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Authors: Matthew Hart

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10
SHADOW GOLD

When Rothschild's ran it, the daily fix took place in a paneled room hung with portraits of departed gentry.

O
NE OF THE GOLD WORLD
'
S
traits is secrecy. They polish furtiveness as if it were the family silver.
Consider the arcane practice of fixing the price.

Every weekday morning at 10:30 a dealer in the precious metals trading room of a London bullion bank picks up the phone and punches into a special line. The dedicated line connects him to four other bankers. The five banks form a powerful and self-policing group called the London Gold Fixing. Its members are: ScotiaMocatta, the gold trading arm of the Bank of Nova Scotia; Barclays Capital; Germany's powerful Deutsche Bank; Société Générale; and HSBC, the London-based multinational created from the old Hong Kong and Shanghai Banking Corporation. These banks set the price of gold.

“There are loads of different places in the world to buy gold,” said Jeremy Charles, a trim, tough-looking, fifty-seven-year-old native Londoner who started as a tea boy in the gold rooms of the legendary Rothschild bank and ended running HSBC's global bullion operations. “But at 10:30 in the morning, you find things sort of stop while the whole market watches London.”

The fixing starts with the “nomination” of a price by the bank holding the rotating chair. Often this opening number is midway between the last recorded London buying and selling prices. The chairman asks who would buy and who would sell at the suggested figure. “That's communicated by each of five members to their colleagues in the dealing rooms. So let's say today's fixing starts at such and such a price, and our dealers are in touch with all of our clients, and our clients are in touch with their clients, and so on and so forth until you get right down to every man, jack, and dog that wants to follow the gold fixing.”

If the numbers of buyers and sellers fail to match at the suggested price, the figure is adjusted up or down until it hits a point where buyers and sellers are equally enticed into the market with equal volumes of gold, and agree on price. “All the nominations are done in bars,” said Charles. “I might say, ‘I'll buy eighty bars,' and somebody else wants eighty, and if the price is agreed, it is fixed.”

When the banks locate that point of equilibrium—buyers matching sellers—the “fixed” price is flashed out around the world. They repeat the process in the afternoon.

Some of the firms dealing gold in London have been doing it for centuries. ScotiaMocatta can trace its origins to 1671, when Moses Mocatta began trading bullion in London. When Jeremy Charles started in the tea room at Rothschild's in 1975, the bank still operated from its old stone building at One King William Street. The
daily gold fixing took place in a paneled room hung with portraits of departed gentry. In those days, a small Union Jack flag mounted on a pivot lay on its side on the desk in front of each banker. As the fixing got under way, bankers would raise their flags and shout “Flag!” when they wanted to draw the chairman's attention to a change in their position. The price was not fixed until all the flags lay on their sides again, signaling that sellers matched buyers. Today, much of the action has moved downriver to the modern towers of the Canary Wharf financial district. Yet they still bark “Flag!” into the phone to signal new positions, and the standard of the bullion that they trade hasn't changed. Market makers deal exclusively in London Good Delivery bars. When central banks and hedge fund billionaires want gold, that's the kind they want.

No outsider is allowed to witness the fixing. When I spoke to Charles, we had our interview in a meeting room on a high floor at the bank, with a view of the Thames flowing past Greenwich. As he showed me out, I asked if we could stop by the precious metals trading room, so I could see what it looked like. “Oh, that's strictly forbidden,” he said.

There's a lot about gold that is generally hidden, including how hard it is for ordinary people to deal in. The idea that gold is universal money is laughable. Who would accept it? It would have to be someone with testing equipment at his elbow. It's not easy to sell gold. That's why those who trade on the London market don't really deal principal to principal, but through bullion banks. Gold is easy to convert to cash if you work at HSBC, otherwise, not so much.
A group of London criminals discovered this painful truth thirty years ago when they suddenly found themselves with a large amount of bullion on their hands, and began a tale of woe that has not stopped to this day.

I
T WAS SUPPOSED TO BE
a lark. “Mad Mickey” McAvoy, a young London criminal, and a veteran armed robber named Brian Robinson, known as “the Colonel,” had heard that £3 million in cash was about to be shipped through the Brink's-Mat Ltd. security company's warehouse at Heathrow airport. They put out the word that they were looking for reliable help, assembled a team, and at six o'clock in the morning of November 26, 1983, drove out of the still dark city to the airport.

