18 June 2014

Allocated Gold at Bank of England declines 755 tonnes

The Bank of England's just released 2014 Annual Report discloses that it was holding 5,485 tonnes of gold as a custodian, down 755 tonnes to around the level it was in 2011 and 2012. Below is a chart of the data against the average gold price over the Bank's financial year ending February, which shows that the amount of gold has basically followed the gold price, very much like the behaviour of the gold ETFs.


The table below details the figures and calculations back to 2005, when the Bank first started reporting its custodial activities.


As at Date Allocated Gold (GBP billions) London PM Fix (GBP) Allocated Gold (tonnes) Year on Year Change (tonnes)
28/02/2005 29 226.514 3,982
28/02/2006 36 318.078 3,520 -462
28/02/2007 43 338.964 3,946 +425
28/02/2008 72 488.854 4,581 +635
28/02/2009 102 669.809 4,737 +155
28/02/2010 125 746.149 5,211 +474
28/02/2011 156 868.682 5,586 +375
28/02/2012 197 1110.484 5,518 -68
28/02/2013 210 1046.719 6,240 +722
28/02/2014 140 793.931 5,485 -755


In this June 2014 Quarterly Bulletin, the Bank reports on page 134 that 72 central banks hold gold with them (which is 65% of the 113 central banks that the World Gold Council records as having gold reserves). It also noted that the "Bank also acts as a bank to certain other financial institutions. One example is central counterparties". Included in that the latter group would be the six London bullion market clearing banks. As it is unlikely that the Bank runs allocated gold accounts for banks that are not central to the gold market, it would be fair to conclude that the majority of the allocated gold it holds is for central banks.


Given there was nowhere near 755 tonnes of central bank selling in the year ending February 2014 it would therefore be fair to conclude that this gold outflow was from the allocated accounts that bullion banks had with the Bank of England. This is not surprising considering that the major gold ETFs lost in excess of 600 tonnes over that same period.


Just one final observation from World Gold Council central bank holdings data: it wasn't until the year ending Q1 2010 that central banks were net buyers. Prior to that they were net sellers (1,011t for 4 years to March 2009), yet the table above shows customers of the Bank of England adding to their holdings (753t for 4 years to February 2009). Now if we remove central banks that most likely don't store with the Bank, this 1,011t net sell figure may change, but I doubt enough to turn it around to anywhere near 753t of net buying. Tentative conclusion is that bullion banks were accumulating a lot of allocated gold with the Bank of England.


Combining the above figures with detailed LBMA turnover figures, UK gold import/exports, London ETF flows, and central bank activity is more work than I have time for at the moment, but it certainly would give us a better picture of the London gold market.

30 comments:

Anonymous said...

Maybe the HSBC vault in London City was too small to hold all the GLD gold at its peak (GLD peak holdings), and so HSBC used the Bank of England as a sub-custodian to store, I don't know, maybe 500 tonnes +.

Then when the GLD 'shrunk', the gold was coming out of the Bank of England vaults and not the HSBC vault.

Bron Suchecki said...

Yes I think the bullion banks using BoE as an overflow location is a valid theory. It is certainly used as a neutral location for inter-BB clearing.

Anonymous said...

The reason this doesn't have to be the case is UK exports of gold were roughly twice that of the BOE outflow, so plenty of room for two outflow. The BoE is a subcustodian of the GLD but wouldn't the audits or regulatory filings show gold being held there if it was?

Bron Suchecki said...

I don't think ETF audits need to reveal where the gold is, as long as it has all been counted. Bar lists may give some indication of location, but generally that level of detail would not be disclosed for security purposes (crooks might be able to work out when gold is moved between vaults).

Kid Dynamite said...

the GLD audit certificate states that the audit was done at the London Vaults of HSBC... all the gold was there - not at the BOE.

all of the evidence to date suggests that GLD doesn't store gold at subcustodians long term - if at all... it's just to facilitate the creations/redemption process if necessary.

Bron Suchecki said...

Thanks, I couldn't remember what the audit report said. While HSBC may not store GLD metal with BoE, the BBs do store with BoE to facilitate inter-BB clearing, so as other BB APs buy GLD and then redeem, HSBC would clear that by transferring gold at BoE to them, the other BBs may then be taking out of their BoE accounts and that is what we are seeing.

AdvocatusDiaboli said...

I wonder if that actually matters. I mean, why should the price of gold change, just because instead of holding my gold in London with whomever, but rather prefer to store it at XYZ east or west whatever?

Better look at gold owners that continue to be forced to sell almost regardless of price, lucky people like e.g. these folks selling 40t this year

Anonymous said...

AdvocatusDiaboli makes a good point, and the answer is of course whether it is just a transfer or a sale. Presumably some international banks aside though one would think there are few entities who could or would hold gold both in London and Shanghai.

