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NY Fed overstated gold depositors and their holdings, FT discovers

Section: Daily Dispatches

Once again official gold data of long standing is shown to be no good. And suddenly the Financial Times is demonstrating a little curiosity.

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Chink of Light Shed on New York Fed Gold

By Jack Farchy
Financial Times, London
Thursday, October 28, 2010

The world's largest storer of gold, the Federal Reserve Bank of New York, has said it holds bullion from far fewer countries than it had previously reported, shedding a rare chink of light on the opaque activities of central banks in the gold market.

Central banks have helped drive prices to all-time nominal highs by becoming net buyers of bullion this year for the first time in 22 years. But trades by central banks are often secret -- as is where they store their vast gold reserves.

The New York Fed revised down the number of countries whose gold it stores by 40 per cent to 36, from a 2004 statement in which it said it held about 60 nations' gold.

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The revision is significant because the New York Fed's historic vault, built on the bedrock of Manhattan Island, is the world's largest repository of bullion with holdings worth about $290 billion, but very little is known about which countries store their gold there. Individual vaults have numbers so any visitors cannot tell which gold reserves belong to which central bank.

The New York Fed said the revision was the result of a change in the way it counts the countries that use its services to store gold. Its previous claim of "approximately 60" countries referred to the number of foreign central banks with accounts at the New York Fed, including those that did not hold any gold.

Its revised figure of 36 refers only to those foreign central banks that actually have gold stored at the US central bank's Manhattan vault, the New York Fed said.

"There has been no change in the number of accounts with active gold holdings in recent years," a spokesperson said.

The different statements are laid out in two versions of the same brochure about the New York Fed's gold, dated 2004 and 2008, which are the only known information about the vault.

The 2004 brochure stated that "the gold you see in the vault of the Federal Reserve Bank of New York [...] belongs to approximately 60 foreign governments and central banks and international monetary organisations." The New York Fed has never explained in the past that that number included 24 countries that held no gold at its vault.

After the Financial Times contacted the Fed about the differences between the documents, the central bank removed the old brochure from its website.

The New York Fed added that its vault had contained 226 million ounces of gold in mid-2004, rather than 266 million, as claimed in the earlier version of the brochure.

The vault, opened in 1924, holds nearly a quarter of all the gold belonging to governments and central banks. Other major depositories of official sector gold are at the Bank of England in London and the Bank for International Settlements in Switzerland.

The gold market is often in the dark about the activities of central banks and other official institutions in the gold market as some of the largest buyers and sellers do not regularly release information about their trading.

Saudi Arabia this year said its gold reserves have almost doubled. Riyadh attributed the increase, disclosed in a quarterly financial statement from the central bank, to an accounting change. Earlier, China surprised the bullion market when it revealed that its gold holdings had almost doubled without any explanation.

Investors are scrutinising central banks' purchases and sales of gold as the official sector is set to buy 15 tonnes of bullion this year, according to estimates from GFMS, the precious metal consultancy -- a sea-change from the past decade, when on average central banks sold more than 400 tonnes a year.

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