China’s debt is a staggering $24 trillion with 247% of annual GDP as of last year, which is, in fact, an increase of an astounding 465%, within a decade. The total borrowing, by both the financial and non-financial sectors, was only 78% of the GDP in 2007 and has since increased to 309% of GDP, according to economists at Nomura Holdings Inc., led by Yang Zhao and Wendy Chen.
Although some naysayers believe that the leverage in China is still far below that of what the U.S. was in 2007 previous to the financial crisis. However, they neglected to note that the property sector has increased by 4.5 times, between 2000 and 2015, within the top-tier cities. Experience suggests that such a rise is both ‘unsustainable’ and ‘bubbly’. A sharp drop in the property prices will increase the leverage to astounding levels thereby threatening their economy.
Huge fiscal deficit challenge:
The IMF has forecasted that China will have a moderate budget deficit of 3%, which sounds very comfortable. The IMF has merely considered the governments’ debt so as to arrive at said figure, which accounts for less than 20% of public spending. The local governments and municipalities in China account for over 80% of public spending.
When the total figures are considered, the balloons to 10%, according to the IMF, whereas, Goldman Sachs believes that number is much higher being that of 15%. These numbers are far worse than the U.S.’s were directly before the financial crisis of 2008. Learn more here: fiscal deficit
Most state-owned companies are taking on more debt in order to pay off their earlier debt. Bad loans soar as shown in the chart below. The government has not allowed any major firms to become bankrupt in order to keep their job numbers propped up. If the start to let companies fail unemployment numbers could skyrocket!
Growth is struggling:
With growth struggling, and in order to merely reach those of the beaten down estimates of the Chinese government, it appears highly unlikely that China will be able to manage their debt ‘overhang’.
In light of the forthcoming five-year congress of the communist party, the government will not want to push through unpopular reforms, although, they are indeed necessary. The Chinese debt binge has reached such a vast amount that the experts now believe that in order to raise the GDP by $1.00, China must take a credit of $4.00 which is most certainly a sign of an impending crash that will have both global repercussions and further consequences!
Major investors who have raised concerns about China:
Legendary investor, George Soros finds an “eerie resemblance” between the U.S., prior to the financial crisis, and the current Chinese situation. “It’s similarly fueled by credit growth and an eventually unsustainable extension of credit,” Soros told the Asia Society in New York in April, reports Bloomberg.
Similarly, BlackRock Chief Executive Officer Laurence Fink has also raised concerns about the Chinese debt.
The famous short seller Jim Chanos is short on China while stating that it “is the gift that keeps on giving on the short side,” reported CNBC, in May of 2016.
China shifting from dollars to gold!
China is gradually reducing its’ holding in the U.S. treasuries. In July, it held $1.22 trillion of US bonds, notes and bills, which represents a drop of $22 billion since June of 2016. This is the largest drop, in three years, according to U.S. Treasury Department data which was released on Friday, September 16th, 2016.
There are many who believe that China’s mammoth holdings of US treasuries will restrict it from ‘dumping’ them. However, Bocom strategist Hao Hong said, “The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a US-dollar centric system, we actually require less U.S. dollars,” reports Zero Hedge.
China’s gold holdings, which was a paltry 395.01 tons, in the second quarter of 2000, has now risen sharply to 1,828 tons, according to the World Gold Council.
With the Chinese Yuan set to enter as the fifth currency in the International Monetary Fund’s SDR (Special Drawing Right) on October 1st, 2016, the Chinese are propping up the gold backed Yuan as a fierce competitor to the U.S. dollar!
“The recently-opened Shanghai Gold Exchange differs greatly from the London Gold Exchange in one fundamental area: In Shanghai, buyers take physical delivery of gold whereas London deals in paper-based gold futures contracts. In Shanghai, ‘what you buy is what you get’ whereas in the West, gold is a virtualized commodity,” Tom McGregor, Commentator and Editor at CNTV (China Network Television), told Sputnik.
Conclusion:
Similar to that of other developed nations, the Chinese debt has also reached ‘bubbly’ proportions. However, the Chinese are leaning towards gold, in a big way, as witnessed in their latest holdings. They know that, during the next crisis, those nations with a large gold backing will not only survive, but will become prosperous, as well!
China is most certainly going to increase their gold reserves even further, in the future. Imagine if only a portion of their U.S. treasury holdings are shifted to gold, the yellow metal will go parabolic. Therefore, keep an eye on gold and be well prepared to buy it when we reach that last dip, before the ‘bull run’.
Want to know where gold, silver and mining stocks are within their bull/bear market cycles? Or do you want to know when and how to take full advantage of these next major moves?
We have significant concern that the US dollar is now forming a long-term top. Moreover, we may see a devaluation of up to 50% in value of the dollar over the coming decade. The fundamental backdrop is already in place with the unprecedented money creation by the Federal Reserve since 2008. Confirming technical indicators of a fall in the value of the dollar will be shown through an examination of past dollar-devaluation cycles.
While the Fed last week once again did not raise interest rates, the significant market reaction seen on Wednesday was based on the change in the wording used in the accompanying policy statement. Whereas over the past few meetings, the Fed has given little indication that it was considering a second interest rate hike, this time the central bank used the following distinct language: “The case for an increase in the Federal Funds Rate has strengthened.”
As investors, we must remember we are still living in an unprecedented age for low interest rates. At the 0.25% – 0.50% target rate, this is still the lowest that interest rates have been in Federal Reserve history, including the following two critical time periods:
The Great Depression: rates hit a low of 1.5%
World War II: rates hit a low of 1.0%
Can we imagine that what is happening in the world economy currently must be deemed by the Federal Reserve to be more severe than both the Great Depression and the largest international conflict in the history of the world?
Not only are rates lower than in each of these periods, but they have been held lower for a greater number of years than at each of these previous troughs, now eight years and counting below the 1.0% mark. Of course, holding interest rates so low requires a continuous electronic “printing” of new money, which is used to buy the entire short-end of the interbank bond curve. The longer that rates are held below what the market would naturally set them at — usually between 2.0% – 5.0% — the more inflation the Fed is building underneath the system.
The data to support this coming wave of inflation can be seen from the graph of the total reserve balances held at the Fed. Recall that what appears on this chart is money the Fed has created in order to buy sufficient bonds needed to force interest rates lower:
We can see that there is no precedent for the amount of money created since 2008. The Fed — and other major world central banks — have embarked on a money-printing spree that will go down in history as an experiment like none other. Note that there *is* a line on this graph dating back to 1950… it is just so low on the Y-axis that it barely registers when compared to the nearly $2.4 trillion created by the bank since 2008.
The strange thing about inflation is that once central banks create it — they cannot control precisely where it flows after it enters the broad economy. Similar to turning on a fire hose in an attempt to water the garden flowers, some may flow to the intended destination, but far more will eventually flow to unintended areas.
Thus far, the recipients for most of the inflation are clear, which we have discussed in past issues. They are world bond and stock markets, which are both at all-time highs simultaneously (in itself an unprecedented situation).
But nothing happens in a vacuum.
Newton’s Third Law of Physics says: “For every action there is an opposite and equal reaction.” And it appears that the unintended consequence of the Fed’s actions are about to be felt elsewhere: in the US dollar.
US Dollar
The chart below shows the US dollar as measured by the Dollar Index, a trade-weighted basket that measures the value of the US currency versus the sum of the following:
Euro (EUR), 57.6% weight
Japanese yen (JPY) 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF) 3.6% weight
We have been following this chart now for several months, as the dollar has been consolidating for nearly two years between the 92 level and the 100 level on the index. Over the long run, we expect gold and silver to be moving higher in all currencies, no matter what happens with one fiat currency versus another. However, over the short run, gold tends to see its most significant advances when the US dollar is weak, as gold is priced primarily in US dollars for purposes of international trade.
Thus, let us remember that the advance seen in gold from the December 2015 low of $1,045 per ounce to the recent high of $1,378 has taken place within a backdrop of a relatively stable US dollar, which has only fallen from 100 to 95 on the Index.
It appears that gold is now waiting for further signals from the currency market in order to begin its next move. Consequently, as the dollar has continued to consolidate, so has gold.
Yet these consolidations will not continue forever.
Recent Technical Analysis On The Dollar
On the chart above, we can see converging sets of trendlines, shown in royal blue for primary downward trend and teal for short-term uptrend. These trends have been converging since December 2015 and May 2016, respectively. One of these trends is due to break within the next 4-8 weeks.
The nearly two-year consolidation in the dollar is increasingly taking the form of a broad long-term top. Indeed, it would be rare to see such a lengthy pattern resolve to be a continuation move higher.
From the short-term perspective, our “hints” that the break will be lower come from the two cracks in the support zone below 93 on the index. These cracks have been warning signs that buyers of the dollar are not as resolute in supporting the currency as many would believe. This is in contrast to the resistance zone at 100, which has shown very distinct and unhesitant selling pressure each time that level is reached.
Should the lower converging (teal color) trendline break in the dollar in the coming weeks, the currency should be making new lows below the 92 region in short order. This move is expected to coincide with the converse breaking of the long-term downtrend that has held the price of gold lower from 2011 – present (see our previous article.
Euro / US Dollar Long-Term Perspective
As stated above, the Euro represents 57.6% of the makeup of the Dollar Index. As it is the overwhelming component of the Index, the way the Euro goes, conversely so moves the Dollar Index. We thus now turn to the long-term perspective of the EUR/USD cross-pair:
Above we are looking at the number of US dollars needed to purchase one Euro. Currently at 1.12, the Euro is slightly stronger than the dollar.
