaults.
Other companies store some of their customer gold in the London vaults, such as GoldMoney and BullionVault. Based on its daily update, BullionVault had 6709 kgs of gold, or 6.7 tonnes, stored in London, while GoldMoney, based on an audit from 1st December 2014, had 410 Good Delivery bars, or about 5.14 tonnes, stored in Via Mat’s (Loomis) London vault. Combined, that’s another ~14 tonnes of gold which can be substracted from the 133 tonnes above, leaving only 119 tonnes that is not accounted for.
To put a figure such as 119 tonnes of gold into perspective, this is about the same amount as 1-2 weeks worth of gold withdrawals from the Shanghai Gold Exchange, or about 1 month’s worth of official gold imports into India.
Unallocated Musical Chairs, without any chairs
In a May 2011 presentation at the LBMA Bullion Market Forum in Shanghai, while discussing London gold vaults, former LBMA CEO Stewart Murray had a slide which read:
Investment – more than ETFs
Gold Holdings have increased by ~1,800 tonnes in past 5 years, almost all held in London vaults
Many thousands of tonnes of ETF silver are held in London
Central banks hold large amounts of allocated gold at the Bank of England
Various investors hold very substantial amounts unallocated gold and silver in the London vaults
There are 2 interesting things about the above slide. If central banks ‘hold largeamounts of allocated gold at the Bank of England”, which totalled 6,000 tonnes and then 5,625 tonnes, and more recently 5,134 tonnes, and if this is a proxy for an amount being ‘large’, then the 2nd statement with the quantum “very substantial amounts’ and especially the qualifier ‘very’, implies that the unallocated amounts represent larger amounts than the ‘allocated’ amounts, perhaps ‘very’ much larger amounts.
That 2nd statement is also a contradiction in terms. Unallocated gold is not necessarily held in vaults or held anywhere. Unallocated is just a claim against the bank that the investor holds an unallocated gold account with. There are no storage fees on an unallocated gold account in the London Gold Market precisely because one cannot charge a storage fee when there is not necessarily anything being stored.
So the ‘very substantial amounts‘ being held really means that investors have very substantial amounts of claims against the banks which offer the unallocated gold accounts, or in other words, the banks have very substantial liabilities in the form of unallocated gold obligations to the gold account holders. As to how much physical gold is on the balance sheets of the banks to cover these liabilities, if the figure of 500,000 bars in the entire set of London vaults is accurate, then there is hardly any gold in London to cover the unallocated gold accounts.
LBMA Member gold accounts at the Bank of England
A 2014 quarterly report of the Bank of England said that 72 central bank customers (including a smaller number of official sector financial organisations) held gold accounts with the Bank of England. That reference is on page 134 of the report, however, a small subset of the report, including page 134 can be viewed here (and is not a large file to download).
“The Bank of England acts as gold custodian for about 100 customers, including central banks and international financial institutions, LBMA members and the UK government.”
If central bank customers with gold accounts, whose numbers would not change that much from 2011 to 2014, represented ~72 gold accounts, that would mean that up to 28 LBMA members could have gold accounts at the Bank of England.
Is that number of LBMA member bullion banks a feasible number for maintaining a gold account at the Bank of England? Yes it is, primarily because of the gold lending market, but also due to the way the London gold clearing market works.
Bolivia’s gold and the Bullion Banks
Just as an example, the Central Bank of Bolivia’s gold that it lent to bullion banks in 1997 and that has never been returned to the Central Bank of Bolivia, has gone through the hands of at least 28 bullion banks between 1997 and the present day. These entities, some of which have merged with each other (*), and a few of which imploded, include Swiss Bank Corp*, Republic National Bank of New York*, Midland Bank (Montagu)*, Credit Suisse, SocGen, Natixis, BNP Paribas, Standard Chartered, ANZ, Scotia Mocatta, Barclays, Morgan Stanley, HSBC, Macquarie, Deutsche, Dresdner*, Bayerische Landesbank, Westdeutsche Landesbank*, JP Morgan*, Commerzbank*, Citibank, Rabobank, Morgan Guaranty* and Bayerische Vereinsbank. The IBRD (World Bank) even took on to its books the borrowed gold positions of the bullion banks during the financial crisis in 2009 because it had a higher credit rating than the investment banks after the Lehman crisis.
