Take the Central Line into the middle of London and just before the train arrives at Bank station, something strange happens
Rather than approaching in a straight line, the tunnel begins to twist and turn round dramatically. The angle of the curve is part of the explanation for why there is an enormous gap between the carriages and the platform at the station – bigger than nearly anywhere else on the network.
Why the curve? Why the gap? The main answer is: the tunnels have to go around the single most intriguing, and least visited place in central London: the Bank of England‘s vaults.
Far deep beneath the ground, right in the heart of the financial district, is a city within a city. Some 40% of the Bank’s floor space is to be found not above ground but under the earth, and at the heart of this underground network is the biggest gold storage facility in Europe.
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There is more gold in the vaults here at the Bank of England than in Fort Knox – more than in any other single place in the world, save for the Federal Reserve Bank of New York. And now, for the first time, Sky News has been invited down into the vaults to see them for ourselves.
It almost goes without saying that the security measures to be granted access were thorough in the extreme. We had to pass through a number of gates and steel doors, to be stripped of our phones and any money on us, to turn our cameras off and agree not to divulge the precise mazy path we took from the Bank’s main lobby through to the vault. But once we finally reached the gold, the sight of it was breathtaking.
The Bank has 12 vaults, each of which holds thousands of bars of gold. We filmed in one of them – vault 4 – but caught glimpses of two of the other vaults beyond it, a hint of the vastness of this store of wealth. All told, there are more than 5,000 tonnes of gold in the Bank’s vault. While that’s about 1,000 tonnes short of the holdings in New York, in another sense, the Bank’s vaults are only the tip of a bullion iceberg, since the Bank is only one of a number of major vaults dotted around London.
That comes back to an important point: London remains the world’s capital for the trade in physical gold. Thanks in part to history, it remains the primary place in the world where countries, companies, and individuals trade the precious metal with each other in physical form.
The vast majority of the gold in the Bank’s vaults belongs not to the Bank of England (it owns only two bars for display) or even the UK government (we’ll come back to that in a moment) but to other countries. For this is where more than 60 central banks around the world store their gold, to enable them to trade it.
There are curios aplenty. I was shown bars of gold that were recovered from shipwrecks and explosions, the scars still visible on them. There are bars with the Soviet hammer and sickle still branded on them, though no Nazi swastikas. There were a few such bars here, but they were melted down some years ago.
For the most part, you can trade the gold without it even leaving the vault. Each bar (they are all of standard size, 400 troy ounces, which works out at between 12 and 13 kilograms – which by the way makes them surprisingly heavy) has a serial number or bar code and when they get bought and sold, all that happens is the code is assigned to a different customer; the bar stays where it is. But sometimes, customers insist on moving the physical bar, and that’s where things get interesting.
The Trump effect
For early last year, a remarkable phenomenon took place. As investors fretted that Donald Trump might be about to impose tariffs on the movement of precious metals, as well as everything else, the price of gold in New York, normally pretty much identical to the London price, jumped higher. All of a sudden, there was an opportunity for anyone with the wherewithal to shift physical gold across from London to make a quick turn. So investors rushed to take gold bars out of the vaults here and fly them across to the US (via Switzerland where they were melted down from London dimensions to New York dimensions).
The idea of gold flying around the world might seem a little odd until you note that even in normal times many planes flying into and out of London Heathrow have a gold bar or two inside the cargo hold. This is how the gold market works – very much beneath the radar.
When that flurry happened a year ago, the Bank actually had trouble satisfying the urgent demand for bars, in large part because it’s simply not equipped for this kind of thing: there is only one gate through which bullion deliveries happen, and physically moving that much gold was an inordinate challenge. However, in the following months, the prices equalised and gold began to flow back into the Bank’s vaults. Their holdings, while a little lower than at the beginning of last year, began rising again.
Gold’s enduring importance
Only a little over 300 tonnes of gold in the vaults here belongs to Britain. It used to be considerably more but, in a decision which has been chewed over extensively since then, back in the late 1990s Gordon Brown opted to sell more than half of Britain’s reserves off. Back then the gold price was around $275 per ounce. Today the price is close to $5,000 (£3,714). A recent analysis found that the sale, which involved swapping the gold for bonds, resulted in a $47bn notional loss. The figure would likely be higher today, since gold prices have risen since then.
“I think at that point there was a genuine debate about whether it’s sensible to have reserves – whether you can make them more useful,” said the governor, Andrew Bailey. “And I think the Gordon Brown debate was very much about how gold just sits in a vault – that it’s not useful in that sense. So I think you’ve got to put it into that context now.”
The governor said that recent events, including the spike in gold prices, had underlined the importance of the asset, and London’s part in its market.
“Gold is viewed as a flight-to-safety hedge against uncertainty in the state of the world – and that’s been true for quite a long time,” he said. “There is no question that the greater uncertainty around world events has again prompted that. But I think there’s something even more true at the moment: that if you look at the mix of what are viewed as the flight-to-safety assets, [there’s] gold, but dollar assets were also viewed [as safe havens].
“The dollar is somewhat the focus of attention at the moment in that much of that question around uncertainty in the world. So I think that’s putting even more emphasis at the moment on gold as the safe asset. So we’ve seen an even bigger price rise in gold.”
In short, much of the recent rise in gold could be put down to the “Trump effect” with investors fretting about his economic policy, his trade war and the pressure he is trying to put on the US Federal Reserve to cut interest rates.
History matters
All of which puts London’s bars in the spotlight. They are, in one sense, no stranger to politics and to controversy. After all, this is the repository of much of the world’s governmental wealth. So whenever regimes change and try to shift that wealth, London is often part of the conversation – as the ultimate custodian. Take Venezuela: the Maduro regime has been demanding the repatriation of its gold reserves – stored here at the Bank – for some years, taking the Bank of England to court over it. But since the government does not recognise the regime, it has thus far refused. A government decision – but one which places the Bank right in the middle of events.
Do such episodes underline the trust investors have in London as the safest, most logical place to put their gold? That’s a question some have been asking in recent years, especially after G7 nations seized overseas assets owned by the Russian government following the invasion of Ukraine.
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Adrian Ash, director of research at Bullionvault, said: “London’s position as the world’s central hub for physical gold was only strengthened last year by the risk of President Trump imposing trade tariffs on US gold imports. Exports of gold bullion out of China are still effectively banned, making the metal’s No.1 consumer a dead-end for global flows. Shanghai and Beijing’s push to attract foreign gold holdings has so far failed to beat worries over property rights and the rule of law. Again, London stands out with its long history of political and legal stability.”
When it comes to gold, history matters. That’s part of the explanation for this continued wonder under the ground in London. An extraordinary warren of vaults with extraordinary wealth within them.
