Considerable interest in the gold loan, swap and forward sales status of Western central banks has peaked since the publication on Dec 4th 2002 of Reg Howe's Gold Derivatives: Moving Towards Checkmate . The Bank for International Settlements 2001 Triennial Survey of central banks revealed table data which, when converted to tonnes, seemed to show that over 16,000 tonnes of central bank gold had been loaned, swapped or sold forward as of June, 2001. Thus, it appears appropriate to list in this article, the current status of the EU member bank's gold receivables and gold.

Reg's most recent commentary "Gold: Cover or Cover-Up" described the gold receivable and gold status of several EU member central banks. He also mentioned Portugal's large gold receivables in comparison to their reported vault bullion totals.

The data for today's study have been collected from the monthly online IMF International template reporting pages located at: http://www.imf.org/external/np/sta/ir/colist.htm, the European Central Bank [Statistical International Reserves section] and the EU member central bank 2001 annual reports, tables and notes to financial statements. The EU monetary member totals are spreadsheet derived from the member bank's IMF reports current to November 2002 unless otherwise noted. The ECB dollar gold reserves have been calculated from their reported gold in ounces to yield a $USD value as of Dec 31, 2002 using a gold price of $348.20 LBMA PM Fix. Other wise, the $USD reserve values are from the IMF.

Is the gold "Receivable"? With apparently 16,000 tonnes of gold receivables extant, a reasonable observation can be made that an asset risk exists to the holders of large gold receivables. Portugal's 63% receivable to gold holdings ratio may be seen in two ways. Their 381.4 tonne gold receivable is dependent not only (1) on the creditworthiness of Portugal's counter party, but also (2) on the general availability of sufficient metal for the counter party to obtain and return it to them at the contract's closure date. In this regard, the term "Receivable" is contingent upon the securing of gold from some source and at a reasonable market price. The credit rating of the counter party may, in fact, be unrelated to its ability to obtain required large quantities of gold, thus a counter party default risk may paradoxically co-exist with a counter party high credit rating.

The EU central bank gold receivables and gold listing are shown in the figure below.

Austria's gold holdings are current November 2002 while their receivables are reported at their 2001 annual report, thus the difference in their totals. Four non-EU central banks are shown for comparison purposes.

Portugal's reporting of gold swaps stands in contrast to other large EU central banks that shroud their gold holdings and receivables by commingling the two in annual reports. The Portuguese gold swap basic information is clearly seen in their1996 Annual Report and the detail of their gold swap reporting increases with each successive annual report through to the present with the exception of 1998. Their reporting format changed that year and they closed a former swap with the EMI [91.63 tonnes] and then increased their gold swap operation. Of note, Portugal classifies their gold swap as a liability but it is not posted in the gold category. They carry the gold swap funds to be returned upon contract completion in a separate, "Other liabilities" balance sheet location.

Gold reserves as at 31 December 1998 - amounting to approximately 624,826 tons[sic] of fine gold - were entered in the books at the price of PTE 1,784.39085 per gramme of fine gold. According to the accounting rules utilised by Banco de Portugal, the gold involved in swap operations against foreign currency is not deducted from assets; the amount of foreign currency to be paid on the maturity date of the operations is entered under liabilities. This liability is recorded in the item External liabilities Non-resident credit institutions, which amounted to 483,268.7 million escudos as at 31 December 1998. [At 266, 1998 Annual Report]

Thus, Banco de Portugal's gold 1998 swap liabilities convert to 401,079 million pesetas [Using a current escudo to peseta conversion ratio of .82993 which the writer believes to be accurate]. Further conversion from pesetas to grams yields 224,770,823 grams and this converts to 7,226,548.8 troy ounces and to 224.77 tonnes of gold swap operations at the end of 1998. It appears that the bank closed out a 91.6 tonne gold swap with the EMI, revalued their gold reserves and then reassumed a new transaction for the 1997 total swap amount was 124.9 tonnes and the1998 gold swap totals grew to 224.7 tonnes. Thus the rapid growth years in question are 1998 and 1999 when their gold receivables rose from 124.9 in 1997 to 367.1 tonnes in 1999 [See tables below].

The following two tables, derived from the Banco de Portugal Annual Reports 1995 through 2001, detail their forthright reporting of gold held, its general location, status of demand deposits and their gold receivables by category of the gold receivable. By any measure, Banco de Portugal is a model of gold accounting clarity. Perhaps their loss of loaned gold during the Drexel, Burnham, Lambert bankruptcy [At 42] has left them with a newfound desire for full disclosure.

Austria also follows the practice of reporting details of gold holdings and gold receivables. They, too, refer to their forward sale and gold swap as an off balance sheet liability.

From the 2001 Austrian Annual Report [Financial Statements]:

Apart from the items recognized in the balance sheet, the following financial liabilities and financial derivatives are stated off the balance sheet on December 31, 2001:

-Foreign currency forward transactions and swap transactions of a total of EUR 1,629.416 million. These forward transactions also include forward sales of 30 tons [sic] of gold. [At 28].

And the following item regarding Austria's gold swap:

Moreover, the OeNB reports liabilities outstanding on un-matured gold/interest rate swaps involving 27.9 tons of gold. [At 29]

Those "Old Europe" French. Standing alone among the Euro Area central banks, France leads by avoiding the risks inherently associated with loaning or swapping their gold reserves altogether. They have no gold receivables. Their 3,025 tonnes of gold holdings may be the largest unencumbered gold asset in the world, other than the United States reported 8,000 tonnes. Although this US figure is questionable as FOMC transcript comments from the Federal Reserve's chief counsel, Virgil Mattingly, reveal the existence of US gold swaps. Wayne Angel, then a Federal Reserve Board Governor, also refers to them in the 1991 FOMC transcripts. This week, Dimitri Speck uncloaked more early Wayne Angel references [July 6-7, 1993] to gold market Fed interventions found in FOMC transcripts The credible status of US gold and gold swaps remains to be seen.

Germany's gold assets are also shrouded in mystery by not separating holdings from receivables so one cannot be sure how much gold they have.

Refining the point. Reg Howe referred in his latest commentary to Professor Antony C. Sutton's finding in The War on Gold that much of the US gold is coin melt, 22-carat fineness. Indeed, Norway refers to the change in their returned gold's weight in their 2001 Annual Report notes section. The weight of their loaned gold upon its return was different. They received back gold that was a higher fineness than they loaned.

A demand shock for the return of large amounts of receivable gold that is less than "Good delivery bar" quality, suggests that large amounts of swapped gold would require refinement before return. The limited world gold refinery capacity therefore represents a bottleneck that would impede the process of rapid gold contract termination. The Swiss firm PAMP, a subsidiary of MKS Finance S.A. is the world's largest gold refinery and its annual refining capacity is only 400 tonnes and is running at capacity today. Thus, the likelihood that additional thousands of tonnes of 22-carat gold could be rapidly refined for return is not credible. Moreover, the falling world gold production has also thinned the ranks of gold refiners.

Finally, the resource rich country of Australia has lent 97% of its gold even though they do not report to the IMF their gold volume, they did report gold reserves. "Gold and Gold Receivables is reported in their 2001 annual report and their notes to financial statements indicate the quantity of remaining vault bullion is 3.7 tonnes.

Even though the majority of Euro Area central banks keep their gold status hidden from view, it is clear from those that do reveal their gold status that a significant amount of Euro Area central bank physical gold no longer resides in their vaults.