Submitted by Ronan Manly of
BullionStar
The Keys to the Gold Vaults at the New York Fed – Part 3:
‘Coin Bars’, ‘Melts’ and the Bundesbank
Part 1 of this series reviewed Federal
Reserve Bank of New York (FRBNY) publications that
cover the Fed’s gold storage vaults in Manhattan, and
illustrated how the information in these publications has been
watered down over time. Part 1 also showed that the number of
foreign central bank customers storing gold with the FRBNY has
fallen substantially since the late 1990s.
Part 2covered the Fed’s rarely
discussed ‘Auxiliary Vault’ and suggested that this auxiliary
vault of the Fed is probably located in the neighbouring Chase
Manhattan Plaza vault facility, now run by JP Morgan.
Part 3now looks at ‘
Coin Bars’, another rarely discussed topic which
is relevant to the gold at the New York Fed and that may well
explain why the
Deutsche Bundesbankneeded to melt down the
majority of the gold that it has so far repatriated from New
York.
‘Coin bars’ is a bullion industry term referring to bars that
were made by melting gold coins in a process that did not refine
the gold nor remove the other metals or metal alloys that were in
the coins. The molten metal was just recast directly into bar
form.
Because it’s a concept critical to the FRBNY stored gold, the
concept of US Assay Office / Mint gold bar ‘
Melts’ is also highlighted below. Melts are
batches of gold bars, usually between 18 and 22 bars, that when
produced, were stamped with a melt number and a fineness, but were
weight-listed as one unit. The US Assay Office produced
both 0.995 fine gold bars and coin bars as Melts. The gold
bars in a Melt are usually stored together unless that melt has
been ‘broken’.
New York Fed – Coin Bars ‘?’ Us
I think it’s critical to note that a reference to low-grade ‘
coin bars
’ in the
1991 versionof the Fed’s
‘Key to the Gold Vault’ (KTTGV) has been
omitted in subsequent additions of KTTGV.
The text in this 1991 ‘Key to the Gold Vault’ is based on older
versions of the same publication that go back to the original
version written by Charles Parnow in 1973. See Part 1 for
discussion of Charles Parnow and the editions of the KTTGV and the
‘
A Day at the Fed‘ publications.
The reference to
coin barsin the 1991 version of KTTGV is as
follows:
“
The butter yellow bars in the vault are nearly 100 percent pure
and are usually made of newly mined gold.
Reddish bars contain copper and other impurities and generally
consist of
melted gold
coinsand jewellery containing alloys.
Since 1968, a number of these “coin” bars, dating back to
the early 1900s, have been stored in the Bank’s
vault.
Silver and platinum impurities make gold white; iron produce
shades of green.” (KTTGV 1991)
In comparison, the 1998 and later versions of KTTGV have omitted
the reference to ‘coin bars’, and the discussion about gold bars
and other metals has been shortened as follows:
“
Traces of silver and platinum give the gold a whitish shade,
copper is most often found in reddish bars, and iron produces a
greenish hue.
The butter-yellow bars in the vault are made of newly mined
gold.” (KTTGV 1991, 2004, 2008)
There is also no mention of coin bars on the current NY Fed gold
information page
here. This is despite the fact that there
are still coin bars held in the Fed’s New York gold vaults, as
illustrated by the US Treasury’s gold bar inventory weight lists at
the FRBNY. See below.
What exactly are Coin Bars?
In the early 20th century, a lot of countries were on a gold
standard and gold coins circulated as part of the money supply, for
example in Germany, the US, France and Britain. When countries went
off the gold standard (or went off a circulating gold standard),
some of these gold coins were melted down into bars in the 1920s
and early 1930s.
Historically, gold coins that circulated as money were not made
of pure gold since other metals (about 10%) were added to the gold
to improve the coin’s strength and durability. So if a batch
of coins contained 90% gold and 10% of other metals, the bars made
by melting these coins would contain 90% gold and 10% other metals,
since no refining of the gold was undertaken after the coins were
melted.
Because coin bars were being made in the early 1930s, the London
Gold Market (a precursor of the London Bullion Market Association
(LBMA)) included an exact definition for coin bars in its 1934
London Good Delivery List, in addition to gold bars of 995 (or
above) fineness.
“1934 LONDON GOOD DELIVERY LIST
Specification of bars acceptable on the London Gold Market
1. Gold bars conforming to the following specification are Good
Delivery in the London market:
(a) Fine bars, i.e. bars assaying 995 per mille or over and
containing between 350 and 430 ounces of fine gold;
(b) Coin bars, i.e. bars assaying 899 to 901 per mille or 915
1/2 to 917 per mille and containing between 350 and 420 ounces of
fine gold;
provided that they bear the stamp of the following:”
(Source: The London Good
Delivery List – Building a Global Brand 1750 – 2010)
The 1934 definition specified that if a coin bar was produced by
one of nineteen European mints or the United States Assay Office,
then it was considered a ‘good delivery’ gold bar at that time. The
European mints spanned Britain, France, Germany, Belgium, Holland,
Sweden and Switzerland.
