Picture in your mind’s eye the sight of long metal shelves, and home in on the rectangular yellow bars stacked on every tier. The answer to the question, as to whether this is a factory or a chamber of secrets or something else altogether, holds historical and emotional significance far beyond the setting.
The Bank of England’s gold vaults can be traced back to the 17th century. But over recent weeks and months, as a shake-up of the global balance of power is played out in the gold market, unprecedented churn has hit the institution. An outflow of gold bullion is causing long waits among depositors seeking to reposition their stocks outside the UK, which has been home to the world’s second-largest gold storage facility outside the US.
That the process is not purely financial might be best summarised by the Reserve Bank of India’s decision to repatriate a large chunk of its gold reserves in recent months. In November, the RBI – India’s central bank – moved more than 100 tonnes of gold from London ahead of the Dhanteras festival, which honours such elements of life as wealth, health and family as part of Diwali. Just six months prior to that, the RBI had announced its removal of about 100 tonnes of gold from the British capital.
The message was not wholly lost that the Indian repatriation had an undertow of national priorities, particularly at a time when there has been a build-up of gold reserves by the world’s big powers.
Historically, gold is a haven in a time of trouble. The cry of “Buy Gold” comes loaded with foreboding of provisioning for rough times ahead. Another trope pertains to the displaced or dispossessed having gold stitched into their clothing as a last remnant of better times.
The historical relationship between the UK and India is one reason why the London vaults hold so much gold. But the latter has been adding to its gold stocks, with the metal now representing almost 10 per cent of its overall foreign exchange reserves – or more than 800 tonnes.
It is the same story for India’s neighbour to its north.
The People’s Bank of China, that country’s central bank, resumed purchases in the markets for its vaults in November and is now boosting its stocks to record levels. With Chinese New Year representing a time of auspicious giving, there were reports that consumers had been squeezed in the jewellery market as a result of the bank’s interventions.
Gold pays no interest and does not work for its owner in terms of providing a return on investment. Yet it has been a store of wealth over generations and compares with land or shares in the markets.
Takeaways from the current price changes in gold revolve largely around increasing turbulence in the relationships between different countries as much as inflation and other economic factors. The sanctions that have been focused on Russia and Iran by western countries have seen shifts in global payment flows. With Tehran vowing to resist Washington’s threat to reimpose “maximum pressure” in recent days, it is possible to foresee further disruption on the way.
Customers for Iranian exports largely lie in the Eastern Hemisphere and the dollar basis of that trade is already under threat. Naturally, gold has a role to play if trade is pushed to extremes, whether through embargoes at sea or more likely through tightening sanctions threatening the flow of transactions with Tehran.
Central banks holdings with their counterparts, which include gold, have been among the few untouchable areas under the international rules. There were questions asked of the G7, about not only freezing reserves but seizing the asset. The issue did not get taken up, but the talk in and of itself was enough to unsettle the trust between various financial institutions.
US President Donald Trump’s recent moves are pulling on London’s stocks as well. Tariffs are feared on gold imports to America, and so various institutions are moving gold bars to that country in advance of the threat.
Almost 2 per cent of the $800 billion of bullion held in London left the country in January alone. In the gold futures market of New York, there is a profit to be made from buying physical gold at a discount in the UK and then selling it in New York, where it is trading at premium as a result of high demand.
The Trump effect is far-reaching, with few parallels in living memory. As countries look to assert sovereign interests without regard for standing arrangements or multilateral agreements, it is little wonder that the tangible physical attribute of gold is coming to the fore.
Gold may be an investment vehicle that sits amid an array of instruments that concern money management, asset flows and the rest. But today, it is also an expression of power that is underpinned by its allure for a world in flux.
And as repositioning comes to dominate thinking around the world, London’s underground stores of stability are already on the move.
