Why are European central banks bringing gold back closer to home?

The decision by the Dutch central bank to relocate part of its gold reserves from North America is linked to the aim of being better prepared for severe crisis situations.

The Dutch institution announced that around 86 tonnes of the 313 tonnes of gold held in the United States and Canada had been transferred to London. The reason given was rising geopolitical tensions and the need for the gold to be “easily available for use in a crisis situation”.

The move raised questions about its motives and whether the Netherlands was anticipating a major economic shock. However, it appears not to reflect expectations of an imminent crisis, but rather a response to global uncertainty, trade wars and military conflicts.

According to the BBC, these developments are prompting countries to take precautionary measures and keep their gold reserves in locations closer to their own territory.

France announced earlier this year that it had returned its gold reserves from the United States to French soil. Germany, through the Bundesbank, transferred more than 216 tonnes of gold from overseas storage facilities in a process that was completed in 2016. Of this amount, 111 tonnes were brought back from New York and 105 tonnes from Paris.

This is not a new practice during periods of international uncertainty. Goldman Sachs analysts Lina Thomas and Daan Struyven said that during the Cold War, several European central banks had moved part of their gold reserves to New York.

Joseph Cavatoni, a senior market strategist at the World Gold Council, told the BBC that wars and trade tensions were influencing some of these decisions, but were not the main factor. According to him, inflation, interest rates and the ability to trade gold quickly wherever it is stored had also played a role in the process.

“I don’t get the sense that there is an imminent collapse,” Cavatoni said. He added that managers were becoming better informed about managing reserve assets, expanding them and examining more efficient ways to use them.

De Nederlandsche Bank announced that the gold removed from the United States and Canada between March and August of this year was now being stored in the vaults of the Bank of England.

“We expect that we will never need to use them, but we must strengthen our resilience and preparedness,” said Olaf Sleijpen, governor of the Dutch central bank.

London was chosen because of its role as one of the world’s largest trading centres. The Bank of England is among the main institutions responsible for global gold reserves. Around 400,000 bars are stored in the 300-year-old building in central London, with a value exceeding £200 billion.

World Gold Council surveys show that the Bank of England remains the preferred location for storing gold. However, central banks are increasingly distributing their reserves across different locations.

Thomas and Struyven estimated that the question of where national gold should be held was taking up an increasingly important place in the decision-making of reserve managers.

Relocating gold does not always require physical transportation. The Netherlands sold around 59 tonnes in New York and then bought a larger quantity of holdings in London, avoiding the need for transportation across the Atlantic.

On the other hand, more than 27 tonnes of gold were physically transferred from the United States and Canada to the Dutch city of Zeist. A similar amount was subsequently sent from Zeist to London.

Companies involved in these operations do not disclose details about how they are carried out. However, the process requires extensive security measures and detailed planning to avoid the risk of robbery under real-world conditions.

Cavatoni explained that the standard way to reorganise the location of gold is to sell it in one market and buy the same asset in another. In this way, he said, gold can be sold in London and bought in New York on the same day and at the same time, completing the transfer without the need for a new logistical operation.

Only a few specialised companies transport gold across borders. One of them is Brink’s Global Services, which told the BBC that it had recently observed “rising demand” from central banks.

Nader Antar, executive vice president of Brink’s, said that growing geopolitical and economic uncertainty, together with gold’s increasing importance as a strategic reserve asset, appeared to be strengthening this trend.

Interest in where gold is stored has also increased because central banks have stepped up their purchases of the metal. According to Thomas and Struyven, holding it domestically involves considerable costs.

“Domestic storage requires investment in physical security, auditing infrastructure and insurance—costs that may be disproportionate for smaller central banks,” the Goldman Sachs analysts said.

World Gold Council data show that over the past four years, central banks have bought an average of 1,000 tonnes of gold per year. This figure is twice as high as the average of 500 tonnes per year recorded during the preceding decade.

This trend originated with the global financial crisis and is expected to strengthen further over the coming year.

Gold has risen sharply in recent years, setting a series of records and surpassing $5,000 per ounce in January.

One of the main reasons is the perception of gold as a “safe-haven” asset, to which investors turn during periods of financial and geopolitical turmoil caused by trade and military conflicts.

Its value is also influenced by inflation and interest rates. Because gold is scarce and has been considered important for thousands of years, it is regarded as partly resistant to rising prices and, for this reason, a suitable investment.

According to investment bank Charles Schwab, over the past 50 years the price of gold has risen much faster than the Consumer Price Index (CPI), the most widely followed indicator for measuring inflation.

Although the price of gold has pulled back from the record set at the beginning of this year, it continues to remain at a historically high level.

Goldman Sachs researchers forecast that gold will reach $4,900 (£3,624) per troy ounce by the end of 2026, or $300 more than its August level.

Thomas and Struyven rank central bank demand among the main factors supporting the rise in gold prices.