NY Assay Office Lacks Gold Bars

The engagement of $1,800,000 gold, nearly all in coin, for shipment to Paris, was the principal incident of the day [yesterday -January 8th]. Conditions are ripe for a resumption on rather a large scale of the movement that was inaugurated before the end of the year. The only drawback is the absence of bars suitable for export, and as the Assay Office receives only about $1,000,000 weekly, shippers of gold will have to resort to coin, which of course, entails more expense and is less satisfactory in every way. Instead of the engagement causing sterling to decline, final quotations last night were at the top, namely 4.87 1/4 for demand and 4.8740 for cables. ...

Journal of Commerce, January 9, 09, 3:1

To-day $1,800,000 gold will leave New York for Paris, while $500,000 will be sent to Argentina. Of the former amount only $400,000 consists of bars, the remainder being in gold coin, since the supply of bars suitable for export has been exhausted. ...

Journal of Commerce, January 9, 09, 12:3

The National City Bank on Friday engaged $2,000,000 gold for export to Paris, $1,500,000 in gold coin and $500,000 in gold bars. The later was taken from the assay office and was practically all there was on hand there.

This gold will be shipped on the steamer ST. LOUIS sailing to-day. ...

Wall Street Journal, January 9, 09, 1:3

GOLD COIN TO EUROPE

The National City Bank Sends $2,000,000
to Paris

The expected continuation of the gold export movement materialized yesterday in engagements of $2,000,000 by the National City Bank. All of the shipments will go forward to Paris to-day by the St. Louis of the American Line. Between this shipment and all others on the present movement to Paris or other European countries there is the important difference that the greater part of it is in coin, while all previous shipments have been in bars. The consignors took $500,000 in bars - all that remained in the Assay Office - and secured the rest in coin. Exchange rates were up higher than at any previous time of the export movement, and despite the engagements the demand rate closed at 4.8715@4.8720, 15 points up on the day.

N. Y. Sun, January 9, 09, 11:3

On January 8th, National City Bank did secure all of the remaining gold bars at the New York assay office. Only after the bars were exhausted, would she secure the remainder in gold coin from the Sub-Treasury.

Under average financial conditions, the New York Assay Office was known "to accumulate gold bars at the rate of about $1,000,000 weekly."¹ However, between the time of her most recent gold bar export engagement on December 22, 1908, when a commitment of $699,010 was made, and January 8th, a difference of 13 working days, she had accumulated only $400,000 in bars. The trickling rate of gold bar accumulation is exhibited, also, in the pure inactivity of gold bar exports until the end of April; the very need for a U. S. Government embargo on gold bar exports to assure sufficient gold bars for domestic use substantiates the Assay Office's inability to satisfy demand.

... Receipts of gold bullion at the assay office have recently averaged about $1,000,000 a week, which limits the capacity of that institution to supply gold bars for export. There is a practically unlimited supply of gold coin in the Sub-Treasury which will be paid out in exchange for gold certificates, but exchange must advance considerably before it will become profitable to export gold coin, on account of the risk of abrasion of the coin. ...

Wall Street Journal, December 14, 08, 8:5

GOLD EXPORTS

Goldman, Sachs & Co. Engage $500,000 Gold Bars -
Total Engagements Since Dec. 3, $6,000,000

Goldman, Sachs & Co. on Monday [Dec. 21, 1908] engaged $500,000 gold bars for export to Europe. It was announced that it would not be determined until to-day what country the gold was destined for, although it very probably would be shipped to Paris. This engagement of gold bars represents the accumulation of daily receipts at the Assay Office during the past ten days, or since the National City Bank took all the suitable gold bars there were when it shipped $4,000,000 on Dec. 12. The Assay Office is thus again without any exportable bars.

