Gold trading has gained popularity in modern business transactions. Therefore, Chinese bank ICBC Standard Bank has accepted the proposal to purchase a huge vault for precious metals pinpointed in London.
As for the storage facility, just a few naked truths have been revealed:
- It is located somewhere within the London ring road M25;
- It took approximately a year to be built;
- One of the largest gold storage facilities across the European continent;
- It can simultaneously store up to 2,000 metric tons of gold, silver, platinum and palladium;
- The Chinese bank purchased it from Barclay’s.
Generally speaking, it is clear why the Chinese bank needed to acquire the storage facilities. Its long-term business strategy includes the intention to become one of the prominent traders specializing in precious metals within the Chinese market. Last week, ICBC became a member of the London Bullion Dealers Association, which handles all such transactions.
As for China, the Red Dragon handles more than a quarter of the world’s precious metals, but most gold sector transactions take place on the New York and London exchanges.
How many of storage facilities are hidden beneath London’s streets?
Plenty. The neighbourhoods of London are not paved with gold, by all means. But what lies beneath them is enough to fire the imagination of any treasure hunter: about 6,500 tonnes of gold are stored in the carefully guarded vaults of the British capital. And the most substantial one, of course, belongs to the Bank of England.
In the central building of the Bank of England, in eight separate rooms located in the City on two levels under Threadneedle Street, carefully hidden from prying eyes and greedy hands, gold bars weighing a total of 5,134 tons are kept. To prevent this load from sinking the building of the country’s main bank in the sticky clay on which the entire London centre is built, the bars are carefully distributed on special shelves.
Most of this gold is stored in standard bars, each weighing 400 troy ounces (12.4 kg). In total, there are about 500 of these bars, the cost of each in current prices is about 350 thousand pounds sterling (more than half a million US dollars).
At the same time, the British Treasury itself owns less than one tenth of these riches, only 394 tons. The rest is gold from a variety of commercial structures, such as investment and hedge funds, wealthy families, gold-backed trust funds and so on.
Why has London become the centre of the world’s gold trade?
Gold trading specialist Adrian Ash noted that London occupies a unique position in the gold trade.
“There is no gold bar casting or refining in London. In fact, there is not much interest in gold as a commodity in London. However, it is the world centre for wholesale gold trading. If you ask for an official price for gold, it will be given to you at what is called the London Fixing, or LOKO London,” Ash explains.
London gold is not the name of a specific category. London gold, or London Standard, is a commodity provided by the London International Financial Futures Exchange and stored in an underground vault in the City. It is 99.5% pure and weighs 400 troy ounces. LOCO London is the international standard for gold trading.
London’s leading position, Ash explains, is due to a combination of favourable circumstances:
- a convenient time zone – right between the US and Asia;
- historical links to the gold standard;
- a historically and legally proven seriousness about private property rights;
- political stability and free trade;
- numerous vaults.
The key difference for other owners of gold and precious metals who stored them in the former Barclay’s premises, which have now been bought by a Chinese bank, will be that from now on they will be paying Chinese bankers for this pleasure.
As for gold trading, there exist multiple platforms for trading gilt on Forex. For instance, on JustMarkets trading platform, a trader should scrupulously follow xauusd market JM in order to understand the fluctuations of this precious metal and perform your currency exchange journey hassle-free.
Gold trading in London is primarily on an unallocated spot basis. An unallocated account at a market maker bank is a claim on a pool of physical gold held by the bank. The unallocated balance can be compared to a fiat deposit at a traditional bank.
In contrast, through an allocated account at a bank, the customer holds uniquely identifiable bullion that is set aside and not on the bank’s balance sheet. Customers pay a fixed-rate fee to store the allocated bullion, compared to a much lower cost, if any, to store unallocated bullion. Any customer is allowed to switch between an unallocated and an allocated account, linking the paper market to the physical market in London. The market-making banks have agreed that any fee for “laying down” the bullion can only be changed after 30 days’ notice.