Note that this chart extends back to 1953. Because the Euro began to be phased in between 1999 and 2002, the data prior to 2002 is derived from what was and still is Europe’s largest economy: Germany (Deutsche mark).
Prior to 1971, as the world was still on the Bretton Woods agreement, most currencies were still tied to the value of the dollar. Thus we see a lack of relative volatility in the (mark/Euro)/dollar cross pair prior to 1971, with a huge increase in volatility after the dollar was severed from the gold standard during the breakup of Bretton Woods that year.
The big picture technical perspective as shown above is an ascending triangle pattern in favor of a long-term advance in the Euro relative to the dollar. The pattern derives its name from the clear triangle shape that can be seen forming in the price action. With a multi-decade resistance zone between 1.40 – 1.50 dollars per Euro, and a rising linear support line dating back from 1985, the pattern represents a market that is in the process of revaluing higher (in favor of the Euro), as sellers of the dollar emerge at increasingly lower levels at each major dollar top.
In this case, when the pattern successfully breaks the resistance zone, the long-term target based on the triangle pattern would be near 2.25 dollars per Euro, or just over a 50% loss of value in the dollar from the current value of 1.12.
Note the red highlight circles. These show the increasing relative lows in the Euro (highs in the dollar) that have formed since 1985. The entirety of the suspected top in the dollar (see page 3), plotted inversely, would fit precisely into the farthest right highlight circle. We believe that the current formation seen in the dollar is a top of similar magnitude to the one that previously formed in 2001 and then in 1985 before it.
Note that these tops in the dollar and converse bottoms in the Euro have been forming at a nearly perfect 16-year interval periods: 1985 —> 2001 —> 2017.
It was the previous bottom in the Euro / top in the dollar in 2001 that led to the beginning of the 2001-2011 bull market in precious metals, which saw gold rise from $250 to over $1,900, over 650%. The current top in the dollar is of greater significance to the one seen in 2001 because it will likely be the last major top before the 50% devaluation of the dollar occurs toward 2.25 on the Euro. We thus expect that the bull market set to unfold in precious metals over the coming decade will be of similar duration and perhaps greater scale than that of 2001 – 2011.
Fundamentally, a 50% loss in value of the dollar could only occur from all of the dollars created by the Federal Reserve since 2008 finally looking for an exit via the foreign exchange market. Such a move would see large multinational institutions move reserves into other currencies for safety: some will move into the Euro, some will move into the Japanese yen, some into the Swiss franc. Yet as each of these countries will also be simultaneously debasing their own currencies in an attempt to not disrupt world trade, gold should emerge as the reserve asset of last resort.
Unfortunately, those hurt most in a dollar devaluation will typically be those least able to prepare for it: i.e. those on fixed incomes of dollars, typically retirees on pensions; and the poor on social welfare.
Those able to prepare ahead of time can profit from the situation, as the price advances in the precious metals should more than offset the losses in the dollar or other fiat currencies. As the quantity of gold available for purchase is insufficient to absorb the quantity of dollars that will be looking for refuge, a revaluation higher in the metals will be forced to occur.
We should continue to monitor the Euro/dollar cross-pair over the coming months for confirming indicators of this multi-year dollar top, which is a key backdrop for the long-term precious metals thesis. From a technical standpoint, a break of the 1.17 EUR / USD level — the upper region of the ongoing 2-year consolidation — will set in motion the initial stage of the gold advance vis-a-vis dollar devaluation that we are referencing.
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Some say the U.S. dollar may die 5 days hence. The Chinese renminbi will kill it. Much is being made of plans by the International Monetary Fund (IMF) to add the renminbi to its basket of strategic reserve currencies called Special Drawing Rights (SDR). The IMF will make the change on October 1. While the implications for the Federal Reserve Note, currently the U.S. dollar, as the world’s primary reserve currency may be profound over time and the importance of this even should not be overlooked, the impact is unlikely to happen overnight.
The composition of the SDR may change on October 1, but few people understand what the SDR is. Even fewer actually have any experience trading it. For the many who wonder what an SDR is, here is a brief description from the IMF;
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. As of March 2016, 204.1 billion SDRs (equivalent to about $285 billion) had been created and allocated to members. SDRs can be exchanged for freely usable currencies. The value of the SDR is currently based on a basket of four major currencies: the U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.
The IMF actually decided to make October 1st’s changes to the SDR one year ago. Some expected that decision would represent the death knell for the dollar. But when the announcement came, the currency markets hardly noticed.
Mass psychology – or relative confidence – is what ultimately determines whether or not a dollar holds value. Not much will happen October 1st if not many people care.
There have been many other threats to the confidence that underpins the dollar. Among them were straight-forward and widely publicized assaults; trillion dollar federal deficits, metastasizing debt and an explosion in the supply of U.S. dollars. If years of Quantitative Easing – the Fed’s program to gin up trillions in new dollars with which to buy Treasury Bonds and garbage mortgage securities – didn’t torpedo confidence, a far more obscure institution like the IMF may not do it either when it changes the composition of their arcane supranational currency.
That said, October 1st could mark an important waypoint on the long road to oblivion for the U.S. dollar. The Chinese have been openly advocating for SDRs to replace the dollar as world reserves, and this event is an important step down that road.
In 2009 Zhou Xiaochuan, governor of China’s central bank, called for the creation of “an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.” There are many nations who consider the reign of “king dollar” tyrannical.
The IMF has big plans for the SDR. There will soon be an offering of SDR denominated bonds. IMF officials hope to see large and liquid foreign exchange and bond markets modeled after those where dollars and Treasuries are traded. If they succeed, it is easy to imagine developments such as oil exporters demanding payment in SDRs and central banks swapping their vast reserves of Federal Reserve Note. In other words, the IMF intends for the SDR to replace the Federal Reserve Note as the world’s reserve currency.
However, that outcome is by no means certain. The SDR is nothing more than a basket full of flawed fiat currencies. Like the Federal Reserve Note, the others are backed by the full faith and credit of irresponsible governments who would be insolvent but for their printing presses. This includes China’s renminbi.
We fully expect the U.S. dollar will be dethroned one day, and the SDR may be part of that transition. But nothing will solve these growing problems until gold and silver are restored to broad use as money. The world needs honest money, not a basket of paper.
About the Author:
Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
The London Bullion Management Association (LBMA) is a London-based, globally active, trade association for “the promotion and regulation of commerce relating to the London Bullion Market”. The “London Bullion Market” here collectively refers to the London Gold Market and the London Silver Market. The remit of the LBMA has very recently also been extended to cover the London Platinum and Palladium Market (LPPM).
While it is generally known to many, vaguely or otherwise, that the Bank of England has a vested ‘interest’ in the London gold market, the consistently close relationship between the Bank of England and the LBMA tends not to be fully appreciated. This close and familial relationship even extends to the very recent appointment of a very recently departed Bank of England senior staff member, and former head of the Bank of England Foreign exchange Division, Paul Fisher, as the new ‘independent‘ chairman of the LBMA Management Committee (a committee which has recently been rechristened as a ‘Board’). Note that at the Bank of England, the Bank’s gold trading activities fall under the remit of the ‘Foreign Exchange’ area, so should be more correctly called Bank of England Foreign Exchange and Gold Division. For example, a former holder of this position in the 1980s, Terry Smeeton, had a title of Head of Foreign Exchange and Gold at the Bank of England.
What is also unappreciated is that the same Paul Fisher has in the past, been the Bank of England’s representative, with observer status, on this very same LBMA Management Committee that he is now becoming independent chairman of. This is an ‘elephant in the room’ if ever there was one, which the mainstream financial media in London conveniently chooses to ignore.
As you will see below, the UK’s Financial Conduct Authority (FCA) also has a close, and again, very low-key but embedded relationship with this LBMA Management Committee.
At the ‘Behest’ of the Bank of England
The LBMA states in one of its Alchemist magazine articles, that its Association “was established at the behest of the Bank of England” in 1987, with Robert Guy of N.M. Rothschild, the then chairman of the London Gold Fixing, spearheading the coordination of the Association’s formation. Elsewhere, in a recent summary brochure of its activities, the LBMA states that it was “set up in 1987 by the Bank of England, which was at the time the bullion market’s regulator”, while a recently added historical timeline on the LBMA website, under the year 1987, states “LBMA established by the Bank of England as an umbrella association for the London Bullion Market.”
‘Established at the behest of“, “set up by” or “established by“, take your pick, but they all clearly mean the same thing; that the Bank of England was the guiding hand behind the LBMA’s formation.
Prior to the formation of the LBMA, and before a change of regulatory focus in 1986, the London Gold Market and London Silver Market had primarily followed a model of self-regulation, but the Bank of England had always been heavily involved in the market’s supervision and operations, especially in the Gold Market. Even reading a random sample of the Bank of England’s archive catalogue material will make it patently clear how close the Bank of England has always been to the commercial London Gold Market. For scores of years, the London Gold Market to a large extent merely constituted the Bank of England and the five member firms of the London gold fixing, namely NM Rothschild, Mocatta & Goldsmid, Sharps Pixley, Samuel Montagu, and Johnson Matthey.
According to the 1993 book, “The International Gold Trade” by Tony Warwick-Ching, a combination of the advent of the Financial Services Act of 1986 which introduced supervisory changes to the UK’s markets, and the growing power of other bullion banks and brokers in the London precious metals market in the 1980s, acted as a combined impetus for the LBMA’s formation in 1987.
