Where is Australia’s Missing Gold?

On 15th August 1971, US

President Richard Nixon, to protect federal gold reserves, enacted a financial policy that prevented foreign governments from converting their dollars into gold This “Nixon Shock” reverberated around the world, freeing currencies like the Australian dollar from ties to the price of gold Despite this, central banks around the world retain hundreds of tonnes of gold in cases of severe economic crises In 2018 however, Australia admitted that they had misplaced 11 tonnes of the precious metal, and in an era of economic uncertainty, economists have started asking, where is Australia’s missing gold? The continent of Australia is uniquely placed in the world, possessing a wealth of natural resources such as uranium, copper and gold Until 1997, Australia possessed 247 tonnes of gold bullion, kept in a vault of the Reserve Bank of Australia in Sydney

Yet before the turn of the millennium Australia sold off all but 80 tonnes of their gold reserve 999% of the remaining gold was moved to London to be kept in the Bank of England This was not unusual After the Second World War, central reserves around the world moved their gold to banks in New York, London and Paris for security

The governor of the Reserve Bank of Australia, Philip Lowe, explains that Australian gold is kept with the Bank of England because London is a centre for global gold trading Yet the Reserve Bank of Australia’s 2018 report revealed that of the 80 tonnes held in England, 111 tonnes are officially on loan to unknown buyers This has led to concerns from Swiss gold trader Egon Von Greyerz and like minded economists that this gold isn’t actually in London, but has been sold from under the Australian taxpayer This seriously undermines the international gold trade which, as with most financial institutions, is built on trust

If someone with an excellent reputation, such as the Bank of England, truly is undercutting their clients, it could erode that trust and precipitate a market crash Australia might not be not the only victim In 2013, after storing their gold in New York for decades, the German government asked for 300 tonnes of their gold to be moved back to Frankfurt The US

Federal Reserve agreed, but claimed it would take seven years to return all the gold This prompted accusations from Russian economist Valentin Katasonov that they simply did not have the gold and could therefore not return it Egon von Greyerz believes the seven-year delay is because New York, London and Paris, have been leasing gold to countries who need it The gold is still technically owned by the original country But the New York, London and Paris reserves make a tidy profit from leasing it

When Germany was informed of this lengthy waiting period, the Reserve Bank of Australia requested an audit of their gold to check whether or not it was all still in London It was the first ever audit of Australian gold by the Bank of England According to economist John Adams, internal communications between RBA and the Bank of England reveal that while Australia knew where its gold was, there didn’t appear to be a contract to stipulate how the gold was stored When the audit took place in 2013, the Bank of England limited the scope and timeframe of it John Adams says, “We had to tell the [Bank of England] six weeks in advance and the serial numbers of the bars we wanted to see

” This meant Australian auditors could not count all their gold, merely a sample of it Furthermore, Adams says the six weeks’ notice “gave them enough time to rig the sample” While Adams does not explicitly accuse the Bank of England of using this information on the serial numbers to forge gold bars to replace the missing Australian bullion, it is a possible explanation Moreover, the Bank withheld the final audit report from the general public Adams says this indicates the Bank of England could have sold Australian gold, and has since tried to cover its tracks

In addition to this information, the RBA 2018 annual report also mentions that $710,000 was made in income on the leased 111 tonnes of gold It doesn’t specifically mention whether that income is interest or revenue from a sale But as Adams points out, if the sum is from interest, that would make the interest rate on the gold 012%

This is painfully low, given the national risk-free loan interest rate is 3% As to where that gold is disappearing to, Egon von Greyerz claims that certain countries like China and India are accumulating more gold than they should be able to through mining He suggests they are on the other end of this secret trade However there are people who disagree with this conclusion The Australian Bullion Company’s chief economist Jordan Eliseo says the Bank of England has been involved in the storage and trading of bullion for centuries and has asserted that it is practically impossible to forge gold bars given the way refineries work

Gold refineries number bars sequentially and are routinely audited to ensure quality and maintain trust in the market To perpetrate the level of fraud John Adams is alleging, the Bank of England would effectively be risking the integrity of the entire bullion market According to the Perth Mint, Chinese investors are buying more than 230 tonnes of Australian gold every year, worth $11 billion, on the Shanghai Gold Exchange This could very much explain how China has a stockpile of gold greater than mine production With Australian gold output at its highest level since 1999, it calls into question why RBA or the Bank of England would risk jeopardising the international gold trade, a system largely based on trust, for 0

12% interest on just 111 tonnes Bron Suchecki, company secretary of the Gold Industry Group, says this figure does not take into account fluctuations in the amount of gold leased He says the weighted average interest is 015%

While Suchecki says this rate is not high enough, he does not blame the Bank of England He blames the Reserve Bank of Australia for not getting a better rate Suchecki also says the term “lease” in the gold trading world does not mean that the original bullion bars will be returned It is closer to a loan, with the borrower’s current gold stocks held as security This is why the gold still exists on paper, as it is understood that the equivalent amount of metal will be returned at some point

The complexity of this system means that many Australians are beginning to wonder whether it is wise to keep arguably their most valuable resource with a foreign power A national petition demanding to repatriate their gold has begun Thanks to the veil of secrecy over affairs between the Reserve Bank of Australia and the Bank of England, serious questions remain as to how much control Australia has over its own wealth

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