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28 minutes ago Michael Race Business reporter, New York Getty Images
When the central bank of the Netherlands confirmed this week that it had moved tonnes of the country's gold out of North America, it said the relocation would make it 'better prepared for severe crises'. Some 86 tonnes from the combined total of about 313 tonnes held in the US and Canada were relocated to London 'in view of increasing geopolitical unrest', it said, so the shiny stuff could be 'readily available for use in a crisis situation'.
Questions were bound to follow. Why were the Dutch doing this? Were they anticipating some major economic shock on the horizon? It seems not, but the move was clearly in response to the unstable and uncertain state the world finds itself in, with trade and military wars prompting countries to take precautions and hold their gold closer to home.
Earlier this year, France announced it had removed its gold reserves from the US to home shores. Meanwhile, Germany's Bundesbank transferred more than 216 tonnes of the metal from storage locations abroad—111 tonnes from New York and 105 tonnes from Paris—over a few years ending in 2016. This strategy has been observed before in times of global instability.
'Some European central banks moved part of their gold holdings to New York during the Cold War,' said research analysts Lina Thomas and Daan Struyven of Goldman Sachs. Joseph Cavatoni, senior market strategist at the World Gold Council, told the BBC that while wars and trade tensions 'play into some of these decisions,' they did not 'top the list' of motivating factors. Inflation, interest rates, and the ease of trading gold also played a role.
'I don't get a sense that there's an impending doom,' Cavatoni said, 'but what I do think is people are being better educated around how to manage their reserve assets, growing their reserve assets, and actually thinking more effectively around how to make the most of those assets.'
De Nederlandsche Bank said the gold removed from the US and Canada between March and August this year was now being held in the vaults of the Bank of England. 'We expect that we will never need to use them, but we do need to strengthen our resilience and preparedness,' said the governor of the Dutch central bank, Olaf Sleijpen. London was chosen due to its position as a major global trading hub, making the Bank of England a popular storage spot.
The Bank of England holds about 400,000 gold bars worth over £200 billion. According to industry surveys by the World Gold Council, the Bank of England remains the most popular vaulting location, but central banks are increasingly diversifying their storage locations.
Where to store gold is a growing concern for reserve managers, as noted by Thomas and Struyven of Goldman Sachs. In the modern world, gold can be shifted through financial transactions rather than physical transfers. For example, the Dutch sold about 59 tonnes in New York and bought more stocks in London, avoiding the need to transport the gold across the Atlantic. More than 27 tonnes were physically transferred from the US and Canada to the Dutch town of Zeist, and a similar quantity was sent from Zeist to London.
Companies handling such operations, like Brink's Global Services, emphasize extensive security measures. Nader Antar, Brink's executive vice president, noted that 'heightened geopolitical and economic uncertainty, along with gold's growing role as a strategic reserve asset, appear to be contributing to this trend.'
The reason gold storage is a priority for central banks is that it requires significant investment in physical security, audit infrastructure, and insurance, which can be disproportionate for smaller central banks. Over the past four years, central banks have accumulated an average of 1,000 tonnes of gold annually, up from 500 tonnes in the preceding decade, according to the World Gold Council. This trend began during the global financial crisis and is expected to continue.
Gold's value as a 'safe haven' asset during financial and geopolitical turmoil, along with its resistance to inflation, has driven its popularity. Over the past half-century, gold prices have risen much faster than the Consumer Price Index (CPI). While gold prices have fallen from their record highs early this year, they remain historically high. Researchers at Goldman Sachs forecast the price to rise to $4,900 (£3,624) per troy ounce by the end of 2026, $300 more than in August.
The demand for gold from central banks is a key factor in its price surge, according to Thomas and Struyven.
Source: BBC
