Central banks are notorious for bashing the usefulness of gold as a financial asset, dismissing the metal as a “barbarous relic” of a bygone era of backward economics. (This despite these same banks maintaining large gold reserves on their balance sheets. As former Fed Chair Ben Bernanke once absurdly suggested to former U.S. Representative Ron Paul, this is merely done out of “tradition.”)
The Bank of Mexico, better known as Banxico, has taken the admirable and much-needed step of finally publishing a list of its allocated gold bars stored in London, New York, and Mexico.
Late last year, an investigative reporter named Guillermo Barba submitted official requests to Banxico for an accounting of its gold. He was empowered to do so by the country’s Transparency Law, tacking a route similar to Koos Jansen’s Freedom of Information Act requests of the Federal Reserve. Unlike most of its international counterparts, the Mexican central bank was rather forthcoming about its gold holdings.
Banxico revealed that approximately 2.9 million troy ounces of its gold is held (in allocated accounts) by the Bank of England, accounting for roughly 99% of the country’s total gold reserves. A small fraction (about 1.05%) is kept in Mexico City, while an almost negligible amount of Mexico’s gold resides at the Federal Reserve.
This situation is more common than most people may think: the majority of central bank gold reserves are stored in London or New York for safekeeping. However, many countries—notably, Germany—have begun repatriating their gold back home from overseas vaults.
The 2.9 million oz of Mexican gold in the BoE’s vaults is presumably comprised of over 7,600 Good Delivery gold bars. In addition to this allocated gold, which can be confirmed with serial numbers and other specific information such as brand name, fineness, and vault location, a sizable portion of the bank’s gold in London (almost 1 million oz) is unallocated. This means that Banxico only has a claim on this gold, which may not necessarily be there: unallocated gold could have been lent out many times to more than one “owner.” There’s no guarantee that this additional gold could be redeemed to Mexico in the event of a withdrawal.
While Mr. Barba commended the bank for breaking with other monetary authorities in meeting its obligation for transparency, he did cite the unallocated gold as a cause for concern that Banxico ought to address.
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