European central banks are accelerating gold repatriation from U.S. vaults amid rising geopolitical tensions.
This article appears in the November issue of Global Finance Magazine.
Central bankers are anything but alarmists. Yet, pragmatism is cardinal in safeguarding their countries’ financial stability and protecting from economic meltdown. An emerging trend—European central banks repatriating gold reserves from U.S. vaults—is an example of that pragmatism.
In early September, De Nederlandsche Bank transferred some 86 tons of gold from the U.S. and Canada to London. “In view of increasing geopolitical unrest, DNB is strengthening its crisis preparedness. Improving the liquidity and tradability of the Dutch gold reserves is part of these preparations,” DNB said in a statement.
The Banque de France now has all its gold, totaling 2,437 tons and worth €300.8 billion ($342.6 billion), in its Paris vaults after completing the repatriation of 129 tons from New York earlier this year. But Germany’s Bundesbank could be said to have started the trend a decade ago, when it transferred 300 tons of its gold stock from New York as part of a program to store the metal in its own vaults.
The DNB reckoned keeping a larger share of its gold reserves in London will strengthen the yellow metal’s function as an “anchor of trust.” All told, it has accumulated 612.4 tons of gold worth €72.2 billion ($82.2 billion). With the relocation, DNB argued, the geographical spread of its gold reserves is now more balanced.
The central bank’s reference to an anchor of trust speaks volumes. Owing to geopolitical unrest, including the U.S.-Iran conflict, the war between Russia and Ukraine, and deteriorating bilateral ties between the U.S. and the EU, trust is becoming a rare commodity. The U.S. and its allies froze Russia’s foreign reserves, amounting to $300 billion, following the Ukraine invasion.
“As trust in the rules-based order erodes, relations to the U.S. are deteriorating and the global financial system is fragmenting,” said Frédéric Schneider, an economist, policy analyst, and nonresident senior fellow at the Middle East Council on Global Affairs in Doha, Qatar.
A Strategic Decision
Where central banks store their foreign reserves is becoming a strategic decision, with sovereignty, liquidity, and proximity to the dollar system among the critical factors.
Globally, central banks are sustaining gold accumulation. Since 2022, they have amassed an average of 1,000 tons annually, compared to 500 tons over the preceding decade, according to the World Gold Council. Totaling around 40,000 tons, their bullion now makes up roughly a quarter of global reserves.
A key motivator is rising gold prices, which Goldman Sachs forecasts will hit $4,900 per troy ounce by the end of this year, compared with $4,600 as of Aug. 25.
Gold relocation might seem “alarming,” said Daniel Coatsworth, head of Markets at U.K.-based investment firm AJ Bell, but it is largely motivated by liquidity and reserve management concerns rather than waning confidence in the U.S.: “Gold reserves are meant to be tucked away and left alone, but central banks need to ensure they can buy and sell gold quickly should a crisis happen.”
While central banks are being deliberate about where to store their bullion, the Bank of England has gained favor as the preferred location owing to London’s status as a major gold trading center. The BoE holds 400,000 bars worth more than £200 billion ($265 billion) in its vaults.
John Nijraini is a contributing writer based in Kenya.
