Just over a year ago, gold researchers Nick
Laird, Bron Suchecki, Koos Jansen and myself took a shot at estimating how
much physical gold was accounted for in London within the gold-backed ETFs
and under Bank of England custody. The results of that exercise are
highlighted in September 2015 articles “How many Good Delivery gold bars are in all the London
Vaults?….including the Bank of England vaults”,
and “Central Bank Gold at the Bank of England”, and also on Nick Laird’s website in a post titled “The London Float” which contains some
very impressive charts that visualize the data. Some of these charts from www.goldchartsrus.com are featured
below.
Given that its 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 much Good Delivery bar vaulted gold 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 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 and
and 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 an LBMA website page is admittedly quite general, but at least
its 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
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:
, London
- BullionVault: Some
of BullionVault customer gold is held in London
- GoldMoney: *Its not clear how much gold
Goldmoney stored in London so the previous figure from September 2015 is
used again
- VanEck
Merk Gold Trust: Custodian JP Morgan London
- Betashares:
Custodian JP Morgan, London
- Standard Bank AfricaGold
ETF: Custodian JP Morgan London
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:
2015: Vaulted gold held by
gold-backed ETFs in London
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:
LBMA vaulted gold held in
London: Outside vs Inside Bank of England
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, its 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.
2016: 1679 tonnes held in ETFs
in London – Yellow Bar
2016: Vaulted gold held by
gold-backed ETFs in London
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 0f 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.
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.
Total gold held in custody at
the Bank of England, February 2016: 4725 tonnes
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.“
Bank of England vaulted
attributed to individual central banks
Year to Date ETF changes and UK Gold Import
Its 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, therefore the 800 tonnes of net gold imports into
the UK refers to non-monetary gold imports.
Net UK gold imports to July
2016: 735 tonnes
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.
UK gold imports from
Switzerland, August 2016: 84.6 tonnes
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 which are
liabilities against the LBMA bullion banks. 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 oustanding 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 London gold lending market
consortium.
Ronan Manly
E-mail Ronan Manly on:
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