The total gold engagements since Dec. 3, when Lazard Freres shipped $1,500,000, have been $6,000,000. [Emphasis supplied]

Wall Street Journal, December 22, 08, 8:2

...The only drawback [to the resumption of a gold export movement on a large scale] is the absence of bars suitable for export, and as the Assay Office receives only about $1,000,000 weekly, shippers of gold will have to resort to coin, ...

Journal of Commerce, January 9, 09, 3:1

[describing a March shipment of gold coin to London] This process of selection [of full-weight gold coins for export] had probably been some time in progress; long ago it was evident that no reliance could be placed upon the procurement of gold bars from the Assay office, in the event of an emergency arising that would make gold exports compulsory for the production of bars was not much greater than half a million per week. ...

The Financier, New York, March 22, 09, 1143

It is unlikely, therefore, that National City Bank secured her January 11th $500,000 gold bar engagement from the New York Assay Office after she had exhausted the Assay Office's supply of gold bars only two working days earlier.

But if the New York Assay Office had exhausted its supply of gold bars as of January 8th, how did National City Bank acquire the gold bars for its January 11th engagement?

May Get Gold From Philadelphia

It was learned this afternoon that some international bankers were considering the advisability or practicability of getting gold bars at the Philadelphia mint for shipment from this city [New York] to Europe. The United States Assay Office is out of bars, but Philadelphia has a good supply. The only question is as to the added cost on an exportation of the metal.

N. Y. Globe and Commercial Advertiser,
January 11, 09, 12:5

International bankers are understood to have made efforts to secure gold bars from the Philadelphia mint yesterday [January 11th, the very day National City Bank made a $500,000 gold bar engagement] ...

New York Commercial, January 12, 09, 14:5

[On January 11, 1909,] The National City Bank engaged $500,000 in gold bars for shipment to Paris on Wednesday. This makes $9,100,000 gold exports since December 3. France evidently is getting gold from every quarter to prepare for the big Russian loan, for it bought $3,750,000 South African gold in the London market to-day. There was talk that local bankers may get gold bars in Philadelphia if foreign exchange rates keep up to a point where exports continue profitable. There is a great scarcity of bars here.

New York Press, January 12, 1909, 9:4

Information was received yesterday [emphasis, January 11] that bankers were making inquiries in Philadelphia for the engagement of gold bars at the Government Mint there. The New York Assay Office has no supply of gold bars on hand of the size usually used by gold exporters, and most of last week's shipment was made in the shape of coin. Bankers prefer, however, to ship bars whenever it is possible, and it was figured yesterday that bars could be brought over from Philadelphia and cost no more at all events than would a shipment made in the shape of gold coin. . . .

N. Y. Times, January 12, 09, 1:4

   [1]  National City Bank's January 11th gold bar engagement is, evidently, composed of Philadelphia Mint bars. With access to the mint bars as of the 11th, and the reports that National City Bank secured $2,000,000 in gold coin on the 12th, it becomes apparent that the remaining $1,500,000 in Philadelphia Mint bars was used, not as part of the January 12 engagement, but to replace the corresponding coin portion of the January 8th engagement; if the bars were available for the January 12th engagement, the engagement would have been reported as comprised of gold bars and National City Bank would not have had to secure gold coin for that engagement from the Sub-Treasury. Consequently, when the ST. LOUIS sailed on January 9th, if she carried any gold at all, it would probably be only the original January 8th engagement's $400,000 gold bar component. If the OCEANIC carried any gold at all, she would carry the remainder of what the ST. LOUIS did not carry, and the additional $500,000 gold bar engagement of January 11th. Her cargo would consist of entirely gold bars with a maximum value of $2,420,000, leaving the $3,000,000 American Gold Eagle engagement of January 12th to be shipped on another, later vessel. This would also comply with the previously quoted January 15th [2] New York Commercial article which clearly stated that $3,000,000 in gold coin remained to be shipped after the OCEANIC's departure [See also: "The OCEANIC's Cargo" [3]].

