Bank of England's gold not good enough for delivery

10:30p ET Wednesday, September 19, 2007

Dear Friend of GATA and Gold:

Metal Bulletin's story appended here is strong evidence that Western central banks are having trouble mobilizing enough real gold with which to maintain their gold-price suppression scheme. The story's reference to GATA's being "believed" to have made a freedom-of-information request in regard to the long-unaudited United States gold reserves is easily clarified: The request is still being devised by GATA's consultant, constitutional scholar and lawyer Edwin Vieira, with the hope of making it un-dodgeable by the Treasury Department. GATA hopes to submit the request in the next month.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Why Bank of England's Gold Has Lost its Shine

By Carmelle Lawlor
Metal Bulletin, London
www1.metalbulletin.com
Wednesday, September 19, 2007

The Bank of England has revealed that it is in talks with the London Bullion Market Association following concerns over the quality of its stocks of gold.

The bank keeps around 300 tonnes of the yellow metal on behalf of the UK Treasury -- before Gordon Brown initiated his controversial sales programme in 1998 the tally was 700 tonnes -- but it has emerged that not all of this remaining metal is fit for delivery.

The bank declined to reveal how much of its stock might be affected but in response to a request filed by Metal Bulletin under the Freedom of Information Act the bank conceded that there could be a problem without disclosing specific details.

"The bank is currently engaged in productive discussions with the LBMA about this matter," Stuart Allen, deputy secretary of the bank, said in the e-mailed response. "Once that uncertainty has been resolved (hopefully in the near future) we should be able to brief you on the outcome."

With gold at 16-month highs above $700 per ounce and concerns that central banks in Europe -- most recently Spain's -- will trim their sales, the Bank of England's admission could spur gold higher at a time of economic uncertainty.

"The implications would be much wider than just the UK," a London precious metals analyst said. "What would be interesting would be the implications it would have for other countries that hold much more."

Under the LMBA's "London good delivery" standards, gold bars that have been held in storage for many years may no longer conform to the standards set by the association.

"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," he wrote.

"While it is possible that a number of bars held [on behalf of the Treasury] might fall into that category, I am sure that you will appreciate that until discussions with the LBMA about LGD standards have been concluded, it is not possible for us to provide further details," Allen said.

The bank would not say what tonnage falls into this category but did concede it holds gold in a number of different formats.

"I can confirm that gold is mostly held in the form of gold bars, but there are also some ingots and coins held," Allen said.

"None of the gold held by the bank on behalf of the Exchange Equalisation Account [the Treasury's gold] has assay certificates," he said.

Rumours have long circulated the bank's stocks might not be deliverable and hence might be worth less than official estimates.

This could be politically embarrassing for Prime Minister Brown, who already is held in low regard among many in the gold industry.

While chancellor he sold some 400 tonnes of gold at prices less than half today's rate, potentially costing the Treasury hundreds of millions of pounds.

Gold held in bar form contains cracks and fissures, suggesting that it is not pure gold, according to market observers. Some of the gold stored in coin form contains large amounts of base metals and would need to be melted down in order to be deliverable, they told Metal Bulletin.

"I would expect the bars to conform to LBMA standards, but if there are coins, then that is different. The LBMA doesn't deal with coins, and coins do contain a certain amount of base metals," said Societe Generale analyst Stephen Briggs.

When the gold was acquired, current methods of assessing quality did not exist and the gold would have been judged by weight, observers said.

"The gold has been acquired over the decades since around 1840. There weren't the same gold delivery standards in those days as there are today. If it weighed OK, it was accepted," said one analyst.

US gold sources said that they had similar doubts about their country's gold, which they say has not been examined by an external auditor since the 1950s. The Gold Anti-Trust Committee (GATA) is believed to have filed its own freedom-of-information request for more details but has yet to receive a response.

James Turk, a GATA member and founder and director of GoldMoney, a US internet-based gold investment company, expressed no surprise that the Bank of England's gold may be of poor quality.

"The gold shipped from the US in the 1960s and 1970s was coin-melt gold, which is 91 percent pure. (Coins contain base metal to harden the coin to help prevent wear and tear to the gold.) This gold is less than the acceptable standard of the London Bullion Market Association of 99.9 percent pure," Turk said in an e-mailed statement.

Still, analysts argued that though it may seem surprising that the gold does not conform to today's standards, the problem could be easily rectified.

"I would guess that it would be only a small proportion that doesn't conform to LBMA standards, and it would be an issue only if they needed to sell the gold," GFMS analyst Peter Ryan said. "Some of this gold was acquired 30 or 40 years ago and standards do vary, but it is not difficult to fix."

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