The specification of coin bars with a gold content (or fineness)
of
between 899 to 901in the definition allowed
the inclusion of gold coins from Continental Europe such
as French Napoleon coins which had this particular gold content.
The gold content of some US gold coins also fell within this range
since they were made of 0.899 or 0.9 gold.
The
915 ½ to 917 rangewas included in the definition
since 22 carat gold is 22/24 or 0.91667. This 22 carat gold,
known as crown gold, was used in various gold coins such as
British Sovereigns, and also some US gold coins.
But coin bars were in some ways a historical anomaly or a
product of their time. Even at launch in 1919, the London gold
fixing was a price quotation for 400 oz bars of 995 fineness. As
gold expert Timothy Green said in the book “The London Good
Delivery List – Building a Global Brand 1750 – 2010? about the 1919
gold fixing launch:
“
the (fixing) price was now quoted for 400-ounce / 995 Good
Delivery bars, rather than the traditional 916 standard coin bars
which rapidly became extinct as minting of coin virtually
ceased.”
In the 19th century and very early 20th century, some refineries
used to specifically produce ‘916 standard’ coin bars back that
were used as a source to
make gold coins. But the now famous 400 oz
fine gold bars had been accepted by the Bank of
England since 1871 when Sir Anthony de Rothschild convinced the
Bank of England to accept them. The Bank of England had also
begun to accept US Assay Office 400 oz bars of 995 fineness (fine
bars) in 1919.
There do not appear to have been that many coin bars made in the
early 1930s when mints melted down gold coins. In his book, Green
cites a 1930 example of the Royal Mint in London embarking on a 2
year programme to melt down 90 million British Sovereigns (916.7
fine gold coins) into 52,000 bars each weighing 450 ozs. This is
about 650 – 700 tonnes of gold. Each of these bars was stamped with
the stamp of the Royal Mint as well as the fineness and a serial
number on each bar.
Green also explains that although in 1936 the London Gold Market
produced an updated good delivery list that added some
additional refineries and mints to the 1934 list, there did not
seem to be a lot of coin bars produced. Green says:
“The inclusion of mints (in the 1936 list) is interesting,
suggesting that some like the Royal Mint in London, were
melting coin,
but there is little evidence of any producing significant
quantities of bars.”
By the late 1920s, gold bar demand had shifted to central banks
who wanted fine gold bars for their vaults. Green says that by
1929, 90 per cent of ‘monetary’ gold resided in these central bank
vaults.
(Source: “The London Good Delivery List – Building a
Global Brand 1750 – 2010. Authors: Timothy Green (Part I) and
Stewart Murray (Part II). Published by the LBMA, 2010)
Roosevelt’s Coin Bars
Apart from melted coins from Europe, there is another
significant source of coin bars, namely the coin bars produced from
US gold coins that were melted down during the US gold
confiscation period circa 1933-1934.
Some of the US Treasury’s coin bars originated from this
gold coin confiscation and melting period, and these coin bars were
then shipped to the US Mint’s Fort Knox facility in Kentucky when
it opened in 1937.
The authoritative source for information on the different
producers of gold bars worldwide is a company called Grendon
International who have a web site called
http://www.goldbarsworldwide.com. This web site produces guides
explaining the whole spectrum of gold bar varieties. In its
US Assay Office gold bar guide, Grendon
states:
“It is understood that the bars (produced by the US Mint /
AssayOffices) had a minimum purity of 995+ parts gold in 1,000
parts, with the exception of those 400 oz bars that contained “Coin
Gold”.
“Coin Gold” 400 oz bars were manufactured by melting down and
then casting into bars gold coins that had been withdrawn from
public circulation,
mainly as a result of the prohibition in 1933 of private
gold ownership in the United States. T
he gold purity of these
bars reflected the purity of U.S. gold coins,
usually 900or
916 parts goldin a 1,000 parts.
In an article about the US confiscation and the US coins
that were actually melted, lawyer and coin expert David Ganz
demonstrates that there were not a large amount of US
gold coins melted by the US authorities in the 1930s.
In his article, Ganz has a table showing the total number of
gold coins minted and melted over the 1930s, classified by coin
denomination up to the $20 coin. Given that the $20 coin has 0.9675
ounces, and the $10 has 0.48375 ounces etc, you can work out the
total number of millions of ounces that were produced from melted
coins. Ganz says:
“
Product of gold confiscation was gold melting; the coins were
melted into bricks that ultimately found their way to Fort Knox.
Although the Mint had a program from the mid-1860’s until about
1950 to melt or re-coin copper, silver and gold coinage, the
majority of gold coins were taken in and destroyed in a Seven year
period (1932-1939)“.
