If you’re into conspiracy theories, talk of impending global economic collapse and have a deep distrust of central banks, you may have come across this one.
It goes like this. Most people would be aware that the Reserve Bank of Australia, like all central banks around the world, holds a portion of the country’s reserve assets in gold.
What you may not know, because it was only made public in December 2012, is that 99.9 per cent of Australia’s $4.4 billion worth is actually held by the Bank of England.
Of that gold, 11 tonnes is “leased” out to earn interest — it brought in around $700,000 last year — while the other 69 tonnes is sitting in a vault in London. Or is it?
“There are all sorts of conspiracy theories and rumours in the gold market as to what’s going on,” said economist John Adams, who has been on a crusade to find Australia’s “missing gold” in a series of videos with Digital Finance Analytics founder Martin North.
The crux of the conspiracy theory, promoted by the likes of Swiss gold trader Egon von Greyerz, is that China, India and other eastern countries are accumulating more gold than can be explained by mining production.
He believes much of it is actually western central banks “covertly disposing” of their gold, or otherwise leasing it to China and India through bullion banks which then “issue an IOU only backed by paper since the physical will never return from Asia”.
“Since 2008 just China and India have accumulated 26,000 tonnes of gold,” Mr von Greyerz wrote recently. “That is a remarkable figure and virtually the total mine production for that period.”
An audit of Australia’s gold holdings was conducted in 2013, but a freedom of information request for the findings and the final report was denied as providing the documents “would, or could reasonably be expected to, cause damage to” the relationship between the RBA and the BoE.
“In the last 20 years we’ve only seen the gold once,” Mr Adams said. “The audit was so flawed it was basically meaningless. We had to tell the BoE six weeks in advance the serial numbers of the bars we wanted to see, that gave them enough time to rig the sample.”
In response to Mr Adams’ videos, the RBA earlier this month added a new page on its website with a series of questions and answers about its gold holdings.
“The RBA’s gold is held at the BoE in an ‘allocated’ account, such that individual bars (with specified bar serial numbers) are attributable to the RBA,” it said.
“The Reserve Bank has processes in place to ensure that its specified gold bars are maintained appropriately. Inventory reconciliation — including of unique serial numbers — is undertaken periodically, or after any movements on the RBA’s account. Additionally, the Reserve Bank audits its gold processes, including gold holdings at the Bank of England.”
Mr Adams says he still has unanswered questions — but in an email this month, a spokeswoman told him the bank had “no further answers” for him.
“They haven’t explained what inventory reconciliation means,” he said. “I think we have a spreadsheet full of serial numbers and we’re checking with BoE to ensure they match. It does not mean you’re checking the physical gold.”
Mr Adams said he was “not saying the conspiracy is true or false, I’m only saying 99.9 per cent of it is not in Australia and the RBA can’t say why it’s prudent we have our gold not physically in the country”.
“The gold may be missing or the gold may be there but even if it is there are a lot of Australians who say just bring the gold back,” he said.
Speaking at the CEDA annual dinner in Melbourne on Tuesday night, RBA governor Philip Lowe seemed amused at a question from the audience on the topic.
“No, we do regular audits of our gold reserves to make sure (it is) all there and accounted for,” he said. “I can report that every audit we get a clean bill of health there.”
Mr Lowe said the gold reserves were kept in London because “that’s where the centre of the gold lending market is”. “By (lending) out our gold temporarily we can earn a small incremental return on it and cover some of the costs of holding those reserves,” he said.
“It’s the right place for the gold to be, we don’t have any plans to sell any more, to buy any more, or to bring it back to Australia.”
‘NO GRAND, GLOBAL GOLD CONSPIRACY’
ABC Bullion chief economist Jordan Eliseo said he came down more on the side of the RBA on the issue. “The Bank of England has been involved in the storage and trading of bullion for a few hundred years now,” he said.
“They are globally recognised as one of if not the primary destination of choice for central banks to store their gold reserves. The scenario of the gold being ‘missing’ is essentially wrong. The gold has been leased and central banks have been engaged in the leasing of gold for as long as they’ve been owning gold.”
With tens of billions traded every day it’s a “highly liquid asset”. Gold might be leased to miners, someone wanting to short the gold market, or for use in industry.
Mr Eliseo said the assertion that the BoE could manufacture bars with fake serial numbers was wrong. “That’s practically impossible,” he said. “The way refiners work, bars are numbered sequentially. You can’t just go to a refiner and say, central bank A is missing a bar with this serial number.”
Rather than where — and if — the gold is stored, Mr Eliseo said the bigger issue was that Australia’s gold reserves were too low. “The RBA sold off the vast majority of our gold reserves in 1997,” he said.
“Our holdings dropped from roughly 20 per cent of forex reserves to about 5-6 per cent. That’s really low compared with other developed market central banks. Countries like the US, Germany, the Netherlands, France, they all own more than 50-60 per cent of their assets in gold. We stand out as an outlier.”
He argues there is a case for the RBA to start building its gold reserves again.
Referring to the rapid accumulation of gold by China and India nearly equalling total mine production, he said Mr von Greyer was “correct that the number is roughly equivalent” — mines supply around 3000 tonnes a year, or around 30,000 tonnes since 2008.
“There is no question that the heart of the physical gold market has moved from west to east over the last 15 years,” Mr Eliseo said. “The primary endpoint for a lot of the world’s gold is China and India and it’s not coming back for many years.”
But it’s the citizens of those countries, rather than the central banks, who are “without question the biggest owners of gold”. “Citizens see it as the best savings asset,” he said.
“Central banks recognise it as an important savings asset. But that does not mean there’s some grand, global gold conspiracy involving the world’s central banks. It’s important to say that because otherwise people get the wrong impression.”
Mr Eliseo said it “makes sense to own gold” but “not because the world’s going to collapse”. “We’ve been valuing gold for 6000 years as human beings, in that time the world hasn’t collapsed,” he said.
“We go through good and bad times, gold stores wealth through every cycle. It’s an investment in prosperity, rather than this armageddon, end of the world, buy gold and tinned food kind of thing.”
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