ECB repatriates North American gold to cope with geopolitical uncertainty

The Netherlands' central bank confirmed last week that it had moved dozens of tonnes of gold out of North America, saying the move would make it "better prepared for a severe crisis".

The bank said that in view of "increasing geopolitical instability", it has moved 86 tons of a total of approximately 313 tons of gold stored in the United States and Canada to London, making these sparkling assets "ready for use in crisis situations."

The questions that follow are inevitable. Why does the Netherlands do this? Is there some kind of major economic shock expected on the horizon?

It doesn’t appear to be the case, but this initiative is clearly a response to the current instability and uncertainty the world is facing. As trade wars and military conflicts continue, countries are taking precautions and keeping gold closer to home.

Earlier this year, France announced it had repatriated its gold reserves from the United States. Meanwhile, Germany's Bundesbank moved more than 216 tons of gold from overseas storage locations in the years to 2016, including 111 tons from New York and 105 tons from Paris.

It's a strategy that has emerged in times of global instability in the past. "During the Cold War, some European central banks moved some of their gold reserves to New York," said Lina Thomas and Daan Struyven, research analysts at Goldman Sachs.

Joseph Cavatoni, senior market strategist at the World Gold Council, told the BBC that while war and trade tensions "did influence some decisions," they were not "top of the list" of motivations.

Inflation, interest rates and keeping gold in a location where it can be traded quickly are also factors.

“I don’t think there’s some kind of imminent disaster, but I do think people are getting a better understanding of how to manage reserve assets, add to reserve assets, and think more effectively about how to use those assets,” Cavatoni said.

The Dutch central bank said gold moved out of the United States and Canada between March and August this year is currently stored in the vaults of the Bank of England (Bank of England).

"We hope we will never need to use this gold, but we do need to strengthen our resilience and preparedness," said Olaf Sleijpen, governor of the Dutch central bank.

London is considered the best choice due to its status as a major global trading center. If gold needs to be bought or sold quickly in times of crisis, London is the location of choice, making the Bank of England a popular place to store gold.

The Bank of England, which is also the Bank of England, is one of the largest gold custodians in the world. Underground at this 300-year-old institution in central London, there are approximately 400,000 gold bars stored with a total value of more than 200 billion pounds (US$270.46 billion; 1.82 trillion yuan; NT$8.56 trillion).

The Bank of England remains the most popular place to store gold, but central banks are increasingly diversifying where they store the precious metal, according to an industry survey by the World Gold Council.

Goldman Sachs's Thomas and Strueven pointed out that where gold should be stored has "increasingly become a top concern for national reserve managers."

In the modern world, there are many ways to transfer gold reserves. The Netherlands sold about 59 tons of gold in New York and then purchased more positions in London, so the gold did not need to be physically shipped across the Atlantic.

However, more than 27 tons of gold were "physically transferred" from the United States and Canada to the Dutch town of Zeist. Approximately the same amount of gold was also shipped from Zeist to London.

Companies that provide such services are tight-lipped about how they operate, but what is certain is that in order to avoid a real-life "The Italian Job" ("The Italian Job")-style robbery from happening, the relevant security measures and planning are extremely thorough.

Cavatoni of the World Gold Council said a standard way to move gold reserves is to sell gold in one place and buy it in another.

"Let's say I want my gold to be stored in New York, but it's currently stored in London. I can sell the gold in London and buy it back in New York on the same day and at the same time, and it's actually just a transfer on the books without any logistics," he said.

There are only a handful of companies that ship gold across borders, one of which is Brink's Global Services. The company told the BBC it had seen increased demand from clients including central banks in recent years.

Nader Antar, executive vice president at Brinker, said: "Increased geopolitical and economic uncertainty, as well as the rising importance of gold as a strategic reserve asset, appear to be factors driving this trend."

The reason why the issue of gold storage has become a topic of great concern to central banks of various countries is that they have been actively increasing their gold holdings in recent years. However, Goldman's Thomas and Struijven pointed out that there are also costs for storing gold within the country.

"Domestic storage requires investment in physical security, audit infrastructure and insurance, and these costs may be disproportionately high for smaller central banks," they said.

According to data from the World Gold Council, over the past four years, central banks have increased their gold holdings by an average of 1,000 tons per year, significantly higher than the average of 500 tons per year in the previous decade.

This trend dates back to the global financial crisis and is expected to continue rising in the coming year.

In recent years, gold has been highly sought after by the market. Its price has soared, exceeding US$5,000 per ounce (33,600 yuan; NT$158,200) in January this year, setting a series of record highs.

There are many reasons for the rise in gold prices, but one of the main factors is that this precious metal is regarded as a so-called safe-haven asset in human psychology, and investors tend to hold gold during times of financial and geopolitical turmoil caused by trade wars and military conflicts.

Inflation and interest rates also affect gold's appeal. Due to its scarcity of supply and the fact that it has been assigned a value for thousands of years, gold is somewhat resistant to rising prices and is therefore considered a good investment option.