Deep under the Bank of England, in a network of vaults into which cameras are rarely admitted, sits the world’s second biggest known trove of gold.
Once upon a time the Bank’s vaults stored bullion owned by the Crown but these days they serve mostly as a repository for other central banks and private banks that want to hold on to this critical asset.
But in recent weeks fears have been raised that the vaults are slowly being emptied – leading to other fears, that the Bank is struggling to keep up with the outflow. All of which raises a somewhat ominous question: is the Bank of England running out of gold?
Well, now the governor has told Sky News that there is no shortage of gold left inside the central bank’s vaults, though he acknowledged that billions of pounds of bullion had left and been flown across the Atlantic in recent months.
The movements are a symptom of a deeper financial issue. Traders are fretting about the possibility of Donald Trump imposing tariffs on movements of precious metals into the US. The pre-emptive trades have seen a sudden sharp rise in the amount of gold held in New York, not just from London but also from elsewhere around the world.
However, repatriating gold is no simple matter. Moving it in and out of vaults takes time, not to mention security, and the gold rush has led to a shortage of logistics options. Adding to the complexity is the fact that the Bank’s vaults are not really designed to cater for large-scale inflows and outflows – so simply getting bars isn’t easy.
Last week, deputy governor Dave Ramsden said: “Gold is a physical asset. So there are real logistical constraints and security constraints. It takes time and the stuff is also quite heavy, as you know.”
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The upshot is there is a multi-week wait for anyone wanting to remove gold from the Bank, which in turn has pushed up the price of gold in London.
Talking to Sky News last week, Andrew Bailey said: “London is a very important gold market. We have seen a movement in the relative price of gold in London and New York in recent times. And that is causing some gold to be moved to New York. Not vast: it’s under 2% of our stock.
“Obviously you have to have a lot of security and a lot of insurance around moving gold. So you can’t just put it all on the back of a lorry and take it away. So it has to be planned.
“So there are constraints, because of physical constraints. But we’ve got slots for all the gold people want to move in and out.”
Asked where there was still plenty of gold left in the Bank of England, the governor said: “There’s still plenty of gold.”
Adrian Ash, director of research at precious metals marketplace BullionVault, said: “There is a shortage in London’s bullion market, but it’s a shortage of manpower and trucks. New York, in contrast, now has a glut of gold.
“This is a financial market phenomenon. It’s helped juice prices higher, but it hasn’t had any real impact on the availability of metal. And it will, most likely in due course, all come back out again.
“London remains the centre of the world’s gold trading and storage network. Short-term bottlenecks are nothing new, and they just to serve to highlight the underlying physical reality of the global gold market.
“Longer-term however, the Bank of England’s role as a custody for foreign central banks wanting to tap the London market may be dented. It’s already seen stockpiles edge lower in recent years, even amid a surge of emerging-market central bank buying, as reserves managers worry over sanctions and other political risks vis-à-vis the West versus the Rest.”