As Warwick-Ching stated:
“The LBMA was partly a response to a growing demand of concern who were not members of the [gold] fixing for a greater involvement at the heart of the bullion market.”
Morgan and J.Aron join the Party
Specifically, according to its Memorandum of Association, the LBMA was formed into a Company on 24 November 1987 by N.M. Rothschild & Sons Limited, J.Aron & Company (UK) Limited, Mocatta & Goldsmid Limited, Morgan Guaranty Trust Company of New York, Sharps Pixley Limited, and Rudolf Wolff & Company Limited. This company is “a company limited by guarantee and not having a share capital”. Given their participation from the outset, presumably J Aron (now part of Goldman Sachs) and Morgan Guaranty (now part of JP Morgan Chase) were members of the ‘growing demand of concern‘ contingent alluded to by Warwick-Ching, who wanted a bigger say in the gold market’s inner sanctum.
Signatories to the original LBMA Memorandum of Association
The authorising subscribers of the original Memorandum, on behalf of their respective companies were, Robert Guy (Rothschild), Neil Newitt (J. Aron), Keith Smith (Mocatta & Goldsmid), Guy Field (Morgan Guaranty Trust), Les Edgar (Sharps Pixley), and John Wolff (Rudolf Wolff & Company), and they requested that “We, the subscribers to the Memorandum of Association, wish to be formed into a company pursuant to this Memorandum.” The original steering committee of the LBMA comprised five of the above, Robert Guy (Chairman), Guy Field (Vice Chairman), Keith Smith, John Wolff, Neil Newitt, as well as Jack Spall of Sharps Pixley, the father of Jonathan Spall (current consultant to the LBMA). Note that the incorporation filing at UK Companies House for the LBMA is dated 14 December 1987, about 3 weeks after the date listed on the original Memorandum of Association.
As early as April 1988, there were 13 “Market Maker” members and 48 ‘Ordinary’ members in the LBMA. The market maker members had to be ‘listed money market institutions’, which meant that they were institutions listed under section 43 of the Financial Services Act 1986 (on a list actually maintained by the Bank of England) who conducted various transactions, including bullion market transactions, which were exempt from authorisation.
“The Bank of England has been intrinsically linked with the London bullion market since its foundation in 1694.”
“Although the Bank isn’t a member of the LBMA, members of the LBMA hold gold custody accounts with the Bank”
“The Bank’s vaults hold approximately two-thirds of all the gold held in London vaults and as such plays a significant role in the liquidity within the London gold market. Customers are able to buy or sell gold to other customers, by making or receiving book entry transfers, with ownership transferred in the Bank’s back office system… The service provides a very important element of the gold market infrastructure in London, helping LBMA members and central banks to trade in a secure and efficient way.”
A Bank of England presentation to the 2013 LBMA conference in Rome, titled the-bank-of-englands-gold-vault-operations, gives a good overview of the Bank’s provision of book entry transfers to its central bank and bullion bank clients for the smooth running of the London Gold Lending Market, a market which is totally opaque and completely undocumented. In fact the Bank of England sits at the heart of this gold lending market.
“The London bullion clearing members role involves a considerable degree of direct client contact, electronic interfaces between the clearing members and close liaison with the Bank of England…”
As a historical account of the LBMA’s 1987 formation states:
“From the Steering Committee’s inception, The Bank of England, which held responsibility for the supervision of the wholesale bullion market, was involved in the Association’s affairs and assisted in the drafting of the relevant Code of Conduct. Observers continue to attend Management Committee Meetings to the present day.”
This steering committee ultimately became the LBMA Management Committee, and, in the last few months, has become the LBMA ‘Board’. So the Bank of England is, for all intents and purposes, a highly active partner within the LBMA’s governance structure. As a confirmation of this point, at the LBMA annual general meeting in July 2014, the then chairman of the LBMA Management Committee chairman, David Gornall, of Natixis stated in his speech that:
“The LBMA is also privileged in having an observer from the Bank of England on the Management Committee. The Bank’s presence is of inestimable benefit to us.”
As to what inestimable benefit David Gornall was referring to, or in what way a Bank of England observer participates on the LBMA Management Committee, was not elaborated on. Nor can it be gleaned from any meeting minutes from LBMA Management Committee meetings, because such minutes are not made publicly available (See below).
For anyone not familiar with the concept of an observer on a corporate committee or board, it does not refer to someone who just sits there and observes, as the name may suggest. An observer refers to an attendee at the committee / board meetings who actively participates in discussions but who has no voting rights on committee / board resolutions. Observers can and do fully participate in meeting apart from voting. When voting occurs, they may (or may not) be asked to leave the room.
At the LBMA annual general meeting in June 2013, David Gornall, also chairman of the LBMA Management Committee at that time, revealed that not only was there a Bank of England observer on the Management committee, but there was also an observer from the UK financial regulator, the Financial Conduct Authority (FCA), on the same committee:
“The LBMA is also privileged in having observers from both the Bank of England and the FCA on the Management Committee. Their presence is of inestimable benefit to us.”
In fact, there are many such references within various LBMA related speeches. At the LBMA Precious Metals Conference in September 2013, Matthew Hunt of the Bank of England stated:
“More specifically on gold, even though we are not active traders in the market but we are a large custodian, some of the people in our team responsible for gold observation sit on the LBMA Management Committee and the LBMA Physical Committee as observers. Thus we retain a significant engagement with the gold market via that route.”
Notably the Bank of England has a team of people responsible for gold observation, but not for the observation of other commodities such as zinc, lean hogs, live cattle, heating oil, soybeans, sugar, beaver pelts etc etc.
In March 2013, Luke Thorn of the Bank of England, while addressing a LBMA Assaying and Refining Seminar, stated:
“We are not a member of the LBMA, but we continue to play a key role in the London market. We have observer status on the Management, Physical and Vault Committees.”
There are therefore Bank of England observers on 3 LBMA Committees. So, who are these Bank of England and FCA observer representatives? That is not an easy question to answer. There is no mention on the LBMA website’s committee page, and has never been any mention, of any Bank of England observers or FCA observers on the LBMA Management Committee (now Board). Nor are there any published minutes on the LBMA website of any LBMA Management Committee meetings, or the meetings of any of the other five LBMA sub-committees, such meeting minutes as would generally list the attendees of such meetings. More about the lack of minutes below.
Turning briefly to the physical and vault committees, the LBMA website has a listing for its physical committee and does mention that a Bank of England observer called Jennifer Ashton currently is on this committee.
“The Physical Committee is made up of industry experts from the physical bullion market. It is responsible for monitoring, developing and protecting the Good Delivery List and works closely with sub-Groups such as the LBMA Referees and the LBMA’s Vault Managers Working Party”
There is however, no formal listing of the Vault Manager ‘s group as a LBMA committee within the LBMA’s committee listings section. The only informative reference to such a committee on the LBMA web site is in the good delivery rules explained section, which states:
“The Vault Managers Working Group, comprising the Bank of England and representatives from those LBMA members with their own vaulting facilities in London, meet regularly to consider issues relating to bar quality and vault procedures. Vault Managers are required to document every case of bar rejection and provide the associated information to the LBMA Executive”
Who is on this committee from the Bank of England, let alone from any of the other committee member companies is not disclosed.
Turning again to the identities of LBMA Management Committee observers, and going back slightly further to the LBMA Annual General Meeting on 20 June 2012, the Chairman, the omnipresent David Gornall of Natixis London Branch, stated:
“Talking of the Management Committee, let me remind you that we are very fortunate to have observers from both the Bank of England and the FSA on the committee. I would like to thank Trevor Stone and Don Groves for their participation in our affairs”.
From a speech at the 2009 LBMA annual conference by Michael Cross, the then Head of Foreign Exchange at the Bank of England, we learn that the Bank of England’s Banking Services area:
“is where Trevor Stone and his colleagues, who will also be known to many of you, work. The Banking Services area provides wholesale banking and custody services to a wide range of bank customers”
On 30 September 2013, the ever-present David Gornall in another speech, this time to the LBMA annual conference in Rome, had this to say:
“We are grateful for the communication and feedback on our work from regulators, particularly that of own regulator the FCA. We are delighted to be joined by Don Groves of the FCA during tomorrow’s financial market regulation session. Don is a long-time observer on the LBMA Management Committee and we thank him for his participation and continued dialogue on our regulatory questions facing the London Market.”
The next day, on 1 October 2013, at the same conference, Ruth Crowell, the then Deputy CEO of the LBMA (and current LBMA CEO) introduced Don Groves as follows:
“With that, I am going to turn it over to Don Groves from the Financial Conduct Authority. Don is a technical specialist in the market contact area of the FCA’s Market Monitoring Department, where he is responsible for reviewing allegations of market misconduct, including market abuse and insider dealing.
Don specialises in the UK commodity markets and has been in market conduct for a number of years. We are also very privileged to have Don as an observer on the LBMA’s Management Committee.“
Groves joined the FCA in 1999, and left the FCA in March 2015. While his LinkedIn profile has very detailed listings of his duties while at the FCA, there is no reference to the fact that he ever sat on the LBMA Management Committee, which strikes me as odd, unless that is a deliberate omission. A previous version of Groves’ LinkedIn profile states:
“I am considered to be an expert in Market Conduct matters and market abuse in the UK. I conduct project work pertaining to market conduct issues, contribute to the drafting of European legislation pertaining to market abuse and am an experienced public speaker. My main area of interest is the UK’s commodities markets.
