Guillermo Barba, the Mexican financial and economic journalist, has
recently
published an article on his website confirming that through an
information request that he had made to Mexico’s central bank, Banco de
México (Banxico), the central bank has now released what amounts to a
relatively comprehensive list of Mexico’s gold bars held in storage at the Bank
of England gold vaults in London.
Mexico’s list is an inventory of wholesale market gold bars that Banixco
owns and stores in custody at the Bank of England vaults in London. In the
contemporary parlance of the gold market, most people would call this type of
holding an allocated gold holding, but more historically in the Bank of
England world, it has been known as an “earmarked gold” holding or a
“set-aside gold” holding because the specific bars are set-aside for a
specific central bank, in other words the central bank has its name attached
to those particular bars (earmarked).
Wholesale gold bars are also known as London Good Delivery gold bars or
variable weight gold bars, and each weighs in the region of 400 troy ounces (
~ 12.5 kilos). On the Banixco list, there are 7,265 wholesale gold bars
listed. This new list is one of the very few detailed central bank gold bars
lists (weight lists) which exists in the public domain, and it could be
useful for a number of purposes (see below).
Barba has done persistent and diligent work over the last 6 years, by
patiently obtaining more and more information from the Mexican central bank
about its gold reserves via various Freedom of Information Requests (FOIA),
and shedding some light on this usually opaque area of gold and central
banking.
2011: Gold Reserves Skyrocket, Central Bank Secrecy
Before we examine this newly published list from the Banco de México, a
little background is useful. As of February 2017, Mexico held about 120.7
tonnes of gold in its official gold reserves, which puts the
country at the tail-end of the world’s Top
30 official/country gold holders.
All through the 2000s, Banixco only held a few tonnes of gold in its
official reserves, ranging from about 4 tonnes and 9 tonnes. This situation
changed in early 2011 when the Mexican central bank purchased just over 93
tonnes of gold in March 2011 (first reported by the FT in early May
2011). This brought Mexico’s gold holdings up from 7.1 tonnes to about 100.2
tonnes by the end of Q1 2011. the country’s official gold holdings
were boosted further to about 125.2 tonnes by Q2 2012 when
Banixco bought more than 16 tonnes in March 2012. See World
Gold Council quarterly
changes of central bank gold holdings for the underlying data.
After Mexico made these sizeable gold purchases in early 2011, Guillermo
Barba submitted various FOIAs to the Mexican central bank about the country’s
newly acquired gold stash. Unfortunately, most of these information requests
received weak responses from the Bank. For example, the question:
“How many bars of gold make up the recent acquisition of 93 tonnes of
gold made by Banxico en the first quarter of 2011”
received a response from Banixco of:
“…we inform you that the information that you request is
classified as reserved”
The Mexican central bank also added that:
“due to the variability of the content of gold in the bars, it
is not possible to specify with certainty the exact number of bars
purchased.”
We later learned that the Bank of England purchased this “gold” on behalf
of Mexico. On the surface, Banixco saying that it could not “specify with
certainty the exact number of bars purchased” seems to suggest that at
least some of the Mexican gold at that time in 2011 was held on a unallocated
basis and possibly out on loan to bullion banks in the London gold lending
market.
If Mexico bought actual gold bars at the outset in Q1 2001, the gold
bought for Mexico was probably already sitting in the Bank of England vaults.
Some of it may then have been lent out to bullion banks immediately.
Alternatively, at the outset in Q1 2011, the Bank of England could have
‘sold’ to Mexico a fine ounce claim on a number of gold ounces, that could
then be allocated to actual gold bars on a future date. Without seeing the
purchase invoices of the Mexican gold transactions, it’s hard to say what the
initial purchase transactions referred to.
Another question Barba put to Banixco in 2011 was:
“In what country or countries is the gold that forms part of the
International Reserves of Mexico physically located?”
Banixco responded:
“access to the requested information will not be
granted, since it is classified as reserved”
Barba’s article addressing his questions in 2011 and Banixco’s responses,
which was published in September 2011, can be read here.
118 Tonnes at the Bank of England
In October 2012, Barba received responses to further information requests
that he had made to Banixco, with
Banixco confirming that:
“At month’s end, April 2012, Banco de Mexico maintained a position in
fine gold of 4,034,802 ounces, of which only 194,539
ounces are located in the territory of the United
Mexican States.
“countries where these reserves are located are ‘United
States of America, England and Mexico.‘
‘the acquisitions of gold during March and April 2012 are under
custody in England’.”