AdvocatusDiaboli said...

"AdvocatusDiaboli makes a good point, and the answer is of course whether it is just a transfer or a sale."
no, absolutely not.
"The price" is the last ratio fiat and gold had been traded, the last time in the past, bid&ask matched. It might be an indication or suggestion for a (the next) trade in the future.
So what does it leave us with? Let's say, I have 1ton of gold in London and I sell it to some chinese at "current price", who takes it to whereever, why does somebody believe that therefore the price of a future exchange/purchase will be higher? It might be even the opposite, since now, there is a chinese already satisfied by my sale (his purchase), so one buyer less....

Maybe that particular chinese person will be broke next week for whatever reason, desperately seeking a buyer, ready to dumb it at a discount?

So IMHO all the chinese/indian blabalabalabaabbababa Eastward&Down is a bunch of BS of the highest degreee, a typical loser storry of some shoeshine confirmation bias whores.

Anonymous said...

why does somebody believe that therefore the price of a future exchange/purchase will be higher?

Because the gold is hoarded, not traded. Flow is one way as evidenced by the lack of chinese bars in western ETFs, indian net buyers, etc.

Anonymous said...

Seems that the amount of gold In BoE have bee a plain zero for a long time:
Reserves Template in data series form
Bank of England, US $ millions - May-10, Sivu 28

Gold (including swapped or on loan), $ = 0.00
fine ounces, million = 0.00

Other reserve assets = 18,933.76
capital items, etc = 0.00
claims on counterparties
o/a reverse repo transactions = 17,826.56

Total Reserve Assets as per Template = 25,233.12
Total Reserve Assets as per Press Notice = 23,359.92

Total Liabilities as per Press Notice = 23,359.92

http://www.bankofengland.co.uk/statistics/Documents/reserves/2013/dec/tempoutput.pdf

// Rgs Matti, Finland

Bron Suchecki said...

Yes, the UK has no gold reserves, which is different to BoE custodian gold holdings held for other central banks.

Anonymous said...

The UK actually has quite substantial gold reserves - 395t or so from memory - what that shows is the Bank, which for some reason had a small separate reserve, no longer has it.

AdvocatusDiaboli said...

"why does somebody believe that therefore the price of a future exchange/purchase will be higher?

Because the gold is hoarded, not traded.


The last 5000yrs. gold had been gold and primarily been hoarded (and dishoarded), so what did change lately so fundamentally about gold?
and about Ohhhhhh dont you know the chinese...... BS, the chinese love to gamble, that's a fact. They probably love to become "greedy rich" even more than westerners, so personally I dont see that much of a difference.

And about "hoarding", how comes that at least in Germany you can get any kind of coin of any period of time, ~1850-2013, in almost unlimited quantity everywhere with minimum above spot? Doesnt sound like something that is hoarded so tidely?

Anonymous said...

Hi Bron, you said:
Yes, the UK has no gold reserves, which is different to BoE custodian gold holdings held for other central banks.

- Thanks for the info. But is there any public data available to audit BoE custodian (foreign central banks) holdings?
Tried this listings, but no gold anywhewre:
"HMT statistical release: UK official holdings of international reserves"
https://www.gov.uk/government/collections/statistical-release-uk-official-holdings-of-international-reserves
//Rgs Matti, Finland

Anonymous said...

And about "hoarding", how comes that at least in Germany you can get any kind of coin of any period of time, ~1850-2013, in almost unlimited quantity everywhere with minimum above spot?

Can you buy a ton of gold coins from your dealer?

AdvocatusDiaboli said...

"Can you buy a ton of gold coins from your dealer?"

I dont know, have you, to claim that it is not the case/possible/the opposite? Where you got your "experience" to claim the opposite? KWN? gata? Silverdoctors? ROTFLOL

But I doubt it, that it is a problem to order online a ton in a day.
Just as an example: PerthMint made 65000 of Kangoos-25yrs-coin. WORLDWIDE!!! Beautiful coin, probably collector premium in the future, still not sold out at all, available at 2% premium. Now tell me why?
Or for people that want to play save, MoinaieDeParis sells 250Euro-Gold-Coins for 250Euros (<=you cant loose!!!). Limited edition, still not sold out, since month. WHY?

BTW, I tried to buy out the 20Ffr. classic gold coin for the fun of it, bought more than a thousand by now. WHY?

Anonymous said...

WHY?

Because the people who could buy all of them don't do it. And since they could, and one way flow says they should, why don't they do it?

Bron Suchecki said...

Matti,

The BoE custody figures I get from reading the text of the BoE's annual report. For example, in the 2014 report on page 34 they have a note saying "As at 28 February 2014, total assets held by the Bank as custodian were £594bn, of which £140bn were holdings of gold."

