Screwtales: Fed Gold and German Tanks

Satisfied that GM Jenkins has the skinny on gold price movements, I've been busy in the other cellar trying to finish a new database article. A few readers asked me to look at the National Geographic documentary titled 'Inside Americas Money Vault' (link link), specifically regarding bars shown in the first section of the clip - Bron Suchecki added a few more observations which made a small article worthwhile so here it is, for anyone interested.

With the new clip, we attempted the same as the recent 'Bob Pisani Revisited' article - to see if the database can tell a story about the gold bars we see on the camera. This is normally cut and dried - there is either a match in the data or there is not. There are plenty of great visuals in the clip, at high resolution.

Unambiguous and clear Serial number - "Johnson Matthey" #163466 (2011)

In the database (specifically the WAREHOUSE_GOLD table), there isn't any match for that particular six-digit serial number. Same applies for all the other bars we identified clearly - 163408, 163437, 163466, 163481, 163497.

So our database can't say anything about the bars specifically - how about the batch? At this time, I wish to deploy a technique put forward by Jeanne d'Arc, who suggested that estimates about bar volumes could be modeled on estimation of wartime German Tank quantities (using observed numbers and probability). A decent write-up in Wikipedia exists so I won't re-explain it here - but suffice to say it should be possible to infer quantities of bullion production from a refiner by looking at their serial number sequences, mathematically modeled if required.

Happily, we don't need to delve too deep to get a handle on the problem scope. The bars appear to be from a well known run of Johnson Matthey bars - specifically 6-digit serial numbers between 100000 and 199999. In the database we have records for 55,032 of these bars (@400 oz each), most of which are currently sitting in GLD (and a handful in ETF Securities). If we assume that Johnson Matthey are simply incrementing the number each time they produce a bar, then we might assume a total of 99,999 bars for that set. It means we know the location for about 55% of those bars for that batch, and the presumed produced remainder, remains unaccounted for. So if you thought GLD was huge already, then consider the missing 45% represents about 18 million gold ounces, which is most likely out there in some form-or-other. Simple observations like this provide pure stumbling blocks for the 'shortage of metal' meme (yep, another argument against that old chestnut).*

If the Germans used Microsoft Excel, they probably
would still have had sequentially numbered tanks.

So back to the FED ... the curious thing about the records is that we do see a bunch of 163XXX serials. Our records have the bar 163394, then there is a gap - the next in the sequence jumps to 163500. Bron did the hard work of counting the bars as they get stacked and unstacked (multiple times) and concluded there are approximately 86 bars. We know that 5 of the bars fall within the missing number range so it's not too much of a stretch to assume the TV is showing the entire set of 1634XX bars.

I want to kick the tyres on some of the charting software that I've been working on for my other article**. Does anyone remember the days before solid state drives, where a computer disc had to be defragmented? This is the best analogy for describing where the refinery production ends up. Here's a custom graph showing the data points we do have, and the ones we don't. Working on the assumption of (163497 minus 163408 = 89 bars, approximately 3 tonnes) for the fed, their delivery shows up as a yellow line in the middle area. The grid is condensing the information density to show 10 bars per square, with 100 squares per horizontal line (i.e. total of 1,000 bars per row with 100 rows deep). The intensity of the color indicates how many bars we have records for that 10 bar block. e.g. the first square represents bars '16300X' of which we have the full 10 bars, the intensity is 100%. If we have only 5 bars for that square then the color ~ 50% and so on. The color represents approximately the 'Year we first saw the bar in the data', pink/red = 2010, purple = 2011 and blue = 2012, green = 2013.

Top row represents bars 100000 to 101000, pattern repeats down till we get to 199999 ***

There are a few different ways to interpret the picture. The gaps represent bar sequences that we don't have records for. Perhaps they are in ZKB, or some other fund that doesn't publish a bar list. Or a central bank, or a private holding. The date layering indicates that the majority of the records started showing up in 2011, which makes perfect sense since we started to download the files in June 2011. What this means is that the date of appearance alone is not an indicator, but the composition of the picture gives us additional clues. The presence of the pink/red bars in the middle area suggests that most of these bars could have been manufactured as early as 2010, with the last section being exclusively 2012 manufacture. My own rough guess for the production vintage is circled below.


Thanks for listening, and be sure to let people know we can't find any evidence of the FED's gold being double-counted in an Exchange Traded Fund. p.s. why is the FED getting gold delivered anyway? I thought The Bernank said it was not money ... I suppose it's "do as I say, not what I do ...". Regards, Warren

* To give some idea of the size significance of the six-digit Johnson Matthey bars, 55,000 bars is approximately 25% of all known gold bar signatures we have on record. That's huge.
** If you stare long enough at the graphic, like I know Duggo will, you may see the next Pope.
*** Apologies for the state of the chart, this was the first output we've ever had from the software so it's quite raw at this time.