Eurosystem Increasing Allocated Official Gold Reserves

by: Koos Jansen

Editor's note: Originally published on on 3 December, 2014

One of the commenters on our blog, Arend Lammertink, notified me of official gold reserves data disclosed on the websites of the Dutch central bank (DNB) and the German central bank (Bundesbank). At DNB, we can find a sheet that shows the Dutch central bank started separating its gold holdings from one category (gold, and gold receivables), to more detailed categories in May 2014.

Source: DNB

The row goudbaren means ‘gold bullion’ and niet ge-alloceerde goudrekeningen means ‘unallocated gold accounts’. The white rows represent the value, the weight is disclosed in millions of fine troy ounces; the Netherlands holds 612.5 tonnes in total, fully allocated and nothing is leased since 2008 (same as Germany).

Over at the site of the Bundesbank, the same information is published from 18 of the 28 member states of the European Union that use the euro currency (The Eurosystem). The Bundesbank (BuBa) publishes the fine troy ounces of the official gold reserves of the Eurosystem in ‘Gold bullion’ and ‘Unallocated gold accounts’. If we add up both categories the outcome for all countries equals the Official Gold Reserves disclosed by the World Gold Council. Concluding ‘Gold bullion’ is allocated (and obviously unallocated is unallocated).

From BuBa:

The application of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) is binding for EU member states by virtue of a regulation adopted by the European Commission. Moreover, the reporting requirements of Eurosystem NCBs vis-à-vis the European Central Bank are stipulated in a guideline.

From the guideline Changes in the methodology and classifications of the balance of payments and the international investment position:

With regard to reserve assets, gold transactions and positions will in the future be subdivided into gold bullion, which includes gold bars and allocated gold accounts, and gold receivables, to which no specific gold holdings are assigned.

The unallocated gold accounts of the Eurosystem relate to gold to which no specific gold holdings are assigned.

The ECB holds 22% (109 tonnes) of its gold reserves in unallocated accounts.

The data demonstrates most of the Eurosystem official gold reserves are allocated and since January 2014 (which is as far as the more detailed data goes back) the unallocated gold reserves are declining as we can see in the next chart.

Unfortunately we do not know what happened prior to 2014.

Note, allocated does not mean the gold is located on own soil, but it does mean the gold is assigned to specific gold holdings, including bar numbers, whether stored on own soil or stored abroad. Unallocated gold relates to gold held without a claim on specified bar numbers, often these unallocated accounts are used for easy trading.

Two good descriptions of unallocated gold accounts from the LBMA:

To take the analogy of simple currency bank accounts, precious metal bars, of any form, may be drawn down, or allocated, from an unallocated account in just the same way that bank notes with specific unique numbers may be drawn out of a bank checking account.

As you might know bank accounts are fractionally backed.

UNALLOCATED ACCOUNT: An account where specific bars are not set aside and the customer has a general entitlement to the metal. This is the most convenient, cheapest and most commonly used method of holding metal. The holder is an unsecured creditor.

The fact the Eurosystem discloses the ratio between its allocated and unallocated gold and, more important, the fact that the portion of allocated gold is far greater and increasing, tells me the Eurosystem is allocating as much gold as they can. Add to that the Germans are currently repatriating over 600 tonnes of their allocated gold from the U.S. and France, and The Netherlands has just repatriated 123 tonnes of its allocated gold from the U.S. Will the rest of the Eurosystem follow to repatriate their gold from abroad?

The Eurosystem is surely up to something with its gold. This can only be seen in advance of a reform of the international monetary system. As Jean-Claude Trichet, former president of the European Central Bank, stated on a financial forum in Beijing at the end of October 2014:

The global economy and global finance is at the turning point in a way… New rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.

On behalf of China the General Manager of the Precious Metals Department at ICBC (the largest bank in China and the world), Zhou Ming, stated on the LBMA Forum in Singapore in June 2014:

  1. International gold prices will return to rational levels after shooting high.
  2. With the status of the U.S. dollar as the international reserve currency is shaky, a new global currency setup is being conceived.
  3. Uncertain changes will happen to gold’s traditional dollar-pricing so the U.S. dollar’s influence on gold pricing needs to be re-evaluated.
  4. With the rise of Asian economies, China and India will continue to be the world’s pillars of physical gold demand.
  5. Gold has not only moved from West to East but will continue to move to the East.

So, China and Europe are embracing gold prior to the replacement of the U.S. dollar as the world reserve currency. I truly wonder what will replace the U.S. dollar.