Ganz’ statistics come directly from the annual reports of
the Treasury’s Director of the Mint. Ganz says “
All told, over 124 million coins were melted through the years
(102 million gold coins were melted as a result of government
assistance from 1933- 1939).”
However when you calculate the amount of gold in these 124
million coins, it only works out at about 85.6 million fine ounces,
which is 2,662 tonnes of gold.
Some of the European coin bars made it across the Atlantic circa
1934 when the US raised the price of gold to $35 per ounce and the
US Treasury offered to buy all gold at this price, including coin
bars from the London Gold Market.
All gold arriving into the US Treasury’s assay offices was
apparently remelted into US Assay Office bars but statistics
on how many European coin bars entered the US market at that
time do not seem to be available.
Since there were not that many European coin bars made by
European mints in the 1930s (for example, the Royal Mint 1930
programme made only 650-700 tonnes of coin bars), then
there cannot have been more than a few thousand
tonnes of European coin bars entering the US at that
time.
Co
in Bars ceased to be ‘Good Delivery’ bars in 1954
During World War II the London Gold Market essentially closed
down and really only re-opened in March 1954 when the Gold Fixing
restarted. When the London Gold Market re-opened, a new
1954 London Good Delivery List for gold was published. This list
only included gold bars of 0.995 fineness or higher, and coin bars
ceased to be London good delivery standard. As Stewart Murray,
former LBMA CEO says: “
The new List published in 1954 only allowed fine bars of
995+.” (page 40, “Good Delivery Accreditation – A Short
History”).
It’s therefore very strange that the Fed’s 1991 ‘Key to the Gold
Vault’ publication states that it was only “
s
ince 1968?that
“a number of these ‘coin bars’, dating back to the
early 1900s, have been stored in the Bank’s vault.”This
implies that coin bars were not at the New York Fed gold vaults
immediately prior to 1968.
Why would these
coin bars suddenly appear at the FRBNY vault in
1968? To answer this question, its important to recall
that 1968 was the year in which the London Gold Pool collapsed
(March 1968).
Since coin bars have not been good delivery bars
since 1954, US Treasury coin bars appear to
have begun to turn up in the New York gold vaults in 1968
because there was a shortage of good delivery US Assay Office
gold bars to satisfy foreign central bank gold transaction
settlements.
Scraping
the barrel – March 1968
That the US Treasury and Federal Reserve had a major shortage of
good delivery gold in March 1968 is illustrated by a Bank of
England memo from 14th March 1968, which highlights that the London
Gold Pool collapsed because the US monetary authorities were unable
to find any good delivery gold in their own stocks, and were
confronted with the prospect of having to supply their Fort Knox
low-grade ‘coin bars’ to the market.
The Bank of England memo, titled ‘
Gold Bars for Delivery in the London Market‘ was
written by George Preston (LTGP) and addressed to the Deputy
Governor Maurice Parsons and the Chief Cashier John Fforde. It
discussed the ramifications of delivering coin bars to the London
Gold Market. The memo is referenced as entry ’49’ from file C43/323
i.e.
C43/323/49.
Points 1 and 2 in the memo described what was good delivery at
that time in 1968, and are included here to illustrate that coin
bars were not even being countenanced as good delivery back in
1968. No one had even thought about coin bars since the 1930s.
However,
Point 3is the critical point. A short quote from
the memo:
“1. The current specification of bars which are good delivery
in the London market requires that they shall be of a minimum
fineness of .995 and shall have a minimum gold content of 350 fine
ounces and a maximum of 430 fine ounces.”
“2. In the 1930s when the Bank were delivering bars to the
market to satisfy French demands for gold, they had to deliver coin
bars and the specification in the 1930’s included bars not only
.995 fine but coin bars assaying between .899 and .901 and also
.915 1/2 to .917. Bars of both varieties had to contain between 350
and 430 ounces of fine gold.”
“3.
It has emerged in conversations with the Federal Reserve
Bank that the majority of the gold held at Fort Knox
is in the form of coin bars, and that in certain cases these bars
have a gold content of less than 350 fine ounces.
If the drain on U.S.
stocks continues it is inevitable that the Federal Reserve Bank
will be forced to deliver what bars they have.
Capacity to further refine coin bars to the current minimum
fineness of .995 in the United States is entirely inadequate to
cope with conversion on the scale that would be required if the
Americans wished to continue to deliver bars assaying .995 or
better. Equally the capacity in the U.K. is inadequate for this
task.”
The Fed asked the Bank of England to discuss the situation with
Rothschilds (the chair of the gold market) at partner level.