[the gold is stored in] “the city of London, England, where more
than 99% of the gold which the Bank of Mexico maintains
outside the country is presently under custody…”
With 4,034,802 ounces (125.5 tonnes) held in total, and 194,539 ounces
(6.05 tonnes) held in Mexico, there were 3,840,263 ounces (119.44 tonnes) held
outside Mexico, which was 95.2% of Mexico’s total gold holdings. With 99% of
the foreign gold in London, this equated to about 3.8 million ounces (118
tonnes) held in London, and about 38,000 ounces (1.2 tonnes) held in
the US with the Federal Reserve Bank (FRB).
Mexican Federal Auditors not happy with Banixco
In February 2013, Guillermo Barba also highlighted that the Mexican
Federal Audit Office (Auditoría Superior de la Federación or ‘ASF’) Report
for the Year 2011 was highly critical of Banixco’s relaxed approach to its
gold purchases at the Bank of England.
The ASF reprimanded Banixco, saying that it:
“has not conducted physical inspections to gold to verify
compliance with the terms of acquisition and the conditions regarding its
storage, in order to be certain of the physical custody of this asset”
According to the ASF, Banixco only held documents about the “Terms and
Conditions” of the gold holdings contract with the Bank of England,
with records of “the dates of the transactions” and also some “payment
vouchers”.
ASF also recommended that the Mexican central bank:
“make a physical inspection with the
counterparty [Bank of England] that has the gold under its custody, in
order to be able to verify and validate its physical wholeness.”
February 2017: Partial Glimpse of Bar List
Fast forward to 17 February 2017, and Barba published
another article confirming that following some further information
requests to the Mexican central bank, Banixco had clarified the following
facts about its gold holdings:
“Of the 3.881 million ounces of gold that the Bank of Mexico has at
the close of October 2016, 98.95% are held
in the United Kingdom, 0.0004% in the Federal Reserve Bank of the United
States and the remaining 1.05 % In Mexico.”
“The Bank of Mexico has the serial number of each ingot protected in
accounts assigned abroad. From these accounts, the number of
ingots rises to 7,265. It should be noted that for
unallocated accounts there is no specific serial number and therefore the
number of ingots cannot be determined.”
“Assigned accounts are those that are owned on specific ingots with
serial numbers, and segregated from the rest.“
Therefore, for each gold ingot held in a foreign domiciled allocated gold
account, Bank of Mexico is in possession of the bar serial numbers. This was
the first information from Banixco that specifically addressed the number of
gold bars held by the Mexican central Bank at the bank of England.
As of October 2016, with 3,881,000 ounces of gold held by Mexico in total,
98.95% of which was held at the Bank of England in London, that would infer
that 3,840,250 ounces of gold (119.4 tonnes) were held in London, with
only about 1,550 ounces (0.0004%) held at the FRB in New York.
Assuming each gold bar contains 400 oz troy ounces of gold, then 7,265
bars would contain 2.906 million troy ounces. It would also mean that
about 934,000 troy ounces (29 tonnes) of Mexico’s gold are held
unallocated accounts (where the gold is not unassigned as specific gold
bars). The existence of unallocated gold accounts is revealing since it
proves that the Bank of England doesn’t just offer its central bank customers
the traditional custody facility of earmarked / set-aside / allocated gold
bars. It also offers what either amounts gold accounts that are denominated
on a fine ounces basis but are fully backed by a pool of gold, or
alternatively it these unallocated accounts may not be fully backed (i.e.
fractionally-backed).
To facilitate gold lending in the London Gold Market between central banks
(the lenders) and commercial bullion banks (the borrowers), the Bank of
England would have to operate account facilities for its customers that were
in a sense dematerialised because when a central bank lends gold bars to a
bullion bank, it does not necessarily (and probably doesn’t) receive back the
same gold bars, because those bars have either been sold in the market or
onward lent. Therefore an account convention with specific bars earmarked
would not facilitate this process. Only an account where the unit is a
balance of fine troy ounces of gold would allow these transfers to happen. In
this scenario, the central bank still insists it has a fine troy ounce gold
holding, even though its gold has been lent out.
The other alternative is that the Bank of England is selling its central
bank customers a gold account service where, for example, Central Bank
A pays dollar cash upfront for 100 tonnes of gold, and the Bank of England
signs a piece of paper saying “We the Bank of England have a liability to
Central Bank A for 100 tonnes of gold”, but that gold is not necessarily in
the Bank of England vaults. The Bank of England just has to be able to
allocated it to real physical gold bars if Central Bank A ever decides for
its 100 tonne gold asset to be converted to allocated gold bars.
Without seeing the “Terms and Conditions” of these “unassigned
gold” contracts with the Bank of England, its hard to say how exactly
the “unassigned gold” is backed up, and to what extent it’s backed up.
