London Times reports Bank of England's defective gold

The Times of London today picked up Metal Bulletin's recent story about the inability of Bank of England gold to meet the "good delivery" standards of the London Bullion Market Association. But the basic details about the quality and disposition of the gold remain unclear, even as the bank easily could clarify them, just as the disposition of U.S. gold reserves remains unclear and those reserves have not been audited in a half century.

There is a reason for all this unnecessary mystery, and it is that the British and U.S. governments simply do not want their citizens and the world to know what is really being done with the gold.

Now even Citigroup has conceded that this gold is being used for the surreptitious manipulation of markets.

Having just acknowledged one part of the gold story, maybe The Times will move on to the next.

The newspaper's story on the defective quality of the Bank of England's gold is appended.

All that Glisters May Not Be Gold

By Patrick Hosking
The Times, London
Saturday, September 29, 2007
 

It has long been the plaything of kings, the spoil of conquerors, and supposedly the safest investment that money can buy. But for the people of Britain, our national nest-egg may not quite be what it appears.

Hidden away in vaults under the City of London, Britain's hoard of gold bullion, regarded as the best insurance against any turmoil in global money markets, is beginning to crumble. The deterioration, some experts claim, may suggest that it is not pure gold.

The Bank of England, guardian of the 320-tonne stash under Threadneedle Street, admitted yesterday that cracks and fissures had appeared in some of its gold.

Questions put to the Bank, made under the Freedom of Information Act, revealed that this deterioration would temporarily reduce the gold's L4 billion value and make it more difficult to sell.

The discovery is a further embarrasment for the beleaguered Bank, coming only days after it was blamed in part for the Northern Rock crisis. But it said that most of the hoard remained in mint condition. It denied suggestions by some experts that the deterioration was evidence that the gold may have been adulterated with base metal.

"This is not about purity; this is about physical appearance," the Bank insisted, saying that its bars were 99.9 per cent pure gold. The problem was due to the age of the bars, many of which were imported from the US in the 1930s and 1940s.

Although the gold carries assay marks, a guarantee from the refiner of its purity, there are no accompanying assay certificates, now regarded as essential by gold traders.

The Bank holds the gold on behalf of the Treasury, mainly in bars, but also in ingots and coins. Most of the hoard is thought to be stored in bars weighing between 10.9kg (24lb) and 13.4kg, and each worth between $258,000 (L123,000) and $317,000.

Revelations about its physical deterioration were secured by the trade journal Metal Bulletin, which has been trying to ascertain the truth since May. Rumours that the Bank's gold was not in tiptop condition have circulated in the gold market for years, but Stuart Allen, the Bank's deputy secretary, has now confirmed there is an issue.

To be traded, gold bars have to meet so-called London Good Delivery (LGD) standards, as laid down by the London Bullion Market Association. Mr Allen wrote to the journal: "There is some uncertainty about the status of LGD standards in respect of certain categories of gold bars that have been held in deep storage for many years."

The Bank was in discussions with the association to clarify how much of its gold was in substandard condition, Mr Allen added.

A Bank spokesman insisted it was not a big problem. The gold could easily be sent off to a refiner to be melted down and turned into new bars, he said. According to market observers questioned by Metal Bulletin, cracks and fissures suggested that the bars may not be pure gold. The gold in coin form may also be contaminated with base metal.

If 100 percent pure, the gold would be worth just over L4 billion at the current price of $738 an ounce.

The Government keeps reserves of gold and foreign currency to use to prop up sterling in times of adversity. In theory, in times of war, reserves could be used to finance emergency imports.

Britain's reserves have already been more than halved in recent years after Gordon Brown's controversial decision to sell 395 tonnes of gold between 1999 and 2002, when he was Chancellor. The soaring price since then has left critics questioning the decision and its timing.

Peter Ryan, an analyst at the consultant Gold Field Mineral Services, said: "I would guess that it would only be a small proportion that doesn't conform to standards and it would only be an issue if they needed to sell the gold. Some of this gold was acquired 30 or 40 years ago and standards do vary, but it is not difficult to fix." The gold price has been soaring recently as investors seek a hedge against the falling dollar and inflation worries. Strong demand from India, the biggest gold-consuming country in the world, has also boosted prices. There, gold jewellery, ingots and coins are a favourite wedding and festival gift.

Analysts suggested that the Bank, which declined to say how much tonnage was affected, would not be alone with its deteriorating bars. Many other central banks with reserves going back centuries could face similar problems.

Governments of Australia, Switzerland, the Netherlands, Argentina, and Belgium, as well as Britain, have sold gold reserves in recent years. Britain argued that gold represented too large and risky a proportion of its total reserves. But the fashion for selling reserves appears to have faded as the price has risen. Net government sales were only 328 tonnes worldwide last year, down 51 per cent, according to Gold Fields Mineral Services.

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