Why Austria's Monetary Gold Transfer to Switzerland Is Delayed
Evidence points out a 50-tonnes gold transfer by the Austrian central bank, from London to Switzerland, is held up due to a delay of the renovation at the Swiss central bank’s vault.
In my first article on this topic I wrote the Austrian central bank (OeNB) had implemented a new gold storage concept in 2015, because the national court of audit (Rechnungshof, RH hereafter) found it was storing too much gold in London at the Bank of England (BOE). OeNB planned to repatriate 90 tonnes from BOE, and transfer 50 tonnes from London to Switzerland. Within five years (by 2020) the new storage concept should have materialized. In 2018, ahead of schedule, the gold had arrived in Austria. However, the shipment to Switzerland hasn’t arrived until this day.
Firstly, the problem isn’t in London. There hasn’t been any problem for OeNB withdrawing 90 tonnes to repatriate, so there is little reason to think another 50 tonnes couldn’t be taken out. Austria is politically on good footing with the U.K., unlike Venezuela which has been blocked from repatriating in recent years.
Second, in two documents by RH—one from 2015 and another from 2018—there is evidence OeNB was already storing gold at the Swiss central bank (SNB), and wanted to add 50 tonnes to the same depository. As discussed in my second article on this topic, the renovation of the Swiss central bank’s vault was planned to be completed in 2018, but is taking several years longer than excepted. This is why OeNB was forced to postpone the shipment. Let’s have a look at the evidence.
In both documents (RH1 and RH2 hereafter) the actual names of many banks, institutions and depositories are replaced by code names. Although, there is sufficient information disclosed to decipher who’s who. For example, in table 4 in RH1 it shows that by late 2013 the central bank of Finland (BOF) held 7% of its gold at “depository C in Switzerland.” On its website we read BOF holds 7% of its gold at SNB. Other cross checks confirm “depository C in Switzerland” must be SNB. An often mentioned “institution in Switzerland” must be the Bank for International Settlements (BIS). And so forth.
Connecting the Dots
By 2014 OeNB had closed all accounts with commercial banks and its metal at the BIS in Switzerland was allocated. The gold previously held at Swiss commercial banks was moved to OeNB’s account at SNB.
From RH1 (page 48):
In 2013, OeNB closed the gold deposits held at two Swiss commercial banks (depositories A and B), in which a total of approximately seven tonnes of gold … were stored and opened a gold deposit for these approximately seven tonnes … at depository C in Switzerland [SNB]….
From RH1 (page 60):
Implemented as per December 31, 2013: The physical stocks, which were stored at commercial banks, were finally entirely liquidated … due to risk considerations.
A metal account of approximately 14.3 tonnes held at the institution in Switzerland [BIS] … was converted into physical stock as of January 30, 2014.
Since 2014 OeNB’s gold is spread over four vaults, and it wants to keep it like that.
From RH2 (page 19):
The court of audit found that, since 2014, OeNB had kept its physical gold holdings in its own vaults, at the Austrian Mint, at a depository in England [BOE] and a depository in Switzerland [SNB]. In its new storage concept OeNB did not envisage using any other depositories in the coming years.
OeNB can physically hold gold at four vaults (OeNB, Austrian Mint, BOE, SNB) and the BIS, because the BIS has no vaults of its own but uses the custodial services of BOE, SNB, and the Federal Reserve Bank of New York.
Attentive readers might have noted that in 2015 OeNB disclosed to have ~6 tonnes stored in Switzerland, which is less than 14.3 tonnes with the BIS at SNB plus ~7 tonnes at SNB directly. The explanation is a location swap executed by the BIS (from SNB to BOE) on the same day the metal was allocated.
From RH1 (page 53):
As of January 30, 2014, OeNB had the delivery claims recorded in the account held at the institution in Switzerland [BIS] transferred to a bar deposit account of the institution at the depository in England [BOE] ….
After the swap OeNB held “approximately seven tonnes of gold” at SNB. Roughly in line with ~6 tonnes. The counterparty of the swap that moved metal from BOE to SNB is unknown to me.
RH is mainly concerned about spreading the gold geographically and for OeNB being able to audit it. Other points of attention are the custodian’s duties of care and liability, ownership rights, insurance, the transmission of stock lists and agreements regarding deliveries. In RH1 (page 74) it states, “the most comprehensive agreement was the one with depository C in Switzerland [SNB].” Although, as early as 2013, auditing access was limited.
From RH2 (page 19):
In its letter of May 8, 2013, the depository in Switzerland [SNB] informed the OeNB that in general it would be able to access OeNB's stored gold but pointed out that there would be restrictions in this regard until 2018. … In response to an inquiry by OeNB during the follow-up review by the court of audit in February 2017, the depository in Switzerland confirmed … that OeNB would have normal access to the depository as of 2019.
Apparently SNB started moving out the gold from Bundesplatz 1 in Berne to the federal bunker near Kandersteg in 2013 whereby access to the vault was restricted. The dates on which the restrictions would be lifted more or less fit SNB’s projections as mentioned in its annual reports. In 2018 SNB first disclosed the renovation wad delayed until 2021. In 2019 completion was set for 2022, and in 2021 it was moved further back to 2024.
Aside from stagnating on site auditing, OeNB had to wait for shipping 50 tonnes from London to SNB’s vault in Berne due to the renovation, RH concludes in 2015.
From RH1 (page 19):
By concluding an agreement with depository C in Switzerland [SNB], for up to 50 tonnes of gold, the depositories were spread out, which was intended to reduce the concentration risk at the depository in England [BOE]. However, this reduction was severely limited due to external circumstances that OeNB could not influence. Up until the beginning of 2019, a maximum of around seven tons of gold could initially be stored at this storage facility in Switzerland due to renovation work.
Other parts in RH1 also mention renovation work at depository C in Switzerland (SNB) as the reason an additional 50 tonnes couldn’t be shipped immediately.
More often than not speculation has the upper hand in the gold blogosphere. In 2013 many commentators (including me) were disgruntled by the pace with which the German central bank (BuBa) announced to repatriate gold from New York: 300 tonnes in 7 years. Eventually, it became clear BuBa wanted to upgrade the bars not adhering to LBMA Good Delivery standards. When it completed repatriating ahead of schedule in 2017, the Financial Times wrote 55 tonnes had been routed through Switzerland, “where two smelters remoulded the bullion,” before it went to Frankfurt.
There is also an explanation for the delay in OeNB’s shipment from London to Switzerland. Likely, OeNB needed time to check and weigh the 90 tonnes coming home from London. In any case, it knew the shipment to SNB had to wait a few years and so the decision was made to implement the new storage concept by 2020. But then the renovation took longer than anticipated and OeNB had to adapt.
I will write one final article on this topic, when OeNB’s gold has finally arrived in Berne.
Read more about the inner workings of the global gold market from the author: