After years of gradually securing its official gold reserves (unwinding leases) the central bank of Austria claims to have completed the audits of its 224 tonnes of gold stored at the BOE. However, it refuses to publish the audit reports and the gold bar list. What could possibly be so sensitive to hide from public eyes?
After the Germans had activated a program to repatriate 150 tonnes of their official gold reserves in 2012, which was revised in 2013 to have 50 % of their gold on German soil by 2020, and the Dutch repatriated 123 tonnes in 2014, the Austrians have likely been inspired by these initiatives – if European official gold policy is not adroitly aligned among national central banks behind the scenes. In 2015 the Austrian central bank, the Oesterreichische Nationalbank (OeNB), revealed it would repatriate a significant share of its yellow metal from the UK, where they were storing 80 % (224 tonnes) of their total reserves (280 tonnes) at the Bank Of England (BOE). The Austrians decided to eventually have 50 % of their gold on own soil by 2020 – just like the Germans.
Have a look below at the repatriation schedule of the OeNB for the period from 2015 until 2020. We can wonder why the gold is scheduled to be transported over the course of five years instead of a few months. My guess is this is caused by some kind of friction between the BOE and its foreign central bank clients, in this case the OeNB.
Exhibit 1. Courtesy OeNB. Total OeNB gold accounts for 280 tonnes.
But we know that the OeNB didn’t start to get nervous about the safety of their gold in 2012 or 2015. This started right after Lehman Brothers fell in 2008, as documents show the OeNB slowly started to secure its bullion by unwinding gold loans to commercial banks in 2009. Though, the OeNB publicly disclosed these details after the facts in 2015. Have a look at the overview below. OeNB gold loans to commercial banks have been brought down from 116 tonnes in 2009 to 24 tonnes in 2013.
I (we) first learned the Austrians were worried about the safety of their gold in the UK through an article from Goldreporter.de from May 2014. The article noted:
Austria is planning to send auditors to the Bank of England in order to verify the existence of Austria’s gold reserves stored in British vaults.
The Austrian accountability office will sent a delegation to London in order to check on Austria’s gold reserves stored in vaults at the Bank of England. … The measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.
“I acknowledge the request. Any grocery store is obliged to do an inventory once a year. It is the only way of getting rid of these unreasonable allegations”, Ewald Nowotny, Governor of the National Bank of Austria tells Trend.
Exactly. Any gold owner, and thus many central banks including the OeNB, is obliged to do an inventory once a year to be positive his gold is safe and sound. If central banks truly hold the amount of gold they claim, executing a proper audit and publish the documentation shouldn’t be a problem. Or would it?
Well, it could be a problem if a central bank is obstructed by its custodian to perform audits. In February 2015 we learned the OeNB had some problems with auditing their gold at the BOE. The Austrian Court of Audit (Der Rechnungshof) wrote in a report [brackets added by me]:
Late 2013, the OeNB stored roughly 82 % of its physical gold holdings [224 tonnes] at a depository in England [BOE] and therefore ran a high concentration risk. The current  depository concept lacked adequate measures to reduce this risk. Additionally, the gold depository contract with the depository in England contained deficiencies. With respect to the gold reserves stored abroad, internal auditing measures were lacking.
The OeNB had no appropriate concept to perform audits of its gold reserves. … The lack of audit measures represented a gap in the internal control procedures of the OeNB. The OeNB started in March 2014 with the development of an ??audit program, which included all the gold holdings of the OeNB.
So, although the OeNB was trying to audit their gold at the BOE since March 2014, the results haven’t been as desired, as “the gold depository contract with the depository in England contained deficiencies”, and, “with respect to the gold reserves stored abroad, internal auditing measures were lacking”. Noteworthy to mention is that the BOE sent a letter to its foreign central bank clients in June 2013, openly inviting them to come and audit their gold. Please read bellow the letter obtained by colleague gold blogger Bullion Barron:
As you may know, the Bank of England’s vault operation is somewhat unique in that it facilitates both long term central bank storage and active trading.
I am pleased to tell you that we will now allow inspections of a suitable random sample of your bars. We will follow a principle of doing everything we can to accommodate requests, subject to us maintaining our ability to run the vault efficiently.
The workload associated with these visits, combined with regular operations means that you will need to agree the scope and timing of any inspection with us in advance. Furthermore, there will need to be some constraints around the date, sample size and frequency of visits depending on the overall demand.
Due to the number of customers we have, we may not be able to accommodate your request immediately but, we will do everything we can to accommodate you as soon as is reasonably practicable. If you would like to discuss further details, please contact your Relationship Manager.
First of all, it seems that prior to June 2013 foreign central banks had no auditing rights at the BOE at all. That's shocking. In addition, this letter was sent in June 2013, but in February 2015 Austrian Court of Audit declared, “with respect to the gold reserves stored abroad, internal auditing measures were lacking”. Why couldn't the OeNB audit its gold in London by 2015 while the BOE had stated in 2013 to welcome clients for metal inspection?
In any case, I emailed the OeNB in September 2016 to ask what the status was of the repatriation program – how much had been shipped from the UK to Austria. The OeNB replied:
Due to security reasons we are not able to give information concerning the concrete process and status of the transport of the Austrian gold reserves.
Then I asked if the OeNB had been able to finally audit its gold at the BOE and if they have a gold bar list publicly available disclosing each of their bar’s refinery brand, serial number, year of manufacturing, etc. The OeNB replied [brackets added by me]:
…we can confirm that the Oesterreichische Nationalbank has audited her gold holdings in the UK and also in Switzerland, but we also have to tell you that we won’t send a copy of the audit reports.
I regret, we do not have the required [the gold bar] list online.
Isn’t that odd? In 2014 the President of the OeNB Nowotny stated, “any grocery store is obliged to do an inventory once a year. It is the only way of getting rid of … unreasonable allegations”. Effectively he stated that the only way to proof the existence of the Austrian gold is to do a proper audit. But once that audit is completed the reports should made public or the whole exercise isn't credible. Actually, by not releasing the audit reports more concern is raised. Can an audit “get rid of … unreasonable allegations” if it’s done in secret and the documents remain classified? I think not.
Why not full transparency? Why are central bankers always so secretive about their official gold reserves? What could possibly be the reason to hide inventory documents from public eyes? Why doesn't the OeNB publish a gold bar list? Why doesn't the Dutch central bank publish a gold bar list (and makes up false excuses)? Why did the German central bank publish a gold bar list that is worthless because it doesn't disclose gold bar serial numbers, refinery brands and years of manufacturing? Why does it take Austria and Germany another four more years to repatriate gold from the UK and US?
If the OeNB, and many other central banks, keep hiding their documents from us all we can do is worry and speculate. Not because we want to, but because we’re forced to.
BullionStar, though, will keep pushing for more transparency at every central bank around the world. Whether it be the central bank of the Netherlands, Germany, the US, Belgium, Italy, Austria or the IMF.
To be continued…
OeNB Director Kurt Pribil and President Ewald Nowotny.