The memo then covers some discussion with Mr Bucks and Mr Hawes of
Rothschilds about the acceptability of delivering coin bars to the
London Gold Market. Supplying the market with coin bars was thought
by the Bank and Rothschilds to be problematic, and the memo
concluded, somewhat ominously:
“
it would appear that the circumstances might well be such
that very few bars of the current acceptable fineness could be
found” (by the Americans)
Ominously, because, as some readers will be aware, the London
Gold Pool collapsed that evening, Thursday 14th March 1968. On the
following day, 15th March 1968, an emergency bank holiday was
called for British financial markets, the London gold market
remained closed (and stayed close for the next two weeks), and the
gold price began to float for non-official transactions.
Migration of Coin Bars from FRBNY to the Bank of
England
That foreign central banks were provided with coin bars at the
New York Fed is a fact, as illustrated by the following.
In 2004, speaking at a conference of the American Institute for
Economic Research (AIER), (
AIER Conference May 2004 Gold
Standard), H. David Willey, formerly of the Federal
Reserve Bank of New York,
“
Gold held by foreign authorities under earmark at the Federal
Reserve Bank of New York may be
in the form of coin barsonly approximating 400
ounces and with a much lesser purity.”
“
In the last decades, there has been
a gradual migration of central bank coin bars from the New
York Federal Reserve vaults to the Bank of England.These
bars have been first re-refined into London good delivery form.
Once at the Bank of England, the bars can readily be used for gold
loans or sales.”
H. David Willey was “
formerly Vice President of the Federal Reserve Bank of New York
in charge of the discount window, and later responsible for
oversight of the Federal Reserve’s accounts (including gold) with
foreign central banks (1964-82); advisor to Morgan Stanley’s gold
and fixed-income business (1982-2000).”
(Source: Page 62:
https://www.aier.org/sites/default/files/publications/GC%20%...)
A central bank would only be confronted with a need to convert
its FRBNY coin bar holdings to good delivery gold and move them to
London if it didn’t have any 995 fine gold at the FRBNY.
As to how many banks engaged in this activity and sent their coin
bars to the refineries is unclear.
US Treasury coin bars
While some foreign central banks seem to have tried to get rid
of their non-good delivery coin bars over the years by having them
melted down, there are still coin bars held in the New York Fed
vault(s).
The US Treasury claims to hold gold at four locations, namely
Fort Knox in Kentucky, Denver in Colorado, West Point in up-state
New York, and at the Federal Reserve Bank of New York in Manhattan,
NY.
According to the US Treasury’s own full gold inventory schedule
(which have never been independently and physically audited), over
80% of the US Treasury gold bars listed are not good delivery bars
and are in the form of coin bars and other low fineness gold bars.
See
pdf herefor a detailed list of the gold the US
Treasury claims to hold at Fort Knox, Denver and West Point. An
excel version of the US Treasury list is
here in xls.
There is a neat table summarising the weight and purity of the
US Treasury’s gold bar ‘lists’
here, taken from the
goldchat blogsite.
There has been very little gold bar activity in or out of Fort
Knox since 1968. If there was nothing, or next to nothing, except
coin bars at Fort Knox in March 1968 (as the FRB told the Bank of
England in March 1968), then how could there now be over 147
million ozs of gold (over 4,500 tonnes) at Fort Knox if its all or
nearly all in the form of coin bars? The numbers don’t add up.
Said another way, if the US melted around 2,600 tonnes of US
gold coins in the 1930s into coin bars, and if some European coin
bars were converted into US Assay Office coin bars (also in the
1930s), how could this add up to even 4,500 tonnes, let alone add
up to all the coin bar gold that the US Treasury claims to hold at
Fort Knox, Denver and West Point combined, and all the coin bars
held by foreign central banks at the FRBNY?
US Treasury coin bars at the FRBNY
Surprisingly, the US Treasury lists how many coins bars it
holds at the FRBNY. According to its custodial inventory
statement, about 5% of the US Treasury’s gold is held at the FRBNY
in the form of 31,204 bars stored in 11 compartments (listed as
compartments A – K).
The US Treasury gold claimed to be stored at the FRBNY is
listed in weight lists
here, starting on page 132 of the pdf (or page
128 of file).
Of the US Treasury’s eleven compartments listed at the FRBNY,
coin bars are listed as being held in four of these compartments,
namely compartments H, J, K and E.
Compartment Hof the US Treasury’s gold at the
FRBNY contains coin bars produced by the US Assay Office.
These bars are listed in ‘melts’, with more than 60 melts listed,
each with about 20+ bars. This would be in excess of 12-13 tonnes.
See the following screenshots as examples.
All the bars listed in the Treasury’s
Compartment Jare US Assay Office coin bars, listed
in melts. This amounts to 968,000 fine ounces, or about 30 tonnes.
See the following two screenshots.
Compartment Kalso contains about 5 tonnes of coin
bars belonging to the US Treasury. Screenshot not shown for
brevity.
Additionally,
Compartment Econtains approximately 1 tonne of
coin bars that are
not US Assay Office coin bars. These coin bars are
listed as being produced by refiners such as Marret-Bonnin,
Rothschild, Comptoir-Lyon and the Royal Canadian Mint. All four of
these refiners were listed on the 1934 Good Delivery List of
refiners of coin bars.