Is it not odd that a FCA regulator was a long-time observer sitting on the LBMA Management Committee, but that the FCA has never had anything to say about the London Gold Market. Perhaps it’s because of the following, which gives the impression of a compliant and embedded regulator. As the FT wrote in October 2013 in an article titled “Gold and oil benchmarks face tighter regulation“:
“I don‘t want to give the impression that the UK is picking on the bullion market or anything else,” Mr Groves told the London Bullion Market Association precious metals conference in Rome. “But a consumer focus is what politicians are looking at…so there’s going to be more focus from us as regulators, on consumer issues.”
“However, [Groves]admitted the regulator did not know enough about physical markets and had launched a project to increase its knowledge. “We are going out as the FCA and learning about those markets,” he said.
What exactly the FCA was doing sitting on the LBMA Management Committee remains unclear, because, to reiterate, there are no publicly available minutes of the Committee’s meetings. At a guess, perhaps Groves was “learning about physical markets“, specifically the physical gold market.
Its also relevant to note that the Bank of England and FCA both crop up as observers when the LBMA holds various seminars, such as the seminar it held in the City of London on 24 October 2014 to showcase various solution providers that were competing to provide the infrastructure for the LBMA Gold Price fixing auction competition that was running at that time:
According to the LBMA press release, “Both the Bank of England and the Financial Conduct Authority attended the seminar as observers.”
Where are the LBMA Mgt Committee Meeting Minutes?
Through the Non-Investment Products Code (NIPs), the Bank of England interfaces closely with the UK’s foreign exchange, money and bullion markets. The Bank of England explains NIPs as follows:
“The Non-Investment Products Code
This Code has been drawn up by market practitioners in the United Kingdom representing principals and brokers in the foreign exchange, money and bullion markets to underpin the professionalism and high standards of these markets.[1]
It applies to trading in the wholesale markets in Non-Investment Products (NIPs), specifically the sterling, foreign exchange and bullion wholesale deposit markets, and the spot and forward foreign exchange and bullion markets.”
“Footnote [1]:Co-ordinated by the Foreign Exchange Joint Standing Committee, the Sterling Money Markets Liaison Group and the Management Committee of the London Bullion Market Association”
Of the three, the Foreign Exchange Joint Standing Committee is chaired and administered by the Bank of England. The Sterling Money Markets Liaison Group (now known as the Sterling Money Markets Liaison Committee) is also chaired and administered by the Bank of England.
On the Bank of England’s web site, there are very extensive informational resources about the Foreign exchange Joint Standing Committee and the Sterling Money Markets Liaison Committee, but surprise, surprise, there is nothing about the LBMA Management Committee. The Bank of England website offers publicly accessible documents of all meeting minutes of the FX Joint Standing Committee, including the representatives names of attendees and the banks and institutions represented at each meeting. These meeting minutes are highly detailed. See May 2016 FX Joint Standing Committee minutes as an example. Likewise, for the Sterling Money Markets Liaison Committee, the minutes of every meeting have been uploaded to the Bank of England website and are publicly accessible. These minutes are highly detailed. See for example the February 2016 Sterling Money Markets Liaison Committee meeting minutes.
However, the only tiny piece of information offered about the LBMA on the Bank of England website is as follows:
“The Bullion element of the NIPs Code is being replaced by a new code which will be established by the London Bullion Markets Association (LBMA). Further information on the bullion code can be found on the LMBA website.”
Conveniently, the Bank of England passes the buck back to a web site (LBMA’s website) which is notoriously bereft of any information about the meetings of the LBMA Management Committee, the agendas of such meetings, the minutes of such meetings, and the attendees at these meetings. Why is this opacity allowed by the FCA and Bank of England when the foreign exchange and money market brethren have to submit to published minutes of their meetings, which in many cases involve the same banks and institutions? Could it be that discussion of the London Gold Market is highly secretive and a no-go area, and that the institutions involved have a free pass from the Bank of England and FCA to continue their discussions in private, away from the public eye?
Mark Carney and Paul FIsher
Pièce de Résistance
Arguably, the pièce de résistance of these Bank of England / FCA relationships with the LBMA Management Committee, is the fact that Paul Fisher, the newly appointed ‘independent‘ Chairman of the LBMA Board, formerly known as the LBMA Management Committee, has already previously been the Bank of England’s “observer” on the LBMA Management Committee.
In his speech to the 2004 LBMA Annual Conference in Shanghai, Fisher, the then Head of Foreign Exchange at the Bank of England, while discussing the “Non-Investment Products Code”, a code which regulates the bullion market, the foreign exchange market, and the wholesale money market, stated that:
“In the bullion section, the work is led by the LBMA and the whole is coordinated by the Bank of England. Partly on that basis, I am glad to be invited to the LBMA’s Management Committee meetings as an observer. I’d just like to pay tribute to the professionalism and integrity with which I see the Management Committee operating for the best interests of the global marketplace for bullion.”
One of the more bizarre parts of Fisher’s appointment, in my view, is that when the LBMA announced in a press release last July (2016) that Fisher was being appointed as the new LBMA chairman, there was no mention of the fact that he had previously attended the LBMA Management Committee meetings. One would think that this would be a very relevant when considering the ‘independence’ of the appointment?
On hearing the news on 13 July about the appointment of the Bank of England’s Paul Fisher as ‘independent’ non-executive chairman of the LBMA Board, James G Rickards, the well-known gold author and commentator, tweeted the below, which succinctly sums up the elephant in the room, which the mainstream media chooses to ignore.
This appointment reinforces the link, or bridge, between the two entities, which is now even more set in stone than previously. It’s as if the Bank of England, at this time, has felt the need to put it’s man directly at the head of the LBMA. The timing may be relevant, but in what way is not yet clear.
A forthcoming article looks at this appointment of a former Bank of England Head of Foreign Exchange as the new ‘independent’ Non-Executive Chairman of the LBMA Board, considers what, if anything, is independent about the appointment given the extremely close relationship between the Bank of England and the LBMA, and examines the appointment in the context of the UK Corporate Governance Code, which now governs the Constitution and operation of the LBMA Board.
First time guest is the founder of The Outsider Club which has an incredible track record in recommendations. Nick Hodge touches on the most important aspects of resource sector investing today in this brief interview. His letter is highly recommended by Future Money Trends’ President Daniel Ameduri.
Gold is continuing to hold onto last week’s gains, with prices up on the day. But, Frank Holmes, CEO of U.S. Global Investors, said he will be focusing on Monday night’s presidential debate between Hillary Clinton and Donald Trump. “I think it will be fascinating to watch because you have 1.7 billion on Facebook now — so more than 20% of the world’s population can watch it and have access to it,” he told Kitco News on the sidelines of the Mines & Money event in Toronto. According to Holmes, although both candidates would be great for infrastructure, Trump would likely be the better candidate for markets.
The Fed has not followed through on their numerous promises of a rate increase that Yellen and other Fed officials have made over the past several years. She spoke about purchasing assets of private companies, and also mentioned that the Fed could modify its inflation target.
Investors will most likely purchase shares in companies whose assets have been purchased by the Fed since it is likely that Congress and federal regulators would treat these companies as “too big to fail.” Federal ownership of private companies would also strengthen the movement to force businesses to base their decisions on political rather than economic considerations.
Politicians will never restore sound money policies unless forced to do so by either an economic crisis or a shift in public sentiment, not because of a crisis leaving Congress with no other choice!
The failure of the Fed’s eight-year spree of money creation through Quantitative Easing and historically low interest rates have failed to restart the failing economy. They continue to add new tools to artificiality inflate the stock bubble. They will stop at nothing as they discuss implementing NIRP (Negative Interest Rate Policy).
The collapse of the fiat system will not only cause a major economic crisis, but also the collapse of capitalism as we know it. Congress has also failed the American people and its economy by refusing to consider meaningful spending cuts. It will not even pass legislation to audit the Red.
The Fed Has Lost Even More Of Its Credibility!
Governor Fischer has lost all his credibility. He predicted four rate hikes at the beginning of the year for 2016. His speech on August 21st, 2016 on the slowdown in productivity: “We just don’t know.” Last week, he was down to two rate hikes for the year.
The perceived first takeaway on the meeting at Jackson Hole was the one that made all the headlines. Yellen is joining the “chorus” of Fed officials who have been saying it is time for another rate hike: “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” This appears to be the Fed’s new mantra. She added, “And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. When shocks occur and the economic outlook changes, monetary policy needs to adjust. What we do know, however, is that we want a policy toolkit that will allow us to respond to a wide range of possible conditions.” The Fed now calls that “forward guidance.” In other words, they just do not know!
Yellen did mention that QE purchases could be broadened to other assets. The real Fed Fund Rate has been trading deeply “negative” since 2008.
Negative Interest Rate Policy (NIIRP) Is Dangerous!
Yellen has now established the fact that it is legal for the Fed to authorize the use of NIRP. She has now put it into her tool box and is developing specific plans for implementing it.
The consensus is dangerously wrong by relying on flawed theory and flawed policy assessment. NIRP draws on fallacious, pre-Keynesian economic logic that asserts interest rate adjustments can ensure full employment. The consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. A negative nominal rate on money being held by your bank can be thought of as a form of a tax on deposits that lowers “real wealth” and negative wealth effort on consumer spending and aggregate demand.
