Storm in a teacup over Central Bank gold holdings quality

Recent reports that some of the UK's gold reserve may not be of deliverable quality is an irrelevance in gold market terms.

LONDON - 

The UK - and international - press and news services have been making a great deal of fuss about the delivery quality, or otherwise, of the UK's gold reserves held in vaults by the Bank of England. The reports suggest that a proportion of the long-stored gold holdings are not of deliverable quality at current London Bullion Market Association (LBMA) standards. By implication this could also apply to other worldwide Central Bank gold holdings which may have been put in place when refining standards were perhaps not quite as rigorous as they are today.

Whether this is true or not - and the Bank of England has denied that the tenor of its reserves does not meet delivery standards, but the condition of some gold bars may not be acceptable - the impact on Central Bank gold holdings is actually likely to be negligible. It would be far from difficult for the Banks to get their gold re-refined to current delivery standards which might result in reserves being downgraded in quantity by a tiny fraction of a percent. In effect the impact on reserve tonnages would be minute and would have little or no bearing on the world gold market.

To an extent this does seem an attempt by some commentators to take a dig at the Central Banks, as they are perceived to be manipulating the gold market in an attempt to keep the yellow metal price from rising - unsuccessfully if this is indeed the case. There certainly is no doubt that many in the monetary authorities regard gold as an anomaly which should no longer form a part of world currency reserves, but there are enough out there who feel that gold is a necessary component to counter a trend to remove gold as a reserve element. And history certainly suggests that gold is a necessity in maintaining currency value stability.

Yes, it may be worth keeping reminding the Central Banks of the importance of gold, but to snipe at them over the fact that a proportion of the gold held may assay as being a tiny fraction below what is now seen as deliverable quality is an irrelevance as far as the gold market is concerned.

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