Australia and the Bank of England - A Cautionary Tale about Gold

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In John's second YouTube he gets stuck into the RBA's audit of Australia's gold reserves at the Bank of England, tipped off by the work and FOIs of Bullion Baron (see this and this post for the background). John makes a number of valid points, the primary one being that it is not a real audit if the RBA is not able to randomly sample from its bar list without direction/limitations by the Bank of England.

John's issue with the Bank of England limiting the scope of the sample is that it enables them, given the 6 weeks notice the RBA gives, for the Bank to get bars manufactured with the required serial numbers (which it would only have to do if the Bank has been leasing/selling the RBA's gold without its permission).

This scenario is actually close to impossible given how the global refinery accreditation and manufacturing process works. ...

Having said that, John misses the key control breakdown identified by Bullion Baron which is that the Bank of England has it own numbering system and it is an open question from the FOI documents whether the RBA was just given this number or the actual serial number on the bar, as the RBA refused to provide this information. If the former, then this mean the Bank could just find a bar of similar weight (difficult but not impossible given the Bank stores 416,000 400 ounce bars) and say this matches their internal number. It is only the actual serial number stamped on the bar, in conjunction with year and refinery, that uniquely identifies a bar.

While the RBA is one of the most transparent central banks in respect of reporting on its gold reserves, Bullion Baron's FOIs reveal that they dropped (still drop?) the ball in respect of managing Australia's gold reserves. A case of 1900s "Mother Country" deference-type attitudes or maybe just because Bank of England is seen as one of the "central bank club" and so you can trust your "mates" to do the right thing?

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Amazing developments on the gold front happening in Australia! The Reserve Bank of Australia has responded to pressure from the commentary of John Adams and Martin North regarding its gold holdings.

Responding to dozens of e-mails from viewers, the RBA created a new official web page where it provided 5 official answers to 5 specific gold related questions. The RBA’s official response can be found at the following link:

https://www.rba.gov.au/qa/gold-holding.html
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... 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. (In an unallocated gold account, the customer does not own specific bars, but has an unsecured entitlement to a share of gold held in a ‘pool’.)

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.
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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.”
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