When the Dutch Central Bank announced this week the transfer of tons of the country's gold reserves out of North America, it said the move would make it "more prepared to face severe crises."
The bank explained that it transferred about 86 tons to London out of approximately 313 tons that were deposited in the United States and Canada, “in light of the escalation of geopolitical unrest,” allowing the immediate use of gold when crises occur.
It was natural for this announcement to raise questions: Why did the Netherlands take this step? Do you expect a major economic shock looming on the horizon?
That doesn't seem to be the case. However, the decision clearly reflects the turmoil and uncertainty the world is witnessing, as trade and military wars have prompted several countries to take more precautions and bring their gold reserves closer to their territories.
Earlier this year, France announced the return of its gold reserves from the United States to its territory. As for the German central bank, the Bundesbank, during several years ending in 2016, it transferred more than 216 tons of gold that was deposited abroad, including 111 tons in New York and 105 tons in Paris.
This strategy is not new, but has previously been used during periods of global turmoil. “Some European central banks moved part of their gold holdings to New York during the Cold War,” said Lena Thomas and Dan Struyven, research analysts at Goldman Sachs.
Joseph Cavatoni, chief market strategist at the World Gold Council, told the BBC that wars and trade tensions influence some of these decisions, but they are not at the forefront of their motivations.
He added that other factors play a role in this, including inflation and interest rates, as well as the need to deposit gold in a place that allows it to be traded quickly.
“I don’t feel like an imminent catastrophe is on the horizon,” Cavatoni said. “But I think people are becoming more aware of how to manage and increase their reserve assets, and more able to think about the best ways to utilize them.”
The Dutch Central Bank reported that the gold it transported from the United States and Canada between March and August of this year was now stored in the vaults of the Bank of England.
Dutch Central Bank Governor Olaf Sleijben said: “We expect that we will never have to use these reserves, but we must strengthen our resilience and raise our level of preparedness.”
London was chosen because of its prominent position as one of the most important gold trading centers in the world. In times of crisis, the city allows gold to be bought and sold quickly, making the Bank of England a popular place to deposit it.
The Bank of England is considered one of the largest custodians of gold in the world, as its vaults located under its ancient headquarters, which was built 300 years ago in the heart of London, contain about 400,000 gold bullion, with a value exceeding 200 billion pounds sterling.
According to surveys conducted by the World Gold Council among those working in the sector, the vaults of the Bank of England are still the most common place for storing gold, although central banks are increasingly moving to diversify the locations of depositing this precious metal.
Thomas Westerven, of Goldman Sachs, said the issue of where to keep a country's gold reserves "is increasingly at the forefront of reserve managers' concerns."
In today's world, there are several ways to transport gold from one place to another. The Dutch sold about 59 tons of it in New York, and instead bought gold in London, eliminating the need to ship this quantity across the Atlantic Ocean.
But more than 27 tons were actually transported from the United States and Canada to the Dutch city of Zeist, while a similar amount was transported from Zeist to London.
The companies that provide these services are secretive about the details of their operations, but it is certain that they require security measures and careful arrangements, in order to avoid the events of the movie “The Italian Mission” becoming a reality.
Cavatoni, of the World Gold Council, said that the usual method of transferring gold reserves is to sell them in one place and buy them in another.
He added: “Suppose I want to keep my gold in New York, while it is in London. I can sell it in London and buy the same amount in New York, on the same day and time, and thus effectively transfer ownership of it without having to ship it.”
Only a limited number of specialized companies undertake the transport of gold across borders, including Brinks Global Services, which told the BBC that it had recently witnessed an “increase in demand” from parties including central banks.
Nader Antar, Executive Vice President of Brinks, said: “The escalation of geopolitical and economic uncertainty, coupled with the growing role of gold as a strategic reserve asset, appears to be contributing to this trend.”
Central banks' interest in gold storage sites comes in light of their increasing purchases of it. However, keeping it inside the country entails high costs, according to Thomas Westerven of Goldman Sachs.
They said: “Storing gold locally requires investment in physical protection measures, auditing systems, and insurance, which are costs that may exceed the capabilities of small central banks.”
According to the World Gold Council, over the past four years, central banks have purchased an average of 1,000 tons of gold annually, compared to about 500 tons annually on average during the previous decade.
The beginning of this trend dates back to the global financial crisis, and central bank purchases are expected to increase over the next year.
Gold has witnessed a remarkable boom in recent years, as its price jumped and recorded a series of record levels, exceeding five thousand dollars per ounce in January.
There are several reasons behind this rise, the most prominent of which is the entrenchment of gold in the collective consciousness as a safe haven, as investors accept it during periods of financial and geopolitical turmoil resulting from trade and military wars.
Inflation and interest rates also affect the demand for gold. Given its rarity and the value it has retained over thousands of years, it is viewed as an asset that is able, to some extent, to maintain its value in the face of rising prices, and therefore a good investment.
Researchers at Goldman Sachs expect the price of gold to rise to $4,900, equivalent to £3,624, per troy ounce by the end of 2026, an increase of $300 compared to its price in August.
