Chinese bank to buy giant London gold vault
ICBC Standard Bank PLC said on Monday it is buying a precious-metals vault from Barclays PLC’s, in the latest move by the Chinese bank to increase its role in the market’s infrastructure.
The move makes parent ICBC, the world’s biggest bank by assets, the first Chinese lender to own a vault in London and extends its influence in precious metals from pricing to storage. With China the largest consumer of many metals, the country’s banks have increasingly bid to own or help run the infrastructure in these markets.
China accounts for more than a quarter of global gold demand, but trading in the metal was until recently largely run out of western banks and in markets such as London and New York.
The vault gives ICBC a high profile platform in the precious metals market. It also makes it easier for the bank to sells its services to western-based clients given that it now has a location to store metals that is closer to them.
With “London being the place where a lot of the bullion is traded, especially from an institutional perspective, it makes sense for them,” said Mark O’Byrne, director at Dublin-based brokers GoldCore. “Some people, particularly Western buyers, might be more inclined to have their gold stored in London than have their gold stored in China.”
The vault holds up to 2,000 metric tons in gold, silver, platinum and palladium at a secret location in London and can be used by investors, jewelers, miners and even countries to store their metal.
Vaults are particularly important to trading precious metals because they have fewer industrial uses than the likes of copper or lead and are held mainly as a store of value. The constant trading in and out of positions, coupled with the sheer value of large quantities of the metals, mean that it is best to hold them in a vault. That is particularly so for gold because of the importance of exchange-traded funds in the sector, most of which need to sit on large quantities of physical gold to back up the investment they sell and who are required by regulators to store it with banks.
For ICBC Standard Bank, owning a vault gives an extra reason for clients to use their services while also bringing in a steady revenue from the fees holding the metals bring.
“To [be able to] say that we are a bank with a storage facility in the London area, it allows you to maybe get some of this institutional money from ETFs and other products,” said Jeffrey Christian,managing partner at CPM Group.
The world’s biggest bank has agreed to buy a vault for gold and precious metals in London. But how many of these vaults are there, and how much gold do they hold, asks Claire Bates?
The streets of London may not be paved with gold, but there is certainly a huge amount stored underneath them. About 6,500 tonnes is stored in seven vault-systems under the city.
The largest by far lies in the Bank of England. It holds three-quarters of the gold in London, or 5,134 tonnes. Most of the gold is stored as standard bars weighing 400 troy ounces (12.4 kg or 438.9 ounces) – there are about 500,000 of them, each worth in the region of £350,000.
But the official reserves of the UK Treasury account for less than a tenth of this.
“Just 310 tonnes of the gold in the Bank of England is from the UK Treasury, the rest is mostly commercial,” says Adrian Ash of BullionVault.com.
The gold is held in a system of eight vaults over two floors under Threadneedle Street in the City. This is to spread the weight and prevent the vaults from sinking into the London clay beneath the bank.
There are six smaller commercial vaults inside the M25, owned by banks like JP Morgan and HSBC. Three are around Heathrow Airport.
The vault bought by ICBC from Barclays is one of these vaults within the M25, but its exact location is secret. It holds 2,000 tonnes, making it one of the largest in Europe. It is reported to have taken a year to build.
According to Adrian Ash, a host of private concerns hold gold in London’s vaults. “It will be investment funds, hedge funds, wealthy families, trust funds that are backed by gold, that kind of thing,” he says.
The Bank of England’s vault is the second largest in the world behind only that of the New York Federal Reserve, which holds about 6,300 tonnes.
“London is interesting as it doesn’t produce gold or refine it, nor is there much consumer interest. However, it is the centre of the wholesale gold market. It’s the fourth-largest importer of gold and the second largest exporter. When you request a price of gold it is given as ‘Loco London’ – the price of gold delivery in London, which is the baseline,” says Ash.
“This is because the UK time zone is between Asia and the US, it has a historic connection to the gold standard and a strong history of property rights, political stability and free trade. It also has good vault facilities.”
The Barclays vault bought by ICBC is not thought to have been emptied before the sale.
“My understanding is that it’s being bought as a going concern, they haven’t just taken over an empty vault,” says Ash.
The investors, jewellers, mining companies and others storing their gold in vaults such as these will now pay pay ICBC instead of Barclays for the privilege.
“The move makes parent ICBC, the world’s biggest bank by assets, the first Chinese lender to own a vault in London and extends its influence in precious metals from pricing to storage.”
from west to east..
“The vault bought by ICBC from Barclays is one of these vaults within the M25, but its exact location is secret. It holds 2,000 tonnes, making it one of the largest in Europe. It is reported to have taken a year to build.”
so secret eh?