Fifty feet below the streets of lower Manhattan, on bedrock strong enough to hold hundreds of thousands of gold bars, the Federal Reserve runs a vault where three people have to be present to change a lightbulb. The Dutch central bank looked at all that security and decided it would rather keep its gold somewhere else.
This week it said it had moved roughly $11 billion of bullion from the Federal Reserve Bank of New York to the Bank of England, citing geopolitical unrest. It now keeps 19% of its gold in New York. The reason it gave had nothing to do with the vault. It had to do with the bars.
It’s the bars, not the vault
Bars at the Bank of England conform to international market standards and are, in the Dutch bank’s words, “regarded as the world’s most easily tradable gold.” Bars in New York and Ottawa, it said, would not be as easy to trade “in a crisis situation.” London also hosts a lively market in lending and borrowing gold — central banks earn a return lending bullion in exchange for interest — while the hodgepodge of bar shapes and sizes in the Fed’s vaults limits that business in New York. The gold was perfectly safe in Manhattan. It just wasn’t liquid there.
The clever part is how little of it crossed the Atlantic. The Dutch first sold 59 tons in New York and bought the same amount in London — a paper swap that left the metal where it sat. A further 27 tons did travel, but to the bank’s own vaults in Zeist, in Utrecht province; gold then moved from Zeist to London, because bars arriving from the Netherlands already met the Bank of England’s standards and nothing had to be melted down and recast. When bullion does fly, it usually goes commercial, in the cargo hold, sometimes chartered; on the ground, specialized security firms drive it in fortified vans. Commercial banks including JPMorgan Chase (JPM), Citigroup (C) and HSBC Holdings (HSBC) are often on the other side of central-bank gold trades.
Paris did it first; Caracas is the warning
The French central bank said earlier this year it sold 129 tons in New York and bought the same amount in Europe, capping two decades of moving its gold and booking 11 billion euros — about $12.8 billion — in capital gains along the way. The counterexample is Venezuela, which fought a yearslong legal campaign to force the Bank of England to release billions of dollars of reserves; the U.K. blocked it because it did not recognize Nicolas Maduro’s government. Custody is a relationship. In a crisis, the relationship is the asset.
There’s precedent for moving a nation’s gold in a hurry. In 1940, days after the surrender of France, Churchill’s “Operation Fish” sent Britain’s entire gold reserve to Canada; the first shipment sailed on HMS Emerald, dodged the U-boat wolf packs and reached Halifax a week later. The Bank of Canada Museum puts the total moved at $160 billion in 2017 dollars. Gold has always been the thing you move when you stop trusting the map.
The tape agreed with Amsterdam
Gold closed Thursday at $4,491.70, up $125.40, or 2.87%, and is up 26% this year; the PHLX Gold/Silver index rose 3.04%. That happened on a day the S&P 500 gained 1.06% and the WSJ Dollar Index fell 0.57%. Gold rising with stocks and against the dollar is not a fear trade. It’s a real-asset bid, running alongside the equity bid rather than instead of it — the same instinct, at a different scale, that sent 59 tons to London.
Which brings us to the household version. A central bank deciding that where its gold sits is now a risk variable is the institutional form of two questions we ask in every review: who holds your assets, and how much of them sit in one place? One custodian, one employer’s stock, one bank balance above the insured limit, one paper certificate in a desk drawer — concentration is comfortable right up until the day it isn’t. The Dutch didn’t wait for the crisis to find out whether their bars would trade. Neither should a household.