Fed Sent Bundesbank 172 Bad Delivery Gold Bars in 1968

The Tylers at ZH have discovered a 1968 memo from the BOE archives sent by the Bank of England to the Federal Reserve revealing that the Fed sent at least 172 bad delivery gold bars to London in the late 1960’s for safekeeping for the German Bundesbank as repayment for swaps.

The memo reveals that London assayers discovered that the Fed through Johnson Matthey sent the Deutsche Bundesbank 172 ”bad delivery” gold bars, and the ”out-turn of the re-melting showed a loss in fine ounces terms four times greater than the gross weight loss”.

The memo also indicates that the Bank of England was willing to keep the discovery private due to the fact that the gold was to be held for the Bundesbank.  A declassified report discovered several weeks ago indicates that the Bundesbank subsequently repatriated 2/3rds of this gold in question from 2000-01.


The Bank of England’s 1968 memo:




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




Perhaps now would be a good time to recall the Bundesbank’s recent official statement regarding questions about the quality of it’s gold reserves held at the NY Fed, specifically statements such as:
We do not have the slightest doubt that our holdings in New York and Paris are also made up of the purest fine gold”, and

For years, our gold has been stored by the highly esteemed central banks of the United States, Great Britain and France without provoking any complaints whatsoever – not by just any fly-by-night operators. Part of the debate in Germany has veered somewhat towards the absurd.

The highly esteemed central bank of the United States- not just any fly-by-night operator.

Perhaps the Bundesbank meant the Central Bank of the United States is not by just any fly-by-night-crooks.

Maybe now Bundesbank officials who have gone so far out of their way to speak highly of their counterparts at the Fed will understand why the Federal Reserve has repeatedly refused to allow Germany to inspect their own gold reserves held at the NY Fed?

Full Bundesbank official statement:

The Deutsche Bundesbank keeps part of its gold holdings in its own vaults in Ger-many, while other stocks of gold are stored at the central banks located in major gold trading centres. Specifically, these are

  • Deutsche Bundesbank, Frankfurt am Main: 1,036 tonnes (= 31%)
  • Federal Reserve Bank of New York (Fed): 1,536 tonnes (= 45%)
  • Bank of England, London: 450 tonnes (= 13%)
  • Banque de France, Paris: 374 tonnes (= 11%)

Isn’t storing gold abroad an expensive anachronism?

The New York Fed and the Banque de France also offer to store gold holdings for other central banks free of charge. The Bank of England charges warehousing fees amount-ing to roughly €500,000 per year. Storage in the Bundesbank’s own vaults, too, involves costs. Matters of cost, however, are not the sole consideration in determining the choice of storage facility. The usability of gold as a reserve asset and storage security are much more important. During repeated visits to New York, London and Paris, our internal auditors have satisfied themselves that the security precautions in place there meet the same high stan-dards as those in Frankfurt.

What makes the Bundesbank so certain that German gold holdings are being stored securely abroad – even though, according to the German Federal Court of Auditors, these reserves have never been “physically inventoried and checked for authenticity and weight” by the Bundesbank itself or by independ-ent auditors?

At the beginning of the last decade, we brought 930 tonnes of gold to Frankfurt from London and subjected it to a painstaking inspection. Part of the gold was melted down in order to create new bars which conform with the “Good Delivery Standard” which is customary nowadays in gold trading. Of the 930 tonnes of gold, not one gram was missing. We do not have the slightest doubt that our holdings in New York and Paris are also made up of the purest fine gold. We have at our disposal fully documented lists of the bars, and our partner central banks send us every year confirmation not only of the bars’ existence but also of their quality. We receive confirmation of our gold reserves, measured in troy ounces. The Bundesbank has been drawing up its accounts on this basis since it came into existence. All external auditors have confirmed our accounting practices outright since then.

Why doesn’t the Bundesbank bring the gold back to Germany?

The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In fu-ture, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible. Gold stored in your home safe is not immediately available as collateral in case you need foreign currency. Take, for instance, the key role that the US dollar plays as a reserve currency in the global financial system. The gold held with the New York Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained by pledging the gold that is held with the Bank of England.

In the statement it issued on Tuesday, the Bundesbank said that it would “take up suggestions by the FCA wherever possible.” What does that mean specifically? When, and at what intervals, will Bundesbank auditors physically view the gold being held abroad?

The Bundesbank has decided to strive for a more balanced distribution of gold re-serve holdings at home and broad, thereby taking increased account of gold’s function of preserving trust and confidence. After all, reserve assets have psychological significance, so to speak. In the next three years, we will repatriate 50 tonnes of gold annually from New York to Germany. That will give us the opportunity to inspect these bars, melt them down and convert them into “Good Delivery Standard” bars. That will therefore be a sort of spot check. Moreover, we are currently in the middle of discussions about a further expansion of our rights to conduct audits in New York, London and Paris. But, please: for years, our gold has been stored by the highly esteemed central banks of the United States, Great Britain and France without provoking any complaints whatsoever – not by just any fly-by-night operators. Part of the debate in Germany has veered somewhat towards the absurd.

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