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?


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12 comments:

  1. Bullion Baron, thank you for this article ... I can't begin to describe the recent interest I have taken with the gold sitting inside the bank of England vault (funny that many of us took an interest all at the same time). My level of interest extends to the fact that I now have a very largish visual library of gold bars from the BoE vault ..

    Yes, absolutely we ought to bring the gold back to our shores!! Re: lending ... in my books if someone has borrowed it then we don't own it for that duration (we own an IOU). Nice that they play jiggery pokery with our nation's wealth. I think I will blame that Gillard woman.

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    1. It's been interesting that we've had two visuals of BoE Gold within the last two weeks (chemistry professor then the queen) & then there were photos released earlier this year as well. It seems as if BoE wants to give the impression that they have the Gold.

      I agree we should bring it home.

      There seems to be a lot of 1 way trust amongst the central banks... Germany and Australia can trust the BoE & Fed to look after our billions worth of Gold, but they won't trust us to store it ourselves while providing foreign reserves pledged against the Gold?

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  2. Thank you Bullion Baron, much appreciated for this posting. I have sent the following email to the RBA requesting confirmation and clarification as to why this information was not disclosed earlier. I will post any response in this comment section (hopefully within the the next day).

    To: RBA Media Relations Ofice,

    could you please confirm the details of the following post which claims that the RBA has advised that 99.9% of the RBA's gold reserves are held in London at the Bank of England.

    http://www.bullionbaron.com/2012/12/rba-australias-gold-held-at-bank-of.html

    Also please explain why on 3 separate occasions this year when I asked similar questions of the RBA (see reference to Tears of the Moon which is my blogger id) that the RBA refused to disclose such details, even when one of those requests was a FOI request?

    Regards,

    ABC BULLION

    Greg Hudson | Customer Service
    Australian Bullion Company Pty Ltd
    Suite 30, level 6, 88 Pitt Street. Sydney, NSW 2000
    p 61 2 9231 4511 | f 61 2 9233 2227
    www.abcbullion.com.au

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    1. I would be interested in their response so post another comment when you receive a reply. Thanks!

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  3. Nice work BB and Greg also.

    Even though we now only have a humble 80 tons I'd much prefer to see it held here.

    As part of the bigger picture a request for us to do this would help spark the interest of other countries into how they they manage their gold reserves if they also held with the BoE.

    This queen / professor thing seems fishy... More reason again to get our gold back.

    John

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    1. There have been quite a few stories of countries seeking to repatriate their Gold. Venezuela is one country who has requested Gold back from Bank of England and is in the process of having it returned: Chavez repatriates Venezuela's foreign gold reserves

      It wouldn't be unreasonable for the RBA to request the same. However I suspect it would take a pretty big public push to see it happen.

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  4. Personally, while I can see the benefit of local storage, on the government scale obviously storing at BoE makes political/financial sense.
    It will make many of us feel nice getting it back on our land, but the benefit be what?
    Other thought, can the news of the gold been called back to Australia cause further AUD appreciation?
    More questions than answers here. There is a group of people out there that know the info, but they will not be sharing it, that's for sure ;)

    BTW, mate this white on black is very contrast. Killing my eyes. Am I the only one with this issue?


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    1. Bron from Perth Mint provided some clarity on some of the questions on Silver Stackers -> Link

      Though suspect he has a higher level of trust (than I do) in the market/system/England that nothing untoward will happen to our Gold while it is abroad.

      And regarding the black/white, something I may change one day, I've only ever had 1 other comment the same.

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  5. It is no so much about having more trust, just that the RBA's actions in keeping it in London reflect their level of trust and their intention to lend it when the return is sufficient. With that view there is no sense bringing it back to Australia.

    The question is not about where the gold should be, the question is whether the gold should be lent at all. One needs to address the "intent to lend" issue first before asking for it to be returned. One has to convince the RBA to decide to never lend the gold, then the decision to ship it back to Australia makes sense.

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  6. @ BB, you are responsive with the changes to the site :)

    @ Bron, quality reply. The primary question I would ask is: Why do RBA needs GOLD at all?

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    1. I have been meaning to try a new theme, the site is probably more accessible/inviting with a neutral theme like this, your comment was the prompt I needed :)

      Re why does the RBA hold Gold? It's a form of reserve... and it's tradition ;) http://www.youtube.com/watch?v=2Dj9v9s9buk

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