The lent gold of Central American banks during the 2000s, such as the gold of Guatemala, El Salvador, Honduras and Nicaragua, had been on the books of additional banks Mitsui & Co, J Aron (Goldman), Mitsubishi, AIG, and N.M. Rothschild. Bullion banks ebb and flow as to their involvement in the gold market, and some merge and go bust or get forceably rescued and shoved together, but a lot of other banks are also LBMA members that are not in the aforementioned names, such as RBC, ICBC Standard Bank, Toronto Dominion Bank, Merrill Lynch and Zurcher Kantonalbank, not to mention the other Chinese and Russian bank members of the LBMA. So overall, it is quite conceivable that 28 LBMA member bullion banks each have a gold account at the Bank of England.
How much gold did the London-based gold ETFs lose in 2013
The year 2013 was a year of huge gold outflows from the gold backed ETFs. Of the ETFs based in London, or more correctly, the ETFs with gold stored in London, the gold outflows were as follows:
The SPDR Gold Trust had an outflow of 561 tonnes of gold in 2013. It started 2013 holding 1,349 tonnes of gold, and ended 2013 with 798 tonnes. At the end of March 2013, GLD held 1,221 tonnes, at the end of Q2 it held less than 1000 tonnes (passing through the 1000 tonne barrier on 18th June 2013. By the end of Q3 2013 (actually on 2nd October 2013) GLD held 900 tonnes. Then by the end of 2013 its gold holdings dipped below 800 tonnes. During 2014, GLD lost another 80 tonnes, taking it to 709 tonnes at December month-end 2014.
In Q2 2013, GLD was hammered. Its gold holdings went from 1,221 tonnes to 1078.5 tonnes in April, a loss of 143 tonnes, then down to 1,013.5 tonnes at the end of May, another 62 tonnes loss, and by the end of June it held 969.5 tonnes, a June loss of 43.5 tonnes. Overall in Q1 2013, GLD lost 128 tonnes, then 249 tonnes in Q2 (and 379 tonnes in H1), then 100 tonnes in Q3, and another 100 tonnes in Q4 2013 (200 tonnes in H2). The near rounded 100 tonne withdrawals from GLD in both Q3 and Q4 2013 are uncanny. As if someone said “let’s take another 100 tonnes out of GLD this quarter”.
The iShares Gold Trust (IAU) lost approximately 60 tonnes of gold in 2013. Assuming the mix of IAU gold holdings in 2013 across London, New York, and Toronto was the same as it is now (i.e with 56% of the gold in London, 41% in New York, and 3% in Toronto, then IAU would have lost about 34 tonnes from London. More of the IAU gold probably flowed out of the JP Morgan’s London vault in 2013 than the other IAU storage locations, because London is the world’s main gold market for Good Delivery bars, and furthermore, that is where the gold.
ETF Securities’ PHAU lost 52 tonnes in 2013. ETS Securities GBS ETF lost 42 tonnes. The ‘Source’ Gold ETF lost 31 tonnes.
The above shows that (561 + 34 + 52 + 42 + 31) = 720 tonnes of gold was withdrawn from London gold vaults in 2013 via ETF gold redemptions. About 880 tonnes of gold in total was withdrawn from gold backed ETFs in 2013 but some of this was from ETF’s based in Switzerland and elsewhere.
Remember that the only entities which can usually redeem gold from gold backed ETFs are the Authorised Participants (APs), which in nearly all cases are the same banks as act as custodians or sub-custodians for those ETFs, and these are also the same banks that either have vaults in London or that have vaulting facilities in London, and these banks are also in a lot of cases members of the private gold clearing company London Precious Metals Clearing Limited (LPMCL) and lastly, these banks all hold gold accounts at the Bank of England.
