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Bank of England admits its gold reserves aren't in mint condition
Patrick Hosking, London | October 01, 2007
IT has long been the plaything of kings, the spoil of conquerors and supposedly the safest investment money can buy, but for the people of Britain, the national nest-egg might not quite be what it appears.
Hidden away in vaults under the City of London, Britain's hoard of gold bullion - seen as the best insurance against turmoil in global money markets - is beginning to crumble. The deterioration, some experts claim, might suggest that it is not pure gold.
The Bank of England, guardian of the 320-tonne stash under Threadneedle Street, admitted yesterday that cracks and fissures had appeared in some of its gold. It revealed the deterioration would temporarily reduce the gold's pound stg. 4 billion ($9.75 billion) value and make it more difficult to sell.
Most of the hoard remained in mint condition, it said. It denied suggestions by some experts that the deterioration was evidence that the gold might have been adulterated with base metal.
"This is not about purity, this is about physical appearance," the bank insisted, saying its bars were 99.9 per cent pure gold. The problem was due to the age of the bars, many of which were imported from the US in the 1930s and 1940s.
Although the gold carries assay marks - a refiner's guarantee of its purity - there are no accompanying assay certificates, now regarded as essential by gold traders.
The bank holds the gold on behalf of the Treasury, mainly in bars, but also in ingots and coins.
Most of the hoard is thought to be stored in bars weighing between 10.9kg and 13.4kg, each worth between $US258,000 and $US317,000 ($293,000-$356,000).
Revelations about its deterioration were secured by the trade journal Metal Bulletin, which has been trying to ascertain the truth since May.
Rumours that the bank's gold was not in tip-top condition have circulated in the gold market for years, but Stuart Allen, the bank's deputy secretary, has now confirmed there is an issue.
To be traded, gold bars have to meet so-called London Good Delivery (LGD) standards, as laid down by the London Bullion Market Association. Mr Allen wrote to the journal: "There is some uncertainty about the status of LGD standards in respect of certain categories of gold bars that have been held in deep storage for many years."
The bank was discussing with the association how much of its gold was in sub-standard condition, Mr Allen said.
A bank spokesman insisted it was not a major problem. The gold could easily be sent to a refiner to be melted down and turned into new bars, he said. According to market observers questioned by Metal Bulletin, cracks and fissures suggested the bars might not be pure gold. The gold in coin form might also be contaminated with base metal.
If 100 per cent pure, the gold would be worth more than pound stg. 4 billion at the current price of $US738 an ounce. The government keeps reserves of gold and foreign currency to prop up sterling in times of adversity. In theory, in times of war, reserves could be used to finance emergency imports. Peter Ryan, an analyst at consultancy Gold Field Mineral Services, said: "I would guess that it would only be a small proportion that doesn't conform to standards. Some of this gold was acquired 30 or 40 years ago and standards vary, but it is not difficult to fix."
The gold price has been soaring recently as investors seek a hedge against the falling US dollar and inflation worries. Strong demand from India, the world's biggest gold consumer, has also boosted prices.
Analysts suggested the BoE, which declined to say how much tonnage was affected, would not be alone in holding deteriorating bars. Many other central banks, with gold reserves going back centuries, could face similar problems.
Governments of Australia, Switzerland, the Netherlands, Argentina and Belgium, as well as Britain, have sold gold reserves in recent years, arguing that gold represented too large and risky a proportion of their total reserves.
The Times
Patrick Hosking, London | October 01, 2007
IT has long been the plaything of kings, the spoil of conquerors and supposedly the safest investment money can buy, but for the people of Britain, the national nest-egg might not quite be what it appears.
Hidden away in vaults under the City of London, Britain's hoard of gold bullion - seen as the best insurance against turmoil in global money markets - is beginning to crumble. The deterioration, some experts claim, might suggest that it is not pure gold.
The Bank of England, guardian of the 320-tonne stash under Threadneedle Street, admitted yesterday that cracks and fissures had appeared in some of its gold. It revealed the deterioration would temporarily reduce the gold's pound stg. 4 billion ($9.75 billion) value and make it more difficult to sell.
Most of the hoard remained in mint condition, it said. It denied suggestions by some experts that the deterioration was evidence that the gold might have been adulterated with base metal.
"This is not about purity, this is about physical appearance," the bank insisted, saying its bars were 99.9 per cent pure gold. The problem was due to the age of the bars, many of which were imported from the US in the 1930s and 1940s.
Although the gold carries assay marks - a refiner's guarantee of its purity - there are no accompanying assay certificates, now regarded as essential by gold traders.
The bank holds the gold on behalf of the Treasury, mainly in bars, but also in ingots and coins.
Most of the hoard is thought to be stored in bars weighing between 10.9kg and 13.4kg, each worth between $US258,000 and $US317,000 ($293,000-$356,000).
Revelations about its deterioration were secured by the trade journal Metal Bulletin, which has been trying to ascertain the truth since May.
Rumours that the bank's gold was not in tip-top condition have circulated in the gold market for years, but Stuart Allen, the bank's deputy secretary, has now confirmed there is an issue.
To be traded, gold bars have to meet so-called London Good Delivery (LGD) standards, as laid down by the London Bullion Market Association. Mr Allen wrote to the journal: "There is some uncertainty about the status of LGD standards in respect of certain categories of gold bars that have been held in deep storage for many years."
The bank was discussing with the association how much of its gold was in sub-standard condition, Mr Allen said.
A bank spokesman insisted it was not a major problem. The gold could easily be sent to a refiner to be melted down and turned into new bars, he said. According to market observers questioned by Metal Bulletin, cracks and fissures suggested the bars might not be pure gold. The gold in coin form might also be contaminated with base metal.
If 100 per cent pure, the gold would be worth more than pound stg. 4 billion at the current price of $US738 an ounce. The government keeps reserves of gold and foreign currency to prop up sterling in times of adversity. In theory, in times of war, reserves could be used to finance emergency imports. Peter Ryan, an analyst at consultancy Gold Field Mineral Services, said: "I would guess that it would only be a small proportion that doesn't conform to standards. Some of this gold was acquired 30 or 40 years ago and standards vary, but it is not difficult to fix."
The gold price has been soaring recently as investors seek a hedge against the falling US dollar and inflation worries. Strong demand from India, the world's biggest gold consumer, has also boosted prices.
Analysts suggested the BoE, which declined to say how much tonnage was affected, would not be alone in holding deteriorating bars. Many other central banks, with gold reserves going back centuries, could face similar problems.
Governments of Australia, Switzerland, the Netherlands, Argentina and Belgium, as well as Britain, have sold gold reserves in recent years, arguing that gold represented too large and risky a proportion of their total reserves.
The Times
