Gold News

'Hands Off Our Gold Bars' Say Central Bankers to Politicians

Lawmakers challenge bullion reserves policy...
 
With CENTRAL BANKS as a group buying gold bars at the fastest pace last year since the 1960s, officials from London to Sydney now find themselves challenged about the gold bullion they hold by politicians.
 
"Like the rest of the Bank of Italy's assets, its gold cannot be used for monetary financing by the Treasury," said Rome's central-bank governor Ignazio Visco last Monday.
 
"These things are not hard to understand," Visco went on, repeating his rebuke to politicians from the anti-establishment Five Star Movement (M5s), now in coalition with the right-wing Lega Party and wanting to sell some of the Banca d'Italia's 2,451-tonne holding – the world's 3rd largest national hoard of gold bars – to cut Italy's budget deficit.
 
"I have been accused of keeping our gold reserves abroad," said Romania's central-bank chief Mugur Isărescu last month, pushing against demands from Bucharest's ruling Social Democratic Party that the National Bank's 103-tonne holdings should be lent out to earn an income, with all but 5% moved home from the Bank of International Settlements in Basel, Switzerland and the Bank of England in London.
 
"Where would you rather have them kept? They are international reserves; do you think we keep Euros and Dollars in the basement of the central bank? They are kept in accounts."
 
"[But] you keep your jewels at home, you do not keep them at your neighbors, nor do you pay rent to keep them at your neighbors," counters Senator Serban Nicolae, co-signer of the proposed law with the SDP's president Liviu Dragnea – barred from taking the job of Prime Minister by two convictions for vote-rigging but widely seen as Romania's de facto leader.
 
"Nothing in Romania's economic situation justifies keeping such an amount of gold abroad and paying the implicit costs."
 
"Most of the world's gold holdings are in London because that's where the bulk of the transactions occur," said Guy Debelle, Deputy Governor of the Reserve Bank of Australia, speaking to the Australian Parliament's Standing Committee on Economics in February.
 
If Australia's near-80 tonnes of gold bars weren't stored at the Bank of England, said RBA chief Philip Lowe at the same hearing, "we'd have to store it here in our vaults, and there'd be extra guarding.
 
"It's quite efficient to store most of the world's gold in one spot."
 
The Bank of England itself faced questions over its custody of gold bars last month after telling UK politicians they mean it cannot rent out part of its historic City of London HQ as they suggested.
 
Holding 5,047 tonnes at last count for foreign central banks and the UK Treasury – around one-sixth of all official bullion bar reserves worldwide – "Is there any reason the gold has to be in the basement of Threadneedle Street?" the Bank's chief operating officer and chair of directors were asked by Labour MP Meg Hillier, chair of the UK Parliament's Public Accounts Committee.
 
"[Because] if you are making it easier for staff to work at home, will there be any thought of renting out [parts] of Threadneedle Street?" she asked of the Bank's historic HQ. " Will we see a Wetherspoon's [pub]...?"
 
"We have a very sound security system," replied Bradley Fried, chair of the Court of Directors, "and candidly many central banks and governments wish their gold to be stored at the Bank of England."
 
On a 12-month basis, the size of gold bullion-bar holdings at the Bank of England has moved in the same direction as US Dollar gold prices two-thirds of the time (66.3%) since January 2011, the earliest data available.
 
That connection grows stronger if the change in prices is lagged by 6 months, with the quantity of gold bars held in custody at the Bank of England rising or falling together with gold prices 77.1% of the time on a 1-year basis.
 
Chart of Bank of England gold vault holdings vs. bullion price. Source: BullionVault
 
The Bank of England has also been asked both by UK Conservative MP Andrew Lewer and by Venezuela's self-declared interim president Juan Guaidó to continue refusing the release of gold bullion bars it holds in custody for the Latin American nation – a block apparently made more urgent by US sanctions against nations and institutions doing business with the elected socialist Governent of President Nicolás Maduro.
 