Can ETF gold, such as GLD gold, be held in the Bank of England vaults?
Recalling that the amount of gold withdrawn from the Bank of England between 28th February 2013 and 28th February 2014 was 755 tonnes, can any of the gold that was withdrawn from the ETFs in 2013 have been the same gold that was in these the Bank of England withdrawals in 2013?
The answer is that technically, it can’t be the same gold because the ETFs are supposed to store their gold at the vault premises of the specified custodian. ETF gold can be stored at a vault of a sub-custodian, but has to be physically transferred to the vault of the custodian using “commercially reasonable efforts”.
“Custody of the gold bullion deposited with and held by the Trust is provided by the Custodian at its London, England vaults. The Custodian will hold all of the Trust’s gold in its own vault premises except when the gold has been allocated in the vault of a subcustodian, and in such cases the Custodian has agreed that it will use commercially reasonable efforts promptly to transport the gold from the subcustodian’s vault to the Custodian’s vault, at the Custodian’s cost and risk.”
The subcustodians that the SPDR Gold Trust currently uses (and that it used during 2013) are “the Bank of England, The Bank of Nova Scotia-ScotiaMocatta, Barclays Bank PLC, Deutsche Bank AG, JPMorgan Chase Bank and UBS AG.”
These banks, along with HSBC, but excluding Deutsche Bank, are the 5 members of London Precious Metals Clearing Limited (LPMCL). (Although the GLD Sponsor might want to think about deleting Deutsche Bank from the list).
Shockingly, the GLD Prospectus also says that:
“In accordance with LBMA practices and customs, the Custodian does not have written custody agreements with the subcustodians it selects.”
The GLD prospectus goes on to explain that LBMA custodians are obliged to provide gold holder entities with details (including locational details) of the gold that they or their subcustodians hold on behalf of a relevant entity gold holder that enquires, but this is just based on “LBMA practices and customs”. It also states:
” Under English law, unless otherwise provided in any applicable custody agreement, a custodian generally is liable to its customer for failing to take reasonable care of the customer’s gold and for failing to release the customer’s gold upon demand.”
Coming from a background of equity and bond portfolio management, I find the fact that there are no custody agreements with the GLD gold subcustodians very odd. Custodians of financial assets such as Citibank, PNC, Northern Trust, and State Street, would all insist on having custody agreements with each other when appointing sub-custodians. To organise it in any other way is crazy.
This is something that GLD institutional and hedge fund investors should enquire about with World Gold Trust Services (the SPDR Gold Trust Sponsor) when performing their next set of due diligence exercises on the GLD, just to make sure they understand how the sub-custodian arrangements work. It does look like the gold in the LBMA system is acting like one big happy pool of gold..like the 1960s London Gold Pool.
All of the GLD annual and quarterly filings for 2013 and every year state, in the ‘Results of Operations” section, that “As of [Date], Subcustodians held nil ounces of gold in their vaults on behalf of the Trust.” For example:
“As at September 30, 2013, subcustodians held nil ounces of gold in their vaults on behalf of the Trust.”
The same is true for December 31, June 30, 2013, and March 31, 2013. The annual full gold bar audit undertaken on the SPDR Gold Trust would also suggest that no GLD gold is stored at sub-custodians, including the Bank of England. For example in the full 2013 GLD gold bar audit (click the exact link here -> //www.spdrgoldshares.com/media/GLD/file/Inspectorate_Certificate_Aug30_2013.pdf), it states that the location of the audit was the “London Vaults of HSBC Bank USA National Association“:
“We performed a full count of 77,709 bars of gold, based upon the gold inventory as at 28th June 2013, between 8th July and 29th August 2013 at the Custodian’s premises”
The bars were described as “77,709 London Good Delivery, large Gold Bars”. There is also a separate partial audit on the GLD gold bars each year. The earlier partial audit of GLD in March 2013 stated that there was a random audit of the “105,840 London Good Delivery, large Gold Bars” held by the GLD “based upon the gold inventory as at 22nd February 2013, between the 4th March and 15th March“. This audit was also specified as occurring at the “London Vaults of HSBC Bank USA National Association”.