Gold In Your Portfolio
Investors should consider doubling their gold allocations amid negative interest rates. The long-term effects of these policies are unknown, but I see discouraging side effects: unstable asset price inflation, swelling balance sheets and currency wars to name a few. Looking forward, government bonds are likely to have limited upside due to their low-to-negative yields
Amid Higher Market Uncertainty
We have entered a new and unprecedented phase in monetary policy. Central Banks in Europe, Japan, and soon in the United States have implemented Negative Interest Rate Policies (NIRP). Investors, including long-term investors, should assess the implications of holding bonds with negative return expectations on portfolio composition and risk management.
My analysis shows that investors will benefit from increasing their gold holdings up to 2.5 times, depending on the asset mix, even under conservative assumptions for gold. In addition, we expect that demand for gold as a portfolio asset may structurally increase due to NIRP.
The only “recovery” that we have experienced has been an artificially inflated recovery on Wall Street. For the rest of the country, our long-term economic decline continues.
Secular investors should start turning their attention to commodities and precious metals. Gold’s bull market is far from over. The volatility in the gold price in recent days is principally due to sharp fluctuations in the expected path of US rates amid surprises in the macro data and diverge ring comments from Fed officials. The recent consolidations were fueled by profit taking will end shortly. The next Fed meeting will result in more dovish Fed speech, resulting in new and more purchases.
When investors realize that they are holding potentially worthless currencies, the big money will rush into the precious metals sector. Consider this, the total world’s investment holdings in silver are a paltry $50.8 billion, compared to $3.04 trillion in gold, as shown in the below.
Did you know that the hedge funds alone manage around $2.7 trillion, according to Barclay Hedge data? Even if a small portion of the trillions sloshing around out there, decides to enter into silver, the white metal’s price will shoot through the roof.
The difficulty in identifying asset bubbles is directly related to credit expansion. The problem is not the asset bubbles, whether they be in stocks, housing, or student loans. This is merely a symptom of a deeper condition. The real threat is the underlying credit expansion by easy monetary policies that has created these asset bubble problems in the first place.
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Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.
Italy’s gold has had an eventful history. Robbed by the Nazis and taken to Berlin. Loaded on to gold trains and sent to Switzerland. Flown from London to Milan and Rome. Used as super-sized collateral for gold backed loans from West Germany while sitting quietly in a vault in New York. Leveraged as a springboard to prepare for Euro membership entry. Inspired Italian senators to visit the Palazzo Koch in Rome. Half of it is now in permanent residency in downtown Manhattan, or is it? Even Mario Draghi, European Central Bank (ECB) president, has a view on Italy’s gold. The below commentary tries to make sense of it all by bringing together pieces of the Italian gold jigsaw that I have collected.
2,451.8 tonnes
According to officially reported gold holdings, and excluding the gold holdings of the International Monetary Fund (IMF), Italy’s central bank, the Banca d’Italia, which holds Italy’s gold reserves, is ranked as the world’s third largest official holder of gold after the US and Germany, with total gold holdings of 2,451.8 tonnes, worth more than US$ 105 billion at current market prices. Notable, Italy’s gold is owned by the Banca d’Italia, and not owned by the Italian State. This contrasts to most European nations where the gold reserves are owned by the state and are merely held and managed by that country’s respective central bank under an official mandate.
Italy’s gold reserves have remained constant at 2451.8 tonnes since 1999. Although the Banca d’Italia has been a signatory to all 4 Central Bank Gold Agreements and could have conducted gold sales within the limits of the agreements between 1999 and the present, it did not engage in any gold sales under either CBGA1 (1999-2004), CBGA2 (2004-2009), or CBGA3 (2009-2014), and as of now, has not conducted any sales under CBGA4 (2014-2019). With 2,451.8 tonnes of gold, the Banca d’Italia holds marginally more than the Banque de France, which claims official gold holdings of 2,435.8 tonnes.
Gold as a percentage of total reserves for both banks is very similar, with Italy’s gold comprising 69.7% of total reserve assets against 67.2% for France. Similarly, German’s gold reserves, at 3,378.2 tonnes, are 70.1% of its total reserves. See the World Gold Council’s Latest World Official Gold Reserves data for details.
So it appears that the big three European gold holders consider their gold to be a critical part of their foreign reserves and are keeping the ratio of their gold to total reserves within around the 70% mark.
Towards Transparency?
In April 2014, Banca d’Italia published a 3 page report about Italy’s gold reserves titled “Le Riserve Auree della Banca D’Italia” (published only in Italian). The report highlights that Italy’s gold is held in four storage locations, one of which is in Italy.
Specifically, in the report, Banca d’Italia confirmed that 1,199.4 tonnes of its gold, approximately half the total, is held in the Bank’s vaults which are located in the basement levels of its Palazzo Koch headquarters in Rome. The majority of remainder is stored in the Federal Reserve Bank’s gold vault in New York. The report also states that small amounts of Banca d’Italia gold are stored at the vaults of the Swiss National Bank in Berne, Switzerland, and at the vaults of the Bank of England in London.
As to why Italian gold is stored abroad in New York, London and Berne and not in other countries, is explained by historical data, and explained below.
Palazzo Koch
In its Palazza Koch vaults in Rome, the Banca d’Italia claims to store 1199.4 tonnes of gold. Of this total, 1195.3 tonnes are in the form of gold bars (represented by 95,493 bars), and 4.1 tonnes are in the form of gold coins (represented by 871,713 coins). While most of the bars in Rome are prism-shaped (trapezoidal), there are also brick-shaped bars with rounded corners (made by the US Mint’s New York Assay Office) and also ‘panetto’ (loaf-shaped) ‘English’ bars. The average weight of the bars in Palazzo Koch is 12.5 kg (400 oz), with bar weights ranging from relatively small 4.2 kgs up to some very large 19.7 kgs bars. The average fineness / gold purity of the Rome stored bars is 996.2 fine, with some of the holdings being 999.99 fine bars.
The Banca d’Italia also states that 141 tonnes of gold that it transferred to the ECB in 1999 as a requirement for membership of the Euro is also stored in Palazzo Koch. This would put the total gold holdings in the Palazzo Koch vaults at 1340 tonnes. Gold transferred to the ECB by its Euro member central banks is managed by the ECB on a decentralised basis, and is held by the ECB in whatever location it was stored in when the initial transfers occurred, subject to various location swaps which may have taken place since 1999.
The Vault is revealed
While the Banca d’Italia’s 3 page report appears to be the first official written and self-published confirmation from the Bank which lists the exact storage sites of its gold reserves, these four storage locations were also confirmed to Italian TV station RAI in 2010 when an RAI presenter and crew were allowed to film a report from inside the Bank’s gold vaults in Rome.
This RAI broadcast was for an episode of ‘Passaggio a Nord Ovest’, presented by Alberto Angela.
Translation of Video
For those who don’t speak Italian, such as myself, I asked an Italian friend to translate Alberto Angela’s video report and the other voice-overs in the report. The translation of the above video is as follows:
“Banca D’Italia features a secret and extremely important place which represents Italy’s wealth: it’s our gold reserve.
We’ve had a special permission to visit this place, called “the sacristy of gold.” Here there’s a big protected door, and three high personnel from Banca d’Italia who are opening the door for me. Three keys are needed to open the door of the vault, one after the other and operated by three different people. Obviously we can’t show the security systems nor the faces of these men, but the door is huge, at least half a metre, and leads to another gate where again three keys must be used. Past this, that’s where our country’s gold is kept.
Here we are. It’s exciting to get in here, the environment is simple, sober. [general commentary, then camera shows a large amount of gold]
This is not all the gold we own, as part of it is also stored in The Federal Reserve in the US, in the Bank of England in the UK and in Banca dei Regolamenti Nazionali in Switzerland. I’m speechless when exploring the sacristy, … you don’t see this every day.
The value of all this gold is established by the European Central Bank, that also establishes its price. The overall value appears in the end of year balance. In 2005 the gold was valued at 20 miliardi of Euros (billions)
There are three types of lingotti (square-shaped gold). {he says how much the bars weigh}
They feature some signs on them, to say that they have been checked. Some are almost 100% gold, pure gold. There’s also a serial number on the gold, and a swastika on some of them as the Nazi took away all our gold, transferring it first to the north of Italy and then to Germany and Switzerland. At the end of the war part of it came back featuring the Nazi sign.
This gold represents the symbol of our wealth, without this we wouldn’t be able to deal with the rest of the world, it’s a symbol for Italy, a guarantee, like a family’s jewelry. They can be used to get loans as happened when Italy asked for a loan from Germany and they demanded, as a guarantee, the value in gold. So the name Germany was put on this gold at the time.
{the reporter then talks about going from gold to notes and ‘convertibility’ – trust in the States is now the guarantee for exchanges, and not gold, says the voice. It’s a relation of trust … Banca d’Italia keeps an eye on this. After Maastricht, a lot of our gold has left Italy to join the other countries’ gold to create the communitarian reserve of the Euro}”
Note that the reporter, Angela, states that in addition to Rome, the Italian gold is stored at the Federal Reserve Bank in New York, the Bank of England in London, and at the Bank of International Settlements (BIS) in Switzerland. The reporter uses the exact words “Banca dei Regolamenti Nazionali”.
The BIS and SNB
This BIS as Italy’s gold custodian was also confirmed in 2009 by Italian newspaper “La Repubblica”, which published an article about Italy’s gold, stating that it was held in Rome, at the Federal Reserve in New York, in the ‘vaults’ of the BIS in Basel, and in the vaults of the Bank of England.