The Delayed Transaction

The French gold purchases made at New York may have been delayed for one or both of the following reasons:

1. The exporting New York bankers would have made more money if they had been able to acquire and ship gold bars rather than gold coin. Coins had to be purchased at face value and were subject to abrasion (and consequent gold loss) while in shipment; gold bars were purchased simply on the basis of weight. The bankers were partially successful in acquiring the Philadelphia bars for shipment to satisfy the January 8th and January 11th engagements. However, once the Russian Bond closed on January 22, 1909, settlement would have had to have been made. On that date, the bankers would have lost the option to acquire additional bars for substitution.
2. Although the interest expense for the New York exporting banker was minimal, see: The Bankers' Costs of Foreign Exchange [4], the importing bankers' interest expense was of greater concern. French importing bankers would not have wanted to purchase their gold on January 12, for a Russian loan which was to close on January 21/22 - and lose the interest on those funds in the interim. More likely, the French bankers made the contract to buy the gold on January 12, but did not PAY for it until January 22, when the Russian loan closed. Since the Republic was scheduled to leave New York at 3 p.m., the New York bankers would have had sufficient time on that date to both receive payment and, with pre-ordered gold, to withdraw the gold from the U.S. Sub Treasury and deliver it to the White Star Line pier. Title to the gold would have transferred to the Russian Government once the loan closed sometime during business hours in Paris, New York plus 6 hours. Five o'clock Paris time would have been only 11 a.m. in New York, leaving a sufficient time-window in which to complete the task - and the transaction.

   Once the Russian loan closed, bond holders would have commenced to earn their rate of return on the bonds. Interest expense, for the French banker, would have been - under this method - minimal to zero, too. They would have suffered NO in-transit interest loss.

The bankers' motivations - the standard foreign-exchange good business practice to minimize expense - also provide adequate explanation for the previously identified discrepancies in the exact bar-coin composition of the January 16, 1909, export report. See: Discrepancies [5]. In essence, the bankers had hoped to acquire additional gold bars before the Russian loan closed. As of the dates of the various conflicting export reports, the gold had not actually been shipped. Although the total amount was committed, the proportionate composition - bars and coin - remained, before actual shipment, undetermined.

And, the delay in the actual movement of funds also explains several remarks concerning the market reaction to the January 12, 1909, engagement.

Despite further large engagements of gold for export, sterling exchange rates continued very firm to-day, demand bills still hovering about 4.87 1/2, the highest level in more than a year.

New York Post, January 12, 09, 2:3

[Yesterday.] Money rates have as yet been unaffected by exports. ...

New York World, January 13, 1909, 10:1.

... Though additional engagements of gold coin were effected on Tuesday [January 12, 1909], the market did not reflect offerings of bills incident to the intended shipment, and a strong tone continued to prevail. ... [Emphasis supplied.]

The Commercial and Financial Chronicle, Jan. 16, 09, 127:2.
See, generally, The $3,000,000 Transaction [6].

Simply stated, the French Banks had not paid for their gold on January 12, 1909, and, therefore, the market did not reflect that payment.

The typical delay between engagement and export further reinforces our analysis. Several newspaper accounts [2] regarding gold exports to Paris occurred after the OCEANIC's 10 a.m. January 13th departure; they clearly indicate that large engagements, including the $3,000,000 American gold eagle engagement, remained to be shipped to Paris. With the identified $1,500,000 in Philadelphia gold bars replacing an equivalent amount of coin in the January 8th engagement, and with indicated shipment of these bars on "Saturday's steamer," January 16th (most likely shipped aboard the American liner Philadelphia which departed on that date at 10 a.m.), it becomes apparent that the January 8th engagement was shipped at the earliest on January 16th - for a delay between engagement and actual shipment of at least eight days. This complies to the typical delay, "Engagement - Shipment Timing," [7] between engagement and shipment. A delay of this nature - a typical delay - would make the January 12th, $3,000,000 American Gold Eagle engagement available for shipment the week of the REPUBLIC's departure.

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