Lambasting the US for aggressively seeking 'regime change' in Latin America, " This amounts to state theft," said former Mayor of London Ken Livingstone and MP Chris Williamson – now both suspended from the UK's opposition Labour Party over anti-Semitic remarks – at a pro-Maduro protest outside the Bank in mid-February.
 
Continuing to challenge Maduro's rule at home meantime, Guaidó has reportedly asked US finance giant Citibank to delay any delivery of gold bars due back in Caracas under the terms of a repurchase deal agreed in 2015.
 
"Are Dragnea, Nicholae and their clique preparing to impose a dictatorial regime and so they now fear sanctions?" asks Romania's former President Traian Băsescu, himself now blocked from running as Mayor of Bucharest by accusations of corruption and money-laundering, on Facebook.
 
"[They] know that dictatorial regimes are often sanctioned by blocking the state's financial resources abroad – be it gold, foreign currency accounts or other assets – by unilateral decisions of the democratic states until the rule of law is restored.
 
"Is that why they want to bring the gold reserves into the country?"
 
Romania's gold reserves row comes after the Government's " emergency ordinance" of end-December imposed a so-called "greed tax" on the value of commercial banks' assets as well as the revenue of energy and telecoms providers in a bid to plug a fast-widening budget deficit.
 
Rebuked by the central bank, the move spurred a 20% plunge in Bucharest's stock market. Last week the Government offered to reconsider the tax if the BNR changes the way it calculates Romania's benchmark interest rate, calling the current 3.5% per year Robor rate much too high given that the rest of the European Union has near-zero and even negative interest rates.
 
"I suspect," responded central-bank advisor Lucian Croitoru, "that there's a misunderstanding or a lack of knowledge at the government level about the way the money market works and how rates are calculated."
 
"To question Romania's gold reserve is not just a sign of ignoring reality and of defying economic logic and international prudential practices," said a BNR spokesman last week, pointing to the Bucharest central bank's regular reports, "but also a form of spreading fake news."
 
Italy's spat over its national gold bar reserves comes 10 years after the Government of now-convicted tax dodger Silvio Berlucsconi attempted to levy a 6% charge on the Banca d'Italia's holdings in what it called an ' Anti-Crisis Intervention' in 2009.
 
The supra-national European Central Bank then responded to defend its Italian member, telling Rome that – under the terms of its membership of the single Euro currency – Bankitalia had absolute independence from politics, and it could not act to finance government deficits in any way.
 
Italy's bullion reserves next came into question in 2014 when members of the M5s asked whether the gold bars held by Bankitalia were real or just painted. Giorgia Meloni, leader of the right-wing Brothers of Italy, then asserted in Parliament that the gold belonged to the Italian people, not the central bank.
 
September 2018 saw M5s founder and professional comedian Beppe Grillo approve a report calling for Italy to sell some of its gold bars under the Central Bank Gold Agreement first signed in 1999 and due for renewal or expiry this coming September.
 
"It would be a one-off five-year measure," said the M5s report, "and could allow us to take a breath and provide extra budget coverage without breaking the stringent [Eurozone] parameters" on avoiding state spending deficits of more than 3% of a country's GDP.
 
"Above all it would finally put an end to this annoying claim that 'there is no money' for extra public spending. 
 
M5s economic spokesman and Parliamentary budget committee chair Claudio Borghi has now submitted a bill demanding recognition that the Banca d'Italia gold bars belong to Italy's citizens, but "I've never heard the idea [of selling gold] in cabinet meetings or any other political setting," says agriculture minister Gian Marco Centinaio of the Lega Party, denying reports in La Stampa that the coalition Treasury wants to use Italy's gold reserves to avoid having to raise VAT sales tax next year.
 
"We have 80 tonnes of gold, which has a market value of $4 billion," said Reserve Bank of Australia chief Philip Lowe last month, "and it is stored for us very safely at the Bank of England."
 
Data tracked by the mining industry's World Gold Council today put Australia's holdings at 68.7 tonnes, but its 2018 Annual Report suggests that RBA reserves totaled 77.6 tonnes as of last June 30, unchanged from a year before.
 