This apparent inconsistency between a) the Banca d’Italia’s report, which claims that its gold in Switzerland is at the Swiss National Bank (SNB) in Berne, and b) the RAI broadcast, which states that some Italian gold is stored with the BIS in Switzerland, is technically not a contradiction since the BIS does not maintain its own gold storage facilities in Switzerland. The BIS just makes use of the SNB’s gold vaults in Berne.
If you look on its website, under foreign exchange and gold services, the BIS specifically states that it uses ‘Berne’ as one of its safekeeping facilities for gold, i.e. it offers its clients “safekeeping and settlements facilities available loco London, Berne or New York”. Loco refers to settlement location of a precious metals transaction. By confirming that its Swiss storage is with the BIS, and that it also stores gold at the Swiss National Bank in Berne, the Banca d’Italia has, maybe inadvertently, confirmed that the BIS makes use of the Swiss National Bank’s gold vaults, and that the SNB vaults are in fact in Berne. while its knwn that the SNB gold vaults are in Berne, the SNB rarely, if ever, talks about this.
However, in 2008, Berne-based Swiss newspaper “Der Bund” published an article revealing that the SNB’s gold vaults are in Berne underneath the Bundesplatz Square. Bundesplatz Square is adjacent to the SNB’s headquarters at No. 1 Bundsplatz. BIS literature, such as the official BIS history publication “Central bank Cooperation at the Bank for International Settlements, 1930 – 1973” also confirms that the SNB gold vaults are in Berne and that the BIS and the Banca d’Italia have held gold accounts with the SNB in Berne since at least the 1930s. Note that the SNB actually has two headquarters, one in Berne, the other in Zurich at Börsenstrasse.Its quite possible that some of the SNB custodied gold is also stored in the vaults of its Zurich headquarters under Paradeplatz or Bürkliplatz.
Simple Questions met with Ultra-Secrecy
In April 2014, in two emails, I asked the Banca d’Italia’s press office specifically about this SNB / BIS situation, and also about the Banca d’Italia gold stored in New York, (and also about gold leasing – see separate section below). My questions were as follows:
“The Bancad‘Italia states in its April (2014) gold document that the Italian gold held in Switzerland is stored at the Swiss National Bank in Berne. Previous profiles of the Bancad‘Italia gold storage arrangements in an RAI TV broadcast in 2010 and in a La Republica newspaper article in 2009 state that the Italian gold in Switzerland is deposited with the Bank of International Settlements (BIS).
Given that the BIS use the SNB vaults in Berne to store gold deposited with them (since they don’t have their own gold storage facilities in Switzerland), then the reference to the SNB is not surprising.
However, my question is, does the Bancad‘Italia store its gold in Berne as gold sight deposits with the BIS or as earmarked custody gold with the SNB, or a combination of the two?”
“Is the gold of the Banca d’Italia that is held by the Federal Reserve Bank of New York held under earmark (custody), or held in a sight account?”
The Banca d’Italia responded (simultaneously on all questions):
“This is to inform you that unfortunately Banca d’Italia will not be giving information in addition to the website note.
Press and External Relations Division, Secretariat To The Governing Board And Communications Directorate, Bank of Italy”
By ‘website note’, the press and external relations division was referring to the 3 page report on gold reserves (see above) that the Bank published in April 2014.
Nazi Bars in Rome
The RAI television broadcast from 2010 was also notable in that it revealed that the Banca d’Italia holds bars of varied origins in its Rome vaults, including bars stamped with the official Bank of England stamp, and bars from the US Assay Office in New York including a featured bar from 1947. There are also Russian bars shown in the RAI video, one of which is shown in the video with the CCCP lettering, the hammer and sickle stamp, and the letters HKUM.
More surprisingly perhaps, is the fact that the Banca d’Italia also holds Nazi gold bars from the Prussian Mint in Berlin. The RAI broadcast video shows a 1940 Nazi bar from Berlin, stamped with the eagle and swastika insignia and with Prussian mint markings. The Nazi bar holdings can be explained by the fact that the Italian gold was confiscated by the Nazis during World War 2 and ended up being moved out of Rome up to the north of Italy and then most of it was transported onwards to Berlin in Germany or else to Switzerland. Following the war, some of the gold given back to the Italians as part of the Tripartite Commission payouts happened to be Prussian Mint bars stamped with the Nazi symbol (see below for historical account of Italian gold movements during World War 2).
A view of the gold on shelves in the Palazzo Koch vaults, Rome
The Foreign held Italian gold
The Banca d’Italia gold document does not specify how much of the Italian gold is held in New York, London and Berne, apart from stating that most of the gold that is not stored in Rome is stored in New York. Note that this is even less transparent than the brief information that the Deutsche Bundesbank publishes about its gold reserves storage locations. However, the Banca d’Italia document does state that “the bulk” of foreign stored gold is in New York (“la parte più consistente è custodita a New York“), and that “contingents of smaller size” are located in London and Berne (“Altri contingenti di dimensioni più contenute si trovano a Berna, presso la Banca Nazionale Svizzera, e a Londra presso la Banca d’Inghilterra“).
While one could argue about the meaning of ‘the bulk’ in terms of quantity, essentially the Banca d’Italia gold document implies that the London and Berne holdings are not very large. More specifically, it is possible using historical data and records of Italian gold movements to infer that there is little Italian gold in London and Berne.
Not a lot in London
It does not look like Banca d’Italia holds anything other than a very small amount of gold in London. During the late 1960s, mainly between 1966 and 1968, the Banca d’Italia transported most of the gold that it had stored at the Bank of England vaults back to Italy. Regular shipments were exported and delivered by MAT (the secure transport company) to the Banca d’Italia’s vaults in both Rome and Milan, sometimes about 4 tonnes at a time, sometimes 10 tonnes at a time. Historic Bank of England gold account “set-aside” ledger entries (C142/5 Bullion Office Set Aside Ledger, A-K, 1943-1971) show that by the end of 1969, the Banca d’Italia only held 988 gold bars in London, weighing 396,000 ozs, or approximately 12.34 tonnes. In support of the veracity of this statement, see the specific ledger entry below.
During the Banca d’Italia’s gold transport period out of the Bank of England, various other transfers were also made from the Banca d’Italia gold account to the BIS gold account at the Bank of England. Since Italian gold reserves have not in total changed very much since December 1969, it is realistic to assume that the Banca d’Italia’s London gold holdings have not changed dramatically since December 1969, unless there have been location swaps executed since that time between London and New York or between London and Berne. This would generally only have been done for a specific reason such as to allow Italian gold lending through the London market. Significant gold lending only began in London in the mid-1980s, and the Banca d’Italia has never been on public record as having engaged in gold lending on the London Gold Lending Market.
Another possibility is that the Italians now use the BIS gold account(s) to hold gold in London in the same way that they do in Berne. This would allow the statement that some of the Italian gold is held in London to be true, even though the gold would, in this case, be held via the BIS gold account at the Bank of England, and not directly by a Banca d’Italia gold custody account in London.
Little in Berne
There does not appear to have been any Italian gold left in Berne after WWII (see historical details below), so whatever Italian balance is currently in Berne has been built up since 1946. Of relevance to the gold vaults in Berne, both the central banks of Finland (Bank of Finland) and Sweden (Riksbank) recently published the international locations of their gold reserves, and revealed that only very small percentages of their gold is kept in the Swiss National Bank vaults in Switzerland. Of the Riksbank’s 125.7 tonnes of gold reserves, only 2.8 tonnes (2.2%) is stored in the SNB vaults. For the Bank of Finland, only 7%, or 3.4 tonnes of its 49.1 tonnes of gold reserves are stored with the SNB in Switzerland.
Mostly in Manhattan
If this Swedish-Finnish 2-7% range of allocations held at the SNB was applied to the Italian gold that held outside Italy, it would result in between 25 tonnes and 87.6 tonnes of Italian gold being held at the SNB vaults in Berne. Factoring in 12 tonnes held at the Bank of England and a small amount held in Berne, this would imply nearly 1,200 tonnes of Italian gold at the Federal Reserve in New York.
There were at least 543 tonnes of Italian gold at the Federal Reserve in New York in the mid-1970s, since this was the quantity of Italian gold collateral that the Bundesbank held at the New York Fed during its first gold loan to Italy between 1974 and 1976 (see discussion below of the 1970s West Germany – Italy gold loan). If the quantities in London and Berne are as low as they appear to be, this 543 tonnes used as collateral might not have even been half the gold that Italy has custodied with the Federal Reserve Bank of New York.
A gold vault in Milan
It’s notable that the Banca d’Italia has used a vault in the city of Milan to store gold as recently as the late 1960s, although there is no mention of a Milan vault in the Banca d’Italia’s 2014 gold document. This would either imply that the gold stored in Milan in the 1960s was transported to Rome at a later date, or else that the Rome statistics may represent combined holdings stored in Rome and Milan, and are just rolled up to Rome for reporting purposes, since Rome is the head office of the Banca d’Italia. The Banca d’Italia’s Milan vault did feature as a key part of Italian gold movements during World War 2 (see below).
Historical Italian Gold
Like other central banks, the Banca d’Italia states that it uses 4 storage locations partly due to historical reasons and partly based on a deliberate strategy gold storage diversification strategy.