Historically, the Bank of England only ever offered earmarked gold
accounts to its central bank customers and on a few occasions in the 1950s
and 1970s pushed back on plans to offer customers fine gold ounce balance
accounts, because the Bank did not want to go down the road of ending up with
the same pool of gold backing multiple central bank customer accounts, as
this went against the concept of custody of assets and title to specific
gold, and the Bank was afraid of the legal implications of central banks
depositing specific bars but getting back different bars which might not be
of the same quality etc.
March 2017: Banixco Releases Detailed Bar List
Initially, as per his 17 February article, Banixco only provided Barba
with a list of the 7,265 gold bars that showed two columns of data, the first
column listing internal Bar-IDs from the Bank of England’s gold bar
database, and the second column listed the refiner brand names of the bars.
This first list can be seen here,
but it’s not really that important, because a few week later, Banixco agreed
to provide Barba with a second, much more comprehensive list. This second
list is featured in Barba’s article
dated 7 March 2017.
The actual Banixco gold bar list file can be downloaded here.
For each of the 7,265 gold bars listed (in 7265 Rows), the list contains 7
columns or variables of data, namely:
- Sequence Number (1 – 7265)
- “Serial Number” (which is an internal Bank of England
sequence number)
- Brand Code (an 8-digit code)
- Gross Weight (troy ounces to 2 decimal places)
- Assay (gold Fineness)
- Fine Weight (troy ounces to 3 decimal places)
- Refiner Brand
Although the Banixco list does not include the real serial numbers that
each gold refiner stamps on its own gold bars, the combination of columns “refiner brand –
gross weight – assay – fine weight” in the list should be adequate to
uniquely identify each bar, because don’t forget, these are variable weight
bars and each bar will have a different fine weight when expressed to 3
decimal places. The start of the list looks as per the below screenshot:
Banixco
gold bar list – List of wholesale gold bars held by the Bank of Mexico in the
Bank of England gold vaults in London
Overall, the 7265 gold bars weigh 2,919,911.55 troy ounces and contain a
total of 2,912,000 fine troy ounces of gold.The list provided by Banixco is
sorted by ‘Brand Code’ which is an 8-digit Bank of England database table
field that consists of refiner code (digits 1-4), refiner location (digits
5-6) and sequence number (digits 7-8).
The 2nd column in the list is a Bank of England internal ID bar number
which is either 6 or 7 digits. On Mexico’s list, the highest number is
1047712 (the highest number) and the lowest is 704989, but the numbers
present run in short and broken sequential ranges of, for
example 1039142-1039221 or 880338-880446. If this is a
sequential series of numbers that started at 000001, it would suggest that
more than 1 million individual Good Delivery Bars have passed through the
Bank of England’s 10 gold vaults since the numbering series was initiated.
The series may not be fully sequential at all, and could possibly also
include some art of the number signifying vault location.
The Refiner Bar Names on Mexico’s Gold Bar List
There are 24 ‘Brand Codes’ listed on the Mexico’s gold bar list, including
such refiners as South Africa’s Rand Refinery, Australia’s Perth Mint,
Switzerland’s Valcambi, Argor-Heraeus and Metalor, the Royal Canadian Mint,
Germany’s Heraeus, Johnson Matthey, the US Assay Office, the State Refinery
(Moscow), the Central Bank of the Philippines Gold Refinery, and N.M.
Rothschild. Many of these brands held at the Bank of England are the same
refiner brands which are trusted and popular in the
retail investment gold bar market, and carried by BullionStar,
such as Perth
Mint, Argor-Heraeus,
Heraeus,
Royal Canadian Mint,
and Johnson
Matthey.
Some refiners have, or have had over time, refinery operations in multiple
geographic locations, so some refiners have multiple Brand Codes listed in
the Bank
of England gold bar database. On example is Johnson Matthey, which
on the Banixco list is listed as 4 separate entities, namely Johnson Matthey
Salt Lake City USA, Johnson Matthey and Co Ltd [GB], Johnson Matthey &
Mallory Ltd. Toronto, and Johnson Matthey Hong Kong Ltd. Another
example is Metalor, which is present on the Banixco list in 3 guises, namely
Metalor Hong Kong, Metalor USA, and Metalor Technologies SA (Switzerland).
Other long-standing refiners have gone through various mergers over time
and their historic parts are now all part of a larger refining group. This
applies to “Perth Mint” bars, which on the Banixco list are represented by
Western Australia Mint (Trading as AGR) , AGR Joint Venture Melbourne and the
Royal Mint (Perth).
On an individual Brand Code basis, the below table shows these refinery
brand names, and the number of gold bars of each brand name that show up on
Mexico’s gold bar weight list.
