Deteriorating gold reserves of little consequence

Reports that the reserves of gold held in the Bank of England’s vaults may be below deliverable quality (according to current London Bullion Market Association standard), have received wide coverage in the media.

The UK Treasury holds gold reserves to the tune of 320 tonne and last week, a Freedom of Information request from Metal Bulletin, the trade journal, confirmed that cracks and fissures had appeared in some of the gold.

The Bank has stated that its gold reserves do meet delivery standards, but that the condition of some of the gold bars may not be acceptable.

Even if other Central Banks are experiencing the same problem, the impact of this on their gold holdings is likely to be negligible, as it would be a simple matter for the Banks to get their gold re-refined to current delivery standards.

The process might result in reserves being downgraded in quantity, but only by a minute amount, and the impact on reserve tonnages would be negligible.

As a result, it would have little or no bearing on the world gold market.

Commentators have interpreted the level of coverage of the Bank of England story as an attempt to embarrass Central Banks, which are seen by some to be manipulating the gold market in an attempt to keep the metal price from rising.

If this is the case, such attempts are clearly unsuccessful at the present time.

However, many of those holding sway over the world’s monetary authorities regard gold as an anomaly which should no longer form a part of currency reserves.

They may, as a result, find difficulty in accepting the evidence of recent weeks that shows the price of gold strongly linked to the performance of the US dollar.