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.
In recent weeks, fears have been raised that the vaults are slowly being emptied, leading to concerns that the Bank is struggling to keep up with the outflow. This situation poses the ominous question: is the Bank of England running out of gold? Governor Andrew Bailey has assured Sky News that there is no shortage of gold left inside the central bank’s vaults, even though billions of pounds of bullion have left and been flown across the Atlantic in recent months.
The movements of gold are a symptom of a deeper financial issue. Traders are worried about the possibility of Donald Trump imposing tariffs on the movement of precious metals into the US. This concern has led to a sudden increase in the amount of gold held in New York, not only from London but also from other parts of the world.
However, repatriating gold is not a simple task. Moving gold in and out of vaults requires time, security, and logistics, and the surge in demand has created a shortage of options. The Bank’s vaults are not designed to accommodate large-scale inflows and outflows, making the process of obtaining bars complex.
Deputy governor Dave Ramsden explained that gold is a physical asset with logistical and security constraints, and the process of moving it is time-consuming due to its weight. As a result, there is now a multi-week wait for anyone looking to remove gold from the Bank, leading to an increase in the price of gold in London.
Andrew Bailey emphasized the importance of London as a gold market and noted a shift in the relative price of gold between London and New York. Despite some gold being moved to New York, it accounts for less than 2% of the Bank’s stock.
Adrian Ash, director of research at BullionVault, mentioned a shortage of manpower and trucks in London’s bullion market, while New York is experiencing an excess of gold. He explained that this imbalance is a financial market phenomenon that has driven prices higher but has not significantly affected the availability of metal.
Although the Bank of England remains a key player in the world’s gold trading and storage network, its role as a custody for foreign central banks may be impacted in the long term. Stockpiles have been decreasing in recent years, despite a rise in central bank buying from emerging markets, as managers are concerned about political risks and sanctions.
In conclusion, while there are short-term bottlenecks in the gold market, London’s position as a hub for gold trading and storage remains strong. The underlying physical reality of the global gold market is highlighted by these temporary challenges, and it is expected that the situation will normalize over time.
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