Australia wants to check its gold supply in London

Australia's central bank wants to supervise whether her gold stash is still in the vaults of the Bank of England. The country keeps almost all of its supply in London, as this is a major hub in the international gold market. Many countries have been storing their gold reserves there for decades, without giving them any further consideration. Australia is not satisfied with that and now wants to carry out a spot check.

Under pressure from Australian Senator Gerard Rennick, the central bank has decided to control part of its gold reserves. The senator recently sent a confidential central bank memo to parliament about the existence of gold bars with false stamps and serial numbers. To dispel all doubts, the central bank sent a delegation to London to take a sample of ten per cent of the total gold supply. That will happen in the next few weeks.

How much gold does Australia have?

The Australian gold stock consists of 6,400 so-called London 'Good Delivery' gold bars weighing approximately 12.5 kilos each. These gold bars are located in Allocated storage, which means that the gold bars are registered in their name and that the serial numbers of all bars are known. This stock has at the current Gold price a value of about $5 billion. That is about 8.6% of its total reserves.

Australia once had much more gold, but in the 1990s the country decided to sell two-thirds of its stockpiles. The price of gold fell and due to high interest rates, government bonds were still an attractive alternative at the time. The remaining part of the gold stock has been held by the Bank of England since 1997. That's where the precious metal was also Lent, as the chart below from the Australian central bank shows. At the beginning of this century, this was still happening on a large scale, but due to a fall in interest rates, it became less and less interesting. In the 2020/2021 financial year, the central bank lent only 6 tonnes of gold.

Australia lent almost all of its gold reserves in the past (Source: RBA)

Why is Australia not bringing back its gold?

Australia's central bank once decided to store its gold in London because it is easy to trade there. But since 1997, no bullion has been bought or sold. She also lends almost no gold anymore. Therefore, Australia should repatriate its gold reserves, according to Senator Rennick: "Why shouldn't we count all the gold? Or better yet, bring everything back to Australia? We cannot leave this to the Bank of England.", he told the Australian Financial Review.

Previously, Germany, Austria, Poland and Hungary part of their gold stock away from London. These countries wanted to store more gold at home, in order to minimize political risk. And that is not without reason, because Venezuela did not get back her gold stash in London. The Bank of England does not recognize the government of Nicolas Maduro and therefore does not want to transfer the gold to the central bank of Venezuela. This example shows how important it is to keep gold in-house.

It remains to be seen whether Australia's control of gold reserves will lead to repatriation. Australia was once part of the British Empire and is therefore unlikely to take such a step any time soon. That could be interpreted as a vote of no confidence in the United Kingdom. In addition, Australia has very extensive underground gold reserves. There is an estimated 10,000 tons of gold left in the ground. With a mining production of 320 tons of gold per year, the country is also one of the three countries with the largest gold mining sector. In a scenario in which the precious metal will once again play an important role, the country can nationalize its mineral resources. It can also buy up domestic gold mine production to replenish its gold reserves.

This contribution comes from Geotrendlines

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.