Citing Bank of England records, Zero Hedge has revealed that as the London Gold Pool was collapsing in 1968 the Federal Reserve and the Bank of England conspired to conceal from the German Bundesbank the deficient gold content of U.S. gold bars, apparently made from coin melt, that were being transferred to the Bundesbank to conclude gold swaps. This is, Zero Hedge says, another reason why the Bundesbank might want to cut off inquiry into the security of its foreign-vaulted gold. Zero Hedge's report is headlined
Bank Of England To The Fed: "No Indication Should, Of Course, Be Given To The Bundesbank..."
Excerpt: Full May 1968 memo from the Bank of England to the NY Fed
MR. BRIDGE
THE CHIEF CASHIER
U.S. Assay Office Gold Bars
1. We have from time to time had occasion to draw the Americans’ attention of the poor standards of finish of U.S. Assay Office bars. In addition in 1961 we passed on to them comments from Johnson Matthey to the effect that spectrographic examination did not support the claimed assay on one bar they had so tested (although they would not by normal processes have challenged the assay) and that impurities in the bar included iron which caused some material to be retained on the sides of crucible after pouring.
2. Recently, Johnson Matthey have put 172 “bad delivery” U.S. Assay Office bars into good delivery form for account of the Deutsche Bundesbank. These bars formed part of recent shipments by the Federal Reserve Bank to provide gold in London in repayment of swaps with the Bundesbank. The out-turn of the re-melting showed a loss in fine ounces terms four times greater than the gross weight loss. Asked to comment Johnson Matthey have indicated verbally that:-
(a) the mixing of “melt” bars of differing assays in one “pot” could produce a result which might be a contributing factor to a heavier loss in fine weight but they did not think this would be substantial ;
(b) a variation of .0001 in assay between different assayers is an extremely common phenomenon;
(c) over a long period of years they had had experience of unsatisfactory U.S. assays
3. It is not, however, possible to say that the U.S. assays were at fault because Johnson Matthey did not test any of the individual bars before putting them into the pot.
4. The Federal Reserve Bank have informed the Bundesbank that adjustments for differences in weight and refining charges will be reimbursed by the U.S.Treasury.
5. No indication should, of course, be given to the Bundesbank, or any other central bank holder of U.S. bars, as to the refiner’s views on them. The peculiarity of the out-turn will be known to the Bundesbank: it has so far occasioned no comment.
6. We should draw the attention of the Federal to the discrepancy in this (and any similar subsequent such) result and add simply that the refiners have made no formal comment but have indicate that, although very small differences in assay are not uncommon, their experience with U.S. Assay Office bars has not been satisfactory.
7. We hold 3,909 U.S. Assay Office bars for H.M.T. in London (in addition to the New York holding of 8,630 bars). After the London gold market was reopened in 1954 we test assayed the bars of certain assayers to ensure that pre-war standards were being maintained. It might be premature to set up arrangements now for sample test assays of U.S. Assay Office bars but if it appeared likely that the present discontent of the refiners might crystalise into formal complain we should certainly need to do this. In the meantime I would recommend no further action.
31st May 1968
P.W.R.R.