Although the Banca d’Italia held 498 tonnes of gold in 1925, Italian gold reserves fell to 420 tonnes in 1930, and continued to decline throughout the 1930s, falling to 240 tonnes in 1935, before another sharp fall to 122 tonnes in 1940 at the beginning of World War 2. With both Rome and Northern Italy under German occupation in 1943, the German occupiers pressurised the Banca d’Italia’s governor Azzolini to move the Italian gold north. Ultimately this led to 119 tonnes of Italian gold being transported by train from Rome to the Banca d’Italia’s vaults in Milan. But the transfer to Milan turned out to be just an interim stopover since the Germans continued to pile on pressure to move the Italian gold to Berlin.
The fascist government that controlled Northern Italy at that time initially resisted the German plan, but negotiated a compromise and agreed to move 92.3 tonnes of gold to a castle in Fortezza, in the far north of Italy near the Austrian border, close to the Brenner Pass and likewise very close (via Austria) to the German border.
Eventually the fascist government capitulated fully to the German demands and 49.6 tonnes of Italian was moved from Fortezza to the Reichsbank vaults in Berlin, followed by an additional transfer of 21.7 tonnes, so in total 71.3 tonnes of Italian gold ended up in the Reichsbank in Berlin. See here for graphic showing these wartime movements of Italian gold, and a comprehensive discussion (in Italian).
In the 1930s, the Bank for International Settlements Bank had invested substantially in Italian short-term treasury bills, which had a built-in gold conversion guarantee. Likewise, the Swiss National Bank held or was the representative for claims on some of the Italian gold. With the German pressure on the Italian gold in 1943, the BIS and SNB both became anxious about their investments and requested that their Italian gold-related be fully converted into gold with a view to moving the converted gold to the SNB vaults in Berne, Switzerland.
The Gold Trains to Berne
After intense negotiations, which the Banca d’Italia also supported (since it would allow some of the Italian gold to go to Switzerland and so avoid Berlin), the SNB and BIS succeeded in releasing the gold transfers, and over 72 years ago on 20th April 1944, 23.4 tonnes of Italian gold was sent by train from Como in Italy to Chiasso in Switzerland and then onwards by another train to Berne.
This required four railcars, two with 89 crates of gold weighing 12,605 kgs for the BIS (1,068 bars in total), and two other railcars of gold bars for the SNB which probably contained 9-10 tonnes – since this was the balance of Italian gold which did not go to Berlin or to the BIS but which had been moved to Fortezza from Milan.
A few days later on 25th April 1944, the Banca’Italia also executed an additional intra-account transfer in the Berne vault to the benefit of the BIS. This was part of a location swap with the BIS. To quote the official BIS historical narrative:
“On 25th April 1944, the Bank of Italy transferred an additional 3,190 kgs of fine gold from its own gold account with the Swiss National Bank in Berne to the BIS gold account there.” (Central Bank Cooperation at the Bank for International Settlements, 1930-1973, Gianni Toniolo, BIS).
The above suggests that the Banca d’Italia had no gold in Berne at the end of WWII. In fact, after WWII ended in 1945, the Italians essentially had very little gold anywhere except for small amounts that were left in Fortezza and found by the Allies, which was then returned to the Italians. Italy started buying gold again in 1946 with a 1.8 tonne purchase from the Banque de France. The Italians also began receiving gold back as reparations from the Tripartite Commission for the Restoration of Monetary Gold (TGC), getting 31.7 tonnes a few years after WWII ended, and another 12.7 tonnes in 1958. Since 71.4 tonnes had been taken by the Germans to Berlin, the Italians ended up with a net loss of about 27 tonnes due to theft and/or other war losses.
Some of these post-WWII gold reparations contained the Nazi Prussian Mint bars which are now stored in the Banca d’Italia’s Rome vaults. The initial gold bar reparations for Italy in the late 1940s came from the TGC account set up at the Bank of England. Records from the Clinton Library show that Italy received 575 Prussian bars set-aside from the TCG account in its early allocations. Prussian bars also made it to the Federal Reserve in New York. The same records show that were over 2,500 Prussian Mint bars held under earmark at the FRBNY for various customers as of January 1956 including the BIS, IMF, SNB, Bank of England, Netherlands and Canada among others. Some of these bars were later remelted into US Assay Office bars. (The Gold Report, Presidential Advisory Commission on Holocaust Assets in the United States, July 2000, Clinton Library).
In a similar way to other major European central banks, the Banca d’Italia’s gold reserves were mainly built up during the late 1950s and early 1960s. Although the Banca d’Italia was a relatively important official gold holder during the first half of the 20th century, it ‘only’ held 402 tonnes of gold as of 1957. But starting in 1958 and running through to the late 1960s, Italy’s gold reserves rose by nearly 600% to exceed 2,560 tonnes in 1970. See page 19 of “Central Bank Gold Reserves, An Historical perspective since 1845, by Timothy Green, Research Study No. 23, published by World Gold Council, for data on Italian gold reserve totals during the 1950s and 1960s.
Since 1970, Italy’s gold holdings have remained fairly constant, although at times some of the Italian gold has been used in various financial transactions such as:
gold collateral against a loan from Germany during the 1970s
contributions to the European Monetary Cooperation Fund (EMCF)
contributions to the European Central Bank (ECB)
The gold collateral transactions with Germany and the EMCF and ECB contributions explain why, in the absence of purchases or sales, Italy’s historic gold holdings statistics appear to fluctuate widely at various times since the mid-1970s.
l’Ufficio Italiano dei Cambi (UIC)
Until the 1960s, most, if not all of Italy’s official gold reserves were held not by the Banca d’Italia, but by an associated entity called l’Ufficio Italiano dei Cambi (UIC). In English, UIC translates as the “Italian Foreign Exchange Office”. The UIC was created in 1945. One of its tasks was the management of Italy’s foreign exchange reserves (also including gold).
Therefore the Italian gold purchases in the 1950s and 1960s were conducted for the account of the UIC, not the Banca d’Italia. However, during the 1960s there were two huge transfers of gold from the UIC to the Banca d’Italia, one transfer in 1960 and the second in 1965. In total, these two transactions represented a transfer of 1,889 tonnes from the UIC to the Banca d’Italia. The UIC’s main function then became the management of the national currency and not the nation’s gold. The UIC ceased to exist in January 2008 when all of its tasks and powers were transferred to the Banca d’Italia.
Gold Collateral for the Bundesbank – 1970s
In 1974, Italy required international financial aid to overcome an economic and currency crisis and ended up negotiating financial help from the Deutsche Bundesbank. This took the form of a dollar-gold collateral transaction, with the Bundesbank providing a US$ 2 billion loan secured on Italian gold collateral of equivalent value. On 5th September 1974, Karl Klasen, President of the Bundesbank, sent the specifics of the collateral agreement to Guido Carli, Governor of the Banca ‘dItalia. The details of the transaction were as follows:
US$ 2 billion was transferred from the Bundesbank to the Banca d’Italia for value date 5th September. Simultaneously, for value date 5th September, the Banca d’Italia earmarked 16,778,523.49 ounces of gold (about 522 tonnes) from its gold holdings stored at the Federal Reserve Bank in New York into the name of the Bundesbank, and received a gold claim against the Bundesbank for the same amount. (2A96 Deutsche Bundesbank Files, 1974, Bank of England Archives).
The gold collateral was valued at $149 per ounce based on a formula of 80% of the average London gold fixing price during July and August 1974. The loan was for a six month maturity but could be rolled over up to three times, i.e. up to two years in total. It turns out that the loan was rolled over up to the maximum two years allowed. Not only that, but the entire gold-backed dollar loan was renewed in September 1976 with larger gold collateral of 17.5 million ounces or about 543 tonnes. This gold loan renewal in 1976 was underwritten by the UIC, and the 543 tonnes of gold was transferred from the Banca’Italia to the UIC prior to the loan renewal. Note that Paolo Baffi had become Governor of the Banca d’Italia in 1975, taking over from Guido Carli.
In September 1978, at the 2 year maturity date of the renewal, the 543 tonnes of gold was returned to the ownership of the Italians but instead of being transferred to the Banca d’Italia, the 543 tonnes was transferred to the balance sheet of the UIC, since the UIC had been involved in underwriting the entire loan agreement. This 543 tonnes of gold stayed on the UIC books and was revalued over the years, thereby creating a large capital gain for the UIC.
Gold capital gain Controversy – 1997/98
When the gold held by the UIC was sold to the Banca d’Italia in 1997, the UIC realised a capital gain of 7.6 billion Lira which then became taxable. The UIC then owed the Italian Exchequer 4 billion Lira, 3.4 billion Lira of which was transferred to the Italian State in November 1997. At the time in 1997, Italy was preparing for entry to the Euro, and needed to keep its deficit under the 3% ceiling required by the Maastricht Treaty criteria. Eurostat ruled that this windfall transfer to the Italian Exchequer was not allowed to be offset against the government deficit. See here for January 1998 statement from Eurostat.
However, a European Parliament parliamentary set of question in March 1998 to the European Council seems to suggests that the UIC tax payment to the Italian Exchequer was offset against Italy’s public sector deficit, and that it helped to keep the Italian deficit under the critical 3% Masstrict ceiling, thereby helping Italy to qualify for Euro membership. The parliamentary questions were from Italian politician Umberto Bossi:
“Does the Council intend to finally ascertain the nature of this transaction?
Does the Council intend to establish whether it is permissible to encourage tax revenues of this kind to be offset against the public sector deficit?
If not, does the Council not consider that this incident shows yet again that Italy has not changed its ways and is prepared to stoop to dubious accounting practices in order to enter Europe?”
