Yesterday the Austrian Court of Audit (Der Rechnungshof) released a report on the Austrian central bank’s official gold reserves audits (Austria holds in total 280.0 metric tonnes). This report contains (official) critical notes regarding the safekeeping of the Austrian gold.
The report is written in German, but from being Dutch (my native language is similar to German), using Google Translate, having spoken to Peter Boehringer about this and using the English introduction from the Rechnungshof’s report, we can squeeze the essential bullion points from the report.
I will sum up the highlights. Let’s start with a quote from the English introduction:
In end-2013, the OeNB (central bank of the Republic of Austria) stored some 82 % of its physical gold holdings at a depository in England [BOE] and therefore ran a high concentration risk. The current depository concept lacked adequate measures to reduce this risk. Additionally, the gold depository contract with the depository in England contained deficiencies. As regards the gold reserves stored abroad, internal auditing measures were lacking.
The Austrian Court of Audit expresses great concern about the disproportionate amount of official gold reserves (229.6 tonnes) stored at the Bank Of England (BOE), which will be the Austrians excuse for repatriating, “the gold depository contract with the depository in England contained deficiencies” and, “gold reserves stored abroad, internal auditing measures were lacking”. They’re putting it blunt for an official source on a topic so sensitive as gold.
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The OeNB didn’t have any proper auditing rights or access to their own gold at the BOE until 2013. This is line with what Bundesbank executive board member Carl-Ludwig Thiele said in 2011, “We’re in negotiations with our partner central banks [FRBNY] to develop auditing rights.” Apparently, foreign central banks had no rights whatsoever to audit their own gold at the BOE or Federal Reserve Bank of New York (FRBNY) until 2013.
Though it hasn’t been only imprudent policy from the BOE; between 2009 and 2013 there had been no audit protocol for the Austrian gold by the OeNB itself. From the February 24, 2015, report:
The OeNB had no appropriate concept to perform audits of its gold reserves. … The lack of audit measures represented a gap in the internal control procedures of the OeNB. The OeNB started in March 2014 with the development of an audit program, which included all the gold holdings of the OeNB.
In May 2014, for the first time, a delegation from the Austrian accountability office travelled to London in order to check on Austria’s gold reserves stored in vaults at the BOE.
Strikingly the Bundesbank’s current gold repatriation schedule was released January 16, 2013. The Austrian central bank decided on January 17, 2013, to “adopt measures … in terms of the management of gold stocks … that should reduce the risk of asset losses of the OeNB”. Repatriating gold is highly contagious at the moment.