Source:
http://financialservices.house.gov/uploadedfiles/112-41.pdf
Overall, a quick calculation of the above weight lists suggests
that the US Treasury holds about 50 tonnes of coin bars at the New
York Fed. Interestingly, this is roughly the same amount of gold
that the Bundesbank says that it melted/smelted in 2014 after
repatriating it from the New York Fed.
US Assay Office 0.995 fine bars vs US Assay
Office coin bars
Its important to understand the difference between good delivery
US Assay Office gold bars and US Assay Office coin bars (circa 0.90
fine). US Assay Office gold bars that have a gold content of 0.995
fine or higher are still good delivery in the London Gold Market
and in international transactions because US Assay Office 0.995
bars are still on the ‘former’ London good delivery list.
The LBMA’s London Good Delivery List is a list of refineries
worldwide whose gold bars are acceptable by the London Gold Market.
This list contains two parts, a
current listand a
former list. The former list includes refineries whose
gold bars are still accepted by the London Gold Market but who no
longer produce these gold bars.
In September 1997, the LBMA transferred ‘US Assay Office’ gold
bars to the former list because they were no longer produced by the
US Assay Office after this date. These are bars that were produced
by the New York Assay Office and the San Francisco and Denver
Mints.
Gold bars that are on the former list are still accepted as
London Good Delivery as long as they have been produced prior to
the date of transfer to the former list, and as long as the bars
meet the London Good Delivery standards.
Therefore, US Assay Office gold bars (995 fine) are still
accepted as London good delivery bars. Just look at the bar list
for the SPDR Gold Trust (GLD) and you will see plenty of US Assay
Office gold bars listed. These bars have appeared at various times
recently with a variety of descriptions such as ‘US ASSAY OFFICE
NY’, ‘U.S Assay Office’, ‘United States Assay Offices & Mints’,
‘US ASSAY OFFICE NEW YORK’, ‘UNITED STATES ASSAY OFFICE’ etc
etc.
US Assay Office gold bar MELTS
Its important to grasp what a MELT is as applied to US Assay
Office Gold because it applies to a lot of the gold held at the
FRBNY vaults. Non US refineries and mints also produced gold bars
in batches but they didn’t make use of a melt numbering system in
such an obvious way as the US Assay Office.
Here’s the Federal Reserve Board explaining 0.995
Melts:
“US Assay Office bars, like bars in other countries, are
produced in melts or a series of bars, numbered in succession.
For instance, melt No. I contains 20 bars.Hence,
the bars are stamped 1-1, 1-2, etc… , 1-20.”
“US Assay Office bars are gold bars that are originally issued
by the US Assay Office and that have not been mutilated and which,
if originally issued in the form of a melt, are re-deposited as a
complete melt. These bars are not melted and assayed.
They weigh approximately 400 troy ounces, the fineness of
their gold content is .995 (99.5% purity or better), and they come
in complete melts.
“When an US Assay Office bar is removed from a melt, it is
referred to as a
mutilated US Assay Office bar.”
Source: ‘Final report of the gold team’, draft June 30th, 2000.
Page 13 of document: (
http://www.clintonlibrary.gov/assets/storage/Research-Digita......)
Here’s a very good description of Melts from none other than the
International Monetary Fund. This description comes from an IMF
document in 1976 when they were preparing their gold auctions and
restitutions:
“..most of the gold of the Fund (IMF)
is not in the form of individually stamped and weighed
barsbut consists, with the exception of the gold held in
depositories in the United Kingdom and India, of
melts
,
comprising 18-22
individual bars, which will first need to be identified,
weighed, and selected before they can be delivered. 1/
“
Footnote 1/ on the same IMF page describes ‘Melts’ as:
“1/ A melt is an original cast of a number of bars, usually
between 18 and 22. The bars of an unbroken melt are s
tamped with the melt number and fineness but
weight-listed as one
unit; when a melt is broken, individual bars must
be weighed and stamped for identification.
It is the practice in New York and Paris to keep melts
intact
.”
Swiss National Bank refining operations
The Swiss National Bank (SNB) admits that it too has held
non-good delivery gold, and has sought, over a 30 year period from
1977-2007, to get it refined to good delivery status:
“
The National Bank has commissioned numerous refining
operations during the last
thirty yearsin
order to obtain the ‘good delivery’ quality label for its entire
gold holdings.
Swiss gold refining firms were prepared to undertake these
operations free of charge, as the SNB provided them, in return,
with a ‘working capital’ of several tonnes – more than was strictly
necessary for their activity on behalf of the central bank.
This mutually profitable arrangement was challenged in 1982,
when the SNB’s legal services concluded that it raised a number of
problems, in particular that it effectively constituted an
unsecured advance, similar to a gold loan. The National Bank’s
deposits with refining firms were therefore liquidated in the same
year, and subsequently,
the cost of refining operations was invoiced directly to
the SNB.“
(page 433, section 8.2 The National Bank’s gold operations, from
the 800+ page publication “
The Swiss National Bank 1907 – 2007” (large
file: 800+ pages.)
The SNB had a lot of gold at the FRBNY up until at least
the mid to late 1990s (since there are large FRBNY gold outflows
during that period), and the Swiss gold sales appear to have
targeted this New York gold, however, the Swiss gold sales settled
out of London so it looks like Swiss gold may have been on the move
in the late 1990s, even before the SNB had got the go-ahead to
engage in gold sales over the 2000-2004 period. Perhaps the SNB’s
Swiss refinery operations cited above involved some of the SNB’s
New York gold as it stopped off in Switzerland on its way to
London?
The Curious Case of the German Bundesbank
There has been widespread coverage of the Deutsche Bundesbank’s
attempts to repatriate some of its gold reserves from New York and
Paris back to Frankfurt. A lot of this coverage is, in my view,
failing to ask the right questions about the fineness of the gold
bars repatriated.
In January 2014, the Bundesbank announced that it had
repatriated a paltry 5 tonnes of gold from the New York Federal
Reserve Bank during 2013.
The
Bundesbank press releasefrom 20th January 2014,
quoted Bundesbank Executive Board member Carl-Ludwig Thiele as
follows:
‘”
We had
bars of gold which did
not meet the ‘London Good Delivery’ general market
standardmelted down and recast. We are cooperating with
gold smeltersin Europe,” Thiele continued. The
smelting processis being observed by independent
experts. It is set up in such a manner that the Bundesbank’s gold
cannot be commingled with foreign gold at any time.’
Since the Bundesbank is fond of using the term ‘
smelting‘ and ‘
smelters‘ in their gold bar discussions, what
exactly does ‘smelting’ mean?
SMELT dictionary definition: Smelt (verb):
1. to fuse or melt (ore)
in order to separate the metalcontained
2. to obtain or
refine(metal) in this way.
To me, it appears that the Bundesbank melted down and refined
coin bars into London Good Delivery bars, otherwise why else would
they need to bring gold up to good delivery standard? After all,
normal US Assay Office gold bars of 0.995 fineness are already good
delivery. So I emailed the Bundesbank at that time (January 2014)
and asked them straight out:
“
How many tonnes of coin bars does the Bundesbank hold at the
Federal Reserve in New York in addition to the 5 tonnes of
coin bar gold recently remelted? And will all the gold
(circa 300 tonnes) that is planned to be brought back from New
York be in the form of coin bars? Regards,“
The Bundesbank replied, directing me back to their press
release:
“
in the Link attached you will find more information
about your matter.
http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK...
Yours sincerely, DEUTSCHE BUNDESBANK“
Since I had asked about ‘coin bars’ and the Bundesbank had sent
me a link to the press release about smelting, could the Bundesbank
have been conceding that the smelting was of coin bars? Quite
Possibly.
On 19th February 2014, Carl-Ludwig Thiele popped up again
referring to the ‘smelting’ operation in an
interviewconducted with German newspaper
Handelsblatt:
“
Some of the bars in our stocks in New York were produced
before the Second World War.”
“Our internal audit team was present last year during the
on-site removal of gold bars and closely monitored everything.
The smelting processis also being monitored by
independent experts.”
“The very same gold arrived at
the European gold smeltersthat we had
commissioned.”
“The gold was removed from the vault in the presence of the
internal audit team and transported to Europe. Only once the gold
had arrived in Europe was it
melted down and
broughtto the
current bar standard.”
The frequent use of the words ‘smelting’ and ‘smelters’, in my
opinion, suggests that not only were the Bundesbank’s gold bars
melted and reformed into fresh bars, but that the gold was smelted
and refined from a lessor purity to a ‘good delivery’ purity. This
is why the opaque manoeuvres of the Bundesbank suggest ‘coin
bars’.
Thiele’s reference to “
s
ome of the bars in our stocks in New York were produced
before the Second World War” is again hinting at the
1930s, and to me is clearly suggesting ‘Coin Bars’.
From 5 to 50 tonnes
The 2013 five tonne smelting mystery was merely a prelude to
much more of the same in 2014, because in January 2015, the
Bundesbank issued a
press releasein which it claimed to have
repatriated 85 tonnes of gold from the FRB in New York, of which
approximately 50 tonnes was melted and recast.
Smelting/Melting expert Carl-Ludwig Thiele was again on hand to
explain:
“The Bundesbank took advantage of the transfer from New York to
have roughly
50 tonnes of gold melted down and recast according to the
London Good Delivery standard,today’s internationally
recognised standard.”
