Denmark Releases Gold Bar List, But the Serial Numbers Are Missing
Denmark Releases Gold Bar List, But the Serial Numbers Are Missing
Analysis of Denmark's incomplete gold disclosure and the growing trend of central bank transparency in gold reserves management
Table of Contents
- Denmark's Incomplete Gold Disclosure
- Central Bank Credibility and Transparency
- Examples of Increased Gold Transparency
- Denmark's Gold Holdings and History
- The Need for Full Transparency
- Auditing and Physical Inspections
- Problems with Denmark's Bar List
- Industry Standards and Best Practices
- Implications for Gold Investors
Transparency Issues in Central Bank Gold Holdings
Late 2021 the central bank of Denmark released a bar list of its monetary gold. Unfortunately, the individual serial numbers of the ingots—the disclosing of which is the main purpose of a bar list—are missing. Government entities around the world have been increasing transparency regarding gold in recent years, but still have a long way to go.
This development highlights ongoing challenges in gold market transparency that affect both institutional and individual investors interested in gold investing and the broader precious metals market.
Central Banks, Credibility, and Transparency
Credibility is a central bank's most valuable asset. If credibility is lost, a central bank can close shop. Transparency is one of the means for a central bank to gain credibility. As monetary instability has been mounting for years, central banks are forced to become more transparent.
A central bank's monetary gold can be viewed as its "Plan B." If, for example, a central bank fails to control price stability through monetary policy ("Plan A"), it can peg its currency to gold to restore stability.
The Gold Dilemma
Gold is a sensitive topic, though. On one hand, a central bank needs gold reserves to underpin confidence in its balance sheet. Especially central banks that issue reserve currencies. On the other hand, if a central bank emphasizes gold too much, it could destabilize Plan A.
Central banks have a hard time finding a balance in how transparent to be about gold. Since 2008 the trend is more transparency, but not too quick.
Examples of Increased Gold Transparency Since 2008
The following are examples of government bodies having increased gold transparency in the past fourteen years:
- All major European central banks, except Banco De España (of Spain), have disclosed the geographic locations of their gold reserves
- Numerous central banks have been transparent about repatriating gold. Venezuela, Germany, and Austria announced repatriating in advance
- Other countries, such as The Netherlands and Turkey, made it public after the gold was brought home
- Germany's central bank has published an overview of its gold storage locations going back to 1950
- Germany has published a book about its monetary gold reserves, released videos of vaults, and conducted exhibitions
- Russia's central bank has released pictures of its gold reserves
- Central banks have started communicating about auditing their metal
- The Bank of England has published monthly gold leasing data going back to 1999
- The U.K. has started publishing import and export numbers of non-monetary gold
- Switzerland has published data on non-monetary gold flows since 1982
- China has started publishing non-monetary gold import and export data
- The U.S. has published a gold bar list of its monetary metal
Denmark's Gold Holdings and History
In October 2021 the Danish central bank released a report titled "Danmarks Nationalbank's gold – a historical overview." The report includes an historical background of the Danish gold, its storage locations since the Second World War, and how much was lent.
Denmark's Current Gold Holdings
Total: 66.5 tonnes of monetary gold
0.5% stored at Federal Reserve Bank of New York
2.5% stored in Copenhagen
97% stored at Bank of England in London
In 1987 Danmarks Nationalbank began lending gold from its small stock in the U.K. To increase lending in London it engaged in "location swap lending with quality upgrading." Because Danish bars stored in New York didn't adhere to the prevailing standards in London, Danmarks Nationalbank lent its gold in New York and got back upgraded bars in the BOE vault in London, plus interest paid in gold. Denmark stopped lending gold in 2004.
According to the report, Danmarks Nationalbank investigated to repatriate gold from London in 2010. It was decided not to repatriate "for the time being."
We Need Full Transparency Regarding Gold
The gold report by Danmarks Nationalbank also covers "issues relating to … control and auditing of the gold stock." In addition, a gold bar list was published.
Investment Perspective
Understanding central bank gold holdings and transparency practices is crucial for investors in physical gold and those tracking gold spot prices. Central bank activities significantly influence global gold markets and price movements.
Physical Inspections and Auditing Procedures
From the report: "After the Bank of England opened up the possibility of inspection visits, Danmarks Nationalbank carried out physical inspections in 2014 and 2018 at the Bank of England, where samples of the gold stock were checked. The registration numbers and purity of the sample of gold bars were checked by reading the stamp on the gold bars, which were also weight checked and ultrasound scanned."
Late Start for Audits
It's astonishing to read BOE didn't allow audits, and foreign central banks didn't push through for physical inspections, prior to 2014. By bringing up the subject of physical inspections, though, the Danes confirm the importance of audits.
Crucial for a physical inspection is transparency, the involvement of an independent auditor, and all paperwork must be legit.
In the end the Danish taxpayers are the "shareholders" of Denmark's central bank and the ultimate owners of its gold reserves. Danmarks Nationalbank is the custodian of the gold, which hires the BOE as a sub-custodian.
Problems with Denmark's Bar List
About the bar list published by Danmarks Nationalbank, which doesn't include serial numbers. The Good Delivery Rules for Gold and Silver Bars by the London Bullion Market Association (LBMA) prescribes a gold bar list to include a bar's serial number, brand code, gross weight, assay, and fine weight.
Danmarks Nationalbank must be in possession of such a bar list. On BOE's website we read: "We only accept bars which comply with LBMA Good Delivery standards." And the serial numbers of Good Delivery bars are documented by the BOE for its clients based on LBMA rules.
Industry Standards Not Met
Instead of the serial numbers through which bars can be identified, made up inventory numbers are assigned to each bar. Not complying to industry standards doesn't boost Danmarks Nationalbank's credibility.
As virtually all the Danish gold is stored at the BOE, where an additional 5,660 tonnes of other central banks and commercial banks are stored, we must be skeptical of the auditing procedures. We want to avoid bars at the BOE to be on Danmarks Nationalbank's list, as well as on the list of other central banks.
Industry Standards and Best Practices
If all central banks that store gold at the BOE—such as the central banks of Denmark, Australia, the Netherlands, Belgium, Germany, Finland, Italy, Portugal, Austria, Sweden, Switzerland, Romania, Poland, Japan, South Korea, and India—would publish a proper bar list, anyone can check if bars are listed twice.
Next, the central banks should physically inspect their gold with independent auditors. This procedure would award full credibility for central banks. Credibility that might come in handy down the road.
Incomplete Disclosures
To my knowledge only Mexico makes use of BOE storage facilities and has published a gold bar list with serial numbers. The gold bar list of the U.S. adheres to industry standards, but the Americans have no gold stored in London. The bar lists released of late by Denmark, Germany and Australia are next to worthless.
If Mexico can publish a proper gold bar list, why can't others?
Correction: May 30, 2022: The Bank of Mexico has not released a proper gold bar list that complies to industry standards. The serial numbers on the list are not the same as the serial numbers on the bars. The list shows numbers from a shadow accounting system at the Bank of England.
Implications for Gold Investors
Why This Matters for Individual Investors
Central bank transparency directly impacts gold market confidence and pricing. Investors in physical gold benefit from understanding these institutional practices, as they influence the broader gold market that affects gold prices. Many investors also diversify across both gold and silver to hedge against monetary instability.
The ongoing push for central bank transparency in gold holdings reflects broader concerns about monetary stability and the role of precious metals in the global financial system. For individual investors, these developments underscore the importance of physical precious metals ownership as central banks continue to view gold as a critical reserve asset.