RBA bosses squirm as Aussie politicians throw easy questions about RBA gold in London


by Ronan Manly, BullionStar:

Following an 18 February RT.com article about the gold reserves of the Reserve Bank of Australia (RBA) claimed to be stored at the Bank of England, the Aussie central bank gold continued to hit the headlines later in the week (22 February) when a group of politicians on the Standing Committee on Economics of the Australian House of Representatives questioned the RBA governor and deputy governor about these gold holdings. This questioning was part of a public hearing by the Committee held in Sydney into the RBA’s 2018 Annual Report.

The RT.com article had looked into the fact that:

  1. there have never been any independent physical audits of the RBA gold in London
  2. that the last partial physical audit of the gold by the RBA was in 2013
  3. that the results of this 2013 audit were never released
  4. that the RBA has over the years lent out most if not all of its claimed gold over time
  5. that there have never been any proper gold bar weights lists published about the RBA gold nor any details of any gold lending transactions
  6. and that the RBA gold could easily be stored in Australia without the need to keep storing it in London

The background to this RT.com article is based on extended Q & A which I provided to RT.com, see 18 February BullionStar article here and also posted on ZeroHedge here, and is based on FOIA requests submitted by Joseph Skewes in February 2014 and October 2014 which led to an FOIA release by the RBA in July 2014 of a partial but obscured gold bar list, and an FOIA release in December 2014 of some redacted details about an RBA gold audit conducted in 2013.

But in what was a huge missed opportunity for the Australian politicians to actual ask some tough and probing questions about the Australian gold reserves stored abroad (as was detailed in the RT article), the Australian Standing Committee on Economics gave the RBA governor and deputy governor an easy ride, let them off the hook, and incredibly, could not come up with even one decent question. Despite this, the RBA bosses squirmed and paused, and the whole session degenerated into an at times hilarious farcical chatter reminiscent of a bunch of Aussie mates having a Friday evening drink.

Since the only way to really convey this is by looking at the hearing transcript about the gold reserves (pages 24-26), the relevant parts of the transcript are included below (in italics).

Committee ‘Chair’ in the transcript refers to Tim Wilson MP, Liberal Party of Australia, ‘Mr Josh Wilson’ is committee member Josh Wilson, Australian Labor Party, and ‘Mr Keogh’ refers to committee member Matt Keogh, Australian Labor Party (Committee members here). In the transcript, ‘Dr Lowe’ refers to RBA governor Philip Lowe, and ‘Dr Debelle’ refers to RBA deputy governor, Guy Debelle.

The relevant parts of the transcript begin as follows:

CHAIR: When was the last time the RBA did an audit of Australia’s gold holdings?

Dr Debelle: We intend to do our next one this year.

CHAIR: Physical?

Dr Debelle: Yes, a physical audit.

CHAIR: When was the last one?

Dr Lowe: In 2013. We have 80 tonnes of gold, which has a market value of $4 billion, and it is stored for us very safely at the Bank of England.

Straight off the bat, RBA’s Debelle avoids answering the Chair’s question with an evasive answer, and the Chair is forced to ask the question again. Lowe the Governor than chimes in seemingly needing to stress how safe the gold is in London. Given that its a question about an audit and not about storage, is Lowe trying to hide something? The RBA is the gold storage customer (and agent to the Australian government), the Bank of England is the custodian. The customer agent should not be apologising on behalf of the custodian and claiming how safe the custodian is.

CHAIR: Why do we store it at the Bank of England?

Dr Debelle: The gold market, as you may know, is centred in London—it has been for a few centuries.

CHAIR: I want to tease this out.

Here yet again, deputy governor Debelle avoids the question and evades a proper answer, forcing the Chair to want to ‘tease it out’.

Guy Debelle, RBA deputy governor

Dr Debelle: Outside of Fort Knox, literally, and a few other places, most of the world’s gold holdings are in London because that’s where the bulk of the transactions occur. We haven’t transacted in gold for a long time now, but the bulk of the transactions occur there, and the bulk of the storage of the physical gold is there. It’s actually in, basically, two or three sites, one of which is the Bank of England’s and the other one JPMorgan’s. In terms of ease of transaction and shifting of ownership—not that we intend to be doing that—that’s why it’s in London and has been so for a very long time.

Not surprisingly, everything said by Debelle in the above section is inaccurate. Most of the world’s gold holdings are in LondonCentral banks together claim to hold 33,000 tonnes of gold. According to the Bank of England, there are only 5000 tonnes of gold in its vaults. The Fed gold vault in New York claims to hold far more with over 5,700 tonnes of gold.  Mentioning Fort Knox is a joke and it lacks credibility. Fort Knox has never been properly audited, and besides, even mentioning Fort Knox undermines Debelle’s argument since all US Treasury gold is stored domestically on US soil and not in London.

Debelle argues that “the bulk of the transactions occur” in London , then shoots himself in the foot by saying that ‘we haven’t transacted in gold for a long time now”. So why the need for to store the RBA gold in London? Furthermore, Debelle’s claims of not having transacted in gold a long time is itself not true, since the RBA has had gold out on loan every year for the last 20 years, including in 2018, i.e. gold lending transactions.

Debelle’s claim that “the bulk of the storage of the physical gold” is in London is also simply not true. Apart from the FRBNY and the US Treasury, the Russian central banks stores all its gold in Russia (more than 20100 tonnes), the Chinese store their gold in Beijing (more than 1850 tonnes), the Taiwanese gold is in Taiwan )more than 420 tonnes), and German Bundesbank stores more than 1600 tonnes of gold in Frankfurt, the Bank of Italy has more than 1200 tonnes of gold in Rome and nearly 1000 tonnes in New York, the Banque de France stores over 2,200 tonnes of its own gold in Paris.