I then emailed the Bundesbank and asked:
“The Bundesbank press release from yesterday (see link below)
refers to the fact that 50 tonnes of gold that was repatriated from
the Federal Reserve in New York was recast / remelted before being
received by the Bundesbank.
Can you clarify
what the gold fineness (parts per thousand of gold in the
bars) of these 50 tonnes of bars was before they were recast /
remelted?
http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK...”
The Bundesbank replied to my email:
“Please understand that we do not provide any information on
the physical details of
single gold
barsowned by Deutsche Bundesbank. Nevertheless, we would
like to draw your attention on the fact that no irregularities
where found concerning the gold melted down and
recast according to the
London Good Delivery standard.
Please take into account that this standard asks i.a. for a
minimum fineness of 995 parts per thousand.“
(i.a.= inter alia = among other
things)
Notwithstanding that I didn’t ask about single gold bars, its
very interesting that the Bundesbank mentions 995. Why mention the
fineness of 995? If the bars were already 995, why melt them down
in the first place?
I then sent the Bundesbank a follow-up email:
“Thanks for the reply but I wasn’t asking about the details of
single gold bars.
My question is what was the
average fineness of
the 50 tonnes of gold barsthat the Bundesbank had remelted
in 2014. That’s the
average fineness on
approximately 4,000 bars.
The Bundesbank replied:
“Please understand that we do not provide any further
information on the
details of specific gold bars
or a specific amount of
gold bars
owned by
Deutsche Bundesbank.”
In my view, the Bundesbank’s complete secrecy on this smelting
issue speaks volumes. And you also see now that the Bundesbank
cannot give a straight answer when asked simple questions about its
gold.
In both January 2014 and January 2015, the Bundesbank claims
that the Bank for International Settlements (BIS) was in some
way involved in the Bundesbank’s gold smelting shenanigans. This
makes little or no sense unless their was some type of location
swap involved or the BIS has some deal with a refinery such as
Metalor in Neuchâtel.
In January 2014 Thiele said:
“The Bundesbank has repatriated the gold from New York City in
close cooperation with the Bank for International Settlements. “The
Bank for International Settlements is a repository of expertise in
the repatriation of gold. It is a very trustworthy
institution.”
In January 2015 Thiele said:
“We also called on the expertise of the Bank for International
Settlements for the spot checks that had to be carried out. As
expected, there were no irregularities.”
The
BIS trades gold ‘loco Berne’using its account at the Swiss
National bank (SNB) vaults, and the BIS maintains safekeeping
and settlements facilities that are “available loco London, Berne
or New York.”
Bundesbank gold looks like it left the FRBNY vaults during 2013
and 2014 in batches of 5.16 tonnes. See the Fed’s foreign earmarked
gold statistics
here. But on a net basis there is a shortfall
of about 32 tonnes in 2014 between the amount of gold that
left the FRBNY vaults and the amount of gold that the Bundesbank
and De Nederlandsche Bank combined claim that they repatriated from
the FRBNY during 2014.
Therefore, there may have been a gold location swap involved
somewhere along the line. For some of the Bundesbank’s melting
operations, gold may not have moved physically from the FRBNY at
all. A gold location swap could have been done between a BIS FRBNY
gold account and a BIS SNB gold account. Since the gold needed
to be remelted / recast (to bring it to good delivery status), that
would mean there were coin bars at the SNB.
The Metalor gold refinery (one of the 4 big gold refineries in
Switzerland and one of the 6 biggest in the world) is very near the
SNB’s Berne vault. Its located at Neuchâtel, about 50kms from
Berne. The three other large Swiss gold refineries are all
quite far from Berne as they are situated in southern Switzerland
near the Italian border within a mile or two of each other,
(Valcambi is in Balerna, Pamp in Castel San Pietro, and
Argor-Heraeus is in Mendrisio).
If the BIS did some location swaps between the FRBNY and the
SNB, it could get coin bars at the SNB vaults remelted at
Metalor and then get the new gold bars flown to the Bundesbank
in Frankfurt.
This would prevent the need to fly gold from New York City, and
it would explain the “close cooperation” of the BIS in the
operations.
Going Dutch
In contrast, that other great gold repatriating nation of 2014,
namely the Netherlands, did not see the need to melt any of
the bars that it repatriated. In its
press releasein November 2014, the De
Nederlandsche Bank simply said they had repatriated their gold to
Amsterdam, apparently in quite a quick fashion.
And why would the Dutch need to melt anything, since after all,
their gold in New York was in 995 Melts, as confirmed by Dutch
Central Bank official Jan Lamers.
Here is Lamers in 2005
http://www.dnb.nl/binaries/goudbeheer%20van%20DNB_tcm46-1460...">talking
about the DNB’s gold bar holdings at the FRB, which were held in
normal US Assay Office Melts:
“The New York stock does not meet the standards prevailing on
the international gold market, the so-called London “good delivery”
standards.
