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
Applying a similar exercise to the Bank
of England 2015 Annual Report (large file), the report states
(on page 34) that:
“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
On page 19 of a London
Bullion Market Association (LBMA) presentation on 15th June 2015 in Texas,
given by LBMA
CEO Ruth Crowell to the International Precious Metals Institute (IPMI),
it stated that:
“There are ~500,000 bars in the London vaults, worth a total of
~US$237 billion”
Page 19 of
LBMA presentation from 15th June 2015
500,000 bars ~= 6,250 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.
So, there are now only about 6,250 tonnes of gold in the
London vaults, including the gold in the Bank of England vaults.
From 9,000 tonnes to 7,500 tonnes to 6250 tonnes
The LBMA stated earlier this year on a vaulting page on its website 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.“
Based on this metric, that comes out as (7500 * 0.75) or 5,625
tonnes of gold bars in the Bank of England vaults, and 1,875
tonnes of gold bar in other London vaults.
An earlier
version of the same LBMA vaulting page with a website imprint from
April 2014 stated that:
“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:
Earliest quotation
- 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
Second quotation
- 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 the Fifth LBMA Assaying & Refining Seminar, held in London between
10th and 12th March 2013, Luke Thorn from the
Bank of England gave a talk about the “Bank of England’s
role in the physical gold market”, in which he stated:
“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 unaccounted for 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
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
Other holdings
- 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
large amounts 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).
Then, in a slide from a presentation by then
LBMA CEO Stewart Murray in London in 2011, one of the Powerpoint pages
(page 15 of the pdf) stated 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.”
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”.
According to the latest SPDR
Gold Trust 10-K annual filing (and the 2013 version):
“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).
Reuters
also highlighted these 2013 exports in February 2014 when it quoted
research from investment bank Macquarie from Eurostat:
“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.
As I will highlight in a forthcoming article (which will follow on from
the recent “Moving
the goalposts….The LBMA’s shifting stance on gold refinery production
statistics“, a lot of this London gold exported to Switzerland from
the UK in 2013 was sent to the large Swiss gold refineries to be transformed
into very pure (9999 fine) smaller bars for the Asian market.
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.
This would explain however the following very recent information from the Financial
Times on 2nd September 2015 when it said:
“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?
Ronan Manly
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