The IMF stores its gold (more then 2800 tonnes) across four depositories globally, the ECB holds its gold (more than 500 tonnes) across five vaults in five countries. The Swiss National Bank stores over 70% of its gold (equating to more than 700 tonnes) in its vaults in Berne in Switzerland. These are all simple facts. Nothing Debelle says is accurate, and hilariously, the Aussie Economics Committee just sits there and does not pull Debelle up on even one of these points.

JP Morgan – A Finger in every Pie

Debelle then mentions JP Morgan’s gold vault in London. This gold vault (see BullionStar profile of vault here) is under a JP Morgan building in the City of London on John Carpenter Street and Carmelite Street, and is known to store sovereign gold such as the gold of Azerbaijan. Why does Debelle mention this JP Morgan vaults? Is the RBA familiar with this JP Morgan vault? Is the RBA gold out on loan with JP Morgan in London?

Entrance to the subterranean JP Morgue gold vault, Carmelite Street, City of London

Hilariously, Debelle then digs himself even further into a hole saying that “in terms of ease of transaction and shifting of ownership- not that we intend to be doing that – that’s why it’s in London”. “Not that we intend to be doing that”? But they are already shifting ownership title through gold lending. Just look at Venezuela and Citibank on who has ownership and title.

Gold Audit explanation – Kindergarten Style

The Chair then moves on to ask the RBA’s Lowe and Debelle about auditing the gold in London, but again fails spectacularly in asking any real questions and the questions descends into farce:

CHAIR: Just to clarify: when was the last time we did an audit of it?

Dr Debelle: 2013.

Dr Lowe: 2013, and the next one is due in June this year.

Dr Debelle: Sorry, that’s in terms of auditing by actually going in and—

CHAIR: Counting—one, two, three, four, five, six?

Dr Debelle: Or prodding. Weighing, actually, is relevant there too. Counting only gets you so far. You’re actually at least as interested in the weight as you are in the number. If you think about the assets that we hold in our reserves, we have a whole bunch of US treasuries. We audit them from a financial point of view as part of our annual accounts, and we do the same to the gold from a financial point of view. That is audited every year as part of a—not just by us.

CHAIR: But the physical inspection—

Dr Debelle: The actual physical—

CHAIR: is, what, over seven years?

Dr Debelle: No, six years, actually.

CHAIR: Every six years.

Guy Debelle, RBA deputy governor, and Philip Lowe, RBA governor (speaking)

A quick 10 minute reading of the FOI release about the 2013 gold audit by the RBA in London would have allowed the Chair, Tim Wilson, to see the following:

  1. The 2013 gold audit by the RBA was not a full audit, It was only a partial audit that inspected a random sample of gold bars
  2. The gold audit was not publicized in advance and details abour it only came into the public domain through a redacted FOIA release
  3. The results of the 2013 audit were never made public
  4. The FOIA emails and correspondence that the RBA did release were heavily redacted without any details of how many gold bars were selected and what the sample size was
  5. The RBA gold audit did not follow any generally accepted gold audit standards such as the gold audits conducted on the SPDR Gold Trust (which also holds its gold in London).
  6. The SPDR Gold Trust (GLD) has annual physical gold audits of all of its gold holdings (nearly 800 tonnes) which is 10 times more gold than the RBA holds.
  7. Up until July 2013, the RBA didn’t even have formal ‘gold safe-custody arrangements’ in place with the Bank of England, as the FOI release shows.

Debelle and the Chair then continue their chatter about the audits, but there is no questioning of why an RBA audit is only done every 6 years:

Dr Debelle: We were the first country that the Bank of England- you can debate this with them- allowed to audit their gold stocks, and then subsequently everyone else has joined that bandwagon, and now it’s back to us again.

What the Chair fails to realise and what the RBA bosses failed to tell the Chair is that other central banks conduct gold audits at the Bank of England more regularly. For example, the Danish central bank, Danmarks Nationalbank, conducted a gold audit at the Bank of England in March 2014 and then the Danes conducted another gold audit at the Bank of England  in October 2018. That is two audits by the Danes since the 2013 RBA audit, i.e. 2 audits in 4.5 years. Why does it take a huge 6 years for the RBA to do another audit? Is the gold actually there and why was a 2nd audit not undertaken before the 2nd Danish gold audit?

Tim Wilson MP, Chair of Standing Committee on Economics of the Australian House of Representatives

CHAIR: For clarity: when the audit was done, was there any discrepancy between what we thought we held and what we actually held?

Dr Debelle: No.

CHAIR: It was exactly the same?

Dr Debelle: Yes.

Here again, the Chair fails in his responsibility to ask any proper questions such as ‘why were the results of the 2013 audit were never made public?” and “why were the FOIA emails and correspondence that the RBA did release heavily redacted without any details of how many gold bars were selected and what the sample size was?

Gold Lending for Dummies – And they still don’t get it

The hearing then moves on to gold leasing (aka gold lending), starting with a misleading answer from Debelle:

CHAIR: Do we engage in gold leasing?

Dr Debelle: Yes.

CHAIR: Can you explain to me why?

Dr Debelle: To add a rate of return to the reserves that we hold on the part of the Australian people, which flows pretty much straight through to you, the parliament. Gold, if you just leave it sitting there, unlike a treasury bond, for instance, earns no rate of return, whereas a bond does. A way of delivering a slightly larger rate of return- it’s not that large at the moment, but it’s positive – on those holdings of gold is to lease it for periods of time.

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