Central
Bank of Mexico – Refinery brand names of the 7265 large gold bars held in
custody for Mexico at the Bank of England gold vaults in London
First up is the Rand Refinery, with Banixco holding 1735 rand Refinery
gold bars. Nearly a quarter of Banixco’s earmarked bars are Rand Refinery
bars. It’s not surprising that on an individual basis, Banixco holds more
Rand Refinery gold bars than any other bar brand. After all, Rand
Refinery of South Africa is said to have refined over 50,000 tonnes of
gold since it was established in 1921, which is about 30% of all the gold
that has ever been mined. A lot of Rand Refinery bars were also historically
sold in the London Gold Market and held within the bank of England vaults.
This is probably still the case.
For example, according to the Bank of England archives, most of the gold
held by the International Monetary Fund (IMF) at the Bank of England
was (as of the late 1970s) in the form of Rand Refinery gold bars. Whether
this is still the case is unclear, as the IMF is ultra secretive about its
remaining gold reserves and never reports facts such as gold bar weight
lists.
Second up is AGR Joint Venture, which is now technically part of the Perth
Mint, with the Bank of Mexico holding 1519 of these bars. Together with the
Rand refinery bars, these two brands makeup 45% of Banixco’s total holdings.
Adding in the bars of Johnson Matthey Toronto and Valcambi Switzerland,
nearly 70% of Mexico’s bars are from just 4 bar brands.
Grouping refiner names where appropriate such as all Johnson Matthey names
and all Perth Mint related names results in a slightly different ranking,
with Perth Mint taking pole position with 1892 bars held by Banixco, and with
Rand Refinery and Johnson matthey in joint second place with 1736 bars a
piece in the Mexican holdings.
Central
Bank of Mexico – Refinery brand names of the 7265 large gold bars held in
custody for Mexico at the Bank of England gold vaults in London
Under this grouping approach, 74% of Mexico’s gold bars have been
manufactured by just 3 refinery groups, rising to nearly 85% if Valcambi bars
are included.
One of the reasons for highlighting this, is that it could be useful for
extrapolating the frequency of gold bar brands that might be held across gold
accounts generally at the Bank of England. While this extrapolation might be
flawed, it does suggest that there are certain refinery bars brands that are
more common than others within the Bank of England vault network.
The Bank of England did not just go and transfer newly refined gold
bars into the Banixco account. It populated the Banixco allocated gold
holding (in 2011 or after) with a selection of bars from lots of different
eras. Hence the presence of NM Rothschild bars, US Assay Office bars, old
Royal Mint (Perth) bars, as well as AGR Joint venture bars.
AGR Joint Venture bars were only produced until 2003. See here
for details of AGR’s history. NM Rothschild bars have not been produced since
1967. Royal Mint (Perth) bars are extremely old and have not been produced
under this name for a very long time. LBMA Good Delivery records don’t even
specify when Royal Mint (Perth) bars cased to be produced. The last Johnson
Matthey bars produced in England were in 2005. US Assay Office bars (from the
New York Assay Office) haven’t been produced since 1997 at the latest, and
mostly well before that. Therefore, even though the Banixco gold bar list
doesn’t list year of manufacture for each bar, some inferences can be made to
show that a lot of the bars allocated to the Mexican gold account at the Bank
of England.
This is also interesting in that it shows that when the Bank of England
(or a bullion bank with a gold holding at the Bank of England) either buys
physical gold bars on behalf of a central bank customer, or allocates
specific bars to a central bank gold account for a gold balance that was
previously in a unallocated account, it is either transferring gold from a
Bank of England inventory holding, or by buying gold from another central
bank that’s already in its vaults, or else buying gold from a bullion
bank that probably also has gold stored at the Bank of England, part of which
may be gold that has flowed out of gold-backed Exchange Traded Funds that
store their gold in the London vaults.
Conclusion
Which brings us to some critical points. Using the “refiner brand –
gross weight – assay – fine weight” combination for bars on the Banixco
list, it should be possible to cross reference these bars against records of
gold bars that have been held over time in gold-backed ETFs such as GLD and
IAU. Various gold researchers such as Warren James maintain databases with
records of all gold bars that are in and that have ever been in gold-backed
ETFs. If a bar on the Banixco list has a match in those database tables, then
it proves that the Bank of England sources gold for its central bank
customers that was at one time held in one of the ETFs. And this probably
happens, since the bullion banks such as HSBC and JP Morgan are active in allocating
and deallocating gold in and out of ETFs, and they hold gold accounts
at the Bank of England and are active in the gold lending market.
More importantly, if in the future, a gold-backed ETF flags up one or more
gold bars that were among the 7265 gold bars on the Banixco list, and Banixco
hasn’t reported selling any gold, then it will prove that Banixco either lent
or swapped some of ts gold while still accounting for it under ‘gold and gold
receivables’ in its balance sheet, and it will prove that central bank gold
is being double counted while on loan, i.e. claimed to be held by a central
bank, while really being held by a gold-backed ETF.
Ronan Manly
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