The answer to this parliamentary question in June 1998 seems vague, but did not deny that the tax windfall generated by the capital gain on the 543 tonnes of gold may have helped improve the Italian fiscal condition in the run-up to Euro qualification and entry.
EMCF and EURO
As referenced above, Italian gold has been contributed to various European monetary experiments since the 1970s. This explains why the yearly official total figures of Italian gold fluctuate widely over the 1970s-1990s period, and indeed have also fluctuated since 1999.
In 1979, Italy’s gold reserves dropped by 20% and stayed that way until 1998 when they increased again to the previous 1979 level. This was due to Italy contributing to the European Monetary Cooperation Fund (EMCF) which was a fund within the European Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). In exchange for providing 20% of their gold and dollar reserves to the EMCF, member countries received claims denominated in European Currency Units (ECUs). [The ECU was an abstract precursor to the Euro]. The gold that was transferred to the EMCF was accounted for as gold swaps, but there was no physical movement of gold, it was just a book entry to represent a change in ownership to the EMCF.
In 1999, with the advent of the Euro (initially as a virtual currency), central bank members of the Eurozone had to again transfer gold, this time to the European Central Bank (ECB). The ECB stipulated that each member had to transfer foreign reserves assets, and 15% of these transfers had to be in the form of gold. In Italy’s case it transferred 141 tonnes of gold to the ECB, so Italy’s gold reserves fell by this amount.
The gold owned by the ECB is not centrally stored and managed by the ECB. It stays wherever it was when transferred by each member country, and the ECB delegates the management of its gold reserves to each member central bank, so essentially, it’s just another accounting transaction. It’s unclear whether the ECB gold managed by the Banca d’Italia on behalf of the ECB is “managed” any differently to the non-ECB gold (i.e. its unclear whether the same investment policy always applies to both gold holdings). One person who would certainly know the answer to that questions is Mario Draghi, current president of the ECB, former governor of the Banca d’Italia, and also born in Rome, home of the Palazzo Koch gold vault.
Is any Italian Gold pledged or leased out?
Banca d’Italia annual reports follow International Monetary Fund reporting conventions and classify the gold in its balance sheet as ‘gold and gold receivables‘. In September 2011, when I asked the Banca d’Italia to clarify what percentage of the asset category ‘gold and gold receivables’ in its 2010 balance sheet referred to gold held, and what percentage represented gold receivables, the Bank’s press office replied succinctly that “it’s only gold, no receivables.”
Following the publication of the Bank’s three page gold document in April 2014, I asked the Banca d’Italia press office a number of questions (see above), one of which was about gold leasing:
“Are any of the Bank’s gold reserves subject to lease agreements, and if so, what percentage of the gold is leased out? Is any of the Bank’s gold swapped or pledged in any other way?“
As mentioned above, the Banca d’Italia’s response was:
“This is to inform you that unfortunately Banca d’Italia will not be giving information in addition to the website note.
Press and External Relations Division, Secretariat To The Governing Board And Communications Directorate, Bank of Italy”
Gold Audits
The Banca d’Italia states in its 3 page gold document that external auditors verify the gold held in Rome each year in conjunction with the Bank’s own internal auditors. For the gold held abroad, the external auditors are said to audit this using annual certificates issued by the central banks that act as the depositories (the depositories being the Federal Reserve Bank of New York, the Bank of England, and either the BIS or perhaps the SNB depending on the type of certificate that is issued for BIS deposits).
This approach is analogous to the methodology used to audit the German gold reserves stored abroad, i.e. there is no independent physical audit of the gold stored abroad by the Bundesbank. The paper-pushing auditors merely audit pieces of paper.
As regards the Banca d’Italia’s gold holdings at the Bank for International Settlements (BIS), these holdings could either be in the form of a “Gold Sight Account” or a “Gold Ear-Marked Account”, as explained here by the Bank of Japan in 2000 when it switched its gold holdings at the BIS from a gold sight account to a gold earmarked account:
“The Bank of Japan has recently transferred its claims against the Bank for International Settlements (BIS) embodied in a “Gold Sight Account” to a “Gold Ear-marked Account” with the BIS.” (July 2000)
If the Banca d’Italia’s gold holdings at the BIS are just in a sight account, then this is just a claim on a balance of gold, not a holding of specific gold bars.
It’s also surprising to me that the mainstream media have taken a significant, albeit superficial, interest in the Bundesbank’s ongoing exercise to repatriate 300 tonnes of its gold reserves from New York to Frankfurt, but zero interest in the fact that the Banca d’Italia supposedly has a huge amount of gold stored in New York that has never physically audited it and does not even see a need to repatriate it.
Banca d’Italia office in Manhattan
Like the Bundesbank, the Banca d’Italia also maintains a representative office in New York, at 800 Third Avenue – 26th Floor, New York – NY 10022 (see representative office contact details here). The head of this representative office is Giovanni D’Intignano (see LinkedIn). Therefore, it should be very easy for the Banca d’Italia to ask the Federal Reserve Bank of New York to conduct an on-site physical gold audit of the Italian gold at the vaults of the New York Fed, all 1000 plus tonnes of it.
In fact, the Banca d’Italia also maintains another of its only 3 representative offices abroad in London at 2 Royal Exchange, London EC3V 3DG, which is right across the road from the Bank of England’s headquarters and gold vaults. It should therefore also be a simple matter for the Banca d’Italia to also organise a physical on-site audit of its gold reserves stored at the Bank of England in London, something the Bank of England has been allowing its gold storage customers to do since 2013.
Political Awakening
There has been a developing political trend recently in Italy for more transparency on the Italian gold and also calls for its ownership and title to be protected against control by outside entities.
In January 2012, Italian politican Rampelli Fabio (co-signed by Marco Marsilio) submitted some written questions to the Italian Ministry of Economy and Finance, a department headed at the time by Mario Monti (Monti was also simultaneously Italian Prime Minister at that time), asking the following questions about the Italian gold (questions 4-14567 : Italian version and English version):
“When and under what agreement or statutory provision were the storage location decisions (regarding New York, London and BIS Switzerland) taken and whether that strategic decision is still considered to serve the interests of Italy?
Who owns the gold reserves held at Palazzo Koch (in Rome) and the gold reserves held at the foreign locations?
Does Italy have full availability to the gold reserves held at the Bank of Italy and at the foreign locations?”
Even though these questions were submitted nearly 5 years ago, the official status of the questions on the parliamentary website still says “In Progress”, suggesting that they have not been answered by the Ministry of Finance. I can find no other evidence elsewhere either that these questions were ever answered.
Senators visit Palazzo Koch vault
Three Italian senators of the political party Movimento Cinque Stelle visited the Banca d’Italia gold vaults in Rome on 31 March 2014 and are calling for the ownership of the gold to be transferred from the Banca d’Italia to the Italian public so that its control cannot be compromised. See video below of their before and after visit which was broadcast from outside the Palazzo Koch vault in Rome.
These 3 representative (in the above video) are Senator Giuseppe Vacciano, Senator Andrea Cioffi and Senator Francesco Molinari. I do not have a direct English translation of this video, however, anyone interested can translate this page from Italian, which was published on 3 April 2014, and features Senator Vacciano explaining the senators’ vault visit.
In his report, Vacciano confirm some interesting facts, such as that the Italian gold belongs to the Banca d’Italia and not the Italian State. The ownership issue is also confirmed by the Banca d’Italia’s 3 page gold report (see above) which states:
“La proprietà delle riserve ufficiali è assegnata per legge alla Banca d’Italia” – (Ownership of official reserves is assigned by law to the Bank of Italy)
Unusually for a central bank, Banca d’Italia’s share capital is held by a diverse range of Italian banks and other financial institutions as well as by the Italian state
Vaccciano also confirmed that in the vault they saw some South African gold bars, many American gold bars, and “several bearing the Nazi eagle”. And in a similar way to the RAI reporter Alberto Angela, who said in 2010 that he was speechless when viewing the gold in the sacristy, Vacciano says:
“from a purely human perspective, we could see with our own eyes a quantity of precious metal that goes beyond an ordinary perception … I must say that arouses feelings that are difficult to explain“.
Italian Citizens
The Italian business community and public appear to be quite aware of the importance of the country’s gold reserves. In May 2013, the World Gold Council conducted a survey of Italian business leaders and citizens which included various questions about the Italian gold reserves. The findings showed that 92% of business leaders and 85% of citizens thought that the Italian gold reserves should play an important role in Italy’s economic recovery. There was very little appetite to sell any of the gold reserves, with only 4% of both citizens and business leaders being in favour of any gold sales. Finally, 61% of the business leaders and 52% of the citizens questioned were in favour of utilising the gold reserves in some way without selling any of them. The World Gold Council interpreted this sentiment as allowing the possibility for a future Italian gold-backed bond to be issued with Italian gold as collateral. The Italian gold could thus play a role similar to that used to collateralise the international loans from West Germany to Italy in the 1970s.
Mario Draghi – Last Word
For now, the last word on the Italian goes to Draghi. Even Mario Draghi, former governor of the Banca d’Italia, and current president of the European Central Bank, has a similar view to the Italian public about not selling the Italian gold. In the video below of a 2013 answer to a question from Sprott’s Tekoa Da Silva, Draghi says that he never thought it wise to sell Italy’s gold since it acts as a ‘reserve of safety’. However, as would be expected from a smoke-and-mirrors central banker, Draghi doesn’t reveal very much beyond generalities, and certainly no details of storage locations or whether the Italian gold comprises gold receivables as well as unencumbered gold.