I don't know of any other source for the figures.

Bron Suchecki said...

Anon,

Gold is not in short supply. It is worth noting that of the approx. 300t of gold the Perth Mint refines, most is sold as kilobars into Asia, rather than coins. We sell them in 500kg or 1 tonne lots to bullion banks. If you want a tonne no problem and the premium is quite low, considering you are buying $42 million worth in one go.

Anonymous said...

Bron,

So all of the 300 tons annually is sold? Can we say then that gold is not in short demand?

Anonymous said...

If I was China and wanted to buy as much gold as possible, I wouldn't clean out the coin shops, or drive up ton premiums at Perth Mint. Better to buy at lower prices for many years. Everyone knows western minds don't like gold, but if they think you like it they will trade it up in price for the sake of sticking it to you.

AdvocatusDiaboli said...

"If I was China and wanted to buy as much gold as possible"

Never heard of a person named China, do you?

But, okay let's say "you are China", are you the communist party or old grandma, or PBC president? Anyway forget about those details for a second. Why would you want to buy as much gold as possible?
If "you were the PBC", what is the difference to own 1000t versus 5000t?
For what do you need gold, if you are a net exporter and can peg your currency at any point you want?
Oh, you want to get rid of dollars, fine, just peg your currency differently, or spend them on whatever, or just sell your dollars for your own currency, but why gold?
Oh you want your own currency be pegged to gold? Well, that sounds stupid, to repeat the mistakes and problems the US committed 80/90yrs ago?

I mean, that is so amazing how people just copy some nonesense caught up at some gold bloggesphere to fit their confimation bias.

AdvocatusDiaboli said...

"So all of the 300 tons annually is sold? Can we say then that gold is not in short demand?"

good observation. Perfect proof that the price discovery mechanism works perfectly, despite what all tin foil head claim. Because if demand/supply/price would not work, either there would be a shortage or huge stacks, but magically it fits.

Anonymous said...

Why would you want to buy as much gold as possible?

Because I understand its real value.

If "you were the PBC", what is the difference to own 1000t versus 5000t?

4000 tons; that's a lot.

For what do you need gold, if you are a net exporter and can peg your currency at any point you want?

For what do I need more dollars if I cannot spend them because I am a net exporter?

Oh you want your own currency be pegged to gold? Well, that sounds stupid, to repeat the mistakes and problems the US committed 80/90yrs ago?

Very stupid, so I don't do it; I buy gold with as much currency as I can get rid of.

Anonymous said...

'if demand/supply/price would not work, either there would be a shortage or huge stacks, but magically it fits.'

Not too hot, not too cold, always just right? That's not magic, that's not luck, that's planning. If you don't know who the fool at the table is, the fool is you.

Gold Trading Advisory Company said...

The chart provided in this post against the average gold price is quite interesting and updated.

Graviola Sales said...

Hi,
An opinion needed.
What do you think is a reason, Germany cannot get its gold back from a private FED as they requested?

"First the Bundesbank, now the Austrians?
The National Bank of Austria is demanding a full audit of Austria’s 150 tonnes of gold reserves on deposit in London at the Bank of England- 80% of the nations total gold reserves, after succumbing to pressure from the Austrian public.
In a public statement, Ewald Nowotny, Governor of the National Bank of Austria stated: “I acknowledge the request. Any grocery store is obliged to do inventory once a year. It is the only way of getting rid of these unreasonable allegations”.
http://www.silverdoctors.com/first-the-bundesbank-now-austria-demands-audit-of-gold-reserves-held-at-the-bank-of-england/

Graviola Sales said...

Thanks Bron of your re (01 July, 2014 08:06)

As you said: "The Bank provides custodial services for a range of
customers. As at 28 February
2014, total assets held by the
Bank as custodian were £594bn,
of which £140bn were holdings
of gold."
http://www.bankofengland.co.uk/publications/Documents/annualreport/2014/boereport.pdf

But that is all information of the gold provided by BoE?
--

Whats happening to the gold reserves around the globe?:
"A Russian Internet news site Iskra (“Spark”) based in Zaporozhye, eastern Ukraine, reported on March 7, that “Ukraine’s gold reserves had been hastily airlifted to the United States from Borispol Airport east of Kiev”.
http://www.globalresearch.ca/ukraines-gold-reserves-secretely-flown-out-and-confiscated-by-the-new-york-federal-reserve/5373446

Bron Suchecki said...

Graviola Sales,

Re Germany, see my posts http://goldchat.blogspot.com.au/2014/01/why-bundesbank-is-slowly-repatriating.html and http://goldchat.blogspot.com.au/2014/01/the-bundesbank-narrative-of-central.html

That is the only information the BoE provides on its gold custody business.