I am thinking in particular of the German Bundesbank, who own 3396 tonnes of gold, less than a third of which is held in the vaults in Frankfurt. There are many other countries who deposits their gold reserves in the vaults of foreign countries.
45% of the Bundesbank gold is stored with the Fed in New York, and the rest in London and in France.
Now, when the Germans got uneasy about the way the American economy was going … they requested an on-site inspection/audit of their gold, and were refused. We can all draw our own conclusions about that …
But my question is …why on earth would any country want to store their gold in the vaults of a foreign country in the first place?
The real reason is that it is/was impractical to ship gold bars across the Atlantic Ocean, whereas it is easy and practical to put a note on shelf 27 of vault 16 that ingots 27001 to 27850 that used to be owned by the French Government are now owned by the German government.
All this gold was accumulated in American banks over decades the German was running a surplus with America. Rather than shipping the gold to Germany, the gold was accumulated in German accounts in American banks. They just changed the label on the account from “US government” to “German government”.
The most probable case is that more countries will want to inspect their gold and it would generally be a hassle for them. If I was the Fed I would not want them to inspect.
Gold, like most metals varies in price day to day.
If you need to sell a tonne of gold from trader A to B you don’t need to move the physical locaction, *but if you sell within a location, ie the London Metals Exchange,***then you can bypass significant trading taxes.
I.E. Choose the best part of intentional market to trade your precious metal, work out the cost of physically moving ingots vs the cost of trading in futures…
Sometimes when you buy a ton of Gold you want a ton of gold, not a promissory note.
As an aside, I worked in an Aluminium re-cycling plant in west London and occasionally we would see 200 tonnes of double/triple heart 99.99/99.999 pure metal come in on low loaders. Lots of armored Mercedes from Heathrow!
Should have added car occupants were a bit ‘shady’.
A couple of weeks ago I did a tour of the Bank of England. Unfortunately I did not get to view the vault. I asked the question though and was surprised to find that it was such an active place. It seems that the bars get physically moved from shelf to shelf on a regular basis as transactions are made. (As well as their being documentation of which bars belong to whom.) The guy I spoke with did say that there was at least one bar that hadn’t moved in the last 196 years but also said that staff were in the vault several times a week moving the bricks.
I think the simple reason is that gold reserves aren’t needed in the country. What is Germany (or any country) going to do with a bunch of gold bars in their own country? To the extent these are useful at all, they are used to settle international debts. So by definition they are more useful outside the country than inside the country. Keeping it all in one central location, and the New York Fed is as good a place as any, is simpler and safer for all concerned.
It would require an entire audit of the Fed in order to ascertain which gold bars were “theirs”, it’s not like they are physically stamped anymore or even if they where they have been shuffled around enough times to make markings meaningless. Not only the Fed, but other countries would balk at such an audit because it may reveal information that the mother country would deem confidential.
That and there is no gold, just gold plated bricks.
