European Central Banks Shift Gold Reserves to London for Better Preparedness

European central banks are shifting their gold reserves from North America to other locations, particularly London. The Dutch central bank (DNB) recently moved 86 tonnes of gold from North America to London, increasing London’s share of its reserves to 32.1% from 18.1% and surpassing the 30.8% held domestically. DNB stated that this relocation enhances their preparedness for severe crises, ensuring the gold is readily available for use if needed.

Conflict and geopolitical tensions are not the primary drivers behind these moves. According to World Gold Council Senior Market Strategist Joseph Cavatoni, inflation, interest rates, and the ability to trade gold quickly are also influencing decisions. Central banks are focusing on better managing their reserve assets rather than anticipating imminent crises.

The Netherlands is not the only country making such adjustments. Banque de France sold 129 tonnes of gold held in New York and replaced it with gold that meets London Bullion Market Association standards in Europe, aiming to upgrade the quality of its reserves without changing their size. London’s market offers deep liquidity and large quantities of bars meeting the London Good Delivery standard, making it an attractive choice for central banks.

Central banks have been increasing their gold reserves significantly, buying an average of around 1,000 tonnes annually over the past four years. Storing gold domestically can be costly due to the need for physical security, audit infrastructure, and insurance, particularly for smaller central banks. Goldman Sachs research analysts highlight these costs as a factor in the decision to relocate reserves.

Gold prices have seen notable fluctuations, reaching over USD 5,000 an ounce in January before pulling back. Goldman Sachs expects the price to hit USD 4,900 per troy ounce by the end of the year. Precedents include Germany’s move of 300 tonnes from New York to Frankfurt between 2013 and 2016, and Austria’s repatriation of 90 tonnes in 2018 to reduce concentration risk and maintain access to major gold markets.