Although I don’t think the HSBC London vault was big enough to store all the GLD gold during 2013 when it held up to 1353 tonnes, as well as storing the ETFS Securities gold and other HSBC customer gold , the GLD audits and SEC filings seem to indicate that all the GLD gold was at the HSBC London vault.
Incidentally, the ETF Securities gold ETFs which also use HSBC as custodian, specify a list of subcustodians that includes the commercial security companies Brinks, Malca Amit and Via Mat (Loomis) in addition to the LPMCL members:
“The Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, N.A., UBS AG, Barclays Bank PLC, Brink’s Global Services Inc., ViaMat International and Malca-Amit Commodities Ltd.”
As the Perth Mint’s Bron Suchecki pointed out in his personal blog in June 2014, central banks were net buyers of gold during 2013, not net sellers, so it appears that it was LBMA member banks with gold accounts at the Bank of England that were withdrawing gold bars from the Bank of England during 2013. Even the gold repatriated by the Central Bank of Venezuela in late 2011 and early 2012 appears to have been flown to Caracas from France and not from the Bank of England.
From March 2006 until February 2011, the amount of gold stored in custody at the Bank of England’s gold vaults rose by 2,065 tonnes (See Bron Suchecki’s table at the previous link). It then dipped by 68 tonnes from March 2011 to February 2012 before rising by another 722 tonnes from March 2012 to February 2013. That was a net 2,719 tonnes increase from March 2006 to February 2013. What percentage of this increase in custody gold holdings at the Bank of England was delivered by central bank customers and what percentage was delivered by LBMA bullion bank customers is unclear.
Then, as mentioned above, 755 tonnes of gold was withdrawn from the Bank of England between March 2013 and February 2014, and 355 tonnes withdrawn from March 2014 to February 2015.
If the ~720 tonnes of gold withdrawn from the gold backed London-based ETFs is not the same gold as was withdrawn from the Bank of England, then this means that (720 tonnes + 755 tonnes) = 1475 tonnes of London Good Delivery bars came out of the London market in 2013.
Which is very interesting, because the UK exported approximately 1,400 tonnes of gold to Switzerland during 2013 (Eurostat – HS Code 7108.1200 “Unwrought Gold” – Source www.sharelynx.com).
“Australian bank Macquarie, citing trade data from EU statistics agency Eurostat, said the UK exported 1,739 tonnes of gold in 2013, with the vast majority sent to Switzerland.”
There is a possibility, as Bron Suchecki mentioned, that some of the Authorised Participants (APs) of the gold ETFs, which have gold accounts at the Bank of England, redeemed ETF shares for gold held at the London vaults of JP Morgan and HSBC, and that HSBC or JP Morgan transferred gold from their own accounts at the Bank of England to the gold accounts of the APs at the Bank of England, who then withdrew it.
But with over 1,400 tonnes of gold withdrawn from the London gold market in 2013 (since 1400 tonnes of gold was transported from the UK to Switzerland), this suggests that the gold that went to Switzerland in 2013 was in the form of Good Delivery bars from both the London based gold ETFs vaults (HSBC and JP Morgan), and from the Bank of England vaults.
If the calculations above are correct about the 500,000 Good Delivery bars in the London vaults whittling down to about 130 tonnes of gold that’s not accounted for by ETFs and other known gold holders, and that’s not accounted for by the Bank of England vault holdings, then there is surely very little available and unencumbered gold right now in the London Gold Market.
“The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.”
“‘[The rise] does indicate that there is physical tightness in the market for gold for immediate delivery’, said John Butler, analyst at Mitsubishi.”
And it begs the question, why do the dealers need to borrow, and who are they borrowing from. And if the gold is being borrowed and sent to Swiss refineries, and then shipped onward to India (and China), then when will the gold lenders get their gold back?
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