The caper was supposed to be a cinch because the robbers had an advantage not generally available to thieves—a key to the depot. They had got it from Robinson's brother-in-law, who worked there. He had also given them the general layout of the place, and told them what security measures to expect inside. They had a clear plan for circumventing those measures, namely: they disabled the alarms, rounded up the guards who had the combinations to the vault, poured gasoline on them, and threatened to ignite them unless they unlocked the heavy steel door. The guards unlocked it. The gang charged in to get the cash and discovered, instead, a stack of 6,800 gold ingots. That's when things stopped being a lark.

First they had to find a vehicle big enough to carry off the gold. They put out a call and managed to get a van. A job that was supposed to have been in and out in minutes took two hours. Then, what were they going to do with the loot? Gold is not money. If they had found the stash of banknotes they'd expected, they would have stuffed it into gym bags, gone home, and divvied it up in the basement. The only skill required was counting. But gold's conversion into money demands a different skill set, which the thieves did not
possess. You could say that, right away, they found themselves facing the liquidity challenge of a precious metal. A thing is liquid if there is a ready market for it, as there is for gold. But it's not a market that you and your mates can drop your gold at on the way back from the depot. The robbers went to Brian Perry, a London hood. Perry brought in Kenneth Noye.

With the entry of Noye, a human grenade drops into the Brink's-Mat story. According to Murderpedia.org, a website devoted to murderers, Noye's favorite weapon was a knife. The
Telegraph
called him a “multimillionaire gangland killer.” He had a ten-bedroom mansion in Kent, a villa in Cyprus, and a £700,000 yacht. He also had a knack for smelting, and started combining the gold with copper to create a low-grade alloy that (so his thinking ran) he could sell into the gold scrap market without attracting attention. The scrap market is the cash-for-gold business that recycles jewelry back into bullion. But it takes a lot of wedding rings to add up to £10 million, the sum that Noye and a confederate deposited, wad by wad, into a bank in Bristol. The deposit attracted the attention of bank inspectors, who tipped off Scotland Yard.

The police set up surveillance on Noye. On a January night in 1985 Detective Constable John Fordham was in Noye's backyard watching the house when Noye's Rottweiler dogs spotted him. British policemen do not regularly carry guns, and Fordham was in camouflage. Noye attacked him with a knife, stabbing him eleven times and killing him. At his murder trial Noye convinced the jury that he had believed himself in danger from a prowler. He was acquitted. But investigators rooting through Noye's property found eleven ingots wrapped in cloth and buried in a drainage ditch. Noye went to prison for conspiracy to handle stolen goods.

The original perps, the Colonel and Mad Mickey, were already
in jail. The police had quickly sussed out the gang's security guard insider, who had confessed. Thirteen months after the robbery the two ringleaders were tried at the Old Bailey, and sentenced to twenty-five years apiece. Apparently they tried to strike a deal for lighter sentences by revealing the location of the gold. But the gold was no longer where they thought it was, because Perry had already passed it on to Noye. Or anyway, some of it.

Criminals lead chaotic lives whether they're stealing women's purses or gold bullion. Noye got out of jail in 1993. In 1996 he stabbed a motorist to death in a road rage incident. He escaped to Spain in a jet supplied by John “Goldfinger” Palmer, a Bristol gold dealer and fraudster who'd been charged with handling Brink's-Mat gold, but acquitted. Two years after Noye's escape, police tracked him down and brought him back to England. In 2000 he was sentenced to life imprisonment. A year later Brian Perry, who had enlisted Noye, died in the street when assassins shot him three times in the back of the head. Other bodies too were crumpling to the floor. In 2012 the
Mirror
newspaper listed eighteen men who'd been killed over the years in connection with the Brink's-Mat gold, including an underworld enforcer thought to be entombed somewhere in the concrete foundations of the O2 concert arena in Greenwich, southeast London.

