Monday, December 17, 2012

RBA: Australia's Gold held at the Bank of England

I received the following email from a reader today that I thought may be of interest, it's a response from an RBA FOI officer to several questions posed regarding the location of Australia's Gold:
1. Could you please confirm the total 'physical' and 'tangible property' gold holding by the Reserve bank of Australia in kilograms as at financial year end 2011. For clarity, the term physical refers to gold in possession and control of the Australian Government and not a derivative, financial instrument or promissory note.
Answer:  At the end of the 2011 financial year (30 June), the gold holding was 80 tonnes at a valuation at the time of A$3 473 million.

2. Are any foreign countries holding the physical gold on behalf of the Australian Government?
Answer: Yes.

3. If so please provide a breakdown of foreign gold holdings in kilograms identifying the country where this is held.
Answer:  At 30 June 2011, 99.9% of the gold is held in the United Kingdom, at the Bank of England. The other 0.1% is held by the Reserve Bank of Australia. This distribution remains in place presently.
Please note that we have answered your questions as a routine enquiry (on the basis that your request was for answers to questions, rather than seeking documents).  The FOI Act concerns itself with the release of documents, rather than answering questions, so a request must be seeking documents to be valid.  You may be interested in details of the Reserve Bank of Australia’s Official Reserve Assets, which are published each month on the Bank’s website. Additional commentary about Reserves Management is also contained in the Bank’s Annual Report (please see the ‘Operations in Financial Markets’ Chapter).

If you have any further queries regarding this information, we invite you to contact our Media and Public Relations Office in the first instance as generally they will be able to answer questions for you.  Consistent with guidance from the Office of the Australian Information Commissioner contained in a recent charges review report, the Bank is committed to releasing as much information as possible outside the provisions of the Act (via routine release of information and responding to general requests).  If you feel that your needs are not being met outside the provisions of the Act, you are welcome to lodge a formal application seeking documents relevant to your question(s).
The above is interesting, as I have seen past requests for this information denied by the very department the FOI officer suggests (below from 'Tears of the Moon' on ABC Bullion blog):
On the where the 80 Tonnes of gold is stored, Australia or offshore, I received this response from the RBA's Media & Public Relations Office today:

"Thank you for your email.

The Bank does not publish the location of its gold reserves."

Make of that what you will. Personally I didn't think it would have killed them to say "Australia", after all it is a big place, plenty of space to hide 80 tonnes of gold with giving anything away.
With 99.9% of Australia's Gold stored with the Bank of England it makes me wonder where the final .1% is stored (80kg), perhaps the bars are used as paperweights around the RBA office in Sydney...

So why keep the majority of it stored with the Bank of England?

I suspect it may be a throwback to times past when the bank lent out a signficant amount of Gold. Today the RBA only has 1 tonne of Gold on loan, but in the 1990s it was a lot more (FOI Document, December 1996):
"The Bank currently holds about 250 tonnes of gold (about $A3.8 billion at current prices) as part of official reserve assets. Unlike other components of official reserve assets, the management of which was upgraded significantly at the start of the 1990s, the management of gold holdings has been passive apart from participation in the gold loan market. The amount of gold owned by the Bank has not changed since the late 1970s."

"In order to increase returns on gold holdings, the Bank has expanded its gold lending activities in recent years. Currently, about half the Bank's gold is on loan."
Bundesbank recently made similar reasoning for it's Gold being stored predominantly outside of Germany (Bundesbank on Gold reserves):
Why doesn’t the Bundesbank bring the gold back to Germany?

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. Further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.
Australia's Gold is only a fraction of it's foreign reserves (less than 10%) compared with Germany (over 70% according to Wikipedia) and with less than 1 tonne being loaned into the market at present (see page 24) it makes me wonder what benefit there is in keeping it with the Bank of England.

What say you Australia, time to bring home our Gold?