The biggest difference is that the bars in New York are not
individualized, but are part of a package of about 20
bars, wherein
the package as a whole
has an overall weight and number.
The bars in the package would need to be weighed and
numbered individually to meet ‘good delivery’
standards.”
I translated the above, so here is the original Dutch from
Lamers:
“De voorraad in New York voldoet echter niet aan de standaarden
die gelden op de internationale goudmarkt, de zogenoemde Londense
‘good delivery’ standaard. Het grootste verschil is dat de baren in
New York niet zijn geïndividualiseerd, maar onderdeel zijn van een
pakket van circa 20 baren waarbij het pakket als geheel een gewicht
en nummer heeft. Door de baren in het pakket individueel te wegen
en te nummeren, konden deze op‘good delivery’ standaard worden
gebracht.”
(Source: “Gold Management of the Bank” by Jan Lamers, Senior
Policy, Financial Markets Division.
http://web.archive.org/web/20081117183716/http://www.dnb.nl/...
7-8 of the pdf.)
So, the fact that the Dutch didn’t need to smelt anything but
the German’s did shows that the bars that the Germans sent to the
European Smelters were not regular 995 fine US Assay Office bars.
If the Germans had possessed 995 US Assay Office bars, they
would just need to be weighed and individually stamped with their
weights, not melted down and recast.
The fact that the Bundesbank will not publish any weight lists
is very suspicious. Even the US Treasury published their weight
lists of their bars held at the FRBNY (see above).
Peter Boehringer, of the German ‘Repatriate our Gold’ campaign,
says that allegedly, the bar lists of the gold that the Bundesbank
had melted
have now been destroyed. If this has happened,
then this is further bizarre behaviour from the Bundesbank.
There are various other theories apart from ‘coin bars’ as to
why the Bundesbank may have wanted to melt down gold bars from New
York but the other alternatives are also embarrassing to the bar
holder.
The old bars may have had cracks or fissures in them. This has
happened to some of the old gold that is stored in the Bank of
England as
this report from 2007 shows. The
Bank of England spokesman at the time said:
“This is not about purity, this is about physical
appearance.”
Speaking of Peter Boehringer, a recent
Bloomberg article from February 2015 about
Boehringer and the Bundesbank gold quoted a Bundesbank spokesman as
telling Bloomberg, on the subject of gold melting, that:
‘
meeting the London good delivery standard “cannot be reduced
entirely to the weight of a gold bar but needs to take various
other features into account, one criterion being the outer
appearance.”‘
However, this Bloomberg article is the first time that the
Bundesbank has mentioned ‘appearance’ of bars, and to me it looks
like a story that keeps changing, possibly with some inspiration
from the Bank of England 2007 story.
Cracks and fissures in 55 tonnes of gold would be quite
alarming given that the LBMA said that ‘defects’ are
‘fortunately not typical!’ (see slide 13
here), and this would throw the quality of all
the Fed’s New York held gold into doubt.
The quality of US Assay Office 995 fine bars was seen to be less
than perfect by London refiners in 1968, as demonstrated by this
2012
articlefrom Zerohedge, but if the Bundesbank
was melting down US Assay Office 995 fine bars this would also be
an alarm bell for all holders of similar gold. And why would the
Dutch not think its necessary to melt down their repatriated US
Assay Office bars if the Germans thought this was a problem?
The Bundesbank gives some details of a
gold swap with the FRBback in 1968, and claim
that a portion of the gold returned to the Bundesbank (the
return leg of the gold swap) was gold of a lessor quality than good
delivery. They say
“the remaining bars with a countervalue of $750 million were of
a different quality”.This is absolutely not correct. All of
the gold bars returned to the Bundesbank in that potion of the swap
were good delivery US Assay Office bars and a lot of it came from
Ottawa where the Fed had sourced some bars from the
Canadians.
I have the details on that swap from Bank of England gold
ledgers and the 1,200 gold bars (sent to Johnson Matthey) out
of over 50,000 bars shipped to London were merely
being ‘adjusted’ into good delivery bars, and were supposed to
be good delivery bars, hence the need to remelt and recast. I
will cover this Bundesbank gold swap in a future article. The
Bundesbank seems to be using this gold swap as as some sort of
ambiguous evidence of why they are melting down 55 tonnes of gold
but it is misleading to do so.
So, in conclusion, I would lean towards the probability that the
Federal Reserve Bank of New York has given the Deutsche Bundesbank
tonnes of coin bars and the smelting operations have been bringing
this gold up to London Good delivery purity levels. This begs the
question, where did all the other Bundesbank gold bars stored at
the New York Fed disappear to?
The alternative to the coin bar thesis, that the Bundesbank does
not trust the gold purity of supposedly 995 fine US Assay Office
bars, is probably more concerning since it undermines
confidence in the purity levels of all US Assay Office fine gold
Melts.