The stage is heaped with corpses, but where's the gold? Some vanished in the Bristol scrap sales, some was recovered from Noye's ditch, and in 2008, in a raid on thousands of safety deposit boxes across London, police discovered luggage stuffed with plastic parcels of gold grains. “They were wrapped like large packets of peas,” a Scotland Yard commander said. The raid was an unrelated operation to uncover criminal proceeds, but detectives speculated that the gold was part of the Brink's-Mat hoard. About two thirds of the original
haul is still missing, and today it would be worth half a billion dollars. In 2012 a detective told the
Daily Mail
that he thought the rest of it was still around, and that at least two London gangs had started “breaking a few arms” to find it.

G
OLD AND CRIME GO HAND
in hand.
One of the sublime rituals of money, the Trial of the Pyx, is aimed at catching cheats. In a ceremony dating from 1282, porters from the Royal Mint lug chests of coins to the Goldsmiths' Hall where a red-robed English judge called the Queen's Remembrancer waits with a jury of assayers. But that is the easy part of policing gold. The schemes that spook the gold trade can't be sorted out so simply. They are the shadowy events, the phantoms rippling through the tall grass of the business, not clearly visible or understood, and sowing panic for that very reason.

One such passage shook the market for two weeks in July 2010, when a massive, unexplained transaction parked a load of bullion in a place where those who monitor such movements did not expect to find it. When they discovered it, their confusion about why it was there was deepened by the stubborn silence of a little known Swiss bank, the Bank for International Settlements, or BIS. Headquartered in Basel, BIS is sometimes called the central bankers' bank, because that's where they go to borrow. For that reason, its power is very great. Federal Reserve chairman Ben Bernanke sits on the board, with such other central bankers as those of Britain, France, Germany, Canada, and Japan. I can tell you from experience, they have the tightest lips in Europe. BIS has raised the game of saying nothing to the level of Olympic sport. In any contest
where the aim is to stonewall, they would sweep the medals. Their failure to provide a full account of the transaction added yet another layer of opacity to an already secretive affair, and down went the gold price in a fright.

The cause of the panic was a footnote to the bank's annual report. The note revealed that a bank or group of banks had lent 349 metric tons of gold to BIS in exchange for cash. The deal was so colossal—a sixth of the world's annual production—that the news of it, without elucidation, stunned the bullion market. Who had lent the gold, and why? Was a bank in trouble? Could it be a central bank? What did they know that the bullion market didn't? As questions thickened the air, investors started bailing out of gold, and the price lost $40 in a day.

Here's why the price went down. The deal looked like a swap—an exchange of gold for cash, with an agreement that the gold would be redeemed at a later date. Like taking jewelry to the pawn shop, you get it back when you repay the loan. For whoever swapped it, the gold raised $14 billion. What bothered the gold market was the question of what would happen to the gold if the $14 billion didn't get paid back. The price was down anyway, depressed by a period of selling by ETFs. Would the 349 tons suddenly appear for sale if the swapper couldn't manage the loan? A 380-ton gold dump would annihilate the price.

Suspicion swirled about who might need the cash. There were plenty of candidates. Fear of European countries reneging on their debts was in the air already, and this fear suggested an explanation for the swap. A central bank desperately needed cash.

For a while that's what everyone I spoke to thought—Greece or Spain or some other monetary basket case was being hooked up to life support. But then Edel Tully, an analyst at UBS, pointed
out that it couldn't be a central bank. European regulations, she said, did not allow a central bank to transfer funds to its government or to buy the government's bonds—the actions they would have to perform to stave off a default. Not a central bank, then, but some other monetary authority. On her list of suspects, Tully placed the International Monetary Fund.
Suspicion switched to the IMF.

The fund is the world's banker of last resort. It had bailed out Iceland, the first sovereign meltdown of the financial crisis. The IMF had been “quietly selling off its gold” position anyway, according to the
Telegraph.
In a piece headlined “Secret Gold Swap Has Spooked the Market,” the newspaper said that the IMF was chronically short of cash.
No sooner did opinion settle on the IMF, than the BIS itself torpedoed it. It was not the IMF, or even a central bank, that had swapped the bullion, they said in Basel, but a commercial bank or banks. If this announcement was supposed to calm the market, it failed. The 349 tons of gold was far too much for the market to believe that a single commercial bank had accumulated it. The sheer size of the transaction—
The Wall Street Journal
said that it tripled the amount of gold the BIS had owned the month before—left the market bewildered. Even for a cartel of banks it was a lot of gold, and the question still remained—why? Whose cupboard was so bare they had to pawn the family china?

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