Analysis of official data by BullionVault suggests that the RBA had lent out 8.8 tonnes of that gold in mid-2018. Worth an average of A$450m across the year as a whole, that was nearly twice the size of its gold leasing 12 months before.
 
"We earned three-quarters of a million dollars last year from the leasing," said Lowe, "and that got returned to the taxpayer."
 
Gold leasing by central banks peaked in the late 1990s, lent to gold-mining companies wanting to sell future production to lock in prices during the metal's steep bear market ending 2001.
 
Romanian banker Lucian Isar has since 2016 called for the BNR to lease out its gold bullion bars, telling Bucharest media that the government has lost $375m of potential revenue over 10 years by leaving its gold bars unlent in the Bank of England.
 
With Aussie Dollar gold prices approaching new all-time highs late last year, Australian-listed gold miners grew their forward sales of unmined production by 31 tonnes in calendar-year 2018, according to consultancy Surbiton Associates.
 
Unable to say how much the Reserve Bank of Australia is paying the Bank of England for gold custody, "We did make the assessment [some time ago]," said RBA deputy Debelle, "that actually it was cost-effective to store it [in London], because in gold storage there are some economies of scale."
 
Germany's Bundesbank said in 2013 it was paying the Bank of England €550,000 per year for storing 438 tonnes of gold, and the Belgian finance minister said in 2015 that the National Bank of Belgium was paying a total of €250,000 annually to store 227 tonnes split between the Bank of England, the Bank of Canada, and the Bank for International Settlement in Switzerland.
 
The No.2 central-bank holder, Germany rearranged its bullion reserves in 2013-2017 following a campaign to 'Bring home our gold!', reducing its allocation in New York and moving out of Paris entirely but leaving 12.8% of its 3,378 tonnes untouched in London.
 
Holding a series of press conferences both during and on completion of the transfers, the Bundesbank last autumn published a book, coinciding with an exhibition in its Museum of Money, entitled Germany's Gold – "yet another step forward in meeting the wish for transparency," according to now retired executive-board member Carl-Ludwig Thiele, "[and giving] readers a vivid sense of what it is like to touch and feel the gold for themselves..
 
"Hence the spectacular glossy images of gold coins and bars from the Bank's vaults."
 
No.9 national holder the Netherlands also cut its New York allocation while leaving London unchanged when it rearranged its gold reserves in 2014 and leaving another one-fifth of its 612 tonnes at the Reserve Bank of Canada in Ottawa as well.
 
The DNB plans in early 2022 to move its domestic gold reserves and cash-handling division to a new purpose-built facility at the Ministry of Defense's Camp New Amsterdam site near the town of Zeist.
 
"The presence of the banknote facilities and gold stocks demands very tight security measures," the Dutch central bank says of its current arrangements, "which increasingly interfere with staff and visitor accessibility" at its HQ in Amsterdam.
 
Meantime in Caracas, a series of opposition politicians have claimed that the Maduro Government has been selling down Venezuela's remaining domestic gold reserves, bypassing US sanctions to ship metal out for sale most notably in Turkey.
 
Some 23 tonnes of newly-mined gold were flown from Venezuela to Istanbul in 2018, according to data cited by Reuters.
 
Currently arguing with Nato-ally the United States about its purchase of a missile-defense system from Russia, Turkey last week held a joint naval drill with Russian forces in the Black Sea.
 
Last month's Parliamentary questions about Australia's gold bar reserves were apparently prompted by Russian-state funded website RT.com saying that the Bank of England "has not allowed [the RBA] to carry out a proper audit of its bullion holdings" – a claim denied by RBA Governor Lowe and his deputy Debelle.
 
Russia and China – the very largest gold-buying central banks of the last decade – are not known to keep any of their national bullion reserves at the Bank of England.
 
Russia has since the year 2000 moved from 11th to to 5th place among the world's national gold holders, with the Central Bank of Russia's demand jumping since international sanctions against Moscow-connected bankers and businesses blocked exports from the No.3 gold-mining nation and purchasing 85% of Russia's output in 2018.
 
From May the CBR will demand a discount on gold bars it buys in Russia, paying as much as 0.2% below the London benchmark price by December.

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